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Three Common Leaks in a Retirement Plan · 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. The chat is open Q and A. Ask Us Anything Retirement.
• 0:15
  We've got up to the next thirty five minutes to answer your questions, and we'll take it from there.
• 0:21
  David: Yeah. So, actually, can I submit a question? Sure. So, we've talked about the leaks analysis. Right?
• 0:27
  Mike: You're the voice of the people. What are Man,
• 0:33
  David: fancy Latin here. So, hey, tell me about what as you've been doing these leaks analysis analyses, what are, like, the top three, like, most common leaks that you see?
• 0:45
  Mike: So I think the top one is overexposure to risk. So right now, there's a lot of emphasis on AI. The email this morning that you all probably saw talked about that. So, the markets, let's use two thousand, o one and o two as an example, it went down 50%. That was the market.
• 1:03
  The Nasdaq or the tech market, the part of the market that really burst, that bubble that burst, was down over 80%.
• 1:10
  David: That's wild.
• 1:11
  Mike: And it's really difficult to comprehend that until it already happens to you. And so, one of the common leaks is way too much exposure to AI, and it's really hard to give that up. It's okay to have some exposure to AI. Heck, we've got in our portfolio, you know, QQQ, which has a lot of AI in that as far that exposure goes. Like, we like AI, but it's contained.
• 1:35
  And we know that if that goes down, we have a system to de risk the portfolio, the risk side of it. And we also have other systems in place that if the markets go down, you don't need that part of your portfolio. There's another part that's dedicated, we call them reserves, to sail through those market crashes. I don't think people fully appreciate the risk that they're taking because average performance is irrelevant in retirement. And what I mean by that is average performance glosses over the sequence or the annual returns.
• 2:10
  And we look at the annual returns, you need to take income each one of those years. Right. So, the average will gloss over the downsides. But on the downsides, if you lock in those losses, you are really hurting your portfolio. If the markets go down 30%, let's say it's a little crash, and it's down 30%, no problem.
• 2:31
  Just need a 43% return to break even. That's a lot. That could take a couple of The markets go down 30% and you took out four percent, it's a 50% return just to break even. That could take more years.
• 2:45
  David: Yeah. And so, you're a young person still accumulating, like, so what? Right? It goes down, but you're still contributing. You're not taking anything out.
• 2:53
  Yep. So you can afford to
• 2:55
  Mike: Well, when the markets crash, you want the markets to crash if you're ten years away or more from retirement because you're buying things on discount. Oh, yeah. It's kind of like showing up and it's Black Friday. Everything's on sale.
• 3:03
  David: Okay.
• 3:04
  Mike: You want to buy into that. So, I'd love for SpaceX to I shouldn't say love. I would be excited to see companies like SpaceX go to $60 a share. Yeah. So, you can buy it later.
• 3:15
  That's kind of like buying Amazon in 2002, 2003. I mean, it was on sale. Yeah. I don't wish ill to the company. I don't wish ill to Elon Musk.
• 3:24
  I don't wish ill to anyone that wants to do a space exploration or put data centers in space, or this new frontier of an economy that we've never experienced before. Like, that's kind of an exciting thing.
• 3:35
  David: Mhmm.
• 3:36
  Mike: And whether it's SpaceX or Rocket Lab or whoever. But I think people so in psychology, your experiences shape your behavior, and your behavior shapes your results. And that's one of the worst things for an investor because it teaches people that what has happened will likely continue to happen. And in finance, it works until it doesn't. But people don't want to acknowledge that it doesn't at some point.
• 4:02
  Why is it that Berkshire Hathaway and Pershing Square and these massive, very intelligent fund managers are struggling this year. They see the bubble.
• 4:16
  David: And so do they when they see the bubble, they want to sort of de risk and therefore
• 4:21
  Mike: Avoiding AI Yeah. In different stocks. So in my opinion, it's fine to have AI exposure. I think it needs to be broad though right now. Mhmm.
• 4:28
  But that's that's one of the risks. I think the other risk that one's an easy one to solve. Yeah. Some people intuitively, they'll just shore up and put some money into bond funds. So I don't love bond funds, especially right now because interest rates keep rising.
• 4:39
  So you keep losing money in your bond funds, but it's less risk. Some people will put money into CDs or cash. That's timing the market. It's not bad. It's just not good.
• 4:49
  David: Okay.
• 4:49
  Mike: There are way better ways to do this. Some people will just arbitrarily put money into indexed annuities. And that's a problem. Because many times they're shopping for the best rate and they end up with a product that's probably gonna lower their rates in two or three
• 5:05
  David: Oh, right.
• 5:05
  Mike: Because they're being sold a product. The guy doesn't like, you don't wanna get in the way of the close. Right? If you walk up and say, I wanna de risk my portfolio. What kind of index do you have?
• 5:14
  Oh, we've got the best ones. We're gonna give you the highest S and P cap today. You're telling them yes, and they're just saying, great. Here you go. Don't ask questions like, let's just get this done.
• 5:27
  Mhmm. That's a problem. Very few planners are gonna push back and say, on. Do you need this?
• 5:33
  David: Right.
• 5:34
  Mike: What do you what's the plan? What are the strategies? Because that annuity might get in the way of some of your strategies. It might be the right fit. I've had people end up accidentally with a good one.
• 5:45
  I've also had people end up with horrible ones, and we almost had like to wait a couple of years before the surrender penalties got low enough that we could rationalize leaving it. And no, bonuses aren't free money, by the way, you've looked into this. That 20% bonus is garbage. It's not real money. Yeah.
• 6:02
  So, the next part is tax planning. Very few people that I have met, not clients, very few advisors understand proper tax planning. For, I think, two of the top big reasons. One, we don't give tax advice. Yeah.
• 6:26
  Then what do you do? And why do you talk about IRA to Roth conversions if you don't give tax advice?
• 6:32
  David: Right.
• 6:32
  Mike: Right? That seems a little problematic. And then two is, you're in a model. So, if you have a brokerage fund, or a bunch of, you know, assets that are in your brokerage taxable account, they're trading it. They're creating tax issues.
• 6:47
  Their reason to exist creates a tax problem for your retirement that gets in the way of all of these other strategies. It's inherently set up to fail. And most people don't realize it because they want growth, and that's just a part of the game is paying taxes. It's what the wealthy do. No, it's not.
• 7:09
  Yeah. The wealthy I know aren't actively trading their brokerage account. They actively trade their qualified account because there's no capital gains issues in your IRA or your Roth, but they have long term strategies. Private equity or long term low cost ETFs or real estate or in the alternative space. They're doing other things in their brokerage accounts, or they will realize gains and put it into other investments like buffered ETFs with the intention of spending it down very deliberately in different times.
• 7:42
  Tax planning, I think is one of the most missed things in retirement because it's glossed over and people get answers like, oh, well, and I'm poking fun here. Well, here you bought this annuity, and the annuity gets you the income you want, and it pays your taxes. You're good to go. That's our tax planning. We calculate it for you.
• 7:57
  That's not tax planning, that's product sales. And unless you start first with a plan, your projections, and then you go to your strategies, how do you get more out of your money? That's how in the example I gave today, we took someone from a basic 500 ks projection end of life if they did nothing, $0 end of life if they tried to do what they thought was right but was out of context, or proper planning where they end up with 1,500,000 in the projections. That boiled down to tax planning. Everyone needs tax planning.
• 8:33
  Very few people get tax planning, and you don't get tax planning from your CPA. Most CPAs tell you what happened, not what to do moving forward. It's such a disconnect in this industry.
• 8:43
  David: Right.
• 8:44
  Mike: And that's why I'm I'm frankly proud of our planning is because tax planning is one of the biggest components of it.
• 8:50
  David: And so that's probably well, it's one of the biggest leaks you see out there is like not having the proper tax planning. Yeah. Okay.
• 8:57
  Mike: And if you sell a product, it's not gonna work.
• 9:01
  David: Alright. Yeah.
• 9:04
  Mike: That was your question. Yeah. Did I answer your question?
• 9:07
  David: Yeah. I did answer my question.
• 9:09
  Mike: I mean, you're on the planning side, so that's kind of fun that you'd ask it. You're on the healthcare, servicing, you handle all the other parts of it. And we appreciate doing that. Clients love you for it.
• 9:20
  David: Thank you. Thank you, clients.
• 9:23
  Mike: If you appreciate, by the way, the fact of how we do planning, I know the markets are a little wiggly right now. This is a really good time to get the plan in order, because if the markets go down 30%, and you didn't get the plan in order, you had too much exposure to AI, like those are real risks right now. Now maybe it doesn't go down right now. Maybe it does. No one knows.
• 9:42
  But a prepared reaction is better than a risky prediction. Knowing that your plan was built to to benefit from the good side, but also protect you from the downside in the way that was right for you. Now's a really good time to to set that up. Tire on time.com/call. I'd encourage you to start the process.
• 10:00
  It's real simple. A free thirty minute call. The purpose of the call is just to ask you what do want your retirement to look like? Give us context. And what do you want from a financial professional like us?
• 10:10
  The idea is simple. We'll build you a one time plan, and teach you how to fish. That way, you can manage it on your own. You can have our subscription model, you get access to our models, and and software, and so on, and you manage it yourself. You've got the recipe, and then we'll give you additional tools to manage it if you want.
• 10:28
  Or our private client experience, we just take care of it all for you including filing your taxes. You've got three options there. But the the common denominator is everyone needs a plan. Everyone needs a plan for proper Social Security optimization, proper tax planning based on your specific situation, proper income planning, which isn't just buying products that provide income. It's laddering the sequence and the withdrawals and so on so that you're getting income in the right way and not getting in the way of your tax planning strategies and so on.
• 11:00
  So retireontime.com slash call is where you go. Schedule it. Talk with one of our advisers here who 's gonna dive into the details, and our process is really simple. We do the call first to get context, then we run what's called retirement leaks analysis. We wanna start by finding problems.
• 11:18
  We wanna identify where could things go wrong? Where are the leaks? Where are the bills you don't know you're paying? And then we start to shore up which what's the priority list? What do you want your money to do for you?
• 11:30
  Kind of then ease into, okay, here are the strategies we want to implement. We have a whole process on building then those strategies in that portfolio, And by four or five appointments, you should have a comprehensive written plan. They're usually 30 to 40 pages long. Like, I'm willing to bet no one joining us right now, and there's a lot of you, have seen an actual comprehensive written plan like that. Why?
• 11:55
  Because the incentive is to get you in, charge you 1%, and say we'll figure it out as we go. I'm not throwing rocks at the industry to belittle them. They're brilliant advisors out there. I just have, after doing this for a decade, emphasized the importance that we really need to focus on the plan first, and then you can ask those other questions of, okay, what's the growth strategy for the allocation for growth? What's the reserve strategy for if markets go down, how do we sail through that and not adjust our lifestyle?
• 12:27
  Time's our most precious commodity. It's not about being the richest person at the graveyard. It's about being able to spend your time when you want, how you want. Mhmm. That's a beautiful thing.
• 12:36
  David: Agree.
• 12:37
  Mike: And the ability to make a decision. So if you love your job right now, you still wanna get the plan in place because the day you get tired of it, you wanna know what you're moving towards. So retireontime.com slash call if you haven't scheduled already. Some of you are already clients just enjoying your time. I appreciate you being here.
• 12:53
  Submit your questions in the chat. Also, if if today's the day, we don't really call you every day, we don't bug you, but if today's the day you're ready to start your planning process, you don't need to have everything figured out, but starting your process gives you a lot of context. Retireontime.com/call. Go there. Schedule the call right now.
• 13:10
  I cannot emphasize the importance of it enough, especially because we don't know is is most most market crashes happen in March or October. Now's a really good time to kind of try to sort that out because they look a little shaky right now. Yeah. That's all the time we've got for today's show. If you enjoyed the show, thanks for tuning the podcast.
• 13:29
  Don't forget to subscribe, leave a rating, and as always, tell your friends, the larger the subscribers are, the better the content can be that fuels your preparation for retirement. We'll see you in the next show.