AMA | 2021 Planning Tips with Roger Whitney

Welcome to New Retirement ama. Ask me anything. We have a guest host tonight, Roger Whitney. And then we're going to go through all of our normal things like introductions, what's new at New Retirement, talk about some 2021 planning tips, and then go to our AMA. We have a bunch of questions that we got in advance, and then we'll open it up for live questions about anything, retirement planning or the new retirement tool. Here with us tonight, we have Steven Chen, the founder of New Retirement.

Hello.

And Roger Whitney, retirement club president, host of a podcast and the Retirement Answer man, and a host of other retirement education businesses.

We never know what to say about me. I never know what to say about me.

Roger has so many titles, it's hard to pick. So now we want to turn things over and really give a proper introduction to our guest host, Roger Whitney. He has been helping people plan for retirement for over 25 years. He's a CFP, has lots of other credentials. He hosts a podcast called Retirement Answer Man. He has his own advisory business, and he also hosts a club called Rock Retirement Club. He basically can answer almost any question that you have. So we're really excited to have him here talking about some planning tips for 2021 and general ideas to make retirement planning less overwhelming. So thank you for being here, Roger. We really appreciate it.

Thanks for setting the bar so low. Answer almost any question that you have. I appreciate that. Thanks so much. Michelle and I know with our club because we have the tool as a benefit in our Rock Retirement Club, and we've done some of these office hours with Michelle and they're pretty awesome. So if you haven't attended an office hours, it's the best way to really get the. Make the tool come to life in your planning for sure.

Thank you. Right, so we like to just kind of kick things off with a little bit of, you know, a plan or agenda. So Roger helped us pull together some tips for 2021, so we'll let him share those before we get to the questions.

Yeah, you bet. These are pretty universal. So it doesn't have to be 2021, but I know I already have my. I'm not like. I think New Year's Eve is like the most overrated holiday for me anyway. But I'm really excited about this New Year's Eve to get to 2021. I think a lot of us are. So the first tip I think is really structurally, how do you make better decisions in retirement planning? Because it's really hard because there's so many things that you have to try to take in into account. And so my number one tip is to understand what usually causes us to want to make a decision to begin with. We humans are motivated generally by wants or worries. We could call it fear or greed. Maybe there are things that poke us, that cause us to want to take action. I have a big splinter in my arm, you know that it's going to cause me to want to go to the doctor or I'm worried about the market is going to cause me to want to make a decision to resolve that issue. Just like I want more returns or I want a brand new car is going to cause me to look for solutions to solve that for me. And so it's very natural for a tactical decision. I want or I'm worried to spur us into action, which is good, right? Because it creates stress that we want to try to figure out. The danger is when we make decisions is being spurred into action by the tactic, the tactical decision and then going looking for a tactical answer. So I'll switch analogies because I do that all the time. So let's assume you're hungry and you want to go to. You go to the grocery store because you're hungry. You get the cart and you just start grabbing stuff, you know, oh, hummus, that looks great. And here's some salami over here and there's some noodles over there. And you're buying these things because tactically in the moment they look attractive to you. And then you get to the register and you pay for everything and you get home and you really don't have anything that you can cook with that because you didn't have a recipe beforehand. And the recipe in retirement planning is, lays out a process or a strategy to create a meal, right? So in retirement planning that is often what happens. We're worried about the market, so we sell or we're worried about the market, so we buy something that promises us the solution to that. And so when we're retirement planning, the tactical is the spark to put us into action. But if you want to make better decisions, you want to have a process that creates a recipe that gives you a strategy that will lead to the tactical decisions. And it slows us down a little bit because we got to go find that recipe. But if we, if we follow things in that order, we're always going to have a meal that is aligned with what we actually want out of life. And we're not going to just have this tapestry of stuff in the cart. And that's one thing great about a New Retirement plus is that it can help create that framework. So when you're thinking about risk or you're thinking about Roth conversions, you can have this framework that will help you build a strategy so you can get down to those tactical decisions. So that's my tip number one. And tip number two is I call it the Wham. You got to embrace the Wham and when. Just like in the first tip, there's just so much to think about. I don't, when am I going to die long term care? What should I how do I allocate my assets? What's my paycheck going to be? What do I do with my rollover? There's just all these different things that we need to do, and it's very easy to get distracted and do nothing. And so the secret to gaining momentum and traction in your retirement planning and to give you agency so you actually feel like you have control over this huge project is what I call Wham, which is basically, this is what I do in my practice and this is what we do inside the Rock Retirement Club is keep coming back to, what can I do next? What's the one action I should take next? To take a baby step forward in creating an amazing life or rocking retirement is what we say. So it's the W, what do I do next? Well, then once you figure out what to do next, then the next question is, okay, well, how do I do it? How do I take that little baby step? Because sometimes it can be complicated. So figuring out the how and then the A is once you have the what you should do and the how you should do it, now you need some assistance and some accountability to sort of get you over the finish line. And if you can get in and then what does that do? If you figure out the how or the what, you figure out the how, you get some assistance and accountability to get you over that creates the M, which is momentum, and that becomes like a flywheel. And that becomes very empowering. And so that's what I do in my advisory practice, and that's what we try to do in the Rock Retirement Club, is help people get into a rhythm of creating little baby steps. Then as soon as you get that one done, now it's okay, what next? And then how do I do that? So that's a great way to get off of ground zero and start to get some agency and traction in your plan. The third tip is a little bit more practical, it's a little bit more tactical, is from a tax perspective, how to set yourself up better for tax management in retirement. There are a lot of things, and this is something I've dealt with for decades. Saying I've worked in, you know, I've done this for 25 years, just means I'm sort of old. But the one thing that I've seen in older vintages of you, people like you that are in their 70s or in their 80s, what I've seen from a tax perspective is that they're very non diversified in tax brackets because we've all grown up learning to save and defer taxes, and defer taxes. So we end up with most of all of our money in the tax deferred bucket, which is great while you're deferring, but it creates some issues when you're harvesting all of those resources to create a great life. And so number one tip is start to diversify your tax brackets. What I mean by that, I mean by saving in after tax accounts, saving in Roth options if you're able. Because what that's going to do is when you're an older version of yourself, it's going to give you more levers to pull to manage your tax brackets. Because the cool thing about being retired, and there's a lot of cool things about it, but one cool thing about being retired is you can manage your income. And if you have different buckets of after tax money, pre tax money and tax free money via Roth, you can now you have levers other than one lever to create the income you need to live your life and you're going to be able to control your tax bracket. So like here's a really simple example. Let's assume you're 60 years old and married and you have 1.2 million in after tax assets, and you have 2 million in an IRA and you're retired and you've realized, I need $100,000 a year to live, so that's what I need to pull from my money. Well, the natural assumption baked into most models are you drain your after tax accounts and then you drain your tax deferred accounts and then you drain your Roth accounts, which is a reasonable assumption to make. But if you have these different buckets and we'll use this scenario, you could just Simply drain that $1.2 million of after tax assets over the next 12 years and then start your RMDs right, your required minimum distributions. Well, there's a problem with that. That $2 million IRA that's sitting there every year, you don't touch it, it's going to grow, God willing. And it's going to build a bigger tax liability because you'll have to take RMD. So if we take $2 million and we throw a 5% growth rate on it when you get to age 72 and we calculate what the RMD distribution on it would be, I think it grows to 3point something million. I forget what the number is, but the RMD in that first year would be $140,000. And if you've drained all your after tax assets, now you're stuck with having to take the RMD out every single year. And assuming your accounts grow, your RMD is going to grow. And I have many clients that because of they didn't work diversified in their tax buckets, they're taking out more money from their IRAs and they want to because they're required to. So if we take that same model and assuming they don't have any income, if you use something where you, if you have these after tax assets and these pre tax assets, one thing you can do if you have these different buckets is we call it fill up the tax bracket, right? So in this case, if they need $100,000 where a married couple with, with the standard deduction could take about $100,000 in taxable income and only pay 12% on it. And every year they don't do that, they can't do it again, you miss that. So a strategy is if you have these buckets is they could decide to take out half of their $100,000 from their IRA, only pay 12% on it, which is a good bracket, and then start to lower their pending RMD liability. Or they could do Roth conversion. So it's really important to have all these different buckets. Now the third one I want to talk about is health care. And I'm going to talk about health care before Medicare because that's the real gotcha. Medicare actually is relatively inexpensive, especially when you compare it to health care before Medicare. So what can you do now, depending on what your Runway is before you retire to try to mitigate that account? What is your wham here? Right. Well, maybe your wham is you start to build up your hsa. I'll use myself as an example. I intentionally switched to an HSA plan this year. You're because I'm self employed. So I pay for my own insurance solely for the fact that I could start funding my hsa and then I'm using my HSA as a super duper Roth account. So I'm investing the money and I'm trying to Build this bucket over a long period of time that can hopefully grow to help me offset healthcare. But you can also use it to pay for premiums if you retire before Medicare. So an HSA is a great option and lots of we could go on on HSAs for a while. I think that's one way to start preparing for post work health care. Another one is you could also plan your income plan. And this is why you need to build the strategy for taking advantage of the ACA subsidies. So I have a number of clients where because they have different dis, different tax buckets after tax pre tax Roth we've developed, you develop a withdrawal strategy that allows them to qualify for the ACA subsidy. So if you are married and you go to the ACA exchange, you're going to be looking around $2,000 a year in premiums. But if you're able to keep your income, and again, I'm not a tax advisor, but you work through these and you'd have to work with a tax advisor to do this yourself. But if you can keep your income as a married couple below, say 50, $60,000, your monthly premiums can go from $2,000 a month to about $600 a month. But you have to have the different tax buckets to be able to map out how you do this. So those are some things you can do to try to mitigate these crazy costs on health care at the moment. Okay, the last tip. The 4% rule. How we love the 4% rule. And it's a good guidepost for a napkin analysis of how much you might be able to spend in retirement. But like most good rules of thumb, they're not very practical for actual planning. I see the 4% rule talked about a lot and debated a lot. Is it really a 5% rule? The gentleman who created the 4% rule said, you know, came out recently and said, is it a 5% rule? And then another gentleman said, no, it's really a 3% rule because of bond rates. The point is, the 4% rule is not something you should plan as a withdrawal strategy. And here's the main reason why. Because the 4% rule is figured out as a sustainable withdrawal rate that you shouldn't run out of money with. And so what that means is if you implemented, truly implemented, the 4% rule, most likely what would happen in most of the distributions of possible outcomes is you're going to get old with too much money. And what that means is there's nothing worse than being old with too much money. And looking back and Say how much go, go could I have had in my 60s? So I think it's a good rule of thumb, but I would not use this as a planning strategy. That's all I got to say about that. I'm happy to chat about any questions you have.

Awesome. Those are great tips. We actually got one question throughout your presentation in regard to HSAs, and someone would like to know that if they're retired and they don't have earned income, can they fund an hsa?

That is a good question. And I believe if you are in an HSA compliant plan, you can. But I would have to look that rule up. I don't know off the top of my head.

Cool. So for everybody else, if you have questions either about some of the tips that Roger shared with us for the 2021 planning, please put them in either the question and answer or the chat. Or if you feel comfortable, you want to raise your hand and ask directly. I will give you permission to speak and you can ask your questions directly. So we're going to start by answering some of the questions that were submitted in advance. And as we see questions come through, we can certainly toggle between those as well. So the first question up is what are the top three to five expenses that people forgot to account for in a retirement budget?

That's a great question. Probably the number one thing is that I see is not having a clear enough view of what the expenses actually are to run your life. You know, usually what happens in our 50s, our kids are almost are out of college, we're empty nesters, we're making more money than we've ever made in our life. And it's very easy to get into what I call the not so nifty 50s or not so thrifty 50s. It's hard to say where you just spend money, right? You have more money coming in, all these obligations have started to go away. And I actually think that's okay to a point. But as you get really close to retirement, meaning in three years on the approach, what I see is people thinking they spend one thing, but they really haven't gone back and checked their math because they've locked into what they were spending. Sort of like I remember what I paid for my first car and I sort of use that as my anchor. Well, cars are a lot more when you actually go look now. And so I think the first thing, and I'm not a budget fan, I'm not a detailed budgeter in my own life, but when you're getting ready to have a Big life change. Now's the time to really dial in what it costs to run your life on an line item by line item basis. And we call it building a model retirement budget from the actual data. And there are tricks to do it without having to be a quicken guru. That said. So that's number one. This is when you really want to dial that in because you're about to lose your superpower, your earnings ability, or greatly diminish it. Number two is what I see people underestimate a lot is how much go go spending they're actually going to have. So when someone actually retires, just before retirement, you're in like a Coke bottle trying to look out and see what you're going to be on the outside. But if you look at a Coke bottle, you can't really see very well. Once you're out of retirement, what naturally happens is you're excited about this new phase of life and all this time freedom. And now you're going to start living all the dreams that maybe you've put off. And we underestimate what I call re nesting. Building the backdoor kitchen, the go go travel, all the things that we're going to do from an experiential standpoint that we've put off. So that's an area where I see a lot of misfires on what they think that's going to be. And then the last one I would suggest is taxes. People underestimate the tax liability. And in your working years, we tend to think of tax liability on a year by year basis.

Right.

You know, what deductions can I get this year to save myself taxes in retirement? You want to start thinking about it as a total tax liability, and it goes back to filling up those tax buckets. So if you look at that $2 million in the IRA that I used in the previous example, Is that really $2 million? Right. Well, it's not, because we haven't paid tax on it yet. And depending on how you get a strategy to figure out the tactics, you could be paying 12% on that $2 million, or you could be paying 22, 24, 35%. So the tax end of it and understanding that, I think, is one area that people really don't spend enough time on.

Hey, can I want to chime in with a couple color commentary things on the expense side? So one quick thing is we did this pretty good podcast with Glenn Nakamoto from our community, and he spent two years tracking his expenses. I mean, he did it in a superpower very Granular way. But per Roger's comment, there are ways you can kind of simplify this. But I think getting that two years of data and really looking at what he was spending was super helpful and it informed his plan as he made that transition. And then there's actually a discussion in our Facebook community right now about like how do expenses actually behave in retirement? And you know, there are those kind of go, go slow go, no go, you know, decades if you will and there's data that says spending declines 1% a year on a real basis in retirement. Some folks in our community are like well I'm actually not seeing that healthcare costs taxes are surprising me but it is worth considering that generally you may spend a lot. I mean you will probably slow down and consider your human capital.

Right?

I mean we all think want to have more money but eventually, I mean you're not going to the same person at 80 versus 70 versus 60 versus 50. Just look at any folks in those categories. You're going to be dramatically different. And so there's definitely an argument to potentially use some more of your real capital earlier within reason.

That's a great point Stephen, because let's say we make decisions based on who we are today and we just extrapolate the version of ourself out as we age. So if you take $100,000 as a spending and we've really done the math well in planning, what we'll typically do is well just put an inflation rate on that and if we have a 30 plus year time horizon we're assuming we're spending $100,000 inflation adjusted when we're our 80 year old self. My father in law is almost 80 years old and he's pretty active and he doesn't spend hardly anything and you don't want to get too cute with it but that could actually cost you a lot of life. Right. Because if you do a model that, that, that just extrapolates what you spend today out to when you pass that's going to demand more of your resources and potentially cause you not to have as much go go when you're you know, younger, energetic, healthy and so forth. So it could really cost you some life if you're care if you're not careful with those assumptions.

Great. That really great discussion that we've been having here and in our Facebook group. The next question is is there a rule of thumb to determine if I can handle long term care costs out of assets or if I need long term care insurance?

That's a great question. I saw Another question on long term care and on the podcast we did an entire month of it, February, to dissect this. It's a difficult issue. There really isn't a rule of thumb. So the way that I solve for long term care is. And the reason there's not a rule of thumb excuse. Each person has a different spending pattern. They have different resources and different sequences of cash flow that come in. And the sequence of spending is a big issue in retirement planning in general as much as sequence of return. Go back to process, strategy, tactics. So the step one to solve for this, at least for me, is define the kind of life that we want to live, organize our resources. And you have three resources to pay for life, right? You have social capital, which is Social Security, pension, maybe annuities, you know, socialized type of income sources that's going to help offset all that awesome spending you're going to do. And then you have human capital which is your, that's your superpower really that you give up in retirement your ability to earn an income. And you could, you know, sometimes we consult or we do part time work and then whatever isn't paid by those two sources comes from your financial capital. Right, your money. And that's what we think about. So we need to go through that process. And then once we know how much has to come from your financial capital, then we can calculate what we call fundedness. Right? Everybody is. We categorize people in three different categories. Either they're underfunded, they don't have enough resources for the goals that they have, or they're constrained, meaning that's where most people are, it should work, but there are possibilities where it might not. Or they're overfunded, they've over saved in effect for the life cash flows that they want to lead. When you build that out, then you can stress test, well, what happens if I have this expense jump in, say when I'm 80 and it's $60,000 a year, inflation adjusted for five or six years. Once you have that big model built out, you know your fundedness and you know that it's either constrained or overfunded because you solved for that. Then you can stress test for things like long term care. And what you can do is you can stress test, well, what does it do to my funding level if I self fund it where I don't buy anything? And then what does it do for to my overall resiliency, to my plan, if I pay for premiums and I don't have that expense, then you can start to solve for that. But until you do the, the strategy right, it's harder to really dial in whether you can afford self fund or not.

I mean it is such a complicated topic and so many moving pieces. You know, in the new retirement planner tool you can model long term care costs. And because there's so many, you know, different pieces, it is helpful in the context of the tool because we already include all those different factors. So you can kind of see how it affects your earlier cash flows, whether you have long term care insurance or if you don't, as long as you make sure you factor in the cost.

And that's a great point because then you have the wireframe where you can test one scenario and test the other scenario. And that's a lot of what retirement planning is. Go ahead, Stephen.

Oh yeah, I was going to make just one quick comment. So I was talking with Dana Onspoch on a podcast right before this and we were talking, she was talking about how they do their retirement readiness and they kind of have three lenses and we're heading in a similar direction. But basically there's like a Monte Carlo look, the probability just straight running a straight Monte Carlo. There's the funded ratio. Right. How much of my income is actually going to be met by guaranteed sources. And then they do historical back testing to make sure that hey, this plan is not going to implode, you know, since 1940, which I think is kind of cool to give three different instrumentation ways or analytics on your plan. And that kind of automation, having that, having that way of looking at it and then being able to kind of run, okay, well what if I do this for long term care versus not or I do. This raw strategy is kind of where we want to get to. So you can have a high degree of certainty and confidence about like what could happen if I make certain moves.

Yeah.

And in my practice and in the club, we look at it from multiple different angles. That's one reason why we have your tool as a benefit in the club and as well as have spreadsheets. And in my practice we use Monte Carlo because I mean, here's the deal. We're making all these decisions with very incomplete information. Right. And it's information we actually can't figure out because it's life and it's like playing poker. I think Annie Dukes, you know, thinking in bets is very, we're always having very incomplete information and if even if we make the best decision, it could still turn out bad. So the key is in a lot of these things is you're not going to get the right answer. I never make the right answer. Whether it's advising clients or in the club, I never do. But if you can become better in making lots of little decisions and then have a structure in place where you can process new information and reassess and adjust as more information comes out, that's really the best that we have. And that's sort of how life is. And I think that's okay. Yep.

By the way, I love Annie Duke. Her books are good and she's been on I know, your podcast and our podcast and. But the way she frames up how to make decisions and yeah, we are all living with incomplete data. And like with poker, you basically want to get your money in when the probabilities are in your favor. I mean, you don't and then hope for the best. Right. I mean, that's essentially how you win. Don't focus on the outcome so much, but just focus on what you can control and trying to, you know, act when you have control.

Yeah.

And that's one reason why, you know, we've taken the Agile methodology from project management and created Agile Retirement Management, which is our process. And what we teach in the club is because it's all about the iteration and decision making. Yeah.

All right. The next question is about stock and bond portfolios. And they're saying that stock and bond portfolios no longer provide enough diversification in retirement. So what other asset classes could you consider investing in beyond just stocks and bonds?

Well, the premise here is that they are right. The premise here is that they have predicted the future and they know that this isn't going to work anymore. What other asset classes? I think diversification is extremely important from just basic portfolio management, but when you're in retirement, it becomes about matching your assets to liabilities that you have going forward.

Right.

And this is where the fundedness comes from. And when we think about investments, the key determinant in the kind of experience you're going to have is really time. Right. Given enough time, a bond, stock portfolio. Now we say stock. What is stock? Well, there are lots of stocks that participate in lots of different industries. If you want to be in the cannabis industry, you could buy Constellation Brands, and they are in the cannabis industry. If you want to buy Bitcoin, there are financial firms that have stakes in that sector. So stocks is not a homogeneous thing. Neither are bonds. So I think that's one way that this misses the boat a little bit. But I'm not a big fan of overcomplicating things. If we think of time being the biggest determinant typically to the type of investment experience that we have, the shorter the timeframe, the more risky assets like stocks and I don't care if it's stocks or commodities or Bitcoin, the shorter the timeframe, the less certain you are of what your outcome will be. And the more risky it is volatility wise. The longer the timeframe, especially with established asset classes, the more the odds are in your favor from risk asset classes. And with bonds and inflation, you could say the opposite, right? The longer the timeframe, the less. Bonds are a great deal, but the shorter the timeframe, bonds or safe assets are probably safer. They're better. So we talk about bucket strategies. I call it a pie cake one, because I like pies and I like cake. But we think of a pie chart as an allocation chart. Right. So when you're building your allocation for retirement, what should your allocation for retirement be in my version? Well, it depends. You're actually going to have multiple portfolios depending on the time that that money is needed. So as an example, if you need $100,000 a year, every single year to fund your life, and that has to come from your financial assets, well, that $100,000 a year is essentially an I owe me. That is a debt on your balance sheet that you owe yourself. So in three years, if you need $100,000, that's the debt that you have to pay. You're just paying it to yourself for your consumption. Well, if I owe somebody 100 grand, I'm not going to put it at risk because I better have that money or that person's going to be mad. And if that person's me, I don't want to make myself mad. So layer one is going to be a pie of pretty solid green of cash. Layer two is going to be, I call it an income floor that will fund my liabilities say for the next five years in this example. Well, that's probably going to be bonds or CDs or something that's going to mature. That gives me some yield for when I need that money. And then the next layer of the cake is going to be a pie that maybe is a core portfolio, maybe it's 60% stocks, 40% bonds, because now I know at least has a five year time frame. So that sets it up for success. And then the top layer may be 100% stocks because that's a 10 year plus time frame. And you want to throw some bitcoin in there, go for it. You want to Throw some real estate or, or commodities in there. Well, a 10 year time frame, you probably ride through some cycles and should likely have a positive outcome. So I think this time horizon in matching liabilities is a much more important discussion than, you know, what esoteric asset class I might want to put into 6040 portfolio.

Hey Roger, I have a. There's a user. I had a question and this I think somewhat related. How do you think about. Do you ever consider annuities or QLACs to help ensure more income and do you consider that part of the portfolio?

That's a great question, actually. And annuities get a bad rap mainly because most of the annuities that are sold are like Twinkies, right? They're quote unquote food, but they're jacked up with all sorts of stuff. We don't even understand it. And those are the annuities that really get a bad rap. They got big sales charges, they got big expenses. So if you think of your allocations in retirement, a QLAC or guaranteed sources of income either immediately or later in life that turn on when you're older, they're more like buying an apple, right? It's food, it's not so much food product. It's a pretty clean kind of deal. And I think those have a great place to be considered. Right. And that would go into the, that would be turning some of your financial capital into social capital. Right. And you want to look at it from obviously the return that you get. But buying income that starts especially later in life is helping make a decision, helping protect yourself when you're that 80 years old, right. When you may not have the interest or the cognitive ability to manage a portfolio in a withdrawal rate or what have you. So I think they're a great thing to consider and they help protect against longevity risk, which is something that never seems important when you're younger until you're old.

Right.

And longevity risk is a real thing, not just from the cognitive standpoint, but from making the money last and actually making this all work. So I think they're a great idea to at least look at.

Nice. One other quick comment. And it looks like Michelle's doing some stuff with our webinar to let people talk live. But you know, I had someone on our podcast, we were talking about commercial real estate. I've done some of that myself. It's definitely a risky kind of, call it alternative asset, but it can produce probably more amplified income than many people will get in fixed income. Do you see people doing that or is there a certain kind of asset level when they start to look at solutions like that.

That's a really good point. And whether it's commercial real estate or we could even be simpler and just say buying rental houses. Right. And I think, and I've used that as a solution with clients when they've wanted to walk that journey. Right. Because it's not for everybody, that's for sure. Because just like managing a portfolio yourself or buying an annuity or buying a rental property or income property, the key is you have to define, okay, what do I know and what am I trying to accomplish and is this the kind of journey I want to be on? Right. The advantages of say commercial real estate or income properties are, well, one, you have a real asset, right. So that should in theory appreciate over time and at least keep up with inflation. And then you have a steady stream of income that you've created from the real estate asset that should increase with inflation. And so I've had clients where what we've done is they've started to buy individual rental properties to complement what they're doing in say the 6040 portfolio. And then the question is, how do you do it? Well, and how much of it do you do yourself or outsource? But I think it's a reasonable thing. And actually I think it's one of those areas, sort of like QLACs as well, that you brought up, Steven, where traditional retirement advisors, and I've been one for 26 plus years, we're all grown up talking about financial assets. And that's where buttered and we don't, most financial advisors don't have the business knowledge to talk about those or are willing to talk about those as part of the whole solution. And I think that's probably an area that, well, it's changing, but I think it's still very prevalent. We can't hear you, Michelle.

One thing that I talk about with a lot of our users when they're modeling rental properties is thinking about not just the passive income that comes when you have them, but like you were saying, how you manage them and when you outsource them or when you have an exit strategy, because to what you were saying earlier, even though it might be appealing in a certain phase of your life to want to be a landlord or manage things, there might be a point in the future where you no longer want that responsibility and you either want to offload it to someone or reduce that as a liability from your assets completely.

Yeah. And something related to that, Michelle, that was a recent a recent thing. And this idea of turning it back into a financial asset that you posed is, let's say you want to buy a ski, a resort or a house in Vail. You love skiing and you're putting it in. Okay, I'm going to. And you want to pay cash for it. Let's assume. So I'm going to buy. I don't know what they cost, but let's say it's $500,000 to buy this chateau in Vail and you put it into the plan and it's like, oh, you can't do this. Your long term plan blows up. Now, we assume that once that money is out the door and we bought the chateau, that that money is actually gone. Right. Well, maybe you want the chateau in your 60s, but are you going to want it in your 80s? We. A lot of times I don't see people planning, I would buy this chateau, but I'll sell it in 15 years and bring that money back in. And I think that that can help buy you more. Go, go. If you do that in a responsible way, for sure.

Cool. All right, let's keep going with another question. Next up is what should you consider in terms of an asset allocation when you have a fairly substantial pension that can cover your expenses? So should you make an adjustment based on the fact that you have a lot of, you know, income that is guaranteed?

That's a great question. And where that would get flushed out in the process. I talked about previously of figuring out how much actually has to come from your financial assets. So let's say in your case, you go through this process and I need $10 a year for my financial assets. Right. Well, then what that's going to do is when you go to build your pie cake, you can, you're not going to need a big income floor because you don't really need money. So it's going to allow you to have more in the other layers or it's going to allow you to maybe dream a little bit bigger about rocket retirement.

Okay, here's another question. This one's about the tool. It's about what are good values to use for new retirement, Optimistic and pessimistic rates of returns and inflation settings.

So you guys are the experts in that. So I'll let you. You talk about that all the time.

Michelle, just to frame this up, we use optimistic and pessimistic to kind of provide essentially a floor and ceiling, if you will, or run a couple scenarios for users. The long term market rate of return has been about 7% on a nominal basis. So I think we start a little bit more conservative from that. And pessimistically, we assume a lower rate of return. Where this is going is very soon. Well, in the not too distant future, we're going to be shifting this to be kind of a single rate of return and associate that with a risk tolerance that someone's willing to use, because we're going to use that to essentially drive Monte Carlo for every single change someone makes their plan. So we are setting up our platform in a way that can run Monte Carlo anytime, anywhere and very fast. So you'll be able to see kind of the, how does making a particular change, like, oh, if I retire a year earlier, two years earlier, you know, what does that mean for the probability of success for my plan? And you'll be able to see it in real time. And another thing, so that's a big scoring change is coming. And another thing that's happening is we are gonna be able to run scenarios for people all the time and behind scenes too. So we'll be continuously looking for ways to improve your situation and then, you know, suggesting them. You don't have to take action on them. But an example of something like that that's in beta now is this Roth Explorer idea where a lot of people have asked us, you know, you can kind of model Roth things in our tool right now, but you have to do it yourself. There's some functionality that we will look for ways to optimally claim Roths within certain parameters in your plan. So that's being tested now. But that kind of stuff is coming. But that type of functionality of like looking for opportunities and assessing, oh, taxes have changed or the fixing, you know, the, the interest rate environment has changed significantly. How does that affecting your scenario is coming? So a little color commentary on that, but I think let's get back to the live questions. I think we have some of them piling up.

Yeah, I'll take one from the bottom here. Someone asked about debt going into retirement. So is it better to be debt free going into retirement or is it okay to have low interest debt to hedge against some returns in the market?

It's an interesting question and I don't think of it from hedging against returns in the market. And my answer is I've done it both ways. I've done it where we've been totally debt free and where we've carried debt. And a lot of it is situational. So take the gentleman or lady with the large pension going into retirement, they could probably carry debt A lot easier than someone that has very low social capital and is dependent 100% on the markets. I think when I think of spending and how do you manage spending? It's, you know, if we think of what debt will do to you in retirement, it's a guaranteed payment that you have to make. Right. So if you think of a castle and the castle is your retirement, there's this moat around the castle and what's inside the castle should be a sustainable life that you have high confidence you can sustain. And nothing's going to get across that moat. And so that debt payment is going to be in there. If you have it right, it's going to be a need that you have to make. I think you can model it both ways because you're going to give up a lot of liquidity by paying off that. I hate to say that it's situational, but you have a unique life and you have a unique sequence of income and, and spending that you want to do to articulate your life. And that's why you need a tool like a new retirement to help build a wireframe so you can test both ways and then the other part is just simply personal preference. Right, right.

That's why they call it personal finance. Okay, we have a question from Brian. So, Brian, do you want to ask your question?

Yeah. Hi, can you guys hear me? Hey, Brian. Yeah. Hi guys. Future tax increases. It's very easy for me in the tool to model things like Roth or no Roth or continue to rent versus buy a house, etc. But it's not intuitively obvious how to model what if taxes went up by x percent, etc. Thoughts on that?

Well, it's not intuitively obvious because we use the same tax structure for all of the projections. So today in the tool, we base it on what today's tax rates are. And then we model that out in the future. Perhaps we'd be able to add, you know, some a secondary tax structure in the future. But today the tool doesn't do that.

Yeah, I mean, this is, we've gotten this request from a few different users, so we're definitely considering it since taxes are, you know, they are forecasted to change, but those are, you know, that what will actually happen with taxes can, will definitely change with or not definitely, but can change from administration to administration. So we're thinking about the best way to do this. I mean, we, we definitely, our bias is to give our users as much control as possible. So I wouldn't be surprised that you'll see this I'll definitely bring it up with our product team and we are maintaining a very robust product roadmap. It's very informed by what our users want. So we hear all the time in Facebook through Intercom, which is a chat tool online, you know, through AMAs and office hours, like what do people want? Emails, you know, delighted. So we're listening and you know, it is something that's under consideration. We'll pass it on. So appreciate the question.

Do you mind if I follow up with another question?

Sure, go for it.

Thanks. So I think the term that was used earlier is, you know, your go go years versus slowing down, etc. And that's also something that doesn't jump out at me by, you know, how to model the safe withdrawal rate for the first 10 years and then dropping it down to different withdrawal rate or just to cover expenses once Social Security hits. Things like that. Is that something I missed in the tool or. Thoughts on that?

Yeah. So great question. So you can model expenses changing over time. You can put in, you know, time bands for expense levels and when they start and stop in both the high level budgeting or the high level expense or the detailed budgeting. So that can happen on the return rates. We've gotten this question a couple ways. So yeah, people expect that they might dial the risk down in their portfolio and therefore get a lower rate of return in the future. So that is a request. We haven't implemented it yet, but I think you will see that because that's a natural thing that people do and we want to be able to support kind of how they are modeling and what they expect to do and how they change their portfolio over time. And I mean, Roger may have. Probably has a lot of real world experience, people actually doing this.

Yeah. The way that we model it, Brian, is we think in terms of needs and we try to get that be that. That being a sustainable. What we need to really live the life of Brian. And then I like to have the different pieces. So I will put the base needs, which is the base just living the life. And then I'll have go go extra for 10 years, 15 years, and then I'll piece them out because I like to see the levers rather than just looking at one number and then thinking how do I reduce that lever over time? I'd rather have the different levers. So conceptually you can see them and then you can play with them when you're modeling. Okay, thanks. That's it by me, guys. Thanks, Brian.

Thanks. Okay, we probably have time for One more question. I don't think there's a live question, so we'll do one more from the question and the Answer channel. Talk about Roth conversions. Pretty timely towards the end of the year here. The question is, does it make sense to do Roth conversions if you don't have after tax funds available to pay the tax dollars?

It makes it a lot harder for sure. The numbers. Roth conversions, when I've modeled it.

For.

A single lifetime or couple's lifetime, takes a lot of time to pay off anyway. It may help diversify the tax brackets, but it takes a lot of time for it really to make a lot of sense. And it's very dependent on tax rates and how life plays out if you are not paying, and that's if you're paying the tax from outside assets. So I think it makes it a lot more problematic to do for sure.

And if you're over 59 and a half so you can use the withdrawals as the money, does that change your opinion or not?

Say this one more time.

If you're over 59 and a half so that you can actually use some of the withdrawals to pay the tax liability from your tax deferred money, does that change your opinion?

It might. I would have to model it.

Okay.

I'd have to model. And I think that's the key here. That's why you need a tool. And I have no dog in this hunt in terms of new retirement tool. But for me, I think of new retirement or the tools that I use in my practice are. They're essential because I need to have the framework so I can play with them and create multiple what if scenarios. And just like paying off the mortgage or not. Right. There's a psychological decision, but ultimately you're going to not going to have incomplete. You're going to have incomplete information, but you want to be able to look at option A, option B to really help you tease out whether it's worth the uncertainty that you're taking on by doing it.

Awesome. All right, well, we're out of time for questions. We didn't get to everything. You can definitely come to office hours on a weekly basis and I can certainly answer questions about modeling different scenarios in the tool. And Roger, you have a podcast. Do you want to tell us when that comes out and how often you release additional information?

Yeah, the Retirement Answer man podcast has been going for six and a half years and we do weekly episodes. We're just in the midst of the parent project and we're actually in January doing a and we do this about once a year. We're doing a live case study where we take a listener and walk them through building their retirement strategy. And then at the end we have an online meeting like this with the listener where we're using new retirements tool to help them find the answers to whether they're going to be able to retire or not. So Retirement Answer man is the show and I answer questions@rogerwhitney.com Ask Roger.

Just to give everyone context for this, we have partnered up with Rock Retirement. So Roger, you know, runs a community, a club essentially, people getting ready for retirement and charges an annual fee of 600 bucks a year.

$600 a year.

600 bucks a year. And so essentially he's providing semi personalized community live support to that community and he licensed our products, so we provide our product to him and all his users as part of that. And then on the other side, we are want to invite our users that are interested in a solution like that to check out Roger's club if they're interested. And so we have a bi directional kind of relationship here in terms of full disclosure. But we believe, I mean, Roger's here, we think that he really knows what he's talking about. He's been doing this obviously for 25 years. And his model like ours, is designed to be completely aligned with our users where it's a membership model, not an asset center management model. You know, it's meant to be as efficient as humanly possible. And so that's why we pretty excited to be working with him and want to do more stuff like this, leverage his experience and his community as well.

It's been awesome to be here, so many great questions.

Yeah. Well, thank you everybody for joining. We had a great time and we hope you'll join us for the next AMA next month.

Yeah, appreciate everyone's time.