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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Welcome to how to retire on time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon, or you can go to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much discuss whatever's on your mind. Now that said, please remember this is just a show.
Mike:Everything you hear should be considered informational, not financial advice. With me in the studio today is my colleague, mister David Frandsen. David, thank you for being here.
David:Hello. Thank you.
Mike:David's gonna be reading your questions, and I'm gonna do my best to answer them. Now you can send your questions in two ways. One way is by texting us to 913-363-1234. That's 913-363-1234, or email us your questions to hey mike at how to retire on time.com. Let's begin.
David:Hey, Mike. I want to retire, but I'm scared that I'll run out of money. I don't want an annuity because I don't want to lock up my money. I also don't want my money to go into the market because I don't want to lose anything. I'm running out of options.
David:Do you have any ideas for a person like me?
Mike:Yeah. This this is a very common situation, actually, especially with the current environment that we're in. Politically speaking, economically speaking, the debt that looms over people's head, and the list just seems to go on and on and on. I wanna highlight a couple of cognitive financial distortions that may be at play here and ask yourself, does it sound like me? K.
Mike:So the first one is focusing on detriments only. When you're in a reactive position, when you're in a fear based position, many times you may find yourself focusing only on the detriments of an investment product or strategy and not recognizing the associated benefits. There's no such thing as a perfect investment product or strategy. It doesn't exist. Nothing does everything well.
Mike:However, there are always benefits to a strategy. Let me kind of highlight what that is. CDs, one of my favorite examples because it's so simple. A CD is a cash alternative. It's a product from a bank, and you basically say, alright.
Mike:I'm gonna give you the cash. I'm gonna get it at a fixed rate. I know exactly what I'm gonna get for a certain period of time, and then I get the cash back plus interest. Not all CDs offer the same amount so we want to make sure we don't associate all things to be the same so you can get a CD for around 5% today You can also get a CD for around 0.5% today So don't confuse offer with product.
David:Okay.
Mike:Okay. So that's the first one. The second thing here is the all in investment ideology. So when an investor thinks they have to go all in on a single investment product or strategy that can distort things. So the idea is I want the perfect investment.
Mike:What's the right investment? What's the right blend? You know, it was at 6040 split between stocks and bond funds. Is it 80 20? Is it 20 80 split between?
Mike:I mean, it's an impossible endeavor. And you go down this rabbit hole of why I need to be all in the market to keep up with inflation and have liquidity. It's got risk. So how much risk am I gonna take? It's an insatiable endeavor because bond funds or bonds, it's an uncorrelated market to stocks or equities.
Mike:The the other side of your traditional portfolio. Both can go up at the same time. Both can go down at the same time, and they can go opposite of each other. So one could go up while the other goes down.
David:Okay.
Mike:So the idea that you can magically figure out the right blend to it would suggest that you also know the future. And then the antithesis of this all in investment ideas, well, I can't get the blend right. I can't afford to take the risk. And gosh, the fat past few years, the the the bond funds have really, really hurt me. I'm just I'm tired of that.
Mike:I now know that there's risk associated with it. So I'm just gonna go all in on an annuity. Notice the hyperbolic nature. I'm gonna go all in on an annuity. I'm gonna guarantee my income for life, and I'm just gonna hope that it things work out in the end.
Mike:That's the the all in side, which kind of peppers in the catastrophization of these these distortions. When an individual moves into a position of fear, focus on the worst case scenario, and ultimately prevents them from making healthy financial decisions moving forward. And this question, it's it just it seems very relevant to me, very apparent that all 3 may be at play here. So how do you get through this? First off, you need to understand that you don't need to have the all in mentality.
Mike:So if you were to take your portfolio and diversify it based on objectives, that may give some relief so let me explain what that means okay to diversify based on objectives would suggest that you've already put together a lifestyle and legacy plan maybe you want to travel extensively for the 1st 5 years of your retirement and then your income drops off. Maybe you don't care about traveling in retirement, but you know you wanna go heavy on the legacy planning. Whatever the situation is you've put together a plan. Now you have guidelines on what needs to happen for you to live the life that you want and leave the legacy you want. Then you look at the strategies.
Mike:That's tax efficiencies, looking at health care planning, looking at social security optimization. All the strategies that could be at play to help increase efficiency within your plan. And then you look at products, investments, and so on. Once you start looking at that, then you can start making decisions like, okay. Well, I'm comfortable with risk.
Mike:So maybe we only have 10, 20, 30 percent of it protected. Maybe you say I you know, I'm more focused on preservation, so we're gonna look at let's say, 50, 60%. Cannot lose money. But do you see how you're making deliberate decisions moving forward Yeah. Based on objectives?
Mike:And it's not as ambiguous as, well, I feel that I don't want to take a lot of risk. That's sentiment. We we follow systems, not sentiment. It means, hey, I need x amount of income next year, the year after, the year after. I want that to come from a principal guaranteed source.
Mike:So you might ladder CDs and treasuries for those 1st 3 years because you're okay with that. Hey. Maybe I don't wanna be that secure. I want more growth potential, and so you just have a smaller reservoir of principal guaranteed accounts. So that if the markets were to go down 1 or 2 of the first 5 years of your retirement, you had it set aside for that situation.
Mike:But do you see how we're getting more detailed on how to say, not if, but when the markets go down, I know what to do. Yeah. So that I'm not losing sleep at night. That's a deliberate way to start to start addressing the fears that may be there. It's very interesting to have a conversation with someone and and and to ask them, if you don't need to touch, let's say, this 10 or 20% of your portfolio for 10 to 15 years, would you be concerned if the markets went down next year knowing that you had 14 10 9 to 14 years more?
Mike:And they usually go, no. If I didn't have to touch it for for 9, 10, 12 years, or whatever, no. I'm not as concerned about that. Okay. So then what you're telling me is you're comfortable taking some risk knowing that you have a long time frame to let it grow.
Mike:Yeah. And you're not scared about the market if the markets went down next year or the year after because you've allocated some of your assets not to bond funds, because bond funds can lose money, but to something that you understand and has some entity guaranteeing its principal. And they go, yeah, that makes more sense. So I think that's the first part of addressing this conundrum. The second part is the fear of running out of money.
Mike:I can't say this enough. Growth is such an important part of any retirement plan. Yeah. Think of what your life was 20 years ago. You weren't buying an iPhone No.
Mike:20 years ago. Nope. Okay. Mhmm. You the the things that we are enjoying as luxuries today, the the lifestyle that we're enjoying today, it's pretty different than it was 20 years ago.
Mike:So how could we possibly assume the lifestyle that we wanna live, the things we wanna buy in 10 years from now or 20 years from now? It's just it's hard to plan for that. So when you focus on growth, what you're doing here is you're essentially growing your portfolio to offer you more flexibility in the future. That's the point of growth. And it's important to focus on long term growth that does have risk.
Mike:So it's growth potential with risk, but there's more growth potential because you're also taking risk. And growth potential with principal protection. When you blend the 2 together, you can't you're not on the roller coaster like it would be if you were all at risk or you you wouldn't be lacking the growth potential if everything was protected in, let's say, CDs or whatever. You want to avoid these extremes. And then the last thing I would suggest for someone is consider creating experiences within the risk realm that would allow you to be comfortable.
Mike:So, for example, if you put, let's say, $50,000 of your $1,000,000 portfolio in a risk an appropriate risk model or mutual fund or ETF or whatever it is. And he said, you know, I know this has risk. I know I don't need to touch it for 10 years. I know that when I check it in one month's time, if it goes down, I can be okay with that because I know I don't need to touch it. Do you see how you're Yeah.
Mike:You're pro you're you are programming your subconscious, the the part of your brain that that creates emotions, that that really takes over your decisions when you become in a flooded state, when you're when you're stressed. You're you're reprogramming that so that you can become comfortable with these situations. Experiences influence your ability to make decisions. Your decisions shape your results. If all you remember in life, when it comes to investments are making investment decisions that that didn't work out so well, you're going to have a bias against taking risk.
Mike:It is a bias, and it's you it needs to be overcome. If you if your memory only focuses on all the the stocks and the the funds that you purchased that only made money, you have a bias that may take you to a more risky portfolio than would be appropriate.
David:Right. Right. Got
Mike:it. Experiences shape our bias, and that's why it's important to make sure that there's a third party, and this is my biased opinion. But Yeah. Yeah. Bringing in a 3rd party to say, hey.
Mike:You know, you might not wanna take that much risk. Maybe you wanna smooth things out a little bit over here. Maybe you wanna, put some more protection over here. The the kinda challenges your thought process to bring you into a healthy balance as opposed to a biased position one way or the other.
David:Yeah. That makes sense.
Mike:Allow yourself to learn new skills and new behavior. That's really the gist of it. And, by the way, if if you are nervous about running out of money, if you are nervous about the next market crash, we can help. So we have this program. It's called your wealth analysis.
Mike:And what it does is it, one, it runs a comprehensive analysis for your retirement plan, whether you're 50, 55 years old preparing for retirement, or you are retired to say, am I taking too much risk? Am I not taking enough risk? Do I have enough growth potential? Do I have enough protection? All these different nuances.
Mike:It shapes the first version of a plan, then it looks at the strategies. Specifically, we focus on tax strategies, And then it dives into what the portfolio should look like. The portfolio should support the plan, not the other way around. And so we dive into this and we challenge people's thoughts processes to ask one question. Is what you are doing what is right for you?
Mike:If the answer is yes then great. If the answer is no then you make adjustments. But you can't solve problems you don't know exist. That's the point of your wealth analysis. And if you wanna grab your wealth analysis, if you wanna request 1, you can do it right now.
Mike:You can text us analysis to 913-363-1234. That's keyword analysis. To 913-363-1234. Or you can just go to your wealth analysis dot com to learn more about it but here's what happens when you text the analysis you get a link on the link you fill out a 10 question really generalized questionnaire you just fill a couple of things out there Then you schedule a 30 minute call with me and my team, and then we're gonna walk you through the 30 minute call, understand what you want when it comes to your lifestyle legacy plan. We run the analysis, and then we'll spend 60 minutes with you going through simulation, stress testing, shaping your lifestyle legacy plan, and so on, and really quantify, can you afford to retire with the lifestyle you want and leave the legacy you want?
Mike:Are you missing tax strategies? Are you missing opportunities? Is your plan and or portfolio efficient or is it inefficient? I mean, really, at the end of the day, we're trying to create a situation that you can get 1 to 3 percent more growth potential at the very least through efficiencies. You can text analysis right now to 913-363-1234.
Mike:That's analysis. 913-363-1234. Or you can go to www dot your wealth analysis today to request your no cost analysis with me and my team. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast.
Mike:Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date, go to www.yourwealthanalysis.com today to learn more and get started.