Leibel on FIRE

A: It seems like even the people who seem to think that they know what the 4% rule is, and once they start talking, you kind of realize that everyone has a different impression of what the 4% rule is. And when you start actually digging into it, you discover that it isn't quite what anybody thinks.

The media and people have this idea that the 4% rule is, if I only took. 4% of my portfolio every single year. I would never run out of money in retirement. People have latched onto that idea from different studies, and when you start diving into it, you might start to question whether it's something you actually want to rely on.

And we both know, right? You can't predict the future. So then we start looking in the past, and we go, Okay, historically, things have happened. So if historically, if things continue to happen as they have and the future. Is like the past, then therefore this would be a safe number.

Right? And now we're starting to read into the tea leaves. And so if you don't even know what the assumptions are behind the tea leaves that you're reading, then before you know it, right? You're, who knows what you're building on.

So when we think about the 4% rule, right? Another, another way of phrasing that is you've probably heard, you know, uh, save 25 to 30 times your annual expenses, right? That you should have, that your retirement number, that the amount that you should have saved should be 25 to 30 times what you spend in a year.

Mm-hmm. . If you think about it 25 times, right? So if you took one and you divide by four, it becomes 25. Ah, yeah. So the 25 rule, 25 x rule, right, of 25 years or 30 years is essentially saying the 4% rule, right? It's a mirror image of that. Um, but it's for different reason. Um, and that's kind of where people come up with this number of how much money should you have saved up for retirement.

It's based on this 4% concept that if you somehow took out only 4% a year, that you would be okay. Right? And. It's, you know, is it based on something? Well, let's talk about that. But that, that is what it's based on. It's based on this idea that if you somehow only took 4% a year, you would never run outta money in retirement.

And let's just, you know, between the two of us, let's be honest, right? Realistically speaking, there's a lot of people who may not even have that much money in savings, right? They might not have 25 times their annual expenses save. So are we telling all of these people that they can't retire? Right. And if we're telling these people that they can't retire, Right?

Well, reality has a different outlook. Right? Reality is, well, these people can't work anymore or they, they're not getting a job anymore. They get fired. Right? Or they're forced into retirement. Mm-hmm. . But now, right? So there's this whole world of people. Just, you know, they got to 65 or they got to 70 or whatever that year was, or they had an injury at work and it forced 'em to retire and they don't have 25 times their annual expenses saved.

They don't have, you know, enough that they can take out 4% every year and be okay. So are we telling these people they're not safe, that they're gonna run outta money in retire? Um, and I think when we start diving into, you know, what, where the 4% rule came from and you start looking into it, you might question and say, Well, okay, maybe I don't actually need that much money saved in retirement.

Maybe I could take out more than 4% and still be okay. 

I think that as a rule of thumb, right, if you are, if you're trying to gauge whether you have enough money for retirement. if we only took 4% out of our portfolio, out of our life savings and that covered our expense needs in retirement, then we are doing awesome, right? Because I, we can definitely create a retirement plan around 4%.

if 4% is not enough, right, and you still have a shortfall, I don't think that you should at that point give up and say, Well, I have to work longer, or I have to cut my expenses. I think it just means you gotta be a little more creative in how you structure your retirement because that just means that this rule of thumb doesn't apply to you and you're gonna need to use other factors to fund your retirement.

So the Trinity study, which everyone kind of like looks to and calls, you know, the 4% rule or the Trinity, you know, the Trinity study, which was, you know, Trinity University, which is where these professors were, actually came on the backs of another study that was done by a retired financial advisor, Uh, John Big, um, if I'm pronouncing his name right, I, and he's, you know, both them and the people who created that Trinity study have come out multiple times over the years.

Updating their rule. Um, but let's let, let's talk, take a look at the fundamentals, right? Both be and the Trinity guys, right? What they looked at was, they said, Let's start with the question of how mu, how, how, how can we structure a portfolio so that someone would not run out of retirement money during retirement, right?

So that they would not deplete all of their savings by the time that they died. That was the question that they asked themselves right now. They said, Okay, how are we gonna structure this? They, this was, you know, 1998 was the first study that was done by the Trinity University, right? These guys. So they went back historically and they looked 1925 to 1995.

And they looked at different periods of the stock market and the bond market, and then they looked at the returns and they were like, Okay, what percentage could we take out of a portfolio over a 15 year period or a 25 year period that if we took that percentage would consistently allow the person retiring to still have money when they died? Or at the end of that 15 or 25 year period.

let's look at some of the assumptions of this study. Okay.

Assumption number one is that the past is gonna look like the future

We starting in 19, right? 1925 to 1995. Right. Let's talk about all the changes that underwent the world, right? We're, we're talking about, you know, coming off of World War I, right? World War I. Right. Um, we have, we have Cold War, we have the space race, We have hyper inflation, right of the seventies. We had Soviet Union in 87, right?

Defaulting on their sovereign debt for the first time. Collapse of the Soviet Union, right? And then we have the.com boom. So this was literally in the height of the.com boom, was where the study ended. Um, and the first study in 1995, during that period, also, by the way, right? We went off the gold standard.

So in 1925, a dollar was worth a dollar of gold. You can go and exchange that dollar bill for a dollar of physical gold that you can buy things with by, you know, 1970, you couldn't do that anymore. And that completely, that's part of what drove inflation and that completely changed economics. We had globalization, we have technology, right?

The world did not look the same. The stock market did not look the same. 1925, you wanted to buy stocks. You literally went down to Wall Street. But nowadays, right? You wanna buy a stock, you go online on Robin Hood, and you can have that within a few seconds. 

I think that concept that you should look to the past and then say based on that what I can expect the future to look like, let's use some statistical analysis to say what we can take out of our retirement each year. I think that was the innovation that they did, that they introduced this concept to the finance world.

Like, Hey, don't just guess at this. Do you some analysis. But beyond that, the numbers change. They literally change, you know, every few years. Because the stock market, depending on whether we're in, in a beer market or a bull market, will determine what the future expectations are for the return on the market now over a long enough period.

Yeah. Those numbers will kind of even out. But I, I, I mean, I, I think everyone will agree that the bond market has changed significantly from 1925 to 1995 or even to, you know, 2015, um, or 2022. Right. Exactly. And, and what's gonna happen in the future, right? It's not going to mimic what happened in the last 20 or 40 or 50 years.

So first of all, the further away you are from retirement, the more the 4% rule is a good rule of thumb. Ah, uh, it's when you actually get to the point where you're like, Well, I need to start taking money out of my account, right?

I actually need to retire. Do I have enough money that the 4% rule becomes a, a problematic? Now, here's, I do use the 4% rule in my planning, but I use it in the way of saying, are we, do you know, do we have a thumbs up of like, we have enough money or do we need to do additional work? To see, do we actually have enough money to retire?

Because if we have 4%, the way I look at it, right, it, the, the stock market, when we look at the historical returns of just the s and p 500, so you're just invested in the top 500 companies and the United States. When we look at the historical return that that has had over the last 200 years, that has averaged 6.7%.

After inflation. So that means no matter whether inflation was like 10% right, or inflation was, you know, 1% after inflation, statistically that has returned an average of 6.7%. So if I only take 4% from that, that still leaves me with 2.7% to put towards next year's retirement and my future, right? So I'm still accumulating wealth over the long run.

Probably end up hurting you as any financial planner will tell you, but as a rule of thumb, do you have enough or not? Or do we need to figure out how to cut expenses or increase our income? I think is a good rule of thumb because worst case scenario, You know, a hundred percent invested in the stock market, which everyone says not to do, right?

But if you had to, you could be a hundred percent invested in the stock market and you would be okay. Right. So I see it as kind of a green light, red light thing of are we, are we safe to proceed with our retirement planning or do we have more work to do?

So you're not in trouble, Right? I, I would say that right off the bat, right? Just because you're gonna run outta money, just because it says you're gonna run outta money doesn't mean you're gonna run outta money, right?

Because it is trying to project into the future. It's trying to look at it crystal ball, It's making assumptions that may not be. Right. So what we wanna do, right when it says, when it starts fr uh, flashing red lights, all that says is one, we gotta be super careful about the decisions we make because every decision that we make is gonna have more of an impact on us than it will have on regular people, right?

So that's number one. Number two, it means we probably will have to get creative. Like, something that I didn't mention about the Trinity study is they found that that 4%, it went along with a portfolio that was 50% equities, 50% bonds, which right now anyone would tell you would be nuts. So the, you know, they, over time that changes and it's all based on, you know, what historical returns and what the projected future returns are.

Mm-hmm. . So we may need to take on more risk or we may need to say, you know, we need to. Prepay some of your expenses to bring those expenses down, right? There are things that you can do. All it does is it says where you need to focus your planning. It does not tell you whether you can retire or not.

Q: What type of financial advisor have you found to be the most helpful for those on the verge of retirement? (2:11)

A: This is a little bit of a trick question of, you know, when we're thinking about financial advisors and retirement, there's a broad spectrum of people who can help us.

It's important to understand where each of them is coming from so that we can understand the type of advice that they're giving us. Each person has their own perspective and their training that will influence the solutions that they find.

Financial Advisors are Like Hammers!

When we think about financial advisors, I need you to think of this analogy, "to a hammer, everything is a nail." And that has never been truer than financial services in financial services. We have a whole bunch of really amazing people who are super passionate about what they do. And they're super passionate about helping people. And they learn some amazing tools and how it can be used in lots of amazing ways. And then they go out, and they try to apply it to every situation.

The thing is, these tools can be used in every single situation. Now, does that make it the best tool for that situation? No, but it is an amazing tool for that situation, and it can be used that way. And it has been used successfully by lots of people, but that doesn't make it the best tool.

And unfortunately, the financial services industry is. Still, I would say a little immature when you compare it to some other industries in that we don't have standardization. What we call things and what the different roles are of people in our industry.

When you go to, you know, get your taxes done, there's basically two people that you're gonna deal with. You're gonna deal with a tax preparer, or you're gonna deal with a CPA. And in order to become either one of those, there's a set process to become a financial advisor, to call yourself a financial advisor. It doesn't take anything. In fact, in a lot of areas, it's not even a regulated term.

So when you're looking at finding somebody to help you in retirement, you are going to find a huge spectrum.You will find on the one side, people who are like financial coaches, and then on the other end of the spectrum, you will have, you know, these full-service boutique financial advisors, wealth firms that have people working in their office that specialize in all the different specialties, such as retirement planning and the entire gamut in between.

What to look for in an advisor:

So when we're looking for a financial advisor to help us with retirement there, what we're really looking for is:

And then we need to go shopping because we need to know what it is that we're looking. and we need to find somebody or maybe multiple people who can provide that solution.

Q: Do you need a financial advisor?
A: I think that it's very doable to do it yourself, but I think also if you wanted to. Hire someone, you need to have a basic set of knowledge so that you know who you are hiring and what they're gonna do. And oftentimes, it means hiring multiple people. So how do you find, a good financial advisor?

How to Find a Good Financial Advisor:

Compensation:
So the first thing that you wanna do when you're looking for a financial advisor is you wanna understand how they're compensated is going to be the biggest bias in terms of what they're gonna recommend.

so going back to that hammer analogy, if you are talking to an advisor who all they, the way they get compensated is by selling mutual funds, and they exist. They are always going to find a mutual fund solution. So you need to know that going in that this person, this recommendation you're getting is gonna be mutual funds.

It's kind of like going to a, uh, you know, an ENT and saying my throat hurts. Well, they're gonna tell you that your problem is your throat. And if you go to an allergist, they're gonna tell you, you're probably having an allergic reaction to the pollen. Right.

So, Financial advisors, find out how they're compensated, right?

Education
Find out what their education is because each of them will have different levels of education.

Some are only licensed, and if they only have a license, that literally means that they just passed a hundred-question test. So that doesn't mean that they actually have any formal training in, in your area that you need in retirement. It generally means that they understand somewhat about products.

Values
and then you wanna find out what their values are, what's their outlook in life. What, what's the world view that they view the world as what's that lens? Because maybe they view the world differently than you.

I've worked with a lot of advisors who do not understand how the markets work and they view it as gambling and. Maybe that aligns with you, or maybe that's really against everything that you believe in. So you need to find an advisor whose philosophy and their approach to life match what you want.

Ability To Deliver Results
And that has the technical capability.  and then the actual ability to deliver, right? So you may have an advisor who you philosophically, you believe the same thing and you want, you know, what they say? And they, they, they have the education of being able to create a great retirement plan and great tax plan and great investment plan.

They may have all the credentials, but they're working at a firm that doesn't allow them to implement it. For instance, if someone works at Morgan Stanley or an Edward Jones or a primemerica, or, you know, any one of these companies, they're called captive companies, and they restrict what solutions their advisors can sell.

They only let them provide solutions within their fund family, within their toolbox of solutions. And so it may be very possible that there's a better solution with a different company, but they're not allowed to recommend it. And so you want to know that that bias exists. That doesn't mean that they can't build you a great plan. But they may not be able to build you the best plan, or they may not be able to tell you that it's not the best plan. So you need to understand where those biases are. Um, and, and there are people who are completely independent, but that doesn't mean that they're not biased, right. They may be completely biased against captive people who have restrictions on them.

As an Investor, You Should Be Able to Hold Your Advisor Accountable
So you just wanna, you want to go with your eyes. And I think I've come to the belief that you, as an investor, you, as the person who's hiring these people, you need to have a basic set of knowledge to be able to hire them because you need to hold them accountable. You need to know how to ask the right questions so that, you know, are you, are you being sold something or are you being advised with, you know, with your best interest in mind?
 

To learn more about how to hire a great financial advisor, check out our free course "How to Hire a Great Financial Advisor."

Or book a call with a Yields for You affiliated advisor.

Q: Is there such a thing as "winning" when it comes to investing? (1:58)

Q: What should we be thinking about when it comes to investing for retirement right now? (3:20)

Q: Can you talk about what people mean when we hear that you should be diversified? (6:30)

Q: Is there ever a time when diversification is not a smart thing to do? 

Q: how do you determine then what's the right investment for you? (10:26)

Q:  Is there a right time for investing for retirement? (12:00)

Q: I wanna make money, but Leibel, I don't wanna lose it all too. Do I have any options? (16:18)

Q: What mistakes do you see most often when people are investing for retirement? (20:48)

Q: So to avoid those types of mistakes, what kind of mindset do you need to have in addition to that plan, to make it easier for you to be really successful in investing and especially for retirement? (23:08)

Q: At what point should we start, uh, looking at the road signs or reviewing our investment, so to speak? (25:52)

Q: My last question, how do you feel about having to rely on investments solely for retirement income and that's all you have? (27:41)

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Q: Is there such a thing as "winning" when it comes to investing? (1:58)

A: I think when it comes to retirement, we need to not think about winning. What we should be thinking about is; achieving our goals!, I think that when we focus on winning or losing, it can be easy to get caught. In the hype of the market and we can get caught up in all the noise that's out there that's just screaming for our attention. When what we need to really focus on is what is going to help us achieve our goals, or is it going to hurt us or impede us from achieving our goals.

As long as we are moving in the right direction, as long as we've got a plan, then who cares what's happening in the market, right?  Who cares whether somebody is winning or losing, what matters is, you know, what we're looking to accomplish and whether we will have a roof over our head, food on the table, or being able to splurge on the grandkids.

Q: What should we be thinking about when it comes to investing for retirement right now? (3:20)

A: Just to recap, and I'm gonna keep repeating this over and over again. There are really, there are two things that we can control when it comes to investments, and those two things will affect everything.

And, and it really is this simple, anyone who tries to make it more complicated. That is the biggest red flag to you, telling you that they don't understand how the markets work, that they don't understand what they're doing and that they're buying into the hype in one form or another.

And there's hype on both sides.

There are some people who are very against investing in the markets, and there are people who are all for it. And you really shouldn't be on either side of those. But we should be on the side of the two factors that we can control; how much risk we have of losing our money or of our money going to zero. So we can control that.

And then we can control how much time we are giving up access to our money? Right.

And the more that we give up access to our money, that's also referred to as time horizon. So the longer we can wait for the return on our investment, the greater our chances of return, and the more risk we take on the greater our chances of return.

And those are the only two factors, right?

So if somebody shows you something and they say, and it looks like it has really great returns on really low risk. Then either you're giving up time, or it's pretend. And that's just how it is.

So when we talk about factors. It's how much risk, how much am I risking giving going to zero and how much time am I giving up?

And then there's another factor that we need to look at. And this is a non-financial non-numerical number, and that's our personal peace of mind, right?

Because you could have an investment that does everything that you wanted to do, but if it's, you know, going all over the place and it, it looks like, you know, a heart tracing on Grey's Anatomy or something you're, you're not gonna be able to sleep at night.

I don't care who you are unless you're a psychopath. You, aren't going to be able to sleep with those ups and downs. And so you need to create for yourself a consistent system that produces the returns that you need with risk and volatility (volatility, being the ups and downs) that is something you can live with.

And there are no right or wrong answers of what that should look like or what that, what it takes to do, there is only the math of, you know, risk and time horizon. 

Q: Can you talk about what people mean when we hear that you should be diversified? (6:30)

A: So diversification is this idea that, and, and it's mathematics, right? We're talking about math and statistics. So if I am, if I own an apple orchard, and all of my work and effort and money is tied up in apples, and something were to happen, right. It rains too much. There's a storm, right? My entire net worth can be wiped.

So, what I would want to do is I would want to split my money between, let's say, you know, apples and something that would be the complete opposite of apples, some other type of thing. So let's say real estate, right? If something were to happen to an apple orchard, it probably would not affect the prices of real estate.

So now I'm gonna split my money, 50% I'm gonna put in apples. And 50% I'm gonna put in owning apartment buildings. And so if something were to happen to one of those investments, I still have half my money. And what ends up happening is one of my investments is up by 10%, and one is down by let's say 5%.

Well, I'm still up 5%, right? Because of the math, that's involved in there. if I'm up 10% on one and down 10% on the other, well, they neutralize each other. And I, now I have a 0% loss and that in its simplest form is diversification. It's spreading your risk around so that no one thing. Can hurt you, right?

Diversification is the embodiment of that adage of don't keep all your eggs in one basket.

That is what we wanna do with diversification. We wanna spread our risks out so that if something happens to our one basket, we do not get killed. We do not have to start from zero.

Q: Is there ever a time when diversification is not a smart thing to do?

So there's something called Deworsification. And I talk about this in-depth in my course. but Deworsification is when you do things that you think are diversifying you, but in reality, you're just concentrating your risk. And so you think that, I have five different types of eggs. And five different types of baskets.

So therefore, I'm protected. But in reality, because of the baskets you've chosen, they actually have a compounding effect, and you really only have two different types of baskets and two types of eggs, or maybe you even only just have one type of basket and one type of egg, but they're different colors.

So you think you're diversified and protected - but you aren't.

And the crazy thing about this is that it happens all the time because there is a lack of transparency in the industry. And, and it's not that the information isn't out there for you to find it's just not easily accessible. Something I say over and over again is the definition of a profession is that there is a barrier to entry, that a Joe Schmo off of the street, can't just become an advisor. So what are the barriers to entry, what do we do? We have a hundred question exam to stop them, but it's just a hundred questions. Anyone can pass that. So what do we do? We call things by a million different names.  so that it becomes confusing. And it becomes difficult for the average investor to really tell what they're owning.

And so you gotta be able to know where to look and how to look so that, you know, am I actually diversified or do I have something that is actually increasing my risk? 

Q: how do you determine then what's the right investment for you? (10:26)

A: There isn't really a "determining the right investment." What there is, is a balancing of the factors, right? You need to start with the end in mind.

What do I need as a return on my money? Because you should have a retirement plan. You should have an idea of what you need your money for. And then, and, and the answer could be as fast as possible, but you want an answer to that question, and then you work backward and and ask what can I invest in that will give me that kind of return?

And those are easy numbers to find out, right?

We can see what something has historically done. And then you kind of just combine it, right? You combine high-risk things with low-risk things, and you, you just balance it out. So that you're the risk that you're taking. Is a risk level that you're comfortable with, and it has a high chance of giving you the results that you want.

Now here's the great thing. Right? 10 years ago, 15 years ago, you probably needed, you know, advanced training to be able to pull something like that off nowadays, you can buy a single mutual fund or buy two or three mutual funds, and they will do all the work. You just need to know when you go shopping that this is what I'm looking for...

Q:  Is there a right time for investing for retirement? (12:00)

A: Yesterday is always a great time.  

Freddie: thanks a lot. Live. Well, I feel better. 

Leible: Yeah. Um, I, I actually stole that one. who was it? I think it was Merrill Lynch who was running an ad that's what it is, though. The best time to invest is yesterday. but, but that really is the truth, right? It's whenever you invest, right, you want to invest as often as possible and as, as frequently as possible, when it comes to retirement, what we need to be aware of Is not the "are we invested or not?" It's are we taking on appropriate investments?

Do we have a plan for how we're gonna turn our investments into an income stream when we're working, and we're earning money, and we can replenish our savings, and when the market goes down 20%. That's a sale for us, right? When we are working, we can invest more money. We're buying it at a lower price. or we can take on a side job. We can take on extra hours at work. We can come cut back expenses to be able to, you know, whether that 20% correction or that 40% correction, when we get into retirement or as we get closer to retirement, and we start to liquidate our assets and live off of them, all of a sudden, we need to make sure that we have a plan for how we're selling those assets.

Right. And so the question isn't, when's the best time to invest? The best time to invest is always now. The question is, how do we make sure that when we are divesting, when we're, selling our assets, that we're selling it in a way that doesn't hurt us long term, right? Sequence of return, which we've talked about in previous shows, Google it on my website.

>> https://www.yields4u.com/blog/search?q=sequence

We've got multiple guides about this. Multiple articles. The sequence of return is real right now when the market is down, you do not wanna lock in those losses. Accelerate them by taking out money simultaneously because now you're making your money and have to work even harder.

It's like being in a car going downhill, right? And if you're going downhill and you go slowly, downhill, your car is gonna have to work even harder to go back up the hill. Whereas if you accelerate, when you're going down, you're gonna be able to use that momentum to go back up. And that's really what the stock market is. Right. Everyone gets scared when the market is going down, and they start putting on the breaks.

And you hear people going, "oh, I don't wanna take on the risk." Right. And it's scary if you've ever written a bicycle down a hill, right? You know, the faster you're going, you start to feel out of control, but. Anyone who has ridden and not hurt themselves knows that the secret to going downhill is to make sure that you maintain a speed where you maintain control, but maintain that speed so that you can go back up that hill. Because if you don't maintain that speed, now, all of a sudden, you're working a million times harder to, to go back up and. Unfortunately, in retirement, we may not have the ability. We may not have the stamina. We may not have the strength to make it back up the hill.

Q: I wanna make money, but Leibel, I don't wanna lose it all too. Do I have any options? (16:18)

A: Yes, you want to invest in the market, and you don't wanna lose it, all right, you have two factors that you can control, right? Think of these as levers or knobs, and by dialing these in, you will be able to determine how much risk or how much potential loss you're comfortable with and be able to dial in the return that you want. And the first one is risk of loss, right? So you can choose to Invest in things with a higher risk of loss versus lower risk of loss.

And then the spectrum on that is anywhere from people, contractually obligated to give you your principal back. So simplest form, Bank CDs, you will always get your initial money. Bonds, right? You give a bond, you buy a bond. And at the end of the bond, whether it's five years, 10 years, whenever it matures, you are gonna get your principal back.

With a bank. If the bank goes bankrupt, you'll get, you know, insurance payouts, FDIC, with a bond, you'll be able to participate in the bankruptcy proceedings and get the money from the company. When it liquidates itself, you won't get all your money back, but you will get some of your money back.

How much of your money is at risk, and how much you'll be able to get back? What are the chances of losing your money? That's really a spectrum, right?

Just like we have, you know, what's it like 90% of startups fail within the first two years? Well, when we're thinking about, companies that we can invest in or that we can loan our money to, you have a spectrum of risk. You can invest it in brand new companies that are startups and have a huge amount of risk of failure. Or you can invest it in companies like IBM that have been around for over a hundred years and probably are not going anywhere. They're not going to make, you know, massive profits. They're not going to, you're not gonna get huge returns, but at the same. They're not going to go bankrupt overnight. And even if they do go bankrupt, the chances of your money going to zero are kind of mill, right? Because, because they own so many physical assets because they have so many investors because they're so integrated into so many aspects of society that if they were to go bankrupt, it would hurt so many people.

There's going to be protections around them, right? So you can very much dial it in. The other thing that you can dial in is how long you are willing to give up your money for right. The longer you're willing to get to wait for your return, the greater of a return you can get. And that's a spectrum as well, right?

Let's take day traders, right? Day traders. They don't give up their money for any period of time. Right. It's literally the, for a few hours, they'll give up their money and if they wanna make any kind of significant return, right? Cause for the vast majority of days, the market doesn't move very far in a single day, right? I think it's the average movement in a single day is under 3%, a 3% return on your investment. And in a single day, isn't a lot of. It's not a lot of money. So in order for a day trader to make any kind of money, they, they have to invest either millions and tens of millions of dollars, or they need to take on a huge amount of risk, and they need to turn $1 into $20 or $50.

And they do that by borrowing. They do that by using risky products that have leverage built into them. So that they're no longer investing in the company, they're investing in a thing of the company or a bet of a bet, of a bet, on the company so much so that the speculation that the traders take on is actually codified in law is not being gambling because by its very definition of what they do, It meets the definition of gambling and would be illegal.

Q: What is the "market?" (1:30)

A: Generally speaking, when we talk about the market in general terms, we're talking about the stock exchange and the ability to buy and sell pieces of a company or pieces of a loan to a company. The stock market allows me to own a fraction of a percent of the company and participate in its profits.

Now, there are lots of different things that we call the market I can own equity in that [company or] that stock, it's no different than going into a business partnership with your friend...other than it's regulated. Now that's one reference to the markets.

Another reference to the markets, and this is what you hear on TV a lot when they say, the market was up 5%, or the market was down 5%. What they are referring to is usually a basket of companies.

There's a company called standards and poor, and they've been around for over a hundred years. And what they do is they compile lists of companies and group them together. And so one of the most common ones is what's called S & P 500.

The S&P 500: is the top 500 companies in the United States. And when [the price for those companies] move, when people are buying and selling them, and willing to pay a higher price for them, then the market overall moves, and it can be an indication of how the overall stock market is behaving.

So when we talk about the market, we're referring to lots of different things, but in general, what we're referring to is the fact that you can own pieces of this company, of these companies kind of move together.

Q: So is the S&P 500, aka the "market" like a barometer of our stock financial health? Or of the country's financial health?

A: So in the United States, the S&P 500 is the top 500 companies, but there are thousands and thousands of companies in the United States.

And when we look at the S&P 500 itself, there are times, such as now, where that list is dominated by just a few names, you know, Over the last few years, you may have heard the term FANG, which stands for, Facebook, Amazon, Netflix, and Google.

These companies make up the vast majority of the S&P 500's networth. They're not the bulk of the United States economy, right? Not by a wide margin. They, they are significant. They have lots of money, but when you look at the S&P 500, what you're really talking about is these tech companies. You're not talking about the mom-and-pop shop, that's selling, bagels and danishes around the corner. You're not talking about the pizzeria. They are too small even to be noticed, and what affects Microsoft doesn't really affect them. So it's, it's an indication of the overall health...but it can easily be distorted by these large companies.

So it's important not to equate economic our economic health with market success. Right? What happens in the market is not related to what happens in the economy.

Q: So is that what causes stock prices to go up and down?

A: Stock prices go up when people's expectation of the future is rosy. And everyone's like, oh, the world is great, and everything's gonna be good. And then what happens...some news comes out, or something comes out that makes people reconsider reality. And all of a sudden, people get pessimistic. It's not like they go like, oh, okay, well, you know, I'll readjust my expectations a little bit.

They usually swing wildly. They're a little bipolar.

When people are optimistic about the future, the price goes up.

When people are pessimistic about the future, the price goes down.

What people are trying to do is price out what the future will be.

Now, what also happens is you have institutional investors like the New York state fire department association, the police unions, etc.... And they've got billions of dollars that they have to invest for their pensions. And when they're investing billions of dollars, they have to follow strict rules. And in following those strict rules, sometimes what will happen is the market will go down because people get overly pessimistic about something and it, it could be completely unfounded, but it's enough that people are willing to sell at really low prices. And by doing that, they devalued the company enough that it triggers these institutional investment rules. And all of a sudden these major institutional investors. And I think it's worth pointing out that the vast majority of money in the stock market is from institutional investors. (ie. local governments, pensions unions, etc...)

In fact, billions, and billions of dollars, trillions of dollars are being controlled by essentially committees that have to follow rules, very strict rules. And. When, these selloffs happen, their rules get triggered, and they have to move their money.

So they have to either move to something that is less risky, or they have to move into something that's more opportunistic, whatever the rules say they have to do and that can further a sell off.

]And so people kind of learned what the rules were of these institutions, and they were able to manage around it. And you can develop your own set of rules as a regular investor that profited off of those institutional rules.

Q: How can retirees make the most of their money WITHOUT paying too much in taxes? (1:48)

Q: So the tax codes are actually written in favor of his citizens? (3:54)

Q: Where do we, how do we start making our money more efficient to benefit? Not only us, but our nation? (7:38)

Q: Talk about the aspect of social security being taxed in retirement. (9:09)

Q: So your guide, does your guide talk about this? (11:29)

Q: Where do you start to avoid paying taxes in retirement? Where do we begin? (15:30)

Q: How can retirees make the most of their money WITHOUT paying too much in taxes? (1:48)

A: Before we dive in, we need to clear up a common misconception and that is: "you do not have an ethical obligation to pay as cent more in taxes than what is owed."

In fact, you have a responsibility to make sure that you are paying the least amount of taxes possible. When we look at how taxes work in our country, Taxes are designed to be part of our economic engine. It's really is an extension of our economic policy. Taxes is how we make America Great!

Our tax engine is designed to move money around our economy and incentives behaviors that we as a country want and penalize behavior that is not helpful to our economy.

So when you think about "do rich people don't pay their fair share in taxes?"

It's not that they're not paying their fair share in taxes. It's their contributing so much to our economy that they're being rewarded with not having to pay taxes...huge amounts of taxes.

Now, if we, as a society, decide that we are over-incentivizing that behavior, we will adjust the tax code accordingly. So when you think about "how do I pay the least amount in taxes," you're not cheating on taxes. What you are doing is you are repositioning your money so that it is being efficiently used, in the ways our nation wants...so that it helps America be Great!

Q: So the tax codes are actually written in favor of his citizens? (3:54)

A: it is written in favor of our nation. Our nation as a whole, not as an individual.

Because as, as a person, we are just a number,

We're a nation of 330 million people, plus a whole bunch of territories and allies. So we as a nation, we are statistics, and we as an individual have desires, and we have needs, and we have wants, and we want to continue to grow. And right now our economy makes up about 24% of the world's economy. That didn't happen by accident. That happened because we are very, intentional about how we use our money, and how we use our influence. And the tax code is just an extension of that.

Q: How do taxes change in retirement? (4:57)

A: in our working years, the tax code is set up to incentivize behaviors that we want. So it's set up to incentivize us to get married. We get a tax break. If we get married...to buy a house,  we get a tax break for that giving to charity. We get a tax break for those behaviors. Having kids, the government will actually give us money for having kids. Saving for retirement, getting a college education. All of these things are incentivized in our tax code.

When we move into retirement, a lot of that those incentives go away.

When it comes to having kids, we're probably not having kids in retirement...or at least I hope not.  Things like saving for retirement. Those things kind of fall off in retirement. And so what we're left with is we now have all this money without any of the tax savings.

In fact, you could argue that we have negative incentives in retirement. Because all of a sudden, we have to start taking money out of our retirement accounts, and we have to start living off of that money.

And so all those incentives that we got to save our retirement, they start working against us, and before we were able to take those savings off of our tax return and not pay money in taxes.

Well, now we have to pay taxes, but we have to pay taxes at the highest rate possible.

We're paying it as income tax, not as investment tax.

And so this shift happens in retirement, and it now shifts in favor of the government.

And the governing factors in the taxes from your retirement income into their budget, they'll spend money and say, "It's only gonna cost us, you know, $10 trillion over 20 years, part of how they do that is they're factoring in all this tax revenue that they're gonna get off of us in these later years in retirement."...Because they control how much money we have to take out in retirement, and they control what the tax rate is that that money is gonna be taxed.

So our goal in retirement is to try to do everything that we can to make our money as tax efficient as possible, which means shifting our income, shifting our retirement savings from being taxed as income to being taxed as something else. And that means finding ways of using it in retirement that is more efficient to our nation and more advantageous to us as a country.

Q: Where do we, how do we start making our money more efficient to benefit? Not only us, but our nation? (7:38)

A: So the first thing that we gotta do, is we got to look at what our future tax liability is. And so we need to look at what our money is in our retirement accounts because that's not money we control, that's money that Congress controls.

And well, I, I shouldn't say that...We have this window, this opportunity zone, where we have the ability to control our income and retirement. And that is from Age 60 till when we have to start taking required minimum distributions. During that time period, we control how much money we take out of our accounts retirement accounts.

At that point, after we're required to take those required minimum distributions, then Congress becomes in control of the taxes and those accounts. So we need to use that window of opportunity strategically. We need to decide when and how to use that money so that we pay the least amount of taxes.

And that might mean the least amount of taxes now or in the future. And we gotta decide which one is more advantageous to us. Then we need to figure out how we keep from paying more taxes on it, now or later on? And that means investing it in ways that are beneficial to our country as a whole.

Q: Talk about the aspect of social security being taxed in retirement. (9:09)

And I know that you have a guide that speaks really directly to that, and our listeners can access that, but let's talk about social security tax in retirement. (https://register.yields4u.com/social-security-maximization/)

A: I absolutely hate the fact that they're taxing social security! And this is one of those things that is a default action that they've created to reduce the liability of the social security program because Congress kept tapping into it, the social security trust fund.

We keep paying premiums for this insurance policy. And instead of it getting invested for our future, Congress has been using it to fund wars, to fund, you know, pet projects. In fact, they require that the trust fund buys US treasuries.in fact, they require that the trust fund be invested, I think is like 70% or 80% is invested in federal bonds.

So they're just saying that of the money that we're paying on social security taxes, it is actually going to fund other government programs. Mm-hmm , which is kind of ridiculous. So the result is, is that the social security administration doesn't have enough money to pay out all of its obligations.

And it says it right there on your social security statement, right? It says there's a year. It keeps moving. But that they will only be able to pay, you know, 80% of their anticipated liabilities, and this number keeps changing. 

And, one of the ways that they keep stretching out the limited social security revenue is by reducing the amount of benefits they have to pay out.

Q: So your guide, does your guide talk about this? (11:29)

Yes, my guide talks about this. And one of the things that you wanna do in retirement, Is so when you're looking at your income, and you're looking at, what's my cash flow gonna be in retirement one of the questions you wanna know is what percentage of your social security is gonna be taxed? Because it's very possible that 50% or 85% of your social security income is automatically gonna be considered taxable income.

Now here's the thing because of how this tax works in practice and because we have that individual deduction that we can take off our return, it's possible that even though 85% is taxable, you won't actually pay taxes on it. However, if you take too much money out of your retirement accounts, right? And you go beyond that exclusion, all of a sudden. You're gonna be paying taxes on a whole lot more money than you thought you would have to.

And you may not need that money to actually to live on!

You may be good just with social security plus, you know, maybe $500 a month or a thousand dollars a month. Mm-hmm . But if Congress requires that you take out from your retirement accounts, you know, $2,000 or $3,000, that extra money can easily push you into a higher tax bracket, and can easily cost you years, or lifestyle changes in retirement, because it's gonna erode your growth...because all of a sudden you're paying, you know, 15, 20% effective taxes on money that really should be growing and continuing to invest.

In retirement, our goal needs to be to pay as little in taxes as possible because that is easily one of the biggest costs in retirement we can control. After all, market losses you can theoretically recover, taxes once owed is forever gone. We're probably not going to get that money back.

The second thing is we have to control what our income is in retirement. We have to be an active participant in deciding how much money we're taking in retirement and not letting Congress dictate that. Because the second they dictate what our income is a retirement that allows them to dictate what our taxes are in retirement. And we've lost control of our future.

Q: Where do you start to avoid paying taxes in retirement? Where do we begin? (15:30)

A: So the first thing that we need to know is what is our future tax liability is..And so the first thing that I like to do whenever I'm doing a retirement plan is, I just list out every single monies that a person has. Right. Every single account, every single asset, I put it on a spreadsheet, and I mark on there Is this a future tax liability?

Is this something that Congress controls?

So that's your 401k account. That's your traditional IRA accounts. It could be your non-qualified annuities. You wanna look at these things, and you wanna see if I use this money in retirement, will it result in a tax liability? And can I control that tax liability? If the answer is "no," it goes on that list.

Once you have that list right now, we are, we're gonna have a number. It can be a hundred thousand, it can be a million, whatever it is, right? You have your number. We can now go and look on the IRS's website. And what we're looking for is the uniform life expectancy table. This is the table that the IRS uses to determine what your required minimum distributions are, and there's a few other tables out there, there are options. But for most people it's gonna be this table. You're gonna look at that. And that's gonna tell you what percentage of your assets are gonna be required for us to take out as income in retirement.

If you look at the number in the first few years, it's generally about 4%, and if you look at your retirement needs, you look at what you're getting from social security. And if you add social security and 4% of your taxable income and retirement, you add that together. If that is more than the amount that you need in retirement, or if it's a significant amount and it will push you, let's say, beyond the 10% tax bracket, that is something that you want to address, right?

And ideally, you want to be in that 0% tax bracket, but it's not always realistic for everyone.

if you're beyond that first tax bracket, that 0% tax bracket, now you really start, you gotta start asking yourself questions of how can I reduce my taxable income in retirement?

How can I reduce the balance that I have in those retirement accounts? So that. If Congress came along and changed what the tax rates are, if they came along and they changed how much I have to take out of my retirement accounts, it wouldn't throw off my entire retirement plan.

And that's where we start getting strategic about how do we convert our taxable retirement accounts into what people like to call tax-free retirement.

And I don't like to call it tax-free retirement.

What I like to call it is the tax me when I choose because that's really what it is. 

Now let's talk about how you use this, right? How do you move your money from the tax me later to the tax? Me, when I choose, you wanna choose it at times and places that are advantageous to you. And, before we were talking about this window of opportunity that you have in retirement, this window. Age 60, you know, really is 59 and a half till you have to take that first RMD. That window is when you have to choose when to take your money out of your traditional retirement accounts and can pay taxes on them and then put them in a Roth account or wherever you wanna put them.

You may even just use it. Because during those years, you get to control your income. You get to control your tax rates, you get to control your tax bracket. And so what you wanna look at is in these years. Your income during those early years in retirement is zero. You have to decide how you're going to pay your living expense. Well guess what? This is a tax opportunity because you have that first tax bracket, that's 0% tax bracket!

And so if you took money from the tax me later buckets, and you either used it for it to live on, or you put it into a Roth account, so now it's tax free. When you pull the money out in retirement, you've saved yourself a huge amount of future tax liability. You now gain control on that money in retirement, and you didn't have to pay taxes. And guess what you have, you have a decade plus to make those decisions. Wow.

Q: What do I need to know in order to retire? (1:48)

A: There are a lot of things that you need to know as we go into retirement. Unfortunately, there really isn't a handbook out there. HR doesn't give you your gold watch and a handbook that says welcome to retirement! Here's what you have to do first:

You can see more in my guide: 5 Questions to Ask Before you Retire

You need to create a process for managing your finances. The old rule of managing money that has gotten you this far starts to work against you in retirement. During our working years, a lot of "default" decisions are setup for our benefit. In retirement, the default action can be detrimental to our lifestyle. So having a proactive process is essential for success.

Some of the decisions you will need to make in retirement:

it sounds weird. Right. But, I don't know how many people I talk to, who haven't made the decision to retire, and they come to me, and they're not sure if they can retire or they want to know when they can retire. And I've said this before in the show...make the decision to retire and then let's figure out how to make it happen.

There's almost always a way to make it happen.

It may not be the way that you want it to be. This may make you say, well, you know what? I really want to take that extra cruise every year. So I'm gonna work another year to save, or you might look at the numbers and say, I can work another ten years, and it won't impact my lifestyle in retirement.

Q: How much money ou actually need is based on your expenses and cash flow, correct? (16:20)

A: That's what cash flow is. Money in, money out.

So how much money is going out, right?

What are you paying for the mortgage? What are you paying for? Gas? What are you paying for hobbies for food? Um, so until you know what your expenses are and then what. Or potential income you can get from social security. We can't begin to address any other questions in retirement.

Now, the next question to answer, once we have the idea of how much we're our cash flow is, is our assets are, and what we can potentially tap into for retirement. And we know how much we need for retirement, and we know how much we're getting from social security, right? Or at least the range of possible options are?

The next question is, how do we fill that gap? How do we go from what we're getting from social security to meet our anticipated needs in our retirement? And hopefully with some kind of cash cushion.

And we have to invest our money, so the question is how? How do we do it in a way that grows faster than inflation but doesn't put our retirement at risk? (18:18)

Q: What are some of the hidden mistakes that people make in retirement? (26:00)

A: Aside from the fact that you have to have your money invested, making sure that the money that you have in retirement is tax efficient because in retirement, the rules about taxes and money change.

So in retirement, all of a sudden, we lost all of our ability to reduce our taxes, and all of our savings can get taxed at much higher rates. So we need to make sure that the decisions we're making are designed. To reduce our taxable income and stretch out our retirement savings as long as possible.

And that means that the decisions we make are not automatic.

It doesn't automatically mean converting all of our money to tax-free and having a huge tax bill upfront. And it doesn't mean automatically that we wanna spend money out of our retirement savings. What it does mean is we gotta be strategic about things and think about how every decision will affect us.

How will this affect me two years from now, five years from now, 10 20, right?

Look to the future, look to our crystal ball so that we're making smart decisions for ourselves and our loved ones.

See more in the guide: How to Pay Zero in Taxes in Retirement

Why is Wall Street saying one thing and the White House another? How does any of it relate to your retirement portfolio? Are we in a recession? What do you need to know!

What should you do with the 401k, when you're ready to retire? Which forms do I need to fill out in order to do a "rollover?" When should you start planning your rollover?

Now that you are retired or have left your job, you have two choices for your 401k.

Option one is to keep your money with your employer. This option lets you keep your money invested, but you might not have as much control over it and might not have as much access to it.

Option two is to take the money over and manage it yourself. This option gives you more control over your money. You can use a rollover to transfer your 401k into an individual retirement account. With the individual retirement account or IRA, you will be able to manage it yourself, just like you do with other accounts like a brokerage account or bank account.

When you take over your 401k accounts, there are some things you need to remember.

First of all, it is very easy to transfer your money to a bank or brokerage firm. They will make it very easy for you. So don't worry about the paperwork you have to fill out. There are even firms that specialize in transferring the accounts for you,.

Second, when you transfer your 401k to a new bank, you need to make sure that the money is sent directly from the old bank to the new bank. This is called a custodian to custodian transfer.

You don't want the check to come to you, and then you deposit it in the new bank because if it's done directly from bank to bank, there are no tax withholdings. There is no potential tax penalty. However, if it comes to you and you get a check, and then you deposit that check, there is an opportunity for it to intentionally be considered a distribution and not a transfer. In fact, you have 60-days to complete the transfer, and the IRS requires your 401k company to withhold 20% of the distribution when you request your funds this way. So, always request a custodian to custodian transfer whenever possible.

Any financial advisor, any firm that's working with you to do this rollover will probably make sure and be on top of it to make sure it's done right.

Every bank you're transferring money to will have its own forms. Your 401k company will also have its own set of forms. Each 401k company is different because they can make their own rules. So your friend may do it one way and you may have to do it a completely different way because your plan is administered differently and has different rules under the department of labor guidelines.

What you need to know is that when you leave your job, you have the right to move your 401k money into a traditional IRA or Roth IRA account. The new bank that you move the funds to will help you transfer the money.

And if you've got a mixture of pre-tax and after-tax money in your 401k, work with an accountant to do that rollover because it can get a little complicated.

If I know that I'm going to retire and separate from my company on X date, when should we start making plans for the rollovers, and how to make sure our proceeds are managed properly?

Ideally, you would want to start planning this before you actually separate from your company.

If you've already talked to your employer, And, and you're both on friendly terms of when you're gonna be retiring, then probably, six months before you wanna start talking to HR, you wanna start talking to your 401k provider, find out the information you need to know in order to make it happen because 401ks, they move very slowly.

HR moves very slowly. The amount of time it's going to take to figure out what you need to do in order to make it happen. It'll be a lot easier if you're a current employee than a former employee.

Elder abuse is a serious issue and one that often goes undetected. In this episode, we take a look at some of the most common types of elder abuse, as well as some of the scams that are frequently used to target seniors.

How does the economic cycle impact the markets and my retirement? Is the country entering a recession? If so, how should I prepare?