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Episode #577 - Don't Fly by Feeling in Retirement

“Every system is perfectly designed to get the results it gets. Think about that for a second.”

-Edward Deming

Roger: Welcome to the show dedicated to helping you not just survive retirement, but to have the confidence because you're doing the work to lean in and rock it.

It is February. I want to start off by thanking Laura and Nick for being willing to share their story so publicly and lean into the case studies that we had last month. Seriously guys, thank you so much and thank everybody for the kind words and the suggestions and the encouragement to both of them. I love doing that series, love walking with people.

In a couple weeks, Tanya Nichols of Aligned Financial and I are going to hang out and do a debrief of the two case studies of retiring single with no children. How do you rock retirement? We want to have you participate. So, in our 6-Shot Saturday email, we're going to share a form, a link to a form where you can share your resource, your wisdom or your tips on how to rock retirement if you're single with no kids. If you have anything that might inform that journey, whether it's how to travel alone with confidence or places groups that you can travel with, if it's on powers of attorney or trustees for later in life and managing health care, anything that you have found or have seen that is helpful, we'll try to incorporate that into the debrief show.

Today I want to talk about not flying by feeling through your retirement. So, let's get to that segment.

PRACTICAL PLANNING SEGMENT

I don't know if you've noticed, but there's been a lot of change happening around here. A few weeks ago, we had the announcement of the Chinese AI engine Deepseek, I think it was on a Monday, and we saw the S&P 500 and NASDAQ market go down by over a percent. We saw segments of the technology market specifically related to AI development go down by 10 plus percent. This came out of nowhere. Whether you are deep down the rabbit hole on AI or you're just aware that it's happening, when the Chinese search engine or AI engine Deep Sea came out, it is purported to be beyond what we have in the U.S. in terms of its abilities and its use of energy and efficiency. It has called into question what everybody understood as who the winners and the losers might be as we go on with this AI revolution.

As I think about AI, it reminds me of the mid late 90s when the Internet was really becoming a thing. There were a lot of winners and losers and who you thought might be winners and losers really didn't play out the way that we always thought because there was so much rapidity. That's the word. The rapid change that was happening was just at such a fast pace, you couldn't keep up. That's how this feels. But anyway, that disturbed especially the technology market.

In addition to that, a week or two later, we had a new presidential team come into office. Now, you may be cheering or booing or indifferent. That's not the point. The point is this administration seems to focus on a shock and awe strategy and changing the rules in many areas of the government and economy.

In the government, we're downsizing with departments being cut, literal offices being closed at night, and people working from home. We have a grant system currently in place that fuels academic research. I know people in the academic realm and they're all freaking out. They don't know if the grants are going to be there to fund the research that's happening at universities. The international first aid regime, in terms of money flowing to countries and projects happening all over the world, has been cut off and then started again and disrupted. We have changes to immigration policy which is disrupting the cost of labor and the availability of labor. Nobody knows what's going on here and what the new rules of the game are. Oh, and we have tariffs with Canada and Mexico a few weeks ago and then retaliatory tariffs which is going to change how products are manufactured and the cost of goods, as well as supply and demand. It has been a shock and awe in a lot of different domains. When it's related to the economy and the flow of resources, sometimes that's needed, I don't know if it is. Now, I'm not making a judgment call there. Sometimes it's needed, but the disruption is, well, disrupting.

So, let's think about this in terms of retirement planning in business and why we're talking about this on a retirement show. I'm going to relate it to one of my favorite subjects, and that is driving to Colorado.

When you are past Amarillo, you are on flat roads that have no curves. They're literally flat. The sky goes on forever. You can see for miles. There are fences along the road. You're going to be able to see if something's in the road. I think the speed limit there is like 75, but you could easily go 100. Not that I've ever done that. You could easily go 100 and feel like you have visibility. You're just pedal to the metal going. Kind of like when we understood the rules of the game in the economy, market, stock market, bond market, labor market, trade market, currency market, et cetera. When you understand the rules of the game, people have clarity in making decisions. Just like when you have a very secure job, you have clarity and confidence to get that mortgage, buy that car, put that kid through college. Clarity is good for all types of markets. You have clarity on retirement and returns, et cetera. Well, when I get off the interstate in southern Colorado and I go on the back road, I forget the name of the road, all of a sudden, the terrain changes. The road has turns in it, lots of turns. It's windy. It has elevation up and down. There are a lot of blind turns, and you have to slow down how fast you go. The speed limit is not 75 there. It's like 45. Every now and then you get to maybe 60, but you had better pay attention because the terrain is uncertain.

Now, I've driven that road in the early morning. I've driven it when there's fog, which causes you to have even less visibility of what's coming next. I've even had instances where it felt like you should just get off the road because you couldn't see in front of your car. You don't know if there's going to be a deer in the middle of the road or what have you. Well, when you have a lot of change in the labor markets, in trade, in the economy, in what direction the AI is going, it's like driving on a windy, curvy road in fog. Everybody slows down, and the way slowing down happens in an economy because there's no visibility is, I better keep my job. I better not ask for that raise. Maybe I will wait on my mortgage. Maybe I slowdown in building that plant and committing capital to production, because I don't know what's happening. I don't know what the rules are yet. Let me wait and figure out what the rules are. We've been through these periods before.

The reason I am bringing this up is because we seem to be in a season of that at the moment. I have no clue how long this season is going to happen. But there's a couple things that this uncertainty causes.

One is volatility. Prices are uncertain, so they go up and down, and it's very difficult to price. So, we may see volatility in all sorts of markets.

The second thing is psychologically, and this applies to you and me on managing our assets and making life decisions. We go from being on our toes and leaning forward because we have visibility, pedal to the metal, to getting on our heels and getting a little bit more pessimistic and caution, pedal on the brake because we don't know what's going to happen next. Do I retire right now when there's so much uncertainty? Maybe I better keep this job because the job market's uncertain. I don't know. Psychologically this can make us much more conservative or fearful, which can increase the possibility of unforced errors. Unforced errors can destroy your financial life and your retirement. So, we don't want to fly into retirement just by our gut. We don't want to fly by our gut. We don't want unforced errors. When we think about decision making, compounding is an amazing thing. It's amazing thing in markets. But we want to focus on the quality of our decisions and the consistency in which we make those decisions. That's how you build a great life, improving the quality and consistency. Unforced errors can ruin a retirement and they are more likely to happen when we're super optimistic or when we're worried.

What are some causes of unforced errors in general? Well, lack of focus and distractions. There are a lot of distractions out there. Overconfidence or complacency, fatigue or stress, poor preparation for times of stress, impatience, miscommunication, lack of consistency. All of these are either the causes or contribute to unforced errors.

So, your job as you navigate into or in retirement is to manage against these things that can contribute to unforced errors. And we see this all the time in the studies from a behavioral finance perspective. I'm having a hard time with my words today. When markets are under stress or going down, what happens? We see people sell, we see people market “safe” products. Buy this and all the pain and fear will go away, and we see people buy those products. Just like when markets are winning, we buy. As things go higher, we see people market products that say, hey, I can get you even more growth, you can go even faster, and we buy those things over and over. We as humans are prone to making these unforced errors during times of stress or major optimism. We live in a world where what is important in planning is thought to be trivial and boring. What is actually trivial is thought to be profound. A case in point is a new book, I think it's called the Holy Grail of Investing, that talks about private equity and how this is the diversifier, how it's coming down market so you don't have to be as a sophisticated investor, et cetera. I had a conversation with a client the other day and he was asking me about, hey, I read this book, should we be in private equity? What do you think about this? I went on a little bit of a mini rant. I'm not going to do that right here. But private equity, when it comes to your retirement, is trivial. It's not even worth talking about. This is something that is marketed and put out as profound when it's really not something that's even worth discussing. Unless you are massively overfunded and you're trying to build wealth for multiple generations and you have lots of zeros behind your numbers. Unless you're in that realm, which almost none of us are, it's not even worth discussing, period. The fact that it's marketed and attractive is a great illustration of the trivial becoming profound. It misses the entire point of what real retirement planning is and how to allocate assets to fund a life, which is the whole point of the process.

Okay, small soapbox, but not quite as deep as I went before. My point is you should not fly your retirement by gut. If you use an advisor, they should not be flying your retirement by gut and instinct. That's a horrible way to fly a retirement plan. That is going to increase the possibility of unforced errors and it could cause you to miss opportunities to extract more life out of the resources and time that you have.

So, what are some signs that you are not following a good process? Whether it's your process or your advisor's process, if the conversations that are happening when you have a financial meeting or are thinking about your retirement or you're having a meeting with your advisor, if that process is focused on what's going on in the markets and predicting the markets in terms of forecasts, et cetera, that is a sign that you're flying by gut and you're not flying by sound process. So, the more you have conversations about markets and where things are going, the more you should be worried, number one.

Number two, the more that the discussion is around unique products that offer some huge advantage over the basics either to accelerate your growth or protect you on the downside. These products aren't easy to understand or aren't liquid. The more you're flying by gut and focused on things outside of your control. If you're following a process that's focusing on the economy and research. Again, that forecasting thing, run, run, run. The more your process is focused on cult of personality, hey, I'm super smart, I've done this forever, I got this figured out, don't ask questions, just trust me, this is what we, or my fancy economist or forecaster or expert, say. Just trust me. We know where things are going to go. Just trust me. We have a great product. Just trust me. We've done this forever and we're super-duper smart. This is really hard. So that's why you need us. The more you're focused on these things, the more you're just fine by feeling and gut and unforced errors are the number one cause of retirement failures.

In my opinion, a process that you have should be focused on defining the true objective. What is your intent in doing your retirement planning anyway? I would argue that at the end of the day, the intent of retirement planning is to use your resources to create a great life and to minimize possibilities that you're going to have to adjust that life. A good process should focus on things you can actually control. This is the serenity prayer, right? Not focus on what's going on in the outside world and what could happen which you have no control over and you have no ability to predict because none of us do, but to focus on where are risks and opportunities in my plan and what can I do next to improve it? Can I actually use agency to find a pathway to improve my plan? A good process will be organized in its decision making. It will have a protocol of what's important first.

Now, I would argue, because this is my life's work, is number one, have a vision for what is important to you, starting with your values, and then build goals that are congruent of you living out those values. Then have a feasible plan, have reasonable assumptions that the direction, given the resources you have, you can feasibly achieve the goals that represent your value. Then have a resilient plan to mitigate all the risks that can knock you off course to give you the ability to navigate your life without major disruption and then optimize. That's my process. There are other processes that are just as valid, but the key is to have a process so when you get excited or when you get fearful and uncertain, when COVID happens or the major disruption right now happens, we have a mooring for organized decision making, which will help us be more consistent in our decision making. But right now, or like in COVID, that's when they really pay off, because this is boring stuff that we don't want to make trivial, this is when we can avoid big unforced errors. We all maybe did it a little bit or knew someone coming out of 08 sold everything, never got back in. Same thing with COVID, drastic decision makings. They were unmoored and they were operating without a process. They were operating by gut, and that's how you blow up a retirement.

Now, what should that process be? Well, I talk about that every week on here. I'm not going to reiterate it again here, but I think this is an important time to drive this point home. Next week, we’re going to talk about plan resiliency. I'm going to pound the table a little bit, that now is probably a good time to make sure your plan is resilient.

All right, I'm going to put my soapbox away, but this is important. Now we're going to go answer some of your questions. now it's time to answer some of your questions. I'm a little motivated right now. I don't know if you listened to Nick's and what he's going through. All of these changes are disruptive, and it worries me. It worries me for you and for me and for everybody. Not that it's necessarily bad or good. It's just that this is a time to dedicate yourself to improving your process even more.

LISTENER QUESTIONS

All right, we're going to answer your questions.

THE IMPORTANT NUMBERS WORKSHEET

One question that I had, I got a number of emails. Hey, are you going to share the 2025 Important Numbers Worksheet publicly? Yes, we are in this week's 6-Shot Saturday. You hear that Nichole Mills? We are going to share a link to the 2025 important numbers worksheet. So, what this worksheet has, it's a cheat sheet that shows you the current tax code. It shows you IRMAA brackets, Social Security, all the maximum contributions you can make to everything, the RMD table, all that stuff. For those of us that are geekier. It is like when Steve Martin and the jerk got the phone book and he's dancing around. The phone book's here. The phone book's here. We love this worksheet. I use it daily in my practice. So, we'll have a link to that in 6-Shot Saturday. So yes, you will receive it.

MARY THINKS IT IS BETTER TO BE ALONE THAN WISH YOU WERE

Our next comment from a listener is from Mary with some lived wisdom she wanted to share.

She said,

“Thank you for another great podcast today with regard to your current experience of living alone.”

She's referring to when I lived two weeks by myself in Colorado, which is like the longest I've lived alone since I've been married, I think.

“Please let me share one insight. As someone who has enjoyed long term relationships and lived alone at the same time, it's better to be alone than wish you were.”

I guess I've been on the receiving end of sharing, complaining by too many friends and coupled up relationships. I'm left to ponder that one. Mary, it's better to be alone than wish you were. Oh, I get it. If you're with someone you don't want to be with, it’s better to be alone. I think Nick talked about this too. He just has not found the person yet to share his life with and it's better to be alone than to be with someone who is not that person. Wonderful wisdom. Thank you.

CLEM LEARNED THE HARD WAY THAT YOU ARE REPLACEABLE

One other comment related to social networks and being alone comes from Clem and he has learned the hard way that you're replaceable at work.

“Hey Roger, I found your podcast today and I'm listening to the FIRE episodes.

I'm 67, married, and retired a couple years ago, though I'm still doing some work. I worked at this software startup for 26 years. I made what I thought were friends. I saw their kids grow up. I was there for divorces and marriages and births and death.

But after I left, all those people who I thought were friends completely abandoned me. I didn't hear from any of them. I'm hurt and confused. I am part of a woodworking group so have some connections with other people, but I miss those specific people. People are not commodities. You don't just replace one person with another. I'm sure this is how humans are, but it would have been nice to have known before retired that I would be forgotten.”

Clem There's a lot to unpack there. I don't know if we can unpack all of that here for sure, but I can understand that. I had a meeting recently with a good friend Rajib, who has a lot of friends, a lot of friends at different levels, but very, very few close friends. One thing that I have found and he has demonstrated for me, Clem, is it's always best to be the one reaching the hand out to connect. It's not natural for most of us to call somebody for lunch or to check in on how someone's doing. I'm actually not that good at it by nature. My habit there is not very strong. I have to be intentional about checking in on people. What I have found is when I check in on them, they're happy that I did and they're open to interacting, they're open to lunches, they're open to conversation, but they're never going to be the ones to reach out to me.

So, part of the strategy here, Clem, might be that it's just human nature that people don't reach out because they're so in the middle of their day and their work and their phone and everything else. It's not that they don't care about you, it's just that you're not top of mind. I would encourage you, if there's a few special people, reach out to them, shoot them a text, ask them how they are and see what availability they have for a quick phone conversation or a check in. A lot of people are just busy. It's not that they don't care.

I think also the fact that seasons of relationships change. Now we all have some relationships hopefully that we've had for decades. When I think of my longest friends, I have Eric, who I have known since high school. He's really the only one from high school or college. So, he is a common thread. I have had Rajib since 1999. He is a common thread. But if I were to map out those consistent threads on a timeline, I could probably add a lot of people in and out that have come in and out of season. In terms of how often we think about each other and how often we talk together, it doesn't mean that I don't like them any less or they don't like me any less. It's just the seasonality of where you're at in life. Work is one of those seasons where it naturally changes when you retire. Many of those people are in a different season now or you're in a different season.

Just two thoughts to maybe help you process this and work through it.

WAYNE ASKS ABOUT FINDING AN ADVISOR TO HELP WITH MANAGING REAL ESTATE IN RETIREMENT

So, our last question for today comes from Wayne.

Wayne says.

“Hi, I'm Wayne. I've recently discovered your show. I'm 60 years old, two to four years from retirement. My wife is three years younger and also two to four years from retirement. We have an amount of money in 401ks, and about over a million in real estate equity split between four properties. We have negligible amount of equity in our personal home.

A lot of our decisions as we head into retirement have more to do with how to manage our real estate, all of our mortgages and the cash flow on our end. So, we end up with a comfortable retirement.

That's the intro. I have an excellent tax advisor and I'd like to meet with a fee only personal financial advisor to help with our questions and validate the options we have on our overall plan. I've listened to you talk about financial advisors and listened to other sources as well and the whole industry seems to be aimed at people who have money rather than real estate. Where would you suggest I go to find advice on a combination of income sources?”

Wayne, that's a wonderful question. You're going to likely want to go to a fee only financial planner or retirement planner in this case because there is a difference between financial planning and retirement planning.

Almost all of us are trained if we're a CFP in accumulation general financial planning, but I would argue that retirement planning is a specialty that has its own advantages or risks and opportunities that need to be understood beyond just simply being a general practitioner. The reality is, as you've discovered, the industry is based off of managing assets by far. That leaves a gap for someone like you that is looking for a decision making partner in addition to their tax advisor to help validate decisions and think through these things when you have real estate or other types of private assets.

First you want to look at someone who is fee-based only. There's a national fee only association which only allows people that are fee only to be a member. It's the national association of personal financial advisors, napfa.org, that would be a good organization to begin your search. Once you are doing your search, you're still going to need to interview a number of planners. One, for a retirement specialty. Two, someone that is comfortable with the kind of assets that you're dealing with because you're going to pay them a fee for service, because even fee based financial planners are still primarily trained on public market type of assets. So even though you found someone that could maybe advise for a flat fee or an hourly fee, they may not have direct or enough experience in dealing with managing rental properties or balance sheet type of business decisions. They may still only have enough experience in managing public markets. So, you're just going to have to do a lot of research to find someone if you're looking for a financial planner or retirement planner to help validate those decisions because they're few and far between relative to the thousands of generalist financial planners out there.

I would also say maybe lean into your tax advisor to quasi-play that role to be your decision making partner since they're going to have better experience in dealing with these types of properties. They've probably had other clients that have bought and sold properties that they may have the financial acumen to help validate some of your retirement decisions. Those are some pathways to begin the journey.

ACTION IN THE WILD

Now I want to switch to a new segment of sorts that we'll do periodically which is someone taking action, one of you taking action in the wild. A case study of sorts based on a lot of the things we talk about in terms of having a process for retirement planning.

I had an email come in from Todd telling me about all the action that Todd has taken, much of it based off of things that he's heard on the show. This involved Todd hearing things and integrating them into his plan and discarding other things that weren't applicable or that he already did. So, I'm just going to read Todd's case study of acting in the wild.

“Happy New Year Roger. I wanted to give you a detailed thank you.

By encouraging action, not just head knowledge, you helped me make some positive steps in 2024. Here is a partial list.

Number one, I started a health savings account in my wife's name. Since she is five years younger and we can fund it longer, I was not eligible for an HSA until now.”

Awesome. Now make sure you take the next step. If you're paying healthcare costs out of pocket, Todd, and you're planning on having this be a long term asset, make sure it doesn't sit as cash. I would treat this like a Roth or a longer term investment account. Then Todd says,

“Number two, I began an annual large Roth conversion as an optimization move planned from now until age 62.

Number three, I offset a large chunk of the taxable Roth contributions by starting a donor advised fund and giving it a big start using long held mutual funds that have been subject to large capital gains.”

Wow. I love that you paired those strategies. Awesome, Todd.

“Number four, I opened Roths for my two adult kids still in higher ed and funded them maximally myself.”

Awesome. Don't forget to tell them that you did this so they can say it on their taxes. I forgot that one year, believe it or not. That's awesome. All of the things that you just talked about too, Todd, pre assumes that you have a plan of record so you actually feel comfortable doing these moves from an optimization standpoint, which is awesome.

“Number five, I have kept my financial planning in its place alongside spiritual, physical and relational health.

Number six, biggest of all, you achieved your goals by giving at least this one listener the confidence to actually retire. At age 58 and my wife is 53, this seemed a bit daunting, but I was totally prepared mentally and financially. My job has become very stressful and unenjoyable. So, we took the big step on December 20th, 2024, with my last day at a very long career.

Thank you again for all you do. It's making a big positive impact on people's lives.”

Todd, Big hugs, buddy. You're the purpose of all of this. You are taking action. Just like all of you, this is about you creating your life. Now I'm here to try to help, give you frameworks and perspective, maybe every now and then a kick in the butt. But I want you to have a great life and I want you to have the confidence to retire with a great life. Confidence comes from having a process so you can avoid those unforced errors. Thanks so much, Todd, for sharing this in the wild. Taking action. That's amazing, buddy.

TODAY’S SMART SPRINT SEGMENT

On your marks, get set, and we're off to take a baby step that we can take in the next seven days to not just rock retirement, but rock life.

All right, in the next seven days, grab your favorite beverage, sit down with a piece of paper, and write out as specifically as possible, the pillars and the steps in your retirement planning process. Write out what your process is. Maybe you've never done this before. Look back at how you've made decisions. When you're thinking about retirement planning. What, what steps do you go through? How often do you have those steps and who's involved in those steps? What are the things that you talk about internally with your spouse? If you have a financial planner, what are the things they talk about? What's the agenda that they bring?

The point of the exercise is affirming that you have a process, we're not just doing this by feeling or gut. Maybe we don't have a process. Maybe we're focused on all the wrong things. No shame there. Just information so you can begin to develop a process that can help you avoid unforced error so you can rock retirement.

BONUS

All right, we're off to the next of my grandfather's missions. Let me get to the book here. Which one did I read last? I feel like it's been a while. Here we go. Here we go. We're on mission number 20. July 22, 1944. Ship number 8. 59. Sortie 13th.

As an aside, I was thinking about this the other day. It's 2025. I graduated high school in 1985. That was 40 years ago. I was thinking when I was in high school and graduating 40 years prior to 1985, was 1945 just a year after this mission on July 22, 1944. That really set me back. Wow. When I was graduating high school 40 years prior was World War II. That felt like ages ago when I was in high school. Now I'm 40 years past graduating from high school. Holy cow.

Anyway, all right, back to Zigmund's diary.

“Target Romano Americano oil refinery in Romania. Results unknown because of smokescreen flak. Heavy, intense, concentrated and accurate. Flak escorts were P-51s, carried six 1000 lbs. bombs. Mission was 7 hours, 50 minutes. Altitude 25,000ft.”

“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 reference is historical and does 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.”