Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Episode 1.07 Robert Powell on avoiding the retirement crisis
120 Plays5 months ago
Robert Powell, CFP®, is an award-winning financial journalist whose work appears regularly in USA TODAY, The Wall Street Journal, and MarketWatch. He is the editor and publisher of TheStreet.com’s Retirement Daily and serves as editor-in-chief of the Investments and Wealth Institute’s (IWI) Retirement Management Journal.
Robert talks about the crisis facing tomorrow’s retirees, who aren’t preparing well enough to maintain their pre-retirement lifestyle; the ways that financial professionals can help; how an “elder plan” differs from a retirement plan; and why he has “the most depressing job in America.”
Go to Decoding Retirement podcast
See more retirement risk management insights from Allianz
...
Allianz Life Insurance Company of North America (Allianz) and Allianz Life Financial Services, LLC are not affiliated with our podcast guests or their companies. Any links to the podcast guest's website are being provided as a service to you. Opinions expressed by the podcast guests are not necessarily those of Allianz or its affiliates. Please note that the information and opinions are provided by third parties and sources believed to be reliable, but accuracy and completeness cannot be guaranteed. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.
Allianz Life Insurance Company of North America has been keeping its promises since 1896 by helping Americans achieve their retirement income and protection goals with a variety of annuity and life insurance products.
Annuities can help you meet your long-term retirement goals by offering tax-deferred growth potential, a death benefit during the accumulation phase, and a guaranteed stream of income at retirement.
Allianz Life Insurance Company of North America (Allianz) does not provide financial planning services.
This content is for general educational purposes only. It is not intended to provide fiduciary, tax, or legal advice and cannot be used to avoid tax penalties; nor is it intended to market, promote, or recommend any tax plan or arrangement. Allianz Life Insurance Company of North America, its affiliates, and their employees and representatives do not give legal or tax advice or advice related to Social Security or Medicare. Customers are encouraged to consult with their own legal, tax, and financial professionals for specific advice or product recommendations, or the Social Security Administration (SSA) office for their particular situation.
Guarantees are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America. Registered index-linked annuity (RILA) guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions.
Products are issued by Allianz Life Insurance Company of North America. Registered index-linked annuities (RILAs) are distributed by its affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.542.5427 www.allianzlife.com
This content does not apply in the state of New York.
For financial professional use only – not for use with the public.
Recommended
Transcript
Is America Facing a Retirement Crisis?
00:00:03
Speaker
We've talked a lot in this series about the state of retirement preparation in America. So are we in a retirement crisis? My guest today says we are. And it's not just that Americans aren't saving enough for retirement. It's the confusing and often conflicting financial advice they have to try to make sense of. Welcome again to Rebuilding Retirement, navigating a new reality with your clients, a podcast series from Allianz Life Insurance Company of North America.
Meet Robert Powell: From Stockbroker to Journalist
00:00:29
Speaker
I'm Travis Walker.
00:00:31
Speaker
Joining me today is Robert Powell. He's an award-winning financial journalist who's made it his mission to help people get the information and education they need to successfully plan for retirement. Bob's writing appears regularly in USA Today, The Wall Street Journal, and MarketWatch. And he's the editor and publisher of The Streets Retirement Daily.
00:00:53
Speaker
You're going to hear a lot of thoughtful, practical ideas from Bob about how to better serve your clients. He explains what an elder plan is and how it differs from a retirement plan. He also focuses on income planning and what he calls the junk science behind the 4% rule. But we'll begin by finding out how Bob got into what he says is the most depressing job in America. Thank you for joining us. Welcome, Bob. Travis, it's a pleasure to be here with you. Thank you for inviting me.
00:01:23
Speaker
All right, let's go in ah feet first here. You've been writing about money since 1986, the last year that Larry Bird and the Celtics were dominant. And how did you come to focus on retirement? Well, um Travis, if you're ready for the long story, I'm happy to give it to you. So it begins like this begins like this. In 1984, I was actually working as a stockbroker for what was then called Dean Witter Reynolds, which was owned by Sears.
The Journey to Retirement Journalism
00:01:51
Speaker
And at the time, Sears was a had a financial services network. They owned Caldwell Banker and Allstate and Dean Witter. And once a week as a stockbroker, I would have to go into the Sears store and next to the Caldwell Banker rep and next to the Allstate rep and next to the tires and batteries and sewing machines and clothing, I would have to try and sell people stocks and bonds and mutual funds and Jenny May funds.
00:02:17
Speaker
and and And what happened along the way was I developed um a great love for personal finance, for investing, for the markets. But along the way, would what happened was I would work as a broker by day, and then I was really interested in in writing by night. And ultimately, over after two years of being a stockbroker, ah some might say I failed miserably at it, partly because partly because it was largely a sales job at the time. And you know you had quotas and you had orders from your branch manager to sell things. And after two years, my branch manager came up to me and said, it's really been fun watching you try to ah do this, but it seems to me you're a better educator than you are a salesman. And that's partly true. i would I was always telling people both sides of the story. People would ask if,
00:03:10
Speaker
There's a buy rating in IBM. Will the stock go up? And I would say it beats the heck out of me, sir. It's a stock. It's risky. You could easily go down tomorrow. We don't know. And I think the worst thing that ever happened to me, Travis, was this. I was in the Sears store one night and an elderly gentleman had come in. He had just sold his house and and he'd come into the most money that he'd ever earned in his entire life.
00:03:33
Speaker
And so I began explaining to him the investment period pyramid, right? Low risk investments at the bottom, CDs, money markets, and then we went all the way to the top of the pyramid, which at the time, maybe the riskiest thing was gold or platinum or something like that. And and then at one point, the lights in the Sears store went out, and the only light on were was my green banker's lamp. And there I was stuck in the Sears store, and we actually had to call the Stanford police, I was in Connecticut at the time, who then called the general manager of the Sears store who had to come down from wherever he lived and open the door so that we could get out.
00:04:12
Speaker
And then my branch manager the following day said, let me get this straight. You were locked in a building with ah with a prospect. And what happened? And I said, well, he ultimately decided to take his money and put it in a CD at his local bank. And he thought, that's insane. You couldn't have closed this gentleman. You were locked in the building. How bad of a salesman are you?
00:04:34
Speaker
So anyway, so
Challenges in Retirement Planning and Advice
00:04:35
Speaker
that in 1986, I left the world of stock brokering. I went to grad school. I got a master's degree in journalism. I worked at the Berkshire Eagle as a business reporter. I went to the Boston Business Journal as an investment reporter. I went to the Boston Herald as a personal finance reporter. I spent a couple of years at Dalbar and I ran their trade publications. They cover the mutual fund industry, the variable annuity industry.
00:04:56
Speaker
ah the fund accounting and back office industry of the fund mutual fund industry. When I was at Dalbar, I would used to attend the Investment Company Institute general membership meetings in May. Ken Dykwald was a frequent speaker. And Ken used to say, if you're familiar with Ken Dykwald in his work, he's you know he's a futurist of sorts. And he would say, this is 1990 or so, he would say, 70 million plus baby boomers are marching toward retirement, and they have no one to help them figure out what to do.
00:05:26
Speaker
And so that was the sort of inspiration for starting to focus and almost exclusively and entirely on retirement. It was the goal was to help these 70 million plus baby boomers marching toward requirement, ah you know, get the information and that education and knowledge and wisdom that they need to plan for retirement.
00:05:44
Speaker
Along the way, I earned my certified financial planner designation. I earned my retirement management advisor certification. And so for over the past 20 years, i I feel like with hope, I've helped some people plan for or live a little bit better in retirement than they had in the past. You once called your job the most depressing job in America. I think you might have some competition with that, but why is that? You said that back in 2017 and, seventeen and ah you know, has your view changed since then?
00:06:11
Speaker
ah it it it It hasn't, but I'll tell you about the genesis of it. So when I first started writing about retirement, I would get, you know, day after day, press release, after press release, after press release from this or that company or organization. And they described, in essence, what was a retirement crisis. We weren't saving enough money. We were going to outlive our savings. Very few people were very confident about being able to maintain their pre-retirement standard of living in retirement.
00:06:33
Speaker
and After my work day ended, my wife and I, we we'd sit down for dinner and we'd ask each other how our respective days were and she would tell me about hers and I would tell her about all the bad news I had received that day. Well, it didn't take long for her to stop asking me how my day was. And I had no one to share my depression with. I thought, how are we going to help all these people who haven't saved enough, who are going to outlive their savings, who aren't going to enjoy the same state of living?
00:07:00
Speaker
And and then so that's part of it is you know just getting this constant stream of press releases. The other is this endless amount of what I might call um conflicting, contradictory, confusing news and that we have to make sense of. So I'll give you a couple of three examples. ah Professor Emeritus at Boston University, Zvi Bodhi, is fond of saying that stocks are always risky. And you should be mindful of how much you invest in stocks for the long run because it's there's a possibility that you may not have enough money saved for retirement because of the risk involved in investing in stocks. Jeremy Siegel, professor at Wharton University, has the exact opposite opinion. In fact, he's written a book called Stocks for the Long Run. So you've got this these two professors who have completely contradictory points of view about how to save for retirement.
00:07:49
Speaker
Then throw in things like Alicia Minnell, who wrote a book some years ago that says 401K plans are coming up short. or you And you contrast that with someone like Andrew Biggs over at the American Enterprise Institute, who says things like, there is no retirement crisis here. Everything is fine. So who are you to believe? Then factor in a couple other things that you know sort of make my job one of, um how would I describe it? i ah Job security, right? We have a constant dream of,
00:08:17
Speaker
ah of new products. right Several years ago, we didn't have reverse mortgages. We didn't have Rylas. We have new laws and regulations coming into play. Today, we don't know if the fiduciary rule that's being espoused by the Labor Department is going to be in effect or not. We have new research that says the 4% rule is dead or not. then we have So what's an average person to do? It's overwhelming and depressing when you think about how informed people need to be.
00:08:41
Speaker
just to plan for and live in retirement and to avoid mistakes or to correct them if they happen. And then the last thing I'll say about my depression has to do with the financial services profession, Travis. So i I always think that if you had to build a financial services profession from scratch today, it would look nothing like it looks like today. It would look probably more like the CPA legal or medical profession where you might have one regulator, one set of rules,
00:09:06
Speaker
um and And today, what we have is a mishmash of regulators and laws that just make it difficult for consumers to assess whether they're working with someone who is acting in their best interest or not. So all that leads to ah depression. No, I get it. dear Your wife kind of unwittingly became a therapist for you. so But hearing you talk about that, I understand um how that could weigh heavy. um I guess if there's any silver lining, I don't look at it as though there's necessarily ah disinformation or even misinformation as much as there is just differences of opinions and strategies, um but it is a lot to to work through.
00:09:45
Speaker
Right. And I think so therein lies part of the problem for me when I think about it, I think. And and again, right. What's suitable is perfectly fine. ah Right. what What to me, what matters is um what you might learn from one financial professional might be different, a different opinion, but not because it's opinion. It might be because there's a different regulator, there's different training, there's different compliance rules. And so I think for a consumer to sort of sort through what's in their best interest, you know, is the bar becomes a little bit higher because of of that. Right. when i and And so what happens, too, is in the world of let's say in the world of medicine, for instance, a doctor might say, you have a headache, best practice is an aspirin. In the world of financial services, I'm not sure what the best practice is if you have a headache. If you talk to one person, it might be X, and another person, it might be Y, and another person, it might be Z.
00:10:36
Speaker
so Anyway, but if i if I could go back in time, I would create a different mind. No, I totally understand it. But now having done this, speaking of going back in time for nearly 40 years, you're now hearing from readers, ah clients or financial professionals all the time.
The Evolving Landscape of Financial Concerns
00:10:52
Speaker
What are some of the topics that they like to ask you about most often?
00:10:56
Speaker
Yeah, so I think part of it is a function of what's going on in the world today. And so today, because of tax law potential for tax law changes coming down the pike, a lot of people are asking about Roth IRA conversions. Should I do one? ah When should I do it? How much should I do? What's the difference between doing a full or partial Roth IRA? What are the what are they um ah potential pitfalls of doing a raw IRA conversion what's the payback period right a lot of questions of about a very simple but often you know describe piece of advice that consumers are now reading about in the paper or their or their advisors are talking to them about and you know and it matters right it matters because ah you know it could generate
00:11:35
Speaker
a potential tax bill in the current year or few or current years, but also create a a stream of tax-free income in future years to come. And so people want to know, is this something I should do? So then how can a financial professional get ahead with these topics and how can they handle the questions better? Yeah, so I think a couple things. One is,
00:11:59
Speaker
is I think you have to, if you're if you're if you have a team, for instance, someone on that team has to become the retirement specialist. Someone has to eat, breathe, sleep, all things retirement, right? And that may mean you know getting a designation. ah ah you know I mentioned the RMA, that's one. The RICP is another. There are several designations out there that you can get, all of which sort of at least speak to the knowledge, skill, and ability that you might need to help your client in the world of retirement planning and retirement income planning.
00:12:28
Speaker
um the The other is is to, um and and when I say eat, breathe and sleep, it i i mean i I mean that literally, right? I think when when I think about retirement, i I wake up thinking about it and I go to sleep thinking about it. And it and and you know and partly because I have to, right? i I need to sort of make sure that what I'm doing is helping people. And I think that's how advisors need to approach it is they need to you know read the latest research. Maybe they need to go to kitsch.com and read a 5,000-word article on ah you know the secured 2.0 and how it affects spouse-inherited IRAs for spouses.
00:13:05
Speaker
So you you just can't leave any of it to chance, and you can't sort of um adopt a ah position of hubris where where you think you know it all, right? Because you know what we know today could be might not be true tomorrow about things, right? For many years, we sort of you know relied on the 4% rule as is as if it was gospel.
00:13:24
Speaker
um But today we know through research by Wade Fow and others that maybe it's not gospel, right? Maybe it's a good starting place, but you know to follow it precisely ah you know might lead to ruin for someone. So I think, you know again, steeping yourself in the topic. The other is sort of like getting an understanding of what it is that people really need to know about and care about.
Key Aspects of Retirement Planning
00:13:43
Speaker
So I'll give you an example. ah Social Security Medicare right is is something where On the one hand, with Social Security, three to five million people every year turn 65. Now, not all of them. That's not full retirement age for people now. It's going to be 67 and not too distant future. But still, three to five million people ah are will want to know whether and when to climb Social Security. So I think for people for advisors to become experts in what literally is you know one leg of the retirement stool is really important. they need to And they need to understand
00:14:14
Speaker
when to claim, the benefits of of ah spousal benefits for the higher income earner, you know, and why it's important that maybe sometimes it's worth claiming later than earlier, you know, depending on whether you're married or not. And then Medicare is is a whole other topic, right? Now, maybe you don't need to become an the expert in Medicare, but you certainly need some working knowledge around it because each and every year your clients are going to be asked to review their Medicare plan and determine whether they should keep it or change it.
00:14:44
Speaker
Right? and And they need to know sort of just the basic ins and outs of things like, well, if you sign up for Medicare Advantage now and then you develop a pre and and develop a condition and you want to go on Medigap, there's a possibility that you may not be able to and ah go on Medigap because of a preexisting condition. So little things like that matter, right? And they matter a lot. So I think that's where people need some working knowledge and just to sort of stay informed.
00:15:10
Speaker
No, that' that's that's almost all of it. But before we move on. Well, you know well and and then I mean, I could go on, right? We know that men and people are trying to figure out where to live in retirement. And they might be evaluating assisted living, continuing care retirement communities, right, nursing homes, aht etc. does you know Do advisors know how to evaluate a continuing care retirement community contract?
00:15:34
Speaker
So to to that point, then, what part of retirement planning do you think is not getting enough attention? I think so. A couple of things. ah People need to understand what they're saving for. So they always, you know, we're always presented with, oh, you need a nest egg of a million or two or five million dollars. But but how do I turn that that asset into income and how will it be coordinated with other sources of income? How do I evaluate my planning horizon? Right. There was a time when the Social Security Administration used to have a break-even calculator on their website that would allow people to say whether they should claim now or later. right and And they took it down because people didn't understand that the the planning horizon, that they the break-even point that they were being given really meant that you know half the people will die sooner and half the people will die later. But people were using that right as their benchmark, as their planning horizon, which was like 80 years old.
00:16:27
Speaker
right but But we know that most planners are using 95 or in some cases 100 as the planning horizon. So people really need and to understand the the possibility that they could live to 95 and that their money needs to last that long. Then I think they really need an understanding of expenses and how expenses work in retirement.
00:16:44
Speaker
So for instance, and how those expenses change over time. So I'll just refer it to the Bureau of Labor Statistics. they They produced a consumer expenditure survey and they say that on average, you know housing expenses might represent 33% of the expenses in retirement. um And that healthcare expenses might represent 5% in the go-go years, but 15% in the slow-go years. So people need to sort of understand you know the the the asset, the income that they need to be derived from that asset,
00:17:14
Speaker
And that and could include Social Security, pension, equity in your house, earned income, for instance, and then, you know, how those assets will or that income will be deployed against the expenses that you have. And um we can talk about the four box strategy, which is a really simple strategy that was espoused by Farrell Dolan many years ago that in essence said.
00:17:34
Speaker
people need to think about maybe having guaranteed sources of income to pay for their essential expenses in retirement and use their discretionary assets, their risky assets to pay for discretionary ah exp expenses. And then the last thing I'll mention, Travis, when I think about the big problem here is people don't understand the how to manage and mitigate the risk that they'll face in retirement and that there may be different tools needed to manage and mitigate these different risks. So I'm fond of quoting the Society of Actuaries, which publishes a paper that suggests there are at least 15 retirement risks that you'll face in retirement. And I'll just mention two, but there are others that we should talk about. One is inflation, right? A big risk that you'll face in reflation. And the tool that you might use to manage inflation might be equities, might be a treasury inflation protected security, ah might be some other investment, but the tool that you'll manage use to manage
00:18:26
Speaker
ah longevity, right the the possibility about living your assets, will be entirely different. That could be a single premium immediate annuity, for instance, or or some other ah or a QLAC, or a deferred income annuity. So people need to understand that different risks need different tools. Then there are some other risks that are completely different, but we all need to plan if you're married for the death of a spouse. What happens then? Are you familiar with the tax bomb that could occur?
00:18:51
Speaker
What happens if there's a divorce? What happens if there's a healthcare shock? What if it happens if there's a ah financial ah shock in your family that where you might all of a sudden need to adopt a grandchild?
00:19:02
Speaker
or or et cetera, et cetera. So I always think about retirement planning is reward focused, right? I'm saving up a pile of money and at the end of it, I'm going to have $5 million. dollars I think about ah retirement income planning as risk focused, that people just need to say, yep, I looked at that risk and this is how we're going to manage it. I looked at this risk, this is how we're going to manage it. And if i if I'm an advisor listening to this podcast, I would create a ah spreadsheet that looks at um the risk that you might have, ah your client's exposure to that risk, how you can plan to manage that risk, do you plan to retain the risk, do you plan to transfer the risk, etc. And then, you know, what are the products that or tactics that you will use to manage that risk.
00:19:44
Speaker
And then you can say to the client, this is comprehensive. We looked at the 15 risks that you're going to face in retirement, and we came up with a plan to address them. To me, that's like that's the holy grail is that and in and of itself.
00:19:57
Speaker
Oh, sure. Yeah, and hearing in all this, i I am grateful that you do, in fact, eat, breathe, and sleep this stuff, because we want you on that wall. We need you on that wall.
Comprehensive Elder Planning
00:20:08
Speaker
um Let's talk quickly about elder planning. I want to transition that. I know that you're a part of a program that helps fin pros learn how to create a quote, elder plan. Tell us more about that and why there's a need for this.
00:20:20
Speaker
Yeah, so I'm really excited about this. So pre-COVID, Bob Mortarstock and Anna Lee Kruger knew that I had some experience ah creating online courses for financial advisors and they came to me and said, can you help us? So we joined forces and we launched a online elder planning course, a certificate course at Salem State University initially during COVID. and And then ultimately we brought it over to the Financial Planning Association. It's a 10 week course and What we do is we cover all the elements that would be included in an elder plan. and i And I like to think of an elder plan somewhat similar to if you're an advisor and you're creating an investment policy statement for a client. um Well, this would be the near equivalent, but it would be focused on the things that need to be included in an elder plan. So, for instance,
00:21:05
Speaker
I'll go through the sort of the laundry list of things that we cover in the course. Do you understand the aging process? Do you understand the caregivers role? Do you understand the issues associated with diversity and in aging? Do you understand the issues associated with solo ages and and ages who might be 85 and older? ah What about the legal issues that you need to know about as your clients age? and We're not talking necessarily about durable powers of attorney for financial matters or even durable powers of attorney for for healthcare. care um'm I'm talking about, you know do you know whether your client has a HIPAA release in place? Do you know whether or not they have a living will? Do they have a DNR? Do they have a POSLIT in place? All these documents, right? and and you know And you say, well, why do I need to know this as a financial advisor, whether my client has these documents in place? Well, it matters because you know you hold yourself out to be, in some cases, a comprehensive financial planner. That doesn't mean like I cover this, but not that. That means comprehensive, right?
00:22:01
Speaker
So anything having to do with your kind your client's finances um are important to know. Then we talk about, like we just mentioned a second ago, long-term care. So again, do you understand long-term care insurance? Do you know the difference between indemnity policy and ah and a reimbursement policy? ah We mentioned Social Security and Medicare planning.
00:22:20
Speaker
Do you understand diminished capacity, elder abuse, and end-of-life planning? And this is really important because, you know, increasingly as people age, ah yet yes, some people will develop Alzheimer's and dementia, but some people will just may experience sort of what might be described as ordinary diminished capacity,
Elder Financial Abuse and Technology's Role
00:22:39
Speaker
right? There's a famous study that I like to quote from Michael Finke, ah who years ago and ah suggested that as we age,
00:22:49
Speaker
unrelated to dementia, unrelated to Alzheimer's, our financial numeracy declines. And yet our confidence level and our decisions rise. Well, in essence, stays the same, but I like to say it riser. So and to me, what it means is as we age, we begin to start making, ah we we start to become increasingly more confident about the bad financial decisions we make.
00:23:11
Speaker
I think when people hear anything about other elder plans, their mind kind of goes to scams against seniors. kind Can you touch on that briefly? Yeah, so this is incredible. So the FBI produces a report that looks at elder abuse every year in 2023, $12 billion, dollars nearly a million cases reported. A third of the cases, $1.3 billion worth age 65 and older if memory serves. And what's interesting is most of the scams A lot of the scams have to do with ah that ah tech support and government impersonation scams. So that's a case where you you know might get a pop up on your computer that says your computer has been infected by a virus, click here so we can fix it. And the next thing you know, all the pack breaks loose. ah Likewise, government impersonation, you might get a ah call from someone saying that they're with the Social Security office or the IRS or the Medicare office.
00:24:06
Speaker
And they're going to tell you that we're going to cancel your benefit, or we're going to cancel your Medicare, or some odd thing like that. And next thing you know, you're turning over your bank routing number and and and account numbers. and and and you know and And unfortunately, in many of these cases, the money's never recovered. so And then the other two scams that I should mention very quickly would be the grandparent relative and distress scam, which is getting worse and worse by the day because of AI, Travis. So in the old days, someone might get a call Hey, Grandpa, do you know who this is? And the grandfather would be like, ah Johnny, is that you? Yeah, Johnny, yeah I'm in Laramie, Wyoming. I just got pulled over for speeding and and um and I need some bail money to get out of jail, blah, blah, blah. Now, because of AI, ah they have Johnny's voice already, right?
00:24:55
Speaker
And so now the call goes like this, grandpa, it's Johnny. and it And for all intents and purposes, it's Johnny because they clipped his voice from TikTok, Instagram real, YouTube, who knows where.
00:25:07
Speaker
but they have this voice now. And now there's no doubt about whether you're gonna fall for this. In fact, you know Warren Buffett at his most recent Berkshire Hathaway meeting played a video of an AI generated version of him talking about an investment. And he says, it looks so real, I would have believed it myself if if I didn't know that it wasn't me. and So I wanna ask, how would an elder plan created today differ from one 10 or even 20 years ago?
00:25:34
Speaker
Yeah, so I think a couple things. One is ah ah there's there's all these elements that we talked about, diminished capacity, elder abuse, end-of-life planning, ethical wills, which I didn't mention, but I think that's an increasingly important part of an elder plan. Now, an ethical will, you might say, what's that? And you say, well, I already have a will. And you say, yes, that's for the disposition of my assets. But an ethical will really is a love letter to your loved ones about who you were and what you stood for and what you valued and why you did what you did, right? So they they have a memory.
00:26:04
Speaker
of not just you know the money part of you, but the human part of you. So an ethical will becomes a really important part. The other thing I would mention too is in the old days, you might say, I need to do this alone. Not today. Today you might need an elder planning team. So today what you might need is a geriatric care manager. You might need an elder law attorney. ah You might need a CPA, right? You're going to need a whole host of people who understand the elder planning issues and that could be housing, it could be medical stuff, it could be ah the state planning stuff, etc. So I think today the difference is it's just harder and it becomes even increasingly more difficult today. The the other thing i'll I think I should mention too is when I um mentioned elder fraud, we talked about it.
00:26:48
Speaker
ah There's a service that advisors should take advantage of if they haven't already. It's called olderadultnestag.com. And what it does is it allows you as a financial professional to give your clients an assessment of how vulnerable they might be to scams. And the assessment will tell you no thing to worry about, some worries, major concerns.
00:27:08
Speaker
And so what you want to do is, if there are no concerns, you might say to your client, hey, great, we're we're we're free and clear at the moment. we're but We're going to do this assessment every year so I can track whether or not you're becoming susceptible over time. And some of the some of the susceptibility, there are four factors that Wayne State University wayne state university is ah is the entity that offers this assessment test.
00:27:28
Speaker
And there are factors like, do you have social isolation? Are you a widow ah or a widower? Do you have low financial literacy? um Do you have ah low social fulfillment needs? So there are some factors that you know you as an advisor can look at sort of independent from the assessment and say, I think you you know we need to keep an eye on this. And so that's part of an elder plan too, is to say, we're gonna sort of protect you against elder fraud. Now, the one thing I'll mention Travis, which I think sometimes get overlooked when we think about grandparent scams and romance scams and cryptocurrency scams is that most times the perpetrators are family and friends.
00:28:04
Speaker
bu um um boiler ah Spoiler alert. So I think, you know, people need, advisors need to be on guard for the possibility Now it's rare that people go into conservative shift or guardianship, but they still need to be aware of the conflicts of interest that exist on the part of family and friends when it comes to the client's assets. Yeah. No, I said sometimes the calls coming from inside the house. So if I bummed, bundle all this up, and by the way, that sounds like a phenomenal tool that you mentioned there. You want to repeat that? You said it was yeah it's older adult nest egg.com and they have ah several assessment tools.
00:28:42
Speaker
They have a tool that financial professionals can use. They have a tool that like psychologists and psychiat psychiatrists can use. They have a tool and that caregivers can use. They have one that where a consumer can just go on their own and take the assessment test. And then the last thing that they offer is something called the SAFE program, which ah provides one-on-one counseling if you've been scammed and will help you try to retrieve the money that you've lost. Now, probably nine times out of 10, you're not going to retrieve the money if you've been scammed.
00:29:10
Speaker
Just to button this thing up, I wanna talk about the conversation, right? We know the tools, they can be effective. How can a financial professional help clients talk about that and have that
Family Meetings and Retirement Readiness
00:29:20
Speaker
tough conversation? What did but advice can you give there? Yeah, so I think you know the important thing is to have a family meeting. And ah in some cases, if you're not sort of have the knowledge, skills, abilities to conduct a family meeting, you may need to work on with on your elder planning team with a mediator, someone who's skilled at holding a family meeting, right? and these family meetings are designed to sort of
00:29:41
Speaker
avoid what most people never avoid, which is the crises. right So for you as a financial advisor, the sooner you can ah persuade your client to have a family meeting so they can talk about their wishes, right how they want their assets to be disposed, how they where they want to live, how much care they want to have, who will be their health care proxy, et cetera, et cetera, et cetera, the better it is you'll you know be able, I think, to have a much more fulfilling and enriching relationship with your client.
00:30:11
Speaker
The people that I always talk to like who are sort of most satisfied in retirement with their advisors are the ones who used to say, you know before I retired, I used to worry about money 90% of the time. But now that I'm retired, and thanks to my advisor, I only worry about 10% of the time, if at all, because we work through all of this, and I now have the peace of mind to go do what he said or she said I could go do,
00:30:32
Speaker
and not worry about the money. And I think that's you know ultimately what you need to do when you have these family meetings is you want people not to worry. like who's gotnna Who's going to care for mom and dad ah if they have an incident that requires caregiving? you know Is it going to be unpaid caregiving or do you have the assets to pay for a paid caregiver? right it's it's It's better to sort of address this and it before the crisis happens because you can't do it in the middle of a crisis.
00:30:59
Speaker
No, absolutely. I i think it's if if you can transform the question from what keeps you up at night to what gets you out of bed in the morning, I think you're on the right track. um So I want to pivot them to in income planning. I know we touched on the bid already, but I do want to go back to that 4% rule, which you've compared ah retirement rules like that um withdrawal rate as quote, ah ah junk science. How do you think about income planning for retirement and what strategies or approaches do you think are effective? Yeah. So let let let me um let me start by saying, I think what we need to do is reevaluate how we assess retirement readiness, Travis. So right now, a good many financial advisors will will rely on Monte Carlo.
00:31:42
Speaker
and ah And I'm not entirely sure that that's the best way to do it or the only way to do it, right? Because people are all over the board about, oh, we need a 70% probability of success or 80% or 90% or whatever it might be. Derek Tharp at kids.com once wrote a piece that said you could use 50% as your probability of success and still likely achieve your goals, which is right to me insane a little bit, right? So so I think we placed too much emphasis on Monte Carlo. What I would suggest is that we need three measures of retirement readiness.
00:32:12
Speaker
Monte Carlo for sure, because it's forward looking. Then I think we need need two other measures that one are current looking and one that's backward looking. So the current looking one is something that might be described as asset over liability matching. And this would be a case where you might take the net present value of your stream of income and your assets and then see and then look at the present value of your liabilities in in retirement.
00:32:36
Speaker
And then if you're over 100% in terms of assets over liabilities, ah one green light there. If you're at 70% or 80% on Monte Carlo, one green light there. And then the last thing is something that was developed by Jim Otar out of Canada, which he called Afcasting, which is really a backward-looking measure of whether your assets would have sort of ah ah you know been in existence over the course of the plan of ah the retirement plan. So if you were to use these three measures and all three measures came up green, then I'd say, yes, you're ready to retire financially. where we have We have to talk about the emotional aspects of retirement, but but as at least from a money perspective and and from a perspective of looking forward, backwards and in the in the present, ah you're safe to retire. And that to me would be those three measures. So then now let's go to income planning.
00:33:26
Speaker
I mentioned earlier that you know the four box strategy is one where you might say, let's take our guaranteed sources of income, whether it's social security, a pension, um or some other rental income, maybe whatever it might be. and ah And do we have enough income to match our essential expenses with those guaranteed sources?
00:33:44
Speaker
And if not, according to the four-box strategy, what you might do is to say, well, we're going to take some of our ah risky assets and and then fill the gap somehow, some way with those assets. And that could be and and a mix of things, an annuity withdrawal plan or or some other you know method. and And then that way you could say to the client, hey, we've now created an income plan where at least if nothing else, your essential expenses are covered. As for your that's for your discretionary expenses,
00:34:13
Speaker
whether that might be a trip to Disney World with the grandkids or, you know, you want to go visit all 400 plus ah national parks, which is what I want to do someday. But I'll drive in a, ah whatever, a camper van or something ah to ah you know Yosemite or the Grand Teton or wherever it might be and work a little bit by day, write a column or two, do a podcast or two, and then go hype and whatnot the rest of the time.
00:34:40
Speaker
um We talked about the 4% rule, and you wrote about it and clients needing the freedom to spend. I would love you to say that ah louder for the folks in Beck, more early in retirement, because that that aligns with my philosophy. I want to spend more. Yeah, so I think it it comes from a couple things. so So first of all, when we think about the 4% rule, it's it's it's it's kind of static, right? what What Bill Bengen had said way back when was,
00:35:03
Speaker
but withdraw 4% of your portfolio and then just it for inflation over the course of 30 years and you won't run out of money. But that's not how people spend money in retirement. but you know How they spend money in retirement is actually lumpy in part. you know you've You've got a roof a roof to replace, a new car to buy, ah ah a grandkids college education or wedding to pay for, it whatever it might be. right So whatever your plan is, it's likely to go off the rails because that's not how people spend money in in retirement. So it's not a ah straight line upwards in terms of you know income.
00:35:31
Speaker
um It's also not a straight line in terms of real expenses. So David Blanchett and other entities, the Rand Corporation among them, have suggested that, well, what really happens in retirement is on a real basis, it declines almost 2% per year, called 1.8% per year. So that means that you're when you're planning planning for retirement, ah you might think that your expenses are going to rise over time But they're actually declining because you're spending less. You're spending less on a trip to Disney World. You're not going to spend that money on a um on on travel that you used to. ah Yes, you might spend a little bit more on health care, but all the other expenses are declining, including food and dining out and things of that sort. So what people need to realize is that as they project what their expenses will be over the course of retirement and how much money they'll have at at the end of this or that year,
00:36:22
Speaker
ah It could be completely wrong. and And so what people are saying is, well, I don't want to die broke. I don't want to live my assets. But the truth of the matter is, especially if you're working with an advisor who's monitoring your plan, who's monitoring your withdrawal rate, monitoring your account values, ah monitoring your spending.
00:36:41
Speaker
what's going to happen is you have more than enough money during the go-go years to spend than you might otherwise think. And that to me is, so to me, one of the things that people need to do, I always think about retirement income or expense planning as a row and column exercise. And if you're able to show a client, not like, you know, some PDF generated software, you know, produce report, but actually show them ah spreadsheet where you've done the crunching of the numbers to calculate how expenses decline on a real basis over time, you've now given them the freedom to spend earlier in retirement. right And and and and and then I think that's, again, we talked about
00:37:21
Speaker
Holy grails. Uh, this is a holy grail, right? Like, you know, people want to have, you know, the advisor has to give the client permission to spend the money early on knowing full well, yes, we can't predict the
Beyond Finances: Health, Choice, and Social Factors
00:37:34
Speaker
future. We can't predict when you'll die. We can't predict what market returns will be, but given the information that we have today, you can spend it.
00:37:42
Speaker
and And if we have to adjust it later, we can, right? And that's the other interesting thing, Travis. Research has shown that regardless of your income, people in retirement are generally satisfied if three things occurred. They retired in good health, ah they retired on their own terms from their employer, and and that they're still married.
00:38:03
Speaker
I'll end with this because it's something we kind of glanced over, but I want you to kind of take us home on this one. We talked about the monetary, ah but I want you to to drill down on the mental shifts that financial professionals need to help their clients with.
00:38:19
Speaker
Yeah, so if this falls outside the traditional knowledge that they might need, I'll give you one example. I i listened to a speech by Saria Kalori from another institute, and what he talked about was, you know, financial advisors and really need to think outside the box in terms of how they can help their clients. So he gave a couple, two examples that I think were interesting. One is, have you ever asked your clients how much sleep they're getting a night, right? How much their sleep they're getting per night matters to their cognitive health, to their financial health, right? So it's not a question that advisors typically ask, but you might want to sort of get familiar with your client's sleep patterns. The other is, how many friend groups do you have? The fewer friend groups you have, the more likely it is that you're going to suffer from cognitive decline and then
00:39:04
Speaker
it worsen your financial health. So if you have four friend groups, um all the better. If you have zero friend groups, you know maybe it's time to ask your client to get involved in the senior center or the men's club or the this, that, whatever it might be, because you need friends. You can't be socially isolated as you age. um And I think the other thing is really important as I think about how to help people is is is this notion of the the ill adverse effects of unpaid caregiving on a family member. So you you as a, you know, yeah the advisor has a client, um they haven't prepared for what's going to happen from a healthcare perspective.
00:39:46
Speaker
And all of a sudden there's a stroke or a heart attack or some event where now typically the oldest daughter has to care give. And at great risk to that person's you know sort of finances. right they'll they lose out out If they have to leave the workforce, they're going to lose out on contributed social security, contributing to their 401k. They may they've they now have lost wages.
00:40:07
Speaker
ah They may have trouble reentering the workforce. So I think it's really important to sort of, you know, not just talk to their client about their money, but talk to their client about their family, and especially this possibility of unpaid caregiving and how it might impact them. Again, leave nothing to chance there. um the The other thing i'll I'll mention too, I know this is sort of not the question that you asked, Travis, but i I should mention it. um we We began writing a series called Man vs. Machine.
00:40:33
Speaker
And I mentioned AI a little bit ago becoming very prevalent in the world. um Advisors and their clients need to make sure that they're not trusting AI for technical knowledge.
Cognitive Biases and Financial Literacy
00:40:43
Speaker
So in this series that we run, Travis, we call it Man vs. Machine. We ask it a personal finance question, and then we give the answer to that chat or perplexity your Gemini has given to us. We give it to a subject matter ask expert to ask them to critique it.
00:40:55
Speaker
ah what did What did the AI get right? What did it get wrong? And what are the material omissions? And what I've discovered over the course of doing this series is don't trust it for personal finance questions. It will steer you wrong. And ah there are bad mistakes that could happen because because of it. And then finally, finally, finally, finally, maybe it's not finally, you may have met all the questions, is I think advisors ah really um need to understand biases, the cognitive biases that affect us all.
00:41:24
Speaker
You know, are you a grant is your client ah an ant or a grasshopper? Do they have present bias? ah Do they have recency bias? Do they have overconfidence bias? us Becoming familiar with biases can go a long way toward helping clients avoid financial decision mistakes. So Bob, I have a couple of final questions we ask for all of our guests, and this is kind of where we get to see your human side. And so the first one is this. What's something you wish you would have known about retirement when you first started working?
00:41:53
Speaker
Yeah. So I mentioned a second ago, and having an understanding ah of our biases. And I think for me, that's the biggest one. When I think back to when I entered the workforce, now this was in the early 1980s. And I like to describe it as a time when the social contract with workers was being ripped up and thrown away. And that social contract at the time, previous to the 1980, might have been that you went to work and your employer was going to give you a defined benefit plan.
00:42:22
Speaker
When I went to work, there was no such thing. So the social contract of having a defined benefit plan went away, but I don't think I quite understood the ramifications of it at the time. And I remember having a boss who used to say, and at the time we didn't have a 401k at the company, the only thing that we could save for and invest for and was an IRA. And he used to tell me, you know I'm all of 22, 23 years old, ah you better start saving for retirement in your IRA.
00:42:50
Speaker
And, ah you know, I didn't understand that I had present bias, right, that I that i sort of i thought the dollar that I had in my pocket today was more valuable than the dollar that I might have had tomorrow or the hundred dollars I might have had in 30 years hence.
00:43:03
Speaker
And so I think for me, if I had to go back in time, I would be much more appreciative of the fact of some things that we're going to talk about in a second. But this notion of sort of, you know, setting aside today, right, being the ant instead of the grasshopper, being the person that set aside a little bit at a time in the hopes that over the course of 30 or 40 years, you would have a pile of money.
00:43:26
Speaker
And so for people who start late, they have to catch up. Right. And so for me, if I had started earlier, I probably wouldn't have have had to catch up as much as I did. Gotcha. It's a beautiful answer. Plus, we know you're never going to stop working. So.
00:43:38
Speaker
ah You're gonna be just fine. Okay, final question. What have you learned through your work that you wish everyone knew about preparing for retirement? Yeah, so it sort of speaks a little bit to what I just said. I'm fond of the work that Anna Marie Lucardi and Olivia Mitchell have done on financial literacy and that folks who are listening have not paid attention to their work. They should.
00:44:00
Speaker
ah They have these three questions that would that they devise that help get us help people understand how financially literate they are. And the the questions get to very basic concepts. you Do you understand interest? Do you understand inflation? Do you understand risk? And do you understand diversification? ah Those things, right? The basic sort of blocking and tackling things that I once explained to a man way back when in a Sears store are,
00:44:28
Speaker
ah trapped in a Sears store, unable to close him, are the things that you know that I wish everyone knew. right I think if that gentleman had come in with an understanding of you know how interest works, how interflation works, how risk works, how diversification works, I might not have gotten trapped in that Sears store because we would have been talking about you his investment plan instead of me educating him about the things, these basic economic investment concepts.
00:44:57
Speaker
And these basic financial literacy concepts will never leave you, right? Once you learn them, whether it's in high school or college or your first job at work, ah they'll never leave you and you'll have a much better appreciation for what you need to do to prepare yourself better for retirement. Good, good. Well, you may not have been able to close all those years ago in Sears. We're going to let you close out this one. For listeners who have enjoyed today's conversation, where can they find you online?
00:45:23
Speaker
MarketWatch dot.com, I write about retirement there. ah We've just launched a weekly podcast for Yahoo Finance. We call it Decoding Retirement. And so ah that you can find me there. ah You can find me occasionally on Investors Business Daily. and And then you can also go to FinStream dot.tv where we've launched a new series of personal finance videos designed to help people become financially literate. So that's another place you can find me.
00:45:49
Speaker
Oh, oh, wait, and one last place. I forgot ah all about Retirement Daily on the street. So RetirementDaily dot.net, you can find us there. We're publishing daily about with retirement news and education there. All right. Well, let's say we could not have asked for a better conversation. This was remarkable. I thank you so much for your time today. Thank you, Travis.
00:46:09
Speaker
That was a fantastic conversation with Bob Powell. I hope you got something out of it. There's a lot of discussion about the crisis facing tomorrow's retirees. But that puts more of the burden on financial professionals to really dig into all the aspects of retirement and income planning. Because if you aren't doing it, someone else will.
00:46:28
Speaker
Thanks for listening to Rebuilding Retirement. Remember, all our past episodes are still available, and the more you listen, the more you'll get a wide angle view of the issues surrounding retirement readiness, and most importantly, how you, as a financial professional, can respond. If you're enjoying these conversations, please subscribe and consider giving us a review on Apple Podcasts or Spotify. See you back here next time. I'm Travis Walker.