If you prefer to listen while you are on the road, click below!
Transcript
Mike:
Yes or no. Do you have a plan to replace your paycheck when you retire? Do you have that plan? Yes. No very simple question. And by the way, your spreadsheet that lays out, oh, I’ve got this much money and I’m going to earn 3% a year or 4% a year. That does not count. That is not a plan. That is hope. You are hoping that your portfolio returns that. You know, with Bobby Bonilla the first 10 years, 2000, 2009, the market lost money. Your 3, 4% isn’t gonna hold up in that environment, right? You need to have a plan.
Zach:
Welcome back to retirement today. I’m your cohost, Zach Holcomb, and alongside me we have Michael Reese. He’s a certified financial planner, retirement planning, expert, and founder and president of Centennial advisors located right here in Austin, Texas. Mike, how are you this afternoon?
Mike:
I’m doing fantastic. And I don’t know if you’ve noticed this Zach, but for those of you who are watching this on the podcast, I’m dressed in black today, that’s thinning, right? That’s supposed to make me look skinnier.
Zach:
Looking a little trim.
Mike:
So so I’m feeling really good and I’m feeling really good with the show today. We’ve got a great show.
Zach:
This is a great show. And if you’ve listened to the show before I, you know, we say, you know, everything we talk about, it’s very important, but today’s show, I think it’s probably one of the most important shows that we’ve done yet. Wouldn’t you agree?
Mike:
Yeah, we’re rocking and rolling. This is going to be I’m very excited about what we’re going to talk about. And these are the kinds of questions I know we’re gonna talk about four questions, right? These are the kinds of questions that you should be asking yourself to make sure that you’re in great shape with your planning. You know, we believe in prosperity planning. We want to provide the easiest path to complete financial security and you know, for a lot of people, Zack, you know they have an incomplete retirement plan, right? So our job today, anyway, we want to ask some questions. We want you to have that complete plan. And in fact, I don’t want to spill the beans here too much, but we do have something special coming up that we want to tell everyone about. Yep. Can’t wait to share
Zach:
It with you. So these four questions that we’re going to be asking, these are simple. Yes. Or no questions, but they’re not so simple, but let’s just, let’s jump into the right one first one. Okay. So first question of the show today, we’re talking about income planning. Do you have a plan to structure income for the rest of your life?
Mike:
There you go. Great question. So if you’re thinking about retirement planning, okay. So, I mean, really at the end of the day, what is retirement planning? Retirement planning at the end of the day is simply this; it’s answering the question. How will you replace your paycheck? How will you replace your paycheck? So you can live that comfortable retirement that you quite frankly, that you deserve. They’ve been working so many years for. So maybe you’re 50 years old and you’re sitting there thinking, you know, I want, I like what I do and I’m doing well, but how do I make work optional someday? Right? Maybe that’s what you’re wondering. Or maybe you’re 60 years old and you’re thinking, wow, I want to retire in the next couple of years. How do I make sure that I can do that? Well, the way you do it, you know, in order to make work optional, maybe you’re already retired, right?
Mike:
Whatever it is, wherever you are in life, the way you make work optional is by structuring your financial planning in such a way that your income, the income that your savings generates replaces your paycheck,
Zach:
Right, because you’re not getting a paycheck from work when you retire.
Mike:
Yeah. It’s that simple. So let me, let me give you an example of this. Let’s, let’s talk about an example that was in the news recently. It’s in the news every year. I always love to hear about it. And that of course is maybe you heard about, maybe you saw that Bobby Bonilla got yet another million dollar payday from the New York Mets right now, Bobby Bonilla hasn’t played baseball in years,
Zach:
20 years.
Mike:
Is forever. Right. And so here’s the deal. Let me tell you a little bit about the story and Zach, I know you’re the one that brought this to my attention.
Mike:
So if I, if I misspeak here, please jump in and correct me, but I will. Yeah. As I understand it, back in 2000, right? The Mets were doing a new that this new contract with Bobby Bonilla, who is like a big Slugger. Right. And they’re like, all right, dude, here’s the deal. I’m sure that’s exactly what they said.
Zach:
Here’s the deal, Bobby.
Mike:
Yeah. Bobby. Here’s what we’ll do. Like we will either offer you a lump sum for the year of, you know, something like $6 million,
Zach:
6 million,
Mike:
Right. Or if you want, we will pay you. It’s like a million,
Zach:
1.1 million, something like that.
Mike:
$1.1 million every year for the next 25 years. So do you want 6 million today? Or 1.1 million for the next 25 years? And the deal is Emmy. If you think about that, you’re probably doing the math in your head, right? Like, let’s see, 25 years, times 1.1 million. That’s like $25 million. Yeah. I’ll take that one, right? No brainer. Sure. Ah, not so fast. Remember this was 2000 and if you do the math on this, the way it works out is all you have to do. Is there an 8% a year, if you would have taken the lump sum, if you’re an 8% a year that’s breakeven. Right. Was that what the, that’s what the article talks about, right? Yep. So you’re and I know what you’re doing. You’re sitting there thinking what 8% I could basically get the guaranteed payout. It’s equivalent to 8% guaranteed done no brainer. Yeah.
Mike:
Today it’s a no brainer, but this was 2000 back in 2000, you could get like government bonds, guaranteed government bonds. The safest investment out there is paying 6% a year. That is insane. The stock market had. And now imagine this. When, when Bobby is given the option, the stock market had average 14% a year for the previous 20 years. Like, can you imagine that 14% a year for 20 years, that’s crazy stock markets are roaring, government bonds are paying 6%. All you gotta do is beat 8% and Hey, you’re better off to take the lump sum. Sure. And Bobby in his ultimate wisdom at the time says, nah, I don’t want to do that. I’m going to take the guaranteed payout for the next 25 years of my life. Now at the time, pretty much every financial expert. In fact, I shouldn’t say pretty much everyone, but I’m betting that a very large percentage of people at the time of financial experts and your everyday person would say, Bobby, what the heck are you doing?
Mike:
I mean, all you gotta do is beat 8%. That’s like the easiest thing in the world, right? The market’s done 14% a year, just do a balanced portfolio markets and bonds. And you should average somewhere around 10, 11% a year, call it 10% a year. This is easy peasy. Right? Easy peasy. And look at how much more money you would have. If you took the lump sum and invested it, don’t take the guarantee. Lump sum, invest. That’s. What about every financial advisor would have said, it’s probably what about every person would say, but Bobby says, no, I just want the guarantee. Give me the guarantee. Now, fast forward, you know, here we are in 2021, 21 years later, did the market Zach keep performing at 14% a year?
Zach:
It did not.
Mike:
No. Since that day, the markets only average about 8% and bonds, which were paying 6%.
Mike:
What are they paying today? Not 6%. Yeah. Like the same bonds were paying 6% back then or paying maybe 2% now. Right? So Bobby, Bobby was brilliant. Everybody at the time probably laughed at him. But today, while they laughed at him back then he’s taking money to the bank today. They would’ve been, if you would’ve taken the money and invested it and tried to duplicate this, you have been out of money a long time ago. Bobby won the bet. Yep. It was brilliant in retrospect. But at the time it seemed silly. It seemed dumb. Well, what can we learn from this? Oh, by the way, before I, before I go into what we can learn, Zach, what was the best part about this whole story? So the Mets, instead of giving him the 6 million, they did the payout, where did the Mets invest that $6 million to get their 8% return or better with
Zach:
A man known by the name of Bernie Madoff? And they said it didn’t not workout.
Mike:
Yes. The article said it didn’t quite work out for the Mets. Duh, even rich people can make mistakes and who they trust, right? Yes. Anyway, here’s the point? What do we learn from Bobby? Well, we learned about what Bobby did well here, Bobby was not focused on the here and now Bobby was reaching the end of his plane years and he knew he was like, man, I’ve got to create a way to guaranteed some future income here to replace my lost wages. This is very similar. You know what, if you are, Hey, what if you’re 58 years old? And you’re going to retire in two years. Right? You got to start thinking to yourself, how am I going to replace my paycheck? And in the ideal world, how can I guarantee that replaced paycheck, right? Yeah. What did Bobby do? He took essentially an annuity payout, right?
Mike:
What is an annuity payout? It’s where you say, I’m going to take a stream of income versus a lump sum. And there are ways that you can do that yourself. You know, you can use insurance companies to duplicate that if you want to now, is that, does that make sense every time? Is that right for everybody? No way. Nothing’s right for everybody. Right? Nothing is. But the question you should be asking yourself. Yes or no. Do you have a plan to replace your paycheck when you retire? Do you have that plan? Yes. No very simple question. And by the way, your spreadsheet that lays out, oh, I’ve got this much money and I’m going to earn 3% a year, 4% a year. That does not count. That is not a plan. That is hope. You are hoping that your portfolio returns that deal with Bobby Bonilla the first 10 years, 2000, 2009, the market lost money. Your three, 4%, isn’t going to hold up in that environment. Right? You need to have a plan. Do you have that plan? Yes or no. Very simple. Well, Zach, what if they don’t have, what if they say, no, I don’t have that plan. What should they do? Cause we’ve got a great opportunity, right?
Zach:
We have a fantastic opportunity. So if you answered no to that question, you need to attend this upcoming online event. It’s called retiring well university where we help you answer yes. To that question about replacing your income and more questions that we’re going to talk about on today’s program. This is a two night course. It’s online. It’s free. You can attend from the comfort from your own home. Now these are classes we normally hold, hold in person. We charge people attend, but we’re doing it absolutely free. And you can sign up today by going to retiring well, university.com again, it’s retiring well university.com. It’s a two night course next Tuesday. First session, June 20th, 6:30 PM. And then the following Tuesday or July 20th and then July 27th at 6:30 PM. Again, all the information to sign up is on retiring well, university.com. Again, one more time. Retiring well, university.com. Now stick around. We’re going to be sharing more of these questions with you in our next segment. We’ll be right back.
New Speaker:
Hi, and thanks for checking out retirement today. If you like the content we share on our channel, make sure to like comment and subscribe. So you can say notified about all of our latest content and videos. Be sure to share all of our information with your friends and family as well. Thanks for joining us. We’ll see you next time.
