Welcome back to Decker Talk Radio, where we discuss how to help protect your retirement. We are continuing off last weeks episode about popular retirement strategies debunked. Last week, we left off discussing annuities and are excited to continue this topic with you. Be sure to tune in next week for a new episode!
MIKE: Good morning and thank you for listening to Decker Talk Radio’s Protect Your Retirement, a radio program brought to you by Decker Retirement Planning. We will start today by finishing last week’s discussion on debunking common retirement planning strategies. After, we will be discussing how the President-elect is already affecting the markets. The comments on Decker Talk Radio are of the opinion of Brian Decker and Mike Decker.
MIKE: Good morning everyone. This is Mike Decker and Brian Decker with Decker Talk Radio’s Protect Your Retirement, and Brian Decker, who is a licensed fiduciary at Decker Retirement Planning out of Kirkland, Washington. And we’re gonna wrap up from our last show, where we were talking about-we’re debunking essentially a lot of these articles that are out there, and specifically one from a very reputable source. And we ended-Brian, if you remember last week, we ended on annuities. Variable annuities, income annuities, and how they just… Well, they’re just a terrible investment, in our opinion.
MIKE: And so Brian, can you wrap up what you were saying last week about where you were with the income annuities and then just kind of tie this all back together?
BRIAN: Yes. So I hope everyone had a great Thanksgiving and time off and we are grateful for the many blessings that we have in our lives. On annuities, they deserve to… The annuities deserve the horrible name that they have because variable annuities are where the broker makes his eight percent, right upfront eight percent commission.
BRIAN: He makes money every year you own it, the insurance companies make money every year you own it, and the mutual fund companies make money every year you own them. Three layers of fees that on your variable annuities add up to five to seven percent before you make a dime. We don’t like them. We don’t use them. They have no part of our planning process, and we call them a scam. I wish there was more harsh language that we could use to denounce variable annuities.
BRIAN: They lag the markets when the stock market’s going up because of all their high fees. In years that the stock markets lose money, they lose more money typically than the markets because of their high fees. There’s no downside protection. They’re not principle guaranteed, so they don’t fit in the safe money side. And they’re horrible performers when we compare them against other growth vehicles, so they don’t fit anywhere.
BRIAN: We have the saying in the business that variable annuities aren’t bought, they’re sold. Meaning that if clients or if customers or consumers knew how much costs were associated with variable annuities, they never would buy them. Here’s how deceptively they are sold. A banker or a broker comes up to you and says “Hey, here’s a principle guaranteed way you can invest in the stock market.”
BRIAN: And you think “Gosh, that sounds good.” Yeah, you can’t lose. Your high-water mark is guaranteed. Well, here’s what that means. For the rest of your life, the banker gets paid money as long as you own it, the insurance company’s mutual fund, everyone gets a fat fee while you own it. And then when you die, you get the high-water mark of the mutual fund back to you.
BRIAN: So whatever the peak of the market value of your variable annuity is guaranteed. Again, we wanna make sure, Decker Talk Radio listeners, that you have all the facts on this. Now, let’s talk about another…
MIKE: Hey, Brian?
BRIAN: Yeah?
MIKE: Can I bring up a question about variable annuities? And again, for Decker Talk listeners that are listening, I’m just being the devil’s advocate here. When you have a client that says “Hey, I don’t really have any use for this money.
MIKE: I just-when I die, I wanna pass it on to my next of kin, my beneficiaries,” you still wouldn’t recommend a variable annuity, right? There’s other options and ways to transfer your assets, to leave on your legacy? Is that correct?
BRIAN: Yeah. Let’s say they have $100,000 in a variable annuity. Five to seven percent in fees is five to $7000 a year. That buys a lot of life insurance, where instead of passing on 100,000, you can pass on much more than that for a death benefit.
BRIAN: So if we’re talking about transferring assets to your beneficiaries, life insurance does a better job than variable annuities. If we’re talking about growing your money and owning mutual funds, there’s no load mutual funds and there’s money managers that have far better track records. And whoever is telling you that variable annuities are safe money is not telling you the truth. So variable annuities don’t do anything well.
BRIAN: Quick story, Decker Talk radio’s. I love to ski. I love to ski. And there’s a ski…
MIKE: Funny you should say that, the first snow just hit in Utah.
BRIAN: Okay. Well, I can’t wait. I have an app on my phone that talks to, me tells me all my favorite resorts and how much snow there is. I love to ski. So there’s one ski that’s called an all-mountain ski. To me, after years and years, I’ve learned that the all-mountain ski does everything terrible or mediocre.
BRIAN: It doesn’t do powder as well as a full powder ski does, it doesn’t carve like a GS or a downhill ski does, and it doesn’t handle the moguls as well as a shorter, more soft, tip ski does. It does everything mediocre. So it’s an all-mountain ski. I wish variable annuities don’t even qualify for doing everything mediocre. They do everything horrible.
BRIAN: By the way, to finish the ski thought, so I have a pair of powder skis, I have a pair of downhill skis and I have a pair of mogul skis. So that’s… I just believe that if you’re gonna enjoy the day, you bring up three pair of skis and you grab the right skis and you have a blast. All right. So we don’t like variable annuities. Now, let’s transfer over to income annuities, life annuities or income riders.
BRIAN: We don’t like any of these either because now you’re paying an insurance company to get your own money back. Let me give you true story. Boeing client, worked for Boeing for 40 plus years, 65 years old, they gave him an option of taking 200,000 lump sum. Or he could take 250,000 for the rest of his life. 250,000 is more than 200,000 he thought, so he went with the lifetime payment.
BRIAN: So the actuary said “Well, I think this guy, he’s gonna live another 20 years, so 20 and the 250, 12,500. You get 12,500 for the rest of your life. And by the way, 12,500 divided into 250, my gosh, that’s five percent. That’s a good rate.” So Decker Talk Radio listeners, let’s unravel what just happened. Now this Boeing client is going to pay an insurance company to get his own money back at the rate of five percent a year and the insurance company hopes he dies soon so that they can keep what they don’t pay him.
BRIAN: We don’t like it, we don’t use it, we don’t recommend it, and we warn people against using these income annuities, life annuities or income riders. Had a conversation last night, my last appointment with clients, we figured that on this example of 250,000 or 200,000 lump sum, if you can take 200,000 lump sum or 12,500 for the rest of your life, how many years does it take to get 12,500 to equal the 200,000?
BRIAN: It’s 16 years. We call that the break-even. It takes 16 years of getting 12,500 to equal what you could get in rollover payments, day one, with the lump sum payment. So if I take a lump sum payment and I get a three percent rate of return, and another person takes 12,500, the income life payments for the rest of their lives, they can live to be 120 years old and never have a higher benefit than me because three percent rate of return on 200,000 today against a lifetime payment of 12,500, the lines never cross.
BRIAN: So there is three very important reasons. And by the way, Mike I’m going to get back to annuities, but this is very important on the income annuities or life annuities because the one argument that we-there’s three arguments against taking a lifetime of payments on an income annuity or a life annuity, and the first has to do with rate of return. Rate of return favors a lump sum payment over a lifetime of payments.
BRIAN: Let me give you an example. We did the numbers last night. If it takes 16 years, you retire at 65, it takes 16 years for you to get your lump sum payment. Well, what happens – and this is the second reason why you should take a lump sum – what happens if you and your wife are out there and there’s a car accident, a horrible tragedy, both of you die, what happens to those lifetime payments? They stop.
BRIAN: But if that couple had taken the lump sum, it stays in their estate. Their estate has that 200,000 to pass on to their beneficiaries. The other couple that was drawing 12,500 per year for the rest of their life, those payments have stopped. So you have a state risk by taking a lifetime income stream. And I used husband and wife purposely on that example because if the person with the pension dies, there’s survivability benefits, where you could take less per month and have 100 percent survivability so that the pension transfers all over to the spouse.
BRIAN: But what happens when both the spouses die? Those payments stop. That’s my point. So you have a state risk and you have rate of return risk, which both favor lump sum payments over lifetime payments. The third reason that we would say you should take a lump sum over a lifetime of payments or an income annuity or a life annuity has to do with company risk.
BRIAN: Ask any pilots who flew for United Airlines or Pan Am, those companies went broke and those pensions were wiped out. Now, PBGIC, Pension Benefit Guaranty Insurance Corp stepped in and revived 30-40 cents on the dollar to the pilots, but those are big hits. They were planning on those full pensions and what they got was a third of what they planned on. So you have company risk when it comes to income annuities or life annuities or pension payments, when you have the option for a lump sum.
BRIAN: Our practice at Decker Retirement Planning in Kirkland is mathematical. We run the numbers for you and we’re fiduciaries so it doesn’t matter… We’re not gonna have an angle on anything here. Our bottom line is to make sure, in fact, we’re required by state law to put our client’s best interest before our company’s best interest. Your banker is not a fiduciary. Your broker is not a fiduciary. Your life insurance salesman is not a fiduciary.
BRIAN: But by the way, and Mike, this is another aside, there’s three ways you can know if your banker or broker or life insurance salesmen is a fiduciary. Why is a fiduciary a big thing? Because you’re required by law to put your client’s best interests before your company’s best interests and you’re not a salesman for your company. And bankers and brokers don’t like to be called salesmen, even though that’s what they are.
BRIAN: There’s three ways to know if your banker or broker or insurance person is a fiduciary. Number one, they will work for an independent company. Any company that’s owned by a bank, or an insurance company, or a brokerage firm is not independent. They’re being told from the top what they can and can’t use for their clients. Decker Retirement Planning in Kirkland is independent, I own it, and we can do anything that is in our client’s best interest.
BRIAN: We’re fully independent. That’s requirement number one. Number two is we’re Series 65 licensed. That means that we cannot, on the security side, sell you anything with the commission. We could never sell you a variable annuity because we cannot work with anything that is commissioned oriented. That’s very important. You can bury commissions in non-traded REITs and variable annuities.
BRIAN: We are fee based advisers only on the security side. Everything is above board. All fees that we get are above board and visible. Nothing is hidden. Unlike the banks and brokers that are Series 7 licensed, that are commissioned paid. We are Series 65, so that’s the number two reason that you’ll find that your adviser is a fiduciary.
BRIAN: And by the way, all three have to be in place. Number one, they have to be independent, number two, they have to be Series 65 licenses, and number three there, corporate structure needs to be in RIA, registered investment advisory court. An RIA is someone who is-that’s code for a corporate structure that is a fiduciary. A fiduciary has regular examinations by state regulators or the securities and exchange commissions to make sure that suitability levels are being followed.
BRIAN: What is a suitability example? A suitability example is where a banker or a broker gets a hold of a client with $400,000 and puts it all in an annuity. We see this all the time. Decker Talk Radio listeners, I hope that you’re careful. I really hope that you’re careful. Back to annuities, Mike.
BRIAN: There are options how to get out of a bad one and salvage your portfolio. If you fall into the category of good, smart, honest people that got snookered and you have an annuity, we would love to be a second opinion, have you come in to our gorgeous offices here in Carillon Point in Kirkland, Washington, and have you look and see what you’ve got and we can see what you can salvage from it.
MIKE: So Brian, you’ve got a couple more things, I’m sure, to talk about with these annuities.
BRIAN: Hey, Mike, I wanna switch over to some IRA stuff that should be going on in Decker Talk Radio listeners portfolios. Number one, you should assess whether or not you should convert some of your IRAs to Roths. Now, we’re not talking about contributing.
BRIAN: If you’re still in the work force, yes, every year, try to contribute as much as possible to your Roth, and if you have a 401k that has a Roth option, you should max it out, maximize your company match, maximize the contributions that you have, and also take advantage of the over 55 catch up provision allowing you to increase the amount of money that you can sock away towards your retirement in IRAs.
BRIAN: 401ks and [SAP?] IRAs. We wanna have you maximize what you’ve got on the contribution side. Now let’s talk about conversion. How much money should you convert from an IRA to a Roth? Bankers and brokers have no clue. At Decker Retirement Planning, we know mathematically, to the dollar, how much you should convert from an IRA to a Roth. Imagine in the portfolios that we have for planning, imagine a spreadsheet that on the left side, Decker Talk Radio listeners, you have your sources of income.
BRIAN: Income from your portfolio, social security, pension, income from rental real estate. We total it up, minus taxes, gives you your annual and monthly income with a COLA of three percent every year, and we plan your income to age 100. Imagine that you had that. By the way, that is what we do. Bankers and brokers have a pie chart where you can’t know how much money you can draw every year and they use the four percent rule, which has been totally repudiated by the creator of it in 2009, but bankers and brokers still use it.
BRIAN: And by the way, we wanna warn you that if you use the four percent rule, it will destroy your portfolio. If you had used the four percent rule since January 1 of 2000, the markets lost 50 percent 2000, ‘01-‘02, made money back and then lost 50 percent again in a way, from October of ‘07 to March of ‘09, it lost 55 percent. But there were millions of people in this country that got wiped out using the four percent rule and they came out of the woodwork in ‘09, the gray haired people that came back to banking, fast food, retail Walmart.
BRIAN: They had to, because the four percent rule destroyed their retirement. Mike, you said that Schwab has a recent article talking about the four percent rule, right?
MIKE: Yeah. Well first off, I mean, Schwab is a great company, right? They do a lot of good for people, and we’ve said this before, [that?] have a paycheck coming in and they can invest and they grow their assets, but they’re in the accumulation phase. And what we talk about over and over is once you retire, the game changes.
MIKE: So Schwab that has an article on their website. It was actually released may 3rd of this year, of 2016. And it says begin with the four percent rule. And this is on their website, and it says a safe withdrawal rate that was first proposed in 1994. And then they go through how wonderful it is. And mathematically, we can show you how ludicrous it is. Now, I wanna bring it to another side, the article that comes from USA Today. And I loved this article. I think this is so well put.
MIKE: Someone that is writing about the four percent rule says “How much should I take from retirement?” And they say in the title three percent, four percent, five percent. And the reason of writing this article is because interest rates are so low. People can’t live off of one or two percent interest rates. It just doesn’t happen unless you have a couple million dollars [in?] cash and no expenses. But people wanna enjoy the retirement, typically. And what they say in this article from USA Today is, they sum it up by saying “Well, you could take three percent, I guess instead of four percent, to be more conservative, but this is kind of the best thing that’s out there.”
MIKE: And it’s not, And that’s why we have this radio show, we do monthly seminars. We are doing everything we possibly can to help educate people that there is something better out there and there is a way to actually calculate how much income, mathematically, how much income you can take. And it’s not just this guessing game. I love how they put it. The other flaw of the four percent rule’s it assumes you do your blindly withdrawal according to a formula and increase your budget for inflation, without actually knowing if that’s right or not.
MIKE: You’re just guessing every year. And if you’re guessing every year on how much you can draw income, that stress is probably gonna be very much on the forefront of your retirement, of am “I gonna run out of money” because you’re guessing every year. And that, to me, personally, that has no peace. That’s stressful. Now, Brian, we do a very extensive planning process where there is no guessing, where there’s mathematical projections and you go through a number of different things with your client. Could we take a moment and just talk about that planning process?
BRIAN: Actually, I wanna cover some year-end stuff. So on the way that we calculate the portfolio side, I try to give an imagery for Decker Talk Radio listeners that on the left side is the planning spreadsheet, sources of income. And with a pie chart from your banker and broker, you can’t know how much you can draw as income for the rest of your life. No matter how big your portfolio, how small your portfolio, unless you do the calculations that we do in distribution planning, you can’t know how much income you can draw.
BRIAN: We do those calculations so that you can know how much you can draw and where your income’s coming from. On the portfolio side, we have one bucket, bucket one that’s responsible for the first five years of income, bucket two for your six through 10, bucket three for years 11 through 20 etcetera. Different buckets. Those income brackets are principal guaranteed so that when the markets crash every seven or eight years, like they do and have done for over 70 years, called the market cycle, our clients aren’t blown out of retirement.
BRIAN: They have no income risk, no credit risk, no stock market risk. So our clients are able to have peace of mind and stay in retirement, where people who use the pie chart – I can’t believe you do that – but you people that continue to insist on having an adviser that continues to give you the same strategy that you used in your 20s, 30s and 40s, if you keep doing that and you’re over 50 years old, you’re putting your retirement into jeopardy.
BRIAN: Then, on the very far right side, we have your risk account. The risk account is money that’s in the stock market, which we also optimize in distribution planning. We use a two-sided strategy in a two-sided market. Not your banker broker strategy that is a one-sided strategy in a two-sided market. The stock market goes up and down, it’s two-sided. It makes no sense for your banker or broker to tell you to buy and hold, don’t time the market, be tax efficient.
BRIAN: All of that is code for “Leave your money with me. This is how I get paid. I don’t get paid if you move money out of risk.” Let me say that again. Your banker and broker is having you stay with a buy and hold strategy not because it’s in your best interest, ‘cause it’s not. It’s clearly not. And it can’t be justified mathematically because when you’re in your 20s, 30s, and 40s, you can take a hit like 2008, but when you’re over 50 years old and you take an ‘08 hit of 30-40 percent, now you can’t retire like you thought you could.
BRIAN: Or worse yet, if you’re over 65 and are retired and you take a hit like ‘08 on all that money that you’ve taken a lifetime to accumulate because your financial adviser told you that that’s the strategy you should follow, and you take a 40 perce-or the market goes down 40 percent and you get a call from your banker and broker, who says “Hey, really glad that you’re with us because market’s down 40 percent, but you only lost 25 percent with us,” that’s not good news.
BRIAN: We use a two-sided strategy, which are trend following models. These are computer models that are designed to make money in up markets and down markets. We have a two-sided strategy on your stock portfolio in a two-sided market. And we’re able to significantly reduce the risk that you have with your stock market exposure. Is that a good thing? Absolutely it is, mathematically it is, logically it is. Why aren’t you doing that?
BRIAN: Mike, this is a good point. I still wanna finish up with Roth conversions, but…
MIKE: Let’s do that. Do you wanna wrap up the planning or should we jump right into where we left off with the year-end and financial stuff?
BRIAN: I wanna continue on the year-end stuff. So what we do is we put Roth money, the IRA money that’s in our growth accounts, and by the way, our growth accounts since January 1 of 2000, 100,000 invested in the SNP grows to about 200,000 now, 16 and a half, almost 17 years later, 100,000 grows to about 200,000 average annual returns around four and a half percent, dividends reinvested.
BRIAN: 100,000 invested in the six managers that we use have grown to over 900,000, average annual return is 16 and a half percent net of all fees and these managers with a two-sided strategy, they made money in 2000, ‘01-‘02. They doubled when the markets doubled from ‘03 to ‘07. They collectively – not individually – they collectively made money in ‘08.
BRIAN: And then, when the markets more than doubled from ‘09 to present, so did they. Why aren’t you using these? We will show you these. Give us a call at Decker Retirement Planning in Kirkland. Give us a call, come in, and we will show you these models and how they work. It’s a two-sided strategy used in a two-sided market and your rate of return goes up significantly, when in the last almost 17 years, you didn’t take two 50 percent hits in 2000, ‘01 and ‘02 and ‘08.
BRIAN: Okay, it’s the risk account that we put, IRA, that we convert to Roth money. A Roth account is golden because it grows tax free, it sends income back to you tax free and it passes to your children tax free. It’s a golden account. So it is your growth account or your risk account, where we do the calculations and find out to the dollar how much money you should have in a Roth.
BRIAN: A Roth is wasted on buckets one, two or three because the returns are lower and you’re taking the money too soon. The Roth is a golden, perfect fit for our risk accounts because those are the long-term accounts with the higher returns and we wanna grow that money tax free. Silly, stupid example, if we have a $300,000 IRA and we grow it 1.2,000,000 over 20 years, you would think you’d be happy with us.
BRIAN: But really, tax wise, you should be furious because you could’ve paid tax on 300,000 in your IRA. Now, in your mid 80s, you have required minimum distributions that put you in the top tax bracket for the rest of your life and you should be furious at the advice that you got in not paying proactively tax on a $300,000 IRA, and now you’re paying tax on 1.$2,000,000 IRA.
BRIAN: So what we do is every year at the end of the year, right now, Decker Talk Radio listeners, right now, we have a conversation how much income do you estimate for 2016. What is your bracket, what is your tax bracket. Without raising your bracket, how much money can we convert from an IRA to a Roth. And then we go forward. Every year, we do something. We make progress on the IRA to Roth conversion. You should be doing this right now.
BRIAN: So we have the mathematical practice at Decker Retirement Planning. We do it mathematically. Check me out on this. Call your banker and broker, ask him how much money you should convert from an IRA to a Roth, they will give you opinion. We don’t. We have a calculator that tells us how much money you should be converting from an IRA to a Roth this year. At Decker Retirement Planning, we have a very specific number of how much you should be doing. But that’s conversation number one, at your end, you should be having.
BRIAN: Conversation number two is your required minimum distributions. If you don’t draw at least the required minimum distribution out of your IRAs, if you’re over 70 and a half, you will get penalized 50 percent, 50, 50 percent of the under distributed money. So this is very important if you’re over 70 and a half by year-end, 12/31/16, you’re required to draw out a required minimum distribution.
BRIAN: And what you do is that at year-end, 12/31, of last year, you total up what your IRAs were and you look, online you have a factor that you can pull up for RMD factors online, and you divide your total dollar amount last year of IRAs, 12/31 by the factor according to your birthday, how old you were 12/31 last year, and it gives you a required minimum distribution that has to be distributed before year-end this year, not April 15.
BRIAN: You have to pull it out by year-end or you will be penalized. So that’s number two. Number three if you have a lot of capital gains that you’ve pulled out this year, long-term, short-term going into the last six weeks of the year, you do what’s called tax planning on your portfolio. If you have some [DAGS?] that you wanna get out of, you can take those losses in calendar year this year before year-end and offset those gains so that you don’t pay taxes on those capital gains, or try to minimize the losses by offsetting gains with losses.
BRIAN: They have to be long-term with long-term, short-term with short-term, so that you have… Now, that’s part of tax planning, so that you can minimize your taxes. That also has to be done by year-end. That’s very, very important. Okay. Mike, now I wanna launch into social security, is that all right?
MIKE: Let’s do it. Social security’s very important.
BRIAN: Okay. Here is a reason to… And Mike, we should give an offer on this too ‘cause this is very, very important.
BRIAN: Everything we do on the planning side, as much as possible, I shouldn’t say everything. As much as possible, we try to have a calculator make the decision. Your social security falls into that category. There are hundreds of ways to draw your social security if you’re married. As a couple, you have hundreds of ways. So social security is a benefit and just gripes me that the US government is calling it a government benefit.
BRIAN: No, it’s not a government benefit. Social security is them giving you your own money back. This is money you’ve paid into the system during your working years and you’re getting it back. No, it’s not a government benefit. It is your money that’s coming back. Your social security benefit grows from 62 – at five percent a year – to 66 and then it grows at eight percent a year, from 66 to age 70. The government is incenting you to wait as long as possible, and here’s my cynical point of view.
BRIAN: They want you to wait, wait, wait, wait, wait, and then die. And so they keep everything they don’t pay you. But actually, your monthly benefit grows from 62 to 70. It almost doubles during that time. But if I draw social security at 62, and let’s say Mike waits till 70, I’m better off than Mike for about 14 years. The lines cross around 76-77-78, somewhere in there, round 14 years.
BRIAN: So if you have longevity, then you should definitely wait till you’re 70. But if you don’t have longevity and you have poor health, we would advise you to draw income right away at age 62. Second reason that we would have you draw income sooner is if you retired early and there’s a big gap between when you retired and all those draws of income from your portfolio are being shouldered 100 percent by your portfolio, if you don’t have any rental real estate or pension, your portfolio is shouldering all of your income for years 62 to 70.
BRIAN: So for those eight years, if your portfolio can handle it, then we will mathematically see that if it can, but if it can’t, all in the name of maximizing your social security in waiting till age 70, you’re destroying what you saved for for all of those years by hammering your portfolio with six figure income draws for the first seven or eight years, trying to maximize your social security.
BRIAN: That makes no sense at all. Okay, so we talked about social security, we talked about variable annuities, we talked about income annuities. How we don’t like either of those. We talked about year-end social security optimization calculations, required minimum distributions. We’ve talked in this show about Roth conversions and to calculate how much should be in Roth.
BRIAN: Mike, I’ve got some really important things on this new stock market, with Donald Trump going in as president, that I would love to buzz through, if that’s all right.
MIKE: Yeah. Let’s spend the last… I believe we’ve got 20 more or just under 20 more minutes. So let’s finish up with financial news.
BRIAN: Okay. So usually we have our financial news in the front, Decker Talk Radio, we’re gonna put it in the back today.
BRIAN: A Trump presidency is expected to lower taxes, lower regulations, but higher deficit spending in the short-term and that’s providing a big change in the portfolio. It’s interesting to see the capital equipment in manufacturing stocks going up, but some of the technology stocks going down. Technology stocks are going down because their benefit is really not much with the Trump plan. But the capital spending that’s coming the way of manufacturing in capital equipment is gonna be a big surge.
BRIAN: Trump plan calls for reduction in taxes. The plan calls for 500,000,000,000 decrease in taxes over the next 10 years. Over the next 10 years, for the economy, that’s on a growth path of over 5,000,000,000,000 over that same time frame. And such an annual growth can be boosted from 500,000,000,000 a year to 600,000,000,000 a year in stimulus. This stimulus will take time to work through the economy and to create a positive contribution to the economy.
BRIAN: The Reagan tax cuts, in contrast, had an immediate effect because the cut was from top rates in the ‘70s and ‘80s and 90 percentile down to a graduated 25-30-35-40-35 percent being a top rate. Huge cuts, releasing tremendous amounts of money into the economy. Number one.
BRIAN: Number two, the Reagan tax cuts had us coming out of a recession, so the timing of that stimulus was fantastic and it goosed the economy immediately. Here, the timing of the Trump plan and the tax cuts is at the very end of an economic cycle. The stock markets in economic cycles last around seven or eight years and they go into recession.
BRIAN: By the way, speaking of cycles, I wanna bring this up. I’m gonna say this twice. This is very important, Decker Talk Radio listeners. In the last 100 years, there has never – key word – never been a two-term presidency that’s come to an end that wasn’t followed within 12 months by a recession. A recession, by definition, is two quarters back to back of negative GDP growth.
BRIAN: When there is a recession, it’s usually the end of a business cycle and at the end of a recession, it’s the start of a new business cycle. Typically, those are 30 plus percent drops in the stock market. Back to the tax cuts. In an economy that’s in an expansion, that’s already seven years old, that means that pent up demand for virtually all big ticket items is exhausted. Apartment, single family homes, new vehicles, planting equipment. Rents are falling, as a result of massive apartment construction booms, reflecting a huge stock of new vehicles and significantly easing of credit standards, the auto market appears saturated.
BRIAN: We’re looking, Decker Talk Radio listeners, for where the stimulus is coming from and can take advantage of an economy. Vehicle sales for the first 10 months of this year have fallen sharply below last year’s sale pace, new and used cars are already down almost two percent from last year and residential housing market appears to have topped out even before the sharp recent advance in mortgage yields that will place downward pressure on this market.
BRIAN: The residential housing market is run into a wall because the mortgage financing has bumped just in the last two weeks, from where you could easily get a mortgage rate of three-three and a half percent, to now they’re bumping to four, just in the last couple of weeks since Trump got in. If the fed raises rates in December, which is expected to, that’s additional downward pressure or tapping the brakes on this economy.
BRIAN: The dollar has risen spectacularly this year. currently trading close to a 13 year high. That puts some breaking pressure, some slowdown pressure on our economy since as a trading partner with the world, our goods, all other things being equal, are less competitive because they’re more expensive. A lot of other trading partners, like Japan want to crush their currency and have it be less valuable so they have a trading advantage.
BRIAN: So their cars coming out of Toyota factories in Japan are gonna cost less because of the strong dollar than what we’re producing here in the United States. Also, the upcoming Trump tax package may do a little more than contain the additional negative momentums developing within the economy. In other words, what we’re saying is with the negatives of the high dollar, of the fed raising rates, of the slowdown in the economy after seven years of expansion, the Trump cutting of taxes might just equalize the economy instead of giving it a bump.
BRIAN: Markets have a pronounced tendency to rush to judgment when policy changes occur. When the Obama stimulus of 2009 was announced, the presumption was it would lead to an inflationary boom. Didn’t happen. Similarly, the unveiling of quantitative easing raised the expectation of runaway inflation. That didn’t happen either. We wanna give you some helpful hints to trading. And by the way, when we get to the end of a stock market cycle, what we’re gonna tell you right now may save you personally six figures in losses in your portfolio.
BRIAN: So this will be very, very important, what we’re telling you right now, Decker Talk Radio listeners. By the way, we love to help you. This is a golden nugget that we’re passing along. There’s an iconic trader named Paul Tudor Jones. He was written up in an article not too long ago and he made this comment. He said that the most valuable trading strategy he knows of and that – he used superlatives here in describing this – is the 200 day moving average in the stock market.
BRIAN: 200 day moving average rule is you can buy the stock market and buy the dips and stay fully invested as long as the stock market is trading above the 200 day moving average, which it is right now today. But once it breaks the 200 day moving average, you need to play defense, be cautious, raise cash, and try to protect assets with stop losses. If you do that, you will save six figures.
BRIAN: You will save a lot of money by playing defense and being careful and being defensive when the market breaks that 200 day moving average. Okay, now just like there’s been some very important things in the stock market, Brexit of six-eight weeks ago, the US selection of couple weeks ago. The next one is the Italian referendum. That is very important.
BRIAN: France follows closely behind. What is clear is that, we, the people globally, are feeling more like outsiders and they’re voting against big governments, big debts, economic stresses. The Italian referendum is coming up on a vote December 4th. It’s huge because if you have pro growth policies coming into Italy, the Italian referendum vote will be coming in and that will be very important to the EU.
BRIAN: If it’s voted down, that’s additional weight with Portugal, Italy, Greece, Ireland and Spain that will be weighing with all their debts, which I would call unsustainable to the European Union. And if you have bank failures and they start falling like dominos, that’s a contagion that will hit the world markets.
BRIAN: The other date is December 14th. Fed vice chairman Stan Fischer said today that the case for raising rates is quite strong. I would say it’s pretty much fully expected. Are households stressed right now? Yes, we have flat rates, flat wages, rising taxes, rising debts, Obamacare, rising healthcare costs, credit card debt is at a record high margin DAGs, extreme again.
BRIAN: We look at unprecedented rise in student loan debt. The economy is strained right now and we wanna make sure that you don’t get sucked into “all is well” type of euphoria that the stock market has had in the last 10 days since the election. We wanna make sure that you know that your portfolio management is very, very important. By the way, Mike, I’m looking at the article now about the four percent rule from Schwab.
BRIAN: I think we’ve hammered that pretty strongly in the last two radio broadcasts, so I’m not gonna comment on the four percent rule, but how would you like it? I just wanna take one parting cut at this. The four percent rule means that your financial adviser can call you after the market takes a hit and say “Hey, you know, you’re spending of $10,000 a month. Yeah, you gotta cut that down to about 3000 a month now because we really can’t afford portfolio draws ‘cause your portfolio just got hammered to the tune of 30 percent.
BRIAN: We really gotta cut your budget. How workable is that? Seriously, how workable is that when you’re in retirement and supposed to be enjoying your golden years? All right. Decker Talk Radio listeners, Mike, I think we have five minutes left, don’t we?
MIKE: We’ve got five minutes. How do you wanna wrap this up?
BRIAN: Okay. I’ve got one last piece on the news side that is titled the Trump effects.
BRIAN: Markets are repricing right now and sectors are rotating because assumption’s that lower taxes, lower regulation, higher deficit spending will provide a positive demand for inflation. But, well, actually, you know what? I’m not gonna cover this because I feel like we’ve kinda talked through that. I wanna talk about at the very end of this segment, Mike, about the planning that we do.
BRIAN: We make sure that you have a plan. In the very first part of the planning, we put version one up for you. We have your age; we make sure that your social security inputs are right; we have your assets listed; we break them out into IRAs, Roth IRAs, SEP IRAs, 401ks, and your non-qualified money. We have money that is coming to you in the short-term, intermediate term, long-term.
BRIAN: All of that is principal guaranteed. We have your 20-plus year money being risk money in the stock market, which by the way, Decker Talk Radio listeners, when you look at that and you see the contrast even in version one, you will see that you had all your money at risk, now your risk has been cut by 75 percent. Typical plans that we have has someone age 65, having around 25 percent of their money at risk, 75 percent. The first 20 years of their income, no risk.
BRIAN: So when the markets crash every seven or eight years, it doesn’t affect you. But we mathematically put these together and in version one, we look and see what the sum is of the income from your portfolio, plus your rental real estate, plus your pension, plus your social security. We add it up, minus taxes, that gives you an annual and a monthly net of tax spending amount that you can spend.
BRIAN: If you’re working with the banker or a broker and you’re using the pie chart, you can’t know how much money you can draw without running out. We mathematically calculate that and we put a COLA, cost of living adjustment, so that every year you get around three percent more money to pay for the higher food and energy costs. The difference between a financial plan that we do using distribution planning and mathematics and a pie chart is not night and day. It’s galaxies of different. It’s so dramatically different.
BRIAN: So our clients don’t have that number one fear in the country for people over 50 years old of running out of money before they die because our clients know mathematically how much money they can draw and whether or not they can retire, because we can show them how much money they can draw. Mike, let’s finish the show with an offer for them to come in and see the planning that we do.
MIKE: That about wraps up our show today. Tune in next week, 9AM, KVI 570 for our Seattle listeners or subscribe to our podcast on iTunes or Google play. Have a great week.
