#94 Why is My Retirement Losing Money?

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Listen to the Full Episode:

Ever wondered why your retirement is losing money despite investment diversification? Join Micah and Christian in our latest episode, where they dive deep into this question, discussing the pitfalls and challenges of investment diversification and how it may only sometimes yield the expected results.

Find out why having a structured retirement income timeline is crucial and why you should have a written plan. Learn how to navigate the challenges of overspending and discover long-term investment strategies. Get clear tips on the five-year rule and how it impacts your investments. 

Tune in for valuable insights on managing your investments for the long run.

What We Cover:

  • Why does investment diversification bite?
  • Market Volatility
  • Asset Allocation – how to align your asset allocation to ensure it aligns with your long-term plans
  • Doing withdrawals or distribution in an incorrect way
  • The three-legged stool of retirement income: pension, Social Security, and TSP.
  • The impact of inflation on retirement planning and how to cope with it
  • Roth conversions and strategic portfolio reallocation
  • What happens when you are justifying your overspending? How are you going to see that and get back on track? 

Action Items:

  1. Create a written investment strategy.
  2. Learn how to take advantage of opportunities.

Resources for this Episode:

  • Email Us
  • Stocks for the Long Run – Jeremy Siegel

Ideas Worth Sharing:

The reason for we talk about this is we got to understand what we're owning. And actually, the number one mistake that retirees, federal employees, etc., make is that we don't really have an understanding of what we own. – Micah Shilanski Click To Tweet

So for whatever that income need is whether it's retirement income, whether it's to buy a car, whether it's to remodel the house, or purchase a house, those dollars aren't going to be affected by the market. Right. And that's the five-year rule.… Click To Tweet

Inflation is something that a lot of times we're thinking about, and the TSP or other investments, that is really the key right to beating inflation, whether or not we know what's going to happen. – Christian Sakamoto Click To Tweet

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Micah Shilanski  00:56

Welcome back to the plan your federal retirement podcast. I’m your co-host Micah Shilanski and with me joining me all the way from Washington State we have the amazing Christian Sakamoto! Christian, how you doing sir?


Christian Sakamoto  01:08

Micah, I’m doing well doing well. Had an eventful weekend battling some sickness but otherwise I’m actually pretty healthy now and looking forward to Christmas as we’re recording this is just a week before Christmas. Kids are getting super excited and we’re doing all those fun holiday activities with baking cookies and watching Christmas movies and having hot chocolate. It’s just a lot of fun right now.


Micah Shilanski  01:34

Oh, that’s fantastic, right? I know this is gonna, episode’s gonna air in January. We try to get them out a little bit more in advance kind of recorded for you guys in the can but this is a great time right? I hope you guys all had a very Merry Christmas and a Happy New Year. And we’re able to spend some time with the family and be able to put a lot of things together on kind of what this new year is going to look like. But Christian as we wrap up 2023, we’ve seen some interesting things in the markets. And while this podcast we don’t really talk about it like investments and markets and day trading, because we don’t believe in those type of things. But we do talk about investments for the long run, which is what we want to talk about today. And kind of a question that sometimes that we’ll get not so much from clients, but from other people coming in is why is my retirement losing money? Why is the markets going up and my retirement accounts going down?


Christian Sakamoto  02:23

That’s right and I think it’d be good to talk about that today. There are a few points that we’d like to mention as to why that might be the case. And I think the spoiler alert is ultimately it comes down to a mindset, but we’ll talk about that a little bit later. What would be the first what would be the first thing that we’re thinking about that our retirement accounts might be losing money is there going to be that our investment diversification? Is that going to be probably the first thing that we’re gonna be thinking about?


Micah Shilanski  02:52

Well boy, the first thing I always look at you know, this is a little bit tongue in cheek so forgive me but is why does investment diversification bite? That’s the first thing I think about right? We always talk about you have to diversify your investments you have to do these things, which is fantastic. There’s a good reason why and I’ll talk about that a little bit. But one of the main problems with investment diversification is people get pigeonholed. People get looking at the wrong things they haven’t diversified investment, but then they hear the market was up 20% They’re like, How come I didn’t go up 20%? And that’s because they’ve diversified investment, but I’m diversified but I still want all of the growth. And so there’s a cost to being diversified. There’s a cost to separating that money out and it kind of bites a little bit. But sometimes that’s the price that’s worth paying to make sure we never outlive our money in retirement


Christian Sakamoto  03:42

100% Then we have to look at it and say, if we’re going to play the diversification game, which we’re all big fans of is what is it that we’re diversified in? Are we diversified amongst stocks and bonds and cash or are we diversified amongst the different stocks that are available such as the C fund which is, you know, 500 of the largest US based companies, right those The SFP500 is what we’re referring to under the C fund. That’s a diversified portfolio right there. But then if we compare that to, you know, small cap funds, which represents the S-Fund, which is a lot more smaller companies, they’re comparing apples to oranges, possibly. If we all expand that even further, we can look at the AI Fund, which is international. The AI fund in particular is a lot of European funds. But from that perspective, again, there’s diversification amongst the same type of goal like growth, and then there’s diversification amongst comparing two different things all together completely between growth and fixed income like bonds and also cash. So what are your thoughts on that?


Micah Shilanski  04:58

Boy, it’s a great thing right? And let’s let’s go and pull up I got the tsp.gov pulled up right now. Now these will be just a little bit different. Again, we’re recording this right before the end of the year versus you know, when this kind of airs but let’s look at look at these numbers a little bit. Now, Christian, here’s the thing when it comes to investment diversification that we all forget, we all forget what happened last cycle, right? We all forget where the market was just a second ago and I have like kind of three experiences I shared with you as your pregame and for this with people that I talked to, that was like, Oh my gosh, it’s so happy to C-fund is up, you know, 18% 20% whatever this number is, and we’re so excited about it. I was like, Yeah, that should be it’s a few months ago, and there’s a pause. And I was like, Oh, you already forgot that it was down just a few months ago. And then it’s recovered. And they’re like, oh, yeah, it was right. It’s just now kind of recently it’s popped up. And so yeah, he really is better than 2022. Remember, just last year, I guess the year 2004… it’s almost two years ago, right. But just last year in 2022. The C-fund was down 18% The S-fund was down 26%. The iPhone was down 14, I’m rounding 14%. Right the F-Fund, F is in the bond fund was down almost 13% into 22. Now I know that’s a lot of percentages were thrown out there. But the reason for we talk about this is we got to understand what we’re owning. And actually the number one mistake that retirees, federal employees etc make is we don’t really have an understanding of what we own. We have an emotional experience. We’re like holy crap, the TSP is up 20% I want that, right? Yeah. What did the TSP Oh no, just the TSP is up 20% Let’s go buy it. And so we put money in there, but we don’t really understand those things. So kind of before we get into investment diversification and how that needs to be set up, we really need to pause and say what’s our written investment rules. Now I know I’m sucking the fun out of this, forgive me, it’s so much more fun to talk about things that are going up and how we should invest money and those other great things. But to be successful at this, when we’re going to define what we think success is. But to be successful at this we gotta hit the pause button. We got to slow this down just a little bit. And Christian, I’ll ask you whenever we’re thinking about investing or written investment rules, what’s the number one rule we’re talking to clients about when it comes to investing?


Christian Sakamoto  07:19

I’d say the number one rule is when do you need this money. What’s that goal that we’re solving for? And when are we going to need that money?


Micah Shilanski  07:28

That is so important right now I’m just gonna pick again on the C-fund. Now for all the people out there like Micah, you’re just picking on the TSP? Well, yes and no, we that’s a commonality with federal employees. Right. We all have the TSP, you all have the TSP and it’s a good tool. Well, we got to understand how it works. But Christian to your point, I’m just looking at these returns. In 2023 was up as of year to date numbers. 20% 2022 was down 18% 21 was up 20%. It was 18% and 31. Then down, right? So you have a bunch of different rates of returns going on right here. So when we need the money is really really important. If you need the money and the markets going to be down 20% like it has been on multiple occasions, right? Even these are just your numbers you can go out throughout the year. There’s multiple times the market is ebbing and fun. You’re taking a pretty big risk at having to sell at a loss. And that’s what we’re trying to avoid by that wind question. Right Christian?


Christian Sakamoto  08:24

That’s exactly it. If you wanted to buy a house in three years, and all of your money that you had was in the equivalent of the C fund. Probably not a good smart strategy if we have another 2021, or sorry, 2022 right when it goes down 18% So we want to make sure that I have a goal in mind to say when we need this money, we got to make sure that it’s structured in a way set up in a way between growth, income and cash that we know how we’re invested so that whether again, it’s a retirement goal or it’s a buying a house go, we know that we’re in a good spot and we’re not worried that the market is going to be down. We’ve already built into that that the market could go down. Therefore we have enough set aside that we’re not concerned that it does.


Micah Shilanski  09:14

Yeah, amen. Right now we could go back I’m going to date myself here myself, not Christian. But I’ll date myself so but go back to 2000, 2001, 2002, Right. In that period in time the market was down, Christian, and you know this, it was down for three consecutive years 10% 10% For two years and 22% one of the year something of that nature, round numbers, right. So but it was down for three years. So when we come up with these rules that Christian’s talking about, it’s because of reality, right? In theory, the market’s up, you know, anywhere between eight to 10% every single year, but that’s because we’re averaging the markets, the ups and the downs, but we got to manage those downturns. Now, long term investors, we don’t need this money. We’re, you know, more than five years from retirement, and we’re gonna let it invest and we’re gonna let it grow and we’re not going to panic when the market fluctuates, well then fantastic, right, let’s take that long term mentality, that long term approach. But Christian, what’s kind of that timeframe we should be looking at? Let’s say we don’t want to leave money kind of north of that five years. Let me ask a different question. When do we need to be how far out should we be looking at when we need money? We need to start being more conservative with it.



I say it’s in that five year window. So when we’re getting within that five year window, we really need to be looking at the investments and trying to strip away a little bit moving them into and out of the market and into cash and the bond type equivalent. The reason why and we’ve said this before on the podcast, my clients know this is we go back to 2008 when the market was down for a total of five years, right from 2008,9,10,11,12, all right, so we have to look at that history and say, goodness, hopefully this doesn’t happen. But God forbid when it does, we want to make sure we’ve got that five years set aside. So for whatever that income need is whether it’s retirement income, whether it’s to buy a car, whether it’s to remodel the house, or purchase a house, those dollars aren’t going to be affected by the market. Right. And that’s the five year rule.


Micah Shilanski  11:13

Now the five year rule is it’s a rule of thumb. It depends on a few things, but it’s a good place to start. What money do we need to spend the next five years and it shouldn’t belong invested? We talked before about kind of our bucket strategy. We like to have one to two years of distributions in cash. Now sometimes we get pushback from people like Hey, Micah out one to two years of distributions money I need in cash is a lot of money on the sidelines. How about I go buy some bonds? Well, this is what I’m gonna poke on the F Fund right now because in the F Fund in 2022, the F Fund last almost 13%. That’s a bond fund. Now, why did it lose is because bonds and interest rates are on a teeter totter. Remember those things we used to have in school growing up that are now banned because they’re too dangerous, right? teeter totter, so that’s what they are. Right? You got two interest rates on one side bond values on another and when interest rates go down, bond values go up. But when interest rates go up, bond values go down, and that’s what we saw in 2022. The Fed was raising interest rates and we started seeing that teeter totter kind of have that effect and long term bonds really being hit for this. Now cash at the same time was because rates were going up cash was starting to make more money 123 Now it’s at four plus percent you could be making in cash. So that’s the importance of correct investment diversification. Money I’m going to use I need to have a timeline on when it’s going to be available with minimal risk of loss for the next one to two years. That’s when our cash comes at. And then we have kind of question that, you know, three to five years when we kind of fill in that gap before we hit that last bucket.


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Christian Sakamoto  13:53

That’s exactly right. And then once we satisfy that I’m thinking about for clients who are retired once we have a minimum of the five years that are outside of the market. Then we look at it and say if we’re looking at replacing incomes, and for our federal employees listening our federal retirees they’ve got the three legged stool, the first pension and Social Security income and the TSP if a lot of your income needs are being met from pension and Social Security and we don’t really need too much coming out of our tsp or our investments, then perhaps we can make the case we can even have more that’s outside of the stock market, assuming we’ve met that five year rule because our income needs are less and we don’t want to take on any more risk than we have to. So it’s a case by case client by client basis. But that absolutely is the case with that rule and the five years is kind of that minimum and then we can exceed that. Should we need to or want to with kind of our risk tolerance but also how much we’re actually taking out of the portfolio every year. Yeah.


Micah Shilanski  15:01

And Christian, I know we’re on the same page of risk tolerance is an interesting buzzword, right, that gets thrown around a lot. And we got to be careful with that one. Because this isn’t just a computer response, answer these five questions and this is how you should invest. It’s really about cash flow. What is your money need to do in order to make sure you can have a successful retirement? That’s kind of one of those top questions you got to ask now, if that’s outside of your comfort zone. That’s another question. We have some clients that really need to invest their money a little bit more long term focus to hit the goals they want to hit. Okay, when we go through that they’re like, You know what, I’m not comfortable taking that much risk. Okay, do we need to adjust our goals, right? If we’re not comfortable taking that type of investment risk, we need it, we can tone it down. But that means we’re either going to have: A: less money in retirement, or B: retiring later, or maybe it’s combination of the two but there’s only so many levers to pull. And where people get in trouble is they’re saying well, I don’t want to take risk, but I’m not gonna adjust any of my goals. That may not work out well for you.


Christian Sakamoto  16:01

Yeah, that’s a very important distinction on that buzzword that risk tolerance it, it cannot just be simply answering these 10 questions and boom, you’re at moderate aggressive growth, right? Or somewhere in that branch ramp to really look at it with more nuance and really understand a few other things first, before we know what your risk tolerance is.


Micah Shilanski  16:23

Yeah, and that one other thing too before we can deviate from this a little bit and kind of talk about inflation because that’s kind of a big, big thing to be thinking about right now is how what is your plan to take money out of your investments, right, even if you’re not on the distribution side of it just yet. What’s your plan to take distributions? And do you have that in writing? That writing is really really important and Christian know we’re on the same page with this because it makes it more real right and especially if you’re married, it gets you and your spouse a little bit more aligned on the same page with things but we got to make this a little bit more real. How are we going to pull this money out? What’s the plan and what happens? Not if but when the stock market goes down? What’s our plan for taking money out in a down market? It’s so much easier to figure out now when it’s theoretical in the future will happen versus in the moment, that’s when our emotions can flare up a little bit more. And that’s why having it in writing really helps with that, especially if we’re sensitive to that market volatility.


Christian Sakamoto  17:20

100% that’s maybe a plug but when we’re working with our clients, that’s what we’re hearing as feedback is getting that in writing and really having that written plan. That’s something they’re appreciative of, and being able to identify what we call the retirement income timeline. So useful tool that we’re using. And so even if we’re not working together, but putting together some version of a retirement income timeline, knowing where your sources of income are coming from, and then those gap years that we would call before, first up and that goes away, and you’re not turning on your Social Security. We’re needing to take a little bit more money, which is a common scenario. Where’s that coming from? And from which buckets, and not only between the CSI G and F funds in the TSP, but outside the TSP, if we have more dollars, maybe we’ve got some savings account. Maybe we’ve got some in a Roth IRA. Maybe we were planning to sell the house or the rental property. We want to get some extra money there. So there’s a lottery for things. What is your plan to take that money out? And getting it in writing is super important?


Micah Shilanski  18:24

I like it. Alright, so we’re gonna change a little bit from the investment conversation and let’s pivot a little bit into inflation. Right, that thing that’s been biting us the last several years is groceries have gone up into costs, then this ties handed here hand with the investments as well, because this comes to the question about what’s your plan when your expenses change in retirement? So often, we think, Oh, I’ll be able to spend less I’ll be able to do these other things. Well, also your grocery bill went up 20% In the last couple of years, and then it’s like, whoa, holy crap, where’s that money going to come from? And so having a plan and how do we outpace inflation has to be part of this investment plan because you have a great retirement Christian, as you already said earlier, right? You have a pension which is going to come in your social security, but neither one of those will keep up with inflation. In fact, your FERS pension is designed to be less than inflation. If CPI Consumer Price Index is between zero and 3%, you get the CPI if it’s, you know, between three and 4%, you get, you know, half that, but it’s not designed to keep up with that inflation rate. So really important to say, Hey, your pensions not going to your Social Security’s not going to why did that legged stool, what’s the one thing that you have that can outpace inflation over time, and that’s your TSP, that’s your IRAs. That’s your Roth. That’s your tax planning. By the way we use tax planning a lot with clients to be the IRS at a 1000s 10s of 1000s of dollars, and that helps with our inflation planning because it’s more money you have in your retirement. So how does that kind of come together in your investment plan?


Christian Sakamoto  19:59

That’s exactly it. Inflation is something that a lot of times we’re thinking about, and the TSP or other investments, that is really the the key right to beating inflation, whether or not we know what’s going to happen. I mean, we don’t know what’s going to happen in the future with inflation. So we just make sure we have that part of our overall plan, knowing we have to have some dollars that are invested that are in growth. We can’t just sit in cash, because it will be not with inflation.


Micah Shilanski  19:59

Now, Christian, I want to pick on you on something you said though, you just said we don’t know what’s going to happen. And I’m going to push back on that one. I’ll make this statement right here. I know exactly what’s going to happen and to prove it. I’ll be back here a year from now and I’ll tell you exactly what did happen. How’s that? How does that feel?


Christian Sakamoto  20:48

That’s, that’s a good answer there.


Micah Shilanski  20:52

Yes, we’re great historians. Right. But to your point, we don’t know what’s going to happen. The best way to know that is to look back in history right? And look at all the pundits and Christian you were in our pregame and, and you brought up several pundants that were multiple times this year saying this is the end of it, it’s all crashing from here and I don’t know maybe by the time this podcast airs, it will have crashed, probably not. And so these are long term things that we need to look at and not get caught up with the market hype in the day to day. I know we talked about it a bunch it’s super easy to happen, especially coming into an election year. Things will be more volatile because they are every four years we get we have elections every four years. I know you guys know that because our audience is really smart. The entire world is gonna forget that this is a normal thing. Every four years in the market gets a little bit more volatile with it. It’s just part of the fun, but that’s why it comes in knowing what that investment plan is and can we tolerate that volatility can we tolerate that movement when my tsp goes up 100,000 then down 100,000. Are we okay with that? How does that fit into our long term plan?


Christian Sakamoto  21:56

Another thought another point when we’re talking about why our retirement is losing money would be our own fault with taking too much out. Call that overspending. Right? And so how are we set up for knowing how much in a given year we should be taking out of our accounts? Right? If we’ve heard somewhere between 4% is pretty common. I’ve heard 3% five plus percent right, whatever that distribution rate is, if we’re taking out more than that for a longer period of time. We’re kind of in our own fault for why that we’re losing that money. And so how are we going to get back on track? That’s going to start with you as well. It’s going to start with your planning. It’s going to start with cashflow, planning and making sure we’re good stewards of our money every single month. I don’t know what are your thoughts on that?


Micah Shilanski  22:48

I agree. And this comes down to what’s that written plan right? Whether you work with a professional whether you do it yourself either way, it’s what’s that written plan that you have that when not if when these things happen? What are you telling your future self now, right, what are things that, I like to say, what are the things that future Micah would like to know about this conversation? When these things happen? That’s the approach that we need to take with it and say there’s a reason for we have a strategy when the markets go down how clients are going to take out money, and there’s also a reason, Christian and you know this, we took a lot of advantage of it. 2022 when the market goes down what are the opportunities that we have with Roth conversions, with moving money over with taking additional distributions, reallocating some things right? There’s always these opportunities, and yep, you’re right. We’re making lemonade out of lemons. You’re 100% right. But we want to take advantage of when there are opportunities in order to improve your life, improve your finances, and I always find it in the moment, we’re going to have a blank slate, we’re going like holy crap, it’s a blank sheet of paper. I don’t know what to do. But when we’re thinking about it and ahead of time, so easier to jot these things down. They Oh, that’s right. I said when the market was going to fall 20% I was going to be out Roth conversion. That’s probably still a good idea. And you should look at doing that. Hey, when the markets up, I shouldn’t be greedy. I should probably replenish some of my cash. That might be a great idea. Right. So what are some of these things that if you’re going to do it yourself, you’ve written down in advance? 


Christian Sakamoto  24:13

Agreed. Absolutely. I love it. 


Micah Shilanski  24:15

All right. Well, let’s get on to some action items, this podcast is all about action is all about moving forward with the future and what are things that you can do this week? So I’ll kick it off, Christian,  and I’ll say the number one thing is What is your written investment strategy? So so important,


Christian Sakamoto  24:33

Very important. What I say the next action item would be as we’re looking at every single year, when it comes to taxes when it comes to your portfolio. What are some of those opportunities that we’re seeing that we could then be taking advantage of? There’s always going to be those opportunities that come up for one particular year could be that the market is down like you had just mentioned. In other years, it could be while taxes are lower this year for me personally, right? Because Because I’m in this particular part of my life. So whatever those opportunities are, are you taking advantage of them and if not, can I add that as the action item to know what those particular sets of rules and benchmarks are to know what to do?


Micah Shilanski  25:19

I like it. I like it. Well, another one I’m going to do I don’t know if the our listeners know this, but I do enjoy reading. I like to read a lot keep on top of things originally were 15 books a year and one of the ones that don’t have a read read list every few years is a slightly thick one. It is stocks for the long run by Jeremy Siegel. This is the sixth edition that I have but it is a fantastic book that really helps us understand how the market moves now it’s a thick reading. So if you don’t like reading about investments maybe I’ll start a book for you. But he really breaks down a lot of things. And it’s like, Well, why do we need to have this long term philosophy with stocks? Why do we need to be thinking about the long term and he breaks down all the facts behind it. So it’s a great read. If you’re looking for something to cure your insomnia, maybe this will help but it’s something that if you’re wanting to do the investments on your own, make sure you pick that one up, make sure you understand how stocks for the long run works. Well. Perfect. Well, Christian, it’s always a pleasure having you on the podcast. Thank you so much. And until next time to our audience. Happy planning.

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