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Transcript
00:00:00:00 – 00:00:25:14
Mike
So here’s the thing. Yeah, I see that your account balance says 500,000. Mm hmm. And I see that’s your name on this account. But what makes you think that that’s your money? What makes you think that all that money is yours? I mean, how. Tell me. Maybe you know something I don’t. You know, I know that something is worth what you can sell it for and then put the cash in your pocket.
00:00:26:01 – 00:00:47:00
Mike
Right. If you have a home that’s worth 500,000 and it’s paid for, and you sell it for 500,000, you put 500,000 cash in your pocket. But if you have a home that is has a mortgage on it, something less goes in your pocket. Steve, this is an IRA. How are you going to pull 500 grand out of here and put it in your pocket?
00:00:48:00 – 00:00:52:24
Mike
Oh, well, of course I got to pay taxes. It’s like. Right. So I guess you don’t have 500,000, do you?
00:00:58:22 – 00:01:20:04
Zach
Welcome back to Retirement Today. I’m your co-host Zach Holcomb. And alongside me, we have Michael Reese. He’s a certified financial planning professional, and he spent the last 25 plus years helping families get into and through retirement. And on today’s show, we are talking all about the importance of generating lifetime income and some of the risk associated with not doing it the right way.
00:01:20:05 – 00:01:25:25
Zach
And I know, Mike, we talked about a couple of risk in the last segment, but you’ve got another one here they’re going to share with me now.
00:01:25:26 – 00:01:54:00
Mike
Oh, that’s right. So here’s the thing. This week we’re talking about this because this article came out where it was a one of these academic articles that essentially said, if you think that a diversified portfolio is a good idea for your retirement planning, you are in trouble. You are hugely in trouble because a diversified, balanced portfolio, even when the markets cooperate, don’t always work.
00:01:54:02 – 00:02:14:17
Mike
Yeah. So that’s a crazy part. It’s like it used to be that it always worked if the markets cooperated. Now they’re saying, look, the markets can cooperate and it still might not work. So if the markets have one bad year, just one down 20%. You are just up the creek without a paddle. There are other phrases I could use here.
00:02:14:20 – 00:02:15:16
Zach
You really like that one?
00:02:15:17 – 00:02:27:27
Mike
I remember my father might have said you might be a word that starts with S and ends with T is four letters and then it would be followed with outta luck. So S blank, blank T out of luck.
00:02:28:05 – 00:02:30:21
Zach
Sounds pretty accurate. You can say it they’ll just bleep you out.
00:02:30:22 – 00:02:51:11
Mike
I’m not going to do that. Right. I give bleep out too much on this show. Darn compliance people. Oh, well, that’s all right. They keep me safe. In any event, you have a number of challenges. So you talk about this all the time, Zach, where you say, hey, an investment plan is not a retirement plan, right?
00:02:51:20 – 00:02:56:15
Mike
Yeah, an investment plans not a retirement plan. Guess what? That’s what this article should have been titled.
00:02:56:15 – 00:02:56:21
Zach
I know, I should’ve wrote it
00:02:56:21 – 00:03:14:10
Mike
An investment plan. It’s not a retirement plan because a diversified portfolio can work while you’re while you’re working and you’re growing and accumulating. It’s fine for that. It’s not fine, though, for retirement. So they talked about the risks. The problems you have in retirement is you don’t know how long you’re going to live. Right.
00:03:14:10 – 00:03:31:20
Mike
But it’s probably going to be longer than you thought, which means your money has to last longer. That’s a problem. We don’t know what your health that’s going to be Right. But it’s probably going to get worse in the later years of your life. And you don’t know what that’s going to cost. You don’t know what inflation is going to be in just one bad year in the market.
00:03:31:20 – 00:03:49:08
Mike
In the first ten years of retirement. It’s like if you’re going into retirement with a diversified portfolio and that’s your plan, it’s kind of like you’re a high, you know, the trapeze people at the circus where it’s like the high wire act or whatever, but you don’t have a net. Yeah, just very.
00:03:49:08 – 00:03:49:22
Zach
Dangerous.
00:03:49:22 – 00:04:06:21
Mike
Not the smartest thing to do. Right? Right. There’s a fifth risk, though. Okay. Right. They don’t talk about in this article. I wish I would have. Zach, where do most people have the majority of their money when it comes to their retirement savings?
00:04:06:23 – 00:04:14:26
Zach
Well, you know, people just do what they’re told. They stuff they’re for one case. They’re IRAs. And, you know, that’s what we’re told to do. And that’s where a lot of people have those savings.
00:04:14:27 – 00:04:34:02
Mike
That’s right. You probably is. You’re listening. If you think about where you have most of your money, it’s probably in your 401k or 403b or 457, you know, depending on if you work for a public or a private company. And guess what? That’s usually a big pot of money that has never been taxed.
00:04:34:15 – 00:04:39:07
Mike
So I think I’ve shared the story on that on the show before, but I think this is a good time to share it again.
00:04:39:07 – 00:04:41:04
Zach
I think I know where you’re going. I like this story.
00:04:41:04 – 00:04:48:27
Mike
I’ve never I’ll never forget. Yes. A gentleman who came to my office many years ago and we’ll call him Steve. Okay. Right.
00:04:49:00 – 00:04:50:13
Zach
Steve with the Fidelity statement.
00:04:50:13 – 00:05:17:09
Mike
Yes, Steve. Of The Fidelity. Yeah. This is a story. So this guy, Steve, you know, he he k I don’t know if he came in one of our dinner events or he heard us on the radio or TV. I don’t remember where he came from, but he came to the office. Clearly, you know how some people, when they walk in the room, it’s obvious that as far as that person is concerned, they’re the smartest person in the room.
00:05:17:09 – 00:05:18:12
Zach
Steve had it all figured out.
00:05:18:12 – 00:05:27:00
Mike
Oh, yeah, he’s brilliant. Yeah. According to him. Right. And so and he comes he’s like being almost a jerk from the very beginning.
00:05:27:01 – 00:05:28:02
Zach
A little bit of arrogance.
00:05:28:02 – 00:05:46:10
Mike
I have a simple rule by the way, you know, if you want to come visit with us and get a little bit of help or a second opinion, we would love to have you come visit. Just be nice. We’re nice. You be nice, and it’ll be a great experience. Well, apparently Steve decided he didn’t want to be nice that day.
00:05:46:23 – 00:06:09:04
Mike
Anyway, he comes in the office and literally as we sit down, the very first thing he does is he has his fidelity statement in his hands and he slams it on the table in front of me. And he says, What do you think I should do about this? And so it after kind of taking a step back here, I kind of pick up the paper and look at it.
00:06:09:04 – 00:06:31:00
Mike
And it’s a fidelity statement. And he has an imbalance in an account balance of about 500,000. He’s got basically a diversified portfolio like we’re talking about tonight. Yep. And he says Look, I have 500,000, my IRA. What how should I invest in what should I do about it? And let’s be honest, Steve was just being such a jerk.
00:06:31:16 – 00:06:49:03
Mike
Another word I might use, right? He’s been such a jerk. I’m like and I know I’m not like, there’s not a chance in the world I would ever accept him as a client. Sure. Because, you know, I have a simple rule. Like, if if I’m going to accept someone who’s a client, a simple rule, this I won’t be able to get along.
00:06:49:11 – 00:07:07:19
Mike
Yeah. You know, when I see your name on the calendar, I want it to put a smile on my face, right? Because, hey, we’re we’re you’re you’re a good person. We’re good people. And, you know, we’re just good people hanging out. Yeah. Steve, not so much so. And maybe he just had a bad day. I mean, sometimes it happens right?
00:07:08:01 – 00:07:26:27
Mike
But anyway, I for whatever reason, I said, you know, here’s a great opportunity for me to have some fun. So I pick up his statement again, and I look at I said, I don’t know, Steve. I don’t see it. What do you mean? I said, I don’t see that you have 500,000 here. And, oh, boy, he picks that paper up again.
00:07:26:27 – 00:07:34:17
Mike
He’s like he starts pointing at it, like starting to get red in the face. It’s like, what are you talking about? It’s right here in black and white. 504. Can you not read?
00:07:34:17 – 00:07:36:11
Zach
Are you blind by 500,000.
00:07:36:23 – 00:07:58:08
Mike
It’s like he can’t read. And so I take a look at again, I say, yes, Steve, I, I’m sorry, I just don’t see it. And, you know, now he’s getting really red in the face. He’s like, rah, rah, rah, rah, rah, rah, rah, rah. You know, he starts just kind of going off and barking. It’s yeah. It sounds like, you know, how and the Peanuts, the old Peanuts episodes where you know, the teacher talks, you know, can’t understand or.
00:07:58:08 – 00:08:16:01
Mike
Oh, that’s kind of about what it was at this point. But he getting so red in the face. I seriously thought he’s about to have a heart attack. So I finally said, See, Steve, relax. Okay, calm down, Steve. So here’s the thing. Yeah, I see that your account balance says 500,000. Mm. And I see that’s your name. On this account.
00:08:17:04 – 00:08:41:28
Mike
But what makes you think that that’s your money? What makes you think that all that money’s yours? I mean, how Tell me. Maybe you know something I don’t, you know, I know that something is worth what you can sell it for and then put the cash in your pocket right If you have a home that’s worth 500,000 and it’s paid for and you sell for 500,000, you put 500,000 cash in your pocket.
00:08:42:07 – 00:09:01:08
Mike
But if you have a home that is, has a mortgage on it, something less goes in your pocket. Steve, this is an IRA. How are you going to pull 500 grand out of here? And put it in your pocket? Oh, well, of course I got to pay taxes. That’s like. Right. So I guess you don’t have $500,000. Yeah.
00:09:01:22 – 00:09:24:24
Mike
So here’s the deal. You live a long time in retirement and you have a lot of your money in for one case and IRAs. Guess what? The IRS has a share that and I saw recently that our national debt just exceeded $30 trillion. That’s the equivalent of $90,000 per citizen. Do you think taxes are going to go up down the road?
00:09:25:13 – 00:09:47:17
Mike
Do you think there’s a risk of that? Do you think that maybe if taxes go up down the road, that that’ll reduce the value of your retirement accounts? Definitely. When you’re living longer and you have health care issues and there’s inflation and all that other stuff, yeah, it’s a very real threat. You know, the financial industry as a whole just really gets me a little red under the collar.
00:09:47:17 – 00:09:48:13
Zach
I know it does.
00:09:48:13 – 00:10:12:18
Mike
Because they just don’t care about people. They they they they’re out there and they all say, hey, all you have to for retirement is build a balanced portfolio and just take 4% income or something. And they know darn well that a diversified, balanced portfolio in retirement will fail a huge percentage of the time. Yep. They know it’s going to fail and they just don’t care.
00:10:12:18 – 00:10:33:29
Mike
They just keep offering the same advice. It failed in the early 2000. It failed in 2008. In fact, now research tells us that the market doesn’t even have to. It could do well and you still fail. So that’s just not good enough. Hmm. So gets me upset because, you know, people deserve better. I mean, I think about my mom and dad.
00:10:34:05 – 00:11:06:15
Mike
My parents my dad worked for the same company for 32 years. For 32 years. He saved for retirement just a middle class guy. He’s, you know, my parents, they’re not millionaires. They never were middle class, good, solid middle class people. And they just did everything they were told to do. Try to do everything right. And when they retired back in the late nineties, they came to me and I put them in the diversified, balanced portfolio because that’s what I was taught and I did it perfectly well.
00:11:07:07 – 00:11:36:06
Mike
And then along comes 2021 2002, a three year period. We’re over that period of time, the market’s lost almost half of their value. And you combine that with, you know, 4% withdrawals every year. There’s another 12% out of the portfolio. So yep, by the end of 2002, my parents, because they followed my advice and I got from the financial industry, they’d lost half their money and if they had kept on their pace, they’d be out of money today.
00:11:37:07 – 00:11:54:12
Mike
Thank goodness that at the end, you know, by the way, at the end of 2002 you know, I’m looking for answers, right? I’m, you know, what could we do in the industry? You know, they said to me, Zach. Well, they say they all said the same thing. Everybody, you know what? Markets go up over time. Tell all your clients.
00:11:54:12 – 00:11:56:25
Mike
Tell your parents they just need to hold.
00:11:56:25 – 00:11:57:22
Zach
On right it out.
00:11:58:07 – 00:12:24:10
Mike
The problem is that at that point, they don’t have time. They can’t hold on. If they kept doing what they were doing, they’d be out of money and we had to do something different. And finally, after going to a number of conferences, you know, trying to get a better answer, I finally had lunch. One day I’m sitting at a conference and lunch, and this older guy sits down He had been practicing since the sixties.
00:12:24:10 – 00:12:41:19
Mike
He’d been around forever. And, you know, I asked him how he was doing and he told me, man, if you think now is bad, you should seen what we went through in the seventies. Right? And he showed me, here’s how you plan for retirement. Like, here’s how you do it so that even when markets are going south, it doesn’t matter.
00:12:41:19 – 00:12:59:02
Mike
Your clients are still in good shape. So I applied that to my parents. I mean, they’d already lost half their money, said, hey, might as well try something else. So we did that and did it with other clients. It started working and then 2008 happens. But guess what? For my parents and the people I had in that plan, it worked.
00:12:59:20 – 00:13:25:24
Mike
That’s when you know, it’s like here it looked like it should work. It made sense that you worked. It worked in 2008. So we’re looking at this article this week talking about the risk when it comes to your retirement planning. And in this article, they basically say if you have a balanced portfolio, a diversified, balanced portfolio in retirement, be prepared to run out of money because that’s probably what’s going to happen if that’s your plan, because it’s not a plan and they actually get some statistics.
00:13:25:24 – 00:13:53:16
Mike
Right. In this kind of interesting, they say balanced portfolio and you just take out 4% a year, 4%, and the markets cooperate. They never really have a bad year at all. They say there’s still a 21% chance that you’re going to run out of money. Woops, by the way, if you’re taken out 5% they say that it’s about 45% chance you’re going to ram money.
00:13:54:21 – 00:14:14:07
Mike
How do you feel about that going into retirement saying, yeah, I want to take 5% income in. Flip a coin. 50 50. Yeah. Maybe I’ll maybe my money will last. Maybe it won’t. Right? In my world, that’s not good enough. It’s just not good enough. And oh, by the way, then the article goes on to say, what if?
00:14:14:27 – 00:14:40:11
Mike
What if you have just one year just one year in the first ten years of your retirement, just one where the market’s down over 20% for the year? Just one in the next ten in the first ten years of your retirement. How does that affect the odds that your money’s going to last? Well, 4% portfolio we’re saying oh, 20% that it would fail.
00:14:40:11 – 00:15:08:26
Mike
80% that would work. Right now it’s 43% failure rate 57% win basically. Again flip a coin, maybe your money lasts, maybe you run out of money and the industry doesn’t care. Right. Yep. By the way, if you want 5% income now you’ve got a 70 70 70% chance you’re going to run out of money. That this doesn’t cut it.
00:15:08:26 – 00:15:30:19
Mike
You have to understand an investment plan is not a retirement plan. You have factors in your retirement you have to pay attention to. We’ve identified five things tonight that you got to watch out for. You got to watch out for what if you live a long time Makes it harder for your money to last. What if you get sick along the way?
00:15:30:23 – 00:15:58:17
Mike
What’s that going to cost? What if the market has a bad year or two? How do you protect against that? What about inflation? Well, who knows what’s going on there, right? And then what about my favorite topic taxes? Taxes. What if taxes increase down the road? Right now, our government’s over $30 trillion in debt. That’s $90,000 for every man, woman and child in this country.
00:15:59:26 – 00:16:16:13
Mike
No way that’s going to get paid off. So we’re going to have to increase taxes. And if a bunch of your money’s in your far and care, Ira, what do you do about that? Well, here’s the thing. We have answers for you. We can help you with that. And you may have a current adviser if your advisors not talking to you about this stuff.
00:16:16:21 – 00:16:41:02
Mike
Guess what? You don’t have a retirement advisor. You have a growth in accumulation advisor. Maybe it’s time for you to start getting more sophisticated help. See, we’re huge believers. You know, you work your whole life just like my parents. You work your whole life. You save money. You deserve to enjoy the retirement of your dreams. You deserve that.
00:16:41:26 – 00:16:54:23
Mike
The financial industry as a whole, they couldn’t give two hoots about it. But we do. I’ve seen this impact real people, and I know how to help you. Let us be helpful. So just give us a call in. Zach, what’s our number?
00:16:54:24 – 00:17:03:00
Zach
Like it’s easy. It’s 512886 50. Eight 50. Again, that number’s 512886 50. Eight 50.
00:17:03:00 – 00:17:22:26
Mike
You’ve got to get a plan. You need to have a plan to get you through retirement. And it’s not the same thing that gets you to retirement. These are two very different activities. All right, gang, we are up against the clock. We have to wrap up this week. It was great talking to all of you. I hope you have a great week.
00:17:23:05 – 00:17:26:25
Mike
5128865850. And we’ll see you again next week.