The Real Math Behind Your Retirement Portfolio – Episode 676

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[00:00] Welcome to the Prosperity Podcast. Prosperity thinkers, this is part three. This is where we talk about portfolio allocation with retirement. This is where we talk about investments. This is where we talk about the things that everyone wants to go over because this is the fun stuff. And we talk about having control over your money. Now, Kim, why did it take us three episodes to get here? We got here, but it took a while. Why is that first? It’s because what people want to do is jump from the beginning to investments, which is what everybody out there is talking about super sexy space. And especially in America, potentially other parts of the world as well, but enables you to get something for nothing.

[00:53] And unfortunately, in America, that’s our jam, right? We want to have awesome bodies, but we don’t want to go to the gym. We want to feel good, but we don’t want to eat right. We want something for nothing. And yet these other aspects of retirement that we spoke about in part one and part two, first of all, are something that everybody can do something about because not everybody has a large retirement investment portfolio or even just an investment portfolio that’s a decent size. And I’m so excited that we’re going to talk about that now because I just worked through a very lengthy and thorough review of this particular space with my husband’s Truth Concepts calculators. So I even have some numbers in my head and I can share some very specific things around

[01:43] the arena of portfolio asset allocation as it relates to retirement dollars and all investments. I love it. That is so good. For all of you listeners, we have to set this stage that all of you will have a different number that is in your head of where you want to be. And there’s a different number of where you are right now. Okay. So that’s fine. You’re all on different timelines. We all have different goals, totally fine. What we don’t have that is different is the truth and real numbers. That is where you sit across the desk from someone and they scare you or they excite you into doing something and then time goes on and you look back and you either maybe got lucky or you realize you came up short.

[02:40] So Kim, let’s present the numbers, let’s present the stuff, let’s go through this. So the overall objective for most retirement portfolios is some type of split between stocks and bonds. So the typical approach is 60% stocks and 40% bonds. Your number could be 730, 80, 20, 50, 50, whatever. It doesn’t really matter. And when viewed that way, it is such a surprise to people because they think in their head, let’s just say somebody has $2 million. They think in their head, I have $2 million and the stock market averaged 12%. So for example, back to the, I think part one that we did, I can take 4% out. No problem. I’m not even eroding my principal. Or they think, oh my gosh, that money will last three times what my life is going

[03:37] to last. There will be plenty to give to the kids and grandkids and great grandkids. What most people forget is that almost without exception, a portfolio manager is going to have that split between stocks and bonds in some format. Let’s just use 60-40. Now, if you’re doing this on your own and you’re like, hey, I’m all in Vanguard index, that’s fine. And you’re thinking that you don’t have bonds or you don’t need bonds or maybe your bonds are separate or you have some other position of cash, but I would really encourage you to look at it together because I think most people are pretty surprised. Furthermore, they’re extremely surprised by what this thing called automatic rebalancing does. So again, if you have a 60-40 split and you’re working with a professional of any

[04:24] sort, they’re going to rebalance that at least once a year, sometimes more often. Maybe they would skip a year here and there. In other words, if the 60% grows to 65, which causes the other to shrink to 35, they’re going to sell some of the 65 and move it so that you have that 60-40 blend again, which creates taxes and fees, et cetera. So the biggest lesson, if you for whatever reason feel like you can’t listen to this discussion anymore, the biggest lesson that I want people to have is that the taxes and the fees and the opportunity costs associated with that, doesn’t matter if you’re in retirement dollars or regular dollars, because if you’re in retirement dollars but you’re starting to take money out, that is a fully taxed withdrawal.

[05:13] If you’re in regular dollars, of course it’s taxed along the way. Every time you pay a dollar in tax, plus any time you pay a dollar in fees, you’ve not only lost the dollar, you’ve lost the opportunity for that dollar to earn in that investment portfolio for the rest of your life. So taxes plus fees plus opportunity costs can literally, and I’ve got the numbers to prove it, we might even offer a white paper on this, take a $14 million. So you had $2 million, you thought it was going to grow to $14 million, down to less than a million. It’s scary what taxes, fees, plus opportunity costs does. And then furthermore, as I’ve indicated, that 40% bond portfolio can be really scary. A lot of people don’t know this, but Ventura, California, this is 10 years

[06:07] ago, they just shut down the city. No police, no fire, no stoplights because they didn’t have any money. What happened to the bonds of the city of Ventura, California? They are worthless. Right now, thankfully that doesn’t happen a lot. People are in bond funds or in treasuries, whatever. But the thing that I want people to know is that in this analysis, again, white paper forthcoming, we traded out the bond allocation, the 40%, for whole life insurance cash value. And we got the overall portfolio to maintain close to that $2 million growing to $14 million balance. It was shocking. It was so shocking that Todd, the analytical one in this family, said, wait a minute, before we publish that number, I need to really triple check

[07:02] that. So of course he did. Out came the HP12C and another computer with Truth Concepts running on it so that he could double and triple test the numbers. And so this portfolio allocation space is so important for people to really take a look at. And when do they need to be looking at it? In their 30s or 40s or 50s, not when they’re 65. Now, if you happen to be 65 and listening to this, please still look at it because it’s imperative that you make some changes. But it’s a lot easier to layer in some of these elements of certainty beyond bonds that will help reduce the taxes, reduce the volatility, because even bonds can go up and down, and reduce some of the opportunity costs that are caused by the taxes and the fees.

[07:53] Again, replacing some of that portfolio with whole life insurance cash value, which is not taxed, does not have any volatility, and consequently, does massive reduction of the opportunity cost drag on the portfolio. And the bottom line of all of this is not only do you want to do that just for your own certainty, because when you’re 70, 80 years old, you do not want your account doing the roller coaster ride. But furthermore, if you have what we call a cash flow bridge, if you have another position of cash that is not impacted by the stock market or the bond market that you can turn to when the stock market is down, if you have another position of cash that you can turn to when the stock market is down, you will enable your portfolio to last so much longer

[08:56] because you don’t turn paper losses into actual losses, because you’re not withdrawing money from an account that’s already down, causing those paper losses to become actual losses. So that is the end of the story of why you don’t just want to have the typical asset allocation of 60, 40, or 70, 30, or even 80, 20, because, again, taxes, fees, opportunity costs, and then the issue of having to take money out when the portfolio is down. I wrote a couple of notes when you were talking, and there was an aha moment that I had when I started writing. And I don’t know if I would have come across this if we hadn’t done a three-part series and gone in depth like this. And it’s this. Bonds are the safe way to play.

[09:54] And I’m speaking from a typical. We’re using Kim language. There’s a difference between the word typical and traditional. So bonds are the safe way to play in the typical retirement plan. And retiring is the typical way that people age. Both of it causes attrition and a slow death. Sad, sad. Now, you mentioned having a vehicle, a tool, a thing that helps you where you put your cash. And the other line that I wrote down is that if we use the alternative path, step to the side away from the typical allocation, then we have to make sure that we align incentives because we have to be on the same page as the vehicle that we want to get in and have drive us to the end. Kim, what is that vehicle? That is a centuries-old product known as whole life insurance cash value.

[11:11] And so a lot of people are not familiar with it at all. And a lot of people, for whatever reason, have dismissed it. And I cannot tell you how many people I talk to these days that are in their 40s and 50s and in a perfect position to be able to start the shift now from bonds to whole life insurance cash value. And I also talk to people in their 70s that so wish they had done it earlier. Some of them are still able to do it. Others are not insurable. They’re no longer physically able to get the life insurance. And so it’s a really interesting space that is coming back around. Thanks to the YouTubers, they’re also bringing some problems because they talk about whole life in a way that is incorrect.

[12:01] Nevertheless, it’s at least getting the product out there for people to think about. And it’s very important that you not only understand the product, but the strategy. Because for some of our listeners, they’re very familiar with the infinite banking concept and they’re going after their life insurance with a high cash value, low death benefit approach. For others of our listeners, it is more appropriate that they take what’s known as the Rockefeller approach Thanks to Garrett Gunnarsson and Michael Isom, who have put a book out there, both good friends of mine, which is actually the opposite. It’s high death benefit, low or even high cash value. But the point is it’s not low death benefit.

[12:45] And so if this is a space that you are curious about, reach out to me. I’m happy to email with people. I think a lot of times people, they reach out. She’s going to want to talk on the phone. I don’t have to talk on the phone. I’m happy to email with people and help them get clear. And then maybe we talk on the phone. If I’m actually going to help you, we’ll have to talk on the phone at some point. But sometimes just to email is the safer way to go. And so that’s hello at ProsperityThinkers.com A dedicated email that goes straight to me and you will get an answer from me. Not AI’d and not from my team, but from me. And I start to take notes right away as to your situation so that I can make very specific suggestions for improvements, not just generic statements.

[13:32] So good. This was a necessary three part. It was really helpful. We aligned incentives. We went full circle. And what we did is that we’ve given control back to you and we’ve dispelled the myths. We’re saying, hey, this whole thing at retiring at 60 something, that’s gone. This whole thing of being taken out of service is gone. This whole thing of saying progress is the law of God is in. Thinking prosperally is in. You having control, you thinking this way is in. So for all of you listeners, thank you for being part of the podcast. And if you’re not already subscribed, make sure you do it. Tell your friends, tell your family. Thank you so much for being loyal subscribers.