After spending 30 years in the workforce, your job can feel like your identity. The transition from going to work every day to having nowhere to be can be difficult for retirees. We are going over how to best handle that transition.
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. This week, we’re talking about non-standard assets that people may or may not use in retirement, as well as how to easily transition from a work life to a retired life. The comments on Decker Talk Radio are the opinion of Brian Decker and Mike Decker.
MIKE: Good morning, everyone. This is Mike Decker and Brian Decker from Decker Talk Radio’s Protect Your Retirement, and Brian Decker from Decker Retirement Planning out of Kirkland Washington. We’ve got a great show lined up today about a number of things. So I think the best way to go into it is just to dive right in. But before we start, I’d like to introduce Brian a little bit more. He is a licensed fiduciary and a retirement planner, and that’s an important, important phrase. I know we go over this a lot, but a fiduciary is someone that is legally bound to do what’s in the client’s best interest.
MIKE: There’s no hidden fees or side agenda or bias because of commissions. Fiduciaries are, by definition, aboveboard and very straight with people. And that’s how this show’s also going to be with topics we’ve got to day. So Brian, I want to hand over the time today as we put together a packed agenda, and let’s just dive right in with what we’re going to talk about today.
BRIAN: All right. On today’s shows, we’re going to talk about retirees and how the pros and cons of alternative investments. We’ll talk about non-traded REITs, gold, oil and gas partnerships. We’ll talk about ostrich farms, believe it or not.
BRIAN: We’re going to talk about inflation protection, as a separate topic. Then we’re going to talk about the realities of retirement, as it affects your use of time, the expense of retirement, longevity, social security. The effective tax rates that you pay. And then we’re going to spend probably the second half of the show talking about the hidden costs of dealing with a banker or a broker.
BRIAN: We are going to expose stock, bond, mutual fund and management fees, so that you know what you’re actually being charged. So it’s a packed show today. I want to start with alternative investments. In the banker broker model they use the pie charts to properly diversify you in retirement. The problem we have at Decker Retirement Planning in Kirkland is that they have all of your money at risk, and it’s by design, because that’s how they get paid.
BRIAN: They don’t, bankers and brokers don’t get paid if they have some of your money in CDs, treasuries, corporates, agencies, municipals, or on the sidelines in cash. They are incented to keep all of your money at risk. So let’s talk about the difference between in your 20s, 30s, and 40s you can have all of it at risk, ’cause you’ve got a paycheck coming in. But once you get into your 50-plus years, and you’re saving and you’re very close to retirement, two things change.
BRIAN: Number one. You’ve got a lot of money in your 401K and IRAs and in your retirement, and in your savings and investments. And a 30 percent hit to that is a life changing event, number one. So the strategy needs to change. Number two, is when-it’s timing. Number one is the size of your portfolio, number two is timing. You can take a 30 percent hit, if you’re 10 years away from retirement.
BRIAN: But if you take a 30 percent drop in your portfolio within five years of retirement, you can no longer retire like you thought. So it pushes it out. So we want to-we have a totally different approach, where instead of all your money being at risk, we use a distribution plan where 75 percent of your money catches the majority of the stock market gains, but those are principal guaranteed accounts.
BRIAN: In other words, we bring your risk way down, and what money is at risk, we’ll talk on the radio show today, about how we use a two-sided model, so when markets go up you participate, but when markets go down, your principal guaranteed accounts lose nothing, and your risk accounts are designed to actually make money in a down market. They’re two-sided strategies in a two-sided up down market.
BRIAN: So that’s what we do at Decker Retirement Planning. But I want to go into non-traded REITs as an alternative investment diversification favorite among bankers and brokers. Non-traded REITs are real estate investment trusts that give you exposure to the real estate sector, which is cyclical. So the good news is, real estate is a very important part of growth and accumulation.
BRIAN: The bad news is, that sector cycles. Real estate cycles up and it cycles down. And when it cycles down and it’s non-traded and you cannot get out, you’re taking major hits. To your principal, and you can’t sell, you are stuck. So we want to point out that there’s better ways to get access and exposure to the real estate cycle, and not get stuck in cyclical sector like real estate.
BRIAN: Now, non-traded REITs are usually non-traded for at least five to seven years. And they pay the broker a massive commission. Non-traded REITs and variable annuities are the reason that Elizabeth Warren, Democrat from Massachusetts, started the DOL change of regulations requiring more transparency to our business so that people can see what they’re paying in costs.
BRIAN: Non-traded REITs typically pay the broker eight to 12 percent commissions up front, and they’re incented to sell you these things as part of the quote unquote diversified portfolio. Here’s how we do it. I talked about the negatives. We use for your risk money sector rotating models that when a sector is trading above their 200 day moving average, in other words, every stock index or ETF has got an average price for the last 200 days.
BRIAN: It’s plotted usually as a solid line. If a stock index or ETF like real estate is trading above its 200-day moving average it’s said to be in an up-trend. When it breaks that up-trend, sector rotating models will automatically sell. So that allows you to own real estate during 2000 01 and 02 and make money when most people lost massive amounts of money during the tech wreck.
BRIAN: Of 2000 01 and 02. The models that we use, at Decker Retirement Planning in Kirkland, were able to make money in 2001 and 02, and real estate was one of the main reasons, and real estate continued strong in 03 to 07, but in October of 07, real estates started to turn down. And it crossed March of 08, and came out of portfolios before huge massive losses in, 08.
BRIAN: Take for example the DFA funds, the real estate fund was the typical real estate loss of 75 percent peak to trough. How in the world can you handle when you’re retired a 75 percent loss? By the way, the bankers and brokers will say, “Oh, it’s diversification. We’ll have you diversified.” I want to tell you the good and the bad of diversification.
BRIAN: Yes, we get it that there should be four things in your portfolio for diversification. Cash, you should have some cash set aside for life events, emergencies, cars doing down, water heaters, roofs, et cetera. Cash is number one. Number two, you should have income, an income part of your portfolio, or the safe money. We get that.
BRIAN: Number three, you should have the growth portion of your portfolio. And number four, you should have liquidity in your portfolio, where that emergency cash is part of it, so that you’re not locked up. Those are the four components that we have, and number five, tax minimization, and number six, risk reduction. So darn it, I apologize. Six things, not four. Six key components in a retiree’s portfolio.
BRIAN: I’ll say them again. At Decker Retirement Planning, we get it that there are six parts to a diversified retirement portfolio. Number one, emergency cash. Number two is income, or your safe money. Number three is growth, or your risk money. Number four is risk reduction. Number five is tax minimization. And number six is liquidity.
BRIAN: So, those six things, we get it, we understand it, we believe it, that diversification is important. However, diversification, according to the banker and broker model, is different from ours. They believe that diversification is that when one sector is going up, that’ll offset another sector that’s going down. So mathematically, if you take that to the illogical conclusion, which it is illogical, that means that a perfectly diversified portfolio will produce a return of zero.
BRIAN: Because, a perfectly diversified portfolio offset each other. So, that’s nonsense to us. But non-traded REITs, there’s a better way, ladies and gentlemen, at Decker Talk Radio, and that is to use two-sided strategy. The risk models that are available today that can allow you to own real estate when the cycling higher and be out of real estate when it’s cycling lower. Now let’s talk about gold, or Mike, do you want to chime in?
MIKE: Well, I want to talk about these two-sided models. You brought them up several times, and I’m sure that listeners are thinking that it might sound either too good to be true, or why isn’t any more doing this, or why are we the ones that are parading it, but Brian, you’ve said before, these models have been around for some time. Right?
BRIAN: 30 years. The technology’s been around for over 30 years.
MIKE: So there’s a reason why either bankers or brokers aren’t showing this. But we want to be transparent.
MIKE: Sixteen years. Which encompasses the 2000, 2001, 2002 crash, and the 2008 crash. And how these models did. So, and chances are you’re taking too much risk, so this is a wonderful opportunity that we want to extend to you.
BRIAN: And by the way I want to chime in that these models made money in 2000, ’01, and ’02, when the markets were cut in half, doubled when the markets doubled between ’03 and ’07, they collectively made money in ’08, when the markets were down. S&P was down 37 percent. And when the markets are up over 150 percent from 09 to present, these models tracked with the S&P.
BRIAN: Collectively, they’ve never had a losing year. Not in 16 years, and January 1 of 2000, to 12/31/10, 2010, is called the lost decade. It’s the worst 10-year period ever, ever in the history of our country’s stock markets. Worse than the great depression, and yet these, the models that we’re using, made money every year. That’s worth coming in and seeing.
BRIAN: All right. Now let’s talk about gold. We’re talking about alternative investments, with the baker broker philosophy to diversify you and we shredded REITs, non-traded REITs, because they’re non-traded, they’re illiquid, they cycle. They pay huge broker commissions, and it’s not in a client’s best interest who is retired.
BRIAN: All right. Now let’s talk about gold.
MIKE: Well, it is in the best interest of the broker. The commissions.
BRIAN: Yes. Not so much the client. Okay, now let’s talk about gold. Should gold be in your portfolio? Well, maybe. It’s a hedge, we get it. Bankers and brokers use it as a hedge. But we would say that gold cycles just like real estate. Is there a good time to be in gold?
BRIAN: Yes. From January 1 of 2000, to about October of 2014, those were uninterrupted good years for gold. However, from October of ’14 to about, gosh, probably January, February of ’16, gold took a 40 percent hit. You can’t do that in retirement. You cannot afford, we believe, at Decker Retirement Planning in Kirkland, we believe you, in retirement, you can’t take those massive hits any more.
BRIAN: So, as part of the six-fold diversification strategy at Decker Retirement Planning in Kirkland, where you should be diversified, yes. You should have some cash on hands, which includes gold coins if you want. You can keep some gold coins. You should keep some gold coins. Keep some silver coins. That should be part of your cash on hands. Now gold, Decker Talk Radio listeners, for some people, is an investment.
BRIAN: For other people, we’re talking about their religion right now. They are very invested, emotionally, in gold, because they’re convinced that something horrible’s going to happen to the economy, to the U.S. dollar, to the country, and they’re convinced because they’re reading these irresponsible, I’m calling them out, irresponsible newsletter that have been calling for some kind of cataclysmic event, for decades.
BRIAN: And that’s how they sell their publications. And by the way, that’s how they sell gold. We have a saying in the business that the stopped clock is right twice a day. So eventually, there will be a reason that there’ll be, that gold goes up, when an event like 9/11 happens again. But we hope that you know there’s a time to own gold, and a time to be out of gold. For all the same reasons I just mentioned to be diversified, gold has a place in your cash reserves through coins, if you want.
BRIAN: But gold as an investment can get hammered. So, for the same reasons that we would say that use gold as part of a two-sided strategy, the models that we use that are trend following sector rotating, here’s what that means. This is like, Mike, you said, this has been around 30 years. There are mutual funds and money managers using computer algorithms that when sectors are going up, you own them. And when sectors cross their 200 day moving average, or other triggers, you sell them.
BRIAN: In other words, let me say this differently. In retirement, for our clients at Decker Retirement Planning, we use two-sided models. An up-sided strategy and a down-sided strategy, because the market is not a one sided market, it’s a two-sided up-down market. For reasons that make no sense to us, most of this country’s investors sadly, including the retirees, have a one-sided strategy in a two-sided market.
BRIAN: Because, it’s perpetrated by the bankers and brokers, because that’s in their best interest, not yours. So when the markets go up you make money, and when the markets go down, you get creamed. Bankers and brokers will tell you to stay invested, be long term investors, buy and hold, all that nonsense, which is mathematically not true. We want to tell you, we want to expose the strategy for the fraud that it is.
BRIAN: It’s in their best interest because that’s how the bankers and brokers get paid. By keeping your money at risk. So, for non-traded REITs and for gold, we would tell you that yes, you should diversify in your risk accounts. But diversify using a two-sided strategy, so that when gold is going up you own it, and when gold is getting creamed, uh, you’re out of it. All right. I’m going to move on to oil and gas partnerships.
BRIAN: In retirement, retirees get sucked in mathematically, even very very smart people, to a very common trap. And it’s something we call the dividend trap. So right now, the 10-year treasury is yielding around two and a half percent. So we’ll call that the riskless rate. The 10-year treasury rate of two and a half percent we’ll call a riskless rate.
BRIAN: So Mike, play this game with me again. You’ve done this before. So if you can get two and a half in retirement, and take no risk, would you be interested in getting four percent, is four percent better than two percent?
MIKE: I’d say so.
BRIAN: Okay. And seven percent’s better than four, right?
MIKE: Puts more money in my pocket.
BRIAN: Yep. And nine percent’s better than seven.
MIKE: Theoretically.
BRIAN: Twelve percent is surely better than nine.
MIKE: I mean, yeah.
BRIAN: And what if we can get a 15 percent dividend?
MIKE: If it’s apples to apples, then I would say, yes.
BRIAN: Okay.
MIKE: But it isn’t.
BRIAN: And now, once we get to 15 percent, people start to wince a little bit. Now let’s bring in this other part of the equation, which is, percentage chance of default. Now you get the whole picture. So when we look at dividend-yield investments, at Decker Retirement Planning, in Caroline Point in Kirkland, we give our clients the other side, that they need to make a mathematical, logical decision.
BRIAN: And that is the risk of default. So, let’s do this again, Mike. Would you like a two and a half percent dividend? With zero risk of default. Or, would you like a four percent yield with a 20 percent default risk? Or, would you like a seven percent yield, with a 40 percent risk of default?
MIKE: I think that personally that would be my breaking point. 40 percent’s too high for retire money.
BRIAN: Well, but many people go to nine percent, with a 55 percent risk of default. And once you get to 11 you’re at a two-thirds, 66 percent risk of default. And the 12 percent has a 75 to 80 percent risk of default. How do we know the risk of default? We plug in your stocks, so Decker Retirement, or Decker Talk Radio listeners, I hope you jot a note right here. There’s a free site called Big Charts.
BRIAN: And Big Charts allows you to key in your stock symbol, XYZ, and go to profile, and when you go to profile, you can pull up and see what the dividend yield is, and the dividend per share. Let’s say XYZ, the symbol XYZ is paying out a $1 dividend. Well you can see, EBIDTA, earnings before interest, dividends, taxes, appreciation, you can see EBIDTA what that stock is earning, before it pays the dividend.
BRIAN: So let me give you a scenario we see all the time. Now we’re talking about your dividend stocks. Decker Retirement Planning listeners, and we know you’re out there and we know you have them. many of you who are owning dividend yields over seven percent, when you plug these symbols in to Big Charts and go to Profile, you will see the EBIDTA number, where if it’s paying a dollar dividend, it might be earning 80 cents a share. So how are they paying $1, if they’re only earning 80 cents?
BRIAN: They’re borrowing. And they’re not going to keep doing that. So the probability of default is pretty high when they’re borrowing to pay the dividend. We see this all the time. So we want to make sure that you can do this yourself, or you can bring your dividend yield portfolio into the office, and I will look at this. I won’t charge you anything.
BRIAN: I’ll plug this in and show you on the screen how we do the math, and we can go item by item on your divided yielding portfolio to show you that some, usually most of your dividend yielding portfolio is borrowing to pay the yield and you have high default risk to get your seven-plus percent dividend yield.
BRIAN: Now Mike, I should add that in the last week, we had a couple people come in where we sent them on their way. No charge. We said, “You’re doing great. Here’s our card. If anyone calls you and tries to sell you something, have them call us. We feel protective, that what you put together, don’t let anyone touch it. We can do that ’cause we’re fiduciaries.
MIKE: Yep.
BRIAN: All right, should I keep going?
MIKE: Let’s keep going.
BRIAN: All right. So with oil and gas, the problem with drawing your dividend yield, because—and by the way, we’re sympathetic to your cause. In retirement we get it that interest rates are at or near 100 year lows, and you’re seeking a dividend which pays more than two and a half percent. We get it. Are they out there? Yes. Are they concentrated in energy, and energy partnerships? Yes, they are.
BRIAN: So that sector got creamed, by the way, in the last two years. So you might be getting six or seven percent dividend yield, maybe you’re getting seven, eight, or nine percent. But you lost 40 percent in the last two years. Once again, once you are retired, you cannot take these massive hits. There’s other ways to get six, seven percent, take much less risk. As a matter of fact, the models that we’re using, where we’re getting six, seven- last year, we’re doing on our income portfolio- last year we got nine percent from our best returning investment on a principal guaranteed account.
BRIAN: Decker Talk Radio listeners, you do not need to be taking these huge risks, to try to get six, seven, eight percent. We are able to average, for the last 16 years, the same yields and we’re taking no principal risk. So there’s options out there for your partnerships, your oil and gas dividend yields. I told you just 10 minutes ago how to go to Big Charts and how to check this out. So I’m going to move on.
BRIAN: But one last thing, we don’t like about partnerships, is how they work. And now I’m going to talk about, again, massive commissions to brokers, bankers and brokers that peddle to you, sell to you these oil and gas partnerships. They have massive front-end commissions that pay the broker. We have a test for your risk money.
BRIAN: And it’s a two-fold test. Number one, does it keep up with the S&P during the good years, and number two, does it protect principal in the down years. Oil and gas partnerships work like this. So let’s say, Mike, that you and I are wildcatters down in Texas. We open up our shop. We hang out our shingle. We collect 10 or 15 million dollars in capital. We go out and we try to explore and find new oil and gas reserves.
BRIAN: After sadly five, six years of trying, we fail, and we lose everything for clients, and we send out the apology letter. Then, we hang out shingle number two. We change our name. We gather another 10 or 15 million dollars, and we go out and we wildcat, but this time we find and strike oil. Now in the first thing we do, Mike, is we pay each other a salary.
BRIAN: Say it’s $100,000. I’m just making it up. When we strike oil, the first thing we do, after we find out the provable reserves, the first thing we do, because this is a partnerships, is we get together and have a meeting. And now, Mike, your salary is $750,000. And mine is $750,000. And by the way, do we want a company jet? Do we want a house in the south of France?
BRIAN: And I’m going on and on, because internally, we spend through a lot of the gains, because we pay out, and this is sad, we pay out to investors net, N-E-T. Net of everything that Mike and I can try to think of, to pay out, we pay out to investors net, which is one of the reasons we don’t like limited partnership investing. If you were one of the lucky people to invest in Disney’s Frozen, the animated film.
BRIAN: Biggest blockbuster animated film ever. You got paid well, but you got a tiny fraction of what was actually earned, because investors in partnerships get net, N-E-T. These investments fail the Decker Retirement Planning strategy, mission statement of, they don’t track with the S&P in the upside, on average, and there’s no downside protection. So we don’t like them, we don’t use them.
BRIAN: And it, for you, in retirement, I’m passionate about this, it’s hit or miss. How can you afford 100 percent loss in an oil and gas partnership when you’re retired? You cannot. You cannot. So, those are, that’s how we feel about alternative investments. We talked in this radio show so far about non-traded REITs, gold, oil and gas partnerships, dividend portfolios.
BRIAN: How you can find out if your dividend income is at risk of default, or being cut. We covered a lot of ground. Alternative investments have, in insider lingo, a funny name for it, we call it ostrich farms. This is stuff that can be kind of bizarre. Does that fit a diversified portfolio? Well if a broker or banker gets paid eight plus percent on commissions, yes, he’ll peddle it.
BRIAN: Should you? No. We hope that your mission statement is the same as ours. At Decker Retirement Planning your risky investments should have a two-fold mission statement. Number one, do they track with the S&P in the good years? And number two, are you protected when the markets go down? That’s our standard at Decker Retirement Planning in Kirkland. I hope that your standard, this is common sense. I hope this is a wakeup call. You’ve been dealing with the banker and broker strategy for your whole life.
BRIAN: You need to know that there’s something else out there. Okay. Now I’m going to shift Mike to a different part of the radio program. I want to talk about inflation protection. Because in retirement, there’s two major reasons that people have their retirement destroyed. The first is stock market crashes that happen every seven or eight years, like clockwork. And I’ll give you the dates on that. And then, the second one, has to do with inflation protection, and we want to show Decker Talk Radio listeners, we want to talk through the five ways that we protect clients from inflation.
BRIAN: All right. So, when it comes the number one destroyer of your retirement, it is stock market crashes. Every seven or eight years, the markets come through, and there’s a 30-plus percent hit, and it’s a life changing event for you in retirement. This happens cyclically, every seven or eight years. 2008 was the last time, from peak to trough, from October of ’07 to March of ’09, the markets took a major hit. 50 plus percent.
MIKE: Seven years before that was 2001, middle of a three-year bear market, 50 plus percent. Twin towers went down. Seven years before that was 1994. Iraq had invaded Kuwait. It was a recession year in the markets and the economy. The stock market didn’t do well. And interest rates went up. Seven years before that was 1987, Black Monday, October 19th, 30 plus percent drop. In the markets in one day.
BRIAN: Seven years before that was 1980. Interest rates were sky high. Two-year bear market, ’80 to ’82, 40-plus percent drop in the stock market. Seven years before that, was ’73-’74 bear market, 40 plus percent drop. Seven years before that was ’66-’67, 44 percent drop, and it keeps going. Markets cycle. And here you’ve got your banker broker that has you all at risk, telling you to buy and hold.
BRIAN: Ladies and gentlemen, at Decker Talk Radio, we want to tell you that the time is short. We are in year nine. We’re in the second longest advance in the market, without a 20 plus percent hit. The only greater advance was the ’90s. So one time in the history of our markets have we had a longer stretch without a market hit. We are expecting, I personally am expecting that the next 18 months may be rough.
BRIAN: So, we want to warn you that there’s a major downside ahead, not because we have any information that you don’t have. But we do know that markets cycle, and that this cycle is long in the tooth, and that we hope at Decker Retirement Planning in Kirkland, that you have a downside strategy. If you’ve got a banker broker model, and you’re in retirement, and they’re telling you to hold on and ride it out, we hope you come in and check out the managers that we use and the strategies we use that two things as far as risk.
BRIAN: It cuts your risk by 75 percent. And the money that you do have at risk, we have a two-sided strategy that helps bring your risk down, because these quantitative algorithms are designed to actually make money when markets drop.
MIKE: Absolutely. The bottom line is protect your retirement
BRIAN: Fact sheets out of Morningstar and from the managers.
MIKE: Yeah, it’s just, it’s straight facts.
BRIAN: Mm-hmm.
MIKE: So we are excited for you to come in and enjoy that, in our beautiful office, at Kirkland, Caroline Point, got beautiful views right there on the waterfront. I’m not left-handed but I could throw a rock from our office window and still get it into the water, we’re that close.
BRIAN: Yep. All right, so let’s continue on. Here’s the inflation protection. After stock market crashes, inflation is the number two destroyer of people’s retirement.
BRIAN: So when we talk about inflation, what we define inflation as is making sure that the money that you are drawing as retirement income now is going to be sufficient 20 or 30 years from now. Because, the realities of retirement is that you will probably live longer than you expect. The advances in biotechnology and genetic design will probably keep you alive longer.
BRIAN: That means that you have more stress on making your money last longer than you had expected. So here’s our five-fold inflation protection strategy. Number one, we put a COLA, cost of living adjustment, in all our clients’ retirement plans. So that every year you get a little more money to pay for the higher food and energy costs. Does that handle it by itself? No. But we put as item number one a COLA so that our clients get a little more money every year.
BRIAN: Number two. Your residence, where you live, your real estate, is a very powerful inflation hedge. By the way, when you come in and see our planning, you will see a distribution plan that’s a spreadsheet. It shows on the left side of the spreadsheet, if you can picture this, all your sources of income. Your income from assets. Any rental real estate, any pension. Your social security. We total it up, minus taxes, gives annual and monthly income, with a COLA to age 100.
BRIAN: So visually, you can see how much money you can draw, mathematically, if you’ve never done these calculations, you’re guessing. You have no idea, Decker Talk Radio listeners, you have no idea how much money you can draw in retirement unless you do these calculations, or have us run these calculations for you. This is very important reason to come in and see us at Decker Retirement Planning in Kirkland, because, I would hate to be guessing on how much money that I should spend in retirement, number one.
BRIAN: And number two, if you’re within five years of retirement, let us run the numbers so that you can know mathematically if you can or cannot retire. Very very very important. In the planning that we do, your home is not in the plan. Because it doesn’t produce income. However, it’s part of the inflation plan, because it acts as an inflation hedge. When inflation goes up, hard assets go up in value.
BRIAN: So a residence appreciates during an inflationary period. So we hold your residence as an inflation hedge and part of the inflation protection plan. Number three, inheritance. Are you getting some inheritance form your parents or from anyone? We put that in to your plan because we want to be conservative, but we want to be accurate. It’s kind of a difficult topic to discuss, but if it’s going to happen we put it in your plan.
BRIAN: That’s part of your inflation hedge. Number four is downsizing. What is a downsize? It happens to most everyone, in your late 70s, early 80s. Typically you’re no longer interested in gardening and going up and down stairs, and so you will sell your home for X, buy a condo in a retirement community for Y, usually X is larger than Y.
BRIAN: And there’s an injection of capital that goes into your plan from this downsize. So we also can put that in. Most people don’t, they just know it’s there. And fifth and final hedge that we have is being grossly conservative on the growth of your risk account. So in 20 years, we use a six percent growth rate estimate on your risk account money. When in fact, the actual net of fee returns for the six managers that we have are almost three times that.
BRIAN: So when we expect that your $250,000 risk account grows to $1.2 million in 20 years at six percent, will you have $1.2 million in 20 years? No, you’ll probably have twice that. Because, and it creates a hedge, because we were planning with six, the average returns in the worst decade ever is three times that. So are feeling very comfortable confident that we can give another hedge for inflation by the extra funds that should come from your risk returns.
BRIAN: On your portfolio. So the five-fold inflation protection, before I move on, is having a COLA in our planning, at Decker Retirement Planning in Kirkland, we have COLAs, cost of living adjustments, where our clients get more money every year, to age 100. We talk about how your residence, your home acts as an inflation hedge. Do you get an inheritance, we use that as a hedge. Your downsize, we factor in. And your risk bucket. So those five typically give people a massive hedge against inflation.
BRIAN: We feel that that’s much better in contrast than the lame banker broker hedge for inflation which is, gold. That’s it. Gold. Or, non-traded REITs. But gold and non-traded REITs cycle, and so, we’ve already covered that, why that’s not so smart. All right. I’m going to start a new segment.
MIKE: Real quick, if you’re tuning in just now, and you didn’t catch that earlier in the radio show, this show is posted every week on iTunes via podcast or Google Play, so you can tune in to earlier this show, or any previous show.
MIKE: Or go to our website. We post all the shows on there. You can listen to it again and again, as many times as you’d like. But just for those of you just tuning in, you can listen to the beginning of this show on those three sources.
BRIAN: That’s important, because we’re covering some important topics here.
MIKE: Mm-hmm. It kind of feels like a lecture class at a high level university, where you kind of have to review your notes. Maybe listen to your recording again.
BRIAN: All right. So now we’re going to talk about the realities of retirement. The people who have wonderful, full retirements, are the people who have use of time.
BRIAN: They use their time wisely, they planned it out, and they’re not caught off guard by a bunch of empty space in their calendars, and they’re bored and they’re sitting around. So let’s talk about this. Plan on using your time wisely in the first 15, 20 years of your retirement. Once you hit your 80s, things slow down. Your body starts to be different, your health changes.
BRIAN: So your bucket list should be hit in the first, if you retire at 65, the first 15 years is your golden years of doing the things that you want to do. So plan to hit your bucket list. We’re partners with you on this, so in your retirement plan, we’re pushing more money up in the front first 15 years, so you can do the things that you want to do, while you have your health and your energy. Now some of you will have energy all the way to age 100, but most of you, once you hit your 80s, it’s rough.
BRIAN: Plan on hitting your bucket list and doing the things that you want to do in the first 15 years. Also, plan to use your time for the things that you have a passion for, whether it’s gardening, whether it’s exercise, seeing sport events, being involved in your community. Volunteering. There’s so many things that you can have a wonderful, passionate, happy, fulfilling retirement, but it takes planning and talking things over with your spouse, to make sure that you two are together on your use of time.
BRIAN: Item number one. Number two, expenses. If you think that your expenses are going to drop precipitously once you retire, you are going to have a surprise waiting for you, because when you’re working, you’re engaged and you’re busy and you’re not spending money. You’re making money. You’re at work. When you’re retired, you want to do things. And doing things costs money. Doing things, trips, travels, doing stuff, going to restaurants, filling your calendar, can cost money.
BRIAN: So we want to make sure that you know that any expectation of a massive drop in expenses that allows you to retire and have a wonderful retirement is a fable. It’s not true. But, we can use our distribution plan to see what money mathematically you can draw for the rest of your life, and you can use our distribution plan. We’ll help you to see how much you can afford to spend in retirement.
BRIAN: If we see a massive drop where you’re used to making net, $100, $110, $120 thousand a year, and then you retire into an income stream of 70 or 75, we have to have a realistic mathematical conversation where without emotion we can talk things over, how it’s probably not doable to take an income drop like that.
BRIAN: The next thing is longevity. I’ve mentioned this before, early in the show. If you think that you’re going to pass away in your 80s, add 10 or 15 years to it. Biotechnology, advances in genetic engineering, the things that they’re doing right now are incredible. Just like you grow lettuce in your garden, bioengineers are growing skin with your stem cells so there’s no chance of rejection.
BRIAN: They’re growing skin for burn victims. They’re growing certain organs, like you grow lettuce and tomatoes in your gardens, for transplant. And they’re using stem cells so the chance of rejection is zero. Pretty soon, well it’s not pretty soon, it’s already here, if you want, you can have your babies born, you choose eye color, you choose hair color, you can choose body frame. It’s available right now.
BRIAN: So, if you think that you’re not going to live to age 100 and have high quality of life, I think you’re shortchanging yourself. Realistically you have a high chance of a high quality of life for a longer period now. All right, and a lot of people in retirement think social security is going to go broke because of the irresponsible ridiculous selling of these newsletters out there that sell fear and panic.
BRIAN: No one knows for sure, but unless the country does collapse, which some newsletters say is imminent, I personally don’t believe that. I personally believe that social security will be the last thing to be cut. Yes, will there be means testing, yes. I’ll talk about that in a second. Are there ways to keep social security growing? Yes, by moving the full retirement age out longer, and the start, you’ll see the age of retirement be pushed out. You’ll see the earlier age that you can draw social security be pushed out.
BRIAN: You’ll see means testing. Means testing is where the government will decide who gets your money. I’m sorry, I wish there was a better way to say it. The government will decide and say that if you’re making more than $800,000 net, you don’t deserve your own money back. It really, this topic really bothers me. Social security is our own money. And yet it’s being called a government benefit. It really bothers me.
BRIAN: It’s our own money that we should be getting back. And by the way, if you die before you draw your social security, that should be part of your estate, but it’s not, the government keeps it. So this is a nerve that really bothers me. But I personally don’t believe that social security is going to go broke, and I think it’s irresponsible for the periodicals and newsletters that say that. So in retirement, plan on your social security. Also plan on your effective tax rate dropping.
BRIAN: Your effective tax rate is total taxes paid divided by gross income. Usually what we see at Decker Retirement Planning in Kirkland, we see an effective tax rate between 10 and 12 percent. That’s not your tax bracket. Your effective tax rate typically drops in retirement. Last two things. The people, and this is a tragedy. The people who save up for their golden years, they have the money, they retire, and they’ve lost their health.
BRIAN: We hope that you exercise, eat right, get your sleep, so that you can enjoy your golden years. So that sadly, tragically, you don’t have disease or stroke or diabetes that diminish what could be wonderful golden years of retirement. Last thing I want to say about the realities of retirement has to do with the, you want to chime in?
MIKE: All I was gonna say, are you going to talk about the transition?
BRIAN: Yes.
MIKE: A lot of people, their job is their identity for a number of years.
BRIAN: Correct.
MIKE: And so, when you retire, that part of you it’s missing, there’s a huge void there. And so, there’s a number of ways to address this but, one that I’m going to throw out that I personally like is, where you take the trip, you take the vacation, you take something that can break your routine for an extended period of time, to where you don’t feel like you’ve got to get up at five or six in the morning and get ready for work.
MIKE: That you can break your schedule habits and transition more easily into a retirement. Because if you just retire, and then you don’t have work to go to next week, you’re most likely going to have withdrawals.
BRIAN: This is a big deal with the Boeing engineer. In the back yard, if you have a pet, you have a dog, that has a path in your backyard. He walks the path every day. And there’s no grass growing there in that path.
BRIAN: The Boeing engineer, I apologize to stereotype, I’ll just throw it out there. Mike, identifies himself or herself with their job. They wake up at the same time. They pack their lunch. They go to work. They get off. They have their same routine every day. And for 40 years of that, when they retire, many times, these people die, within five years of retirement. Because they cannot transition. So this point you’re bringing up is very important.
BRIAN: Your identity is not to your job. All right, the next thing, last thing we might have time for, is to mark your retirement with an event. I’m going to, I wish I had a better example. Tragically, some families have lost sons and daughters in the military, and their missing in action, and there’s never a funeral. And for them, the horror is they don’t have an event that marks the end point. And so they live with that nightmare.
BRIAN: I have a stress dream that recurs because I graduated from the University of Washington, and I never attended commencement. I went waterskiing that day. It was in the summer. It was a nice day. I just said, “Mail me my diploma. I’m not gonna go stand in the sun for five hours and have three seconds of someone handing me my diploma.” I went water skiing.
BRIAN: But here’s the price I paid. I have a stress dream, where I wake up. No, I don’t wake up. I’m asleep, soundly, and I realize that I have a class that I need those credits to graduate, and I blew off the class, which I’ve never done. And I’ve never attended lecture. This is so unlike me, but this dream, I realize that today is finals. And I know that I’ve got to take the final at two o’clock in the afternoon, and it’s 1:45, and it strikes me that I don’t even know where this class is.
BRIAN: And I run around campus, I’m asking people where this class is. And I’m having a hard time even describing the class, because I never attended it. Anyhow, now it’s 2:15. Now it’s 2:20. I go into a cold sweat and I wake up and I sit up, just vertically in bed. And it happens four, five times a year. It’s a stress dream. And it happens I think because I never had the event that marked the end of my college education, my college classes.
BRIAN: Many people who don’t mark the end of their working career with an event like a party, or going on a long trip, bookend, somehow bookend that time, they do not have that ending event marked. And what happens is, in retirement, they have their stress dream, where they wake up and they know that they’ve got to be at work, and they’ve slept in, and they’re panicked. So, we, gosh, how much time do we have left, Mike?
MIKE: We have two minutes.
BRIAN: Okay. We hope that you mark the event where you and your spouse dress up in a tux and a gown and mark the event with some kind of wonderful party. Get a limo, have it pick you up and mark that event. The next week, I just want to tell you. Here’s what we didn’t get to. Next week we’re going to talk about the hidden costs of dealing with a banker or broker. All the costs that you don’t see, in bond purchases, stock purchases, mutual funds, loads, fees, management fees. We’re going to tear the curtain back.
MIKE: You’re listening to Mike Decker and Brian Decker, on Decker Talk Radio’s Protect Your Retirement, every Sunday morning, 9 a.m., KVI 570. Or, listen to us on our website, Decker Retirement Planning dot com, for past shows and a ton of articles that we’ve written on there. Also, you can subscribe so you can listen to this show via podcast at your convenience, which you can find at iTunes or Google Play. Just search for Protect Your Retirement and it will pop right up.
BRIAN: So until next week, take care, stay warm out there, ’cause we’re still in winter, and have a wonderful week.
