December 1, 2025 • 20 mins
"Hey Mike, is it true that the first five years of retirement are the most risky for your portfolio?"
Discover three strategies that may make the next market crash an opportunity.
Text your questions to 913-363-1234.
Request Your Wealth Analysis by going to www.retireontime.com
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Episode Transcript
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Mike (00:05):
Welcome to How to Retire On Time, a show that answers
your retirement questions. We'rehere to move past that
oversimplified advice thatyou've heard hundreds of times.
Instead, we're gonna get intothe nitty gritty. As always,
text your questions to (913)363-1234. And remember, this is
just a show, not investmentadvice.
Do your research. David, what dowe got today?
David (00:26):
Hey, Mike. Is it true that the first five years of
retirement are the most riskyfor your portfolio?
Mike (00:33):
In the conventional sense, I would agree with that, and
here's why. So the cliche termis called sequence of returns
risk. And let me just pull itback for a second. That's a
really jumbled way to say, look,the sequence of the return or
your annual returns are gonnamatter. You don't wanna average
it out.
Well, this year it was thismuch, and then this year it was
(00:55):
that much, and this year it wasthat much, and that's not a
clear picture of your actualreturn. And the reason is if you
have, let's say, a 20% return,well, 20% return of what?
David (01:05):
Okay.
Mike (01:06):
See, the year before, that return mattered. So if you had a
30% crash, and then you got a20% return, well, you got a
return on less money.
David (01:17):
Okay.
Mike (01:18):
You see how people get caught up in percentages, and
they forget about thecompounding nature of the actual
dollars in your account. Well,that's what you actually spend
is your dollars, not yourpercentages.
David (01:30):
Yeah. They don't they won't take my percentages at the
car dealership or anything? No.They don't care. Alright.
Mike (01:35):
So when you understand that side of things, then you
understand that if the marketswere to go down, let's say 30%,
and then let's say you took out4% as income, you're now down
34%.
David (01:49):
Makes sense.
Mike (01:50):
That's less money, which makes it more difficult to
return, to break even, torecover, to x y z. And so those
first five years are criticalbecause if the markets were to
crash, and no one knows when thenext market crash is gonna be.
But if the markets were to crashand you took income out of that
account, you're accentuatinglosses, you're making it more
(02:12):
difficult to recover, thatdivergence is a lifelong
consequence. Lifelong. Oh.
You're not gonna outgrow that.It's like, you know, you get hit
in the leg and it hurts for awhile, you eventually recover.
Yes. Well, imagine just likecutting a muscle and then trying
to recover something. That seemsreally graphic.
David (02:31):
Take longer.
Mike (02:32):
Yeah. What's a better analogy here? I don't know. You
break a bone and it healsincorrectly. You kinda are
dealing with it for the rest ofyour life.
So if the markets were to godown, and the growth part of
your portfolio goes down 30,that would need a 43% return to
break even. Okay? You with me sofar?
David (02:49):
Yes. It's down that much, and then it needs to go up by
4343%.
Mike (02:53):
Okay.
David (02:53):
Just to get back to where
Mike (02:54):
you were. Just to get to zero dollars. Ugh. Zero gain.
Don't pass go Collect $200.
Just try to get to go. Just passboardwalk.
David (03:03):
Yeah.
Mike (03:03):
So if your account, your growth assets are down 30%,
which isn't that big of a marketcrash, all things considered.
Remember 2008, 50% crash.02/2001 and o 50% over three
years. Okay. And there are othersituations like that throughout
history.
(03:24):
I'm not cherry picking a coupleof bad moments. No. They're
actually quite common when youconsider the grand scheme of
things.
David (03:30):
Okay.
Mike (03:30):
But if you're down 30, and then you take out 4%, that's not
a 43 or 44 or 45% return. Say50% return to break even. Now
let's say you had to take someincome out, and then you need
new roof or something elsehappened, and now you're down,
let's say, 50%. Or maybe youjust oversimplified your
portfolio, and instead of themarket's 30% loss, you're now
(03:52):
down 50%. Because, you know,that could happen.
Yeah. The Nasdaq was down like80%, 80%, something like that.
David (04:02):
When was this?
Mike (04:02):
From 02/2001 and o two, because it was mostly tech
stocks. So let's say you justyou're like, oh, well, Nvidia
can only get go up. Palantir tothe moon or whatever. Yeah. And
now you're down 50%, that's a100% return to break even.
So your bills are the same pricepoint. You need a certain amount
of calories every day to live.There are certain humanistic
(04:27):
baseline needs that you have.Yeah. Maybe you're still paying
your mortgage in retirement.
Maybe you're still paying off Iknow people that are still
paying off their student loansWoah. As they enter retirement.
Whatever your situation is Yeah.Your basic needs, it's a finite
fixed baseline dollar amountthat does not care about your
(04:49):
portfolio performance. So thisis where you look at the first
five years and say they're morerisky, because if you get it
wrong, you could be limpingalong for the rest of your life.
I mean, if you have the firstfive years, seven years, ten
years of your retirement, and itjust grows like crazy, you're in
(05:10):
a good spot.
David (05:11):
And so people who have retired in the last few years,
are they kind of in that spot?
Mike (05:15):
Oh, yeah. Well, if you retired in, let's say, 2012 or
later, you only know a growthmarket. Uh-huh. Oh, well, Mike,
you know, the markets crashed in2020. Yeah.
Yeah. But they recovered thatyear. Yeah. That's not a real
crash. That's a blip in theradar.
And then they printed money.Eventually, things opened up,
(05:35):
and it recovered very quickly.Yeah. It was a scary time. It
was a very scary time.
I get that. But you reallydidn't have to endure the
magnitude of fear that we feltat the beginning because it
recovered so quickly. So whenyou're going down a roller
coaster, you're like, oh, it'sgonna be scary. How long is it
gonna drop? And then once youyou get the bottom and you're
like, oh, that wasn't that bad.
(05:57):
Yes. That was 2020.
David (05:59):
Okay.
Mike (06:00):
Or 2022, 2023. It was kind of a slow burn. Your bond funds
weren't doing well. Those aren'treal market crashes. They were
federally manipulatedrecoveries.
So it was faster and was easier.
David (06:13):
Okay.
Mike (06:14):
So if you retired from 2012, in my opinion on, you only
know a growth market. You reallydon't know what a financially
difficult market is. Yourexperiences or your history is
shaping notice notice thepattern here. Your history is
shaping your habits. Yourhabits, it's behavior based
patterns on your actions.
(06:35):
In other words, how you'reinvesting. And right now,
regardless of whatever systemyou have, you probably feel like
you can do no wrong.
David (06:43):
Yeah. No matter how you have your portfolio aligned,
it's been pretty good.
Mike (06:49):
It's been really good. The DIY investor did not need a
financial adviser over the lasttwelve years. A monkey didn't
need it. And I'm not criticizingDIY investors True. At all.
Love the DIY. But notice how ifeverything's going up, it's
really easy to look good. Yeah.And then you want to sustain
(07:11):
those results, and you thinkyou've got it figured out. And
you're like, well, bond fundsare stupid, so I'm just not
gonna have those.
And you start de riskingyourself. You start getting more
reckless, and you have no ideawhat you're doing. So that's the
premise of this is, yeah, thefirst five years of retirement
are the most important, becauseif you accentuate a loss, you're
(07:34):
limping along for the rest ofyour life. Also today for the
next five years, is the marketgonna crash? No one knows.
But if it does, and you were toretire soon, that's a tough
situation to be in.
David (07:45):
And are there some signs out there right now that maybe
point to a potential marketcrash or overvaluation or fill
in the blank?
Mike (07:55):
Yeah. They call that a bias. So I've known advisers
since 2015 that were saying nextyear, the markets will probably
crash, and they create anargument as to why.
David (08:07):
Okay.
Mike (08:08):
That's the problem. There's always an argument for
and against any economicoutcome. So which is it? No one
knows. And that's why I don'tbelieve that anyone should
really be focusing on a set itand forget it strategy, because
everything works until itdoesn't.
So a lot of people will buy anannuity and turn on lifetime
(08:29):
income and say, well, it works,and it's guaranteed for life.
Well, it might work by avoidingmarket risk, but you've got
inflation risk. So everyone thatbought an annuity turned on
lifetime income before twentytwenty. In 2020, they're going,
oh, I'm really smart because I'mstill getting my paycheck during
these turbulent times.
David (08:48):
Mhmm.
Mike (08:48):
And then 2021 happened, and inflation eroded, 2022, and
eventually got under control.But you lost what? 30% of your
buying power for life? Becausethose payments, in all
likelihood, weren't going up.They were probably flat.
David (09:01):
But yet the costs of everything were were high.
Mike (09:04):
Horrible. Yeah. So you can get rid of one risk, but you're
taking on another. That's howthis works. There's no such
thing as a riskless retirement.
Now can I get a littlecontroversial for a second?
David (09:18):
I mean, you've never been afraid to in the past.
Mike (09:20):
Yeah. Why not? So in my opinion, a significant market
crash in the first five years ofretirement is one of the best
things that could happen to aretiree. Okay. If they prepare
correctly.
Most are not. This is notconventional portfolio
(09:40):
structure. This is notconventional plan design. This
is thinking outside of the boxand saying, well, what if? And
then fill in the blank.
Mhmm. So first off, let's solvethe income problem. What if for
the first five years or a fiveyear period of time, you did not
have income need concerns? Soinstead of lifetime income, what
(10:00):
if you did buy something likeand I'm not telling you to go
out and do this, But what if youdid buy an annuity, a fixed
index annuity with a five yearperiod certain so that when the
next market crashed, instead ofyou trying to figure out how to
make this work with your bondfunds, you just had something
else that you could turn onincome, and it turned into
basically a CD ladder for fiveyears, gave you monthly payments
for the next five years, thatgives your other accounts more
(10:24):
than enough time based onhistorical averages to recover.
You don't accentuate losses.
You've structured out yourincome. It's not lifetime
guaranteed income because youwant flexibility, but you've now
just basically gone on thisjourney and said, oh, there's a
Grand Canyon in front of us. Howdo we get through it? Oh, we
push this button, and thenmagically, this income stare for
(10:44):
the next five years appears.It's not really magic.
It's just called good planning.Do you see how that works? Yeah.
Now you're not dealing withsequence of returns risk. What
you're dealing with is, okay, ina good situation, this is how I
take my income.
In the next market crash Yeah.And you're able to change it
along your journey, alongretirement. That's the first
(11:05):
part.
David (11:05):
Okay.
Mike (11:06):
Second part, taxes are a big issue for retirees. Are they
not? Yeah. Of course they are.So most people seem to have all
of their assets or majority oftheir assets in IRAs.
So when they turn 73 or whateverthe RMD ages when you get there,
you're gonna be forced to payincome taxes, right,
distribution, whether you end upspending it or you reinvest it,
(11:29):
you're gonna be forced to pullmoney out of your IRA. That's an
income tax situation, ordinaryincome. So what if just hear me
out.
David (11:37):
Okay.
Mike (11:39):
What if when the markets crashed, let's say your
portfolio for easy math wentdown 50%, your growth portfolio,
your IRA went down 50%.
David (11:47):
K.
Mike (11:49):
The tax bracket is still the same. The tax bracket didn't
lower by 50%. Uh-huh. It's thesame dollar amount. So in other
words, if your account goes downhard, yeah, that stinks.
But now if you don't sell theassets, don't sell your
positions, you can get twice asmany of them from your IRA to
(12:09):
your Roth and pay the same taxbill as long as you pay the
taxes out of a protectedaccount, whether it's CD or you
can maybe take it from thatfixed index annuity payments.
You just you got your incomeplus a little bit extra for
taxes. Maybe it's a bufferedETF. Maybe it's a bond, like a
treasury. Whatever it is, youcan structure however you want.
(12:32):
But if you know when the marketscrash, you're gonna take your
assets, let's say, $100 a share,now it's $50 a share, you can
get twice as many IRA to Rothconverted. That accelerates your
amount of money you're movingfrom one account to the other,
and you paid half the taxes oryou paid the same amount, but
you got twice however you wannaslice it. You've accelerated
(12:55):
your tax planning withoutaccentuating losses.
David (12:59):
So that RMD, when you have to do it, that's when you
can do a Roth conversion,basically? Because you're taking
the money out, you pay thetaxes, and then you're free to
do whatever.
Mike (13:08):
I mean, it's in your Roth. So it grows tax free, pays out
tax free. Yeah. There's no RMDson the Roth. So Okay.
Why wouldn't you wanna do that?Right. But if you do a
conversion at the bottom of themarket, and then you pay the
taxes out of that conversion,that's the same as taking
income. You're accentuating yourlosses. So let's say your
(13:30):
accounts go down 50% for easymath, and you've gotta pay, I
don't know, 20% of theconversion over.
Now your your accounts just gothit down even harder. You're
punching down or whatever theexpression would be. So that
accentuates the losses, makingyour Roth have a more difficult
time to recover. You don't wannado that. You've gotta have some
assets that are protected sothat they can pay the taxes
(13:53):
based on the conversions thatyou're trying to do.
That's step two in what we callthe bear market protocol.
David (14:00):
Okay. Alright.
Mike (14:01):
Yeah. And it could be a CD ladder. You could do a bond
ladder. There's many ways toslice it. The easiest one in my
opinion is to buy a fixedindexed annuity to just turn
that five year period certain.
Most people don't even know thatexists. Right. Because everyone
talks about this lifetime incomestream, which Yeah. My book
argues against that, but Iacknowledge why people would
want that, but whatever. Mhmm.
I believe you need to haveflexibility with some growth,
(14:22):
some protection, balance, andall things. But anyway, so if
you can take income from aprotected source, the other
accounts have time to recover.Great. Mhmm. You're not creating
an issue of sequence of returnsrisk, like when everyone talks
about.
Then the taxes, so when youraccounts go down, this is why
it's really, really good. Ifyour accounts go down Mhmm. And
you're able to put twice as muchthrough your IRA to your Roth,
(14:46):
now your future tax burdens areless.
David (14:48):
Oh, yeah. Yeah.
Mike (14:49):
Yeah. You see how that worked? Yep. K. Pretty good.
Yeah. Now here's the third one.Are you ready for it? I'm ready.
The third one is somewhatsymbolic upon the holiday that's
near
David (15:01):
Okay.
Mike (15:01):
And a moment in history. So let me decode that for a
second.
David (15:04):
Yeah, please.
Mike (15:06):
Black Monday nineteen eighty seven was a very scary
day. If you don't remember it,here's what happened. The
markets dropped 20% in a day.Oh. Imagine you've worked forty
years.
Uh-huh. You've got a milliondollars, and then you lose
200,000 in a day.
David (15:24):
That would be painful.
Mike (15:26):
Yeah. That would hurt. That's how most portfolios seem
to be set up is to just take iton the chin, and if the markets
crash, you just kind of shoreup, you spend less money, you
just kinda get through it. Andthat's a crappy situation. Yeah.
So the next market crash caneither be a Black Monday for
you, where you just watch yourmoney go away, and you're just
panicked, concerned, losingsleep, fill in the blank. Mhmm.
(15:50):
Or it can be a Black Friday.Everything's on sale.
David (15:54):
Oh.
Mike (15:55):
Now I'm not saying you put all of your assets into
protected growth accounts, butwhat if you had some that were
liquid enough that when themarkets tanked next, you started
buying things at 50% off? Let'ssay stock x y z is a $100 a
share, and it loses 50%. Now youcan buy it at $50 a share.
David (16:16):
Okay.
Mike (16:17):
That's the same as 50% off.
David (16:18):
That's a good discount. Yeah. I'm usually excited if I
see a 50% off.
Mike (16:23):
Yeah. So everyone's concerned about the next market
crash because, oh, well, themarkets are gonna crash. I'm
gonna lose money. I can't do IRARoth conversions because I don't
wanna accentuate the losses, andI can't take income because I
don't wanna accentuate thelosses. So I better lock
everything up to an annuity andhope it all works out.
No. That's the wrong way to lookat it. The next market crash, if
you prepare your plan correctly,is you've got income from a
(16:45):
protected source so you can sailthrough it no problem. You're
able to accelerate your taxplanning because you're doing
conversions at a lower rate, andyou're buying into the market
with everything on sale, whichleaps your assets forward
whenever it recovers. Andbroadly speaking, the markets
have always recovered.
Yeah. Individual stocks, not aguarantee. Well, there's really
(17:07):
nothing guaranteed in themarket, but you see my point.
Historically, that's alwaysrecovered. Stocks have not
always recovered.
Some stocks are no longer withus. May they rest in peace, Toys
R Us. But you see my point.There are certain things we
cannot control. So when youaccept those and you build a
plan to turn those pitfalls intoopportunities, laying and
(17:31):
waiting for you, then you're notscared about the next five years
or the first five years of yourretirement because you did some
good planning.
David (17:39):
Okay.
Mike (17:40):
That's my opinion, and it's a very strong one that's
very well researched because thereality is you need to have some
You're going to have some moneythat's lost in the next market
crash. But those are funds, ifappropriately designed, are
funds you don't need to touchfor over ten years anyway. So
you can let them recover. Andyour other assets that might be
(18:02):
protected, we call it the bearmarket reserves, just spending
spree at that point. Have at it.
Yeah. I I can't really do BlackFriday sales, but I I just can
imagine the people lining up atWalmart. Yeah. I worked at
Target. That was my first jobwhen I was 16.
David (18:19):
Okay.
Mike (18:19):
We'd line up carts. So when people would come in,
they'd grab the cart and thenrun to the deal they wanted. It
was madness.
David (18:28):
I've never done that personally.
Mike (18:30):
Yeah. I don't. But everything in the market just
is. Does not care about yourfeelings. It's your preparation
that's going to help youunderstand, is it opportunity or
is it a disaster?
And right now is the time thatyou have to prepare so that when
not if, but when it happensMhmm. You've decided how you
(18:50):
want to experience thatsituation.
David (18:53):
And so did we answer the question here? Is it true that
the first five years ofretirement are the most risky?
Mike (18:58):
Just depends on how you prepare. Yeah. If you wanna go
hiking in Alaska in the summer,you might need a light jacket,
that's it. Yeah. But if youwanna go in the winter, and
you're still wearing that lightjacket, yeah, you're you're at
risk of hypothermia and allsorts of other issues.
So it just depends on how you'reprepared. And this idea of one
portfolio, set it, forget it,that's the dangerous part. It's
(19:21):
the products being sold that Ithink are without context to
understand how to prepare forwhat could happen. You want to
be adjusting your portfolio. Youwant to be making adjustments
along the way.
The problem is products aresold, not strategies. And I
think you win retirement throughstrategy. That's all the time
(19:42):
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(20:02):
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Welcome to How to Retire On Time, a show that answers
your retirement questions. We'rehere to move past that
oversimplified advice thatyou've heard hundreds of times.
Instead, we're gonna get intothe nitty gritty. As always,
text your questions to (913)363-1234. And remember, this is
just a show, not investmentadvice.
Do your research. David, what dowe got today?
David (00:26):
Hey, Mike. Is it true that the first five years of
retirement are the most riskyfor your portfolio?
Mike (00:33):
In the conventional sense, I would agree with that, and
here's why. So the cliche termis called sequence of returns
risk. And let me just pull itback for a second. That's a
really jumbled way to say, look,the sequence of the return or
your annual returns are gonnamatter. You don't wanna average
it out.
Well, this year it was thismuch, and then this year it was
(00:55):
that much, and this year it wasthat much, and that's not a
clear picture of your actualreturn. And the reason is if you
have, let's say, a 20% return,well, 20% return of what?
David (01:05):
Okay.
Mike (01:06):
See, the year before, that return mattered. So if you had a
30% crash, and then you got a20% return, well, you got a
return on less money.
David (01:17):
Okay.
Mike (01:18):
You see how people get caught up in percentages, and
they forget about thecompounding nature of the actual
dollars in your account. Well,that's what you actually spend
is your dollars, not yourpercentages.
David (01:30):
Yeah. They don't they won't take my percentages at the
car dealership or anything? No.They don't care. Alright.
Mike (01:35):
So when you understand that side of things, then you
understand that if the marketswere to go down, let's say 30%,
and then let's say you took out4% as income, you're now down
34%.
David (01:49):
Makes sense.
Mike (01:50):
That's less money, which makes it more difficult to
return, to break even, torecover, to x y z. And so those
first five years are criticalbecause if the markets were to
crash, and no one knows when thenext market crash is gonna be.
But if the markets were to crashand you took income out of that
account, you're accentuatinglosses, you're making it more
(02:12):
difficult to recover, thatdivergence is a lifelong
consequence. Lifelong. Oh.
You're not gonna outgrow that.It's like, you know, you get hit
in the leg and it hurts for awhile, you eventually recover.
Yes. Well, imagine just likecutting a muscle and then trying
to recover something. That seemsreally graphic.
David (02:31):
Take longer.
Mike (02:32):
Yeah. What's a better analogy here? I don't know. You
break a bone and it healsincorrectly. You kinda are
dealing with it for the rest ofyour life.
So if the markets were to godown, and the growth part of
your portfolio goes down 30,that would need a 43% return to
break even. Okay? You with me sofar?
David (02:49):
Yes. It's down that much, and then it needs to go up by
4343%.
Mike (02:53):
Okay.
David (02:53):
Just to get back to where
Mike (02:54):
you were. Just to get to zero dollars. Ugh. Zero gain.
Don't pass go Collect $200.
Just try to get to go. Just passboardwalk.
David (03:03):
Yeah.
Mike (03:03):
So if your account, your growth assets are down 30%,
which isn't that big of a marketcrash, all things considered.
Remember 2008, 50% crash.02/2001 and o 50% over three
years. Okay. And there are othersituations like that throughout
history.
(03:24):
I'm not cherry picking a coupleof bad moments. No. They're
actually quite common when youconsider the grand scheme of
things.
David (03:30):
Okay.
Mike (03:30):
But if you're down 30, and then you take out 4%, that's not
a 43 or 44 or 45% return. Say50% return to break even. Now
let's say you had to take someincome out, and then you need
new roof or something elsehappened, and now you're down,
let's say, 50%. Or maybe youjust oversimplified your
portfolio, and instead of themarket's 30% loss, you're now
(03:52):
down 50%. Because, you know,that could happen.
Yeah. The Nasdaq was down like80%, 80%, something like that.
David (04:02):
When was this?
Mike (04:02):
From 02/2001 and o two, because it was mostly tech
stocks. So let's say you justyou're like, oh, well, Nvidia
can only get go up. Palantir tothe moon or whatever. Yeah. And
now you're down 50%, that's a100% return to break even.
So your bills are the same pricepoint. You need a certain amount
of calories every day to live.There are certain humanistic
(04:27):
baseline needs that you have.Yeah. Maybe you're still paying
your mortgage in retirement.
Maybe you're still paying off Iknow people that are still
paying off their student loansWoah. As they enter retirement.
Whatever your situation is Yeah.Your basic needs, it's a finite
fixed baseline dollar amountthat does not care about your
(04:49):
portfolio performance. So thisis where you look at the first
five years and say they're morerisky, because if you get it
wrong, you could be limpingalong for the rest of your life.
I mean, if you have the firstfive years, seven years, ten
years of your retirement, and itjust grows like crazy, you're in
(05:10):
a good spot.
David (05:11):
And so people who have retired in the last few years,
are they kind of in that spot?
Mike (05:15):
Oh, yeah. Well, if you retired in, let's say, 2012 or
later, you only know a growthmarket. Uh-huh. Oh, well, Mike,
you know, the markets crashed in2020. Yeah.
Yeah. But they recovered thatyear. Yeah. That's not a real
crash. That's a blip in theradar.
And then they printed money.Eventually, things opened up,
(05:35):
and it recovered very quickly.Yeah. It was a scary time. It
was a very scary time.
I get that. But you reallydidn't have to endure the
magnitude of fear that we feltat the beginning because it
recovered so quickly. So whenyou're going down a roller
coaster, you're like, oh, it'sgonna be scary. How long is it
gonna drop? And then once youyou get the bottom and you're
like, oh, that wasn't that bad.
(05:57):
Yes. That was 2020.
David (05:59):
Okay.
Mike (06:00):
Or 2022, 2023. It was kind of a slow burn. Your bond funds
weren't doing well. Those aren'treal market crashes. They were
federally manipulatedrecoveries.
So it was faster and was easier.
David (06:13):
Okay.
Mike (06:14):
So if you retired from 2012, in my opinion on, you only
know a growth market. You reallydon't know what a financially
difficult market is. Yourexperiences or your history is
shaping notice notice thepattern here. Your history is
shaping your habits. Yourhabits, it's behavior based
patterns on your actions.
(06:35):
In other words, how you'reinvesting. And right now,
regardless of whatever systemyou have, you probably feel like
you can do no wrong.
David (06:43):
Yeah. No matter how you have your portfolio aligned,
it's been pretty good.
Mike (06:49):
It's been really good. The DIY investor did not need a
financial adviser over the lasttwelve years. A monkey didn't
need it. And I'm not criticizingDIY investors True. At all.
Love the DIY. But notice how ifeverything's going up, it's
really easy to look good. Yeah.And then you want to sustain
(07:11):
those results, and you thinkyou've got it figured out. And
you're like, well, bond fundsare stupid, so I'm just not
gonna have those.
And you start de riskingyourself. You start getting more
reckless, and you have no ideawhat you're doing. So that's the
premise of this is, yeah, thefirst five years of retirement
are the most important, becauseif you accentuate a loss, you're
(07:34):
limping along for the rest ofyour life. Also today for the
next five years, is the marketgonna crash? No one knows.
But if it does, and you were toretire soon, that's a tough
situation to be in.
David (07:45):
And are there some signs out there right now that maybe
point to a potential marketcrash or overvaluation or fill
in the blank?
Mike (07:55):
Yeah. They call that a bias. So I've known advisers
since 2015 that were saying nextyear, the markets will probably
crash, and they create anargument as to why.
David (08:07):
Okay.
Mike (08:08):
That's the problem. There's always an argument for
and against any economicoutcome. So which is it? No one
knows. And that's why I don'tbelieve that anyone should
really be focusing on a set itand forget it strategy, because
everything works until itdoesn't.
So a lot of people will buy anannuity and turn on lifetime
(08:29):
income and say, well, it works,and it's guaranteed for life.
Well, it might work by avoidingmarket risk, but you've got
inflation risk. So everyone thatbought an annuity turned on
lifetime income before twentytwenty. In 2020, they're going,
oh, I'm really smart because I'mstill getting my paycheck during
these turbulent times.
David (08:48):
Mhmm.
Mike (08:48):
And then 2021 happened, and inflation eroded, 2022, and
eventually got under control.But you lost what? 30% of your
buying power for life? Becausethose payments, in all
likelihood, weren't going up.They were probably flat.
David (09:01):
But yet the costs of everything were were high.
Mike (09:04):
Horrible. Yeah. So you can get rid of one risk, but you're
taking on another. That's howthis works. There's no such
thing as a riskless retirement.
Now can I get a littlecontroversial for a second?
David (09:18):
I mean, you've never been afraid to in the past.
Mike (09:20):
Yeah. Why not? So in my opinion, a significant market
crash in the first five years ofretirement is one of the best
things that could happen to aretiree. Okay. If they prepare
correctly.
Most are not. This is notconventional portfolio
(09:40):
structure. This is notconventional plan design. This
is thinking outside of the boxand saying, well, what if? And
then fill in the blank.
Mhmm. So first off, let's solvethe income problem. What if for
the first five years or a fiveyear period of time, you did not
have income need concerns? Soinstead of lifetime income, what
(10:00):
if you did buy something likeand I'm not telling you to go
out and do this, But what if youdid buy an annuity, a fixed
index annuity with a five yearperiod certain so that when the
next market crashed, instead ofyou trying to figure out how to
make this work with your bondfunds, you just had something
else that you could turn onincome, and it turned into
basically a CD ladder for fiveyears, gave you monthly payments
for the next five years, thatgives your other accounts more
(10:24):
than enough time based onhistorical averages to recover.
You don't accentuate losses.
You've structured out yourincome. It's not lifetime
guaranteed income because youwant flexibility, but you've now
just basically gone on thisjourney and said, oh, there's a
Grand Canyon in front of us. Howdo we get through it? Oh, we
push this button, and thenmagically, this income stare for
(10:44):
the next five years appears.It's not really magic.
It's just called good planning.Do you see how that works? Yeah.
Now you're not dealing withsequence of returns risk. What
you're dealing with is, okay, ina good situation, this is how I
take my income.
In the next market crash Yeah.And you're able to change it
along your journey, alongretirement. That's the first
(11:05):
part.
David (11:05):
Okay.
Mike (11:06):
Second part, taxes are a big issue for retirees. Are they
not? Yeah. Of course they are.So most people seem to have all
of their assets or majority oftheir assets in IRAs.
So when they turn 73 or whateverthe RMD ages when you get there,
you're gonna be forced to payincome taxes, right,
distribution, whether you end upspending it or you reinvest it,
(11:29):
you're gonna be forced to pullmoney out of your IRA. That's an
income tax situation, ordinaryincome. So what if just hear me
out.
David (11:37):
Okay.
Mike (11:39):
What if when the markets crashed, let's say your
portfolio for easy math wentdown 50%, your growth portfolio,
your IRA went down 50%.
David (11:47):
K.
Mike (11:49):
The tax bracket is still the same. The tax bracket didn't
lower by 50%. Uh-huh. It's thesame dollar amount. So in other
words, if your account goes downhard, yeah, that stinks.
But now if you don't sell theassets, don't sell your
positions, you can get twice asmany of them from your IRA to
(12:09):
your Roth and pay the same taxbill as long as you pay the
taxes out of a protectedaccount, whether it's CD or you
can maybe take it from thatfixed index annuity payments.
You just you got your incomeplus a little bit extra for
taxes. Maybe it's a bufferedETF. Maybe it's a bond, like a
treasury. Whatever it is, youcan structure however you want.
(12:32):
But if you know when the marketscrash, you're gonna take your
assets, let's say, $100 a share,now it's $50 a share, you can
get twice as many IRA to Rothconverted. That accelerates your
amount of money you're movingfrom one account to the other,
and you paid half the taxes oryou paid the same amount, but
you got twice however you wannaslice it. You've accelerated
(12:55):
your tax planning withoutaccentuating losses.
David (12:59):
So that RMD, when you have to do it, that's when you
can do a Roth conversion,basically? Because you're taking
the money out, you pay thetaxes, and then you're free to
do whatever.
Mike (13:08):
I mean, it's in your Roth. So it grows tax free, pays out
tax free. Yeah. There's no RMDson the Roth. So Okay.
Why wouldn't you wanna do that?Right. But if you do a
conversion at the bottom of themarket, and then you pay the
taxes out of that conversion,that's the same as taking
income. You're accentuating yourlosses. So let's say your
(13:30):
accounts go down 50% for easymath, and you've gotta pay, I
don't know, 20% of theconversion over.
Now your your accounts just gothit down even harder. You're
punching down or whatever theexpression would be. So that
accentuates the losses, makingyour Roth have a more difficult
time to recover. You don't wannado that. You've gotta have some
assets that are protected sothat they can pay the taxes
(13:53):
based on the conversions thatyou're trying to do.
That's step two in what we callthe bear market protocol.
David (14:00):
Okay. Alright.
Mike (14:01):
Yeah. And it could be a CD ladder. You could do a bond
ladder. There's many ways toslice it. The easiest one in my
opinion is to buy a fixedindexed annuity to just turn
that five year period certain.
Most people don't even know thatexists. Right. Because everyone
talks about this lifetime incomestream, which Yeah. My book
argues against that, but Iacknowledge why people would
want that, but whatever. Mhmm.
I believe you need to haveflexibility with some growth,
(14:22):
some protection, balance, andall things. But anyway, so if
you can take income from aprotected source, the other
accounts have time to recover.Great. Mhmm. You're not creating
an issue of sequence of returnsrisk, like when everyone talks
about.
Then the taxes, so when youraccounts go down, this is why
it's really, really good. Ifyour accounts go down Mhmm. And
you're able to put twice as muchthrough your IRA to your Roth,
(14:46):
now your future tax burdens areless.
David (14:48):
Oh, yeah. Yeah.
Mike (14:49):
Yeah. You see how that worked? Yep. K. Pretty good.
Yeah. Now here's the third one.Are you ready for it? I'm ready.
The third one is somewhatsymbolic upon the holiday that's
near
David (15:01):
Okay.
Mike (15:01):
And a moment in history. So let me decode that for a
second.
David (15:04):
Yeah, please.
Mike (15:06):
Black Monday nineteen eighty seven was a very scary
day. If you don't remember it,here's what happened. The
markets dropped 20% in a day.Oh. Imagine you've worked forty
years.
Uh-huh. You've got a milliondollars, and then you lose
200,000 in a day.
David (15:24):
That would be painful.
Mike (15:26):
Yeah. That would hurt. That's how most portfolios seem
to be set up is to just take iton the chin, and if the markets
crash, you just kind of shoreup, you spend less money, you
just kinda get through it. Andthat's a crappy situation. Yeah.
So the next market crash caneither be a Black Monday for
you, where you just watch yourmoney go away, and you're just
panicked, concerned, losingsleep, fill in the blank. Mhmm.
(15:50):
Or it can be a Black Friday.Everything's on sale.
David (15:54):
Oh.
Mike (15:55):
Now I'm not saying you put all of your assets into
protected growth accounts, butwhat if you had some that were
liquid enough that when themarkets tanked next, you started
buying things at 50% off? Let'ssay stock x y z is a $100 a
share, and it loses 50%. Now youcan buy it at $50 a share.
David (16:16):
Okay.
Mike (16:17):
That's the same as 50% off.
David (16:18):
That's a good discount. Yeah. I'm usually excited if I
see a 50% off.
Mike (16:23):
Yeah. So everyone's concerned about the next market
crash because, oh, well, themarkets are gonna crash. I'm
gonna lose money. I can't do IRARoth conversions because I don't
wanna accentuate the losses, andI can't take income because I
don't wanna accentuate thelosses. So I better lock
everything up to an annuity andhope it all works out.
No. That's the wrong way to lookat it. The next market crash, if
you prepare your plan correctly,is you've got income from a
(16:45):
protected source so you can sailthrough it no problem. You're
able to accelerate your taxplanning because you're doing
conversions at a lower rate, andyou're buying into the market
with everything on sale, whichleaps your assets forward
whenever it recovers. Andbroadly speaking, the markets
have always recovered.
Yeah. Individual stocks, not aguarantee. Well, there's really
(17:07):
nothing guaranteed in themarket, but you see my point.
Historically, that's alwaysrecovered. Stocks have not
always recovered.
Some stocks are no longer withus. May they rest in peace, Toys
R Us. But you see my point.There are certain things we
cannot control. So when youaccept those and you build a
plan to turn those pitfalls intoopportunities, laying and
(17:31):
waiting for you, then you're notscared about the next five years
or the first five years of yourretirement because you did some
good planning.
David (17:39):
Okay.
Mike (17:40):
That's my opinion, and it's a very strong one that's
very well researched because thereality is you need to have some
You're going to have some moneythat's lost in the next market
crash. But those are funds, ifappropriately designed, are
funds you don't need to touchfor over ten years anyway. So
you can let them recover. Andyour other assets that might be
(18:02):
protected, we call it the bearmarket reserves, just spending
spree at that point. Have at it.
Yeah. I I can't really do BlackFriday sales, but I I just can
imagine the people lining up atWalmart. Yeah. I worked at
Target. That was my first jobwhen I was 16.
David (18:19):
Okay.
Mike (18:19):
We'd line up carts. So when people would come in,
they'd grab the cart and thenrun to the deal they wanted. It
was madness.
David (18:28):
I've never done that personally.
Mike (18:30):
Yeah. I don't. But everything in the market just
is. Does not care about yourfeelings. It's your preparation
that's going to help youunderstand, is it opportunity or
is it a disaster?
And right now is the time thatyou have to prepare so that when
not if, but when it happensMhmm. You've decided how you
(18:50):
want to experience thatsituation.
David (18:53):
And so did we answer the question here? Is it true that
the first five years ofretirement are the most risky?
Mike (18:58):
Just depends on how you prepare. Yeah. If you wanna go
hiking in Alaska in the summer,you might need a light jacket,
that's it. Yeah. But if youwanna go in the winter, and
you're still wearing that lightjacket, yeah, you're you're at
risk of hypothermia and allsorts of other issues.
So it just depends on how you'reprepared. And this idea of one
portfolio, set it, forget it,that's the dangerous part. It's
(19:21):
the products being sold that Ithink are without context to
understand how to prepare forwhat could happen. You want to
be adjusting your portfolio. Youwant to be making adjustments
along the way.
The problem is products aresold, not strategies. And I
think you win retirement throughstrategy. That's all the time
(19:42):
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Discover if your portfolio isbuilt to weather flat market
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(20:02):
increasing your overall growthand lifestyle flexibility. This
is not your ordinary financialanalysis. Learn more about Your
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