How To Retire Going into a Bear Market | The Retirement Income Show

Mark Elliot: Welcome to The Retirement Income Show. I’m Mark Elliot alongside the CEO and founder of Oak Harvest Financial Group, Troy Sharpe. You can find out more about Troy and the team by going to the website oakharvestfg.com. A lot of great information on there about the team, but a lot of great information about maybe some of the questions or concerns you may have about retirement, that’s oakharvestfg.com.

Of course, the office for Oak Harvest is located at 920 Memorial City Way right off I-10 and Bunker Hill. Now over 300 videos on the YouTube channel, whatever question you have about finances or retirement planning, more than likely there is a video that’s right there in your wheelhouse that you want to learn more about. All you have to do is search for Troy Sharpe, Oak Harvest on YouTube and then find the one. You subscribe, there’s no cost but that way you get the notifications when new one is coming out. They’re doing two, three, four every single week, so a lot of new information is coming out all of the time.

Again, if you have questions about where you are on your road to retirement, hey boy, the markets are bumpy. My bond values are going down because interest rates are rising. Inflation is a factor. The gas pump’s costing me more. What in the world should I be doing? Well, you can always call the team, they’re here to help. It’s 800-822-6434, no cost, no obligation to chat with Troy and the team. 800-822-6434. Hey Troy, how are you?
Troy: Good, Mark. Good, how are you?

Mark: I’m doing really well. Today we’re going to talk basically about how in the world do we retire into a bear market because a lot of times you’ve talked about the sequence of returns risk. If you retire say in 1990 and the next decade is great on the markets and most of your money sitting in the market world, you’re good to go. If you retire in 2000 where we have dot-com bubble bursting, we have the Great Recession in that decade, it’s known as the lost decade, things will be a little bit more difficult because the markets were going the wrong direction. How in the world do we retire in a bear market?

Troy: It’s all about long-term outlooks and having the appropriate risk tolerance or allocation of your money to risk. Including those two things, it really comes down to income. Where are you getting your income from in a bear market? In a bull market, you can take income from anywhere. If you’re risk averse, you could take gains off the table, live off those, try to keep that equity allocation in the appropriate percentage based on your willingness to take risk but also we talk about a concept called your portfolio’s capacity for risk. In short, the higher percentage your withdrawal needs are of your overall asset base, the lower capacity for risk that you have.

We’re going to dive into a lot of statistics on this show to really help provide some perspective and we’re going to tie that back to what it means for you. What it means for you at this stage of your retirement, at this stage of your pre-retirement and really try to put you into a better mental place during a bear market like we’re going through right now by understanding some context and what it means for you and tying all that together.

Then of course, from a retirement planning standpoint, you want to make sure you have all those core pieces in place that we talk about. First and foremost, it’s your investment plan which looks at your portfolio’s risk capacity, but also your willingness to take risk. When I say willingness to take risk, how willing are you to stay invested if your portfolio or the portion you have allocated to equities is down 10%, 20%, 30, 40%? Are you willing to stick that through? That’s your risk willingness. Once we’ve had that identified as one of the core retirement planning concepts, we then want to shift over to income planning.

Where are we getting your income from? Are we keeping money in cash? Are we looking at short-term bonds? Are we using some type of real estate income that you have elsewhere, or maybe we’re investing in real estate generating income properties in the public markets, possibly in an annuity? What are we doing with social security? That’s the income planning component and we want to make sure that you know exactly where your income’s coming from. Then, we get into the tax side of things.

Income and tax, obviously go together. When it comes to retirement planning, it’s not just where are you getting your income from in regards to which financial tools are you using, but it’s also which accounts are we taking our income from. Meaning are you taking it from the qualified, the 401K, the IRA, or are we taking it from the non-IRA assets? Of course not just looking at that in a vacuum in regard to today but what impact does that have on your security, your family security over the next 10, 20, and 30 plus years? Once we have those core three components identified and we have a plan for those, that’s the investment plan and risk tolerance; that’s the income strategies; and then also the tax planning, now it’s really talking about step four and step five.

For our clients, we want to get all this done in a relatively, I don’t want to say quick because it takes sometimes a few weeks, sometimes a few months, definitely within the first year of working with you. When we shift over to healthcare, long-term care, how much of a concern is that for you because long-term care premiums if you have a traditional policy, can increase in cost over time? Most of them do that. We want to make sure if you’re concerned about long-term care, if you’re concerned about longevity, that you have something that’s fully guaranteed that takes inflation into account. We want to make sure that that part of the plan is solid because the healthier you are, the longer you’re expected to live and on top of that, the more you’re expected to pay in healthcare costs in retirement.

Excuse me. Then, we have the estate planning side of things. To whom do you want your money to go to? Do you want that to be tax efficient? Do you want that to be structured in trusts or possibly limited partnerships or some type of family business? How do you want those assets to transfer to the next generation? Not only how do we want them to transfer, but do you want any control from beyond the grave? Do you have certain kids maybe that have special needs? We need to plan for that. Do you have certain children that maybe they’re younger or they want to be responsible with receiving a large sum of money upfront? Those are all the planning discussions, and those are the five key components of a successful retirement plan and we’re going to dive into a lot of them today. We may not get to the estate planning side of things, just time permitting here.

I want to start with this report I received from Lincoln Investment Advisors. I get all kinds of things sent into my inbox and most of it’s garbage, but a lot of it has some value.

I wanted to share this with everyone watching on YouTube, but also listening here on the radio show, The Retirement Income Show. Contributions from BlackRock, Goldman Sachs, JPMorgan, and Invesco. One thing that’s really, really interesting to me in the very first page, they did a great job putting this together, but it talks about calendar year returns in a bear market and bull market. Within that calendar year, the intra-year decline and then what the market ended up doing at the end of the year come December 31st.

A couple of big ones that come to mind first in 2009, which of course was right after 2008, we had a negative 28% intra-year decline, but the market finished up 23% for the year. If you remember back to ’08, ’09, obviously those were tremendously volatile times, but we had a 28% decline within the year, end up rebounded by the end of the year to be up 23%. 2010 similar story, just not as severe, a 16% intra-year decline and a 13% end-of-year finish. Couple of other big ones here that do stick out, we had in 2020, of course, COVID, an intra-year decline of 34%, but 16% positive the year ended up. Even in years where the market finished down, typically we had a much more severe pullback in the middle of the year.

Now, what does this mean for you? When you’re in the middle of a bear market and you see your accounts going down, keep in mind that whatever happens over the next few months should not impact you over the next 10 years. We have to keep that mindset that markets go up, markets go down in the short term, but if we have the appropriate investment strategy, risk tolerance, income plan, and tax strategy to take advantage of opportunities that happen during these times long-term, you should be okay.

If you don’t have the appropriate risk tolerance, if you don’t have a strategy of where your income’s coming from, and you’re not taking advantage of any of the tax opportunities that present themselves during bear markets, well, that’s a whole different story. That’s what we see too often with individuals or possibly firms that are simply doing investment management. If you have a 60/40 portfolio right now, you’re down probably pretty big because bonds are down, stocks are down. Now, where are you getting your income from?

Are you just dependent on market performance? Are you income hoping instead of income planning?

Also, what are we doing on the tax side of things? When you start to tie all those aspects together, you now have a retirement plan. It’s not just about 60/40 and take out 4%, I believe that is a tremendously antiquated way to go about retirement. Unfortunately, that is the let’s call it widespread common approach, especially from many of the large institutions in this country that provide investment advice and financial planning.

There’s so much more that can be done and that’s what we do here at Oak Harvest Financial Group. It starts with those five key components; investment planning and risk tolerance, income planning, tax planning, healthcare planning, and estate planning. Keeping the context of even when we’re in the bear market and it doesn’t feel good and your accounts are going down, understand that most years in the past, when we’ve had very severe intra-year declines, like we are right now, middle of the year, the market has finished much better by the end of the year.

Now, our forecast for the end of the year, we do expect, of course, we don’t guarantee results and past performance isn’t predictive of future behavior and results but we do feel pretty confident at this point that we are going to have a rally in towards the end of the year. Now, should you be making changes within your portfolio because the market is down and you’re scared or feeling anxious? Should you be making changes to your portfolio because we feel that there’s going to be a rally into the end of the year?

I would like to mention, even though we have very high inflation right now, there’s last, I saw about a 38% chance that we go into recession next year. When you take all these things into account, should you be making changes to your portfolio right now? The answer to that is quite simply, no. Unless you have a ton of cash on the sidelines, you shouldn’t be worried about the next six months. If you have a properly constructed investment plan, income plan, and you’re using tax strategies to take advantage of these opportunities, no; because what happens over the six months, the next six months should not impact you long-term.

Now, when you want to make changes is when things are going really, really well, possibly and there’s exuberance in the market. Maybe at that point, it might be time to start to take some cash off the table or some profits off the table. Making big changes at the bottom or near the bottom or at least in a very volatile market where we’re struggling economically, typically is based on fear more so than proven methodologies based on long-term historical trends.

We want to make sure we have that plan in place for you. If you don’t have any type of income plan, if you’re not taking advantage of tax strategies during this opportunity that we have right now, if maybe you think you have too much risk, now is the time to reassess how much risk you actually have in your portfolio. Maybe you were too aggressively allocated. We want to sit down, we want to look at those things and start to build out that plan so you can have more confidence with where you are, but more importantly, have more clarity as to where you’re going.

Without a plan, without those five key components really nailed down, the future is more of a black, murky, or gray, cloudy skies. It’s not clear. You can’t see where you’re going. It’s like driving down the highway with no windshield wipers. It’s raining. You can’t see anything, no headlights. It’s dark. That’s not where we want to be. We want the rain to stop. We want the windshield wipers to work. We want the headlights on. We want to be very, very clear with where we’re going and that’s what we do here with the retirement planning at Oak Harvest Financial Group, 1-800-822-6434, 1-800-822-6434.

Give us a call and leave a message. On the weekends here for the radio show, we don’t have anyone working. Just simply give us a call and we’ll reach back out to you on Monday and schedule a time to sit down and discuss your plan if you have one and start the building blocks and start the baby steps to get that in place so you have more clarity moving forward. Visit the website as well, oakharvestfg.com, and check out the YouTube channel. Just google Oak Harvest, google my name, Troy Sharpe, and start to learn on your own time a lot of these retirement planning and income strategies and tax strategies that we talk about here on The Retirement Income Show.

Mark: Some terms for the market, pullback; that’s a 5 to 9% drop and those happen typically three times a year. The correction, that’s a 10 to 19% drop. Those happen typically every year or two. Then the bear market, the market crash that Troy’s talking about right now, that’s a 20% or more drop and those typically happen every three to four years. We’ve seen times where it’s been longer between and even come even a little quicker.
Those are the terms, pullback’s 5 to 9% down, correction, 10 to 19%, bear market crashes, or 20% or more. That’s what we’re talking about today, the bear market. What in the world should you be doing? More with Troy Sharpe, this is The Retirement Income Show with Troy Sharpe, the CEO, and founder of Oak Harvest Financial Group. We’ll be back right after this.

Investment advisory services offered through Oak Harvest Financial Group, LLC. Oak Harvest Financial Group is an independent financial services firm that helps people create retirement strategies using a variety of insurance and investment products. Investing involves risk including the loss of principal, any references to protection benefits or lifetime income generally referred to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Oak Harvest Financial Group LLC is not permitted to offer and no statement made during this show shall constitute tax or legal advice. You should speak to a qualified professional before making any decisions about your personal situation. We are not affiliated with the US government or any governmental agency. This radio show is a paid placement.