May 8, 2025 • 24 mins
The traditional rules of retirement planning have changed dramatically in recent decades, calling for new strategies to generate plans for reliable income regardless of market conditions. Increased market volatility since 2000 has rendered the old "4% rule" obsolete, now reduced to 2.8%, while tax implications, sequence of returns risk, and the shift from pensions to 401(k)s create additional challenges.
• Market volatility has increased significantly: 1980-1999 averaged 17.75% returns vs. just 6.06% from 2000-2020
• The 4% withdrawal rule has been reduced to 2.8%, which means larger portfolios are needed to generate the same income
• Withdrawing from market-based accounts during downturns locks in losses that may never recover
• Most 401(k) balances are pretax, meaning you must subtract 20-40% to account for taxes
• Creating a "bucket strategy" with different accounts for different purposes can provide stability
• Guaranteed income sources like properly structured annuities can replace the pension leg of retirement
• Consider using precious metals as "wealth insurance" that often performs well during market uncertainty
• Delay Social Security when possible in hopes of maximizing guaranteed lifetime income
• Work with a fiduciary who understands income planning, not just accumulation strategies
Call 770-980-9262 or visit masterplanretire.com to schedule a complimentary consultation to review your retirement income strategy.
Have a topic or question you'd like Mark and Evan to address in a future episode? Email us at info@masterplanretire.com or call 770-980-9262.
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Advisory services offered through MasterPlan Retirement Consultants, Inc., a Registered Investment Advisor in the state of Georgia. Insurance, tax and commodities services offered through Fricks and Associates, Inc. dba MasterPlan Retirement Consultants. The aforementioned are affiliated companies.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Evan (00:06):
Do you have a retirement income strategy that works in
all markets?
Hey folks, welcome back toRetirement Roadmap with Master
Plan Retirement Consultants.
My name is Evan.
With me, as always, retirementplanner Mark Fricks.
Steep market downturns exposeweaknesses in retirement income
plans.
That was especially trueearlier this year when the S&P
(00:27):
500 tumbled some 20% from itshigh.
If you can't pay basic monthlyexpenses like rent, electricity,
prescription costs, food andgas with cash at the ready,
you'll have to make a withdrawalfrom other accounts.
The problem (00:40):
you'll be withdrawing from accounts that
hold assets that are worth lessthan they were before the market
sell-off.
Mark.
In some ways, our company wasfounded by a failing market.
Mark (00:53):
Yeah, the dream of Master Plan came in 2008, the Great
Recession, when clients werecoming into my former firm and
just not knowing what to do,because every day we'd come into
the office and the market wasdown again, and down again, and
down again and maybe a bump upand then down again for the next
five days.
And it's not just the fact thatthey were watching their
(01:14):
accounts dwindle I think S&Plost 56% over about an 18-month
period but it was the fact thatmany of them were taking money
from those accounts and asthey're taking money from those
accounts and they're losingmoney, they were in a position
to probably never be able torecover.
And so sitting in front, andthis is a very personal story
(01:35):
for me, sitting in front ofthese folks that are in their
60s, 70s, even 80s, and tryingto explain this away and not
really having an income plan,was difficult, and I spent the
next year or two just readingand talking to colleagues and
trying to figure out what are wedoing wrong?
And that was the oldtraditional income market.
(01:58):
The model was hey, maybe getsome good dividend paying stocks
?
Well, dividend stocks are notguaranteed.
Ladder some bonds?
Well, bonds have really stunkover the last 20, 25 years.
So you're talking about a 3% to4% flow.
That's not a lot.
And again, even in bad timeseven the best dividend paying
(02:21):
companies can stop dividends,and there's a good percentage of
them that S o where does yourincome come from?
That was the birthing, if youlike that expression, of MasterP
lan and where it came from andwhy.
I think income planning is thenumber one thing we do.
Evan (02:41):
Yeah, and there's a big baby boomer- specific problem.
Defined benefit planstransition to defined
contribution plans.
What do I mean by that?
Late 70s, early 80s, companiesbegan replacing pensions with
401ks and with that they did notprovide education, they did not
provide a means ofunderstanding not only where to
(03:01):
invest, but what to do with thatmoney when it's time to
actually use it.
Not only did they take away thecompanies', take away their own
personal responsibility forthat plan to pay in the future,
they put it on the employee.
You no longer know what exactlyyou're going to have in
retirement.
Where it was defined benefit atone point, now you just kind of
(03:21):
hope that it builds enough tolast once you hit retirement.
The other problem, which and Ithink we'll both agree is the
biggest problem, is, all of asudden you're putting into maybe
up to 20, 30 years of youremployment, your career, into a
tax deferred bucket.
So because a portion of thatgoes back to Uncle Sam, when you
withdraw it you also don't knowhow much actually belongs to
(03:44):
you.
Mark (03:45):
Yeah, I'm going to go back to what you said there at the
beginning.
The education, I think, was thebiggest problem.
It did not dawn on people thatthey've taken away one of the
legs of my three-leggedretirement stool.
Now there's still SocialSecurity and there's still
retirement savings, but thatthird leg, which is a very
(04:07):
strong leg of a guaranteedpension, many times with the
cost of living adjustment wasgone and people didn't realize
that.
And I think the way it was sold.
I remember my first corporatejob when, you know, they brought
me in and said, hey, youqualify for 401k, and I said
what the heck is that?
I had no idea and the way theyexplained it was very poor.
(04:29):
And so I picked out one or twofunds.
I didn't even know what a fundwas.
I mean, I was like 19 years oldand I didn't even know what a
fund was.
I didn't understand it.
And so, yeah, I signed up forit, but I didn't know what I was
doing.
And so here, something that wassupposed to replace one of the
legs of the stool or add to itended up being the weakest part.
(04:55):
And then tying that back intowhat you said toward the end
there about the fact that everydollar that comes out of that
traditional 401k is taxable andif you can tell me what your tax
rate is going to be atretirement or in 20 years or
whatever, we have an opening foryou here at Master Plan to hire
you and bring you on.
But we don't know.
But we do have a pretty goodidea that it will be higher and
(05:18):
that mortgage you talked abouthaving in your 401k or IRA or
whatever can be dangerous.
Because, again, we've said thisbefore when you think about the
balance in your 401k or IRA,traditional, subtract 20, 30, or
40% from it because it doesn'tall belong to you.
So what do you do about that?
Well, that's where youintroduce a tax strategy into
(05:40):
that income plan, which isprobably the two most important
things we do.
Evan (05:44):
So why do I bring up 401ks ?
Well, for one, the vastmajority of baby boomers, their
retirement savings are comingfrom 401ks, which are, generally
speaking, the vast majorityinvested in mutual funds, maybe
company shares, the like, butthat's market money Meaning.
If you are relying on that bigbucket of money that is in the
(06:04):
market for your retirementincome and you have to take
withdrawals regardless of wherethe market is, you are digging
into your principal in a downmarket.
We want to take a little bitmore of a 10,000-foot view of
some concepts before we get intosome ways on how to plan for an
income strategy that works inall markets.
And the next thing I want todiscuss is the 4% rule Mark.
(06:26):
So we've talked about this onebefore.
4% rule is basically a studythat was done back in the 90s 94
, I believe and it states thatat a withdrawal rate of 4%,
that's identified as beingoptimal to last through 30 years
of retirement.
So if you have a retirementaccount, regardless of the size,
you can withdraw 4% of thataccount per year and it will
(06:48):
last 30 years in retirement.
Mark (06:50):
Yeah, and that was done by Morningstar, one of the leading
researchers of investments, andprobably every stock that's
ever been out there, every bond,everything.
So they did that study, likeyou said, in the mid nineties
and that's kind of been the rule4% and even that's not
guaranteed, it's like a 97%chance you won't run out of
(07:12):
money with 30,000 a year andthat's without increasing your
amount coming out.
Evan (07:18):
So if it was $30,000 a year that you needed in
retirement, your account, yourretirement account, would need
to be $750,000.
Right, that's that 4% of$750,000.
It's funny Articles, even nowwhen I'm browsing around seeing
what's popping up that might bea good cool subject to talk
about in the show.
They're still using rule, 4%rule, still mentioned constantly
(07:42):
, and there's a problem withthat.
Mark (07:44):
There is a problem with that.
They redid the study in 2013.
That was after the tech bubble,after the Great Recession,
after the lost decade from theyear 2000 through 2009.
That was the first decade thatwe were actually in the negative
a little bit and redoing thestudy they came up with.
(08:05):
Now it's not quite as smooth.
It's the 2.8% rule, right.
Evan (08:15):
Based on Morningstar and their same study that they did,
so, 2.8,.
You probably have the numbers.
I have it right here.
Yeah, so 2.8% a year for 30years means your retirement
account can no longer be$750,000.
It actually has to be as big as$1,071,429.
Mark (08:28):
So another quarter of a million dollars plus in that
account, and that's not takeninto account the tax rate, right
?
Is that clearing 30,000 orgross?
That's a gross of 30,000.
So what are you receiving basedon what the tax rate is?
We don't think that's going tochange.
You know, let's be clear aboutthis.
I think that first decade ofthe new century was not an
(08:50):
anomaly.
I think it was a kind of aprecursor to the way the world
is now.
I mean, things are different.
First of all, it is truly aworld economy.
Now, what happens somewhereelse does affect us.
What happens on social mediaaffects us, whether it be an
administration throwing out thetariff word, maybe it's a bunch
(09:14):
of people just getting togetherto crowd fund a stock or drive
up a stock price.
It's computer trading.
It's actively managed trading.
Now trades are happening innanoseconds.
No longer do we have a brokercalling somebody up.
Well, I wouldn't say no longer,but it's less often it still
exists.
It still exists, yeah, callingyou up, leaving them a message I
(09:34):
really want to sell this andbuy that.
You call back the next day, youmiss them and before you know
it it's four days later.
They finally make the trade,whereas the computers that are
generating trades are happeninginstantaneously, and so the
price has changed.
The premise has changed from astandpoint.
So what I'm getting to is thevolatility of the market, I
(09:55):
think is here to stay, and andmaybe even more volatile in the
years ahead.
So that adds another layer ofproblems to that income flow
coming out.
The next rule may be 2.2%, Idon't know, but regardless it's
still not guaranteed.
We think it will last that long, based on market conditions.
And so, as I tell our clients,has your money become more
(10:19):
efficient or less efficient, andhas it become less efficient
for producing income?
Evan (10:24):
And I believe we've shared these numbers before, or at
least referenced to them, but togive the listeners a bit of a
clearer picture on the stockmarket and the change in
volatility.
Over the years From 1980 to1999, the S&P earned an average
annual return of 17.75%.
That's an average by the way,17 plus percent.
(10:47):
The worst calendar year inthose 20 years was negative
9.73%.
I can retire in that market.
Mark (10:54):
I think anybody could retire in that market.
Just about.
It was a great 20 years, yeah,and part of that was because of
Reagan coming into officelowering tax rates.
That spurred the market.
So it was a good two decadeperiod, so tell us about.
Evan (11:13):
Well, so 2000 to 2020, and we're not even including two
drops, two big drops from 2020to 2025.
So the numbers from 2000 to2020, the S&P earned an average
annual return dropped down from17 to 6.06% average annual
return, with the worst yearbeing a negative 38.49%.
Mark (11:35):
Which was, of course, 2008 .
Amazing.
So, 6% versus almost 18%.
It's a third of an averagebarely beating inflation of 3.5%
to 4%.
But also, again, the wideswings.
One of the things we share withour clients is a comparison
between the two markets, andjust the swings of the last 20
(11:59):
years versus the swings of 80 to99.
It's just so evident of thedifferences that's going on.
And then the worst year beingless than 10% loss versus 38
plus percent loss huge, andthat's why people's lives were
changed in 2008 through 2011.
People went back to work,people delayed retirement, a lot
(12:21):
of people laid off.
It was a devastating time andwill it happen again?
I don't know.
You know we had the GreatRecession, the Great Depression.
I don't know, but I do thinkvolatility is here to stay.
Yeah, absolutely.
Evan (12:36):
And, folks, this is a real problem.
Most people have these issuesthat we're discussing.
If they've been working aregular kind of nine to five
career, they've got those 401ksor whatever.
If you've got tax deferredretirement accounts, you do have
an issue, a need for an incomeplan.
So if you would like to speakto an advisor concerning your
(12:59):
own retirement remember we offerthose complimentary
consultations just for you youcan go to our website,
masterplanretire.
com, click a schedule now button, go directly to our calendar,
find a time that works best foryou.
You can also call our office at770-980-9262.
Mark (13:18):
What's great, by the way, about that consultation is some
of the things we're talkingabout will reveal if you have a
problem.
Do you have a problem if taxesgo up?
This report will reveal that.
Do you have a problem if wecontinue with the history of our
bear markets, which we will?
Bear markets occur an averageof every five years, with an
average drop of over 30%.
Do you have a bear marketstrategy?
(13:41):
It's not important if you're 25or 35, you're putting new money
in, but if you're within five,seven years of retirement and
you have a 30 or 40% drop,you're going to be further away
from retirement.
So what is your strategy?
Develop it before retirement.
Develop it three, five, sevenyears before you retire.
And I've just named two of thereports.
(14:02):
There's several other reportsthat will reveal again where
your dangers are.
So take advantage of thatmasterplanretirecom.
Evan (14:08):
All right, so we've discussed a few different
concepts.
One, just the volatility of ourmarkets, the fact that we've
got a lot more losing years, orthe average loss is a lot more
the risk of sequence of returns.
Now, that's withdrawing fundswhile asset values are low.
So if you're withdrawing fromyour market account when the
values are already low, you'relocking in your losses, you're
(14:29):
depleting your savings fasterthan expected.
We talked about the 4% versus2.8% rule.
Why do we discuss all that?
Oh, also taxes.
What's your tax bracket inretirement?
You've got, you know.
These are all gross numbers,meaning we've not taken taxes
out yet.
So if you've got socialsecurity, maybe another source
of income or other withdrawalswe were only talking about
$30,000 a year that income rateis going to continue to grow and
(14:53):
tax your withdrawals from yourtax deferred accounts even more,
okay.
So, dealing with retirementincome shortfalls Again, most of
us start with one big bucket.
The first thing we got to do,though, is reduce our
withdrawals early on.
If we can avoid locking inthose losses by withdrawing less
during a downturn, considerdelaying large purchases, simple
(15:14):
budgeting, discretionaryspending in the first few years
or and Mark, I think you'll likethis one better plan your
income strategically to comefrom a guaranteed source that is
not jeopardized by marketfluctuations.
Mark (15:26):
Yeah, it's like adding that leg we lost.
That pension leg we lost.
We replace it with what we calla personal pension plan.
That's right, and so you've gotto be very careful here.
You want to work with afiduciary, but it is a very
specific type of annuity.
A lot of people hear about anannuity and they've heard
stories.
The problem is that there are alot of bad annuities out there,
and so you got to be verycareful.
(15:48):
Which one would you use?
But what we want to use is onethat has a fixed principle.
In other words, the principlecan't go down, only growth on
the upper side.
That follows the market up, sowe can get better returns than
an old fixed annuity.
But also, I think, moreimportantly, that it can provide
has the ability to providejoint income if it's a married
(16:10):
couple.
So if one passes away, theincome does not change.
Some of them actually increasealmost every year, so it keeps
up with inflation.
But really the final piece islow fees, and if you pass away
and there's still money in it,it's not lost, it goes to heirs,
and so it's all the differentthings that used to be wrong
(16:30):
with annuities.
And I love to ask people do youhave an annuity.
They say, well, no.
I say, do you have socialsecurity?
Yes, I qualify for socialSecurity.
You have an annuity.
Annuities are built off of thelanguage and the concepts of
annuities.
Social Security is, I'm sorryso.
Annuities have been around, asyou've mentioned before, since
(16:52):
ancient Roman days, supplyingpensions, I think, for retired
military, and entered thiscountry in 1759.
So inherently they're not bad.
It's the one.
It's kind of like a car.
You buy the right car for theright purpose, for your purpose,
it's great.
You buy a junkie car or a carthat doesn't fit what you need,
it's not great.
So just make sure again, youwork with a fiduciary.
(17:12):
I love that.
Guaranteed income, no matterwhat the market's doing, no
matter what's going on in theworld, you've got an Aplus rated
insurance company that has fivepillars of strength, you know.
So the best companies don'tfail.
You don't have to worry aboutthat check not coming.
You can pay that electric bill.
And I'm not saying I'm notrecommending an annuity for
(17:32):
everybody out there, for sure,but it is part of our education
process and part of our planning.
If it's the right fit for theright person, an an annuity is
not a retirement plan.
Evan (17:42):
It is a tool.
Out of a tool bucket that hasother tools with specific jobs.
Which brings us to our secondstrategy, is using a bucket
strategy, especially fornon-income withdrawals.
But let's look at that for asecond.
Most people again have a big401k, maybe a few big IRAs, but
they've all got that one job andthat's just to grow.
(18:02):
In retirement, you can't haveone big bucket doing all the
jobs you need to accomplish inretirement, whether it's
short-term, long-term income,short-term, long-term growth,
tax-efficient, tax-free income,whatever.
You can't do it all in onebucket.
So we divide our assets intobuckets.
This is a very simplifiedversion of this concept but, for
(18:23):
instance, short-term incomesavings, conservative actively
managed portfolios, potentiallymoney markets that's one to two
years of expenses to five yearas far as the risk tolerance,
and then long-term would be moreaggressive, especially if you
(18:48):
need some long-term growth forfuture long-term care needs or
just to keep up with inflation.
That could be five plus yearsmore aggressive.
You're able to be moreaggressive because that bucket's
not meant to be touched forfive or 10 years.
So we know we can allow alittle bit more volatility and
aggression in some of thosebuckets.
And again, an annuity is justanother bucket that can provide
guaranteed income so that whenwe need that paycheck to come
every month, it doesn't matterwhat the market's doing.
(19:09):
Now, remember, the answer isnot more accounts, but accounts
with specific jobs.
Mark (19:16):
Yeah, one of the stories.
I don't think I've told thisone on the radio.
I came up with this one theother day, so I've been hired as
the new coach of the AtlantaFalcons Congratulations.
And the reason they hired me isbecause I have this great new
concept I want to take the bestathlete that you can have, which
may be like a wide receiver ora cornerback, but I'm going to
fill the field with them.
(19:37):
They're all going to be thatsame kind of athlete.
Am I going to win?
No, all going to be that samekind of athlete.
Am I going to win?
No, because that particularathlete may be a great athlete,
but can they pass the ball?
Can they block?
Can they hike the ball?
Can they punt?
No, I want a specific type ofplayer for each position to make
the best team I can possiblyhave.
And so it's the same thing withyour money.
(19:57):
I've got one job, like you said, while I'm working, that's to
grow.
But as I get closer toretirement, all these different
jobs and we have clients thathave six, eight, 10, 12
different buckets, everyone witha different job.
And you know, as you know,probably at least once a day
I'll get a call or an email froma client saying, hey, we need
to repair the basement, we needto go to Europe or whatever.
(20:18):
I want to go to Europe, we need$10,000.
We don't just pull money out ofa bucket.
We look at the buckets and seewhich ones has profit, which
ones has protected principle.
What's the best place to takeit from?
Do we want a tax-efficientwithdrawal or a taxable
withdrawal, depending on theirsituation and the future plans?
So it is not just hey, let'spull money out of that big 401k
(20:41):
or whatever.
Very strategic and, in thesekind of days, even more
strategic.
Yeah, and what's great is theseportfolios you're talking about
.
Every one's a different flavor.
The 401k is all vanilla orchocolate.
I want a chocolate, I want abutter pecan, I want a pistachio
.
Why?
Each one works different in adifferent market.
(21:02):
We've got several of ourportfolios right now that are up
in this market because they'redesigned to work the opposite of
the market, whereas others aredown because they're more growth
oriented.
That's okay.
They'll come stormy back nextyear when the markets recover,
and so we've got different again, different ways of growing and
protecting money that all becomepart of that plan.
Evan (21:22):
Yeah, it lets you draw from safer buckets while waiting
for markets to recover.
Really simple, yep.
Try to tap non-market incomefirst.
So Social Security, pensions,cash savings or annuities those
are more dependent anddependable during volatile
markets, even precious metals,even precious metals Another
(21:42):
thing that we put some of ourclients in as well.
We've got precious metalbuckets, whether it's physically
held or within IRAs as well.
We have both possibilities,just depending on the need.
Again, it's very specific toyou and your situation and what
you need.
But precious metals are greatin weird you need, but precious
(22:03):
metals are great in in in weirdrocky markets.
They're also good wealthinsurance because you know we,
we know the that the dollar doesnot.
Uh, it's not based on anythinganymore right not back anything.
Mark (22:12):
As an example 2008, uh, when the market was down 56 over
an 18 month period, acombination of gold and silver
was up 500%.
That's why they call thatwealth insurance, because it's
going to do the opposite of themarket long term.
I'm not talking about every day.
The market goes down, gold goesup necessarily, but we know
over the last year gold's upsubstantially over 30 something
(22:34):
percent.
Evan (22:34):
We just hit a new high recently.
That's what happens in rockymarkets.
Mark (22:38):
Uncertainty generates returns in gold and silver, and
world uncertainty does as well.
So just another bucket.
You can't have everything ingold.
You can't have everything inreal estate.
Again, it needs to be spreadout so that there's always
something making money in themarket.
It's our job and our moneymanager's job to find what that
(22:59):
is.
Evan (23:00):
There's a lot of other considerations as well, as we
run out of time.
We've covered some of the bigconcepts of what we deal with,
but you also might considerdelaying Social Security if
possible.
Waiting increases your monthlybenefit.
If you can delay until 70,that'll maximize your guaranteed
income, which helps reducereliance on market-based assets.
We've talked about this beforeas well.
Consider part-time work.
(23:21):
Even part-time income cangreatly reduce withdrawals
during the bear market.
It gives your portfolio moretime to recover.
Reallocate investmentscautiously, preferably with a
financial professional.
Maintain your target assetallocation.
Avoid panic selling.
Yeah, exactly, mental shiftRetirement as a long-term phase.
(23:41):
So remember, retirement canlast 25 to 30 years or more.
A bear market at the start isnot ideal.
That is certainly concerning,but your portfolio still has
time to recover if withdrawalsare managed smartly.
Mark (23:55):
Great, great, great episode.
Thanks for joining us and untilwe see each other next time,
plan well and prosperno-transcript.
Do you have a retirement income strategy that works in
all markets?
Hey folks, welcome back toRetirement Roadmap with Master
Plan Retirement Consultants.
My name is Evan.
With me, as always, retirementplanner Mark Fricks.
Steep market downturns exposeweaknesses in retirement income
plans.
That was especially trueearlier this year when the S&P
(00:27):
500 tumbled some 20% from itshigh.
If you can't pay basic monthlyexpenses like rent, electricity,
prescription costs, food andgas with cash at the ready,
you'll have to make a withdrawalfrom other accounts.
The problem (00:40):
you'll be withdrawing from accounts that
hold assets that are worth lessthan they were before the market
sell-off.
Mark.
In some ways, our company wasfounded by a failing market.
Mark (00:53):
Yeah, the dream of Master Plan came in 2008, the Great
Recession, when clients werecoming into my former firm and
just not knowing what to do,because every day we'd come into
the office and the market wasdown again, and down again, and
down again and maybe a bump upand then down again for the next
five days.
And it's not just the fact thatthey were watching their
(01:14):
accounts dwindle I think S&Plost 56% over about an 18-month
period but it was the fact thatmany of them were taking money
from those accounts and asthey're taking money from those
accounts and they're losingmoney, they were in a position
to probably never be able torecover.
And so sitting in front, andthis is a very personal story
(01:35):
for me, sitting in front ofthese folks that are in their
60s, 70s, even 80s, and tryingto explain this away and not
really having an income plan,was difficult, and I spent the
next year or two just readingand talking to colleagues and
trying to figure out what are wedoing wrong?
And that was the oldtraditional income market.
(01:58):
The model was hey, maybe getsome good dividend paying stocks
?
Well, dividend stocks are notguaranteed.
Ladder some bonds?
Well, bonds have really stunkover the last 20, 25 years.
So you're talking about a 3% to4% flow.
That's not a lot.
And again, even in bad timeseven the best dividend paying
(02:21):
companies can stop dividends,and there's a good percentage of
them that S o where does yourincome come from?
That was the birthing, if youlike that expression, of MasterP
lan and where it came from andwhy.
I think income planning is thenumber one thing we do.
Evan (02:41):
Yeah, and there's a big baby boomer- specific problem.
Defined benefit planstransition to defined
contribution plans.
What do I mean by that?
Late 70s, early 80s, companiesbegan replacing pensions with
401ks and with that they did notprovide education, they did not
provide a means ofunderstanding not only where to
(03:01):
invest, but what to do with thatmoney when it's time to
actually use it.
Not only did they take away thecompanies', take away their own
personal responsibility forthat plan to pay in the future,
they put it on the employee.
You no longer know what exactlyyou're going to have in
retirement.
Where it was defined benefit atone point, now you just kind of
(03:21):
hope that it builds enough tolast once you hit retirement.
The other problem, which and Ithink we'll both agree is the
biggest problem, is, all of asudden you're putting into maybe
up to 20, 30 years of youremployment, your career, into a
tax deferred bucket.
So because a portion of thatgoes back to Uncle Sam, when you
withdraw it you also don't knowhow much actually belongs to
(03:44):
you.
Mark (03:45):
Yeah, I'm going to go back to what you said there at the
beginning.
The education, I think, was thebiggest problem.
It did not dawn on people thatthey've taken away one of the
legs of my three-leggedretirement stool.
Now there's still SocialSecurity and there's still
retirement savings, but thatthird leg, which is a very
(04:07):
strong leg of a guaranteedpension, many times with the
cost of living adjustment wasgone and people didn't realize
that.
And I think the way it was sold.
I remember my first corporatejob when, you know, they brought
me in and said, hey, youqualify for 401k, and I said
what the heck is that?
I had no idea and the way theyexplained it was very poor.
(04:29):
And so I picked out one or twofunds.
I didn't even know what a fundwas.
I mean, I was like 19 years oldand I didn't even know what a
fund was.
I didn't understand it.
And so, yeah, I signed up forit, but I didn't know what I was
doing.
And so here, something that wassupposed to replace one of the
legs of the stool or add to itended up being the weakest part.
(04:55):
And then tying that back intowhat you said toward the end
there about the fact that everydollar that comes out of that
traditional 401k is taxable andif you can tell me what your tax
rate is going to be atretirement or in 20 years or
whatever, we have an opening foryou here at Master Plan to hire
you and bring you on.
But we don't know.
But we do have a pretty goodidea that it will be higher and
(05:18):
that mortgage you talked abouthaving in your 401k or IRA or
whatever can be dangerous.
Because, again, we've said thisbefore when you think about the
balance in your 401k or IRA,traditional, subtract 20, 30, or
40% from it because it doesn'tall belong to you.
So what do you do about that?
Well, that's where youintroduce a tax strategy into
(05:40):
that income plan, which isprobably the two most important
things we do.
Evan (05:44):
So why do I bring up 401ks ?
Well, for one, the vastmajority of baby boomers, their
retirement savings are comingfrom 401ks, which are, generally
speaking, the vast majorityinvested in mutual funds, maybe
company shares, the like, butthat's market money Meaning.
If you are relying on that bigbucket of money that is in the
(06:04):
market for your retirementincome and you have to take
withdrawals regardless of wherethe market is, you are digging
into your principal in a downmarket.
We want to take a little bitmore of a 10,000-foot view of
some concepts before we get intosome ways on how to plan for an
income strategy that works inall markets.
And the next thing I want todiscuss is the 4% rule Mark.
(06:26):
So we've talked about this onebefore.
4% rule is basically a studythat was done back in the 90s 94
, I believe and it states thatat a withdrawal rate of 4%,
that's identified as beingoptimal to last through 30 years
of retirement.
So if you have a retirementaccount, regardless of the size,
you can withdraw 4% of thataccount per year and it will
(06:48):
last 30 years in retirement.
Mark (06:50):
Yeah, and that was done by Morningstar, one of the leading
researchers of investments, andprobably every stock that's
ever been out there, every bond,everything.
So they did that study, likeyou said, in the mid nineties
and that's kind of been the rule4% and even that's not
guaranteed, it's like a 97%chance you won't run out of
(07:12):
money with 30,000 a year andthat's without increasing your
amount coming out.
Evan (07:18):
So if it was $30,000 a year that you needed in
retirement, your account, yourretirement account, would need
to be $750,000.
Right, that's that 4% of$750,000.
It's funny Articles, even nowwhen I'm browsing around seeing
what's popping up that might bea good cool subject to talk
about in the show.
They're still using rule, 4%rule, still mentioned constantly
(07:42):
, and there's a problem withthat.
Mark (07:44):
There is a problem with that.
They redid the study in 2013.
That was after the tech bubble,after the Great Recession,
after the lost decade from theyear 2000 through 2009.
That was the first decade thatwe were actually in the negative
a little bit and redoing thestudy they came up with.
(08:05):
Now it's not quite as smooth.
It's the 2.8% rule, right.
Evan (08:15):
Based on Morningstar and their same study that they did,
so, 2.8,.
You probably have the numbers.
I have it right here.
Yeah, so 2.8% a year for 30years means your retirement
account can no longer be$750,000.
It actually has to be as big as$1,071,429.
Mark (08:28):
So another quarter of a million dollars plus in that
account, and that's not takeninto account the tax rate, right
?
Is that clearing 30,000 orgross?
That's a gross of 30,000.
So what are you receiving basedon what the tax rate is?
We don't think that's going tochange.
You know, let's be clear aboutthis.
I think that first decade ofthe new century was not an
(08:50):
anomaly.
I think it was a kind of aprecursor to the way the world
is now.
I mean, things are different.
First of all, it is truly aworld economy.
Now, what happens somewhereelse does affect us.
What happens on social mediaaffects us, whether it be an
administration throwing out thetariff word, maybe it's a bunch
(09:14):
of people just getting togetherto crowd fund a stock or drive
up a stock price.
It's computer trading.
It's actively managed trading.
Now trades are happening innanoseconds.
No longer do we have a brokercalling somebody up.
Well, I wouldn't say no longer,but it's less often it still
exists.
It still exists, yeah, callingyou up, leaving them a message I
(09:34):
really want to sell this andbuy that.
You call back the next day, youmiss them and before you know
it it's four days later.
They finally make the trade,whereas the computers that are
generating trades are happeninginstantaneously, and so the
price has changed.
The premise has changed from astandpoint.
So what I'm getting to is thevolatility of the market, I
(09:55):
think is here to stay, and andmaybe even more volatile in the
years ahead.
So that adds another layer ofproblems to that income flow
coming out.
The next rule may be 2.2%, Idon't know, but regardless it's
still not guaranteed.
We think it will last that long, based on market conditions.
And so, as I tell our clients,has your money become more
(10:19):
efficient or less efficient, andhas it become less efficient
for producing income?
Evan (10:24):
And I believe we've shared these numbers before, or at
least referenced to them, but togive the listeners a bit of a
clearer picture on the stockmarket and the change in
volatility.
Over the years From 1980 to1999, the S&P earned an average
annual return of 17.75%.
That's an average by the way,17 plus percent.
(10:47):
The worst calendar year inthose 20 years was negative
9.73%.
I can retire in that market.
Mark (10:54):
I think anybody could retire in that market.
Just about.
It was a great 20 years, yeah,and part of that was because of
Reagan coming into officelowering tax rates.
That spurred the market.
So it was a good two decadeperiod, so tell us about.
Evan (11:13):
Well, so 2000 to 2020, and we're not even including two
drops, two big drops from 2020to 2025.
So the numbers from 2000 to2020, the S&P earned an average
annual return dropped down from17 to 6.06% average annual
return, with the worst yearbeing a negative 38.49%.
Mark (11:35):
Which was, of course, 2008 .
Amazing.
So, 6% versus almost 18%.
It's a third of an averagebarely beating inflation of 3.5%
to 4%.
But also, again, the wideswings.
One of the things we share withour clients is a comparison
between the two markets, andjust the swings of the last 20
(11:59):
years versus the swings of 80 to99.
It's just so evident of thedifferences that's going on.
And then the worst year beingless than 10% loss versus 38
plus percent loss huge, andthat's why people's lives were
changed in 2008 through 2011.
People went back to work,people delayed retirement, a lot
(12:21):
of people laid off.
It was a devastating time andwill it happen again?
I don't know.
You know we had the GreatRecession, the Great Depression.
I don't know, but I do thinkvolatility is here to stay.
Yeah, absolutely.
Evan (12:36):
And, folks, this is a real problem.
Most people have these issuesthat we're discussing.
If they've been working aregular kind of nine to five
career, they've got those 401ksor whatever.
If you've got tax deferredretirement accounts, you do have
an issue, a need for an incomeplan.
So if you would like to speakto an advisor concerning your
(12:59):
own retirement remember we offerthose complimentary
consultations just for you youcan go to our website,
masterplanretire.
com, click a schedule now button, go directly to our calendar,
find a time that works best foryou.
You can also call our office at770-980-9262.
Mark (13:18):
What's great, by the way, about that consultation is some
of the things we're talkingabout will reveal if you have a
problem.
Do you have a problem if taxesgo up?
This report will reveal that.
Do you have a problem if wecontinue with the history of our
bear markets, which we will?
Bear markets occur an averageof every five years, with an
average drop of over 30%.
Do you have a bear marketstrategy?
(13:41):
It's not important if you're 25or 35, you're putting new money
in, but if you're within five,seven years of retirement and
you have a 30 or 40% drop,you're going to be further away
from retirement.
So what is your strategy?
Develop it before retirement.
Develop it three, five, sevenyears before you retire.
And I've just named two of thereports.
(14:02):
There's several other reportsthat will reveal again where
your dangers are.
So take advantage of thatmasterplanretirecom.
Evan (14:08):
All right, so we've discussed a few different
concepts.
One, just the volatility of ourmarkets, the fact that we've
got a lot more losing years, orthe average loss is a lot more
the risk of sequence of returns.
Now, that's withdrawing fundswhile asset values are low.
So if you're withdrawing fromyour market account when the
values are already low, you'relocking in your losses, you're
(14:29):
depleting your savings fasterthan expected.
We talked about the 4% versus2.8% rule.
Why do we discuss all that?
Oh, also taxes.
What's your tax bracket inretirement?
You've got, you know.
These are all gross numbers,meaning we've not taken taxes
out yet.
So if you've got socialsecurity, maybe another source
of income or other withdrawalswe were only talking about
$30,000 a year that income rateis going to continue to grow and
(14:53):
tax your withdrawals from yourtax deferred accounts even more,
okay.
So, dealing with retirementincome shortfalls Again, most of
us start with one big bucket.
The first thing we got to do,though, is reduce our
withdrawals early on.
If we can avoid locking inthose losses by withdrawing less
during a downturn, considerdelaying large purchases, simple
(15:14):
budgeting, discretionaryspending in the first few years
or and Mark, I think you'll likethis one better plan your
income strategically to comefrom a guaranteed source that is
not jeopardized by marketfluctuations.
Mark (15:26):
Yeah, it's like adding that leg we lost.
That pension leg we lost.
We replace it with what we calla personal pension plan.
That's right, and so you've gotto be very careful here.
You want to work with afiduciary, but it is a very
specific type of annuity.
A lot of people hear about anannuity and they've heard
stories.
The problem is that there are alot of bad annuities out there,
and so you got to be verycareful.
(15:48):
Which one would you use?
But what we want to use is onethat has a fixed principle.
In other words, the principlecan't go down, only growth on
the upper side.
That follows the market up, sowe can get better returns than
an old fixed annuity.
But also, I think, moreimportantly, that it can provide
has the ability to providejoint income if it's a married
(16:10):
couple.
So if one passes away, theincome does not change.
Some of them actually increasealmost every year, so it keeps
up with inflation.
But really the final piece islow fees, and if you pass away
and there's still money in it,it's not lost, it goes to heirs,
and so it's all the differentthings that used to be wrong
(16:30):
with annuities.
And I love to ask people do youhave an annuity.
They say, well, no.
I say, do you have socialsecurity?
Yes, I qualify for socialSecurity.
You have an annuity.
Annuities are built off of thelanguage and the concepts of
annuities.
Social Security is, I'm sorryso.
Annuities have been around, asyou've mentioned before, since
(16:52):
ancient Roman days, supplyingpensions, I think, for retired
military, and entered thiscountry in 1759.
So inherently they're not bad.
It's the one.
It's kind of like a car.
You buy the right car for theright purpose, for your purpose,
it's great.
You buy a junkie car or a carthat doesn't fit what you need,
it's not great.
So just make sure again, youwork with a fiduciary.
(17:12):
I love that.
Guaranteed income, no matterwhat the market's doing, no
matter what's going on in theworld, you've got an Aplus rated
insurance company that has fivepillars of strength, you know.
So the best companies don'tfail.
You don't have to worry aboutthat check not coming.
You can pay that electric bill.
And I'm not saying I'm notrecommending an annuity for
(17:32):
everybody out there, for sure,but it is part of our education
process and part of our planning.
If it's the right fit for theright person, an an annuity is
not a retirement plan.
Evan (17:42):
It is a tool.
Out of a tool bucket that hasother tools with specific jobs.
Which brings us to our secondstrategy, is using a bucket
strategy, especially fornon-income withdrawals.
But let's look at that for asecond.
Most people again have a big401k, maybe a few big IRAs, but
they've all got that one job andthat's just to grow.
(18:02):
In retirement, you can't haveone big bucket doing all the
jobs you need to accomplish inretirement, whether it's
short-term, long-term income,short-term, long-term growth,
tax-efficient, tax-free income,whatever.
You can't do it all in onebucket.
So we divide our assets intobuckets.
This is a very simplifiedversion of this concept but, for
(18:23):
instance, short-term incomesavings, conservative actively
managed portfolios, potentiallymoney markets that's one to two
years of expenses to five yearas far as the risk tolerance,
and then long-term would be moreaggressive, especially if you
(18:48):
need some long-term growth forfuture long-term care needs or
just to keep up with inflation.
That could be five plus yearsmore aggressive.
You're able to be moreaggressive because that bucket's
not meant to be touched forfive or 10 years.
So we know we can allow alittle bit more volatility and
aggression in some of thosebuckets.
And again, an annuity is justanother bucket that can provide
guaranteed income so that whenwe need that paycheck to come
every month, it doesn't matterwhat the market's doing.
(19:09):
Now, remember, the answer isnot more accounts, but accounts
with specific jobs.
Mark (19:16):
Yeah, one of the stories.
I don't think I've told thisone on the radio.
I came up with this one theother day, so I've been hired as
the new coach of the AtlantaFalcons Congratulations.
And the reason they hired me isbecause I have this great new
concept I want to take the bestathlete that you can have, which
may be like a wide receiver ora cornerback, but I'm going to
fill the field with them.
(19:37):
They're all going to be thatsame kind of athlete.
Am I going to win?
No, all going to be that samekind of athlete.
Am I going to win?
No, because that particularathlete may be a great athlete,
but can they pass the ball?
Can they block?
Can they hike the ball?
Can they punt?
No, I want a specific type ofplayer for each position to make
the best team I can possiblyhave.
And so it's the same thing withyour money.
(19:57):
I've got one job, like you said, while I'm working, that's to
grow.
But as I get closer toretirement, all these different
jobs and we have clients thathave six, eight, 10, 12
different buckets, everyone witha different job.
And you know, as you know,probably at least once a day
I'll get a call or an email froma client saying, hey, we need
to repair the basement, we needto go to Europe or whatever.
(20:18):
I want to go to Europe, we need$10,000.
We don't just pull money out ofa bucket.
We look at the buckets and seewhich ones has profit, which
ones has protected principle.
What's the best place to takeit from?
Do we want a tax-efficientwithdrawal or a taxable
withdrawal, depending on theirsituation and the future plans?
So it is not just hey, let'spull money out of that big 401k
(20:41):
or whatever.
Very strategic and, in thesekind of days, even more
strategic.
Yeah, and what's great is theseportfolios you're talking about
.
Every one's a different flavor.
The 401k is all vanilla orchocolate.
I want a chocolate, I want abutter pecan, I want a pistachio
.
Why?
Each one works different in adifferent market.
(21:02):
We've got several of ourportfolios right now that are up
in this market because they'redesigned to work the opposite of
the market, whereas others aredown because they're more growth
oriented.
That's okay.
They'll come stormy back nextyear when the markets recover,
and so we've got different again, different ways of growing and
protecting money that all becomepart of that plan.
Evan (21:22):
Yeah, it lets you draw from safer buckets while waiting
for markets to recover.
Really simple, yep.
Try to tap non-market incomefirst.
So Social Security, pensions,cash savings or annuities those
are more dependent anddependable during volatile
markets, even precious metals,even precious metals Another
(21:42):
thing that we put some of ourclients in as well.
We've got precious metalbuckets, whether it's physically
held or within IRAs as well.
We have both possibilities,just depending on the need.
Again, it's very specific toyou and your situation and what
you need.
But precious metals are greatin weird you need, but precious
(22:03):
metals are great in in in weirdrocky markets.
They're also good wealthinsurance because you know we,
we know the that the dollar doesnot.
Uh, it's not based on anythinganymore right not back anything.
Mark (22:12):
As an example 2008, uh, when the market was down 56 over
an 18 month period, acombination of gold and silver
was up 500%.
That's why they call thatwealth insurance, because it's
going to do the opposite of themarket long term.
I'm not talking about every day.
The market goes down, gold goesup necessarily, but we know
over the last year gold's upsubstantially over 30 something
(22:34):
percent.
Evan (22:34):
We just hit a new high recently.
That's what happens in rockymarkets.
Mark (22:38):
Uncertainty generates returns in gold and silver, and
world uncertainty does as well.
So just another bucket.
You can't have everything ingold.
You can't have everything inreal estate.
Again, it needs to be spreadout so that there's always
something making money in themarket.
It's our job and our moneymanager's job to find what that
(22:59):
is.
Evan (23:00):
There's a lot of other considerations as well, as we
run out of time.
We've covered some of the bigconcepts of what we deal with,
but you also might considerdelaying Social Security if
possible.
Waiting increases your monthlybenefit.
If you can delay until 70,that'll maximize your guaranteed
income, which helps reducereliance on market-based assets.
We've talked about this beforeas well.
Consider part-time work.
(23:21):
Even part-time income cangreatly reduce withdrawals
during the bear market.
It gives your portfolio moretime to recover.
Reallocate investmentscautiously, preferably with a
financial professional.
Maintain your target assetallocation.
Avoid panic selling.
Yeah, exactly, mental shiftRetirement as a long-term phase.
(23:41):
So remember, retirement canlast 25 to 30 years or more.
A bear market at the start isnot ideal.
That is certainly concerning,but your portfolio still has
time to recover if withdrawalsare managed smartly.
Mark (23:55):
Great, great, great episode.
Thanks for joining us and untilwe see each other next time,
plan well and prosperno-transcript.
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