transcript
Speech-to-text transcription can look a little quirky. Please excuse any grammar or spelling errors.
Episode #468 - Retirement Plan Live: Meet Rosie and Dwayne
"Success is going from failure to failure without losing enthusiasm."
-Winston Churchill.
Hey there.
Welcome to The Retirement Answer Man Show.
My name is Roger Whitney I am your host. Happy New Year! This is a show dedicated to you hoping to not just survive retirement, but actually have the confidence to lean in because you've done the work and rock retirement.
I'm excited we get to start our retirement plan live 2023 case study with Rosie. You're going to meet Rosie today. She retired into a bear market, now she doesn't know if she has the money to rock retirement, and we're going to work through that this entire month and we're going to share resources along the way, including a worksheet that we had Rosie complete that you can complete as well.
You can only get that if you're signed up for our 6-Shot Saturday email, which is our weekly email Saturday morning where we have six quick items to help start your weekend. We're going to share this resource. You can sign up for that at 6-ShotSaturday.com. Doesn't matter whether you spell the six or use the numeral six, you'll get to the right place at rogerwhitney.com. So, make sure you sign up for that.
Okay. It's the new year. Did you make New Year's resolutions? Do you like New Year's resolutions? I don't like New Year's resolutions and I want to talk about this a little bit before we meet Rosie, and before we answer your questions.
I say no to New Year's resolutions.
Here's why I say that. It sets us up for failures in lots of ways in that we think we can say, I am going to lose weight this year as a New Year's resolution, and maybe we show up every day for those first day or first week or two. Then the fire starts to go out. We slip a little bit, we fail. Maybe we fail to go to the gym one day. Maybe we drink a little bit too much on the weekend, eat a little bit too much on the weekend, and then we bring out the hammer and start shaming ourselves of, man I said, I wasn't going to do that. I had this resolution. Then we just give up and forget about it.
You're going to fail a lot in whatever you resolve to do.
Create a great podcast, rock retirement. Be a great father, be a great mother, be a great friend. Whatever it is, you're going to fail a lot. New Year's resolutions are these grand things at the beginning of the year, and they're nice for what they are, but just like a campfire that you get raging. One night when you go to bed, that fire dwindles and goes out and likely has some kindling that you can re-spark if you're intentional the next morning.
So New Year's resolutions are like a big fire. I am going to accomplish this this year, but we don't have any system for rekindling that fire. This comes from a lot of the Heroic app and the wisdom that it's brought together and integrated, but we don't need the app to do it. Although, it's a great app.
Every day I would propose not making new year’s resolutions. Just like you have to rekindle a fire every morning. You have to rekindle what you want your life to look like every single day, every moment, actually. So rather than have a New Year's resolution, why don't you have a daily resolution where you set an intention to make today a masterpiece day?
Perhaps set some targets to do that. That's what I use the Heroic app for. I'm not marketing it here; I just believe in it, and I use it. You could do this with paper. Every morning set your intentions of creating a great day that day, and just focus on doing that. Then the next morning, create another great day.
You know what? You're going to fail. You're going to set intentions for the day and you're going to fall down. Like I do all the time, and then the next day, okay, why did I do that? Let me put a flashlight on that. Figure that out. Let me make today a great day. You have to fail over and over again. As Winston Churchill says, I think that's a better way to approach, not just this year, but really to approach life.
With that, I want to get on and meet Rosie, don't you?
RETIREMENT PLAN LIVE
Rosie retired during a bear market. She and her husband Duane had aspirations for rocking retirement and promptly had the markets take away over a quarter of their assets and now they're not so sure. Sort of the worst-case scenario, one of the worst case scenarios, when you leave full-time work.
Throughout this month, we're going to have conversations with Rosie. Today we're going to meet Rosie and talk about the journey to this point. Next week we're going to talk about what Rosie and Duane's goals are. The week after that, we're going to talk about their resources, and then we're going to talk about their investment strategy and retirement risks. Culminating in a live event. I think it's February 2nd, where we're going to reveal and walk through, can they still rock retirement? What adjustments might they consider?
If you want to register early for that live event, you can go to livewithroger.com and do that.
But for now, let's go meet Rosie and hear her story up to this point so we can get to know her a little bit.
Rosie, I want to welcome you to the show, but I do want to ask you, why did you raise your hand to do this?
Rosie: I guess I was interested to know what your thoughts or the whole program would think about the situation that we are in, given that we just retired. Then everything that could possibly go wrong pretty much has given COVID in the market.
These are all the things that you really, when you're doing all your projections, you're hoping don't happen, and they did. So now you're back to, okay, here we are. What are we going to do? So that the big question is, what are we going to do?
Roger: Yeah. Happening right after you retire. It sure is got to be a shocker. It's like, oh geez.
Now you said you were surprised that you were selected in a way. Why? Why were you surprised by that? I was curious about that.
Rosie: I guess they just don't consider us that financially strong and just didn't know, I guess probably some of the other people that I've listened to in the past, I felt like were, I guess you could say had it together a little more than we do.
So, I just didn't know.
Roger: Okay. So, let's start off. It's Rosie and your husband Duane, and he's not going to participate in this, but tell me a few sentences about who you guys are.
Rosie: We are in our early sixties, and we've been married for 40 years and have two boys and three grandkids. We live a pretty, you know, modest life, but have done a little bit of travel here and there.
That's just kind of where we are.
Roger: Okay, and what industry did you guys work in?
Rosie: That's a big question. You know, if I had to pick one, I would probably say primarily IT. He spent a good portion of his working years in different IT roles. Same with me, but mine wasn't as much on a technical side as it was more like business project type work. But all fell under the IT umbrella.
Roger: Now, and I know in our next conversation we're going to get to. Goals and put some numbers to goals, but you use this phrase that we're very modest in our lifestyle. What does that mean? I'm just curious. We say that a lot. I'm just wondering what that means.
Rosie: Oh, well, I mean, we don't drive fancy cars. We don't have a fancy house. I mean, we always had a nice house, until we decided to buy this house, which was another adventure. I just don't think we do a lot of flashy things. We don't eat out at fancy restaurants a lot, but we eat out. Typically, I wouldn't say we're really extravagant.
Roger: So, what's a fancy restaurant versus the typical restaurant you would go to?
Rosie: So, to me, a fancy restaurant would be a really nice, say steakhouse and you get a couple nice bottles of wine and all the courses, and you know, it's 150, $200 a person and a regular would just be your typical. Local restaurant. I don't love, I mean, not that we don't go to chain restaurants, but I prefer to go to local.
Roger: I definitely agree with you, especially when you're traveling. It's cool to find places that you wouldn't find anywhere else.
Rosie: Right, and typically they're not super expensive, you know, they don't have the ambiance either, but you know. Then also, I guess another reason I'd say that is for entertainment. You know, like we maybe go to a concert or a play or something once a year or something, but we don't have tickets to Broadway every, you know?
Roger: Okay, and so when did you and Duane retire?
Rosie: Well, I retired about a year and a half ago. COVID had already hit and was a year in, so I thought we were safe because the market had not crashed over that year.
He is semi working now, but not very hard. So, I think he decided when I quit that he ought to quit.
Roger: So, when you retired, was it before the Flash Bear market we had March of COVID or after that?
Rosie: Oh, oh, it was after that. After the flash. Yeah.
Roger: That probably was a little scary.
Rosie: Yeah, and then when the rebound happened and it stayed, rebound for quite a while and we're probably all right. I mean it might go down a little. I didn't expect what we have now.
Roger: Okay, and we'll get to that here as we unfold this over this month. Why did you retire?
Rosie: Well, IT is very fast paced and very quick moving which is wonderful. It's great. Your life doesn't get boring because everything changes constantly. But as I was getting older, I mean like for sure, I was in a large department, like a thousand people or so in the department. As one of the older ones, it is hard to keep up with the constant, constant everything, software and you know, everything changing.
So, it's not that I couldn't do it, but you know, there comes a day sometimes when you're like, okay, I've already gone through learning this 14 times. Here comes number 15 or whatever it is. I just got tired, and plus, you know, it's, it's definitely a much younger group and I loved that.
I loved the mentoring part of it and hanging out, that keeps you young, that's nice. But at the same time, it's pretty hard to meet people that become real good friends when, you know, you're double their age.
Roger: They're just in a different stage.
Rosie: Right, right, right. Yeah. You know, a variety of reasons. I wanted to retire before but didn't, so,
Roger: When was before?
Rosie: Well, my original goal was 60. It was just random.
I want to retire at 60. That was my goal. Then it got to 60, like, eh, I don't know, because insurance is a huge problem.
Roger: Yeah. It could be expensive for sure. It's just very opaque, if that's the word. It's not very easy to figure out.
Rosie: Well, that, and then, you know, as with all insurance, whether it's your house insurance or car insurance, anything. You really hope you don't have to use it.
It doesn't feel like very good value when it's one of your largest expenses and you never get anything out of it.
Roger: The old phrase I think is insurance is extremely expensive, if you don't need it. And the cheapest thing you ever bought if you do need it. So, when you decided to retire, what was the tipping point? Even though healthcare's a little intimidating, I just can't do this anymore. What was the tipping point?
Rosie: I worked from home a lot before COVID. With COVID, it was a hundred percent from home, and that was great, I didn't dislike that, but there's so many more things sitting around you when you're at home.
I was distracted by so many other things that I could be doing, and so I think that was tempting. Then there was a point where I thought, well, maybe I'll just go part-time, you know, be able to go part-time. Then I just decided, nah, I'm just ready to be done.
Roger: So, you didn't explore the part-time end of it.
Rosie: I did explore it a little bit, but you have to keep your thumb on the pulse, unless you go just to go do something completely different.
Roger: What about Dwayne? He hasn't really retired, is he working for the same company and just semi?
Rosie: Oh, well, when COVID hit where he was working, they basically were laid off for quite a while, and then at the end of that, you know, he rode on unemployment quite a while on that.
During which time he kind of picked up little side job and selling stuff online and stuff. So, he's been doing that and he's like, you know what, I think I'm just going to keep doing this and not even go back.
Roger: Okay. So, he's doing something totally different than what his career was. Okay, and this is just a side gig where it probably intellectually is interesting.
Rosie: Yeah. I mean, if you, if you want to work really hard, you can make a lot of money. Or if you just want to play around, you can make some money.
Roger: Is that his nature to sort of just discover little things and do them?
Rosie: No, I wouldn't say so. He's more of a steady-netty. But in this case, this is more of a fun job than any job that he's ever had, or most of us. It's not really a job, it's more of a hobby.
Roger: Okay. I have a good friend that just got a job. He's retired, but just got a job at a local outdoor place. He's a big hiker and he's like, oh, okay. This is awesome. I get to just talk about stuff I love. It's a big archery place, and he's like, I don't know much about archery, so I'm going to get to learn about archery too. That was his reason, right?
Rosie: Right. Yep, and if I went back to work for whatever reason, that would be what I would want to do. The problem is I don't want to commit to days or hours. I don't want to say I'll do Tuesday and Thursday.
Roger: You don't want to schedule it.
Rosie: I don't want to schedule. I do not want to schedule.
Roger: You retired about a year and a half ago during COVID. From a non-financial sense. Put the money aside for a second, how has it been going? What do you think of this idea of not working?
Rosie: I love it. It's great and it's so busy. I mean, my kids get annoyed because I'm always busy and I'm like, well, I am. But the difference between working and not working is when you're not working, you're busy, but you're doing what you choose to do, not what you have to do, what someone's paying you to do.
Roger: You're not accountable to anybody about this deadline or where this project is and all sorts of things. Right? Now you have always had lots of things to do even when you're working.
Rosie: For me, that's my nature.
Roger: So, I'm thinking here you are, Rosie, you're retired.
You literally have no obligation day to day workwise. How do you structure a day when you don't have, I got to get this project done, I got to return these emails. How do you structure a day?
Rosie: That can be a problem sometimes, but typically I'm kind of just by nature, a planner and a list maker. So, if I get nothing done for a couple days, I'll be annoyed with myself so that I'll make a list and then I'll get a whole bunch of things done. For the most part, I'm kind of a planner, so I kind of think about a week, what do I want to do this week? I have this book that I've used for probably five years of just planning your whole year. You know, these are the things I want to do this year, blah, blah, blah.
So, reviewing it on a quarterly basis and saying, hey, I got that done, or I didn't do that, or maybe next quarter this. So that's just kind of my nature, that's kind of how I work. My husband, to be honest, struggles with it maybe a little more because he's not that way.
Roger: You do strategic planning a little bit.
Rosie: I kind of do. It's annoying to a lot of people and sometimes it's annoying to me, but I just do it.
Roger: I want to get back to your husband in a second if we can, but so what do you do all these activities?
Rosie: Well, I mentioned these three grand babies. They're local, and even if you just see them, once a week, twice a week. That's at least half a day or an all day. So one or two days a week can be pretty much taken up with that. Plus, I've really gotten a lot more disciplined with exercise.
Exercise is awesome, but again, it takes a lot of time. I play pickleball, so if I go play pickleball, I can be gone three, four hours. By the time you get home, then you have to shower. I know that sounds lame for anybody working, I apologize in advance. These are the things that sometimes don't get done when you're working because it does take time.
Roger: The idea of playing pickleball after you've worked all day is a little different.
Rosie: Yeah, and pickleball for me is a little addicting, and so you don't just go for 45 minutes, you go for a couple hours, or two, three hours. So, it's long. Then I also go to like a workout class, which doesn't take as long, but even that, driving there, doing it, driving back, that's an hour and a half.
If you think about it, when you're working you have to get up an hour and a half early or get home an hour and a half late.
Roger: You have to shower; you have to get ready.
Rosie: So that's one of the beauties of retirement in my mind, is it's easier to take care of yourself because there's a little more time.
Roger: Yeah, and in time for cooking, time for stuff. Do you play doubles pickleball, or singles?
Rosie: I'm retired, I need doubles.
Roger: They're probably pretty social, right. Did you know anybody that played, or did you just go?
Rosie: Well actually during COVID I had a friend that's really into it.
So, during that time, she taught a bunch of us how to play. Just the basics, just the rules and stuff. Then after that we just kind of learned. My husband plays too. Of course, he picked it up because anybody who's played tennis or racquetball or anything like that, they picked it up in no time.
Roger: Yeah. I played for the first time this year. I didn't think I was going to like it, but I liked it a lot. I was worried about my knees, but it's not like racquetball from an impact standpoint, at least the one time I played.
Rosie: Yeah, it's not, it's very social too.
Roger: It has enough room to where you're not just huffing and puffing, you can actually laugh.
Okay. So, any other activities that you fill the days with? Grandkids are definitely a big one.
Rosie: Yeah, when you mentioned cooking, because with COVID, you know, you couldn't go out. So, you kind of got used to cooking. So now I have this bad habit of cooking now. Bad habit. We used to go out.
Roger: It's a bad habit only if you're bad at it.
Rosie: Well, it takes time, but it, but it's a lot better food. Of course. So that's been another thing that you know, I probably didn't do that much of before when I was working, that I do a lot more of now.
Roger: Well, let's talk about your husband for a second, because you mentioned that he's not as natural of a strategic planner.
In what ways has he had challenges without full-time work?
Rosie: Well, I think if you asked him, he hasn't, because he's perfectly content. I think he's done a lot of the things that I've mentioned that I've been doing, and he's gotten some of his projects done that he wanted to get done whether it be like yard work or things like that, but he's just not as busy as I am.
I think he's better at downtime, always has been.
Roger: Do you think the pace of what the two of you do, because it's relatively fresh, a year. He's still doing some part-time year, year and a half, do you envision this is what your life will be 10 years from now?
Rosie: Probably for five, I would say. I don't know, about 10. And the good thing about the work that he's doing, he's very flexible. So, if we travel, it's not a big deal, he can just do it whenever. So, I would say I'm hoping for a lot more travel than we've done, because we haven't done any, I mean, we go to Florida in the winter.
So, we've done that and, you know, a few little local things, but the big travel that we had planned, I had hoped that when I retired, you know, we would like to go to Europe for a long period of time and do a lot of Europe, but you couldn't even go, so.
Roger: Yeah, right at COVID. So, your retirement was sort of delayed in that respect. Now, you, you filled out a values worksheet and you said one of the things that has brought you the most joy, you listed travel. Vacations, and travel, and I'm just curious why is that?
Rosie: I enjoy new experiences, seeing new things, doing new things, discovering things. I think that's why travel has been of such a high value for me, to just discover new things and new experiences and different ways that people do things. Whether it be in this country or around the world.
Roger: I think you noted in it that it helps you reconnect spiritually. Explain that.
Rosie: Yes. If you go on outdoor hikes or you do a boat ride of some sort, it's just peaceful, I think, and quiet. I'm not the quietest soul, let's put it that way, and so that helps me to be.
Roger: Okay, like meditation in a way. Sort of almost censorship. Does your husband like to travel?
Rosie: Yes.
Roger: Okay. So, he would say that's one of his joys. What else brings you joy?
Rosie: Well, of course the grandkids. They're lots and lots of fun. I love doing things with friends. We do a lot of things with friends and that's fun.
I really thought I would read. I've never been a big reader, but I really planned all this reading when I retired, and I have not read one thing. So that didn't work out yet.
Roger: No harm there. A lot of people, when they talk about the non-financial side, talk about finding your purpose, a reason to wake up in the morning. Do you think it's important to have a purpose and do you have one?
Rosie: I do. I think it's more important for some people than others. Some people just need to feel, this might not be the right word, but needed or their purpose justifies their existence, I guess. I don't know what it is, but I don't know that I feel that way, but I feel like I have plenty of purpose because I think I contribute to different people's lives.
I haven't done much volunteer work in recent years, to be honest, but I have over my lifespan, done quite a bit of volunteer work. So, I feel like helping others, regardless of how it is, whether it's volunteer work or just being a friend or taking care of kids, whatever it is, is purposeful. So, for me, that's good enough.
Roger: It doesn't have to be changing the world in a macro way.
Rosie: Right.
Roger: What's interesting, I think about that whole purpose thing is it comes off as having to be grandiose, right? When the only way you change, say the world is by first working on yourself, and then building a long number of micro moments in some way, like with you pouring into your grandchildren is a way of changing the world, right? Of modeling, good parenting, kindness, but yeah.
Then you talked about what made you most angry or frustrated.
Rosie: Yeah, I was kind of looking at that and I think I missed a big one there.
Roger: Okay. Well share what you shared briefly and then tell me the extra.
Rosie: One was something I just kind of touched on is sometimes you run out of time to do all the things that you want to do. I kind of tie that back to this COVID thing. I feel like it's robbed a bit of time from us to accomplish some of our goals. So that's frustrating to me because you can't get time back.
Our finance guy says, you're not old. I said, well, I will tell you I'm definitely five years older than I was five years ago. So, time flies. So, just not having enough time to do everything that you want to do. Whether it be hours in the day or days in the year, that's one thing.
Then missing opportunities. That's just a FOMO hangup I have, but I don't like it if I visit someplace, and I find out when I get back that there was this amazing waterfall that was just half mile down the road that I didn't know about. Or you know, something like that. So that's frustrating to me.
Roger: Those are very connected, aren't they? I'm 55, and when I whine about being old, my, like I have one client I always think of who just turned 80, but don't say anything. She just turned 80 and she's like, you better shut up. You're not old. And so, I took her advice.
Rosie: Well, 55 is not old, but make the best in the next 10 years. There's a big difference between 55 and 65.
Roger: They're much older than 45 or 35, right? It's all perspective. But those are connected, aren't they? That FOMO and here's a clock ticking in a sense. Right? You can see that there is an end and you're healthy now, right?
Rosie: That's very right. That's huge.
Roger: Yeah, there's a phrase today is the day. It’s always today is the day.
Rosie: Well, and I've always been one to kind of watch people that I know that are older than me. And watch how they go about life, and I would guess say how they age, physically, mentally, all that.
So, you are like, okay, you know, 10 years from now that's going to be me. Just kind of being aware.
Roger: Okay. Now before we get to your values, because I want to go there in this conversation, but before we get to that, I forgot to ask you a question. I talked about how has this first year been going in the personal end of it, with your paycheck gone and your husband's greatly diminished, other than the part-time work, how has it been going financially? We don't need to get too deep into the numbers right now. We'll discuss obviously, the bear market, but just describe the last year and a half financially and how you've experienced it.
Rosie: I would say the last six months are different than the time before that because the market really has gone bonkers, more recently. We had planned for pretty significant stipends the first five to 10 years, so we went with that.
So, it really wasn't that bad. I mean, it doesn't feel good, but when the markets are doing well, which it was at first. You're like, well, shoot, we're still not spending what we're making, so it doesn't matter, you know? But then when it turns the other way, it does play with your mind a little bit, I think. So now I would say I feel very different about finances than I did probably a year ago.
Roger: That's natural, right? In the last six months, since the bear market has arisen, have you changed how you're spending and your strategy?
Rosie: No, but we are changing starting next year. A little, I mean it's not like significant, but the old saying, stay the course. Stay the course.
Not that there haven't been some panic moments, there have been where we've talked to our financial advisor like, hey, what do we need to do? We need to go to rice and beans, you know, blah, blah, blah. He speaks. No, I think we're positioned, I think we're okay. Let's just ride it out. You have those conversations.
Roger: Oh, don't you tell, don't tell me what conversations I have. Hahaha, I get it.
Rosie: The whole reason I wanted to have a financial advisor is for these markets because this is when you need a clear mind, not emotional thinking around your financial decisions.
Roger: That is definitely true. So, the main message as you have met has been, we put the plan in place, stay the course, and this will work itself out.
Rosie: Yeah, for the most part.
Roger: How does that resonate when you hear that as a client of this advisor? Any advisor?
Rosie: It makes sense to me. Logically it does.
Personally though, at the emotional level, I'm just like, but how long and when it does come back, how fast? If I knew the answer to those things. I could be a little less concerned. At the same time, I don't think we're ever going to starve or have to live out on the street. So, there's that.
Roger: Okay, but it's just not knowing what's around the corner. Is it just more or worse of the same or is it actually moderate.
Rosie: And for how long? I mean, I firmly believe there will be a day it will be back, but.
Roger: How does your husband feel about the last six months?
Rosie: Well, he is very different in his investment, and I don't want to call it philosophy choices, I should say.
He's very high-risk taker with the market, and I'm more moderate, I would say. So, I don't know, he gets quiet when things turn out like they are today compared to when things are going great. Every day. I hear how wonderful it is, and then when things maybe aren't as good. I don't know if he's really necessarily worried about it. I don't think so. because he doesn't worry about that stuff. If he had to live in a box, he'd live in a box. I don't think that concerns him as much as me. I'm the one that has all these things that I really want to do, or I think that he wants to do 'them, but if he can't, it's not the end of the world, so.
Roger: Okay. Then you both work with the advisor, correct?
Rosie: Yes.
Roger: Okay. So, you have an integrated plan and everything's managed together.
Rosie: Right.
Roger: Okay. We're going to get to some of this in our last segment this month, and just talk a little bit more about what the strategy is and how it's put together and what you've been operating with for the last year and a half. So, we'll do that a little bit later, but I want to end today by talking about your top 10 values. Now, were you surprised that I sent you this worksheet?
Rosie: Well, I listen to your podcast quite a bit, so not totally. It is challenging thinking through this.
Roger: Well, so the worksheet, which was a values worksheet, which we can share in 6-Shot Saturday email. I say, when I say that Nichole hears this, she'll make sure that it's shared. Hi Nichole!
The reason we start here is picking 10 values, and you probably could have, there's a whole list of different words to choose from, right. There's a whole huge menu there. You probably picked a lot more than 10 initially. There's a lot of things on there that resonate. Right? Narrowing it down to 10, the whole point of picking these is that in your ideal self, Rosie, your ideal self, embodies these values and how they live, right?
We're always falling short of fully embodying all these values, you won't even know unless you establish them. Like a good example with mine, I'm trying to see if I have mine back here. Nobody else can see this. So, I have mine. I actually put them on a plaque. Relationship with God, quality relationships, freedom, because I want to remember these, one is adventure for me as an example.
I am not fully myself, if I don't have some kind of adventure in my life or coming up. Mountain biking or doing the Spartan race, which I just did with my daughter. Things like that. So, these are your guiding lights, and this should be where we start because the more you fully embody your values, the more you'll be able to look back and say, yeah. Right?
I did it. No regret. So, I'm going to list these off here. I was going to list all 10 and maybe we just talk about one or two. Okay. You had health. You had faith, you had family, you had belonging, intentional living, adventure, fun relationships, travel, spontaneity.
So, can I ask, is there anyone that you want to talk about? I have one or two I think I want to ask a question about. Belonging? What does that mean from a value standpoint? What does that mean?
Rosie: For me, it means you have that core home base that you can always go back to, or that you can rely on. They're people typically, or in a faith-based conversation, it's God, right? That are going to be there no matter what. So, say you go off on your adventure and you're gone for two years, you're always in touch with those people, or you always know they've got your back or whatever. So, to me, feeling a part of something, some group of community.
Roger: Community bigger than yourself. It could be family, it could be church, it could be whatever community your, your foxhole buddies. Okay. Spontaneity.
Rosie: Yeah. I love spontaneity.
Roger: You're a strategic planner! How do you reconcile that? You're a strategic planner. How do you love spontaneity?
Rosie: Probably because it's usually an adventure. Somebody just calls me up right now. I have friends that know if they call me and say you want to do X? And it's something that I just pretty much have to drop what I'm doing and we're going to be gone for three days. I'm in unless there's just no way I can do it, and usually I'll do whatever I can to make it happen. I feel like a lot of the best experiences in life are ones that are not planned. They just happen.
Roger: I would not disagree. Cause that spontaneity is not one of my top 10, but it is definitely in my DNA. Jump and we'll figure it out.
Rosie: Except for bungee jumping, I haven't decided. But yeah, I just love to just do things that I wasn't planning on. I wasn't planning that today. I had my whole day planned out, but somebody called with this great idea and hey, I'm going.
Roger: We think of it that way, right? Of someone calls up and you have an opening. Sure. Let's do it. One other wrinkle of spontaneity that I discovered on my 25th anniversary, I think it was. Was when my wife and I, we were meeting some friends in the Dominican Republic and we were connecting through Miami and we got off the plane in Miami, we went and sat at the gate for our connection and we sat, and we sat.
Then suddenly like, wow, it should be boarding or boarded by now and we ended up sitting at the wrong gate and the plane had taken off. There aren't that many flights from Miami to DR. There are a number, but not that many. We were able to get on one that was like four or five hours later, so we're going to be late and all this.
This is where I learned this lesson. I just felt moved to shared, I guess is we could have been really disappointed. Not that we weren't, and maybe mad. But we actually used it to practice some spontaneity, and we took a cab into Miami and had lunch at the beach, and then just went back to the airport.
That was spontaneity. So, these are the values, and we'll come back to them periodically, because next week we're going to talk about your actual goals, your base great life, and those wants and those wishes. Ideally, they're the project management version of how you express the values from a financial planning perspective.
Does that make sense? Anything else you want to make sure you share or ask as we start this?
Rosie: No, I know the only other thing that I thought of that I didn't say on the values, but I mean we've talked about it, is that one of the frustrations or disappointments is this whole situation with COVID in the market, and that's probably been a huge, as far as retirement goes, that's been the biggest "ugh" you know?
Roger: Well, COVID definitely put a damper on travel, right? I imagine one of the open questions is how much impact the bear market is going to have an impact on travel and spontaneity and some of the things, right?
Rosie: Yeah, and so now all those things you thought you were going to do, you're going to have to pick and choose.
Roger: Perhaps, you may have to pick and choose.
Rosie: Well, I know we'll get into that later because you had said to dream big and I realized later, you know, I don't think I dreamt as big as is in my head on paper, so.
Roger: Well, we're going to flesh that out in the next conversation, so you have a chance to amend your statement that you shared with me.
All right, one last question. We're going to go through this process. So next week we're going to talk about your goals. The week after that, we're going to talk about your resources. The week after that, we're going to talk about investment philosophy and retirement risks, and then you and I are going to hang out with everybody on the show live and I'm going to walk through a retirement plan framework and see the feasibility of the goals and get to a feasible structure and then poke around on how to make it resilient.
So that's what we're going to be doing this month.
Rosie: All right.
Roger: What is it you need to have happen at the end of this journey that you're so gracious to go on with us to say, I'm so glad I did that?
Rosie: I guess some sense, if there is some course correction, whether it's in what I wish we could do over the next 10 to 15 years, or whether it's financial changes that maybe we need to make in terms of strategies, just having some more input or, you know, Thought around that.
Roger: We'll do our best to deliver. Thanks, Rosie.
Rosie: Yeah, thank you!
LISTENER QUESTIONS
All right. I'm excited for Rosie. I'm excited for her journey.
Now let's spend a few moments answering some of your questions because we always want to do that. If you have a question for the show, you can go to rogerwhitney.com/askroger and leave a question and we'll try to answer on the show like we do every week.
QUESTION ONE
So, our first question comes from Steve, related to allocation between tax categories.
Steve: Hi, Roger!
Arthur, my wheaten terrier and I have really enjoyed listening to your podcast on our daily walks and have both learned so much.
My question today is about allocation of funds between pre-tax, tax deferred and tax-free accounts, especially since it's coming time to decide on my Roth conversion amount for this year.
Is there an optimal balance between these three sources of financial capital? I'm thinking equal amounts for maximum flexibility, but I'd really like to hear your opinion on this.
Thanks so much.
Roger: Hey Steve, great question and I hope you're having a great walk today, man.
This is an optimization question for sure.
In order to answer the question, you definitely want to have a feasible plan in place, and you're figuring out how to optimize making it resilient based on how you're going to fund the monies that you need from your financial assets to fund your retirement. That is where this question really comes into play, Steve.
Is there an optimal amount? A third? A third, a third? I don't think so. I think it's going to be specific to your particular situation, whether you have a pension or not and that is pre-tax in essence, and that is going to be cash flow that you're going to have forever that's going to diminish the amount that you're going to need to draw from your assets.
Whether you plan on doing charitable distribution, say from your IRA, if you have that intent, that will impact this decision of how aggressive you should be on Roth conversions, how much you're going to leave to heirs ultimately.
So, I don't think there is an optimal amount that we can just use as a rule of thumb, you really want to be bespoke about it, and I think we should be.
That's why we need to focus on a process more than what's the right way. I do think having some diversification between after tax dollars, these are monies that you've already spent money on in bank accounts and savings accounts and investment accounts, pre-tax dollars, traditional IRAs and 401ks, et cetera, and tax-free dollars, which would be Roth IRAs and Roth 401ks. I think having some balance in that is really important.
The real optimization opportunity is going to be for younger people in how they're saving, because you and I grew up as a vintage of human that never had most of these options are at least the Roth option and mostly piled into tax deferred accounts.
When it comes to calculating how much of a Roth conversion should you do, it is easier to make that judgment call if you have a feasible plan and you've mapped out at least the next five years of cash flow, because then you can identify what tax brackets you expect to be in and how much money you actually need from your financial assets in retirement in order to live on.
That might dictate where you get those assets from, from those three tax categories. If you have that mapped out, Steve, then you can start to identify where might I do a Roth conversion or take out a strategic amount from my IRA in order to fund life in a year or two, so I don't have to take money out later on.
It doesn't necessarily have to be a Roth conversion. I just did a IRA withdrawal here recently with some year-end planning where we chose to just take the money out because we needed some after-tax assets. But you want to look at this in a multi-year framework. I do think it's helpful when you're going through this exercise, Steve, to estimate what your required minimum distributions might be if you don't tap your pre-tax assets until you need to.
That way you can get a read on how much the required minimum distributions might be and what tax bracket that might put you into. That's why we need to do multi-year cash flow forecasting to see the impacts. But ultimately, Steve, this is going to become a judgment call. You're not going to get an optimal amount.
You're just going to need to make a judgment call based on a lot of variables that are going to move around. That's why you need to have a feasible plan in place and that cash flow approach so you can look at it. Let that lead the decision, not so much, hey, it's not a third, a third, a third, and I should make it that way.
The area that you're going to look at is, one, should I minimize my future required minimum distributions? Two, do I have room to realize income, whether it's a Roth conversion or withdrawal early, because I'm going to be in lower tax brackets, and you can play around with up to the 12% bracket or the 24% tax bracket.
It's going to end up being a judgment call, but if you don't have the framework in place, you're going to have a lot less visibility in making that judgment call. So hopefully it helps you a little bit.
QUESTION TWO
Our next question comes from Alan, related to how to factor in whole life insurance policy into his retirement planning.
So, Alan says,
"I am addicted to retirement planning software, maxify, personal capital, et cetera, and a client of Vanguard's personal advisory service. My wife and I both soon turn 70 and are about to retire.
Now, to my question, I have given a whole life insurance policy, 3 million face value. Current cash value of 1.3 million to an ILIT."
I'll explain what that is.
"Of which my wife and two children are beneficiaries. However, I would like to factor this asset into our long-term financial plans so as to establish a maximum to our discretionary spending, but both the software and Vanguard's service inadequately address how best to represent the policy in the plan development. Do you have any suggestions?"
So how do you address this? So, let's think about the challenge first. Let's catch everybody up to speed. What is an ILIT?
An ILIT stands for "irrevocable life insurance trust" and that's used to keep assets out of the estate tax pitcher. But for the context of our discussion, we're basically talking about a life insurance policy.
So, the fact that it's in a trust is not very material to this. So, when this life insurance pays out the 3 million face value, in this case, Alan's wife and two of the adult children are going to receive a portion of that 3 million benefit. So how do you plan for this, Alan? It's actually, I don't think that difficult because this is just going to be like any life insurance policy that has a death benefit.
So, it's not really an asset that you own because it's actually owned by this irrevocable trust. So, it's not an asset you have, it's just a life insurance policy that's going to pay out when you pass away. And so, when you have your feasible plan of record and you want to make it resilient, one of the ways that you make it resilient is, well, what happens if Alan dies early? Is my wife okay? And when you model that, and I'm guessing you could do that with the software that you're referring to, is you can do a what if scenario. Okay? Alan dies at age 72. Is Sally, okay? I don't know your wife's name, but is Sally, okay? And if I were to die at age 72 in this what if scenario, she gets X amount from this irrevocable life insurance trust to add to whatever assets you have remaining on your personal balance sheet that she inherited.
And then you can run multiple scenarios of age 75. What happens if Alan dies at age 80, et cetera? By doing those what if scenarios off of your feasible plan, Alan, using probability software. I don't know why they can't do this. You'll be able to see. Intuitively how much excess assets you have, assuming you die before Sally, your assumed name for your wife, my assumed name for your wife, and that can lead you back into, well, how much can Sally, and I spend now of our personal financial assets?
Knowing that she will be made whole or receive this death benefit later on, you can back into a number that you can get comfortable with by creating what if scenarios. Now, you may have to go through some iterations of doing this, but you can get to a point where you can make a judgment call on how much extra we could spend knowing that Sally's going to get X amount when I pass away?
Now you're going to want to do the reverse because once you find that number, because if you spend that excess amount and Sally dies first, we want to make sure you're okay Alan. But I think you can accomplish that by creating what if scenarios along the lines that we outlined here because it's basically just an insurance policy.
It's not an asset because you don't own it. It's in an irrevocable life insurance trust. So that's how it would start to go for it or go about addressing it.
QUESTION THREE
Our next question comes from Mary, who is a university professor. She says this is about Roth 457b maximum limits.
She says,
"I can have both a 403b Roth and a 457b Roth, both with maximum contributions per year of 27,000 over age 50.
I'm a university professor with a salary of about 60,000 with other income sources, so I can and want to max out my 403b as well as my supplemental retirement account, an SRA."
When you get into these worlds, they have very different plans than a traditional 401k, so it could be confusing.
She says,
"According to all sources, I can find the max limits to the 4 57 is $27,000 per year over age 50. That is from an in addition to the 27-max contribution for my 403b. So theoretically I can contribute $54,000 a year, although my relatively low salary would really mean combined per year would be about 45,000. Now my question to which I cannot find, I cannot find an answer, but I hope you can help.
Can I designate my 457b to be a Roth after tax account, as well as having my SRA account exist as a Roth?"
She goes on to give a little bit more details, but the central question is how do the 403b and the 457b interact. The general answer is that the total of $54,000 in Roth dollars up to 100% of your compensation, so you can't go beyond that.
Maxing out a Roth 403b plus the catch up and maxing out a Roth 457b be plus the catch up, is allowed in general.
The reason I think you're confused, Mary, is because each institution sets their own plan in their own particular way, and various options may or may not be allowed. So, you're going to want to check with the summary plan description that are issued for these particular plans, and perhaps meet with the benefits department to navigate whether their plans allow you to accomplish what you want to accomplish.
But in theory, with those two types of plans, you should be able to accomplish this up to the max of your compensation. So hopefully that gives you some direction, and as an aside, Mary, if you shoot me a quick email, I can send you some references in terms of articles that talk about this.
QUESTION FOUR
Our next question comes from Todd related to a social security timing question.
" Hey, Roger. I'm a new listener after hearing you on Morningstar's Longview podcast."
Morningstar with Christine Benz, there's a great podcast, I was one of my favorite ones to do, so we'll put a link to that in 6-Shot Saturday.
Todd wants to know.
He says,
"I've read from many reputable sources, including your podcast, that if one has a reasonably genetic and health status expectation of a long life, it is generally advisable to delay taking Social Security as long as possible to boost the "net gain" from it with 85 being the breakeven point compared to taking it at at age 62. However, a few older friends with substantial assets at retirement insist that the optimal approach for them was to take Social Security at age 62 and to keep their investments as long as possible to maximize their growth. I'm 56 and recently ran the mass simulation with my advisor, and indeed it does show that there's the possibility of more legacy assets if I take it at 62 rather than 70. Have you seen this in your practice? Does this argument hold more water if one is to retire before age 62 to avoid a bunch of zero working years?"
So, the central question is, can it ever work out better to take Social Security at 62?
Well, of course it can and in hindsight, we have seen scenarios where it has worked out better. But right now, while at age 56 in your case, we don't have any idea what the market returns are going to do over your lifetime, what inflation's going to look like, and what your need for money, and how you'll react psychologically to bear markets is going to be so looking forward.
We have all these multiple pathways. We really don't know which one's going to happen from a sequencing standpoint. For those with a long-life expectation, one of the benefits of delaying social security is it gives you the best inflation protection for longevity that's available in the market. You can't replace it with any other income sources, even pensions, in terms of the value of the dollar that you're going to get, and the fact that it's going to adjust for inflation over your lifetime regardless of how long you live. This is especially beneficial if you are married because then that and, and assuming you have the higher benefit that the surviving spouse is going to get the higher inflation adjusted benefit for the remainder of their life.
Now, this does mean if you delay taking social security because you're trying to maximize this inflation adjusted longevity annuity that you will have to take assets from your accounts, which may hamper performance because you're making allocations differently.
But the question becomes, what is it that you're trying to accomplish in retirement? If you are drastically overfunded, then perhaps taking social security is easier to do so you can have assets that are growing for legacy purposes. That could be the case if you have substantial assets and you're not really worried about whether you can survive retirement because you have a pension or you have ample assets to cover whatever else it is. Your decision making's going to be different than most people. Yes, it is true that social security isn't left to your air, so it can't be a legacy asset, but delaying social Security could give you more space for pre- IRMA or pre RMD Roth conversions, which could be invested tax free for your heirs.
Have a feasible plan, Todd. Create the five plus year cash flow estimate. And create what if scenarios modeling each one, focusing on not just simply what the returns might be, but the tax implications of those returns.
So, I'm not necessarily against taking it at 62 because you'll have other things that interact with that because if you take it at 62, those benefits can be decreased if you earn over a certain amount. So, you want to factor that in there. But I look at social security, not based on a breakeven point, but as how do I maximize a longevity annuity that is inflation adjusted that will make life easier when I'm older?
I think that is much more important from an outcome perspective than the breakeven approach of looking at it. So, I don't necessarily think it's wrong, but I think you just want to think through it in an organized way in order to make a judgment call.
TODAY’S SMART SPRINT SEGMENT
Now let's go set a smart sprint. On your marks. Get set.
Now we're off to take a little baby step you can take over the next seven days to not just rock retirement, but rock life.
All right. Make some daily resolutions. I would suggest that you make a daily resolution around your energy. How are you going to keep the engine healthy? Whether that's sleeping, exercising, eating better. Make a target or two for your energy.
Two, make a target for your work. What are the one or two things that you want to do today to rock your work or your passion. If you're retired that could be, I'm going to focus on my golf game. I'm going to focus on whatever hobby it is that you have.
Then lastly, your relationships. What's the one or two things you're going to do today to improve your relationships? Maybe it's calling a child or a friend, kissing your spouse, whatever it is, and these are daily resolutions. You can switch 'em up but make our New Year’s Day resolution and do it tomorrow too.
CONCLUSION
So next week we're going to dial in Rosie's goals, her base great life, her wants and her wishes.
Remember, you can get resources that we share along this journey that you can complete at 6-shotsaturday.com.
Happy New Year, my friend.
The opinions voiced in this podcast are for general information only and not intended to provide specific advice or recommendations for any individual. All performance references, historical and do not guarantee future results. All indices are unmanaged and cannot be invested in directly. Make sure you consult your legal, tax or financial advisor before making any decisions.