If you prefer to listen while you are on the road, click below!
Transcript
00:43:25:04 – 00:43:56:08
Mike
It’s not about the amount of money you have. If you want work to be optional, it’s about the income that your portfolio’s generating It’s not just about the income. It’s also about how sustainable the dependance Today I’m excited about today show those apple talking about the the three things that you must get right. If you want to make work optional.
00:43:56:08 – 00:44:13:14
Mike
Right? Right. So maybe you’re sitting there thinking, man, I want to make work optional. Within the next couple of years. I would love to retire or at least have the ability to retire if that’s what I choose to do. What do you have to do? Like, what’s your checklist? Sure. What are the three things you have to do?
00:44:13:14 – 00:44:15:22
Mike
That’s we’re going to that’s what we’re going to talk about tonight. Well, I’m.
00:44:15:22 – 00:44:22:11
Zach
Excited to hear that. And this phrase work optional. I feel like this is something that people are starting to say more and more and not just retirement.
00:44:22:12 – 00:44:51:05
Mike
Yeah, that’s very true. I think retirement traditionally there’s still let’s hey, let’s not get past this. A lot of people out there, maybe you’re one of them and a lot of people, traditional retirement is their goal. They their goal, financially speaking, is to build up their assets to a point where they can walk away from work and then just kind of sit back and enjoy life for the rest of, you know, for whatever time they have left on this earth.
00:44:51:05 – 00:45:16:13
Mike
And nothing wrong with that, in fact. You know, there’s a lot of people that’s the right thing to do. There are a lot of other people. However, they say, you know, I’m not really built to retire. Look, my wife, Becky, her brother Chris, he retired at the age of I think he’s 60 or 61. Zach, he was retired for I think almost three months.
00:45:16:14 – 00:45:17:08
Zach
Didn’t last long at.
00:45:17:10 – 00:45:40:22
Mike
And he’s already back to work again. Sure. Does he need the money? Does he have to work for the money? The answer is no. He’s got plenty of money. He’s fine. He has the financial ability to be retired. However, he doesn’t have the emotional mindset of being retired. He’s not there yet trying to get to the point of we would call it being work.
00:45:40:22 – 00:46:06:00
Mike
Optional is all about how do you structure your finances in such a way that you’re like my brother in law, Chris, where you’re working, not because you have to. You’re working because you want to. It’s a choice and it’s a choice that is you know, it increases your sense of self-worth or your satisfaction or what have you. Either way, you’re working because you want to, not because you have to.
00:46:06:05 – 00:46:10:15
Zach
That sounds like a great mindset. I’m sure a lot of our listeners would would love to be in the same position.
00:46:10:17 – 00:46:33:10
Mike
Oh, of course. So. So we’re going to talk today about three things you have to do. Yes. Right. So let’s go ahead and let’s maybe lay these three things out first. And then later in the show, we’ll kind of dove into each one of them individually. Right. And by the way, I guess we could say that I personally am somebody like Chris.
00:46:33:10 – 00:46:35:17
Zach
Yeah. 100%. You were retired for a little bit.
00:46:35:17 – 00:46:48:22
Mike
Yeah, I was retired for four months. And my wife kicked me out the house and said, all right, you drive me crazy. You know, Mike, you drive me crazy. You got to get back to work, man. You’re killing me. And which, by the way, the timing was good because I was driving myself crazy to do.
00:46:49:12 – 00:46:50:05
Zach
Too much golf.
00:46:50:05 – 00:46:53:17
Mike
Now. Well, is it possible to golf too much?
00:46:53:17 – 00:46:55:18
Zach
Maybe when you were retired for four months? It could have.
00:46:55:20 – 00:47:24:04
Mike
I was golfing every day. And you’re right. I got sick of it pretty fast. So in any event, what are the three financial decisions that you have to make so that work can be optional? Okay. Okay. So here’s what we’re going to talk about on tonight’s show. Decision number one or really maybe strategy number one is you need to make sure that your portfolio is generating enough income to replace your paycheck.
00:47:24:05 – 00:47:41:13
Mike
Okay. So this is the first thing. And what’s kind of interesting is people I always get the question, hey, Mike, how much money do I need to accumulate? How much money do I have to have in my 41 K or my for three B or my IRA? How much money do I need in order to be able to retire?
00:47:41:13 – 00:47:42:10
Zach
Right. What’s that magic.
00:47:42:10 – 00:47:56:21
Mike
Number? What’s my number? In fact, I remember several years ago there was a commercial from N G, which is today called Voya, and they had people walking around, you know, in the city and like little numbers were above their head at.
00:47:56:22 – 00:47:57:12
Zach
Their magic.
00:47:57:12 – 00:48:28:10
Mike
Number. Yeah. And it was like, what’s your number? And they’re talking about how much money do you need to retire? That is the wrong question. That is the wrong question. And it’s not it’s not a very intelligent question. The right question is and we’re going to talk a little bit more about this a little bit later but the right questions, not how much money do you need to retire, it’s how much income do you need your portfolio to generate to retire or to make work optional as as we’re talking about this evening.
00:48:28:23 – 00:48:47:00
Mike
So that’s decision number one or strategy number one, if you want to call it that. Question number two, what do you do about the taxes that you’re going to be facing in retirement? Now, if you’re like a lot of people, you probably have a lot of your retirement savings in your 41 K, your four hour, three B, an IRA or something like that.
00:48:47:20 – 00:49:11:12
Mike
Those are all tax deferred accounts, which means you’ve never pay tax on that money. And when you look at your statement, you know, I had someone I was talking to the other day, they were showing me, hey, look at this. We’ve got roughly $1.3 million in there. In there for one K, right. And we have the conversation about how well I know the statement says 1.4 million.
00:49:11:20 – 00:49:35:03
Mike
And it’s your name on the statement But we have to recognize that you have a there’s another name on that statement that’s not listed. The IRS. It’s called the IRS. And it’s. And so we’re going to want to talk about that. You know, how do you what are you going to do about those taxes? How are you going to manage those taxes so that the smallest amount goes to the IRS and the biggest amount goes to you?
00:49:35:19 – 00:49:55:23
Mike
And on top of that, the thing we need to remember there is this is kind of like a debt that you don’t control. Right. And then the third question you need to answer, and that is what do you can do about all the health care costs out there? What do you do about the potential catastrophic health care costs.
00:49:55:23 – 00:49:56:16
Zach
And their pricey.
00:49:57:06 – 00:50:18:00
Mike
It’s only getting worse. It’s going to be a bigger and bigger issue. What’s your plan to handle that? If you want work to be optional, you got to cover those three areas. You got to make sure that you’ve got enough income to replace your paycheck. You’ve got to make sure that you’ve got a tax plan. You know, keep more money in your pocket, less money to the IRS.
00:50:18:11 – 00:50:49:14
Mike
Number three, you’ve got to have a plan for health care, right? Those are your big three decisions. So let’s talk about Joe and Fred. Right. Two hypothetical fictional people. Joe, he has he’s sitting here and he has $1,000,000 in his 41 K, and Fred has 700,000. All right. So Joe is a million. Fred is 700,000. Who do you think is more ready to retire?
00:50:49:20 – 00:50:52:00
Zach
Well, you would think Joe just based off the number.
00:50:52:01 – 00:51:17:09
Mike
He’s got more money. Sure. Right. Oh, but wait a minute. Wait a minute here. Let’s imagine that they need the same amount of income from their portfolio. Okay, so just for the sake of discussion, let’s assume they need $3,000 a month. Right. Joe has $1,000,000. He needs 3000 a month in order to make work optional. Fred has 700,000.
00:51:17:21 – 00:51:23:23
Mike
He also needs 3000 a month to make work optional. Who’s in the better position to make work optional?
00:51:24:00 – 00:51:24:20
Zach
Seems like Joe.
00:51:24:20 – 00:51:51:09
Mike
You would imagine Joe because he’s got a million. Fred, it’s 700,000. And they need the same amount of income. Yes. Right. But then we start diving into how they have their money invested. And we learned that, hey, Joe, you’ve got your million dollars when we run the analysis, we learn that your portfolio, the way it’s structured, it’s only generating one and a half percent income, which is very common.
00:51:51:09 – 00:52:06:10
Mike
Today. It’s only generating 15,000 a year of income now. Now, he wanted 3000 a month, which was 36,000 a year. His portfolio is generating 15,000. Is he ready for work to be optional?
00:52:06:10 – 00:52:07:00
Zach
He’s not.
00:52:07:04 – 00:52:07:14
Mike
No.
00:52:07:21 – 00:52:08:19
Zach
Not even halfway there.
00:52:08:22 – 00:52:32:14
Mike
Unless. Unless he makes some serious changes. Yes, Right now, by the way, he might be there if he’s open to making the changes, but he’s not there yet. Yeah. Let’s look at Fred. He’s got 700,000 when you look at his portfolio, maybe it’s generating income of 40,000 a year. He needs 36. Is, is he in a position where work could be optional for him?
00:52:32:15 – 00:52:34:07
Zach
He’s getting there very close. Well he.
00:52:34:07 – 00:52:35:13
Mike
Needs 36 and he’s getting.
00:52:35:13 – 00:52:36:16
Zach
40. Yeah he’s there.
00:52:36:18 – 00:53:02:01
Mike
He’s there. Right. What if he was at 32. He’s close. Right. Or 30. He’s close. He’s a lot closer than Joe is. Right. So it’s not about the amount of money you have if you want work to be optional. It’s about the income that your portfolio is generating. And it’s not just about the income. It’s also about how sustainable the income is.
00:53:02:12 – 00:53:24:17
Mike
How are you structuring your retirement savings so that they are generating enough income enough income to replace their paycheck income that is stable, predictable and growing over time. No matter what the market does in both good markets and bad. How are you doing that?
00:53:24:18 – 00:53:25:00
Zach
Yeah.
00:53:25:10 – 00:53:44:10
Mike
That’s a question you have to answer. Here’s what matters. What matters is you know, when you have this money in your 41 K, you know, you look at your statement. So this couple, let’s call them, I got to come up with a new name. I so want to say Fred, Wilma Flintstone, and I’m not allowed to because of copyright or something.
00:53:44:16 – 00:53:51:16
Mike
So maybe I’ll go with a pick. Let’s say a hypothetical couple named Barney and Betty.
00:53:51:17 – 00:53:53:05
Zach
Okay, gotcha. I never heard of them.
00:53:53:07 – 00:54:18:01
Mike
Well, never heard of them. And they are not related to Fred and Wilma at all. But we’re going with Barney and Betty. Yes, And let’s imagine that Barney and Betty, have they come to see me or someone, you know, one of the advisers on the team here. And they say, hey, and looking to make work optional, I want to retire potentially, and I want to structure my finances in a way that makes sense.
00:54:18:01 – 00:54:44:04
Mike
And one of the things they’re worried about are taxes and they bring in their statements. They say, oh, look, here’s 1.3 million in a four or one K, right. Or maybe some in Barney’s name, some in Betty’s name. But you add it all up, 1.3 million. And if you notice on their statements, it says Barney, 800,000. And then on Betty’s statements as Betty, 500,000 or maybe the other way around, whatever.
00:54:44:05 – 00:55:03:13
Mike
Right. Right. But you add it up, it’s 1.3, and it’s their names on the statement and I had the conversation said, you know, do you guys want a home? They said, Yeah, we have a home. What’s the value of that home? Well, here we are in Austin. A year ago was worth 500, but I think it’s worth 800 right now.
00:55:03:17 – 00:55:05:10
Zach
So it’s not a million.
00:55:05:14 – 00:55:30:02
Mike
Acres appraisal real estate gone crazy. So I’m like, fair enough. Whatever scale it worth. 800,000, huh? Do you know anything they said? Yeah, I think we owe about 230,000. I said, Great. Well, let me ask you a couple questions. About that home loan. First, is it like one of these variable rate contracts or is it a fixed like a 30 year mortgage fixed rate what, what do you have?
00:55:30:08 – 00:55:54:07
Mike
Actually, we refinanced recently because rates are so low. We actually have a 15 year fixed rate Wow. It’s fixed like 2% or something for the next 15 years. Oh, that’s fantastic. So I said, Okay, so here’s what I’m hearing. You tell me your mortgage is two 30. It’s a 15 years, roughly 2% a year. Your payments the same.
00:55:54:07 – 00:56:18:02
Mike
The rates say nothing changes. Is that correct? Yep. That’s how it works. Are you sure that’s how it works? I mean, like, could the bank come to you and say, You know what? I know that you owe us 230,000 on your $800,000 house. But you know what? We, we’ve decided we don’t like that and we think we’re going to increase how much you owe us.
00:56:18:04 – 00:56:41:23
Mike
You now owe us 300,000 on the house not to 30. Could your bank do that. No of course not. Well could they may be changing interest rate because they just feel like, you know, we set this deal up with you 2% for 15 years. This isn’t really working out for us right Could the bank change the rate, maybe change the length of the loan?
00:56:41:23 – 00:57:04:15
Mike
Can they do any of that? No, no, they. Of course they can’t. Right. I mean, it is what it is. Unless you decide to make a change, it’s 15 years, it’s 2%, and you’re just going to pay it down during that time. Right. And they’re like, Yeah, that’s it. So $800,000 house, $230,000 loan. This is set in stone.
00:57:05:13 – 00:57:28:08
Mike
Let’s compare that to your 41 K, where you’ve got 1.3 million between you. And right now, I know it only says your name on these accounts. So just like your name is on your house, which is worth 800,000. Now your name is on these accounts, they’re like 1.3 million. But here’s the deal. You’ve got debt just like you have debt in your house.
00:57:28:08 – 00:57:49:14
Mike
You get debt on this for one K. But the difference is with your house, the debt is linked to a bank with your 41 K it’s linked to the IRS. Every time you pull money, either the IRS, they’re going to take a chunk. Right. But here’s the difference with your bank. Who controls the debt? With your bank, you control the debt.
00:57:49:15 – 00:58:00:20
Mike
Yep. In other words, it doesn’t change unless you choose to change it. What about the debt? That the IRS has in the form of taxes on your 41 K? Who controls that?
00:58:01:04 – 00:58:02:05
Zach
Not Barney and Betty.
00:58:02:06 – 00:58:05:17
Mike
Yeah. Do you control it? Nope. No. Who controls it?
00:58:05:19 – 00:58:06:12
Zach
IRS?
00:58:06:13 – 00:58:34:12
Mike
Yeah. The IRS. Or more specifically, the bozos in Washington, D.C. who don’t know how to balance a checkbook. Control that debt. Yeah. And unlike a bank who actually has to balance, you know, their accounts, the bozos in D.C. don’t. And so if they’ve decided oh, we’ve decided to spend a bunch of money and we. Oh, we don’t have enough money to pay for it, what can they do with the stroke of a pen?
00:58:34:12 – 00:58:47:13
Mike
They can raise taxes they’re talking about it right now. And the minute they raise taxes, as you like to say, Zach, boom, what happens to the debt on your foreign? The minute they raise taxes.
00:58:47:13 – 00:58:48:07
Zach
Skyrocketing.
00:58:48:07 – 00:59:12:23
Mike
It goes up. You know, it goes up. You don’t control the debt. It’s kind of like the bank in your house deciding, oh, your loans to 30, how we change your mind. Let’s make it 300. That’s what it’s like. So the question you have to ask yourself this is if you want work to be optional, you absolutely must have a plan in place to deal with that debt and your retirement accounts when you’re retired.
00:59:13:22 – 00:59:29:16
Mike
Also known as taxes and whether you use Roth conversions or maybe move money to insurance. We might talk about that a little bit later. Also, tax free if you do it right. Doesn’t really matter. What matters is what’s your plan?
00:59:30:03 – 00:59:36:12
Zach
Third question, we’re going to talk about health care. This is a sensitive topic for a lot of people. Some people don’t want to discuss this.
00:59:36:15 – 00:59:54:01
Mike
Well, you know, the other thing is it’s also a big topic. Yeah. So I want I was talking to someone the other day and a very nice couple and he is 61 years old. The gentleman is in the wife, you know, a few years younger. And he was telling me he’s like, Man, I’d really love to retire I’d love.
00:59:54:02 – 01:00:13:19
Mike
He’s like, you know, we’re talking about making work optional. Yes. He’s like, I’d love to retire. Maybe do something else. Maybe, you know, maybe start a consulting firm or something. In fact, that was exactly the sort of he liked that idea. Like, I like the idea of doing a consulting firm that way because, you know, right now he makes a pretty smart money by saying, you know, it’s like work.
01:00:13:19 – 01:00:35:13
Mike
It’s it’s gotten really stressful. It’s pretty there’s a lot of pressure, you know, a lot of deadlines. He goes. Man, if I could be a consultant, because I asked my I said, hey, what’s your ideal scenario? He says, Ideally, I could just be a consultant. I could just, you know, maybe work part time. You’ll pick and choose the projects I do and, you know, be a lot less stress.
01:00:35:14 – 01:00:47:11
Mike
Right. And I said, well, what’s stopping you? He says, well, a couple of things. Number one, you know, I’m not real sure how would work. Like, he goes, Mike, all my life I’ve just been saving money.
01:00:47:11 – 01:00:47:18
Zach
Yeah.
01:00:48:02 – 01:01:08:19
Mike
Like, how do I structure my finances to reflect a new change in my life like this? We talked about that a segment or two ago. He goes. Secondly, I mean, I know I do some of about taxes. We talked about that last segment. But here’s kind of the one thing that’s really blocking me. What do I do about my health insurance?
01:01:08:19 – 01:01:27:20
Mike
I mean, I’m 61. My wife’s 57 I mean, we’re pretty healthy, but, you know, gosh, you know, he goes, I got a buddy who, you know, out of the blue got sick and he spent some time in the hospital and thank goodness he had insurance that would otherwise really cost a ton of money. It still cost him a bunch of money, but it could have been way worse.
01:01:28:01 – 01:01:50:02
Mike
Well, if that happens to me, right? What if we get sick I mean, hey, I’m not going to be healthy forever. Right. Right. I said so. I have to. I said, so let me get this straight. The only the one thing that’s really stopping you from doing what you really want to do, I mean, we think you’ve got enough money is your as long as you have your money set up the right way, you’re okay.
01:01:50:02 – 01:02:10:02
Mike
There but the one thing that’s kind of really getting in the way, the one big roadblock is your health insurance. So, like, honestly, because that’s it. I don’t know what I would do. So let’s imagine you’re like that gentleman. He worked for a pretty big company. And I said, well, here’s how this works. I said, so here’s here’s what you need to plan on.
01:02:10:02 – 01:02:28:19
Mike
If you would like to do this, this is how the health insurance will work in the early stages. Then we’ll talk about later on, right in the early stages, Cobra kicks in for eight months so you can keep the same health insurance you have right now. The problem is instead of the company paying for it.
01:02:29:03 – 01:02:30:07
Zach
We’re paying for it now.
01:02:30:13 – 01:02:39:09
Mike
Yeah, you got to pay for it. Yeah. He’s like, Yeah, how much would that be? Well, if there’s two of you, you and your wife you’re covering, it could be 15. 1600 bucks a month.
01:02:39:10 – 01:02:40:02
Zach
Pretty expensive.
01:02:40:03 – 01:03:03:05
Mike
Yeah, he said. But still he’s thinking, Wow, I thought it’d be way more than that. Right. But still, 15, 1600 bucks a month. I mean, we’re talking 20 grand a year, right? That’s probably that, by the way, he told me, because that would be my biggest bill, but I think I could swing that. Sure. And then what happens is that’s only going to last for a year and a half.
01:03:03:19 – 01:03:30:10
Mike
So let’s imagine he just turned 61 and his wife just turned 57. For the math here, you go a year and a half now you’re 62 and a half. She’s 58 and a half now. Cobra’s done. But Medicare hasn’t kicked in yet because Medicare doesn’t start till you’re 65. So what do you do then? Then you go to HealthCare.gov and you go out and you just buy insurance and it’s guaranteed insurability And here’s what happens.
01:03:30:23 – 01:03:50:19
Mike
You’re probably going to pay about the same amount of money, so it’s not going to be any cheaper. Right. So it’s just a different company, but it’s going to be probably pretty similar to what you have now is like, oh, okay. Well, that didn’t sound like the worst thing in the world. They said then when you hit age 65, because remember, he was 61.
01:03:50:19 – 01:04:10:02
Mike
So it’s going to happen four years from now. When you get 65, you get to Medicare. And here’s the deal. Your Medicare, you get a like a Medigap plan. That’s like Cadillac plan that’s going to cost you 250 300 bucks a month. Yep. At least it would today. It might be slightly more, you know, four years from now.
01:04:10:02 – 01:04:30:18
Mike
But your wife, she’s still younger, so she’s still going to be on HealthCare.gov. So instead of paying 1500, 600 a month, maybe you’re paying like a thousand a month now. Yeah. So you get a little bit of a break. Sure. And when she hit 65, you’re both on Medicare now. You don’t like 600 bucks a month between you total and now you’re in like, you know, a lot better place.
01:04:31:21 – 01:04:52:05
Mike
So once he understood that, though, he was like, wow, maybe work could be optional for me. Then maybe I could go off and do my own thing, which is really cool. But I said, Well, oh, that’s so fast. There are health care costs in retirement that even Medicare doesn’t cover. He’s like, Well, what do you mean? Like, what are you talking about?
01:04:52:20 – 01:05:15:23
Mike
Said, Well, I’m talking about and this is the dreaded phrase that people hate to hear talk about long term care. You see, it used to be when my grandfather. Right. Well, my grandpa parents retired. They retired at like 62 63 64. He lived to 67, died from a heart attack. Did he need long term care? Not at all.
01:05:16:23 – 01:05:40:18
Mike
But my grandmother, who was still alive, she kept going and she lived long enough where she had some health problems. But the medical world had advanced, and instead of her dying, they kept her alive. And they they kept on keeping her alive. And, you know, eventually my grandmother ended up with Alzheimer’s. Never would have had Alzheimer’s in the past because she would have died.
01:05:40:22 – 01:05:54:13
Mike
But no, the medical world kept her alive because medical advances she had Alzheimer’s and she lost hundreds of thousands of dollars of her life, of her retirement savings. In fact, the rest of her money, she lost to the nursing home.
01:05:54:19 – 01:05:55:02
Zach
Yeah.
01:05:56:06 – 01:06:20:13
Mike
And one of the things that’s kind of interesting today is that right now, a lot of people, you know, life insurance is becoming a really hot topic. And and the reason for that is for a lot of people, they’re worried about taxes and retirement. If you design and utilize life insurance contracts the right way, it can help with taxes.
01:06:21:08 – 01:06:42:16
Mike
But here’s the other thing. Life insurance contracts today, the death benefit can also be used to pay for long term care. And so, you know, one things I talked about with this gentleman say, look, you got tax problems. You have health care problems. Maybe we should be investigating whether or not we should be including certain types of life insurance contracts in the mix.
01:06:43:07 – 01:06:48:00
Mike
His case, it actually made sense. It doesn’t make sense for everybody. It does not make sense for everybody.
01:06:48:00 – 01:06:48:23
Zach
But in this case, it did.
01:06:49:04 – 01:07:14:13
Mike
But the point, though, is what are you doing about this? Yeah. What are you doing about potential health care costs, whether it’s regular health insurance expenses, whether it’s Medicare long term care, hey, health insurance, the cost. We all know the cost has gone up and up every year. What are you doing about it? You’ve got three questions. The answer, you want work to be optional.
01:07:14:19 – 01:07:36:13
Mike
Got to get your portfolio structured so that generates income to replace your paycheck. Number two, I deal with taxes. Number three, what about health care? Those are the three decisions. The three the three strategies you’ve got to employ to make work optional. I don’t want you to miss out. This can be the easiest path to complete financial security.
01:07:36:13 – 01:07:41:10
Mike
All right. We’ve got to wrap. That’s our show this week. We will catch you next week. Take care, everybody.
