Getting Your Retirement in Order - Back to the Basics Pt. 1

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Episode Transcript

(00:00):
The advice given on the following programdoes not necessarily represent the views of iHeartMedia,
its management and staff. Since individualsituations can and will be different,
Please consider this when exercising any optionsgiven by our guests. It's time to
get your retirement plan in order.Welcome to the Empowered Retirement Show with Pete

(00:21):
Simbolac and Caleb Simbolac. Reach outto the Empowered Financial Team now at six
oz two one two seventy three hundredor visit their website empowered FM dot com.
Now here's your host, Pete Simbolacand Caleb Simbolac. Hey, everybody,
it's a beautiful Saturday morning. Welcomeback to the Empowered Retirement Radio Show.

(00:43):
Pete Simba Caleb Simbolac with Empowered FinancialManagement. How you doing, Caleum,
Pete doing great? Good? Heylisten. You know it's graduation time.
There's all these ceremonies going colleges.I know, the other day we
were at Madison College and we sawall the people coming down with their gowns

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and caps and all that. Andthe flowers are beautiful, and the bees
are out, and the weather isnice, and the golf is starting to
happen. It's a really nice timeof training. People stop thinking about their
retirement because they're too busy outside.That is true. That's all they're thinking
about is outside and getting out anddoing things. And we're here to help

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you enjoy being outside. Right.I think the farmer's market's going strong again
and we're here to help you remindthat. But we want you thinking about
retirement and planning through. And youknow, here we are transitioning into summer.
The weather's getting nice, it's goingto be beautiful. People are going
to go on vacation, they're goingto travel, they're gonna see and do
things all over the place. Yeah, that's how we want their retirement to

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be as well. Right, Andso it's really important to always kind of
go back to the fundamentals and thecore staples of retirement. And so we'll
be talking about that today. We'llbe kind of going through what we have
as our core we call them pillars, right, and how we purpose our
money and retirements that we can ensuresuccess. And we'll kind of talk about
how a lot of people typically mightonly have one or two of them,
or they might only have one andthen they kind of try to use that

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pillar as a multi purpose pillar.Right, everything comes out of one pillar.
Everything comes out of one pillar,and it just doesn't work so well.
So we'll define our terms, we'llget into the nitty gritty of it.
But it is really important just tokind of get back to the basics
of retirement and so we'll be we'llbe doing that today. It's kind of
hard to build a house with onepiece of lumber, right, I mean,

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I mean tends out big the pieceof lumbers. Right, it could
be a massive piece of lumber.It would have to be like an enormous
redwood for you to be able tobuild a house out of one piece of
lumber. Yeah, and that's whatpeople try to do. It's true.
So we'll talk about that. Theplans within the plan, right, the
pillars represent plans within the plan thatyou're putting together for riders. They're your

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investment pillar, they're your tax pillar, they're your healthcare pillar, and then
your legacy pillar. So and bythe way, there is one more and
that's who helps you go through that, the fiditiary pillar as well, or
at least that's what we believe,right. And on the surface that you
know, a lot of people listeningare probably like, well, yes,

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obviously that makes sense. I needto have an income plan, I need
to have an investment plan. Butpeople don't really understand what it means to
purpose your money differently in all ofthese different areas, right, to have
a specific plan for each one ofthese. And they also don't understand how
all of these plans intertwined with eachother. Because your income has really big
implications in your taxes, right,so how are we going to deal with
our income to make sure we canuphold our quality of life, will not

(03:44):
you know, getting hit too hardon our taxes, or how are we
going to be tax advantageous and maybewithdrawing some of our pre tax money before
we have to you know, turnon a lot more incomes that we have
less tax liability later on. Andso there's really just a lot that goes
into it. So when we comeback on the other side of the break,
we're going to start talking about thatincome plant, right, where are
your sources of income? How doyou diversify it? And of course,

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just like you mentioned taxes, yourincome is going to be really dependent upon
your investments. Okay, it's EmpoweredRetirement Radio Show. Making your retirement visions
come to life. Welcome back everybodyto the Empowered Retirement Radio Show. This

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is Caleb Simbolac here with Pete Simbolacas always to make your retirement better.
As always, you can reach usthrough our website at retire Madison dot com.
We actually just got that updated,so there's a lot of great resources.
You can read some of our blogposts written by advisors on our staff,
you can listen to pass radio shows, and you can also inquire more

(04:58):
about our firm and what we doand how we could benefit you. So
go to our website at retire Madisondot com. If you didn't hear the
intro today, we're going to bekind of going back to the core basics
of retirement and we're gonna be goingthrough what we see as the what we
call the pillars of retirement, andthose are having an income plan, having
an investment plan, having a taxplan, which is a big one that

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oftentimes gets overlooked, having a legacyplan, and then obviously, you know,
having a healthcare plan along the wayto make sure that you are taking
care of and that you're if you'remaybe if you're married, your spouse is
taking care of as well. Sowe'll be starting with income, which,
Pete, if you've listening, ifyou've listened in the past, you know
that we see income as the driverof retirement. Retirement really does not happen

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without income. So Pete, whydon't you tell those in the audience a
little bit more about why income isso significant. So you know you said
that you know income's the driver.I would say if we're thinking of the
car analogy, that the investments arethe engine, right, But what does
the engine do if it doesn't havea transmission to transfer that power to your

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wheels to make it move? Soincome is that transition You have transmission,
right, you have no ability tomove without that income. So for as
much as you've put money away,if you don't really effectively transfer that into
income, you have no retirement nomatter how much money you have. If

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it can't translate, it doesn't work. So it starts off with that thought
of without retirement, whether or youhave no retirement without income. Well,
why is that? Well, obviouslythat's what we spend on a monthly basis.
The difference that people have to understandfirst and foremost, and it's hard
for a lot of people to gatherthis, and that is is that income

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comes from your assets in retirement.All those years you've been building money,
you've been taken a paycheck or youhave a bus, and you've been building
income. You've been building assets fromother people other places. You've been taking
some of it, saving it,some of it you're spending, some of
it you're paying Uncle Sam. Nowthat's one hundred percent dependent upon you.

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You have to make that happen,and people try to make people in our
industry try to make it very simple, but the reality is it's not nearly
as simple the other concept. Iguess, all right, let's just take
our money and create some income.Let's take four percent. But it's not
quite that easy. And the mentalityof spending the money that you've saved when

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you've been saving for so long canreally trip us up. Yeah, so
when we start with income, wegot to take into account that this is
one hundred percent different mindset that isnot always easy to translate to living on
your money versus saving that money.Right, And one thing that we stress

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so much is that you know,kind of like you mentioned, people in
the accumulation phase of life, whenyou're just working a job, you're stowing
money away. You don't really youhave that paycheck coming in, You're obviously
aware of its amount, but youkind of just you get used to the
habit of just having that kind ofreoccurring into your into your account. Right.
And so when you go to retirement, maybe some of you have a
pension, which is really great,which means you'll have some foundation of income.

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Right. But if you don't havea pension, right, social Security
is probably not going to uphold yourquality of life. How are you going
to purpose your money from what youhave accumulated and then turn that to be
able to pay you in retirement.And when we want to do when it
comes to income is we want tomake sure that there's the money that we're
getting for income is more or lessprinciple protected and guaranteed. Yeah, as

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much as possible, right, Imean right, So let's just again step
back again. You're being a littlebit practical. I'm going to be a
little bit philosophical for a moment,which I love this, but philosophically,
when you think about spending money onretirement, first of all, there's a
natural barrier because we've been saving thatmoney So what happens is there's always people
come to us with these basic severalquestions. You know, when can I

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retire? How will my wife,my husband, my spouse, my significant
other? How will they be ifI pass away? You know, do
I even have enough to retire?Can I retire? When you answer those
questions, so many people. Infact, the government says there's studies out
there that says that about seventy percentof people never even touch the retirement money

(09:31):
until they're required to spend that calledrequired minimum distributions, and that's start to
year in your seventies. But philosophically, the reason why people have such a
hard time spending is because they're usedto saving. Yeah, so now we
got to get them spending. Theprincipal protection, whether it comes from soci

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security, whether it comes from apension fund, or whether it comes from
any other source of guaranteed income,it allows people to spend because it feels
like that paycheck, right, soit doesn't feel like you're taking from your
own coffers, which you really are, but it doesn't feel that way.

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And so people that do spend inretirement because they have a pension, because
they have guaranteed income. Not onlyare they spending more money thereby enjoying that
money, but they actually have longerlives and healthier lives because there's less stress.
Yeah, and this isn't just anecdotal, right. There are studies that
show and this is particular. Thestudy was done with annuities, right,

(10:39):
that individuals who have annuities A they'rehappier, much happier, much happier,
and they also spend their money alot more and that it's because they have
that money that's coming in that theyknow is going to be there. Confidence,
right, And like we'll talk aboutit in a little bit. When
it comes to investments, you know, you hear the four percent rule,
or now it's the two point eightpercent rule. A lot of people just
think, Okay, you know,I have created my nest egg and get

(11:00):
a withdraw you know, a certainpercentage from it each year. But the
problem with that is is a ifyou're retiring, the goal of your retirement
should be to enjoy it, right, And obviously enjoying it means that you're
going to probably have not probably thatyou are going to have enough funds to
make it all the way through,that you're going to be uphold your standard
of living that you have currently beendoing in the accumulation phase of life.

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And so when people have an incomeplan and it's just withdrawing from their investments,
where they don't understand is that that'skind of more or less working off
of commission. Because the market cango up, it can go down,
and if you're pulling out money whenthe market goes down, or maybe you're
a little less comfortable pulling out moneywhen the market goes down, you're not
going to be upholding your quality oflife. How many times have I heard
somebody say they've got this family tripright now now they're retired. They want

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to take the kids and the grandkids, and they want to go to Disney
World or whatever it may be.They want to take a trip on a
cruise, they want to go toEurope. They want to do this big
trip. And then it gets heldup. Now, of course, some
people recently they had held up becauseof COVID, but often it happens because
in the market while the market's down, we really can't take that money and

(12:05):
go spend that right. That's nothow you want to live. You want
to live your retirement. If youhad those goals. If that was your
dream to take the family on thattrip, you want to take them on
that trip, whether the market's upor the markets down. That only happens
when you start purposing your money anddiversifying your income streams. So, yes,

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we have social security, Yes,we might have a pension. Yes,
we might have an annuity. Yes, we might have real estate investment
coming in. Right. Maybe wehave treasury notes that or bonds that we
are having paid into us. Maybewe have private equity or structured notes or
point is, there's all sorts ofplaces that you go to create your income

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stream that are independent of each other. Right, And you know there might
be some outliers in this statement,but there is no over bullet when it
comes to income and retirement, right, So that diversivation, diversification of income
is extremely important. And it's honestly, especially when you start to think about
the tax implications. You know,how are we gonna make sure maybe we're
not gonna have huge tax liabilities.How can we produce some income that is

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maybe tax free? Right? Howwe create those streams of income. There's
a lot that goes into it,especially with income pillar and the implications of
it and the other plans in yourretirement. So for example, you bring
up a good idea. Right,so we've talked about the pillars income,
investment, taxes. Okay, nowtaxes. You just brought up taxes into
income, folks. Tax free moneyspends better, goes further than taxable money,

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all right, when you say itout loud, it seems pretty obvious.
But okay, when we go,I'm going to intermingle our tax bucket
a little bit. There's three basicbuckets over there, right, We've got
our taxable accounts, our tax tofurtive counts, and our tax free accounts.
When we're teaching in class, Iasked that question, which bucket would
you like your money to be in? Everybody to a te tells me they

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want to in their tax free bucket. But we're all living with seventy percent
or more in our tax deferred bucket, right, all right, So if
we do have tax free money involvedin our income, whether that's an annuity,
whether that's directly out of a rothira, whether that's through some other
really cool things that you can dowith real estate and you know, opportunity

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zones and things like that. There'sways to do this that you get tax
free money municipal bonds. It's anotherone that's easy to think of. Point
being is when you intermingle this,your money goes further. So now we've
got guaranteed income on top of thepotential of tax free income. Yeah.

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Wow. The security that you buildwhen you start to intertwine these. When
it comes to investments, we understandthat the money, even if it goes
to an annuity or to real estateor whatever, probably is in an investment
account at some point. So evenwhen you're diversifying in and out, but
in an investment and I'm not takingaway from that, will go in deep.

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But just like you diversify your investments, you want things non correlated,
meaning they're doing different things at differenttimes. You don't want them doing all
the same thing at the same time. It's that way with your income,
and that again builds that security thatyou're looking for that allows you to spend
and enjoy and be happy in thatretirement life and take the stress off of

(15:45):
yourself. That happens because you havea properly built income plan. Right,
folks, If you're listening to thisand you know you're close to retirement,
maybe you've just retired and you hadn'tmet with anybody to kind of get even
a second opinion on whether or notyou're hirement plan is going to be successful.
We'd like to make an offer forthe first six people who reach out
to us over the course of thisweekend. You can go to retire Madison

(16:07):
and you'll be able to see inthe top right corner there will be an
indicator that I will say contact us, and you'll click on that. You'll
be able just to put your name, your email, and you'll send some
brief information that we will be ableto contact you back on this Monday.
When it comes to getting this freeconsultation, it's really not much of a
hassle. You can bring statements ifyou would like, but really what it'll
be is just a forty five minuteor maybe up to you know, we

(16:30):
always joke with Nick, he's oneof the other advisors on staff, that
it could take an hour and ahalf or Really it's just a no hassle
consultation where we get to know you. We get to learn what you've done
in an accumulation stage of life,get to know what your goals and what
your aspirations are in retirement. Andwe can see even if we're in mutual
benefit. If we think that it'sa mutual benefit with then we can go
forward. We can start to pullholes, configure and see if it would

(16:52):
be a good partnership. So ifyou're interested in that, you can go
to our website or retire Madison dotcom and click on the con hecked us
which in the top right corner.All right, folks, this is the
income plan. This is just thestart. Now let's talk about investments when
you come back. We're gonna coverand fill in some of those gaps on

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investments. And of course we've gottaxes, healthcare, that's the elephant in
the room, and of course legacyplanning. Nobody wants to talk about those
death issues. But you want yourmoney to do what you wanted to do.
So we'll be right back with EmpoweredRadio Show week in Your Life Better.
Welcome back to the Empowered decom RadioShow. Caleb Siblack here with Empowered

(17:37):
Retirement Radio. And by the way, we have an office over at Greenway
Station Empowered Financial Management, and youcan find us on our website at retire
Madison dot com. There are lotsof resources there. Update clean website good
for mobile apps. And of course, just like in the last segment,
we had an offer for you toget a free consult YEP, that free

(18:00):
is there forty five minutes to anhour when Nick an hour and a half.
You know how that goes. Butyou know, as we transition,
we're talking about the six pillars ofretirement planning, and we use pillars.
You're building a house, you're buildinga structure. You need strength, you
need diversity, You need to coverall the bases income planning, investment planning,

(18:25):
tax planning, healthcare planning, legacyplanning, and of course who guides
you through that process, who's yourfiditiary As you go through last segment we
talked about income. The only thingwe didn't really cover with income is that
dirty word. You need to startoff the next segment with that dirty word.
But budgeting and budgeting in retirement doesnot mean the same thing it does

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when you're twenty five years old.It really is about tracking cash flow.
Yes, because we are creating ourown income from our own assets, we
definitely want to make sure we've gotit down for how much we're actually spending
YEP. So we actually have acoordinated properly and we don't comes up short,
right, And there's like there's multiplereasons for this, right, Like

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obviously, so a you want tohave some form of benchmark to know what
your quality of life is right now, Okay, how much have I been
spending pre retirement? Right? Youneed to know that because the goal is
to be able to create income tosustain that. Alternatively, you need to
know it in case that's too high, or maybe it could be too low
and there's a room in your budgetto increase more spending to go do what
you want to do. Maybe youhave some hobbies, you want to go

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travel, you have grandkids, whateverit might be. Right, So having
a budget is really integral to beable to track your cash flows to make
sure that you know that whether longevityof life, that you're going to have
enough money you're not going to runout, or at the very least,
just to have a benchmark to knowwhat you're currently spending so you can uphold
your quality of life and to produceincome to uphold that. Yeah, and

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it it's really important to know thatwhat if you have not saved enough money
to maintain that lifestyle, right,you need to know the adj once you
need to make Now. I believeby talking through this, we've got to
fight that old axiom that's out therethat two things. Number one, your
taxes are automatically going to be lowerin retirement. That's out there. But
then you only need to spend youknow, sixty five or seventy percent of

(20:15):
what you spend while you're working.That's I mean again, I ask people
in class all the time, raiseyour hand if you want to take a
pay cut, just to take apay cut. Nobody wants to do that.
Reality is, in most of ourlives, about sixty five percent of
all the money we spend every monthis actually a fixed spending. It's their
food, shelter, right, right, things that you can't do without.

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Yeah, folks, we got toknow what those numbers are, so we
know what our discretionary spending is andwhere our movements, where our budgeting can
go up or down and you stillbe okay, right, And that's kind
of leading into another wrong belief thatpeople have in retirement is that they're not
going to spend as much, right, And so we always talk about a

(21:00):
spending curve because people think it's like, Okay, you know what I'm going
to go into retirement, I'm justgoing to be frugal. That's a great
way for me to make my moneylast. Well, sure it might be
miserable along the way, but alsostatistically, the reality is is that you're
going to spend a lot more earlierin retirement than you are later on in
retirement. Right, and then atthe very end, of course it goes
back up because of healthcare. Right. So it is a spending smile.

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That's what you mean to understand.This is not our world. These are
academic facts that are out there thatthis is how spending goes. But Caleb,
unfortunately, that is how people aremaking their income last by not spending.
That is not what you put thatmoney away in retirement for. Yeah,

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part of the problem is most peopleare putting money away in for retirement
for is in just the stock market, right, And so you need an
investment plan. You need an investmentplan for one to obviously match your risk
tolerance. That's that's pretty obvious,but also your goal. One of the
things that people don't understand about retirement. We ask this in class. I'm

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going to ask you as you're listening, are you an investment what kind of
an investment person. Are you areyou aggressive? Are you moderate? Are
you conservative? And then really thinkabout what does that mean? What kind
of rate of return are you tryingto achieve on your investments? Most people
tell me they don't know or they'retaking a wild guess. Well, I

(22:26):
heard somewhere or the SP five hundredmeans eight percent over time, So I'm
going for eight percent, okay?And how much are you willing to lose
to make that eight percent? Thishas to be part of the thought process.
Will Pete never thought about that before, Caleb never heard of that.
Well, it's called draw down,and it happens often. Yeah, I

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mean every year there's a five ora ten percent draw down. Not so
big it recovers right away, rightwithin months. But every on average,
every seven to eight years, there'sa significant draw down that takes years to
recover. Think of two thousand totwo thousand and three, right there was
over a fifty percent draw down inthe stock market. All of a sudden,

(23:11):
we got back to a peak inOctober of two thousand and seven,
and all of a sudden, byMarch of two thousand and nine, we're
down fifty something percent. Right now, we're you know, potentially in another
market cycle like that. But nowlook two thousand, two thousand and three
one, and then another one comeright behind it two thousand and seven through

(23:33):
two thousand and nine. But thenwe didn't have another one for thirteen years.
Right. Well, now that's nottrue, right, we had COVID,
We had that really quick drop,and then it came right back.
Here's my point, folks, everyseven to eight years. Sometimes it's a
little shorter, sometimes it's a littlelonger. Point is these are natural cycles
within the market. The difference iswhen you're taking money from it to produce

(23:56):
your income in retirement, when themarket goes down, you can kind of
you potentially can really do a lotof damage to your future income because the
investments you're taking from while they're down. It's it's like a self fulfilling prophecy.
Yeah, And I think a bigthing is just there's a difference of

(24:18):
mentality. Right if the market goesdown when you're thirty, you're not touching
your floor one care I ray untilyou're fifty nine and a half. Yet
you can wait out those market cycleswithout retirement not so much, right,
you know, you talk about itin two thousand and eight when everything crashed.
When did the market break even again? It was in twenty thirteen,
right when it got back up.Can you really wait five six years and
what if it's longer than that foryou get back up just to where you

(24:41):
were, you know, five tosix seven years ago. It's different in
retirement. You strategize entirely differently,especially if you're taking income out of those
investments accounts. And that's why westrategize to take and move buckets around,
have purpose for your money, andthat way you don't have to take money
from those accounts very often while themarket's down, majority of your money is

(25:03):
already there. Yeah, I likeit. I forget when you said it.
It was probably like two or threeyears ago when I was sitting in
in a meeting that you were inand you were kind of explaining this principle
to somebody and your investments. Youdescribe their investments as more or less the
cherry on top, right, youknow, it's not the base, it's
not the whip cream. It's it'sthe nice addition on top. And that's
really what your investment should be inretirement. Obviously, there's we want a
growth component to that. But ifwe lose the cherry, we don't lose

(25:26):
the milkshake, right right, You'renot losing everything if the cherry's gone.
And that's how your investments, that'show your retirement plan should be put together.
You should not be entirely reliant onyour investments, whether it's for what
drawing for healthcare, whether it's yourdrawing for income, whatever it might be,
your investment should be the cherry ontop. So and the event that
the market just takes a huge crashyour retirement, your quality of life in

(25:48):
retirement can still be upheld. So, folks, as we continue to talk
about the investing, and notice howeverything's connected, but they are individual.
We're talking about income, we're talkingabout and investments. Talking about investments.
Right now, when we come back, we're going to have an offer that
we're going to open up for you, and then we're also going to continue
talking about investing. We're going totalk about a thing called sequence of returns

(26:11):
risk and how dangerous that could beto you in retirement and it never had
an effect on you while you wereworking. This is the Empowered Retirement Radio
Show. Don't go away, folks, we have a lot more for you.

(26:33):
Welcome back, everybody on a lovelySaturday morning to the Empowered Retirement Radio
Show. This is Caleb Simbolack herewith Pete Simbolack as always to make your
retirement better folks. You can findus online at retire Madison dot com.
As we've mentioned in the previous segments, there's a lot of great resources on
there. You can read our blogs, you can find pass radio shows,

(26:55):
you can find out more information aboutour firm, why we do what we
do in specializing retirement planning, andeven how we do it. And you
can also contact us on our pageon the top right corner. It'll say
contact us and we will be ableto reach out to you on Monday.
We also by an offer in thefirst segment for the first six individuals who
reached out to us over the courseof the weekend through our website that we

(27:17):
will give a free consultation. Thisconsultation is forty five minutes to an hour,
maybe a little bit longer, dependingon which advisor it is. Nick
is Nick. Nick loves to talk, especially you're going to talking about baseball,
man. It can it can goa while. But this consultation,
there's really not much for you tobring. You can bring statements if you
feel like it'll be beneficially. Wereally just want to get to know you.

(27:37):
We want to understand what you've donein the accumulation stage of life,
what your goals are in retirement,and whether or not we would even be
a good fit, whether we likeeach other. That's a really big thing
in retirement, to make sure youlike the advisor that you're going to be
working with. And if we feellike it would be mutually beneficial, we
would go to a second appointment wherewe would really get into the nitty gritty.
That's when you would have to providesome statements so that we are aware

(28:00):
of your financial situation and we'd beable to kind of poll holes and see
if we would be able to providea lot of benefits. So, folks,
you can go to our website atretire Madison dot com. It'll be
for the first six people. So, Pete, we've been talking about bringing
it back to the basics and kindof getting to the core staples of retirement.
We mentioned having an income plan,having an investment plan, having a

(28:22):
tax plan, having a healthcare plan, and then having a legacy plan,
and you know, we'll talk aboutit, maybe not this week, but
next week as we continue this littleseries of the core basics of retirement,
who you work with and why youwould work with them, because for everybody
it's going to be a little bitdifferent. So we've talked about income,
income being the driver the foundation ofretirement. You know, a lot of

(28:44):
people in their accumulation phase of life, they've just been producing paychecks. They
haven't really been thinking about it.I mean, they know how much is
going in, but it's just alwayskind of been there and reoccurring. And
a lot of people don't have pensions, so when they retire, that paycheck
stops coming in. So what,you know, how are we going to
create that income? How are weuphold our quality of life so that we're
not retiring or relying on our investmentsfor income. Because you know, we

(29:06):
talked about it that ebbs and flows. We talked about the difference of investment
strategies, right, you know,market hits, market tanking can be really
detrimental to your retirement. Or we'regoing to talk about secrets of returns risk
here in a sec and there's reallyjust a difference of mentality when it comes
to retirement. That's kind of likethe big theme in both of those areas,
right, when it comes to thoseplans, how can we distribute and

(29:29):
preserve our money in a way thatis beneficial to us so that we can
uphold our quality of life while alsomitigating risk on the downside, so that
in the event that something crazy happens, we're still okay and we're still enjoying
our retirement. Well said Caleb,I don't think I could say those things
better myself, and we do wantto talk about some of those threats too.
Again, people, I use theterm turtle up when it comes you've

(29:52):
done a good job. You're talkingabout the driving forces again, the transmission
and the engine, between the investmentsand the income. Right, remember when
you were first learning, Caleb,I don't remember if I had to teach
you because you didn't really have Wedidn't have clutch cars at the time.
We didn't have tried one. Andyou get that, right, But that's

(30:14):
what happens to your money, right, You got that. You know what
I'm talking about, Folks. Youtalk about that grind that you can't get
going with your car because you're justlearning the clutch and what happens in most
people's finances and retirement. When they'retransferring from the investments to their income,
you get a whole lot of thatgrind. One of the dangers that people

(30:36):
don't even know about, and thisis what we want to talk about upfront
about income at this point, isthis thing called sequence of returns risk.
Have you ever heard of it before? Well, think about it this way.
If I were to take a verysimple scenario, let's just start with
five hundred thousand dollars, we're goingto have, over about a twenty year
period of time, a great returnof eight point three percent. Now,

(31:02):
out of this, we're going totake about thirty thousand dollars a year,
and we're going to put three percentinflation onto that number per year. We're
going to use the SNP five hundredfrom two thousand to two nineteen for our
example. Okay, that's where we'repulling the numbers from. All right,
So in scenario number one, youpull money starting with thirty thousand dollars a

(31:26):
year, five hundred thousand dollars threepercent, we're getting eight point three percent
interest? Well would they point threepercent interest? When could you ever possibly
run out of money? Well,it depends depends on the sequence that those
returns come in by. If youactually go back and take a look and

(31:48):
go from twenty nineteen and work backto two thousand, you're going to end
up with about one hundred and fiftythousand dollars more money in your account than
what you started with, even thoughyou took all that income. Understand,
folks, we're going backwards. We'reused in the years from twenty nineteen,
going backwards to twenty twenty five hundredthousand dollars, taking thirty thousand dollars a

(32:14):
year, adding three percent inflation,and we're getting an eight point three percent
rate of return. Okay, sothat makes sense. We've taken money,
we got more money. But ifwe actually go with the actual years,
and you started taking money in twothousand, in this scenario, by year
twenty twelve, you run out ofmoney. Yeah, same eight point three

(32:36):
percent rate of return, Same thirtythousand dollars a year with three percent inflation,
Same five hundred thousand. Now,all the numbers are the same,
All the numbers within the twenty yearsare the same. It's just the sequence
they came through. Yeah, andthis is why we have a pretty big
gripe with people who just believe inthe four percent rule or the two point
eight percent rule. Because they havethis, you know, they run their

(32:58):
money Carlo simulations, they say,Okay, you know, I'm going to
average this rate of return a pointthree percent. And you know, in
both scenarios, right, they hadthe exact same rate of return, They
had the exact same standard deviation.We just flipped the results in which the
order of returns happening, right,And so in one scenario, they took
a hit in the beginning of retirement, so obviously you have a lot less
money compounding and they run out ofmoney by year twelve, where in the

(33:22):
other scenario they didn't have those downyears in the beginning of retirement, so
their money lasted a lot longer.Which is why last segment we talked about
there just has to be a bigphilosophical change of how you view your investments
in retirement. Ultimately it should bethat cherry on top. Ultimately you should
really be preparing because I mean,if you look at out the markets right
now, right we're in a downyear. If you're retiring right now and

(33:44):
these you've had money in the marketthese past couple of years. You're down
quite a bit, right absolutely,And so that sequence of returns you're getting
hit hard in the beginning can havereally big implications if you have not strategized
correctly onto how long your money willactually last retirement. And here's the thing,
you're leaving it to chance. Doyou know, or do I know,

(34:05):
or does anybody know outside of God, what the return order is going
to be? Do we know whenthe bad years are going to be only
when we're in them. I don'tknow what the returns are going to be
four years from now. I don'tknow what they're going to be five or
ten or twelve years from now.What I know is if you're retiring right
now, this is actually part ofthat danger area. Just like people that

(34:29):
retired around two thousand now, alot of people just didn't take any money
for a long time. Or ifyou remember back in two thousand or even
two thousand and eight, a lotof people went back to work. Folks.
This isn't how we're trying to liveretirement. If you're going to go
back to work in retirement, it'sbecause you want social activity. It's because
you want to keep yourself busy.It's not because you need the money,

(34:51):
right right, there's reasons go backto works, socialization, all that stuff.
But folks, if you don't knowabout this stuff, you cannot battle
against it, you cannot protect againstit. This is a big threat.
By the way, it's the samething with inflation. Inflation on your money
early in retirement will have the samekind of effect that sequence of returns in

(35:13):
investments have. People are not preparingfor this. No, And honestly,
even right now, right you seeheadlines when inflation numbers come out and people
are like, oh, inflation iscoming down, and it's like, okay,
sure it's coming down, but howis it measured? It's you know,
what got down to what is itthree point nine percent or four four
point nine four point nine percent onthis last on this last CPI rating,

(35:34):
and people like, oh, it'scoming down, but what is it four
point nine percent? Over eleven percent? Right, And so it's like,
oh, so inflation has gone upfifteen percent the last two years. Yeah,
So the actual numbers are they usedto do the CPI by reading two
years back they have now just thebeginning of this year they needed to where
it's one year back. So ifwe actually go back to May of last
year, it was up six pointeight percent and now we have four point

(35:59):
nine and on top of that,what does that come out to about eleven
percent? Yeah, that's what ourCBI last year. What have read?
Is that coming down? Well,it's only coming down considering it was a
twelve percent the month before. Inflationis really high, folks, it is.

(36:19):
And again they don't include food andenergy even in that reading. So
think about when you know the grocerystore, right and the price of eggs
and milk and cheese and chickens andall the other things going on. Inflation
is roaring. Yeah out there,it is, folks. There's a lot
of things that can hurt your retirement. And there's a lot of crazy things

(36:42):
going on right now. You know, we have a little bit of a
little bit. We do have abanking crisis right. Interest rates are getting
high, SUPERI. We got inflationthat's really high, the government death ceiling
at this point, we don't knowif our government is going to default.
Do you talk about throwing fire onthe you know exactly? And if we
don't default, okay, we're justin racing our budget. And do you
think that's just going to increase inmore taxes after our tax horizon sets in

(37:04):
twenty twenty five. A lot ofpeople don't realize there is a commercial real
estate you know, bubble rightly,we are, you know, potential catastrophe
this summer in commercial real estate thatis going to also accentuate everything else is
going on. Yeah, and soPete, what you're referring to there is
there's a lot of people who haveto refinance a lot of their commercial buildings.
Yes, with higher interest rates,but because of COVID, what do

(37:28):
we do. We transition to alot of people being able to work remotely,
and so there's a lot going on. There's a lot that can really
impact your retirement folks, and sowe want it. We made an offer
again in the beginning of the showif you just want a second opinion,
just come in and get a secondopinion and see if the plan that you
have for retirement is going to work. It's a forty five minute consultation.
We'll just get to know you,we'll understand your financial history, and we'll

(37:52):
see if it's even a benefit andthen we can go from there. Yea,
as we wrap up, don't letthese things catch you off guard.
We've just covered the first two.Actually, we could keep going on investments,
but there's still taxes, legacy,healthcare, and the fidiciary to come.
Folks. It's so important get yourhouse in order. Now's the time

(38:13):
to do it. Folks. Goto retire Madison dot com, schedule that
visit and we will be back nextweek, same time, same place.
Enjoying this great weather, folks,have a great weekend. We look forward
to seeing you assume. Investment advisoryservices offered through Trek Capital Management LLC and
SEC Registered investment advisor. Information presentedis for educational purposes only and it should

(38:38):
not be considered specific. Investment advice. Does not take into consideration your specific
situation, and does not intend tomake an offer or solicitation for the sale
or purchase of any securities or investmentstrategies. Investments involve risk and are not
guaranteed, and past performance is noguarantee of future results. For specific tax

(38:58):
advice on any strategy, consult witha qualified tax professional before implementing any strategy
discussed here in