More Than Enough with Mike Piper - WCI Podcast #375

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.

This is White Coat Investor podcast number 375. More than enough with Mike Piper. Do you dread doing your notes every day? Do you feel like you can never get ahead charting? If you're shaking your head yes, keep listening. Freed AI is a medical scribe on a mission to free clinicians everywhere. Freed AI listens, transcribes and writes medical documentation for you. Written in your style and ready. The moment the visit is over, all you have to do is give it to your patient. Just imagine leaving the office at the same time as your last patient. Freed is HIPAA compliant, takes less than 30 seconds to learn, is trusted by over 7,000 clinicians. Get back to doing what you love, helping your patients and let freed AI do the rest. Regain hours each day with the AI scribe that loves clinicians the most. Use code WCI50 to get $50 off your first month of free. Go to whitecoatinvestor.com free. That's F R E E D. All right, our quote of the day today comes from Sheryl Sandberg who said, don't wait for opportunity, create it. Make your own future. I love that. And so many of you are out there making your own futures, both financially and professionally. A lot of times that involves sacrifice and it involves putting other people ahead of you. And so thank you for doing that. If nobody told you thanks today, let me be the first. Don't forget. In fact, I don't know if we've mentioned this on the podcast yet. This might be the first time we're mentioning it. I'm recording podcasts and not exactly chronological order here, so this might be the first time you're hearing this, but we're trying to win the People's Choice Award for the best business and or best educational podcast of the year. We need your help. We need you to help us reach more doctors and spread financial literacy. It's a great and a free way to give back and support WCI. All you have to do is go to whitecoatinvestor.com vote and nominate the WCI podcast. The more nominations we get, the more people we reach and the higher likelihood that we win. The nomination period goes through July 31st, but we appreciate you nominating us and ASAP. I don't think I'm allowed to tell you to vote early and often, but I'm not sure they're tracking. So we appreciate all you can do. And actually, the honest truth is I don't really care if we win this award or not, but I know that winning it will help to spread this message of financial literacy to others. Publicity for the podcast means helping more people, and that's the real reason why we're going through the trouble to do this again. Whitecoatinvestor.com vote and help us out there. We have a great repeat guest on the podcast today. We've got Mike Piper today, as you saw in the title, let's get into business because we got some awesome stuff to talk about today. All right, we've got a special guest on the White Coat Investor podcast today. I'm here with Mike Piper. If you don't know who Mike Piper is, I'm very sorry. He has written a wonderful series of books. All of them are about 100 pages and relatively small books that you can get through on all kinds of different subjects. He's also the founder of the Oblivious Investor. He was a major part of the inspiration to start White Coat Investor back in 2011. He's been a WC icon speaker several times and he's also serves on the board of the Vocal Center. So, Mike, it's great to have you back on the podcast.

Thank you. I'm happy to be here.

You know, there's some sad news recently, Mike. One of the things that, that I read recently was a post that Jonathan Clements published recently talking about his recent surprise diagnosis of terminal cancer. He's only 61 years old and was recently diagnosed, you know, went in for some, you know, dizziness, was presenting symptom and basically found brain metastases of a lung cancer. And his post, as you might expect from Jonathan, talked about what that means to him both personally and financially. Now, you and Jonathan are both speakers at our original WC icon back in Park City in 2018. And so I know you know him well, but I'm curious your thoughts about Jonathan's work and what it's meant to you and into the online personal finance community.

Well, to the online personal finance community, I think it's clear if you just, if you look at that article itself, you'll see hundreds of comments. If you look on the Bogleheads discussion about it, same thing all over social media, everybody just sharing how much the impact that his work has had on them in terms of just great information over so many years. The actual direct financial impact, to me, there's at least the way I feel there's like a different Set of feelings. Or I guess I'll say an additional set of feelings. So this is as somebody whose career has been largely about writing. So me, that is, Jonathan is a role model for me, a direct, personal role model. One of the people whose work has been just a level headed, clear voice consistently for literally decades now. When so much of the other stuff that there is out there in this space, in this, the financial world is just anything but level headed and anything but clear. And to have somebody like Jonathan who you can rely on has meant a lot.

There's a lot of people that I'm jealous of. Right. I mean, I'm jealous of you, Mike, because you always have all these details that I don't know. Right. I mean, a lot of you out there on this podcast, when you have a complicated question, you send me an email and, and hopefully I can answer your questions. Well, guess where I go when I can't answer a question? I go to Mike. But Jonathan as well as Morgan Housel are two people that I am jealous of their ability to write. They are just good writers.

Yes.

And every time I read their stuff I'm like, ah, I wish I wrote that.

Yep, exactly that feeling.

Just really talented. And he's just as fun to listen to him speak. Those of you who were in Park City, those of you who have watched those videos, you know, we've used them from time to time in some of our online courses. He's just great to listen to. He's got a little bit of an accent. I think he spent some time in the UK for part of his life and so he's got a little bit of an English accent. He's awesome to listen to, awesome to read. I sent him an email as soon as I read his article and it's just wonderful. Right. Even now, is he sitting there wallowing in pity? No. He's like, how many people can I help with the time I have left? What a great person.

Yeah, exactly.

You know, one of the things he mentioned in his blog post was about how he wasn't going to need very much of that money that he spent a lifetime accumulating through frugal living and sound financial decisions. Now, obviously his wife Elaine is probably going to need a lot more of it than he will. But from a financial planning perspective, what should be the implications of this sort of sheer random bad luck on our own financial planning processes?

I think there's two ways to kind of look at that question. Question number one is how should we account for the possibility of these situations and the Answers to that are things like life insurance when there's people who are financially dependent on you, disability insurance when you yourself or anybody else is still dependent on your income from work, estate planning and so on. Those are the answers there. The other answer, I think, of course, is to find balance with regard to spending because so much of personal finance is about delaying gratification, but there's a degree or there's a point at which it's too much, you're delaying gratification too much. Right. The point isn't completely to sacrifice your current well being solely to protect your future self. There's a balance there. And then there's a completely separate question which is what are the financial planning implications when you actually get that news, what do you do then? And that's a whole different set of things because by that point you hope you already had the appropriate insurance policies in place and so on. But then it becomes about the immediate action, steps that you can take to prepare your loved ones who are, you know, going, going to still be here after you're gone. And that looks like things like getting all of your information together to make sure they know where all of your accounts are, how to sign into them, just all, all of that, just nuts and bolts, you know, if you're the one who's been, you know, steering the financial ship for the household for many years, you need to leave them the instruction manual so that they know how to do it. And so that's going to look different from one household to another, but those are the things to be working on.

Yeah. It's interesting Jonathan mentioned that he was spending a lot of time thinking about that, the transition, and he admitted being a finance guy, like so many of us are, that he's probably overdoing it. But the first point you make reminds me of a book that came out a few years ago. I think it was 2020 by Bill Perkins, die with zero, getting all you can from your money and your life. Have you read that book yet, Mike?

No, I haven't, but I've read Die, Broke, Spent until the end. Other. It's not a. I don't mean to make this a discredit to the book, having not read it, but the idea of trying to use up, you know, get maximal utility from your assets during your lifetime is not a new concept. That's a fundamental piece of economics, really.

Yeah. One of the wonderful things that he talks about in that book is seasons of your life. There are times when you can do certain things and can't do other Things that's been very inspiring to me. And one of the reasons that we went and did Half Dome last year is I'm like, I may not be able to do this in my 50s or 60s. I got to go get it done now.

Yeah, absolutely.

And I like that idea that if you don't read to your kids when they're 8 years old, they're not going to be interested in you reading books to them at 16. And so you've got to put the right activities into the right seasons of your life. And I love that piece of the book. Book. But you know, his be. His audience is a lot of people like white coat investors, you know, people not people that are broke, but people that are going to end up with lots of money and are probably sacrificing too much. And he's trying to encourage them to, you know, spend some of that money along the way in ways that are going to make you happier.

Yeah, absolutely. I remember reading your article about this, that the seasons concept. I think it's great.

Yeah. Now you've been serving on the board for the John C. Bogle Center. Is it the center for Financial Literacy? Is that with the full time title of it is.

Yeah, the John C. Bogle center for Financial Literacy is the full name for several years now.

What do you like best about it and what are the greatest hassles of that volunteer position?

What I like best about it is, I guess, two separate things. Number one is obviously this is just a thing that I care about. Right. We're doing work that I care about. That's why I chose this line of work for myself. The other thing is it's just kind of fun to get to work and interact with the people who to me are my career heroes and so on. Christine Benz, Bill Bernstein and so on. That's been really neat to get to work very closely with them. Hassles. I wouldn't really describe too much as a hassle. I would say the biggest thing, if anything, is simply the nature of an organization where everybody is a volunteer. There's nobody whose full time job it is or Even half time, 20 hours a week job it is to run this thing. So we're all trying to do the things that need to be done in addition to our regular jobs and family life and so on and so forth. And so that's an ongoing challenge.

If it were a business, you know, there is no way that business would choose to pay Christine Benz or Mike Piper to do some of the tasks that you guys do, which would be you know, some would be considered low level tasks in a, in a business that you'd give to an entry level person. And yet it's you guys taking care of it a lot of times. So let me thank you from the rest of us bogleheads that benefit from your work for all the sacrifice and time that you put into that, you know, running a great conference and the other activities of the center. So thank you, Mike, for doing that.

You're welcome.

All right, let's talk a little bit about Social Security. You know, you've written books about Social Security, you've developed open Social Security online program. People look to you as an expert on Social Security. What are the biggest mistakes and misconceptions out there about Social Security?

Biggest misconception to me, and I know you've written about this repeatedly also, and every expert in the field basically talks about this, is the idea that Social Security is going to disappear when it's not. That's just a fundamental misunderstanding of the situation. People hear Social Security is running out of money, Social Security is going broke, et cetera. And what's being discussed there is the trust fund. There's a Social Security trust fund that has built up money over a period of many years because for many years the program took in more money every year than it spent, so accumulated a pile of assets. And now because, you know, baby boomers are largely collecting Social Security and no longer paying into it, now the program's paying out more than it's taking in. And so that trust fund is being depleted and it is projected to be depleted completely in 10ish years. The projections vary a little bit from one year to the next when they redo the math. But that doesn't mean the program goes away. Right, because there's still tax revenue that comes in every single year. All the Social Security tax that we pay or self employment tax that self employed people pay, and that's projected to pay for about three quarters of the promised benefits. So even if Congress did absolutely nothing, which you know, hopefully is not the outcome here, but even if absolutely nothing were done, the program would still be able to pay about three quarters of the promised benefits. And of course that's a significant cut. You know, if that's actually what happened, anybody who's living on that income would certainly notice it. But there's a world of difference between a 25% reduction and the program disappearing.

Yeah, it's interesting. I don't know if people are trying to score political points by pointing that out or if our elected officials are Literally that ignorant about how the program works. But I hear that a lot. It's running out of money, it's bankrupt and it's a terrible program. And yet I can't think of a more popular government program than Social Security. I mean, it's basically political suicide to advocate for getting rid of it.

Yeah, another, another thing you'll see sometimes is people. This is less frequent, but it's another political talking point that you'll hear some people use is that, oh, the Social Security trust fund isn't real to begin with. It's just filled with IOUs, which is true. It's filled with IOUs. They're IOUs that pay interest and they're backed by the federal government. And there's a name for that. We call them treasury bonds. They're the safest financial asset that there is. So, yes, that's not a reason you need to be afraid.

There have been put out four, five, six different ways that Social Security can be fixed. Whether that might be increasing Social Security taxes, increasing the income wage limit on what, what's paid on Social Security, making Social Security benefits less generous, or not having them indexed as well to inflation, or raising the benefit ages. Of all these fixes, you know, from a non political perspective, which ones do you think make most sense?

I would have a hard time seeing a world in which it's anything other than all of the above. You know, a little bit of everything, frankly, is what, what seems to make most sense to me doing it entirely with one of those, you know, adjusting one of those levers far enough to reach the goal means adjusting that lever a pretty good way. And so I think it's going to be a sum of everything solution.

Yeah, I would expect to see some sort of combination. I mean, I expect something's going to be done in the next 10 years at the last minute, probably when they're forced to do it and. But I think it is going to be more than one thing and everyone's going to complain about whatever it is that's going to hurt them. You know, if you're earning, you're going to complain about having to pay in more of your wages or having a higher tax rate if you're receiving. You're going to complain about, you know, benefits being cut or the age going up or whatever. But you know, when everybody's unhappy means you probably did it right.

Yep. Yeah, this is definitely going to be a compromise sort of thing, or I guess I shouldn't say definitely because Congress has a way of surprising me. But that Definitely seems like the outcome that I would bet on.

Yeah, I've definitely been surprised in a lot of ways by some of the things the government's done. But any other mistakes or misconceptions out there about Social Security you think are worth talking about?

Sure. The biggest mistake that I see in terms of dollar amount. So like, the most critically bad mistake is for surviving spouses. I see this a lot. So there was. There used to be a strategy for married couples where upon reaching full retirement age, one person could collect a spousal benefit while they let their own retirement benefit grow until 70. And that got eliminated several years ago. But a lot of people don't know that an analogous strategy still exists for surviving spouses. A surviving spouse can start their survivors benefit at age 60 while they let their own retirement benefit grow until 70. So they can collect 10 years up to 10 years anyway, depending on the age at which they become a surviving spouse of that one benefit while they let the other keep growing. Or they can start their retirement benefit as early as possible at 62. The Survivor Benefit backs out at full retirement age. And so many people, I see this all the time, they just didn't know, so they didn't file for that benefit. And no one's gonna call you and tell you that you should do it. And so it's often literally tens of thousands of dollars per year for several years. And that's a big mistake. And there's no upside. You don't get anything in exchange. It's just money that you missed out on. And I still see that happening all the time, unfortunately.

And there's no way to go back and get it?

Not usually. Sometimes there's a six month retroactive application possibility. But if we're talking several years of missed benefits, you don't get the whole amount back.

And it can go either way. You can let the survivor benefit grow or you can let your own benefit grow. It's kind of your choice, right?

Exactly. And usually it makes sense to figure out which of the two benefits would become largest if you let it max out. And go ahead and let that one max out and file for the other one as early as you can is usually the rough draft idea.

Now you, like me, have generally promoted the idea of delaying Social Security most of the time for most people. Right. Age 70 for most people is how the numbers tend to work out. Yet when you look at the statistics, 27% of people take it as soon as they can get it at age 62, and less than 20% take it at age 67 or later. Right now, it's basically the best deal out there on a pension or a single premium immediate annuity that one can buy. Why are so many people making suboptimal decisions about when they take Social Security?

I think first I would step back and say that it's not necessarily a suboptimal decision, especially for anybody who is in the circumstances of simply needing the money right now. Well, then they need the money right now. And so that's an unfortunately large portion of people who. They didn't mean to retire necessarily, but maybe they're doing some sort of manual labor and they just can't keep doing it. So they're already retired by the time they hit 62, and the assets are limited. And so we're just looking at a we need the money situation. So it's not a mistake for some people. But I will also broadly agree with you that, yes, far too many people file for their Social Security benefit. One is a lot of people have weird ideas about their life expectancy. You'll often, like, see people on Boglehead's forum or, you know, anywhere, anytime there's a discussion about Social Security and you've got some knowledgeable person writing an article about it. And then if you look at the comments, they're probably gonna live past age 80. And so it's just. The funny thing, I think people just literally don't earlier than they probably should is they just get the risk point of view backwards. And what I mean by that is that you'll often hear people say things like they feel like, what if I decide to wait and then I die early and I won't have gotten anything out of the system? And they feel like that's the risky situation. That's the thing they want to avoid. But in retirement planning, the risky situation is actually not the case in which you die early. Right. If you retire at a given age and then die within the next few years, it's really unlikely that you ran out of money during your retirement. The scary scenarios financially are the ones where you retire at 60 and live to 100 and you had to pay for 40 years of living expenses without any earned income. That's. That's the financially scary scenario. And it's in those scenarios that delaying Social Security works out well. So delaying Social Security, it's important to understand that reduces your financial risk. And a lot of people just simply have that. That idea completely backwards in their head.

It's interesting to think of it that way. You know, sometimes I run into someone who feels like, oh no, you got to take it at 62 because I'm going to out invest Social Security. I'm going to have such good returns. I want to get the money as soon as I can so I can start investing it. And I'll be, I'll be ahead at age 70 by doing that. What's your response to that argument?

That there's a small subset of people for whom that makes sense. And specifically that makes sense for the people whose portfolio is already 100% stocks and they're looking to crank the risk level up even further. If your portfolio has any fixed income in it, then what it actually makes sense to do is spend down that fixed income to delay Social Security. Leave your stock holdings alone, but spend down the fixed income. So we're swapping your bonds for more Social Security so you still have just as much stocks as you had before and they're still going to earn the same returns that they had before, but you now have less bonds and more Social Security. And that is generally an advantageous trade off. And the only time that the stocks to Social Security comparison make sense is when there simply isn't any fixed income available. There isn't any to spend down.

Even then, you've still got to adjust for risk. Right. I mean, delays is guaranteed and it's not a bad return. No.

Yeah.

The expectations are possible to out invest it. Yes. But once you adjust for risk, it just seems really hard for me to justify that sort of a decision.

Right. And especially the fact that the asset that you're getting when you delay Social Security, there's nothing else like that that you can buy. You can't buy an inflation adjusted lifetime annuity anymore. You used to be able to, But I think 2019 was the year that the last insurance company offering those stopped offering them. So this is the only way to get this sort of thing. Income that lasts your lifetime and it's adjusted for inflation. This is the only opportunity that you have to buy it. For most people you might. There's a chance that you also have, you know, a defined benefit pension that works similarly, but that's a limited group of people.

Yeah. Let's change subjects now from Social Security and talk a little bit about your latest book. At least I think it's still your latest book. You haven't written one in the last few months, have you? We're talking about more than enough here.

That's. Yeah, that's still my latest.

Yeah. It's subtitled A Brief Guide to the questions that Arise after realizing you have more than you need to. And Katie and I are six years out from fi now and still working. So this kind of financial book is exactly the kind we're likely to read. But I'm curious what your motivation was for writing it.

The motivation for that book was, frankly, it took me a long time of working in this retirement planning field before I realized that this thing I kept seeing is not a fluke. It's actually the expected outcome where a person at some point has what they would describe as enough. They have enough to retire. And then 10 years later, or a little bit, a little bit into retirement, they realize they no longer have enough. They clearly have more than enough. They're not going to spend on their assets during their lifetime. And the reason that this is the expected outcome is that all of the retirement planning that we do, everything you read talks about a safe spending rate. Maybe it's 4%, maybe it's 3%. There's a ton of argument about exactly the right number. But if we ignore that for the moment and just recognize that it's probably a pretty low percentage of the portfolio, the reason it has to be a low percentage of the portfolio is that you have to basically prepare yourself to be unlucky. Right? You might have bad investment returns. You might just like we talked about a little bit ago, you might live to a very advanced age. You might have huge medical costs or long term care costs that last for many years. You have to spend at a rate that's low enough that you'll still be okay if all of those things happen, if all of those things go wrong. But for most people, all of those things don't go wrong, you probably don't get super unlucky in several different ways. And so given that when you have what was enough to cover all of those risks and then those risks don't show up, it's just naturally, eventually more than enough later. And so normal people run into that circumstance and there isn't much information about what to do when you realize that that's the situation you're in.

Well, now there's at least some information. You just got to pick up Mike's book More Than Enough. He'll teach you all about it. You know, you mentioned in the book and you've mentioned in blog posts for years that there's no perfect retirement spending strategy. It kind of reminds me of what you've taught about the fact that there's no perfect portfolio or perfect asset allocation. How can somebody identify a good or reasonable or good enough retirement spending Strategy.

Sure. So with retirement spending strategies, there's basically three decisions that we have to make. Number one is the how much to spend to begin with? Number two is how are we going to adjust that amount over time? And number three is the tax side of things. So specifically, which dollars are we going to spend every year? The tax side of things is complicated, I'll say. But it's. There is a right answer. Like, it's, It's. Once you've done the research, you can understand that this is, this is what I should do. There's not a lot of room for opinion there, I'll say. We could save that discussion for another time. But the, the other two questions, how much should I spend and how should I adjust that? There isn't a right answer. Right. There's a range that's reasonable. So you always hear the safer withdrawal rate discussions. And 4% is obviously the classic number. Some people say that's too high. Some people say you can get away with something that's higher. But somewhere in that ballpark makes sense for any portion of the portfolio that you want to last for three decades or more. And I add that caveat because the thing that often makes a lot of sense is to take a chunk of the portfolio and kind of carve it out and put it in something like a CD ladder or a TIPS ladder and intentionally spend it all the way to zero in the early years. And basically that's. People call it a Social Security bridge. The idea is you're spending down this money to allow you to delay Social Security safely. We're not planning on that part of the portfolio lasting for 30 years. We're intentionally spending it to zero. So of course it's going to have a much higher spending rate, maybe 20% per year for five years. But for the part of the portfolio that's supposed to last your whole life, we need a low percentage. And that is the sort of thing where one person's opinion is going to be different than another person's, and that's okay. And then the question of how to adjust the spending amount over time is also the sort of thing where two reasonable people will just come to a different decision. Because you can take the classic 4% rule strategy where you just bump up the dollar amount every year in keeping with inflation, regardless of what the portfolio is doing. Or at the other end of the spectrum, you can take the 4% every year where you do 4% of the portfolio. So if the portfolio went up a whole bunch last year, you're spending a bunch More this year the portfolio went down. We're spending less. When you adjust spending based on the portfolio's performance, that has a very real advantage of reducing the likelihood that you'll outspend your savings during your lifetime because you're cutting spending anytime the portfolio does poorly. And so that's making things safer. But of course that's hard. Cutting spending by 20% or 30% in a given year if the market falls by half, that's hard for most people. And so if your household could do that and you're okay with signing up for that possibility, then a plan like that can make sense for a lot of people. A plan like that isn't going to make sense. And so because you don't have that flexibility, you're not willing to cut spending if things go poorly. Well, then you have to start with a lower spending rate to begin with. And so there's a range of decisions here that are reasonable.

What about those people that say, I'm not touching the principal, I'm only going to spend the income. Do you think that's reasonable?

If it is, it's only reasonable by coincidence because, you know, maybe the, the yield on your bonds and the yield on your dividends happens to work out to a spending rate that's reasonable. That's not always the case. And I mean, really not a fan of that strategy, frankly, because it's the to, it's the total return that matters. You can spend increases in, you know, stock prices, you can sell your stocks. That's the thing that you have the choice of doing. And similarly, the idea of just spending income, then that would lead a person to say, oh gosh, I'm just going to buy the highest dividend yielding stocks and the highest yielding bonds and then I'll get to spend a bunch more. Well, what you just did is increase the risk of your portfolio by buying the riskiest bonds that there are and increase your spending rate at the same time. That's probably not a great strategy. So, yeah, the idea of basing spending on the actual income from the portfolio is usually not a great idea, in my opinion.

Okay, so this stuff doesn't show up, right? You don't get terrible returns. You don't live forever. You don't have these terrible, massive medical expenses not covered by insurance. You get all this money that's left over and you have to figure out where it's going to go. It seems like the default for people is just splitting it up equally between the kids. Can you talk a little bit about the benefits and the problems with that approach.

Yeah, that is overwhelmingly the default. Right. You open an IRA somewhere, you fill out the beneficiary designation form. If you've got three kids, most people do one third to each kid. That's straightforward. If you don't want to put a lot of deep thought into it at that moment, that's almost certainly the answer. You leave it to your spouse first, usually. And then the contingent beneficiaries are your kids anyway, if you're married and you have kids. But the, the advantage of doing that is simply that it's easy, straightforward, it's easy to understand the disadvantage. I would simply say that it's not necessarily in keeping with what you actually want. If you give yourself time to think about it, and if you take all the time to reflect upon the decision and that is what you want to do, great, do that. But I see this a lot where people initially selected that, and then the more they think about it, the more they realize, you know, there is actually this charity or that charity or maybe this other family member or, or somebody or some entity to whom they would like to leave some portion of their assets. I see that a lot. Once people take a little bit of time to think about it. And if you are going to leave some portion of your assets to charity, well, then there's a very specific subset of your assets that it makes sense to leave charity. And that's the tax deferred assets. Because if you leave a traditional IRA to a human being, they're going to have to pay tax on it. If you leave a traditional IRA to a nonprofit, they do not have to pay tax on it. And so if you're going to leave some assets to a nonprofit, those are the best assets to leave to a nonprofit. And so it makes sense to do a little bit of this planning. Just back up and take some time to think about it. Do you want to leave some assets to charity and then if so, make a careful decision as to which ones. And similarly, you know, if you talk to your kids and it turns out they would probably give a portion of their inheritance from you to charity, well then it makes sense to just cut out that step and just leave that portion to that charity anyway. Because again, if you leave it to your kids, they're going to have to pay tax on it and they can only then donate the amount that's left. Whereas you could have instead just directly left that portion to whatever the charity is, and then the charity would get more money. So it just, it's worth taking some time to reflect on it on your own with your partner, talk about it with your kids and figure out what everybody really wants. Because depending on the answers to that, it might make sense to do something different than just splitting it up evenly among the kids.

What are your thoughts about not splitting it evenly among the kids? Given more to, to a kid whose behavior you like better, or giving more to a kid who wasn't as financially successful or are those sorts of approaches?

Yeah, that's. There's a lot of cases where that makes sense. This is again another thing where two reasonable people will come to very different conclusions about what makes sense. In one of my family entities, I guess, let's say one of the siblings is disabled. And so when the parent of that sibling died, they left a larger portion to that disabled sibling and all of the other siblings totally understood. I mean, no one was angry about that. It just, it made more sense. That person needed more help. And so that's one obvious case. Another case could simply be, I mean, there's a bunch of reasons. One thing that some people will do is, oh, I gave some financial assistance during my lifetime to child A and I didn't give any financial assistance or not as much because it's hard to get through parenthood without giving any financial assistance. But you gave less, let's say, to child B and C. And so you adjust the inheritance in some way to account for that or not. Whatever you want to do can make sense. Now, of course, it's also worth noting that what feels fair to you might not be what feels fair to all of the kids. So it can be hard. But yeah, equally to every child is not always the right decision.

It's interesting that we've noticed that even within our own family, sometimes, for example, one child has more children than the other child and you've got to, as a grandparent, decide, are you going to split it evenly between your kids or evenly between your grandkids? Both are fair, right?

Absolutely.

Bears in the eye of the beholder.

Yeah, right.

You're a big advocate though, for talking to them beforehand. You know about their inheritance, so it's not a surprise when the will is open. Why, when and how do you talk to your children about their inheritance?

Why? The answer to that question to me is simply that these are people you love, otherwise you wouldn't be leaving them any assets, presumably. And as people you love, you surely care about their well being and their well being is improved by having this information. That's the long and short of it. They can plan better if they have this information, even if you're not giving them this money right now, just giving them better information so they can do their own personal planning more effectively improves their well being. And so to me, that's the reason, that's why you talk about it. As far as when to talk about it, I would generally say as soon as you think they're old enough, mature enough to handle the information, you know, it doesn't necessarily make sense with your, you know, 6, 8 and 10 year old to show them the balance sheet and every single piece of information in there. Or maybe it does, depending on the kids in question, you know, so it's, that's a very personal thing, of course, because different people have different levels of maturity and you know, that's entirely up to the family.

And, and how do you have that conversation?

I think there's a lot of ways to do it. Again, you know your own children best, so make any adjustments that you feel like are needed based on their personalities. But in my opinion, an easy way to launch the conversation is simply to refer to somebody else. I don't know about you, but a thing that I think exists in many families is there's some family unit where the inheritance did not go well, by which I mean some fights were started. And if there is someone like that in the extended family, you can reference that, you could say, hey, remember when, you know, uncle so and so died and then all of your cousins ended up, you know, now these two people don't speak or whatever. I don't want that to happen with you and your siblings. So that's why I want to talk about this now. So that's a way to bring it up. Or if you just need some other way to bring it up, you could just mention, you know, some other celebrity who just said there's always some celebrity who died. And then the state planning attorneys are talking about whatever they can get out of that. Just there's easy ways to bring it up. And then in my opinion, again, the whole idea here is that their well being is improved by having information. So once you feel that they are mature enough to handle the information, I think full disclosure is entirely reasonable. Just simply say that this is what our portfolio looks like, this is our balance sheet. And of course we don't know how long we'll live or what investment returns we'll get and what it will look like when we ultimately pass away. But this is where things stand right now and you are currently slated to get whatever percentage of it and it'll be whatever it turns out to be, but that's full disclosure. You've told them everything that you can tell them. And what I have heard from people who have done that is that simply the act of doing it feels good. It feels good to just be just out there with the information, just let them know. And similarly, overwhelmingly, what I hear from the kids is just this huge relief because, you know, sometimes parents think, oh gosh, if I, you know, give this information to my kids, then, you know, suddenly they're going to be counting on an inheritance. What I think they're often missing there is that, you know, if you've been financially successful in your life, your kids are probably already expecting an inheritance of some sort. Even if you never talk about it. They just have no idea what number to be using. And so they're already assuming that there's going to be one unless you've told them otherwise. And so it's not like that's going to, to change by talking about it now. They just have the information and can plan better.

Yeah. What if they don't want to meet with you? What if they don't want to talk about it? I remember reading a forum post to somebody that was trying to call a family meeting, couldn't get his kids all together.

I remember reading that one too. That's the only time I've ever heard of that happening. Honestly, someone who said, hey, I want to talk about the estate plan and your potential inheritances and the kids just blow them off, that's. I haven't heard of that happening before. I don't have a great answer there.

My recollection of that situation is the parent was trying to pass on some complicated portfolio of rental properties or something. There was a lot of work coming with inheritance too, and maybe that I suspect that may have contributed to the issue. The truth is, if you're a finance person, if you're into this stuff, your kids are almost surely less into it than you are. And you ought to think about, you know, keeping your inheritance as simple as you possibly can for them, or at least making it something that can be rapidly simplified after your death. You know, thanks to a step up in basis of death. There's a lot of people's kids who cannot handle a portfolio of 18 rental properties given to them. You know, there's going to be a lot of loss when, when that sort of a, an inheritance is given just because they're not interested in managing it, don't have the skills to manage it, and they're going to end up fire selling the properties.

Yeah, absolutely. You shouldn't necessarily assume. Plan on managing the same portfolio that you've been managing.

Absolutely. Let's talk about spending. It's hard for lots of wealthy people to spend. I've written lots of blog posts over the years. Probably for the last 10 years, I've been trying to teach myself how to spend better. In your book, you talked about three approaches. Intentional spending, giving, and actually therapy. Can you talk about some success stories and maybe even some failures and people dealing with this issue?

Yeah. I'm always a little bit leery to give actual personal stories because I also know that the people who shared those stories with me listen to podcasts that I'm on. Um, and I don't usually ask for permission. And so even if I leave out names, people still feel a little bit. I know from past experience that people can sometimes feel a little bit weird when they hear their story told. So I'm going to give some observations of things that I see. What I see a lot is people who recognize that they have some emotional challenge with spending, but they don't necessarily even know why. And sometimes it's simply because they don't know. They truly don't know whether they can afford to bump up their spending somewhat. And in cases like that, I think it makes a lot of sense to meet with a financial professional, have them do the math for you. And I could tell you from, you know, lots of experiences with clients. I've had clients in tears of relief when they got the news, like, yes, you definitely can afford to retire, or, yeah, it's totally fine to bump up your spending by 20% or whatever, because they wanted to and were just truly scared. So meeting with a financial professional can make a lot of sense if you truly don't know whether you can increase the spending. I also see lots of people who do know. They're entirely aware from an intellectual point of view that, yep, I can afford to bump up the spending somewhat, but it still is hard. And in that case, I would ask, well, you know, you don't have to bump up the spending. Like, are there things you actually wish you were spending on, but you can't bring yourself to do it or not, because if not, well, then you don't have to bump up the spending. That's fine. You could just give more away donations or giving gifts to kids or other loved ones now or later. Any of those is fine. You don't have to bump up your spending. But for people who recognize that financially they could want to spend more. So both of those conditions, but still can't bring themselves to do it. And that's a surprisingly large group of people. In that case. I think it's worth trying to dig into where these feelings are coming from. What's making it hard? Because for some people, it could be that growing up, maybe their household finances were super precarious. Mom and dad had a really hard time paying all the bills every month, and that was apparent. Or maybe it was your early adulthood Financial situation was super precarious, and that made a huge impact on you. And so you develop this. You're in a situation, let's say, where you realize that you couldn't pay for an emergency expense, but then eventually you had a small emergency fund, you had a 1, 2, $3,000 emergency fund, and you realized you were safer. That pool, that pile of money, made you safer, and you recognize that. And then that $3,000 emergency fund became a $20,000 emergency fund and some savings in a Roth IRA and some savings in a 401, and you felt even safer because you were safer. But eventually, what can happen is that this idea that bigger pile of money equals safer equals security, equals like, that can be a thing that just gets linked in your head, but that's an emotional link. And eventually, financially, that might not necessarily be the case anymore. You might very well be in a place where the financial security is there. You can spend down some assets. But the only problem is that emotionally and mentally, those two things are linked. The pile of money is the feeling of security, and spending from it is directly attacking that feeling of security. And so that's really hard to do. But in a case like that.

The.

Thing that's going on here, it's not something that's going on in the portfolio. Right? It's not something going on in your balance sheet. It's something that's going on inside you. And so the solution is probably not a change to the balance sheet or a change to the portfolio. Right. The thing that's going on is inside you. So the solution is probably something about addressing what's going on inside you. And so that's why I feel like a broken record sometimes, because Boba's always asked me about this after I wrote about it. Yes, therapy. Because what you're experiencing is anxiety. And, you know, this is probably not a perfect analogy, but, you know, anxiety is to therapists what strep throat is to pediatricians. Like, yes, they can help you with that. That's what they deal with all the time. Right? And so I think that's A tool that not enough people are taking advantage of in a financial context. I'll also add, there's another thing that I've. I'm sure I had seen a bunch of cases of it, but I only more recently started to realize that this is what's going on, is that sometimes it's actually like a mortality fear because for so many years we save and we save and we save. Right? And saving essentially means denying yourself, denying your current self some spending, right? There's something that you wish you could spend money on. You would like to do this, but you're going to choose not to. To take care of your future self, right? And you do that and you do that and you do that. You save and you save and you save it. I'll say. But it's to take care of future you. And eventually the time comes where you know, the future is. Here you are now. That future you, that's you now, that's you today. And to crank up the spending and start not just crank up the spending there is a right answer. Like it's, it's. Once you've done the research, you can understand that this is, this is what I should do. But usually it's specifically starting to spend down principle. That's. There's not a lot of room for opinion there. I'll say we could save that discussion for another time. But the, the other two questions, how much should I spend and how should I adjust that there isn't a right answer, right. The thing that triggers it for so many people is to acknowledge that fact that now's the time, you know, we're there, right? Like, and that's to admit that, you know, it's the next stage of your life. And I think that for a lot of people that itself is hardened and that's, there's a range that's reasonable. So you always hear the safer withdrawal rate discussions. And 4% is obviously the classic number. Some people say that's too high. Some people say you can get away with something that's higher. What's actually going on. And again, that's, that's a thing that's going on inside you. You know, a change to the asset allocation is not the solution. But somewhere in that ballpark makes sense for any portion of the portfolio that you want to last for solution to this, this situation.

You know, that's great advice, Mike, and I appreciate the therapy for me personally, because that's exactly it, right? It is in you. It's not the portfolio. So I think you're absolutely Right there. You know, there are dozens of questions I'd love to chat with you about, but obviously, you know, a podcast should only really be a certain length. So let's limit just one or two more here. Let's talk for a minute about donor advised funds. And I've become a bigger and bigger fan of donor advised funds or DAFs over the years. Do you think Congress is going to nerf them in some way in the future? Such as requiring a 5% distribution each year from them or limiting how much time the assets can sit in a daf?

This is another one three decades or more. And I add that caveat because the thing that often makes a lot of sense is to take a chunk of the portfolio and carve it out and put it in something like a CD ladder or a TIPS ladder and intentionally spend it all the way to zero in the early years. And basically that's people call it a Social Security bridge. The idea is you're spending down this money to allow you to delay just like Social Security, where, gosh, I don't know. I really don't know. That would not be Social Security safely. It would not surprise me if somebody additional limitations were put in place because certainly, you know, the whole idea is that this is money that's ultimately going to a charity and donor advised funds are from a planning on that part of the portfolio lasting for 30 years. We're intentionally spending it to zero tax perspective. They are charities. Clearly the point of the Donor Advice Fund ultimately is to just distribute all of the money. Like the Donor Advice Fund itself is not out, you know, feeding the homeless or do it. So of course it's going to have a much higher spending rate, maybe 20% doing anything of that nature. And so it would not surprise me if that were a thing that happens at some point. Not like getting rid of the idea per year for five years, but for the part of the portfolio that's supposed to last your whole life. We need a low percentage. And that is the sort of thing where donor advised funds at all. But just like you said, saying, okay, let's make sure that the money isn't in there indefinitely because the ultimate one person's opinion is going to be different than another person's. And that's okay. The point is that we want to encourage people to donate to charity because of the things that charities do. And the things that charities do is, is spend the money in ways that are valuable to and then the question of how to adjust the spending amount over time is also the sort of Thing where society not hold a portfolio of assets. So just let it sit there forever.

Sit there and grow and grow and grow. It's interesting because a private charitable foundation is required to make a distribution every year. And for what?

Two reasonable people will just come to a different decision because you can take the.

Whatever reason when Dafts were created, that rule was not put in place, which is a little bit surprising in retrospect.

To think about classic 4% rule strategy where you just bump up the dollar amount every year in keeping with inflation, regardless of what the portfolio is doing. Or at the other end of the spectrum, you can take the 4% every year where you do 4% of the portfolio. So if the portfolio went up a whole bunch last year, you're spending a bunch more this year. The portfolio went down.

And in fact, there's some other issues with private foundations that make them significantly less attractive even for people that have quite a bit of money they want to leave to charity compared to a daaf. To the point where lots of people just use a daaf.

Yeah. As they exist today, they're a great tool. They simplify things. They make it easier to donate appreciated stock. I know you're spending less and you've written about this also that if you want to donate to some small local nonprofit, they probably are not set up to take your shares of Vanguard Total Stock Market etf. They don't have a way to do that. So you just, you donate it to the donor advised fund. And then when you adjust spending based on the portfolio's performance, that has a very real advantage of reducing the likelihood that you'll outspace them the money. And they make things simple. So they have a lot of benefits.

Yeah, yeah, sure. As simple as come tax time. Right. You got one donation instead of 50.

To keep track of on your savings during your lifetime because you're cutting spending anytime the portfolio does poorly. And so that's making things safer. But absolutely.

My favorite feature is actually the anonymity of it. Right.

Yeah. Because they have mailing lists.

Yeah. No more charity porn in my mailbox. So I definitely appreciate that. All right, if they want to learn more about you, what is the best place to do that?

Just like you mentioned my blog, obliviousinvestor.com that's got the overwhelming majority of my writing. I've written several books just like you mentioned. And the OBA Social Security calculator is free. It's open source, so it's not a black box. You can dig in and see the math. If you're Interested, See how it's actually doing the math. Those are the places where they can find my work, basically.

Awesome. And you're going to be at the Bogleheads conference this fall again, of course, that's hard.

Cutting spending by 20% or 30% in a given year, if the market falls by half, that's hard for most people. And so if your household could do that and you're okay with signing up for that possibility, then a plan like that makes sense for a lot of people. A plan like that isn't going to make sense. Yes, absolutely.

All right, I'll see you there. I'm only going to be there the first day, but.

And so because you don't have that flexibility, you're not willing to.

It'll be great to see you again there in person. And Mike, as always, thank you for what you're doing. Thank you for coming on the podcast today.

Thank you.

All right. I hope you enjoyed that podcast. I always love having Mike on here. I love talking to Mike. Not only is he brilliant, but he's totally humble. But what I really appreciate about him, and you'll notice he talks slower than I do and thinks about every word that comes out of his mouth. I love the precision he has when he's talking about things, you know that he means every word that he says. And I appreciate all the work that he's done for the cut spending.

If things go poorly, well, then you have to start with a lower spending rate to begin with. And so there's a range of decisions here that are reasonable.

Personal finance and investing community in today's healthcare system, clinicians are overworked, underpaid and burdened with administrative tasks. Add this to taking care of their what about those people that say, I'm not touching the principal, I'm only going to spend the income. Do you think that's reasonable?

If it is, it's only reasonable. But by coincidence.

And it's not surprising that clinician burnout and shortages are at an all time high over the last year.

Because, you know, maybe the yield on your bond.

We've helped 9,000 plus clinicians save hours a day with our AI scribe that listens, transcribes and writes medical documentation for clinicians. Freed can be used across all specialties in or out of the office and can record up to two hours of notes.

And the yield on your dividends happens to work out to a spending rate that's reasonable. That's not always the case. And I mean, really not a fan of that strategy, frankly, because it's the to. It's the total return that matters. You can spend increases in, you know, stock prices. You can sell your stocks. That's the thing that you have Learn.

More about the AI scribe that clinicians love most today. Use code WCI50 to get $50 off your first month of free day I@Whitecoatinvestor.com free don't forget about those podcast awards. That's Whitecoatinvestor.com vote that helps us to spread the word about White Coat Investor. You can also help spread the word by leaving five star reviews. A recent one came in from Blue12345 who said best podcast in his class. I really enjoy listening to this podcast twice a week. A definite bright spot during my long commute. I have learned so much from these episodes. I started with the original White Coat Investor book and I'm so grateful for the lessons learned by listening to the choice of doing.

And similarly, the idea of just spending income, then that would lead a person to say, oh gosh, I'm just going to buy the highest dividend yielding stocks and the highest yielding bonds and then I'll get to spend a bunch more.

Podcast is so many financial principles are reinforced everywhere.

Well, what you just did is increase the risk of your portfolio by buying the riskiest bonds that there are.

And day especially the Q and A where so many interesting scenarios are discussed. Thank you so much for what you've done and continue to do five stars. Appreciate that.

To increase your spending rate at the same time, that's probably not a great strategy.

So review all right, we've come to the end of another podcast. Don't worry, we got more coming. Keep your head up, shoulders back. We'll see you next week on the White Coat Investor Podcast.

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your yeah, the.

Idea of basing spending on the actual income from the portfolio is usually not a great idea in my opinion.

Entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.

Okay, so this stuff doesn't show up right? You don't get terrible returns. You don't live forever. You don't have these terrible, massive medical expenses not covered by.