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What to Do With Your Money Five Years Before Retirement · How to Retire on Time

• 0:00
  Mike: Hey. Thanks for joining. Here's a question I was recently asked on my show, how to retire on time. Take a look.
• 0:11
  David: It reads, I'm five years out from retirement and want to start moving money in into reserves. What's the best way to start doing that? First
• 0:21
  Mike: off, you do the plan. Right? So you know when you're gonna retire. That's gonna line things up because if you're five years out, you might not do a lot of MYGAs or CDs or fixed rate stuff. You've got five years or more.
• 0:30
  Maybe you do a little bit, but let's say you're gonna be retired in the sixth year. So five years of work, sixth years you're retired.
• 0:36
  David: Okay.
• 0:37
  Mike: Then you have to look at your restrictions. So did you take your IRA assets, and then the next job you rolled over four zero one k to four zero one k to four zero one k to four zero one k. Mhmm. And are you limited with what's in your four zero one k? Or do you have other assets out elsewhere?
• 0:50
  I'd love it when people say, yeah, I didn't roll my 401K to a four zero one k. I put it into a traditional IRA. Because you've got more investment options.
• 0:58
  David: Oh, yeah.
• 0:58
  Mike: So you have to then ask that. And if you're for... If it's all in the four zero one k, or if a large chunk's in your four zero one k, do you have things like brokerage link? Where you can invest in other things, or do you have a limited amount of funds that you're able to choose from?
• 1:11
  David: Mhmm.
• 1:12
  Mike: All of that, those are the different equations to where in my mind, I like to have enough reserves for at least ten years. So, you might... It might be a little too soon now, but you might say, well, I want maybe year six through 10 to at least have that protection. And then the day I retire, I'll rebalance more, or I'll rebalance a little bit as I get closer to retirement. But five years from retirement, yeah, it makes sense to start to rebalance, to start to reposition, to start to make sure that some of your assets can't lose money.
• 1:48
  So the day you retire, you're not trying to figure out how to make it work.
• 1:51
  David: So are there things that they can... Or is there something inside the four zero one k that they can put their money into?
• 1:58
  Mike: With with limited options, you could do bonds or bond funds. They're lower risk. They're not principal protected, but it's it's close enough. With BrokerageLink, you could buy buffered ETFs. I would shy away from buying annuities within your four zero one k because it's often a too restrictive list of options.
• 2:17
  Oh, right. It's like there's some companies that say, well, just buy the annuity from us. Well, there's a convenience factor that's called an opportunity cost. Yeah. You could just sign up for them, they'll take care of it, all is well, or you could look elsewhere.
• 2:30
  And elsewhere has to be more competitive to keep up. So if you just kinda lift your head up and look around a little bit, you'll... You're be able to compare what's the good deal. Mhmm. So for all those who are tuning right now going, hey, this is this is great.
• 2:45
  What's the next step? I'd say come to our workshop. It's this Tuesday night at 06:30 central time. We're hosting it on Zoom, so you can attend from the comfort of your home. Just go to retireontime.com/workshop to RSVP.
• 2:59
  That's retireontime.com/workshop. We'll see you there. Let me tell you kind of a quick story. So, one of my wife's family friends used to work at a a big box department store. Alright.
• 3:13
  Okay. And he was obsessed with knowing what his prices were versus his competition. Walmart, Kmart, I mean, this is back in the day when Kmart existed.
• 3:25
  David: Okay. Yeah.
• 3:26
  Mike: Okay. I remember that. You got Sears, you've got all the grocery stores, all of that. And what I said, well, isn't... I'll just say, isn't Walmart like always the best deal?
• 3:36
  Because I mean Walmart's brand is low prices. He says, no. And cut it out for thinking that. Yes. Walmart overall has a lot of good deals, but if you look at the coupons or the deals individually, the prices individually will vary.
• 3:50
  So you're gonna wanna buy some things from some stores and other things from other stores. Yeah. You've got to shop around. And that is so important, especially when you're buying your reserves, especially when you're looking at the investments or products in your portfolio. That independent position is critical.
• 4:08
  You don't wanna be captured in a very limited inventory. That's like saying I wanna buy a car going to a Toyota shop and only shopping Toyotas. They're a great company. Doesn't mean they have the right car for you. Mhmm.
• 4:21
  Because they don't they don't have anything near a Mini Cooper. They don't really do Tesla stuff. They got good trucks. They got good sedans.
• 4:31
  David: Mhmm.
• 4:34
  Mike: But it's not luxurious. What's Toyota's luxury? Is it Lexus? Lexus. So, it's not a Lexus.
• 4:38
  Yeah. Shopping around is a very very important part of, I would say, the the planning experience, the shopping experience, and so on. And then even understanding the mechanisms. This morning I had a fun time with one of people that are on here about just shopping products. And he asked the fun question, hey, is a bonus worth it?
• 4:58
  And I just showed him, with bonus, without bonus. Mhmm. He goes, oh.
• 5:03
  David: Oh, yeah. And then you're talking like an annuity?
• 5:06
  Mike: Yeah. So, annuity bonus, they're often sold as like, you're gonna get 20% immediately from your cash value. Just hang on to it for ten years. Well, then your upside potential sucks. It's so limiting that you might have been better off without the bonus.
• 5:20
  Actually, the odds would probably be you're better off without the bonus. And then if you do early withdrawals, then you're dinged from the bonus anyway many times. So, there's all these little gotchas that you have to be aware of. And a part of that is doing the proper shopping experience. You know, this real estate deal looks great.
• 5:39
  What about that deal?
• 5:42
  David: And so should someone who's five years out from retirement, should they even start considering annuities yet? Or should that be something like closer to retirement?
• 5:51
  Mike: Well, once you do the plan, then you start understanding the strategies you need to implement. So five years out, if you're doing the plan right, you might say, need to put less in my four zero one k, so maybe just do the match, and that's it, and start funding my brokerage account, my taxable account for income withdrawal sequencing purposes. And you're buying some buffered ETFs with the intention of using them through long term capital gains and getting a zero tax bracket when you retire in five years. That might be a reality. That's gonna help pick your products to start funding your reserves, and you wouldn't know to fund your reserves in a taxable account that seems counterintuitive Right.
• 6:28
  Than your IRA. Or you might say something like, hey, one of the strategies I want is I want baseline income. I need a little bit more guaranteed income. That's the preference that I want. Well, you can buy an indexed annuity if you want, and have what's called the roll up.
• 6:43
  So it's the benefit value, not the cash value. The benefit value will increase at a fixed rate for like, let's say up to ten years.
• 6:50
  David: Okay.
• 6:51
  Mike: So that's... You put something on a track, a trajectory, you know exactly what you're gonna get, you know exactly the payout there. If the market crashes next year, who cares? Yeah. You know what you're gonna get when you wanna get it.
• 7:02
  Right. You just have to ask, and you have to put the plan together first, explore the strategy second, and then you can start to dance around and say, you know, hey, let's have fun shopping. Everyone likes to shop. Mhmm. It's fun to pick these things out.
• 7:14
  Mhmm. And it's okay if you don't like one. It's okay if one's not a fit. Yeah. But you wanna have the conversation.
• 7:20
  That's a very important part of it.
• 7:22
  David: So... Very good.
• 7:25
  Mike: With all that said, I appreciate you all being here. As always, if you haven't started the planning process, do schedule a call or your first planning session with us at no cost. We get started at no cost. Really, we just wanna... If we can help you put a plan together, then great.
• 7:38
  If at the end it was worth it, that's when you play the planning fee. We'll wrap it up into a 35 to 40 page document that teaches you how to fish, that teaches you how to run your plan. It it it replaces many advisors. You can get that by going to retireontime.com/call. Schedule your call or your first planning session.
• 7:59
  We'll be here next week, same time, same place on Zoom to have another Retire On Time q and a. Always submit those questions to retireontime.com/ask to submit your questions, and we'll answer them next week. Have a great rest of your week, everyone.