Why When You Retire Matters
Key Points – Why When You Retire Matters
- Inflation and Taxes: The Dynamic Duo that Shows Why When You Retire Matters
- The Fallout of Fear with Sequence of Returns
- The Realization of Recency Bias
- Tracking the Protection of 10-Year Treasuries
- 18 minute read | 37 minutes to listen
Do you have an idea of when you want to retire? There’s no doubt that there can be some excitement that comes with that, but the fear of not having financial stability throughout retirement isn’t something to dismiss. Dean Barber and Bud Kasper are here to help explain why it’s critical to make a forward-thinking retirement plan that accounts for future inflation and taxes. Their analysis of previous 20-year rolling periods show why when you retire matters.
Video & Article: Retiring at Market Highs
Video & Article: Retiring with $1 Million
Video & Article: Are Annuities a Good Investment?
Why When You Retire Matters
Inflation and Taxes: The Dynamic Duo that Shows Why When You Retire Matters
Dean Barber: Thanks so much for joining us here on America’s Wealth Management Show. I’m your host, Dean Barber, along with Bud Kasper. We’re going to talk to you about why when you retire matters. It’s not about your age; it’s about the timing of your retirement. When a person retires, consider the following questions.
- What’s the inflation rate look like in the first few years?
- What’s the market returns look like in the first few years?
- Where are we in a market cycle?
- What kind of withdrawals do you need to be taking out of your portfolio?
Bud Kasper: How about taxes?
Dean Barber: And taxes, too. The timing of what happens in the market can have a huge impact on the either wild success or dismal failure of a person’s retirement.
Bud Kasper: You’re so right, Dean. There are things that worry me as an advisor more than others. Inflation is obviously one of them. Taxes are another dynamic that must be understood. When you’re looking at the buckets, how big does that first three-year bucket need to be with all the other nuances that are coming in that can either take away from our net return or give us more?
Defining Your Dynamic Withdrawal Strategy
Dean Barber: There is a way to look at a dynamic withdrawal strategy when you get into retirement, as opposed to, let’s use an example of a balanced fund. There are a lot of balanced funds out there. Many would say that the target date funds out there are balanced funds. They have a target date and a target balance with inside of the fund itself of how much would be an equities, fixed income, and cash.
When you have something like that and start a systematic withdrawal where you’re just selling monthly shares to take care of your lifestyle, you’re forced to sell into a downward trend if the markets decline. However, if you have different buckets of money—different strategies—you can have buckets that are very safe for those first few years so you’re never forced to sell into a down market.
Bud Kasper: They’re untouchable from that perspective. I love that the word dynamic is associated with financial planning because it means that the plan can change to maximize your results.
Dean Barber: We just finished a video and article titled, Retiring at Market Highs, that touches on exactly that. We thought it was timely to discuss that right now. In that piece, we reviewed a bunch of rolling 20-year periods. The two that I want to focus on are from 1972 to 1991 and from 1972 to 1992. So, we had just a one-year difference in those periods.
What a Difference a Year Makes
For those of you who are students of the market, you know that the early ’70s was a rough time for the markets. In both these scenarios, we assumed we would start with $1 million and a 5% withdrawal stream that equates to $50,000 per year. We would increase that withdrawal stream the next year to keep up with inflation for whatever the inflation was that year. We used 60% in the total stock market index and 40% in the 10-year treasury. I want to quickly run through some numbers from 1972 to 1991 to help show why when you retire matters.

TABLE 1 – 1972-1991
The average annual return of a 60/40 portfolio rebalanced once a year from 1972 to 1991 was 11.65% per year. The average inflation for that 20-year period was 6.29%.

TABLE 2 – 1973-1992
If we go to the 1973 to 1992 period, you had an average annual return of 11.49%, so it’s very close to the same. There was an average inflation of 6.27%, so that was close too. One would assume if you started with $1 million in each of these that you would have about the same amount of money at the end of a 20-year period.
That’s not what happened, though. For the period from ’72 to ’91, the ending balance after 20 years was $427,798. In comparison, the ending balance for the 20-year period from ’73 to ’92 was $68,278.
It’s Not the Size of Your Portfolio that Matters
Do you know what that tells me? it’s not the size of your portfolio that matters; it’s when you retire. It matters because the bad returns from the ’73 to ’92 period, coupled with super high inflation rates in those early years, created a self-fulfilling prophecy of a portfolio that was going to drain itself down to nothing.
Bud Kasper: When we look at this, remember the article, Alpha, Beta, and Now Gamma. This is where the word dynamic is associated with retirement planning—specifically income planning, which becomes imperative because we have factors that can alter the destination of that retiree’s account. You need to understand that to adjust and preserve money for your entire lifetime and that of your spouse.
Dean Barber: Here’s what happened. We’re seeing the volatility creep back into the market. If you were taking $50,000 out a year and you retired in 1973, by the time you were reached 1981, you needed $106,000 to buy the same thing that $50,000 bought just eight years earlier. That inflation really started to cripple the value of that portfolio.
We’re looking at the potential for higher inflation. What’s that going to do to fixed income? We’re also looking at the potential for a market that is very frothy. We’ve been talking about that all year long with how we can’t expect the same types of returns over the next decade that we’ve had in the last decade. You need to get educated to do that to know why when you retire matters.
The Fallout of Fear with Sequence of Returns

TABLE 3 – 1974-1993
To add to that example, let’s say someone retired in 1974 instead of 1973. The average annual return was a little bit lower, but the inflation rate was almost the same. What happened? You ended up with $1.9 million at the end of the 20-year period versus $68,000. The reason was sequence of returns.
We talk about sequence of returns all the time. When you get frothy markets and interest rates like we have today, it creates an awful lot of fear. When there’s fear out there like there is today, people tend to fall prey to what I call financial salespeople—specifically those salespeople that are hawking the fixed index annuities. I want to discuss why those are such a bad idea at this time, and alternatives to what you can do for that.
Bud Kasper: They prey on the fear and people running out of money, so I need somebody who’s going to tell me that I’m always going to have the guarantee associated with it. The reality is that when you compare it to portfolios that are dynamically treated, you see a sizable difference in the outcome.
Funny Money
Dean Barber: Right. Here’s the biggest problem with those fixed index annuities. If you get one of those annuities, they give you a guaranteed income stream from that annuity. It’s not an annuitization; it’s just a systematic withdrawal that guarantees a certain amount of income for the rest of your life. If indeed we’re going into a higher inflationary period, which a lot of people believe to be true, what happens to your standard of living when you have a fixed income? You may not go broke, but you’re going to be forced to live broke.
Bud Kasper: Exactly. And you’re not going to alter that.
Dean Barber: You can’t.
Bud Kasper: The other part is that you’re penalized. If you take it out within the next 10 years, then you’re going to get a penalty.
Dean Barber: 10 years. Some of them are 15 years or 20 years.
Bud Kasper: But wait a minute, Dean. They got a 10% bonus.
Dean Barber: That’s funny money, too. We both know that if you get that 10% bonus on any of those annuities, there’s no way you ever get that money out.
Bud Kasper: But they’re coming out of the woodwork now because market is at all-time highs. Fear is slightly elevated at this point.
Structured Notes and Buffered ETFs
Dean Barber: So, what are the alternatives? There are vehicles out there today, such as things called structured notes and buffered ETFs. If you’re fearful, you can do structured notes in two-to-three-year timeframes. Structured notes work a lot like those fixed index annuities, only they’re not annuities and they’re traded on the open market. With the Buffered ETFs, you can buy them today and they will protect the first 10% or 20% downside of the market.
Bud Kasper: That’s assuming it was going to go down.
Dean Barber: Correct. To get that first 10% protection, you might cap your upside at like 11% over the next 12 months. By the way, when you put these in, you know exactly what the cap and your protection are. The cool thing is that if you decide a week or two after or even a day after that it wasn’t what you wanted to do, you can sell it.
Bud Kasper: It’s liquid and there are no penalties.
Dean Barber: And there are no commissions on them. There are no fees to get in or out, so why in the world would somebody say to put all your money in an annuity for 10 years, 20 years, or whatever as opposed to doing real financial planning and dynamic portfolio management in times like this? The only reason is because the people that are hawking those annuities are receiving huge commissions up front. They don’t care about whatever happens after your money’s in there. The two people that win on the annuities are the person that sold the annuity and the insurance company.
New All-Time Market Highs Are Nothing New
Bud Kasper: Of course, but this is a fearful time. We’ve seen this type of activity before. It’s continuing even though the market’s done very well over the last 11 years other than a short bear market better known as COVID. We have a lot of money in the economy right now that is seeking a way, if you will, to continue to grow. If that’s the case, I think there’s still plenty of opportunity out there.
Dean Barber: I still think that. Think about it, Bud. How many times this year and last year did we see the headline, Markets Hit New All-Time High? That’s different than investing at peak market valuations. There’s a clear distinction between the two because the markets can be hitting all-time highs and valuations still are not out of control. That doesn’t necessarily mean that because it’s a new all-time high. There have been thousands of new all-time highs in the market over the last 50 years.
Bud Kasper: No doubt about it. It has been successive because it keeps growing and we’re getting these new highs. People say it can’t go on forever, and they are probably right. However, that doesn’t mean that the economic fundamentals behind it can’t give us a foundation for some continued growth.
Putting Together a Forward-Looking Plan
Dean Barber: Many people need a plan that allows them to look forward rather than being reactive to what’s happening. You need a plan that allows you to see what sort of portfolio adjustments need to be made now, in six months, in nine months or in a year? You start looking forward and making those adjustments to your portfolio in a proactive way instead of saying, “Oh my gosh, the market’s down 800 points in a day. What am I going to do?”
Bud Kasper: It’s never going to be an all-in or all-out scenario.
Dean Barber: No, but we have worked with people that retired at the peak of the market in 2007 or early 2008 and went through the great financial crisis. Do you know what? They’re still retired today, and their portfolios are larger than when they retired. Now, we had to do a lot of active management. We had a lot of back and forth and things we had to do, such as changing allocations and different things like that, but that’s OK. That’s what we get paid to do.
Bud Kasper: There’s also another part of the planning process that can be exercised from time to time, and that’s harvesting. If you’ve had a good year, and let’s say we’re up 12%. Why not take 8% of that and bring it down to 4%? I’m going to put it over here in a safer investment because that’s my rainy day money.
Harvesting Can Be a Big Help
Dean Barber: I did just that with a client this week. I’ve been doing that all year as I’ve been doing reviews with clients. Let’s harvest the gains that we’ve made. Take that money and set it over into a safe fund so we know that money is going to be there. If the markets take a little turn the other way, that money that we put into the safe fund is where we’re going to spend money from. In most cases, there is three or four years of income that can come out of there, so we can go through some choppiness in the market.
Bud Kasper: That’s exactly right. This is what dynamic planning is about. We’re talking about the market conditions, inflation, and deflation. Taxes, of course, are another strong element that need to be understood during forward-looking income planning.
Dean Barber: No question about it. You need to get educated so that you don’t fall prey to the financial salespeople out there and understand about why when you retire matters. That’s why I started America’s Wealth Management Show nearly two decades ago. I thought that education needed to be first and foremost. If you’re educated, you can make an informed and intelligent decision. Along the article and video, Retiring at Market Highs, I suggest that you check out our piece called, Are Annuities A Good Investment?
The Realization of Recency Bias
Some people might go, “I have this amount of money. This is how much income I’m going to get. This is what I expect to happen.” We have seen so many things happen in our 70-plus combined years in the industry. One of the things that can be the most dangerous is what we call recency bias. That is when you review what a portfolio did over the last 10 to 20 years, and expect that to continue over the next 10 to 20 years.
Bud Kasper: People can be fickle when they think about their returns and what they should get in their own opinion. You made the point that you talked to a client who had a huge gain inside the portfolio, and you told them to trim some of that gain off and put it into a safer investment. Then, the market suddenly starts going back up again.
Dean Barber: So what?
Bud Kasper: I’m just saying, human nature suggests that they could have been making money on that. We’re trying to get people to understand that the security of their money is in flux. It’s necessary that we understand all the dynamics associated with this and put it into a planned format so that you can see the reality of what the future might bring.
The Similarities to Irrational Exuberance
Dean Barber: We’ve been talking all year long about how the markets are elevated. That is very similar to Alan Greenspan in the late ’90s talking about irrational exuberance. Alan Greenspan started talking about irrational exuberance in 1996, and how the market valuations didn’t make any sense. He wondered why people were still putting money into the market.
That was the new normal. That was how it was going to be going forward. The old stuff was gone. We had the Dot-Com mania. People wanted out of the brick and mortar-type companies since all the internet companies were where it was going to be.

TABLE 3 – 1980-1999
We see the same kind of dynamic taking place today. In the Retiring at Market Highs piece, we illustrate one specific example of recency bias. Let’s assume that somebody that retired in 1980 with that $1 million and is taking 5% a year, so $50,000 to start with. They are increasing it with inflation every year and had 60% in total stock market index and 40% in the 10-year treasury. That person took all their income out, kept up with inflation, and wound up with $7.285 million from an initial $1 million investment.
Bud Kasper: Beautiful.
What Seemed Simple, Wasn’t So Simple
Dean Barber: That person is telling his nephew or niece, cousin, prior coworker, or somebody else what to do with their money because of what happened to them. Their acquaintance does the research and goes, “Wow, that’s true. It was simple. Look at what they did with a 60-40 and rebalancing once a year. I can take all my income, keep up with inflation, and wind up with $7 million at the end of the day. I’m going to leave that chunk of money down to my kids.”

TABLE 4 – 2000-2019
So now, that person decides they’re going to retire on January 1, 2000. That same individual has the same $1 million investment, takes $50,000 the first year, keeps up with the inflation, and winds up with $647,000 left. Do you what he’s got to take out of that to keep up with inflation? $75,000 a year. What do you think the chances are that that $75,000 a year continues for very much longer when your portfolio value is already down to $647,000?
Bud Kasper: It’s a self-fulfilling prophecy. From that point on, it’s going to run out just because of what the need is.
Dean Barber: That’s what I call the recency bias. It’s looking at something that happened historically and saying that it should repeat itself again.
Retirement: A Serious Business that Requires Serious Financial Planners
Bud Kasper: As Dave Ramsey would say, eating beans and rice, from that perspective. The two factors that come into play that impacts this the most are inflation and taxes. That’s why we go through and do a comprehensive financial plan for our clients that we represent to help illustrate why when you retire matters.
Inflation and taxes are two of the most serious elements that need to be understood. People don’t look at that. They’re retired, have this bundle of money, and ask why they can’t live off this for the rest of their life. They say, “Why can’t I do it? I can take the amount of income divided in there and should have income until I’m 90.” But they are not factoring in what?
Dean Barber: Inflation and taxes.
Bud Kasper: You need to be smart about this, folks. Retirement is a serious business, so you better be working with some serious planners.
No Do-Overs
Dean Barber: If you screw something up, there are no do-overs. It’s going to be a drastic change of lifestyle. It reminds me of how critical it is to do the comprehensive planning that we do using our Guided Retirement System. Before we talk about how your portfolio should be allocated based on current market and economic and interest rate positions and things like that, the first thing that we’re going to do is to create that retirement plan.
First, how do we maximize your Social Security benefits? Second, how do we minimize your taxes through the proper withdrawal strategies? Once we’ve done that and used other planning tools, we can say, “Here’s how your portfolio should be positioned.” And we can do it in a way where we position things with the least amount of risk possible, especially in those early years of retirement. Let’s maximize these other things and minimize the taxes. That’s what the Guided Retirement System is designed to do.
Bud Kasper: As a firm, we have two CERTIFIED FINANCIAL PLANNER™ Professionals at the Lee’s Summit office. We have six out of the Lenexa office. Through the years, we’ve seen this coming. We’ve seen the need. We understand the comprehensiveness associated with retirement planning and have created an avenue for people to ascertain what information they need to have a command of to secure their retirement.
Dean Barber: To address that, we did a video a few months ago, Retiring with $1 Million, that illustrates how somebody with $750,000 can actually have the same retirement lifestyle as somebody with $1 million if you apply the right financial planning techniques.
Clarity, Confidence, and Control
Bud and I have been in this industry for so long, and we love the times when it is like a smooth escalator ride up—everything is good, low inflation, markets are moving good, and not a lot of geopolitical or political turmoil. It’s nice when can relax and enjoy ourselves. However, we also know that the most critical time that people need to be working with a great CERTIFIED FINANCIAL PLANNER™ and a team that is designed to address all those retirement needs is times like now.
Bud Kasper: Absolutely. The opportunity is there, but you must take advantage of it. We want you to have your one best financial life.
Dean Barber: Right. You need to have three things to have your once best financial life: clarity, which brings confidence, and ultimately puts you in control.
Tracking the Protection of 10-Year Treasuries
I want to shift gears here because when we did our video and article, Retiring at Market Highs, we did an example of somebody that had a 60/40 portfolio, 60% total stock market index, 40% 10-year treasury, and rebalancing once a year back to that 60/40. I want to point out something on the 10-year treasury that I don’t think people really relate to or understand what the 10-year treasury did in some of those other market cycles. It’s mathematically impossible for the 10-year treasury to repeat that to give the same type of protection during a downward trend.
Dean Barber: I want to start off and go to the year 2000. If you had a 60/40 portfolio and the total stock market lost 10.5, the 10-year treasury still returned 17.28% that year. So, you wound up with a real gain of 0.5%
The next year, you lost another 11% with the stock market. The 10-year treasury made 5.4%, so you were only down 4.42%.
Now the next year, the market’s down 21%, but the 10-year treasury returned 15.45%. So, you were only down 6.4%.
In a period where the market was down nearly 43%, you were down less than about 10%. That is something where a person would say, “OK, I could live with that. If I put that 40% in that 10-year treasury, I’m going to get the protection.”
The Teeter-Totter Effect
Here’s what you need to understand why it’s mathematically impossible for the 10-year treasury to do that again. Think about the 10-year treasury and the bond value being like a teeter-totter. The yield on the 10-year treasury sits at one end of the teeter-totter, and the value of that 10-year treasury sits on the other end.
We are sitting today at a 10-year treasury that has been hovering around the 1.3% to 1.35% range for the bulk of this year. That tells me that that 10-year treasury yield is down toward the bottom. It’s about as low as it can go. I could go to zero, and the Fed has talked about doing negative rates, but to get that 17.28% or 15.45% return, you must have a 10-year treasury that has some room to fall. We simply don’t have that today.
Bud Kasper: If you look at that from the perspective of last year, it was a case with COVID being the catalyst for all this to happen. Treasuries had a sell off early in the pandemic for a short period. They regained momentum, came back up, and we had a fantastic year for bonds. This year, not so much.
We’re having to deal again with an issue where the safer money yield is not going to be as attractive in this COVID period. The questions we’re asking ourselves as advisors are:
- Are we going to stay at these levels?
- Are they going to change?
- What would make them change?
Inflation Going Up, Bonds Going Down
Dean Barber: We are in a cycle right now that is showing much more upward pressure on prices, on the CPI, so we’re looking at a more inflationary period. When you go into a more inflationary period, even if you’ve got an economy that’s stagnating a bit, you could still have inflation. We go back to the stagflation period of the late ’70s and early ’80s.
Dean Barber: If we’re going to have inflation, what that ultimately means is that those bond prices are going to rise. Go back to the teeter-totter example that I just gave and imagine that the yield on that 10-year treasury starts to go up. What do the value of those bonds start to do? They start to go down because they’re at opposite ends of that teeter-totter. We could have a market pullback and a rising interest rate environment simultaneously.
Bud Kasper: People don’t think would happen, but it has.
Dean Barber: It has, and it happened in that stagflation period. Now, am I saying that we’re going into a stagflation period? I don’t know. Nobody knows. We can’t predict the future, but the point that I’m trying to make is that we must look for alternatives to that 10-year treasury as our safety net for our fixed income component in the coming years.
Bud Kasper: You hit it right on the head. I have spent more time in the last month looking at options associated with fixed income since we don’t think we’re going to have much return out of it. We need to look at alternative investments that can provide the downside risk protection while still giving us some upside. We’re finding some results associated with that.
Stagflation Strategies
Over the weekend, I read another article on stagflation. Why? Because it’s a possibility, and if that’s the case, I need to refresh my memory to understand what we might do strategically to handle the stagflation.
Dean Barber: Bud and I have had multiple meetings with different companies out there. There are things that we’re considering since we might need to do them. One of those is private credit. We’re not in a position where we’re ready to definitively say private credit is something we should do.
Bud Kasper: Explain that.
Dean Barber: Private credit is basically a private loan to a private company. Typically, the private credit is collateralized. There are a lot of banks that aren’t lending to businesses because of a lot of the restrictions. These businesses need money. They don’t want the traditional 15-year note.
They may need money for three, four, five years, or something like that. There are lenders in that space that are not banks that will loan that money. You could invest directly in those businesses that make the loans and participate in the returns on that private credit.
Think about this. You take that teeter-totter example, and you move to the middle of the teeter-totter. What happens? There’s not much action either way, right? If you can get a decent yield there, which you can, and you’ve got a shorter duration, interest rate fluctuations aren’t going to affect those assets nearly as much.
Bud Kasper: From a call-to-action perspective, that doesn’t mean necessarily that’s something that we need to do immediately.
Dean Barber: No, not today.
Bud Kasper: We do need to take all things into consideration. That’s our job.
Protection Is Proof of Why When You Retire Matters
Dean Barber: We’re looking forward at what happens if we start to see that 10-year treasury rise. What happens if we do start to see inflation? We must consider the alternatives that we’re going to be moving our portfolios to. We’re not talking about a wholesale move. We’re talking about gradual moves to protect because protection is the most critical thing that people can do in retirement.
I would argue that even somebody that’s 10 years out from retirement should really be looking at this because what happens in those 10 years can be critical to the success or the failure of that retirement. It’s clear why when you retire matters.
We really appreciate you joining us each week here on America’s Wealth Management Show. I’m Dean Barber, along with Bud Kasper. Everybody out there, stay healthy, stay safe.
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