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Episode #541 - How Can I Get An IRMAA Exception?
Roger: The show is a proud member of the Retirement Podcast Network.
The show is dedicated to helping you not just survive retirement, but to have confidence because you're doing the work to go off and really rock retirement. Hey there, Roger Whitney here. By day I am a practicing retirement planner with over 30 years’ experience, founder of Agile Retirement Management.
Over the last 10 years on this show on a weekly basis, I've had the honor of hanging out with you and noodling on how you do retirement planning right so you don't make it your new job in retirement but so you can put it aside and go off and really rock retirement. Today on the show, we're going to answer a question related to IRMAA surcharges as well as other questions that people just like you have on their journey to retire.
In our In The News segment, we're going to talk about this new ETF principle protected securities that I've seen marketed. Then lastly, but not least, in our Rock Life segment, we're going to talk about cultivating curiosity so you have a growth mindset.
Before we get started, I have three things I want to talk about.
Number one is, next week, you're going to meet Mike and Judy, our new listener case study. They're listeners just like you, that rose their hand, and we're going to meet them next week, and over the course of June, we're going to hear what their vision is for their life, what resources they have to fund that vision, what their experience and preferences are from an investment standpoint, and then meet live with them in early July to get hopefully, hopefully to a feasible plan of record. You can follow their planning journey along the month.
Now we're going to have some resources and worksheets that you can use throughout the month to plan along with them or refresh your current planning So if you'd like to receive those make sure you're signed up for our 6-Shot Saturday email which is an awesome weekly recap of the show where we share exclusive content. You can sign up for that at rogerwhitney.com or sixshotsaturday.com.
All right. So that was number one. Number two is that I got a lot of feedback on something I wasn't really expecting. I answered a question from a listener about splitting the podcast. between the financial side of things and the non-financial side of things. I answered the question and wasn't really expecting any feedback on that. Although I guess I probably asked for it. I always ask for feedback. It was a landslide. "Don't split it." I think we had one person that said, yeah, that might be a good idea, but a landslide of, hey, this is part of what the show is.
We're not going to split it. Thank you for all the kind words, but I think you're actually right. I think one of the biggest problems with retirement planning is that the financial is separated from the non-financial. That is how planning typically works. It play cases the non-financial, if I'm using that word right, to get to the numbers when I think retirement planning done right has to be integrated.
We're not doing anything. Thank you for your feedback and all the kind words.
The second thing I got feedback from was the episode on the things that you need to stop doing in retirement. That was a few weeks ago. I expected a little bit there, but I think it hit a nerve for a lot of people like you to just take a breath and give yourself permission to realize you can't figure it out.
I got so many kind emails saying, Oh, this is just what I needed to hear. Thank you so much. So do give yourself permission. I want to read a quote. I won't disclose who this person is. This person shared that they worked as an accountant and did a lot of auditing in their regular profession.
They said,
"I think I have been looking at the retirement planning process like I do an audit trying to solve for materiality subconsciously. I consider it a map or a GPS, which has to be accurate to guide you to a precise location. That is not what retirement planning is, rather, it's a compass. All it does is tell me the direction I have to go and if I get off course, I will guide myself back to the right direction, but it won't tell me the step-by-step instructions.
There is no exact guidance because I don't know what I will encounter in life or what I want. Light bulb moment."
Yes. We treat this as a complicated problem. It's complex. You can't figure it out, and we overcomplicate to use those words more than I maybe should. We overcomplicate this? issue of retirement planning by Thinking about things we don't really need to think about. That’s why I think we need to have a process driven. What I want is to get to a feasible plan of record get to a resilient plan of record and then think about optimizing. It clears the playing field so you can focus on the right things and not drive yourself crazy, so you can actually get to the point of the whole exercise which is to go create a great life.
Now doing this for as long as I have, I want to share this with you and that is as I've walked this journey with countless people pre-retirement and right in retirement, they tend to get a little bit manic. I have to look at the numbers, I have to understand the numbers, I have to run different spreadsheets.
This makes total sense, actually. When you are doing something new, that you've never done before, it is a learning process. So, you go down the rabbit hole of YouTube videos, just as if you were going to go camping for the first time. You go try to figure it out and maybe learn from people ahead of you. You get hyper focused on it. That's normal because it's new. It's uncomfortable. The new is uncomfortable. But what I want to tell you, and this is why we're sharing more stories from people that have been retired a while, is once you get there, assuming you give yourself the confidence to actually do it and you go through that uncomfortable period, all of a sudden you're the old hat that has it figured out and all of this hyper focus on precision starts to go away. You don't worry about it so much because you find your new rhythm, you find the process that allows you to check things in an organized way so you can put it aside and go create a great life.
So, it's normal. Just know that. With that out of the way, let's go answer our title question related to IRMAA Medicare surcharges.
WHAT IRMAA SURCHARGES ARE
So, our title question comes from Anonymous related to IRMAA Medicare surcharges. We'll explain what that is as well.
Anonymous says,
"I retired age 60, enjoyed life for 18 months, then found a seasonal job for two years. Each of those years I made substantial Roth conversions. Can I contest IRMAA adjustments on grounds of retiring after age 63 if I stop my seasonal work at age 63?"
Great question, so let's talk about first what IRMAA surcharges are, because many of you may not know, and then let's walk through how to appeal and what the qualifications are to appeal the IRMAA surcharges and get out of them.
Okay. So, what is an IRMAA Medicare surcharge?
When you hit age 65 and you go on Medicare, you're going to get your part A which You don't pay a premium for on a monthly basis, and then you're going to be enrolled in Part B, which you do have a monthly premium.
I think in 2024, it's about 175, just shy of. Then if you sign up for Part D, which is the drug premium, totally optional, there's a premium for the drug prescription plan. So that's Medicare. A, B, and then D, and then there's Medigap and some other things we don't need to talk about for now. So, IRMAA comes in play and it's an acronym. I don't remember what it is off the top of my head It's not important, but it's a surcharge which says if you make too much money, We're going to charge you extra for your monthly premium on part B and part D. It's a means tested charge and the way it works is and we'll share our 2024 important numbers worksheet in our 6-Shot Saturday email as a pdf because this is a great sheet to have because it has all these numbers handy It has tax codes, it has RMD tables, 401k limits, all that type of stuff. So, make sure you're signed up for 6-Shot Saturday.
As an example, if you are single and you earn over 2024 numbers, you earn over 103, 001, you hit the first bracket of IRMAA surcharges, which means in addition to your 174. 70 premiums for Part B. They're going to charge you an extra 69. 90 a month for Part B because you've hit that first IRMAA surcharge because you were single and earned over 103, 001. Then Part B goes up by just shy of 13. The more you earn, the higher that surcharge goes up. So, this could add up to thousands of dollars. Then married, the first IRMAA surcharge bracket starts at 206, 001, and this is based off a modified adjusted gross income. So, if you earn too much money, you start to get surcharges on top of your normal Medicare premiums.
Now, it gets a little bit more complicated, because every year they're trying to determine what you earned in order to Assign whether you have this IRMAA surcharge and what they do is they look at your tax return two years prior. This is where it gets weird, right?
In 2025 to determine whether you have to pay more for Medicare or not They're going to look at your tax return for 2023, and this year it's 2024, so they're looking at your tax return for 2022, so there's always a two year look back to determine your IRMAA surcharge. This is why Anonymous is saying, hey, I got the seasonal job. I'm going to earn over one of these brackets, but if I leave my job, can I appeal this IRMAA surcharge?
Age 63, so at 65, when Anonymous files for Medicare, they're going to look back and say, oh, look, they earned all this money and Roth conversions, as an example, add to your modified adjusted gross income, so could throw you into an IRMAA bracket. That's why there's a sweet spot for Roth conversions from that perspective prior to age 63.
Well, the answer, Anonymous, is yes, you can file for a reduction or stoppage of work, even if that's not the first time that you retired. That new initial determination request for a life changing event can be made with form SSA-44, and we'll include a link to that form in 6-Shot Saturday.
There are eight categories of life-changing events that are considered. The most common are like five. Death of a spouse, marriage, divorce, work reduction, and work stoppage. Those are the five that are generally the most prevalent. That makes sense, right? Because if you retire at age 63, let's say you make 400, 000 a year, and you get to 65 and you sign up for Medicare. They're going to look at your return on your last year of work and say whoa This dude or gal made a ton of money charge him and you're going to say hey, wait a second, but I retired I don't have any income now.
This is the mechanism to be able to say hey, I had this huge life changing event So you need to give me an exception because all that work income is no longer there, and so yeah Anonymous you can file because you qualify under work reduction or work stoppage.
Now whether they grant that request for relief I have no idea. They're going to determine it because the other wrinkle in yours is that you're doing these massive Roth conversions and Roth conversions are not considered a category that would exempt you from the IRMAA surcharge. So, it's worth the old college try because they may not look at it close enough to see oh, but you have work stoppage but you also have all these Roth conversions that still are going to throw you up so we're going to hit it with you anyway. I don't know the answer as to how they make that determination, but definitely you can do this more than once if you go back to work or you have the seasonal work. Whether they grant it to you because of these Roth conversions, and that's something to realize that a downstream impact of a massive Roth conversion is that it could throw you into IRMAA surcharge brackets, and that is not an exemption that you can apply for relief from, or you can always apply, but they're probably not going to give it to you.
One reason why you should think about doing them prior to 63 or batching them because what happens with an IRMAA surcharge when they add on top of your premium, because let's say you hit one and they move you up a bracket, so you're paying more for your premium in part B and part D, it only applies to that year. It's not a forever type of thing. The next year, they're going to look two years back at your tax return and then make a new determination. So, it's not like once you're in it, you're always in it. It’s on a year-by-year basis, but Anonymous, I think, yes, get the Form SSA-44 and apply for it.
You'll just have to make the determination. Is it worth me not doing these, the seasonal work that I enjoy? In order to maybe avoid IRMAA two years from now, that's just going to be a values decision.
With that, let's get on to the In The News segment.
IN THE NEWS
In the news today, I want to review a new investment structure that I'm seeing marketed more and more. You may come across it either in your research, or you may have an advisor that presents these types of things. to you, and I want to make sure you understand them are better informed, be able to navigate whether they're right for you.
Like all investments, they're sold by prospectus, and their prospectus is the legal document that tells you the risks involved, the fees, the potential rewards, how they're doing what they're doing so it gets rid of all the marketing fluff. I definitely suggest you review prospectus, so you can get the actual details of what's happening in some of these more sophisticated products. Like all products, not appropriate for everybody, you can lose money, etc. Listen to the disclaimer.
All right, so I got this fact sheet for something called a Structured Protection ETF. This is an exchange traded fund that is protecting something. So, let's look at the fact sheet, which is generally the marketing brochure for these types of products.
It's a structured protection ETF, I'm not going to mention the investment company not important for this exercise.
Bullet point number one is it has 100% capital protection. No downside risk over the one-year outcome period. All right, no risk. Sounds good.
Bullet point number two, defined upside participation. I get some upside, exposure to the S& P 500 index in stocks to a cap. So defined exposure to the S& P 500 index to a cap. Don't know what the cap means, but all I'm hearing so far is I get no downside risk, and I get exposure to the S& P 500 and a cap of some sort is involved. Here's another bullet point related to taxes. I don't want to go into that for this learning exercise.
All right, so what is this?
Overview, and I'm just reading right now from the fact sheet. Structured protection ETFs are designed to match the positive price return of the S& P 500 up to a defined cap while protecting against 100 percent of the losses over a one-year period before fees and expenses.
All right, I get upside to stocks relative to some capital that I don't understand, but I can't lose money. Sounds good so far, maybe.
So, let's go to what the cap is. The starting cap rate, and essentially that is the most you can earn in terms of a return. The starting period is May 1st, 2024. So, this was a month or so ago, or at the beginning of the month, and the cap is 9. 81 percent gross of the annual expense ratio. So, what does that mean?
If you own this on May 1st and held it through maturity, which is February 30th of 2025, the full one-year outcome period as they define it, If the index goes up, in this case, the S& P 500 goes up by 6%, let's say, during that period, you will participate 100 percent in the upside and earn 6 percent before fees and expenses.
What if the market exceeded that 9. 81 percent cap? Well, let's say the market went up 20 percent during the outcome period. What would happen is you would receive a return up to the cap, in this case, 9. 81 percent gross of annual expenses. So, you're capped on the upside. You get the love of good markets, but only so much.
Okay, let's go the other direction. What happens if the market goes down during the outcome period? Goes down 3%, goes down 20 or 30%. 0 percent loss before fees and expenses. So, you get the upside, but not all of it. But in return, you don't have to worry about losing money if you've held it for the entire outcome period. That's the tradeoff.
How do you start to frame that in terms of you implementing it into your portfolio? Well, first off, you better have a plan of record. So, you know, you have a vision feasible plan that's resilient, and now you're thinking about how you implement in this case, the resilient plan. This is one tactic to do that optimization, right? You better have that structure to process whether this is an appropriate investment or not.
The next step is to create an alternative and the best alternative to begin with is what is the risk-free rate of return? If I’m looking at this potential upside, I know there's risk there and the risk is the fees and expenses or it could not earn as much as the risk free.
What's the return if I just buy a treasury, which is the proxy for a risk-free rate of return whereas of the day I’m recording this the indication for a one-year treasury Since this is a one year product is 5. 13%. Now I have two things to compare. It's always good to compare things. Super simple risk-free rate of return, what 5. 13 percent or the potential for return of 9. 81% on the upside plus expenses, or worst case, I get my money back. So that's framing what we're dealing with here.
Now, who is this a fit for? It says portfolio fit for equity risk control is their first bullet point for portfolio fit.
Bullet point number two is as a tax advantage cash alternative. Let's not get into the tax stuff right now.
Then number three is for retirees looking to de risk and preserve capital near or during retirement.
All right, so that's the basis of it. Potential for almost a 10 percent return, but worst case, we don't lose any money verse I just buy a treasury and get 5. 13%.
I'm going to go into a little bit of the details of this product. For those of you that are not really interested in any of the stuff and want to just move on, I'll give you my conclusion is I review these types of things. I rarely, if ever use them, I call them Twinkies and I like to invest organic and not overcomplicate the process in portfolios because the more you complicate or optimize the more brittle things can get and the more things can go wrong or in a way that you didn't expect so that's my ultimate conclusion. But I think this is worthwhile because how you receive information about these, I think can help you navigate this for yourself.
That's my conclusion if you don't want to listen to the rest of this.
Okay let's get into page two of this fact sheet, which is essentially the marketing brochure. The inception date is May 1st, 2024, and that's important, right? Because if you own it on that date and hold it to maturity, which is February 30th, 2025, you experience the true dynamic of what we defined here so far.
Because once this is issued on May 1st, it will trade, or does now I guess, trade on an exchange just like any ETF, it will trade like a stock. If you buy it at a higher price or a lower price than the initial offering, it changes the dynamic of the cap and the principal protection. So typically, these are always bought at offering.
Well, how are you going to find out about these things? Well, as a, if you're a DIY investor, you probably won't, right? There isn't really a marketplace to distribute these that I'm aware of to DIY investors.
In my world, the way we get exposed to these things is census was being issued on May 1st. What probably happened was in March and April, the representatives of the investment company are emailing and calling the advisors they know in the firms that they know to send them the fact sheet, like I got a fact sheet and say, hey, you want to have a chat about this? It might be good for your clients. That's how advisors are going to get exposed to these types of things, and maybe they're holding lunches, et cetera. The advisors. are going to determine, ooh, this looks good. I think this makes sense. And then they'll take indications of interest from their clients to commit to shares, and then on the IPO, or the publishing of the investment, the investors will own it, and the advisor will place those shares, and I don't know if there's any commissions in the back end. I don't know how that works on this one in particular. They're marketed I guess is the point. Because you buy it on May 1st.
On the second page, it says the annual expense ratio is 0. 69%, as of the prospectus dated March, or May 1st. The expense ratio is roughly 70 basis points. So that means when you look at the cap rate, remember that was before expenses that we talked about, it's 9. 81 percent gross. But after expenses, it says the net cap is 9. 12%. When we go back to the risk-free rate of return at about 5. 13%, the maximum upside to this is about four percentage points higher so that's the potential outcome that's positive over than just being simple and buying a treasury in this example.
If this loses money, let's say you put 100, 000 in it, you owned it throughout the whole period, and you have that principal protection kick in you're going to have about six hundred ninety dollars in fees. That's your maximum downside in theory.
Now let's go into some details of how they are able to offer this in the first place Upside with no downside.
Number one, when you look at the fine print on page two. It has the thing you'll see in all perspectives is pretty much investing involves risk loss of principle as possible. There are no assurances the fund will be successful in providing sought-after protection. Okay, that's table stakes, all investments have risk and we have to keep disclosing that to protect ourselves. But the two things I want to point out in detail I think are more pertinent to evaluating a product like this.
Number one is it's designed to provide point to point exposure to the index or the reference asset it's tracking. So, what does point to point mean? Well, let's look at in this case, the investment asset that it's tracking is the S&P 500 Spider Index, SPY. It's a very popular index that tracks the S&P 500.
Well, if we go to Morningstar and look at the return, say, for 2023, the return on that investment was 26. 32% in 2023. Now that includes dividends So what happens is that when during the year the S&P 500 owns a bunch of stocks, they pay dividends and they issue those dividends to the shareholders typically in the form of cash, so that return of 26. 32 includes those dividends. But in this structure protection ETF, it's not providing that exposure. It's providing what's called point to point exposure, which is really the price. So, if we take a chart of SPY, let's say, and actually I used IVV for some reason, so I'm going to go off IVV, which is another exchange traded fund for the S& P 500.
At the beginning, Of 2023, the price of the index via IVV was 386. 12, and the ending price was 477. 63, which is a return, if you just do the simple math, of 23. 7%. Still a great return, but that's not the same return as the reported 26. 32 percent for the index. The reason is it's not including the dividends.
So, another example, if we go back to 2022, the beginning date of the index had a price of 478. 38. At the end of the year, a one-year period, had a price of 360, or 84. 21, which gave a negative 19. 69 percent return from point to point, whereas if you look, just look at the index return, it was negative 18. 1. So you're not participating in the dividends, which means the potential upside gets muted. Remember, the risk-free rate of return in this example is 5. 13. We can just do that, just buy a treasurer and be done with it. We're only doing this for the potential upside, and that gets muted because of this structure of point-to-point tracking.
The way that they're tracking the index, and this is the second thing I wanted to point out, is via a basket of flex options. So, they're not actually tracking the Spyder ETF for the S&P 500. They're using flex options to mimic the tracking of the SPY index or exchange traded funds. So essentially this is an option strategy packaged into an ETF that is able to offer upside to a cap minus expenses and downside protection.
This is an option strategy. Now options are very sophisticated. They're derivatives, they're pretty much the investment of choice for a lot of these huge investment firms to create these types of things because of the leverage that's used that they can gain by doing them. There's nothing particularly wrong with an options strategy, if you know what you're doing, and it's worth the time and hassle, but it adds another layer of complication and potential risks to an investment strategy.
So, if you buy something like this, you're buying an option strategy in a package form. My point in this exercise is I review these things. They're interesting. I have people that, hey, I got presented this. What do you think of this?
When you're investing in retirement, we know how complicated this all is already. Why overcomplicate it to try to reach for potential sizzle that may or may not be there when you can simply use organic products, build your income floor, buy indexes that own real stocks and have a feasible plan that you feel comfortable is resilient.
You want to try to optimize to a point, but the whole point of this is to get on and live a great life, not to be an option investor. The more you complicate or optimize things. The more brittle a plan can be, so when things go wrong, they could really go wrong in unexpected ways. You want to pick your spots to optimize. I don't think this is one that's it for almost everybody. But I wanted to do this exercise so you have a better understanding of how to look at the details of something like this to determine whether it's really a fit for your plan or not.
With that, let's get on to answering some of your questions.
LISTENER QUESTIONS
Now it's time to answer your questions. If you have a question for the show, go to askroger.me and you could type in a question, leave an audio question, or just say hi.
SHOULD WE KEEP OUR LIFE INSURANCE POLICY?
Our first question is from Mark related to life insurance and what to do with a policy. So, this would be the resilient pillar in working through a resilient plan of record.
Mark says,
"Hey Roger, my wife and I are in our sixties retired. We have had life insurance policies in effect for 40 years but wonder if we really should keep them anymore. We are in good shape financially with more than 500, 000 in each of our buckets. We are currently only paying premiums on one policy, about 106 a month.
If we cash it out, we will receive about 60, 000.
Your thoughts."
So, I want to give you a structure to think through this, Mark. This would be in the resilient stage, where you're testing the resilience of your plan.
Step one, I think, would be without the insurance, stress test your feasible plan of record to see, Is it still feasible if one of you were to prematurely pass away without insurance?
Because if one of you passes away, say today, then we're not going to have social security for that person. May not have pension or other income sources tied to that person, and you would likely go into a single tax bracket rather than a joint tax bracket, which changes the, well, the tax dynamic forever, right? Unless you get married.
It's good to stress test. We'll pick on you, Mark. What happens is Mark dies today and his wife. How does her plan look from a feasible standpoint without insurance? Do you have enough wealth for her to have a lifestyle without your social security and dealing with taxes and without insurance?
That's a good first test to see if there's a risk there and you can measure that risk to decide whether you actually need the life insurance or not to replace wealth or income, which is the traditional role of life insurance. So that's step one. Stress test whether you need the insurance or not, and then you can input the amount of the death benefit and rerun the stress test to see how much more feasible or resilient the plan is if you keep the insurance relative to the cost. So, you just create those little what if tests. That's the first step.
Let's assume you don't need the insurance. Then the next question is, What do we do with insurance? 106 a month. You didn't mention what the death benefit was, but that's a reasonable premium. The insurance that you have now that you're in your 60s is probably the cheapest insurance you're ever going to get, if you give it up, you're never going to get it back. So, it may be relative to the death benefit. It's worth it. The cost of the insurance, because it's only 106 a month, and so that's just simple math. If you die at age 88, what's the internal rate of return of continuing to pay the premiums? It might just be a good hedge or leverage that's worth keeping, even if you don't need it. You would want to look at it from that perspective.
Another perspective you'd want to look at it from, Mark, is well, it's in this insurance wrapper and if I just simply liquidate it and get my 60, 000, that's going to be a taxable event, right? You're going to have taxable income for the difference of the premiums that you paid into it versus whatever growth you've gotten into it.
Perhaps you could exchange this life insurance policy for a different life insurance policy that solves some other need. A good example, there might be a life insurance-based policy that has a long-term care benefit and it could be part of your long-term care risk strategy just by doing an exchange from one life insurance policy to another with that added benefit.
It doesn't cost anything tax-wise and now you've made this more productive for what's going on in your life. Then obviously you could take loans against it if it's a permanent policy and then ultimately those will be paid back against the policy. I'd be a little careful about that, we can get into that another time, or you could just surrender it.
I would start framing it this way and look at each of those options side by side and then just make a judgment call.
WILL THE LACK OF A BACHELOR’S DEGREE HURT A RETIREMENT PLANNING PRACTICE?
Our next two questions are related to individuals that are looking to do formal education on retirement planning. The first one comes from Eric.
Eric says,
"Hey Roger. I'm passionate about helping people understand financial success is possible.
I'm contemplating obtaining the Chartered Financial Consultant Certification and then working on the CFP Curriculum. I don't have a bachelor's degree. However, the American College of Financial Services states that the CHFC will qualify me to sit for the CFP test. This appears to be the most efficient, effective way.
My question is, with the lack of a bachelor's degree hinder my ability to work to over 6, 000 hours required to use these certifications?"
The answer is, Eric, will the lack of a bachelor’s degree hurt your prospects of getting that 6, 000 hours? No, not if you work it. As a business owner and owner of a retirement planning practice, we actually have someone that works for us that is working on their 6, 000 hours and does a lot of research in the background.
I don't care if they have a bachelor's degree. I hire quality people. I think most people in our industry do because most people are entrepreneurial in some sense.
So no, I don't think that would hurt you at all. Be so good they can't ignore you, and really focus on that, and I think the path gets much clearer.
WHERE TO GET MATERIALS FOR THE CERTIFIED RETIREMENT COUNSELOR CURRICULUM?
Our next question is related, from Dan, interested in just getting more financial education.
"I would like to learn the in-depth details that a Certified Retirement Planner Counselor needs to know to pass the certification exam, but I don't necessarily want to sit for the exam. Where is the best place to get the materials and study guides?"
I do not have that certification. I have more industry specific, retirement management advisor, CFP, et cetera. Well, it's interesting, Dan, when I taught the CFP curriculum at University of Texas here in Arlington, we always had a good contingent of people that were taking the curriculum that were not in the profession and had no interest in being in the profession.
They were doing it for their own education. So, this stuff, even the CFP curriculum is available to be able to take on your own, even if you have no desire to sit for the exam or get the qualification. So, the CRC, which is the Certified Retirement Counselor Certification, is offered by the International Federation for Retirement Education.
We'll have a link to that organization and their Educational resources. I don't have any familiarity with them because it's more of a non-professional in terms of retirement planning, non-regulated industry, but we'll have a link to that as well as a link to educational resources on the Chartered Retirement Planning Counselor Certification from the College of Financial Planning. We'll have links to those in 6-Shot Saturday.
With that, let's move on to our Rock Life segment.
ROCK LIFE
In our Rock Life segment today, I want to focus on mindset and specifically cultivating curiosity.
Curiosity, I believe, is a linchpin to rocking retirement. Pretty much anybody that I would say that person is really rocking life or rocking retirement, they are curious people. This is really important for us as we approach retirement because many studies show that as you age, curiosity tends to decrease.
Which makes total sense. If you look at the marketing world, a mantra in the marketing world is if you confuse, you lose, meaning that you better be crystal clear on your message because people aren't going to spend the time because subconsciously the brain is always trying to save energy. It doesn't want to spend energy unnecessarily.
That's one reason why we develop stereotypes or shortcuts or heuristics so we don't have to think so much. What's a really important commodity as you get older? Energy. So, it makes sense that we get stuck in our ways and we all have examples of talking to our grandparents where it seems like they're not too curious about the world anymore and they're in these feedback loops of thinking that is maybe outdated.
There are a lot of benefits to cultivating curiosity and this might be an interesting segment to bring Bobby on at some point on the studies around this, but cultivating curiosity can be important to cognitive function because it stimulates the reward system. It can be important for mental health because curious individuals tend to have higher levels of psychological wellbeing and physical health. Adaptation, the ability to be curious and adapt to all the changes that happen in life, and there are a lot of changes, some of them a little scary, that are happening as we age. So, there's a lot of benefits to being curious.
I'm not qualified to go down to the studies on the medical end of it, but from a practical standpoint, I have a lot of experience in this and walking life with so many individuals.
Why is curiosity important? Mainly it expands your world. It helps you develop new interests, new relationships, new passions and hobbies and pursuits. all things that we need to have in order to rock retirement.
Number two, it helps us discover blind spots in our thinking, things we don't know that we don't know, and when it comes to retirement planning, that's always one of the top things people that listen to the show say that they worry about.
It also helps us protect us from a practical sense of what we just talked about last week or the week before in terms of data security, cyber security, being curious can actually help us protect herself against that spam email or that "phone call" from the Social Security or IRS, they don't call you is my understanding, which being curious can help you tease out the fact that these things aren't real rather than just click on the link that has the same logo as say the IRS or some other entity.
How do you cultivate curiosity? Because this actually takes work and remember your mind doesn't get excited about this. They want shortcuts.
Number one is suspend judgment. Suspend judgment on an idea that you hear or another person that you meet or even your own impressions on things. I think it was a Walt Whitman quote that was in Ted Lasso," Be curious, not judgmental".
In first impressions, whether it's an individual or even your first thought of something, it's easy to make a judgment, and move on and many times that judgment may be incorrect or most likely very incomplete. I have lots of stories of me making judgments. Usually, it's about people. I tend to put people in categories very quickly, which is not a good quality that I've worked on over decades. But I remember the first instance where it really hit me upside the head. It was in high school. We were bouncing around the basketball court and there was this guy. Who was sort of not neat. He didn't look very athletic. So, I challenged him to one on one. I'm not a very good basketball player, but I thought I could beat him at the time. This kid smoked me. In front of everybody. He was like the captain of the basketball team two years later. I judged him as not athletic and challenged him and paid the price in terms of social capital embarrassment. It's very easy to judge first impressions on people, but also on ideas. Annuities would be a great one to bring out here, tease out here.
There's been such bad instances of annuities being used in the past for sure. The mantra, if you go online or do research, is annuities are bad. Annuities are bad. We've heard this over and over and over again, where now we judge it. We don't think that it should be something that is part of our retirement plan.
In fact, I had this judgment for many years, and Kevin Lyles, one of the coaches in the Rock Retirement Club, as well as independent research on my part, helped me reframe that there is a place for annuities. There's a way to use this tool correctly in certain circumstances, but it's easy just to latch on.
Oh no, annuities are bad or stocks are bad because you lost money once. Suspend judgment. That way you can be in a stance of asking questions, which is our next rule for cultivating curiosity, which is to ask questions. Ask questions.
One of my favorite books on questions is QBQ, which stands for the question behind the question, is questions are critical for being curious. Why? Remember the five-year-olds with those never-ending whys? They want to understand not just the simple answer, but they're building a depth of understanding in all their additional questions. Asking why a wonderful question is, or just simply saying it, I don't understand.
When you make a statement like that, or you ask why, forces Or encourages, whether it's someone giving you information, or you are reading an article and say, I don't understand that, and then you can follow that thread to perhaps gain an understanding of what they're really trying to say, or the foundation behind it, or disprove the statement because it's not based on solid foundation. These are wonderful questions. Why? I don't understand. If you're talking to your advisor, or you're talking to your doctor, I don't understand.
Have them go deeper so you can understand. Smart people ask dumb questions. That's how they get smart. Most of the time, it's very socially awkward to ask questions, especially in groups because we feel like, oh, nobody else is asking questions, they're all nodding their heads, they look like they get it, and they're probably smarter than me, so I'm not going to ask.
Almost 100 percent of the time, everybody does not have a complete understanding, and they're waiting for somebody else to ask questions. Smart people ask dumb questions. That's how we get depth in our understanding about something.
Another good example, which I think was last week when we talked about the new exchange traded funds coming out that were principal protection. That entire in the news segment about this new product, which basically said, invest in the S&P 500. have zero downside. That's the surface level understanding of that product. In that segment, all we really did was, really? Well, let's dig deeper and ask, well, I don't understand that. How does that work? What we teased out in that exercise was, it's not quite following the S&P 500. There's a cap. It's not really following the S&P 500. It's following options that are tied to the index. It doesn't make it a bad product, but now we have a much deeper understanding of that product. Asking questions cultivates depth in our thinking. If anybody looks at you like you're asking a dumb question, that says more about them than you.
All right, number three in cultivating curiosity. Take time. Cultivating curiosity, being curious takes time, and we're in a very busy world. It takes time to observe to process what you've heard or read, to write out your summary of what you've heard or read so you can identify questions or gaps in your understanding of things.
It takes time to follow up after the meeting or after you've explored something to get clarification on the things that you've processed. Now this is hard in our modern society because everything is designed to make us go faster. You think of the Amazon one click buy, the person that developed that was genius.
Everything is designed to increase the velocity of our actions, our clicks on likes, our reshares, our purchases. It takes time. Here's a really good example I think is, I'm guessing you've had this happen to you. You're listening to a song in the car with someone or you're watching a movie. I wonder how old that person is. What do you do? You know what you do, right? You Google it. Well, let me check. I can check how old Tom Cruise is right now. And you've answered the question, and you move on. You listen to another song, and then you go through that. That is an example of very surface level curiosity. Whereas if you are willing to take a little time, you can develop a joy of discovery.
I have two quick examples here. Let's take Tom Cruise for example. You're watching, you know, Maverick, the redo of Top Gun. You're watching Maverick and you're wondering how old Tom Cruise is or some other star in it. Very easy to Google that, right? Two seconds, you're done. But what would happen is rather than Google it, you and your spouse or your friend Start trying to build a mental model to determine how old Tom Cruise is.
How might you do that? You might think about how old you are, when you first encountered Tom Cruise, maybe that was risky business, and then, was he about my age at the same time, or was I a little bit older? You can explore this together, and perhaps, When you start thinking about risky business in determining Tom's cruise age, it brings to mind, Oh, Johnny, you remember that girl that you were dating at the time or that car that you were driving? It may shoot you off on a whole other thread of a rich conversation of remembrance that you wouldn't have had had you just simply Googled How old is Tom Cruise? That's an example of taking time and cultivating curiosity.
One conversation that I had, Oh Lord, I don't even know, I should probably do this mental model. How long ago was this with my friend Rajib? Was he and I were sitting outside, At his home, it was night, and we were drinking wine, and it was right around the time that Apple was developing retail stores. Rajib is in technology, I'm in business of sorts. And we were like, why is Apple building retail stores?
That seems silly, that's a hard business, it's a high overhead business, why would Apple do that? In fact, they weren't just building retail stores, they were building stores like they build boxes for their products, which are way over engineered. A lot of thought to its design, which is Apple's MO. So, it wasn't like it was inexpensive stores.
We spent an hour just discussing, well, how much do you think a store costs for them to develop? How many products do you think they have in it? What do you think the average sale of a product is at an Apple store? How many products do you think they sell an hour at an Apple store? Let's average that out over a week and then, you think mentally work through the logic of Apple doing retail stores.
Now, were our numbers correct? No, but the exercise created this joyful hour of curiosity on something that we probably could have googled at the time or just let pass. So, if you want to cultivate curiosity, suspend your judgment, ask lots of questions, and take your time, and this is the way that you're going to discover, who you want to be in retirement, what your passions are, what you're going to do with your life.
It's a journey. It's not a destination and it's going to be found with a curious mind.
With that, let's go set a smart sprint.
TODAY’S SMART SPRINT SEGMENT
On your marks, get set,
and we're off to set a baby step that we can take in the next seven days to not just rock retirement but rock life.
All right, you know what it's going to be in the next seven days, practice asking a dumb question when you find yourself judging something take a breath and think a little deeper or maybe take a little bit of time to develop the curious muscle by exploring something with someone that you love.
That's a great way to develop curiosity in order to rock retirement.
CONCLUSION
Thanks for hanging out with me today. I’m in Colorado developing new curiosities and trying to reset some habits and enjoy the great outdoors in a foreign environment. I hope you're having a wonderful summer. I'm excited to hear what you discovered with your curious mind this this year.
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 are 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.