Takeaways:

• The predominant concern of my clients is not the depletion of their financial resources.
• The phenomenon known as the 'zero year nightmare' can devastate retirement plans significantly.
• It is imperative to employ a three-layer shield strategy to protect one's retirement assets.
• Utilizing a cash buffer, or 'war chest', prevents the need to sell investments during market downturns.
• Dynamic withdrawal strategies allow for adjusted spending to preserve capital in volatile markets.
• Executing Roth conversions during market declines can enhance long-term wealth accumulation significantly.

The single biggest fear my clients have isn't running out of money.

Age 90.

It's the zero year nightmare.

Imagine you hand in your resignation letter at age 55.

You get the cake, you walk out the door and the very next week, the market drops 20%, inflation spikes 9% and the government announces a tax hike.

It's the perfect storm.

In fiduciary terms, we call this sequence of returns risk.

And it kills more retirements than bad stock picks ever will.

But today I'm going to walk you through a specific plan, a stress test where we retired a hypothetical couple at age 55 directly into the storm and show you exactly why they didn't run out of money.

So let's talk about the Smiths.

The smiths are age 55, $1.5 million portfolio.

Their spending goal is $70,000 a year.

So let's look at the math.

A 5% withdrawal rate might even work.

Stocks crash 40%, inflation runs hot.

So their $70,000 lifestyle suddenly cost 80,000.

And their portfolio value is plummeting while their grocery bill is skyrocketing.

Most traditional 4% rule plans fail here.

The Smiths would be broke by age 72.

But here's the three layer shield strategy where we use to save them.

Shield number one, the war chest.

This is your cash buffer.

The first reason the Smiths survived this is they didn't sell a single share of stock while the market was down.

But before they retired, they built a war chest.

This is two years of living expenses.

About 150,000 held in cash money markets or ultra short term bonds when the market crashed in year one and two war.

Where did the paycheck come from?

Not from selling Apple or Microsoft at a 40% loss.

It came from the war chest.

This buys you time.

It prevents the death spiral of selling low to pay bills.

In fiduciary terms, this creates a bridge over the market valley.

Shield number two, the guardrails.

Dynamic withdrawal strategy.

The second shield is behavioral.

We don't just set it and forget it.

We, we used guardrails.

And here's the deal we made with the Smiths.

If your portfolio drops by 20%, we are not going to keep spending 70,000 adjusted for inflation.

We're going to trim discretionary spending.

No big Europe trip this year.

Maybe eat out a little less.

We reduce the withdrawal by 10% temporarily.

So the math.

This small cut stops the bleeding it preserves the capital so it can recover when the market bounces back.

But here's the health coach reality.

This gives the client control.

Instead of staring at the news in panic, they have a lever to pull.

I'm cutting back now so I can be safe later.

This to action reduces your anxiety and keeps you healthier along your retirement shield.

Number three the Tax Lemonade Roth Conversions this is the move that turns a disaster into victory.

When the market is down 30%, most people hide.

But the Smiths executed some Roth conversions.

So think about it.

If you have a share of stock worth 100 and it drops to 6 70, you can convert that share to a Roth IRA and only pay taxes on the $70.

When the market eventually recovers, and it always usually does, that growth happens tax free.

In a Roth ira, we use the crash to buy out the government's share of their portfolio at a discount.

By age 65, the Smiths had more tax free wealth than if the market had never crashed at all.

So it comes down to survival versus stress.

So what happened?

By using the war chest to avoid selling low, by using guardrails to trim spending during the worst years, and by aggressively converting their Roth IRA, the Smiths didn't just survive 30 years later.

The portfolio was actually larger than when they started.

But the real victory wasn't the money, it was their health.

Because they had a plan for their worst case.

They didn't spend their first five years of retirement stressed out.

Watching CNBC in the futures and spiking their cortisol.

They slept well at night.

But here's the reality.

You cannot predict the market.

You cannot predict inflation.

But you can build a plan that works even when those things go wrong.

If you are within five years of retirement, do not rely on a fair weather plan stress test it against any storm.

If you'd like, help developing this three prong strategy to make sure that your portfolio survives all the different types of market environments.

To make sure you can retire comfortably and stay comfortably retired.

Schedule Discovery Call There'll be a link in the description of this podcast.

During that discovery call I'll find out what's important to you and find out how I can help with your long term financial future.

Also, if you enjoyed this episode, please subscribe.

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And once again, this is Brian the Wealth Decisions guy.

Thanks for listening and I hope to see you next week.