retirement planning formula - Reyes Financial Architecture

I was thinking back to just October, November and December the sky was falling. Market dropped 20% in about two months, and I want to talk about that today. This is David Reyes, your Retirement Architect, here every weekend. Thanks for listening. If you want to reach out to me personally, you can call me at 1-800-611-1967.

So my, how things change so fast. We have basically gone nowhere for, oh, about a year and a quarter. So, I don’t know, 15 months. We have had 10% corrections in the last year and a 20%, basically, a bear market correction, a down market. We have come up 16% from those lows, so we have kinda gone nowhere. We are still under water a few percentage points from our all-time highs.

And I want to talk to you about this because we have short-term memories and, you know, it’s like the further and further we get away from 2008 those types of times – 2000 – we get a little complacent. And most of you that I see weekly, that listen to my shows or you that come to my workshops, you’re not that way. You are coming to me because, “David, I want to protect my capital. I want to maximize my income. I want to reduce my risk.” All the things that we do.

But, even so, because I remember money over between October and December and I had clients that were losing hundreds of thousands dollars. New clients transferring their assets from their old firm to our firm because the market was so bad. And I want to remind you a little bit of this. I took some of my notes, this was back when I was giving talks in October, November – really November and December. And I will give you some statistics.

The Dow lost 6.8% in a week. It was down 1655 points. It was the worst percentage drop since October 2008. The Nasdaq lost 8.3% a week. It was the worst ever for the Nasdaq. The S&P lost 7%, that was down 17.8% from its record highs. The Dow and S&P are both in corrections and on track for their worst December performance since the Great Depression. I mean think about that for a minute. Just three months ago, that was the night the market was falling, significantly. One of the worst drops ever. And by one measurement, the worst since the Great Depression.

And now, you’ve seen the market rally significantly from that bottom, it was December 24^th, Christmas Eve Day, and I’m already seeing people, seeing you be more complacent. “Well, David, the markets come back. It’s coming back.” It’s called a FOMO Market and it’s Fear Of Missing Out. So people start wanting to buy stocks as the market goes higher, and not the opposite. The only thing that we want to buy that’s more expensive. We don’t want to buy stocks on sale. Everybody is selling when the market goes down. People aren’t buying.

Risk in the market is still there. Right now, the market is the most overvalued as it’s been since 2016. The problem we have is earnings. So we had earnings peaked, some of the highest earnings ever in 2018 and, now for 2019, we are going to have negative earnings. Into January, December of last year, there was projections we would have like 3% earnings growth. Now, they are talking about -2.7.

73% of the companies that have reported, which is almost all of the companies, for the S&P for this last quarter have negative earnings guidance. What all this means in English, is the fact that, the underpinnings of the stock market are still not good, and yet you’ve seen this massive rally. And why is that? Well, the biggest reason is the Federal Reserve has stepped in and stopped raising interest rates, which this is the first time it has ever happened since, well, ever inside this kind of bull market.

This is the longest bull market ever that we are in. Usually the Federal Reserve will raise rates, slow the economy down, the market will correct and we go on to the next bull market.

So one of the things that I talk about is risk a lot with clients. And part of our process for what we do is second opinions that we offer to all of our listeners, and those of you that tend our workshops, is a risk assessment. So we do a couple of things. First off, we’re going to do a risk assessment for you. We will do a fee analysis. We will talk about fees today because most of you overpay in fees. #3, we are going to do a retirement plan for you, a written retirement plan. And those three things combined are, basically, you could walk out the door and say, “Here’s my plan.” Now, implementing that plan maybe difficult on your own but I’m going to give you all that information.

So risk is a big one. Most of you are walking around with what I call a “30% number” – 30% risk – meaning that if we go through another 2008 or 2000, you would lose about 30% of your money, or about $300,000 per million. And I know most of you are not that aggressive. But your portfolios are invest differently than you are.

So if you want to take advantage of our second opinions, have me do a risk assessment of your portfolio, have me do a fee analysis – show you how I can reduce your fees – do a written retirement income plan. Again, our second opinion – I don’t charge for it, as long as you’re a listener and/or you attend one of our workshops. You can reach us at 1-800-611-1967. Or go to www.reyesplan.com.

So, right now, I think is a great time to reassess because if you’ve been fortunate enough to ride this market up, down and then, now, up again right now, it’s kind of a gift. So it’s a great time to look at your portfolio right now. It’s better to look at today, than when the market is down 20%. So I always tell clients, “That I’m managing your money for today,” that are coming over to our firm I say, “You’re fortunate because we are now moving money in a positive up market right now, which three months ago you’d been down 20%.”

So risk is a big piece what we will look at. So what I want to talk about is, in addition to that, is fees. I want to talk about investments that we don’t like as much as others in the sense of mutual funds vs. exchange-traded funds vs. stocks, those types of things. So before I do that, I want to get into, one of the things that I talk about when I sit across from you, or I am doing a talk or on the radio today, is I talk about the 7 Rules for Retirement Security. So this is important. Pay attention to this.

The 7 Rules for Retirement Security that I came up with. This is experience time, over time you get to distill things down to their essence when you do something, whether you are a doctor or a lawyer or a teacher. We can create, hopefully, bite-size pieces of information to better articulate those. And one is, again, the 7 Rules for Retirement Security, something to start with, these will probably have to go into the next segment with this, but this is important.

So Rule #1 is avoid large losses. I call it the 5-10% Rule. We want to stay within a maximum loss, if we can and we can if we do proper planning, is let’s say no more than a 10% loss, 5-10% loss. I always ask the question, “How much do you want to loss in retirement?” What are you going to say? Zero. Well, your first thought you’re not positioned that way with your portfolios. And that’s not possible unless you had 100% annuities in your portfolio, which is the only way you can get 100% guarantees by the insurance company, based upon their claims paying ability.

So we want to design portfolios, which we will talk about, so we can mitigate the losses into the 5-10% range because if you can do that, it’s better to avoid these large losses than make the big gains. Because if you make the big gains, you’re going to participate in the big losses. So we just can’t afford to that. So avoid large losses, Rule #1.

Rule #2, minimize fees. This is a big one. People don’t realize the impact. You don’t realize the impact of fees on your portfolio and it’s something that we pay a lot of attention to. Part of our analysis for you, as I talked about, is #1 is we are going to do a risk assessment. How much risk are you taking? You’re talking on too much, I can tell you. #2 is a fee assessment and where the most hidden fees are is in mutual funds. And whether you have a 401k plan – 401k plans are expensive. Most 401k plans hold what for investments? Mutual funds. So you’ve got the 401k fees, you got the mutual funds fees – we will talk about what those are.

So you have a lot more expenses than what you believe that you’re paying. And I’m looking at some statistics here and, basically, 71% of Americans believe they pay no fees whatsoever for their 401k plan. But 92% admit they have no idea what fees they are paying. That’s about accurate.

So how about if I enlighten you on that. So, again, we are talking about the 7 Rules for Successful Retirement for Retirement Security. Rule #1, avoid large losses. Let’s stay in the 5-10% range. We’ll talk about some ways that we do that. Minimize fees, which we are discussing now. In the next segment, I will talk more about that because there is a lot of hidden fees, especially mutual funds, planned administration fees that you’re unaware of.

So this is part of what we do, if you want to take advantage of our second opinion, it’s complimentary. It’s something that I can charge $5000 to do, it takes probably 10 hours of work between meetings and preparation time, but we decided many years ago that it’s better just to do a complimentary. And if you go through the process, there’s probably a good probability we’ll work together, if we like each other and we believe in the same things, philosophies.

But, again, we will do three things for you. #1) We will do a risk assessment, make sure you’re not taking on too much risk. #2) We’re going to do a fee analysis and show you how to cut your fees. Sometimes in half. And then 3) We’re going to do a written retirement income plan. So you want to take advantage of the second opinion, give me a call, personally, David Reyes, 1-800-611-1967. Or go to our website at www.reyesplan.com.

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Today, I want to share with you the market. I don’t talk a lot about the stock market. When I do my workshops and teachings, I do. But I felt it was a really good time to give you my insights on what’s happening right now. We’ve had a bull market, the longest bull market ever now – over 10 years. Market has been over 330%, you know, since 2009. If I was going to give this a baseball analogy, we’re in extra innings. And so, I’m just concerned.

I do a lot of reviews for you out there, radio show listeners, people attend my workshops, people that are referred to me. And you have way too much risk in your portfolio. During the one week here recently in October, just recently, the Dow dropped 1500 points in three days. I mean, unbelievable. The market lost about 7%. The S&P 500 was up 9% year-to-date. It went all the way down to basically flat at 1%. You have the NASDAQ down 9%. You have NETFLIX down 15%. Amazon down 13%. These are big moves in one week. This is in a few days period.

So I want to make sure that you’re prepared for this type of volatility – that most of you are not. And, fortunately, the longer we’re into a bull market, the more complacent you become. And that’s when it’s dangerous. You always use the Warren Buffetism, “When other people are fearful, be greedy. And when others are greedy, be fearful.” And everybody is greedy right now. Everybody is jumping on the train of owning stock, especially technology stocks.

Right now, the S&P 500 is overweight by about 30%, meaning that 30% of the S&P value is technology. Every time we’ve had that type of overvaluation of technology in 2000, it was that number, we lost 80% in technology. In the Financial Crisis, we had about 25% of the value of the S&P 500 was financials. Financials lost 80%. Kind of rhyme and reason, here. We’re getting, now, 25-30% overvaluation in technology because everybody is jumping on technology.

Again, I don’t want to scare you but you are probably talking the next time we have a down move, a bear market, you’re talking 30, 40, 50, 60%. I know it sounds outrageous but it’s not. So I just want to make sure you’re protected. You know, we have a philosophy at our firm. “We want to participate and protect every thing we do.” Participant and protect.

If you want to reach out to me to talk more about your portfolio, your risk, trusts, taxes, we do a complimentary second opinion that’s very, very powerful. A lot of information. So just reach out to us. Give me a call and look forward to talking to you.

Watch the video above to get important updates from David's latest successful retirement creation "The Perfect Annuity"

“Inflation is as violent as a mugger, as frightening as an armed robber, and deadly as a hitman.” That was Ronald Reagan in 1980 when he took over the economy, when interests rates were 13-1/2%. During the decade of the 70s and 80s, up until ‘81, interest, inflation averaged 7-1/2%, which is crazy. That means the costs of goods in a 10-year time frame doubled. We hadn’t had inflation for a long time but it will come again.

And the reason I want to talk about inflation and investing is because it is a super important part of investing. And most of us don’t really count for that. And one of the things we’ve been told through investing is that it’s a good way to – why you invest in stocks is one way to mitigate the cost of inflation. It is just kind of what said and it’s wrong. Because that works until it doesn’t. So if you’re earning in a portfolio of 5, 6, 7% a year and then all of a sudden go through a 2008 and you lose half your money, well that really didn’t help you with inflation, did it?

So one of the things that we focus on is how do we safely increase our income in retirement. And I call this the Perfect Annuity. I’m writing – this is a chapter in my new upcoming book with Jack Canfield called Momma’s Secret Recipe on a Successful Retirement. And it’s called the Perfect Annuities, this chapter. And I call it that, which I made up – I may trademark that, that’s a good slogan, “The Perfect Annuity” – is that it allows you to also have guaranteed lifetime income but also get increases in your income for inflation purposes. And very few people know about this, and it’s something we use as a foundation for planning.

Not only do you want income to last for the rest of our life but also it’s going to give us the opportunity to keep up with inflation. As I mentioned, inflation ran rampant, as most of you know that lived through this time in 70s, was double digits and high single digits. So there’s multiple ways that we use this strategy. And I’m going to give you the most straight forward – there’s three different ways this is credited.

Just think of it this way. So what happens is you’re going to get credit. So let’s just say you have $100,000 in an annuity. And every time there is a positive return in the market this is tied to you’re going to get that increase in your income. For instance, if the market went up 5%, this index went up 5%, you get a 5% increase. If the market goes down 20, you don’t get an increase that year.

So instead of getting the rate of return, that rate of return transforms into an increase in income. So it grows based upon the value of that index but once you take income that increase is going to increase your income. So I’m going to use like 3% to make it simple. It could be lower than that. It could be higher than that. But I’m going to use that as an example.

So if you had $100,000 in your account, and your one in the market was up 5% for this index, you got 3. If the market is up the next year 10%, you get 3. If the market is down 20%, you get zero. So over the first three years, you got two 3% increases in your invests, in your income. And over a 20-year period from age, let’s say, 60-80 that would basically be almost doubling your income. That’s pretty significant.

So I just did a case for a client that has a net about million dollars. And we used half of it for income purposes. In this case we just used an annuity. There’s other ways. And they were going to receive $20,000 a year for life from this income annuity. So we put them in the increase-in- income annuity and from age 60 to age 80, basically, their income almost doubled. And we need that. That’s just earning 3-1/2% per year will actually double your income over basically a 20-year time frame.

So over that 20-year period, it’s a little less than double but the fact is we need that kind of safe income and increase in income. And when I talk to clients about this, they’re just very surprised that you can do this type of planning. So not only do we get this increase in income, the best part is it is like a pension.

So we always do what’s called joint life expectancy. What that means is if, let’s say, it’s your husband IRA and he has $500,000 and we put this money into an annuity, and you’re getting $20,000 a year for the rest of your life and also we’re going to increase in income, which almost doubles in 20 years. Guess what? If you precede your wife, she gets the same amount of money. The same increases. And if there is enough money left over, your children get that.

Because one of the biggest knocks on annuities is 1) That your insurance company will receive your money. They are the beneficiary of your money. This is not true with most annuities. And secondarily, does that income pass onto your spouse?

I’m giving you a real important investment strategy. We want to increase-in-income annuity. I call it the Perfect Annuity, and it’s in the chapter of my new book. And if you want to reach out to me and talk more about this, just call us at (858) 597-1966!

Check out this month's Market Update from David Reyes, The Retirement Architect

Hi. Today, I want to share with you the market. I don’t talk a lot about the stock market. When I do my workshops and teachings, I do. But I felt it was a really good time to give you my insights on what’s happening right now. We’ve had a bull market, the longest bull market ever now – over 10 years. Market has been over 330%, you know, since 2009. If I was going to give this a baseball analogy, we’re in extra innings. And so, I’m just concerned.

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“It’s important that people deal with someone to make sure to prove and provide that guaranteed lifetime income.”

Did you know that 1 in 5 investors know which funds they own? And that’s pretty unbelievable. The Retirement Architect, David Reyes , every weekend here with you. Thanks for listening. If you want to reach to me personally call our office at (858) 597-1966 or go to our website.

So, again, only 1 in 5 investors can actually name their funds. And that’s actually a high number. I think it’s closer to like 90% have not only not know the funds they own, but they have no idea about their portfolio, their portfolio risk and really the composition. And it’s kind of scary. When I do initial meetings, initial consultations where I’m getting to you know as a client, as a perspective client, I really focus – the first thing I always talk about is your portfolio. I will spend a lot time – sometimes it can be 45 minutes, half an hour, could be an hour. It depends upon the time it takes to teach you what you have, because for some of you it could be much more difficult that are really not involved in the finances directly.

But either way, I would say 1 in 10 maybe have a good idea about their portfolio. So it’s very low. And that’s concerning to me because how are you going to make good financial decisions if you have no idea what’s in your portfolio? It sounds kind of crazy, doesn’t it? But it’s just the way it is. So it’s a big part of what we do is breaking down your portfolio.

We do a whole stress test, we call it. We take every one of your securities and we’ll break them down in to how much you own in stocks, how much you own in bonds, what the risk of your portfolio is if we have another Financial Crisis, which we will again. I’m an optimistic guy, so I’m not a doom and gloomer. But, unfortunately, you know, we’ve had two in the last in the 18 years. We’ve had a 10-year bull market. We’re definitely overdue time wise. It doesn’t mean it’s going to happen tomorrow. This market could last another one or two years, or longer. I mean, I don’t know. But it is now officially the longest bull market ever.

So you really need to know what you own.

So I’m going to share a story with you with a brand new client. And I went through all the things that I’m talking to you about first, we analyze her portfolio. Her name is Susan. And we went through her whole portfolio. And broke down how much she owed in stocks and bonds.

And one of the unfortunately things about you as an investor, is that that’s the only two assets classes that are available to invest in. And that’s just not the case. So not only is there other things to invest besides stocks and bonds, but there’s other things to invest in that can actually reduce the risk of your portfolio that have nothing to do with the stock or bond market, which is a true diversifier. Because we don’t want all of our investments to rise up and down with the stock or bond market because then we’re really just relying on the whim. If the market gives me this money, then we’ll make money. If the markets not, we’re losing money. We’ll talk more about that as we go along.

But I want to focus on Susan and her portfolio. So we spent, I would say, 30-45 minutes getting her up to speed. She was pretty quick about understanding.

So when I educate somebody I have to feel comfortable that you understand, or I can’t take you on as a client. If I don’t feel you understand the basic concepts of what you own, and also what we are proposing, I can’t work with you because I’m responsible. Now, that doesn’t happen very often because I’m patient and I will sit down with you and educate you, not only what you have but what we are proposing.

And so Susan had her portfolio, again, it’s 50% stocks, 50% bonds. And she’s really concerned about the stock market. She has about a million dollars and it’s all she’s ever gonna have. She saved her pennies and, you know, she is ready to retire. And she really needs income right now. So I looked through her portfolio. And she was complaining because she hadn’t made any money, literally, over the last like year plus. And she was really upset with her adviser. She said, “Look, I haven’t made any money. So I wanted to figure out why.”

Here’s the problem. Bonds have been a difficult asset class for two years now. The rates have been rising really since 2016, July of 2016. So if you own bonds in your portfolio, you’ve actually lost money. And, unfortunately, most advisers are only investing your money stocks and/or bonds. So why would you want an asset class that has been losing money? The Federal Reserve is raising interest rates. And as rates rise, the value of your bond portfolio is going to go down.