September 29, 2025 • 20 mins
“Hey Mike, can you give several examples of how to keep income coming in during a market crash?” Learn how a bear market protocol can protect your income when markets fall.
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Episode Transcript
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Mike (00:00):
So when the markets crash and you're stressed, you're
(00:02):
probably not objectively,critically, analytically
addressing the situation.
David (00:08):
Right.
Mike (00:08):
So you need to have the bear market protocol now before
it happens. So what does thatlook like? Welcome to how to
retire on time, a show thatanswers your retirement
questions. We're here to movepast that oversimplified advice
you've heard hundreds of times.Instead, we do want to dive into
the nitty gritty because well,it matters.
There's no such thing as aperfect investment product or
(00:30):
strategy. Heck, there's no suchthing as a perfect or riskless
retirement. That's why thesedetails matter. Text your
questions to (913) 363-1234, andwe'll feature them on the show.
David, what do we got today?
David (00:42):
Hey, Mike. Can you give several examples of how to keep
income coming in during a marketcrash?
Mike (00:48):
K. So we call this the bear market protocol. Protocol
because it's a system, and wewanna follow systems, not
sentiment. Sentiments the idea,oh, well the market's down and
that stinks, but you can kind ofintuitively figure out how to
navigate through that. No,probably not.
Mhmm. I mean, it's yeah.Emotions tend to get the best of
(01:10):
us, especially when it comes tomoney. So you want to have a
system. There are many ways toskin this cat as they say.
David (01:19):
Okay.
Mike (01:19):
So let's let's first address what why this matters.
Okay? So one of the rules thatwe have for a retirement plan is
to never draw income from anaccount that has experienced
significant losses. What doesthat mean?
David (01:33):
Yeah. Why is that?
Mike (01:34):
So if the markets go down 10%, let's say your account goes
down 10%, it would take an 11%return to recover. Not the end
of the world. Right? And themarkets have a 10% correction
every one point eight years orso, I mean, it's a moving rough
estimate there, but that's kindof what we see. Not the end of
the world, not gonna destroyyour retirement, probably.
(01:55):
Then you've got a market crash,so that's 30%. So if your
account goes down 30%, top tobottom, that's more significant.
That would take a 43% return tobreak even. So do you see how
the the gap is greater? Yes.
It's harder to break even atthat point?
David (02:14):
Yes. And how often do those 30% corrections happen
roughly?
Mike (02:18):
Seven, eight years.
David (02:19):
Okay.
Mike (02:19):
But it's not every seven to eight years. So like in '19
Can't
David (02:23):
circle your calendar?
Mike (02:24):
No. Well, there there are charts that you'll see online
social media where they saythey've hacked the system and,
you know, they'll referencetheir favorite conspiracy theory
or secret group of people thatcontrol the world or whatever,
and this is how they manipulatepeople, and there's like
triangles involved, and it'sgarbage.
David (02:41):
Okay. Alright.
Mike (02:42):
It's just garbage advice.
David (02:43):
I'll delete those photos now then. Okay.
Mike (02:45):
Yeah. I should save those. Like, maybe we'll do maybe we'll
do a newsletter on it.
David (02:49):
But but
Mike (02:50):
like 1987, the markets crashed quickly. Black Monday.
Right? That was rough. Uh-huh.
And then they recovered quickly.And then in 1990, Iraq invades
Kuwait. That tanked the marketsquickly. Then you had ten years
of growth. Like, yeah, '99,there was a blip blip in the
market, but it recoveredquickly, so it wasn't really a
crash.
And then 02/2001 and o two,there were three crashes or
three years in a row where themarkets were going down. That
(03:13):
was a pretty tough time.
David (03:14):
Mhmm.
Mike (03:15):
How do you do count that? You know, it's like, it's at six
months, the markets recover in ayear. That was three years in a
row. The markets were goingdown. How do you calculate that
in your triangular whatevergraph that circulates?
If you if you have seen it, youknow what I'm talking about. If
you haven't, hopefully you neverget poisoned by that garbage
advice. And then in then acouple of years later, we had
(03:38):
this thing called the financialcrisis two thousand eight.
David (03:40):
Oh, remember that.
Mike (03:41):
That was pretty rough. Yep. And most people do.
David (03:43):
Yeah.
Mike (03:44):
That takes several years to recover. So and and then
what? From 02/2010, let's say,to 2020, ten years of growth.
And you might say, oh, well,Mike, then there's ten years of
growth, then there's a couple ofdifficult stitch. It's not it's
it's more random than that.
You can't mark it on yourcalendar, and it's funny you
asked that. I have had peoplethat say, don't need a financial
(04:05):
adviser. I'm all in on equities,so stocks.
David (04:08):
Mhmm.
Mike (04:09):
And then I go to cash in six year the sixth year and six
month, and I just wait.
David (04:14):
Let me how did that work out for him, I wonder?
Mike (04:18):
I mean, least they're invested most of the time. So I
guess it's it's better thannothing. It's better than having
your money in cash the wholetime.
David (04:24):
Sure.
Mike (04:25):
Yeah. But it's you're not gonna time the market that way.
It's not that simple. For thatsimple, everyone will be doing
it.
David (04:30):
Alright.
Mike (04:31):
So now you've got to ask yourself, okay, if if you don't
know what time the market'sgonna crash, how do you prepare
for it? This is where we like tohave a bear market protocol in
place. Bear market is theindustry jargon for a down
market. And why is that? Bullsare for up markets because when
(04:53):
a bull hits, you know, you getthe horns, they strike up.
Mhmm. A bull strikes up. That'san up market. A bear, when it
attacks, it strikes down withits claws. So a bear market's a
down market.
I don't think anyone reallycares to know that explanation,
but that's where it came from.
David (05:08):
Yes. It's too bad there's know, they have that bull statue
outside Wall Street. Why don'tthey have a bear one, like,
going
Mike (05:14):
Well, no one wants to address the bear.
David (05:15):
That's
Mike (05:16):
right. Everyone wants a portfolio for the bull market.
Yeah. And it's like, oh, well,the bear markets, you just have
to endure. Like, we recentlychanged our logo to add a bear
to it because you need to be youneed to face your fear.
This is kind of a dumb analogy,but you know how Batman is
scared of bats? Oh. So that'swhy he's a Batman?
David (05:31):
Oh, right. Right. Right. Hey.
Mike (05:34):
But but very few people, it's like, oh, well, you know,
we we've got your stocks andbond funds, and that will help
you get through. It's almostlike you have to endure it.
Well, why why you just have aprotocol for when it happens?
Here's how you maintain yourhappiness, joy, and well-being.
David (05:48):
Mhmm.
Mike (05:48):
Here's how you maintain your income. It's not hard.
Mhmm. And the reason why I thinkthis is important is a lot of
people are scared about themarket crash, as they should,
and so then they they buy anannuity and take lifetime
income. Now you can useannuities for other things, but
that's kind of the the morepopular bit.
So anyway, so I go back. 30%crash. Yeah. A bear market.
(06:09):
Yeah.
These are rough. If the marketsgo down 30% or your accounts go
down 30%, let's say, that's morerelevant Mhmm. It would take a
43% return to break even. Now,if you pull out, let's say, 4%,
so your your account is down 30,and you've you've taken out 4%
as a withdrawal because you needto pay, you know, your bills.
(06:30):
It's important.
You know, food.
David (06:31):
Yes.
Mike (06:32):
Regardless of what you wanna do in life, you're going
to need to eat food. That'sright. All humans have this
necessity of food and water, andyou might enjoy some shelter too
while you're at it.
David (06:41):
Yep. You
Mike (06:41):
know, think of Walden's Pond. So you're now down 34%.
David (06:48):
Yes. You've added on. You've tacked on to your losses.
Mike (06:50):
Yeah. Now instead of a 43% return, it's a 50% return to
breakeven. It's even moredifficult. Yes. Now keep in
mind, some markets can go downmore than 30%.
Some could go down 50%. And youknow what that means? A 100%
return to breakeven. It mighttake you five, six, seven years
just to recoup from the losses.Uh-huh.
(07:13):
So is it worth putting all ofyour assets in a bunch of equity
ETFs and calling it good? Yeah.If the markets only go up, but
they don't.
David (07:24):
Right.
Mike (07:25):
So in retirement, if your retirement's thirty years long,
there's a reasonable chance thatyou'll experience three to four
significant market crashes. Sothe question is, do you have
three or four bear marketprotocols or parts of your
portfolio that, not if, but whenthe markets crash, you know
exactly what to do. Here's anexample. My family's kind of
(07:47):
weird in that we would alwayshave like, I don't know,
emergency preparation drills.You know, like at school they
have the fire drills?
David (07:54):
Sure,
Mike (07:55):
yeah. Well, we we did these as a family where it's
like, hey, if there was a fireor an earthquake or there was a
gas leak, what do you do? Now,kids had no idea what was going
on. Uh-huh. But if it's a gasleak, we all knew where to shut
off the gas on the house, andthere was the big wrench there
that you could turn and shut itoff.
If there was an earthquake or awater issue, we all knew where
(08:15):
the water was. Like we knew whentimes were calm, what to do
before an event would happen.Now, goodness, I've never had to
shut off the gas or the water toa house except for like when the
plumber came over, but theplumber did it anyway. I just
knew where to point the plumberthere.
David (08:31):
Non emergency situation.
Mike (08:33):
But you think clearly when you're calm. You don't think
clearly when you're not calm,when you're stressed. And
there's a whole, like,literature around how people
think in the flooded state.
David (08:46):
Yes. In flooded state, where where are you flooded?
Mike (08:48):
Yeah. Like fight, flight, freeze, or faint.
David (08:50):
Okay.
Mike (08:51):
You don't think clearly. You've lost your critical
analytical abilities. So whenthe markets crash and you're
stressed, you're probably notobjectively, critically,
analytically addressing thesituation.
David (09:04):
Right.
Mike (09:04):
So you need to have the bear market protocol now before
it happens. So what does thatlook like? There I should write
a book on this. Call we'll callit the bear market protocol
handbook.
David (09:15):
Okay.
Mike (09:15):
Be a great compliment to how to retire on time.
David (09:18):
Yeah. Yeah.
Mike (09:19):
Yeah. But there are so many ways you could structure
it. Let's just kind of gothrough a bunch of these
different ways. Okay. I'm notsaying this is right for you or
wrong for you.
It's just, You know, do you liketo cook with garlic and onions?
Most people do, some peopledon't. Do you like asparagus? Do
you like I don't know. I mean,these are ingredients.
Mhmm. Use the ingredients youwant for your portfolio how you
(09:41):
want. Everyone's got a differentflavor they prefer. You know, do
you like Mexican food? Do youlike Thai food?
Do you like okay. I digress.
David (09:48):
Okay.
Mike (09:49):
So a common one that I see is someone will will keep two,
three, maybe up to four ifthey're more conservative years
in a rolling CD or treasuryladder. So they'll invest and
the treasury is gonna mature inyear one, year two, year three,
year four. And if the marketsaren't crashing, when it
(10:09):
matures, they roll it over intoa new three or four year
treasury, and so just kind ofit's like a caterpillar almost.
Okay. It just kinda keepsrolling until they need it.
David (10:18):
This is like a certain portion of their overall
portfolio?
Mike (10:21):
Yeah. Okay. You've gotta build the plan first. You have
to know what your income needsare Uh-huh. Before you can even
calculate all this.
But you can get an idea of justthere's not bond funds. Bond
funds can lose money, but bondswhich are treasuries.
David (10:33):
Okay.
Mike (10:34):
So a bond by the way, it's just a debt instrument. Most
people a lot of people don'trealize that.
David (10:39):
So you're like helping fund the debt. Someone someone
needs to take debt
Mike (10:42):
like a Treasury. Yeah. You're taking debt from the US
government and they're gonna payyou interest on it and then you
get your money back.
David (10:47):
You become the creditor in a way, right?
Mike (10:50):
So you can do this through through corporate bonds, you can
do it through treasuries, youcan do CDs. Just understand that
there is reinvestment risk, sowhen you go to renew, you might
not get the same rate. Alright.Just be careful of that, but
that's one that anyone canimplement on their own, very
easy to do. Okay, so you gotthis kind of rolling situation.
David (11:09):
Okay.
Mike (11:10):
For other people, I've seen them use fixed indexed
annuities. This is tricky, butwhat they'll do is they'll
they'll buy a a fixed indexedannuity that has a 10% penalty
free withdrawal. But they justthey want enough of their
they're replacing their bondfunds in their portfolio and put
them into fixed indexedannuities because the the index
(11:33):
part of it, you've got moregrowth potential maybe than CDs
or treasuries. No downside risk.There's no fees with it.
It's just you're not gonna makeas much money on the good years,
but you you won't lose as muchon the down years, and you've
got this 10% penalty forwithdrawal. And so they'll put
enough in there that if themarkets were to crash, they
could cover most of their basiseach year with that 10%
(11:54):
liquidity.
David (11:55):
Oh, okay.
Mike (11:56):
The problem is if you take several years to recover, that
ten percent is usually based onthe account value. So if you
take out 10% and it's growing at6%, you're getting less money to
work with each year. You're kindof going backwards slowly, so
that can kind of pinch yourability to maintain this. That
(12:17):
makes sense? It's not perfect.
It's just a way I've seen peopledo this.
David (12:20):
Right. It's not growing faster in that product than your
withdrawing. Is that what you'resaying?
Mike (12:25):
Yeah. So like the first year, let's say you take out
30,000, so 10% of 300,000. So30,000 you take out plus your
social security, that's enoughfor your specific situation.
Uh-huh. Then the next year, youcan't take out 30,000.
Let's say it grew by 6%. So nowmaybe you take out and I'm not
doing the math in my head rightnow, just I'm not that good at
(12:47):
math. I use calculators. Butlet's say the next year you're
taking out 27,000.
David (12:51):
Okay.
Mike (12:51):
Sure. And the next year you're taking out 25,000. Like I
get the point. You're gonna begoing backwards. It's that might
make it more difficult.
David (13:00):
To sort of maintain
Mike (13:01):
It's a liquidity issue.
David (13:02):
Yeah. Okay.
Mike (13:03):
Okay. Another way that people have used fixed indexed
annuities for this is it'scalled period certain. This is
not talked about a lot. So thereare some products, most I have
found don't offer this anymore.And that's an anecdotal
observation.
(13:23):
I I've never quantified themajority share or whatever, so
what But I'm I'm finding theseare more and more difficult to
find. But you can put your moneyinto a fixed index annuity that
should be growing at areasonable rate of like a bond
fund. Again, it's not gonna makeyou rich, but you can then turn
on what's called a five yearperiod certain. So not lifetime
(13:44):
income, you are guaranteed toget your money back in five
years of structured paymentskind of like a CD ladder from a
bank except for it's from aninsurance company. And so what
happens is let's say you putsome money into one of these
fixed index annuities.
Maybe the first year it grows by6%, the next year it grows by
(14:04):
2%, the the next year it growsby 8%, whatever.
David (14:09):
Okay.
Mike (14:10):
Okay? I'm not quoting any products here. I'm just giving
an example. Yeah. And then inthe fourth year, the markets
just tank.
Just horrible. So you turn onyour income. Now you're gonna
get structured payments in thatfourth, fifth, sixth, seventh,
eighth year, every month, thesame payments, it's not affected
(14:30):
your other accounts, so yourother accounts now have five
years to recover, and you'regonna get these structured
payments each year.
David (14:38):
Mhmm.
Mike (14:38):
Okay? For five years. If you die in the second year,
someone else is gonna get thepayments. It's period certain.
Yeah.
You're guaranteed to get it orsomeone's getting the money. So
it's not like that. Well, if Idon't live long enough, the
insurance company's gettingrich. It's just a CD ladder that
you can trigger later on. And sosome people like this because
they're like, well, we don'tknow when the markets are gonna
crash, we don't wanna have itrolling into a treasury fund, we
(15:00):
want a bit more growthpotential.
And so they like the fact thatthey can just turn on the
income, five years, theiraccounts have plenty of time to
recover, and it just kind ofsails through. That's a
protocol.
David (15:12):
Okay.
Mike (15:12):
Yeah. Do you see how these are protocols, by the way? It's
a system you just follow?
David (15:15):
System's already set up and it's waiting to be enacted.
You just pivot to it whenneeded. Is that fair to say?
Mhmm. Pretty like, seamlesslypivot right to it.
Mike (15:24):
Yeah. When do you need a first aid kit?
David (15:26):
Oh, yeah. Well, as soon as I, like, hit my, you know,
finger with my hammer or, like,I'm using my table saw and I cut
my finger, that's when I needthe first aid
Mike (15:34):
Or when you wreck on your mountain bike.
David (15:36):
I have needed one then, yes.
Mike (15:38):
That's true. So you don't need it in times of good, you
just need it for when times arebad and it's ignorant to think
that times will never be bad.Mhmm. These are bear market
protocols. Mhmm.
There are other ones that likesome people will use what are
called buffered ETFs. Okay. So abuffered ETF right now, you
might get up to 7% growth. Soyou get up to 7% of the S and P,
(16:01):
but next to, like, a lot ofdownside protection I say a lot
of downside protection. Rightnow, what I'm seeing, these rate
rates will change, the first 60%of losses are buffered out as in
you don't experience them.
So if the markets drop 50%, yourprincipal would be roughly
protected. You just pay theexpense ratio. It's like point
(16:23):
7% a year. If the markets godown 70%, you lost 10%.
David (16:28):
So there's like a buffer between your principal and your
losses.
Mike (16:33):
Yeah. It takes out. Takes you. Yeah. Okay.
So what they'll do is instead ofthe the the treasuries or CD
that just kinda roll over,they'll just put into a buffer
ETF, little bit more growthpotential, but it's not
guaranteed growth.
David (16:46):
Mhmm.
Mike (16:47):
So maybe over time, you might get an extra average of a
percent growth. Maybe. I mean,again, no one can predict future
performance. But you just keepit in there, they keep rolling
over, and then when the marketsgo down, you just start tapping
into that because they havereasonable liquidity. Like, you
could technically take it outwhenever you wanted Oh.
But you wanna take it out rightafter they renew. And every
(17:09):
month, there's they kind ofrenew. Every month. There's a
new buffered ETF every monthavailable.
David (17:14):
Okay.
Mike (17:16):
But they renew every year. So you might do like a couple in
January, a couple in March, acouple and you can divide it up
so you kind of have this rollingquarterly renewal rate or
whatever.
David (17:27):
And so the buffer ETF just in it's like a security and
invest in securities?
Mike (17:31):
Yep. It's technically it's equities. Yeah.
David (17:33):
Okay. And so so someone in their forties have a buffered
ETF? Is it gonna make you rich?
Mike (17:40):
That's a great question. I would say that's more of a risk
suitability standpoint. Soemotionally, how should your
portfolio be? Do equities makesense? Do you just need some
some stability in there?
And if that's the case, wouldyou look at bond funds? Would
you look at buffered ETFs? Youwouldn't look at annuities.
You're too young for annuities.You don't I don't think there's
(18:01):
any reason why you would buyannuities at all, unless you're
maybe 55, 60 years old.
David (18:08):
Okay.
Mike (18:09):
That's just my opinion. Yeah. You could also look at
life insurance. If it'sstructured correctly, life
insurance could act as a similarsituation to like a buffered ETF
or a fixed index annuity withthe life insurance component.
There's just you're paying forlife insurance.
You have to also want the deathbenefit in life insurance
features.
David (18:29):
Mhmm.
Mike (18:30):
If you don't want to pay for that stuff, don't go there.
David (18:32):
Alright.
Mike (18:33):
So we've just touched on a couple of them, and we didn't
even talk about, like, ladderingthem out or bucket strategies or
anything like that. There's somany different ways you could
you could develop this, but atthe end of the day, you've got
to have, in my opinion, whenyou're retired, a bear market
protocol. You know exactly whatyou're gonna do, not if, but
(18:53):
when the markets go down, sothat you're able to sustain your
income without accentuatinglosses.
David (18:58):
That's sort of the main critical component, right?
Mike (19:01):
That's it. If you can have something like that, a lot of
terms around it, lot of wayspeople describe it, but if you
can have something like that,then in my opinion, as long as
it's implemented correctly, yousignificantly increase your
overall chances of success inretirement. So not outliving
your money, getting throughmarket crashes, having a
reasonable amount for yourestate planning, your legacy, or
(19:24):
whatever it might be. So thesedetails do matter. It's not just
put the assets in some randomarbitrary blend based on your
risk portfolio, whatever thatactually means.
David (19:35):
Mhmm.
Mike (19:35):
And then just kinda figure it out along the way. I don't
believe in figuring it out alongthe way. I believe in having a
system before you actually needto implement it. That's all the
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(19:56):
For more resources, including acopy of my book, on demand
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But seriously, from all of ushere at Kedrick Wealth, we wanna
thank you for spending yourtime, your most precious asset
with us today. We'll see you inthe next episode.
So when the markets crash and you're stressed, you're
(00:02):
probably not objectively,critically, analytically
addressing the situation.
David (00:08):
Right.
Mike (00:08):
So you need to have the bear market protocol now before
it happens. So what does thatlook like? Welcome to how to
retire on time, a show thatanswers your retirement
questions. We're here to movepast that oversimplified advice
you've heard hundreds of times.Instead, we do want to dive into
the nitty gritty because well,it matters.
There's no such thing as aperfect investment product or
(00:30):
strategy. Heck, there's no suchthing as a perfect or riskless
retirement. That's why thesedetails matter. Text your
questions to (913) 363-1234, andwe'll feature them on the show.
David, what do we got today?
David (00:42):
Hey, Mike. Can you give several examples of how to keep
income coming in during a marketcrash?
Mike (00:48):
K. So we call this the bear market protocol. Protocol
because it's a system, and wewanna follow systems, not
sentiment. Sentiments the idea,oh, well the market's down and
that stinks, but you can kind ofintuitively figure out how to
navigate through that. No,probably not.
Mhmm. I mean, it's yeah.Emotions tend to get the best of
(01:10):
us, especially when it comes tomoney. So you want to have a
system. There are many ways toskin this cat as they say.
David (01:19):
Okay.
Mike (01:19):
So let's let's first address what why this matters.
Okay? So one of the rules thatwe have for a retirement plan is
to never draw income from anaccount that has experienced
significant losses. What doesthat mean?
David (01:33):
Yeah. Why is that?
Mike (01:34):
So if the markets go down 10%, let's say your account goes
down 10%, it would take an 11%return to recover. Not the end
of the world. Right? And themarkets have a 10% correction
every one point eight years orso, I mean, it's a moving rough
estimate there, but that's kindof what we see. Not the end of
the world, not gonna destroyyour retirement, probably.
(01:55):
Then you've got a market crash,so that's 30%. So if your
account goes down 30%, top tobottom, that's more significant.
That would take a 43% return tobreak even. So do you see how
the the gap is greater? Yes.
It's harder to break even atthat point?
David (02:14):
Yes. And how often do those 30% corrections happen
roughly?
Mike (02:18):
Seven, eight years.
David (02:19):
Okay.
Mike (02:19):
But it's not every seven to eight years. So like in '19
Can't
David (02:23):
circle your calendar?
Mike (02:24):
No. Well, there there are charts that you'll see online
social media where they saythey've hacked the system and,
you know, they'll referencetheir favorite conspiracy theory
or secret group of people thatcontrol the world or whatever,
and this is how they manipulatepeople, and there's like
triangles involved, and it'sgarbage.
David (02:41):
Okay. Alright.
Mike (02:42):
It's just garbage advice.
David (02:43):
I'll delete those photos now then. Okay.
Mike (02:45):
Yeah. I should save those. Like, maybe we'll do maybe we'll
do a newsletter on it.
David (02:49):
But but
Mike (02:50):
like 1987, the markets crashed quickly. Black Monday.
Right? That was rough. Uh-huh.
And then they recovered quickly.And then in 1990, Iraq invades
Kuwait. That tanked the marketsquickly. Then you had ten years
of growth. Like, yeah, '99,there was a blip blip in the
market, but it recoveredquickly, so it wasn't really a
crash.
And then 02/2001 and o two,there were three crashes or
three years in a row where themarkets were going down. That
(03:13):
was a pretty tough time.
David (03:14):
Mhmm.
Mike (03:15):
How do you do count that? You know, it's like, it's at six
months, the markets recover in ayear. That was three years in a
row. The markets were goingdown. How do you calculate that
in your triangular whatevergraph that circulates?
If you if you have seen it, youknow what I'm talking about. If
you haven't, hopefully you neverget poisoned by that garbage
advice. And then in then acouple of years later, we had
(03:38):
this thing called the financialcrisis two thousand eight.
David (03:40):
Oh, remember that.
Mike (03:41):
That was pretty rough. Yep. And most people do.
David (03:43):
Yeah.
Mike (03:44):
That takes several years to recover. So and and then
what? From 02/2010, let's say,to 2020, ten years of growth.
And you might say, oh, well,Mike, then there's ten years of
growth, then there's a couple ofdifficult stitch. It's not it's
it's more random than that.
You can't mark it on yourcalendar, and it's funny you
asked that. I have had peoplethat say, don't need a financial
(04:05):
adviser. I'm all in on equities,so stocks.
David (04:08):
Mhmm.
Mike (04:09):
And then I go to cash in six year the sixth year and six
month, and I just wait.
David (04:14):
Let me how did that work out for him, I wonder?
Mike (04:18):
I mean, least they're invested most of the time. So I
guess it's it's better thannothing. It's better than having
your money in cash the wholetime.
David (04:24):
Sure.
Mike (04:25):
Yeah. But it's you're not gonna time the market that way.
It's not that simple. For thatsimple, everyone will be doing
it.
David (04:30):
Alright.
Mike (04:31):
So now you've got to ask yourself, okay, if if you don't
know what time the market'sgonna crash, how do you prepare
for it? This is where we like tohave a bear market protocol in
place. Bear market is theindustry jargon for a down
market. And why is that? Bullsare for up markets because when
(04:53):
a bull hits, you know, you getthe horns, they strike up.
Mhmm. A bull strikes up. That'san up market. A bear, when it
attacks, it strikes down withits claws. So a bear market's a
down market.
I don't think anyone reallycares to know that explanation,
but that's where it came from.
David (05:08):
Yes. It's too bad there's know, they have that bull statue
outside Wall Street. Why don'tthey have a bear one, like,
going
Mike (05:14):
Well, no one wants to address the bear.
David (05:15):
That's
Mike (05:16):
right. Everyone wants a portfolio for the bull market.
Yeah. And it's like, oh, well,the bear markets, you just have
to endure. Like, we recentlychanged our logo to add a bear
to it because you need to be youneed to face your fear.
This is kind of a dumb analogy,but you know how Batman is
scared of bats? Oh. So that'swhy he's a Batman?
David (05:31):
Oh, right. Right. Right. Hey.
Mike (05:34):
But but very few people, it's like, oh, well, you know,
we we've got your stocks andbond funds, and that will help
you get through. It's almostlike you have to endure it.
Well, why why you just have aprotocol for when it happens?
Here's how you maintain yourhappiness, joy, and well-being.
David (05:48):
Mhmm.
Mike (05:48):
Here's how you maintain your income. It's not hard.
Mhmm. And the reason why I thinkthis is important is a lot of
people are scared about themarket crash, as they should,
and so then they they buy anannuity and take lifetime
income. Now you can useannuities for other things, but
that's kind of the the morepopular bit.
So anyway, so I go back. 30%crash. Yeah. A bear market.
(06:09):
Yeah.
These are rough. If the marketsgo down 30% or your accounts go
down 30%, let's say, that's morerelevant Mhmm. It would take a
43% return to break even. Now,if you pull out, let's say, 4%,
so your your account is down 30,and you've you've taken out 4%
as a withdrawal because you needto pay, you know, your bills.
(06:30):
It's important.
You know, food.
David (06:31):
Yes.
Mike (06:32):
Regardless of what you wanna do in life, you're going
to need to eat food. That'sright. All humans have this
necessity of food and water, andyou might enjoy some shelter too
while you're at it.
David (06:41):
Yep. You
Mike (06:41):
know, think of Walden's Pond. So you're now down 34%.
David (06:48):
Yes. You've added on. You've tacked on to your losses.
Mike (06:50):
Yeah. Now instead of a 43% return, it's a 50% return to
breakeven. It's even moredifficult. Yes. Now keep in
mind, some markets can go downmore than 30%.
Some could go down 50%. And youknow what that means? A 100%
return to breakeven. It mighttake you five, six, seven years
just to recoup from the losses.Uh-huh.
(07:13):
So is it worth putting all ofyour assets in a bunch of equity
ETFs and calling it good? Yeah.If the markets only go up, but
they don't.
David (07:24):
Right.
Mike (07:25):
So in retirement, if your retirement's thirty years long,
there's a reasonable chance thatyou'll experience three to four
significant market crashes. Sothe question is, do you have
three or four bear marketprotocols or parts of your
portfolio that, not if, but whenthe markets crash, you know
exactly what to do. Here's anexample. My family's kind of
(07:47):
weird in that we would alwayshave like, I don't know,
emergency preparation drills.You know, like at school they
have the fire drills?
David (07:54):
Sure,
Mike (07:55):
yeah. Well, we we did these as a family where it's
like, hey, if there was a fireor an earthquake or there was a
gas leak, what do you do? Now,kids had no idea what was going
on. Uh-huh. But if it's a gasleak, we all knew where to shut
off the gas on the house, andthere was the big wrench there
that you could turn and shut itoff.
If there was an earthquake or awater issue, we all knew where
(08:15):
the water was. Like we knew whentimes were calm, what to do
before an event would happen.Now, goodness, I've never had to
shut off the gas or the water toa house except for like when the
plumber came over, but theplumber did it anyway. I just
knew where to point the plumberthere.
David (08:31):
Non emergency situation.
Mike (08:33):
But you think clearly when you're calm. You don't think
clearly when you're not calm,when you're stressed. And
there's a whole, like,literature around how people
think in the flooded state.
David (08:46):
Yes. In flooded state, where where are you flooded?
Mike (08:48):
Yeah. Like fight, flight, freeze, or faint.
David (08:50):
Okay.
Mike (08:51):
You don't think clearly. You've lost your critical
analytical abilities. So whenthe markets crash and you're
stressed, you're probably notobjectively, critically,
analytically addressing thesituation.
David (09:04):
Right.
Mike (09:04):
So you need to have the bear market protocol now before
it happens. So what does thatlook like? There I should write
a book on this. Call we'll callit the bear market protocol
handbook.
David (09:15):
Okay.
Mike (09:15):
Be a great compliment to how to retire on time.
David (09:18):
Yeah. Yeah.
Mike (09:19):
Yeah. But there are so many ways you could structure
it. Let's just kind of gothrough a bunch of these
different ways. Okay. I'm notsaying this is right for you or
wrong for you.
It's just, You know, do you liketo cook with garlic and onions?
Most people do, some peopledon't. Do you like asparagus? Do
you like I don't know. I mean,these are ingredients.
Mhmm. Use the ingredients youwant for your portfolio how you
(09:41):
want. Everyone's got a differentflavor they prefer. You know, do
you like Mexican food? Do youlike Thai food?
Do you like okay. I digress.
David (09:48):
Okay.
Mike (09:49):
So a common one that I see is someone will will keep two,
three, maybe up to four ifthey're more conservative years
in a rolling CD or treasuryladder. So they'll invest and
the treasury is gonna mature inyear one, year two, year three,
year four. And if the marketsaren't crashing, when it
(10:09):
matures, they roll it over intoa new three or four year
treasury, and so just kind ofit's like a caterpillar almost.
Okay. It just kinda keepsrolling until they need it.
David (10:18):
This is like a certain portion of their overall
portfolio?
Mike (10:21):
Yeah. Okay. You've gotta build the plan first. You have
to know what your income needsare Uh-huh. Before you can even
calculate all this.
But you can get an idea of justthere's not bond funds. Bond
funds can lose money, but bondswhich are treasuries.
David (10:33):
Okay.
Mike (10:34):
So a bond by the way, it's just a debt instrument. Most
people a lot of people don'trealize that.
David (10:39):
So you're like helping fund the debt. Someone someone
needs to take debt
Mike (10:42):
like a Treasury. Yeah. You're taking debt from the US
government and they're gonna payyou interest on it and then you
get your money back.
David (10:47):
You become the creditor in a way, right?
Mike (10:50):
So you can do this through through corporate bonds, you can
do it through treasuries, youcan do CDs. Just understand that
there is reinvestment risk, sowhen you go to renew, you might
not get the same rate. Alright.Just be careful of that, but
that's one that anyone canimplement on their own, very
easy to do. Okay, so you gotthis kind of rolling situation.
David (11:09):
Okay.
Mike (11:10):
For other people, I've seen them use fixed indexed
annuities. This is tricky, butwhat they'll do is they'll
they'll buy a a fixed indexedannuity that has a 10% penalty
free withdrawal. But they justthey want enough of their
they're replacing their bondfunds in their portfolio and put
them into fixed indexedannuities because the the index
(11:33):
part of it, you've got moregrowth potential maybe than CDs
or treasuries. No downside risk.There's no fees with it.
It's just you're not gonna makeas much money on the good years,
but you you won't lose as muchon the down years, and you've
got this 10% penalty forwithdrawal. And so they'll put
enough in there that if themarkets were to crash, they
could cover most of their basiseach year with that 10%
(11:54):
liquidity.
David (11:55):
Oh, okay.
Mike (11:56):
The problem is if you take several years to recover, that
ten percent is usually based onthe account value. So if you
take out 10% and it's growing at6%, you're getting less money to
work with each year. You're kindof going backwards slowly, so
that can kind of pinch yourability to maintain this. That
(12:17):
makes sense? It's not perfect.
It's just a way I've seen peopledo this.
David (12:20):
Right. It's not growing faster in that product than your
withdrawing. Is that what you'resaying?
Mike (12:25):
Yeah. So like the first year, let's say you take out
30,000, so 10% of 300,000. So30,000 you take out plus your
social security, that's enoughfor your specific situation.
Uh-huh. Then the next year, youcan't take out 30,000.
Let's say it grew by 6%. So nowmaybe you take out and I'm not
doing the math in my head rightnow, just I'm not that good at
(12:47):
math. I use calculators. Butlet's say the next year you're
taking out 27,000.
David (12:51):
Okay.
Mike (12:51):
Sure. And the next year you're taking out 25,000. Like I
get the point. You're gonna begoing backwards. It's that might
make it more difficult.
David (13:00):
To sort of maintain
Mike (13:01):
It's a liquidity issue.
David (13:02):
Yeah. Okay.
Mike (13:03):
Okay. Another way that people have used fixed indexed
annuities for this is it'scalled period certain. This is
not talked about a lot. So thereare some products, most I have
found don't offer this anymore.And that's an anecdotal
observation.
(13:23):
I I've never quantified themajority share or whatever, so
what But I'm I'm finding theseare more and more difficult to
find. But you can put your moneyinto a fixed index annuity that
should be growing at areasonable rate of like a bond
fund. Again, it's not gonna makeyou rich, but you can then turn
on what's called a five yearperiod certain. So not lifetime
(13:44):
income, you are guaranteed toget your money back in five
years of structured paymentskind of like a CD ladder from a
bank except for it's from aninsurance company. And so what
happens is let's say you putsome money into one of these
fixed index annuities.
Maybe the first year it grows by6%, the next year it grows by
(14:04):
2%, the the next year it growsby 8%, whatever.
David (14:09):
Okay.
Mike (14:10):
Okay? I'm not quoting any products here. I'm just giving
an example. Yeah. And then inthe fourth year, the markets
just tank.
Just horrible. So you turn onyour income. Now you're gonna
get structured payments in thatfourth, fifth, sixth, seventh,
eighth year, every month, thesame payments, it's not affected
(14:30):
your other accounts, so yourother accounts now have five
years to recover, and you'regonna get these structured
payments each year.
David (14:38):
Mhmm.
Mike (14:38):
Okay? For five years. If you die in the second year,
someone else is gonna get thepayments. It's period certain.
Yeah.
You're guaranteed to get it orsomeone's getting the money. So
it's not like that. Well, if Idon't live long enough, the
insurance company's gettingrich. It's just a CD ladder that
you can trigger later on. And sosome people like this because
they're like, well, we don'tknow when the markets are gonna
crash, we don't wanna have itrolling into a treasury fund, we
(15:00):
want a bit more growthpotential.
And so they like the fact thatthey can just turn on the
income, five years, theiraccounts have plenty of time to
recover, and it just kind ofsails through. That's a
protocol.
David (15:12):
Okay.
Mike (15:12):
Yeah. Do you see how these are protocols, by the way? It's
a system you just follow?
David (15:15):
System's already set up and it's waiting to be enacted.
You just pivot to it whenneeded. Is that fair to say?
Mhmm. Pretty like, seamlesslypivot right to it.
Mike (15:24):
Yeah. When do you need a first aid kit?
David (15:26):
Oh, yeah. Well, as soon as I, like, hit my, you know,
finger with my hammer or, like,I'm using my table saw and I cut
my finger, that's when I needthe first aid
Mike (15:34):
Or when you wreck on your mountain bike.
David (15:36):
I have needed one then, yes.
Mike (15:38):
That's true. So you don't need it in times of good, you
just need it for when times arebad and it's ignorant to think
that times will never be bad.Mhmm. These are bear market
protocols. Mhmm.
There are other ones that likesome people will use what are
called buffered ETFs. Okay. So abuffered ETF right now, you
might get up to 7% growth. Soyou get up to 7% of the S and P,
(16:01):
but next to, like, a lot ofdownside protection I say a lot
of downside protection. Rightnow, what I'm seeing, these rate
rates will change, the first 60%of losses are buffered out as in
you don't experience them.
So if the markets drop 50%, yourprincipal would be roughly
protected. You just pay theexpense ratio. It's like point
(16:23):
7% a year. If the markets godown 70%, you lost 10%.
David (16:28):
So there's like a buffer between your principal and your
losses.
Mike (16:33):
Yeah. It takes out. Takes you. Yeah. Okay.
So what they'll do is instead ofthe the the treasuries or CD
that just kinda roll over,they'll just put into a buffer
ETF, little bit more growthpotential, but it's not
guaranteed growth.
David (16:46):
Mhmm.
Mike (16:47):
So maybe over time, you might get an extra average of a
percent growth. Maybe. I mean,again, no one can predict future
performance. But you just keepit in there, they keep rolling
over, and then when the marketsgo down, you just start tapping
into that because they havereasonable liquidity. Like, you
could technically take it outwhenever you wanted Oh.
But you wanna take it out rightafter they renew. And every
(17:09):
month, there's they kind ofrenew. Every month. There's a
new buffered ETF every monthavailable.
David (17:14):
Okay.
Mike (17:16):
But they renew every year. So you might do like a couple in
January, a couple in March, acouple and you can divide it up
so you kind of have this rollingquarterly renewal rate or
whatever.
David (17:27):
And so the buffer ETF just in it's like a security and
invest in securities?
Mike (17:31):
Yep. It's technically it's equities. Yeah.
David (17:33):
Okay. And so so someone in their forties have a buffered
ETF? Is it gonna make you rich?
Mike (17:40):
That's a great question. I would say that's more of a risk
suitability standpoint. Soemotionally, how should your
portfolio be? Do equities makesense? Do you just need some
some stability in there?
And if that's the case, wouldyou look at bond funds? Would
you look at buffered ETFs? Youwouldn't look at annuities.
You're too young for annuities.You don't I don't think there's
(18:01):
any reason why you would buyannuities at all, unless you're
maybe 55, 60 years old.
David (18:08):
Okay.
Mike (18:09):
That's just my opinion. Yeah. You could also look at
life insurance. If it'sstructured correctly, life
insurance could act as a similarsituation to like a buffered ETF
or a fixed index annuity withthe life insurance component.
There's just you're paying forlife insurance.
You have to also want the deathbenefit in life insurance
features.
David (18:29):
Mhmm.
Mike (18:30):
If you don't want to pay for that stuff, don't go there.
David (18:32):
Alright.
Mike (18:33):
So we've just touched on a couple of them, and we didn't
even talk about, like, ladderingthem out or bucket strategies or
anything like that. There's somany different ways you could
you could develop this, but atthe end of the day, you've got
to have, in my opinion, whenyou're retired, a bear market
protocol. You know exactly whatyou're gonna do, not if, but
(18:53):
when the markets go down, sothat you're able to sustain your
income without accentuatinglosses.
David (18:58):
That's sort of the main critical component, right?
Mike (19:01):
That's it. If you can have something like that, a lot of
terms around it, lot of wayspeople describe it, but if you
can have something like that,then in my opinion, as long as
it's implemented correctly, yousignificantly increase your
overall chances of success inretirement. So not outliving
your money, getting throughmarket crashes, having a
reasonable amount for yourestate planning, your legacy, or
(19:24):
whatever it might be. So thesedetails do matter. It's not just
put the assets in some randomarbitrary blend based on your
risk portfolio, whatever thatactually means.
David (19:35):
Mhmm.
Mike (19:35):
And then just kinda figure it out along the way. I don't
believe in figuring it out alongthe way. I believe in having a
system before you actually needto implement it. That's all the
time we've got for today's show.If you enjoyed the show,
consider telling a friend,leaving a rating, and most
importantly, that you aresubscribed to it so that you
don't miss a thing.
(19:56):
For more resources, including acopy of my book, on demand
courses, and so much more, justgo to www.retireontime.com. If
you want help putting yourretirement plan together, go to
retireontime.com and click thebutton that says get started.
But seriously, from all of ushere at Kedrick Wealth, we wanna
thank you for spending yourtime, your most precious asset
with us today. We'll see you inthe next episode.
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