Bogleheads® Conference 2023 - Dana Anspach & Jon Luskin on Planning for Retirement

00:00:00.000 | (audience applauding)

00:00:03.160 | - All right, folks, welcome to our second breakout session

00:00:09.900 | for retirees and pre-retirees.

00:00:11.560 | My name is John Luskin.

00:00:13.020 | Joining me today is Dana Anspach,

00:00:15.180 | and I'm gonna read her a little bio.

00:00:17.180 | Dana is the founder and CEO of Sensible Money,

00:00:20.940 | a firm specializing in retirement income planning.

00:00:24.020 | She's the author of "How to Plan

00:00:25.620 | "for the Perfect Retirement," a lecture series,

00:00:28.460 | and "Control Your Retirement Destiny," available on Amazon.

00:00:33.220 | So, folks, I'm gonna start with a Q&A

00:00:35.740 | that I got from the Bogleheads community online

00:00:38.640 | before the conference.

00:00:41.020 | And then if you have a question for Dana,

00:00:43.820 | then Christine Benz up front,

00:00:45.660 | she is gonna be collecting your questions.

00:00:48.220 | So give your questions to Christine,

00:00:50.180 | and then she'll hand them to me,

00:00:51.260 | and then we'll answer your questions.

00:00:54.920 | So let's get started from those questions

00:00:57.160 | we got from the Bogleheads community.

00:00:59.060 | And the first one is from Greg Wilson

00:01:03.780 | from Bogleheads Twitter, who writes,

00:01:07.240 | "Ask her to name her three most common

00:01:10.200 | "tax mitigation recommendations."

00:01:13.500 | - Ooh, tax mitigation strategies.

00:01:16.980 | Well, I would have to ask Greg,

00:01:18.700 | does he mean long-term tax mitigation or short-term?

00:01:22.460 | I will kind of assume he means long-term.

00:01:25.900 | So when we're talking about retirement income planning,

00:01:28.220 | we're typically looking at how do we reduce

00:01:30.180 | the tax liability over the course of your life,

00:01:33.060 | which is very different than how do I reduce

00:01:34.960 | the tax liability next year?

00:01:37.100 | And so I would have to put at the top of the list

00:01:39.740 | would be Roth conversion strategies.

00:01:41.980 | Absolutely, when done correctly

00:01:44.420 | and filling up to a marginal bracket

00:01:46.900 | using some of the types of analysis that Wade showed,

00:01:50.240 | you can reduce someone's lifetime tax liability.

00:01:53.980 | Now included in that lifetime tax liability,

00:01:56.380 | we might also count IRMA premiums.

00:01:58.740 | And so when you're reducing the RMDs later in life,

00:02:01.820 | you can have a meaningful impact

00:02:03.600 | on someone's long-term tax liability.

00:02:06.320 | Probably number two would be simply

00:02:09.740 | managing gains and losses.

00:02:13.340 | And so we have seen people in their first few years

00:02:16.380 | of retirement who would be able to realize capital gains

00:02:20.460 | in the 0% bracket with proper planning.

00:02:23.460 | And so that can be pretty meaningful.

00:02:25.820 | And I might put number three would be qualifying people

00:02:28.740 | for the healthcare tax credits.

00:02:30.660 | And so if we have someone retiring earlier than 65,

00:02:34.860 | we've had people with close to $3 million portfolios

00:02:39.860 | that for several years, all the way up until they turn 65,

00:02:43.980 | were able to qualify them for those tax credits

00:02:47.700 | just by where and how they take their cash flow from.

00:02:51.100 | So they're not living on nothing,

00:02:52.860 | but the way you're structuring the portfolio

00:02:55.500 | and the cash flow, you're able to keep their AGI low enough

00:02:58.820 | that they're qualifying for those tax credits.

00:03:00.940 | And in one case, that added $30,000 a year.

00:03:04.780 | So it was $30,000 a year of tax credit subsidies.

00:03:08.020 | So that would probably be, when I think of long-term,

00:03:10.740 | probably the top three.

00:03:12.260 | - Yeah, absolutely.

00:03:13.180 | Let me ask a follow-up question about that.

00:03:14.660 | With respect to the Roth conversion planning,

00:03:16.740 | does it always make sense to do a Roth conversion?

00:03:19.060 | How do you know a Roth conversion

00:03:20.460 | is gonna be the right strategy for a retiree or pre-retiree?

00:03:24.420 | - Well, with a lot of analysis. (laughs)

00:03:28.220 | So we use projection software that maps out

00:03:32.100 | someone's tax rate now, someone's tax rate later.

00:03:35.180 | And when I say tax rate, it's not just the marginal tax rate.

00:03:39.460 | It's including all of the things that Wade talks about

00:03:42.540 | in terms of how much of your Social Security is taxed

00:03:45.460 | and you'll be subject to an IRMA premium.

00:03:47.820 | And if we do this, will it push you into a higher

00:03:50.340 | capital gains tax racket?

00:03:52.220 | So all of that is factored into that long-term tax analysis.

00:03:56.420 | So it's not as simple as saying what's my marginal rate now

00:03:59.700 | and what will my marginal rate be later?

00:04:01.780 | Because it gets more complicated in retirement

00:04:04.380 | with all of the different formulas

00:04:05.860 | that are tied to some form of modified adjusted gross income.

00:04:10.020 | And so we map it all out now through your lifetime

00:04:14.180 | and then do a form of testing that says,

00:04:16.580 | well, if I did this series of Roth conversions,

00:04:19.420 | does that make your plan look better, more funded?

00:04:24.020 | So we use the same kind of fundedness analysis

00:04:26.580 | that Wade was talking about.

00:04:28.660 | And we can quantify everything into that number.

00:04:31.180 | Did this decision add fundedness?

00:04:33.500 | Did it increase your fundedness?

00:04:35.260 | Or did it decrease your fundedness?

00:04:37.260 | And so it's not easy to determine it

00:04:41.020 | if you wanna do it in a mathematical way.

00:04:44.460 | - Certainly, and you touched on with respect to,

00:04:46.620 | because it can be so complicated

00:04:48.060 | because of the IRMA breakpoints, et cetera.

00:04:50.180 | Folks certainly don't wanna be doing this on a spreadsheet.

00:04:52.380 | To paraphrase Mike Piper,

00:04:53.980 | he talked about this at last year's conference.

00:04:56.260 | There's a great video up that you can find

00:04:58.860 | on the Bogle Center that he goes over

00:05:01.580 | how to do Roth conversion planning for do-it-yourselfers.

00:05:04.580 | And he says, hey, you wanna use some sort of software,

00:05:07.180 | don't do it on a spreadsheet

00:05:08.200 | because the tax code just is that complicated.

00:05:12.340 | Let's jump to our next question.

00:05:14.520 | This one is from Ryan Richardson from Bogleheads Facebook

00:05:18.900 | who asks about the age in bonds rule.

00:05:21.700 | So probably this doesn't need much explanation,

00:05:24.880 | but the age in bonds rule is,

00:05:26.300 | hey, if you're six years old,

00:05:27.740 | then you wanna have 60% of your portfolio in bonds,

00:05:31.620 | the rest in stocks.

00:05:32.580 | What's your take on that age in bonds rule?

00:05:34.980 | - Well, I've never been a fan of that age in bonds rule.

00:05:38.680 | I think a much more customized approach

00:05:41.500 | is more appropriate.

00:05:42.920 | So the amount of cash flow that we might need

00:05:45.840 | from our portfolio isn't really dependent on our age.

00:05:48.700 | There's all kinds of other circumstances

00:05:51.080 | that can come into play.

00:05:52.620 | You might have plenty of cash flow

00:05:54.260 | to cover all your needs despite your age.

00:05:57.340 | And so I'm a fan, as you know,

00:06:00.220 | if you've been listening to my presentation yesterday

00:06:03.060 | of implementing bond ladders,

00:06:05.020 | of actually using what is called

00:06:06.620 | an asset liability matching approach

00:06:08.820 | where you're determining the amount of fixed income

00:06:11.600 | by the years of cash flow that you want covered.

00:06:15.460 | And so that's a very personalized analysis.

00:06:19.400 | If you study some of Michael Kitsy's work

00:06:22.460 | and Wade was referring to a paper that he and Kitsy's did

00:06:26.020 | where they talk about your glide path in retirement,

00:06:29.500 | there is some thought of creating

00:06:31.020 | something called a bond tent

00:06:32.820 | where you would have a higher allocation to fixed income

00:06:36.020 | to cover what are called the retirement red zone years,

00:06:38.900 | that five years leading up to

00:06:40.660 | and perhaps first five to 10 years of retirement

00:06:43.380 | where you can be at the greatest risk of sequence risk.

00:06:46.060 | And so you could have a much higher allocation

00:06:49.100 | to fixed income as you're approaching that retirement date

00:06:52.180 | and then actually let that fixed income allocation

00:06:55.460 | decline a bit, which would be the opposite

00:06:57.860 | of the age and bonds rule.

00:06:59.200 | So of course, you all have to make that decision

00:07:02.140 | for yourself, but I don't like the just automated rules.

00:07:06.260 | I think looking at it in relation to your actual situation

00:07:09.740 | makes the most sense.

00:07:11.180 | - Yeah, no, certainly I agree with you.

00:07:12.660 | As you move into retirement,

00:07:14.300 | yes, you wanna be taking less risk,

00:07:16.220 | but then that first day of retirement at that point,

00:07:19.060 | maybe it doesn't make sense to decrease risk at that point.

00:07:21.980 | It might not be completely unreasonable

00:07:23.540 | to increase the amount of risk that you're taking.

00:07:26.700 | So let's say the age and bonds rule is good up to a point,

00:07:29.860 | the first day of retirement after that,

00:07:31.380 | it might not be as useful.

00:07:33.460 | We've got one more question from the Bogleheads community

00:07:35.820 | that I got beforehand.

00:07:36.780 | If you've got your question,

00:07:37.940 | make sure to give it to Christine Benz.

00:07:39.480 | She's up front here.

00:07:40.380 | She's gonna be our question moderator.

00:07:42.280 | All right, so our final question that we got beforehand

00:07:46.180 | from the Bogleheads community,

00:07:47.260 | this one is from Patty Fairchild from Bogleheads Facebook,

00:07:50.180 | who asks about alternative assets,

00:07:53.220 | such as private equity and private credit.

00:07:55.460 | What role do they have in a retirement portfolio?

00:07:59.380 | - Well, I could give the very simple answer

00:08:01.820 | that William Bernstein gave earlier and just say none,

00:08:05.300 | but that wouldn't really be the answer.

00:08:07.480 | I've been practicing as a financial planner since 1995,

00:08:11.740 | and I've had clients come in

00:08:13.520 | that did all kinds of private equity,

00:08:15.500 | private credit investments,

00:08:17.140 | and that's a pretty broad category in itself.

00:08:20.580 | Oftentimes it's, you know, a friend is starting this,

00:08:24.640 | or I've heard about this private offering,

00:08:27.300 | and without exception,

00:08:30.660 | I have seen every single one lose money.

00:08:33.740 | Every one.

00:08:35.780 | Now, the one exception was a company called iMortgage

00:08:39.220 | that the client invested 25,000,

00:08:41.740 | and I think it turned into about half a million

00:08:43.740 | over a 12-year period.

00:08:45.020 | So it was, you know, by far a winner.

00:08:48.260 | But when you're looking at private equity,

00:08:50.340 | private credit investments, you know,

00:08:52.700 | as we say, there's no free lunch,

00:08:54.340 | except apparently for the Vanguard

00:08:55.780 | Total Market Index return fund,

00:08:58.060 | where maybe there is some free lunch right now.

00:09:00.340 | But typically, higher returns mean higher risk.

00:09:04.140 | And so you have to decide, like, is it worth it?

00:09:08.540 | You know, what's the potential value

00:09:10.540 | that adding this asset class

00:09:11.980 | is really gonna do for your portfolio?

00:09:13.740 | They're often illiquid asset classes.

00:09:16.300 | I don't like illiquidity in retirement.

00:09:19.100 | And are you really gonna get enough

00:09:21.060 | to have, you know, potential return

00:09:23.620 | to make that additional risk worth it?

00:09:26.260 | In most cases, I think the answer is no.

00:09:28.860 | Where I could see it be appropriate

00:09:31.100 | is when you're talking about much higher net worth clients,

00:09:34.180 | you're talking about $20 million portfolios

00:09:36.660 | where they're really looking at adding diversification,

00:09:39.500 | then maybe adding some of those alternative asset classes

00:09:42.500 | starts to make sense.

00:09:44.340 | - So to be a bookhead, I'll say one thing

00:09:46.740 | that's really important that's missing from this question

00:09:48.580 | is what are the fees, right?

00:09:49.660 | We're asking about an investment,

00:09:51.060 | but we're totally ignoring the fees.

00:09:52.420 | And that's the problem with a lot of the private investments

00:09:54.660 | that are out there.

00:09:55.860 | Yes, maybe you're able to access a different asset class

00:09:58.820 | as sexy as it is,

00:10:00.220 | but you're ignoring the really important factor of cost.

00:10:02.620 | So once you factor in cost,

00:10:04.180 | maybe these products aren't gonna perform

00:10:06.180 | as you think they might.

00:10:08.020 | So Christine is going around now collecting your questions,

00:10:11.540 | and I will wait for her to come back

00:10:14.940 | 'cause I can ask you another question in the meantime.

00:10:18.740 | So let's, thank you.

00:10:20.860 | So let's start with where often do you see money

00:10:24.940 | getting left on the table when it comes to retirees?

00:10:28.100 | - The biggest areas I've seen money left on the table

00:10:32.500 | would be people who don't do planning.

00:10:35.580 | And by money left on the table,

00:10:37.580 | a lot of people are gonna be fine following a rule of thumb,

00:10:41.580 | and they're not gonna run out of money.

00:10:43.340 | But as Mike Piper was just talking about,

00:10:46.700 | that idea of giving more or you have enough,

00:10:50.860 | and so what do you really want to do?

00:10:53.660 | And we talked to our clients about this also

00:10:56.540 | in terms of what are the things

00:10:58.340 | that can really make a difference?

00:11:00.340 | And so it's not leaving money necessarily on the table,

00:11:03.980 | but quality of life on the table,

00:11:06.180 | or we have a client who, as most of you are, very frugal,

00:11:10.820 | and that's why they've been successful at saving.

00:11:13.140 | And so when we talked about spending more,

00:11:15.420 | I didn't mean much to them,

00:11:16.980 | but they have a family member

00:11:19.420 | who has always lived paycheck to paycheck

00:11:21.540 | and had some healthcare problems,

00:11:23.620 | and they thought, "Wow, if we can give this person $10,000,

00:11:27.220 | "what a difference it would make."

00:11:29.200 | And they did.

00:11:30.780 | And this person at first was just like,

00:11:32.600 | "Why are you doing this?"

00:11:33.660 | And they explained their rationality.

00:11:35.400 | They had read the book "Die With Zero."

00:11:37.500 | And it just, you know, they were able to firsthand see

00:11:42.060 | what was the impact that they made on this person's life.

00:11:45.220 | And so that can be something that gets left on the table,

00:11:48.180 | that if you didn't do the proper planning

00:11:51.060 | and know that you could do this,

00:11:52.380 | you missed out on that experience.

00:11:54.340 | - We've got a follow-up question

00:11:57.260 | to what we were talking about earlier,

00:11:58.500 | which is that age and bonds rule.

00:11:59.900 | So related, is a Vanguard target date fund adequate

00:12:03.100 | for a retirement portfolio?

00:12:04.660 | When would it not be adequate?

00:12:06.360 | - Is it adequate?

00:12:08.980 | Yeah, you know, I think it would be.

00:12:11.460 | I think, who was it that talked about

00:12:14.420 | the reasonable retirement portfolios?

00:12:16.100 | Jim.

00:12:17.020 | And so I haven't seen that,

00:12:19.100 | but it sounds like there's hundreds

00:12:20.300 | of reasonable retirement portfolios.

00:12:22.140 | And I think a Vanguard target date fund

00:12:24.380 | could be one of many of those options

00:12:27.200 | in terms of reasonable retirement portfolios.

00:12:29.940 | Could you have a different approach that, you know,

00:12:33.060 | it's all that might allow you to have different results

00:12:36.220 | or different outcomes?

00:12:37.260 | Yes.

00:12:38.080 | But is it a reasonable approach?

00:12:40.500 | Absolutely.

00:12:41.660 | To me, what's most important

00:12:43.660 | is whatever approach you're gonna use,

00:12:46.620 | is you stick with that approach.

00:12:49.060 | And so where I see the most trouble happen

00:12:52.280 | is people start and then they jump ship

00:12:54.780 | and then they jump ship.

00:12:56.100 | And oftentimes those times

00:12:57.740 | where they're making a big shift are,

00:13:00.420 | they may not think so,

00:13:01.460 | but they're because of market-driven events

00:13:03.420 | and perhaps emotionally they're fearful

00:13:05.940 | that they made the wrong decision.

00:13:07.620 | And those changes end up hurting them a lot more

00:13:11.060 | than if they had just stuck with whatever strategy it was

00:13:13.620 | that they wanted to follow

00:13:14.740 | and used it in a very disciplined fashion

00:13:17.980 | throughout their retirement years.

00:13:20.500 | When would a target date retirement fund

00:13:23.900 | not be appropriate?

00:13:24.940 | Well, (laughs)

00:13:30.460 | I can tell you, so as a financial advisor,

00:13:33.260 | I wouldn't use a retirement target date fund

00:13:35.980 | because I feel like people are paying us

00:13:38.980 | to do something that is more customized.

00:13:42.260 | It is more complex.

00:13:44.300 | And so does that complexity pay off?

00:13:47.540 | We're not being paid

00:13:49.140 | to necessarily deliver a superior result.

00:13:52.500 | It may or may not.

00:13:53.780 | We know we can't guarantee that,

00:13:55.580 | but we are being paid to manage risks and outcomes

00:13:59.020 | and provide advice and planning.

00:14:01.100 | So if you were to hire a financial advisor

00:14:03.500 | and they were charging you 1%

00:14:04.900 | to put you in a target date retirement fund,

00:14:07.060 | I would think that would be not an appropriate use.

00:14:10.740 | Other than that, if you wanted a very simple strategy

00:14:13.780 | and you were willing to leave it and forget it

00:14:16.420 | and were comfortable having all your money

00:14:18.660 | in a target date fund,

00:14:20.980 | they're very diversified in themselves.

00:14:23.060 | It's very simple.

00:14:24.500 | It could be just leave it alone

00:14:26.300 | and I don't have to think about it again.

00:14:28.340 | - So here's a great question.

00:14:31.700 | Lots of people make some significant financial mistakes.

00:14:35.180 | What are some of the ones that you've seen

00:14:36.940 | that we can avoid?

00:14:38.700 | - Oh my goodness, I have stories.

00:14:42.660 | So the first one that comes to mind is a client.

00:14:47.420 | So he was a pilot and mandatory retirement at 65.

00:14:52.100 | And so we'd been planning for years

00:14:53.740 | and he was gonna be very comfortable and is,

00:14:56.300 | but right before he retired, he came to me and he said,

00:14:59.660 | "Dana, I am not gonna need to take anything

00:15:02.460 | "out of my portfolio."

00:15:04.060 | And I was like, what?

00:15:05.260 | Like, why?

00:15:06.380 | Well, I put this $80,000 in this currency trading program

00:15:11.260 | and it is paying me $5,000 a month.

00:15:14.700 | And I just thought, oh no.

00:15:16.780 | Like, he's getting real checks

00:15:19.420 | and so it's very hard to argue with that,

00:15:22.140 | but you know instantly this is not sustainable.

00:15:24.940 | It can't be true.

00:15:26.340 | And so about four or five months later,

00:15:28.620 | it was of course discovered to be a Ponzi scheme.

00:15:31.260 | And he did get five months worth of checks back

00:15:35.140 | and then lost the remaining amount of the 80,000.

00:15:38.300 | Luckily, that was only a small portion of his portfolio.

00:15:41.860 | His core portfolio remained intact and so he's just fine.

00:15:46.340 | The worst that I saw was a client, she was a widow.

00:15:52.940 | She had four daughters and remarried

00:15:56.580 | and they decided to move their assets to a firm

00:16:00.740 | that was of the same religious affiliation as them

00:16:03.900 | and had thanked me for all our years of service

00:16:07.700 | and they moved on.

00:16:10.540 | And a few years later, I got a call from the husband

00:16:13.580 | and said, we'd really like to come in and see you.

00:16:16.340 | It was a $4 million portfolio

00:16:18.500 | and they came in and brought me all the paperwork.

00:16:20.500 | And I literally remember it turning white as a sheet.

00:16:23.620 | So they had basically signed away all the assets

00:16:27.060 | on three promissory notes

00:16:29.940 | into private real estate lending things.

00:16:33.860 | And I had to send them to an attorney,

00:16:37.660 | contact the local regulators,

00:16:39.660 | but basically that money was gone.

00:16:42.140 | And so that was the worst thing I saw

00:16:45.660 | of someone that based a decision based on trust

00:16:49.240 | and they really got snowballed

00:16:52.300 | and just didn't know enough to know the level of risk

00:16:55.300 | that they were taking.

00:16:56.400 | Those are some extreme mistakes.

00:16:59.760 | Some more common mistakes, concentrated stock risk

00:17:03.660 | and so clients that simply won't diversify

00:17:06.980 | out of a concentrated stock portfolio,

00:17:09.220 | executives at Fortune 500 companies.

00:17:12.940 | I have some that will absolutely

00:17:16.540 | set up a diversification plan,

00:17:18.580 | one that did not and they'll still be okay,

00:17:24.100 | but it's hard to watch.

00:17:26.500 | One of the foundational things I saw

00:17:28.700 | when I first moved to Arizona, I worked for a CPA firm

00:17:31.860 | and we were in Mesa, Arizona, which is pretty close to,

00:17:34.900 | there's an Intel facility down there.

00:17:37.300 | And so we had a lot of Intel clients

00:17:39.140 | and there was a woman who was in mid to late 60s,

00:17:43.180 | she had $10 million in Intel stock

00:17:45.960 | and we were trying to convince her to diversify,

00:17:48.780 | it did not.

00:17:50.100 | And then the 2001, 2002, Intel went down,

00:17:54.100 | I believe it was almost 80%.

00:17:57.260 | I know her 10 million went to three.

00:17:59.740 | And so just someone that refused to diversify

00:18:03.700 | that concentrated stock position,

00:18:06.200 | that's a more common mistake than you might think

00:18:09.180 | and one that could easily be avoided.

00:18:11.820 | - Yeah, no, I certainly see that one a lot,

00:18:13.900 | especially with tech employees, Facebook.

00:18:16.500 | Yeah, Google, yeah, quite a common one.

00:18:18.860 | Folks, I'm gonna keep running through the questions,

00:18:20.660 | but if you have a question, go ahead, write it down.

00:18:22.380 | Christine Benz, she will take her questions from you

00:18:24.620 | and then if you're lucky,

00:18:25.500 | we'll get them answered by Dana Anspach.

00:18:28.900 | Let's, oh, here's a great one.

00:18:31.480 | For someone who will never need to withdraw

00:18:33.380 | from their portfolio because of income

00:18:35.580 | and perpetuity exceeds expenses,

00:18:37.660 | so maybe lots of social security,

00:18:39.420 | maybe some rental property, maybe an annuity,

00:18:42.060 | and the person is comfortable with equity risk,

00:18:44.560 | is there a need for bonds

00:18:46.300 | or significant cash in a portfolio?

00:18:49.100 | - Probably not, although, you know,

00:18:54.820 | my understanding of real estate

00:18:56.460 | and I now own an Airbnb property myself

00:18:59.740 | is it does take deep pockets,

00:19:01.740 | so you have to be prepared

00:19:03.740 | for whatever repairs might come along.

00:19:06.620 | I have a good friend who they built

00:19:09.220 | their entire net worth on real estate assets,

00:19:11.860 | about 10 million.

00:19:13.500 | Her husband's an engineer and so that was her role

00:19:16.100 | was building up their portfolio

00:19:17.700 | and she had several properties in Texas

00:19:21.380 | in the Houston area when the freeze happened

00:19:23.860 | and I remember her telling me,

00:19:25.580 | wow, you know, I never really accounted

00:19:28.100 | for the fact that all of these properties

00:19:30.380 | would be empty at the same time

00:19:32.580 | and I would have to replace all of the pipes

00:19:34.840 | and yes, there was insurance,

00:19:36.080 | but she still had all of the deductible costs,

00:19:38.520 | so would there ever be a case

00:19:40.080 | if someone had real estate investment

00:19:42.140 | where they needed no cash?

00:19:43.900 | You know, probably not.

00:19:45.180 | They're probably gonna need enough cash on the side

00:19:47.700 | to cover these types of situations,

00:19:51.300 | but if they're comfortable being all equity

00:19:53.780 | and they're confident in the cash flows they're getting,

00:19:57.100 | you know, they could certainly have

00:19:59.900 | a much higher risk portfolio

00:20:01.420 | than someone that didn't have that.

00:20:03.260 | The only other thing that I would add to that

00:20:05.380 | is what we saw in 2008 and 2009

00:20:08.380 | is a lot of people that were relying on dividend portfolios

00:20:11.700 | saw their dividends get cut in half

00:20:14.060 | and so when people ask, you know,

00:20:15.620 | why isn't that our approach?

00:20:17.140 | Well, I don't, you know, I don't wanna go through that again

00:20:20.180 | and tell a client, oh, I'm sorry, you know,

00:20:22.260 | you're gonna have half the amount of cash flow this year

00:20:24.260 | that you had last year,

00:20:25.700 | and so if you're relying only on the interest income

00:20:28.940 | that your portfolio produces,

00:20:30.300 | well, that's easier today than it was two years ago,

00:20:33.260 | but at the same time, those dividends

00:20:35.480 | and those interest rates can change,

00:20:37.300 | and so I think you would always want something on the side

00:20:40.600 | to cover those gap years,

00:20:42.500 | to make sure you had some consistency in cash flow.

00:20:45.700 | - Yeah, certainly, so naturally,

00:20:47.540 | we can't give an investment advice here,

00:20:49.020 | so this is for education purposes only,

00:20:51.220 | but it's really dependent upon your personal circumstances,

00:20:53.540 | so maybe it makes sense to be really aggressive

00:20:55.500 | if you don't have any cash needs,

00:20:56.860 | add off from a portfolio, but life is unpredictable.

00:21:00.460 | We don't really even need a freeze in Texas,

00:21:03.140 | it could even be the COVID crisis, right?

00:21:05.420 | So maybe if you even had long-term rentals,

00:21:07.320 | it wasn't even dependent upon tourism,

00:21:09.520 | you know, folks weren't able to make rent,

00:21:10.940 | that can be really hard if you need that cash flow

00:21:13.820 | from your rental property.

00:21:17.620 | - And then if folks want to nerd out

00:21:19.940 | on income investing versus total return investing,

00:21:23.180 | we interviewed Vanguard's Colleen Giaconetti

00:21:25.620 | on episode 26 of the Bill Glatz Live Show,

00:21:28.100 | you can get that wherever you get your podcasts.

00:21:30.500 | All right, here is a great question,

00:21:35.820 | what is the most actionable tip

00:21:38.780 | for those of us 50 years and older?

00:21:43.620 | - Ooh, most actionable, that's a challenge,

00:21:47.760 | because just because you're over 50,

00:21:49.980 | you could still be 20 years away from retirement,

00:21:52.860 | or you could be five years away from retirement,

00:21:55.380 | or you could be wanting to retire in two years,

00:21:57.380 | so it's very difficult to narrow that down.

00:22:00.020 | What I will share is, and I shared this a little bit

00:22:04.340 | on stage the other day, is my own retirement plan,

00:22:07.360 | so I'm 52, I am 100% equity,

00:22:11.020 | and my plan is to do my own projections,

00:22:15.340 | the same way I do them for clients,

00:22:16.900 | the same way you would for a client,

00:22:18.540 | and look out and say, well, if I were to retire at 65,

00:22:21.540 | what is the cash flow that I would need

00:22:23.300 | for my portfolio during that year?

00:22:25.180 | And I will most definitely delay Social Security.

00:22:28.740 | And so then, around the age of 55,

00:22:31.660 | I will transition whatever that dollar amount is,

00:22:34.540 | let's just say it was $50,000,

00:22:36.740 | and I would buy a bond that matures

00:22:39.180 | for the year that I turn 65,

00:22:41.660 | and that would be rung one on my income ladder.

00:22:45.180 | Now, it's not exactly the year I turn 55.

00:22:48.860 | If that's a strong year in the market,

00:22:51.020 | for sure, I would do it, but if we're in a bear market,

00:22:53.980 | the year I turn 55, then I would probably not build out

00:22:57.060 | the first rung of my income ladder quite yet,

00:22:59.460 | and probably wait another year.

00:23:01.580 | And then, when I'm 56, I would repeat that process,

00:23:05.060 | and when I'm 57, I would repeat that process.

00:23:08.140 | And so, by the time I got to 65,

00:23:11.380 | I would have this runway of fixed income assets

00:23:15.780 | maturing to meet my expense liabilities,

00:23:19.360 | and I would know that I was somewhat insulated

00:23:22.700 | from the stock market moves

00:23:24.300 | for at least the first 10 years of my retirement.

00:23:27.340 | And so, I like that process of very slowly

00:23:31.300 | building out that income ladder.

00:23:34.100 | There's been a lot of talk about bond funds

00:23:36.660 | versus individual bonds.

00:23:38.500 | I find the behavioral aspects of having the individual bonds,

00:23:43.500 | we're talking treasuries, CDs, agencies,

00:23:46.580 | is easy to understand.

00:23:49.140 | And so, when it matures, you spend it.

00:23:52.740 | That's your cash flow.

00:23:53.620 | It dumps into a cash bucket for the year.

00:23:56.020 | We typically direct deposit it on a monthly basis,

00:23:59.260 | so it replicates someone's paycheck.

00:24:01.760 | And so, that simplicity,

00:24:04.740 | and it helps prevent some of the behavioral challenges

00:24:08.540 | that we see.

00:24:09.380 | Now, I know most of you here are very disciplined,

00:24:12.340 | and so those behavioral challenges

00:24:14.460 | may not be such a challenge for you.

00:24:16.180 | You may be much more disciplined than the average person.

00:24:19.700 | But I really like that process

00:24:21.260 | of slowly building out the income ladder.

00:24:23.540 | What we see in our practice a lot

00:24:25.140 | is people that come in the year before they retire.

00:24:28.180 | And so, now we're having to build out,

00:24:30.580 | if we're gonna do an income ladder,

00:24:31.820 | we have to build out all of those rungs at once,

00:24:34.580 | versus if they had started about 10 years out,

00:24:37.340 | it would be a very slow, gradual process.

00:24:40.100 | So, I don't know if that's the most actionable item

00:24:42.740 | for someone 50 or over,

00:24:44.220 | but that's what I would be thinking about

00:24:45.980 | if I was looking at transitioning my portfolio

00:24:48.620 | toward a decumulation-based portfolio.

00:24:51.420 | - Oh, this is a fantastic question we just got.

00:24:56.120 | So, certainly, annuities can be complicated

00:25:00.620 | financial products, some of them anyway,

00:25:02.020 | but certainly, in some circumstances,

00:25:04.140 | they may be helpful tools for retirement planning.

00:25:07.100 | If someone is looking to purchase an annuity themselves,

00:25:09.940 | do the due diligence to make sure

00:25:11.500 | they're buying the right type of product for them.

00:25:13.260 | What are some objective resources

00:25:15.180 | you can suggest on researching annuities?

00:25:17.760 | - Ooh, that is a really good question.

00:25:21.220 | I don't know if blueprint income is still around.

00:25:27.060 | Does anyone, I hear some nods.

00:25:29.260 | So, I know that is a good resource.

00:25:32.340 | We have, often, as quirky as he is,

00:25:34.940 | if you've seen Stan, the annuity man's resources,

00:25:38.700 | he will tell it to you straight.

00:25:41.340 | He has a lot of books out there on annuities,

00:25:44.240 | and so he has some excellent resources, too.

00:25:47.060 | And then, I believe there's just some simple websites,

00:25:50.040 | like immediateannuities.com.

00:25:52.660 | Now, I don't know if that one has since sold.

00:25:55.380 | And so, when you put your name in,

00:25:59.860 | if they bombard you with quotes,

00:26:01.600 | that would be my concern.

00:26:03.180 | So, a lot of those websites, you can run quotes,

00:26:05.540 | but you have to put your email address

00:26:06.980 | and your phone number in, and if you're like me,

00:26:09.340 | you don't wanna get bombarded by sales calls

00:26:11.820 | from those kinds of things,

00:26:12.780 | so you have to be a little bit cautious about that.

00:26:15.660 | We work with organizations that work with fee-only advisors.

00:26:20.660 | So, we work with companies like DPL.

00:26:23.940 | There's another one called RetireOne.

00:26:25.940 | And so, they will help bring fee-only

00:26:28.780 | or no-commissioned annuity products

00:26:30.900 | that we can suggest or run quotes on,

00:26:34.100 | and we also have a commissioned annuity agent,

00:26:36.340 | so it's hard for me to know what's out there

00:26:39.080 | that you can work with directly.

00:26:41.640 | - Super.

00:26:42.620 | Folks, I'm gonna keep running through

00:26:43.740 | these questions for Dana.

00:26:45.040 | If you've got questions for Dana, write them down,

00:26:47.020 | and Christine Bennis, she will collect them from you.

00:26:49.500 | Oh, we've got another one in the back there.

00:26:52.160 | Here, we've got another investing question.

00:26:55.260 | What are your thoughts on MLPs in a retirement portfolio?

00:27:00.960 | - MLP, okay.

00:27:03.120 | - Master Limited Partnerships, yes, yeah.

00:27:05.500 | - I love so many acronyms in this business.

00:27:07.820 | I haven't seen MLPs in portfolios in a long time,

00:27:12.680 | so I did spend a few years at Merrill Lynch in my career,

00:27:16.000 | and we would see them more frequently then.

00:27:18.400 | I know at that time,

00:27:20.120 | they were very high interest-bearing investments

00:27:22.880 | or dividend-producing investments.

00:27:25.160 | So, I don't know.

00:27:27.160 | We don't use them.

00:27:30.080 | I think my answer to that question

00:27:32.080 | will be going back to a different approach.

00:27:36.560 | When we look at different retirement income approaches,

00:27:39.220 | we saw about total return this weekend,

00:27:41.560 | we talked about income annuities,

00:27:44.200 | and we talked about probability first

00:27:46.360 | and time segmentation.

00:27:48.000 | One that didn't really show up,

00:27:49.600 | that used to be more popular,

00:27:51.080 | was what I called the income-only approach,

00:27:54.000 | where people built a portfolio

00:27:55.560 | and simply lived off the interest and the dividends.

00:27:58.440 | Well, that got a lot less popular

00:28:00.240 | when interest rates were zero for a decade.

00:28:02.360 | You couldn't do it.

00:28:03.200 | And so, I think we stopped hearing about it.

00:28:05.960 | So, if you wanted to build a portfolio

00:28:08.160 | where you only lived off the interest and dividends,

00:28:10.960 | that could be a place where something like an MLP

00:28:13.640 | could have a position in your portfolio.

00:28:16.660 | I'm more of an index fund, like most of you.

00:28:21.260 | I think simpler is better.

00:28:22.960 | I love index funds, so they're not my cup of tea.

00:28:27.840 | - Yeah, I'm with you there.

00:28:29.440 | All right, here's a question I get all the time

00:28:32.800 | when working with folks, and I would imagine you do, too,

00:28:35.560 | when you're working with someone for the first time.

00:28:39.000 | If I have a complex portfolio,

00:28:41.120 | do you suggest ripping off the Band-Aid

00:28:43.640 | or more slowly moving towards a simple portfolio?

00:28:48.200 | - That is a challenging question.

00:28:51.440 | Some of it depends on if it's in taxable accounts

00:28:54.800 | or if it's all in tax-deferred accounts.

00:28:57.480 | It can be very easy to rip off the Band-Aid

00:29:00.120 | if everything is in IRAs and Roth IRAs,

00:29:03.360 | but when you're looking at holdings

00:29:05.960 | that are in taxable accounts

00:29:07.320 | and you have a lot of low-cost basis assets,

00:29:11.320 | then it's usually a much slower approach.

00:29:14.380 | - And then we got a great tip here.

00:29:17.880 | To learn more about Master Limited Partnerships,

00:29:20.040 | see the Bogleheads Wiki.

00:29:21.160 | Thank you, Lady Geek.

00:29:25.680 | Yep, yeah, yeah, yeah.

00:29:28.040 | Extra tax challenges with that MLP route.

00:29:30.840 | All right, awesome.

00:29:33.720 | Fantastic.

00:29:34.800 | And then we have a similar question with respect to

00:29:43.800 | what is the best strategy to mitigate,

00:29:46.160 | and again, this goes back to ripping off the Band-Aid or not,

00:29:48.800 | best strategy for mitigating capital gains

00:29:51.080 | on a $1 million single stock position

00:29:54.080 | with a $300,000 cost basis.

00:29:57.080 | And again, not specific investment advice, folks.

00:30:00.440 | - No, no.

00:30:01.960 | So one, I'd have to know, of that $1 million,

00:30:06.160 | what portion of your portfolio is that, right?

00:30:09.120 | Might only be 10% of your portfolio.

00:30:10.840 | It could be a $10 million portfolio.

00:30:12.400 | It could be all your portfolio in a single stock.

00:30:15.480 | And so if it's all your portfolio in a single stock

00:30:18.800 | and this million dollars is what you have to live off

00:30:21.100 | the rest of your life,

00:30:22.700 | I'd be much more prone to rip off the Band-Aid

00:30:25.300 | and say, let's reduce that single stock risk.

00:30:27.800 | I don't care what stock it is.

00:30:29.140 | I don't care how great it's been.

00:30:30.720 | I don't care what you think it's gonna do.

00:30:32.720 | Like, you could lose your entire life savings.

00:30:35.240 | Reality, you could.

00:30:36.680 | And so why take that risk?

00:30:38.280 | Why would you take that risk?

00:30:39.840 | Just pay the tax and diversify.

00:30:42.600 | But if that $1 million was part of a $10 million portfolio

00:30:46.560 | or you had substantial social security or pension

00:30:49.080 | or other rental income coming in,

00:30:51.240 | it might be a completely different story

00:30:53.380 | where you could very slowly scale out of it

00:30:56.220 | in a more tax-efficient way.

00:30:58.720 | - Yeah, I think you nailed it.

00:30:59.920 | It basically comes down to what is your ability

00:31:02.080 | to manage the risk if that million dollars

00:31:03.960 | goes to zero tomorrow?

00:31:05.440 | So if you've got other income sources,

00:31:07.460 | then certainly that million dollars going to zero

00:31:10.820 | wouldn't feel great,

00:31:11.660 | but at least you could manage that risk.

00:31:13.720 | I think about someone that I worked with not too long ago.

00:31:17.240 | They were a trust fund kid.

00:31:18.980 | So effectively, they hadn't really worked a day

00:31:20.820 | in their life, couldn't really generate their own income,

00:31:23.740 | and they had 90% of their net worth in one stock.

00:31:26.940 | Now, it was a great stock, don't get me wrong,

00:31:29.620 | but without the ability to manage the risk

00:31:31.560 | of that stock going to zero,

00:31:33.080 | they simply had to pay the taxes, diversify,

00:31:36.320 | make their investments less risky.

00:31:38.020 | All right, gosh, here's another great annuity question.

00:31:43.280 | I'm age 70.

00:31:45.500 | What are the pros and cons of purchasing a SPIA,

00:31:47.620 | a single premium immediate annuity

00:31:49.460 | that's effectively you're gonna buy yourself a pension,

00:31:51.680 | you put in a lump sum once,

00:31:53.220 | you get an income stream for life,

00:31:55.180 | versus waiting until age 80 to buy that SPIA,

00:31:58.540 | or simply using a deferred annuity?

00:32:00.260 | So similarly, that's gonna be,

00:32:02.100 | hey, I put that lump sum in now,

00:32:03.660 | and then at age 80, that income kicks on.

00:32:07.020 | What are your thoughts there?

00:32:08.940 | - Well, technically, in the immediate annuities,

00:32:11.540 | you are participating in something called mortality credits.

00:32:15.060 | Sounds, you know, it's not an exciting thing to talk about.

00:32:18.580 | And I can't remember the technical age,

00:32:21.900 | but there is a point where you get essentially

00:32:24.860 | more participation in the mortality credits.

00:32:27.220 | I see Christine nodding her head.

00:32:29.140 | I seem to remember at a conference, an industry conference,

00:32:31.900 | I'm talking at around age 72, 73.

00:32:35.620 | So it is possible that there could be a benefit

00:32:39.240 | to waiting a few more years before you purchase that SPIA,

00:32:42.820 | but don't quote me on that right now.

00:32:45.500 | The insurance nerds will have those statistics

00:32:48.780 | somewhere out on the internet, I'm sure.

00:32:51.040 | You know, the other pros and cons,

00:32:54.000 | a lot of it has already come up

00:32:57.260 | in some of the things other speakers have talked about.

00:33:00.520 | Do you just wanna lock in the outcome?

00:33:02.780 | You know, you are cognitively aware

00:33:05.340 | of the decision you're making now.

00:33:06.940 | Will you be at 80?

00:33:08.760 | And so you know the value of your assets today.

00:33:12.140 | We know where interest rates are right now.

00:33:14.500 | In 10 years, could we be back down

00:33:17.500 | to lower interest rates again?

00:33:18.780 | We don't know.

00:33:20.060 | And so I can say, you know, it's a better time

00:33:23.060 | to buy a SPIA now than it was two years ago,

00:33:26.420 | but we don't know what that will look like

00:33:28.580 | 10 years from now.

00:33:29.860 | So, you know, we don't know the future.

00:33:33.820 | You have to base that decision on your situation

00:33:37.020 | and what is really appropriate for you today,

00:33:39.420 | as it stands today.

00:33:41.640 | - Here is a really interesting question

00:33:45.000 | and curious how this shows up in your practice.

00:33:48.600 | How and when should one discuss their assets

00:33:51.020 | with their adult children?

00:33:52.660 | - This is a great question.

00:33:55.440 | You know your family, right?

00:33:59.880 | And so I think it's wonderful

00:34:02.040 | when people do bring their adult children in.

00:34:05.020 | We've had meetings where we set up Zoom calls

00:34:07.460 | where we walk the whole family

00:34:09.440 | through the client's financial plan.

00:34:12.240 | In a healthy family,

00:34:14.840 | the children are gonna care about you, right?

00:34:18.840 | They're gonna care just as much as you care about them.

00:34:22.600 | And most children in a healthy functioning family

00:34:26.280 | are gonna be concerned

00:34:27.480 | that their parents might run out of money.

00:34:29.660 | And so in those situations,

00:34:31.440 | I think it can be really useful to have a family meeting

00:34:35.360 | and have someone walk through the whole thing

00:34:38.240 | and you're reassuring them that you're okay,

00:34:40.680 | that you're gonna be able to take care of yourself.

00:34:43.840 | In a unhealthy family dynamic, that could backfire.

00:34:47.840 | And so it's hard because I think you know your family,

00:34:51.040 | you know your adult children,

00:34:52.620 | you know which ones are gonna be responsible

00:34:55.480 | with the information that you might share.

00:34:57.560 | And so you're gonna have to weigh all of that out

00:35:00.240 | in making that decision.

00:35:02.240 | - Yeah, certainly.

00:35:03.120 | Absent any sort of spendthrift considerations,

00:35:06.680 | sooner is better.

00:35:08.000 | We don't know when ill health is gonna show up,

00:35:10.520 | so being bread prepared helps you in that situation.

00:35:13.960 | Thank you, Christine.

00:35:15.000 | We interviewed Cameron Huddleston

00:35:18.040 | on episode 34 of the "Bogleheads" live show.

00:35:20.380 | She's author of "How to Talk to Your Parents

00:35:22.600 | "About Their Finances."

00:35:24.000 | And she shared a story about how her mom

00:35:26.800 | had dementia onset at a relatively early age, right?

00:35:29.840 | And for her, her mother, Cameron's mother,

00:35:33.960 | didn't necessarily put together in place

00:35:36.760 | the right estate planning pieces beforehand

00:35:38.800 | to make Cameron's life easier.

00:35:40.520 | So we don't know when ill health is gonna show up,

00:35:43.240 | so doing that planning sooner, that helps manage that risk.

00:35:46.240 | All right, we've got lots of more great questions

00:35:50.680 | from the community here.

00:35:52.080 | Great job, guys, keeping them coming.

00:35:55.440 | Lot of questions about bond ladders.

00:35:57.960 | So since you do that in your firm, let's talk about that.

00:36:01.680 | We have one question here that wants to know

00:36:03.560 | about what type of specific bonds you invest in

00:36:06.840 | in taking that bond ladder approach.

00:36:08.960 | - Well, treasuries, munis, CDs, agencies, not corporates.

00:36:15.320 | With the exception that in smaller accounts,

00:36:17.960 | we will use bullet shares, which is a package

00:36:20.040 | of corporate bonds that all mature in the same year.

00:36:23.720 | So it will depend on the client.

00:36:26.280 | Like so much of what we say.

00:36:28.160 | You know, if their tax rate's high enough

00:36:29.720 | and they have a large taxable account,

00:36:31.400 | we may be building that portion of the bond ladder

00:36:33.480 | using muni bonds.

00:36:34.600 | Sometimes it's state-specific,

00:36:36.360 | particularly if they're in California.

00:36:38.260 | Sometimes it's national munis if they're in a no state tax,

00:36:43.700 | no income tax state, you get that correct.

00:36:47.080 | And then agencies and treasuries and CDs would be our go-tos

00:36:50.800 | so we really don't like to take risk

00:36:52.680 | on the fixed income side.

00:36:54.080 | I know that question came up earlier.

00:36:56.400 | We'd rather take risk where we think it has

00:36:59.320 | a higher probability of paying off,

00:37:01.360 | which is on the equity side.

00:37:03.180 | And so then it will just depend on where we're gonna get

00:37:06.880 | the highest yield at that time.

00:37:08.760 | The fixed income market can be far more complex

00:37:11.400 | than the stock market, and so it can vary from day to day.

00:37:14.840 | One day you might get a higher yield than an agency,

00:37:17.240 | the next day it could be a CD.

00:37:19.040 | It really can vary depending on where the bond market

00:37:22.080 | is at that day.

00:37:23.000 | - Practical question, what do I do with all the funds

00:37:27.800 | in my employer-provided retirement plan

00:37:29.920 | when I'm ready to retire?

00:37:32.600 | Yeah, I'll leave it at that.

00:37:34.680 | - Well, that's a good question also.

00:37:38.360 | I don't know because I don't know what those funds are.

00:37:41.360 | And there's all kinds of pros and cons

00:37:44.040 | to rolling over your 401(k) into an IRA.

00:37:47.480 | Some 401(k) plans have unique investment options

00:37:50.760 | like stable value funds.

00:37:52.640 | And in the past decade, that may not be true today,

00:37:57.200 | but we could earn a higher yield in those stable value funds

00:38:00.280 | than by building out a fixed income bond ladder.

00:38:03.360 | And so that was a reason to leave a large portion

00:38:06.560 | of the money in the employer plan,

00:38:08.140 | to take advantage of some of those investment options.

00:38:11.120 | If you wanna build a actual bond ladder,

00:38:15.160 | it's very difficult to do within a 401(k).

00:38:18.400 | They may allow you to do it

00:38:20.540 | if they have the self-directed brokerage option.

00:38:23.640 | So if you're in a company large enough

00:38:25.160 | where they allow you to open,

00:38:26.880 | it's usually either a Schwab or Fidelity brokerage account,

00:38:29.360 | you can do that.

00:38:30.620 | Some of the challenges that I see,

00:38:32.720 | 401(k)s decide to change plan providers.

00:38:37.280 | You get a blackout notice.

00:38:38.720 | The money has to move to a new provider.

00:38:41.060 | That can happen at any time during retirement.

00:38:43.560 | Now you have to revisit everything.

00:38:46.320 | We just have a client that got a notice of this happening.

00:38:49.720 | He does have a self-directed brokerage account.

00:38:52.080 | In their case, they're gonna allow all the investments

00:38:54.840 | in that self-directed brokerage account

00:38:56.560 | to transfer in kind to the new brokerage firm

00:38:59.520 | with the 401(k) so they won't have to liquidate them,

00:39:02.480 | which is a nice option.

00:39:04.440 | But there's all kinds of complexities

00:39:06.320 | that you would need to address

00:39:08.400 | or we would need to know to actually answer that question.

00:39:12.400 | There's other things I've seen.

00:39:13.680 | If you have outside accounts,

00:39:15.080 | a 401(k) requires its own required minimum distribution.

00:39:18.920 | And so if you also have an IRA,

00:39:20.640 | it will require its own required minimum distribution

00:39:23.600 | versus if you have two IRAs,

00:39:25.520 | you could take the RMD, consolidate the RMD amount

00:39:29.560 | and take it all out of one.

00:39:30.640 | But you can't take the 401(k) RMD out of an IRA.

00:39:34.280 | So if you don't want that level of complexity,

00:39:36.360 | that could be a reason to consolidate.

00:39:39.320 | I've also seen cases where 401(k)s will have restrictions

00:39:43.120 | on how often you can change the investments

00:39:45.120 | or how often you can take withdrawals.

00:39:47.600 | So if you wanted to set up a direct deposit

00:39:49.720 | on a monthly basis to replicate your paycheck,

00:39:52.220 | that may be more challenging

00:39:53.560 | or sometimes they tack on administration fees.

00:39:56.280 | So all of those things would have to be considered.

00:39:59.400 | - As touched on in the last session,

00:40:01.600 | that workplace retirement plan, that 401(k),

00:40:03.360 | that ERISA plan, state by state,

00:40:06.440 | you may be looking at better credit protection

00:40:08.360 | in that account, but again, it does vary state by state.

00:40:10.640 | So you can speak with an attorney in your state

00:40:12.480 | to figure out just how much credit protection

00:40:14.120 | you might be losing if you move from that ERISA plan,

00:40:16.800 | that 401(k) to a rollover IRA.

00:40:19.640 | Thank you.

00:40:21.320 | - All right, here's a great question.

00:40:23.480 | I am sitting on a large capital loss,

00:40:26.240 | unrealized capital loss in my investment account

00:40:29.640 | from a company that went bankrupt

00:40:32.080 | and I can't stand to sell it.

00:40:35.120 | Any guidance you can give this person?

00:40:37.020 | - I think Mike Piper talked about mental health.

00:40:42.220 | (audience laughing)

00:40:45.220 | So if the company went bankrupt, I mean, that's hard, right?

00:40:50.720 | It is hard to manage your own investments,

00:40:52.720 | even for us advisors.

00:40:54.480 | So, you know, I have my retirement portfolio

00:40:58.000 | and I do with it exactly what I would do with the clients.

00:41:01.000 | And then I have this other pot of money

00:41:03.300 | that I do horrible things with and it never works out.

00:41:07.000 | And so why is it that it's so much harder

00:41:09.560 | to make decisions on our own money?

00:41:11.400 | And it really is, right?

00:41:13.280 | It's just, it's harder to be disciplined.

00:41:15.240 | And so you're sitting on this large capital loss.

00:41:18.300 | It absolutely would make sense to sell it

00:41:21.340 | unless you really think that that company's

00:41:23.960 | coming out of bankruptcy and, you know,

00:41:25.720 | gonna do something spectacular.

00:41:27.640 | And so I don't know.

00:41:29.840 | I don't know what advice to give you

00:41:31.720 | other than Mike Piper's advice

00:41:33.400 | that a mental health professional might be appropriate.

00:41:36.380 | - Yeah, no, certainly seems reasonable.

00:41:38.600 | All right, any suggestions on how to balance

00:41:42.040 | tax treatment of accounts by the amount that's in them,

00:41:46.280 | taxable, tax-deferred, and tax-free?

00:41:49.420 | - How to balance them is the question?

00:41:53.060 | - Yeah, what guidance do you give

00:41:54.580 | when working with folks on how to balance

00:41:57.620 | how much you have in each of those account types?

00:41:59.460 | - Well, it's interesting 'cause most of the folks we see

00:42:02.880 | are at the tail end of that decision-making process, right?

00:42:05.740 | They're getting ready to live off their acorns.

00:42:08.280 | They're in the decumulation phase.

00:42:09.940 | So that decision has already been made.

00:42:12.100 | So I can answer that question

00:42:14.020 | from the rear view mirror standpoint

00:42:16.100 | that it is better to get to retirement

00:42:19.220 | usually with the diversification of account types.

00:42:22.260 | And so the most challenging retirement plans

00:42:25.280 | or the most constrained plans we often see

00:42:28.100 | are people who have usually over a million,

00:42:31.500 | sometimes two million, all in a tax-deferred account.

00:42:34.420 | Usually it was a 401(k) or employer plan and nothing else.

00:42:38.260 | No, nothing else.

00:42:39.940 | And so there is not a lot of flexibility there.

00:42:42.860 | Every dollar is gonna be taxed.

00:42:45.740 | There's not a lot of tax planning opportunities.

00:42:48.380 | And so I do think as you're saving along the way,

00:42:51.940 | making sure that you're building up

00:42:53.860 | buckets of both tax-deferred and taxable accounts

00:42:57.900 | can give you a lot more flexibility

00:42:59.780 | when you get to the distribution phase.

00:43:02.080 | - I like this next question

00:43:04.620 | because it is thinking about that worst case,

00:43:06.420 | which I'm always thinking about.

00:43:08.500 | So this question asks,

00:43:09.980 | should I be thinking about splitting my assets

00:43:11.740 | between multiple brokerages

00:43:13.060 | in the case of a cybersecurity hack

00:43:15.020 | or being locked out of my account?

00:43:17.160 | - I personally don't think that's necessary.

00:43:21.900 | I have seen people, however,

00:43:23.860 | who wanna keep their assets across multiple custodians

00:43:27.820 | just in case something were to happen at the custodial level.

00:43:30.760 | And so I understand that.

00:43:33.240 | Do I personally think it's necessary?

00:43:35.460 | No, I really don't.

00:43:37.380 | I think the level of security in our financial institutions

00:43:41.940 | and being able to set up two-factor

00:43:43.980 | and learning about cybersecurity yourself

00:43:46.980 | offers a great deal of protection.

00:43:49.220 | But I can certainly understand why

00:43:51.900 | in a kind of Armageddon scenario,

00:43:54.700 | why someone might wanna have a pot of money

00:43:56.580 | in the second place.

00:43:58.100 | - Yeah, I'd certainly echo that.

00:43:59.040 | I don't think it's absolutely necessary,

00:44:00.260 | but I don't think it's unreasonable either.

00:44:02.540 | And the other thing I encourage folks to think about

00:44:04.560 | is in making that decision,

00:44:05.540 | not for some folks, if you're,

00:44:06.980 | maybe you're still working

00:44:07.900 | or maybe if you're just leaving

00:44:08.900 | your old workplace plan as is

00:44:10.380 | because you wanna maintain that credit protection,

00:44:12.300 | it's an old 401k,

00:44:13.140 | it's got some good investment options in there,

00:44:14.980 | maybe your money is gonna be split

00:44:16.100 | across two different investment accounts anyway.

00:44:18.500 | All right, let's jump to,

00:44:24.180 | can you tell us more about the client

00:44:25.980 | with a $3 million portfolio

00:44:27.580 | and qualifying for healthcare tax credits?

00:44:30.240 | - Well, yes, they have both taxable account

00:44:35.540 | and they have tax deferred IRA accounts.

00:44:39.800 | And so in a laddered bond strategy,

00:44:43.020 | when that bond matures,

00:44:44.700 | that's not taxable income, right?

00:44:46.460 | Only the interest income on the bond

00:44:48.660 | is what's showing up on your tax return each year is a 1099.

00:44:52.180 | And so they're able to have,

00:44:54.380 | I think they draw $11,000 a month out of their portfolio,

00:44:58.180 | but their actual AGI taxable income

00:45:01.340 | has basically remained under 40,000 a year.

00:45:04.900 | So they're able to qualify for the healthcare tax credits,

00:45:08.620 | even though they have a substantial portfolio

00:45:11.200 | and they're able to have that $11,000 a month cashflow

00:45:14.720 | because everything else in the portfolio

00:45:16.680 | is primarily long-term capital gains

00:45:19.960 | and we're not gonna realize it

00:45:21.560 | and then we'll do the rebalancing

00:45:23.400 | after they're 65 and around Medicare.

00:45:26.220 | - Dana, thank you so much for answering all these questions.

00:45:29.440 | Any final thoughts before I let you go?

00:45:32.740 | - It is absolutely an honor to be here.

00:45:35.360 | And so I just wanna thank all of you.

00:45:37.800 | You make people like me better with your questions.

00:45:41.320 | And I had shared with a few people earlier,

00:45:43.560 | I started writing online in about 2007.

00:45:46.560 | It was always a member of the Boglehead community

00:45:48.880 | that would reach out with corrections to my articles,

00:45:51.200 | suggestions to my articles.

00:45:52.960 | (audience laughing)

00:45:54.200 | And you may laugh, someone asks, didn't that annoy you?

00:45:56.960 | No, I was always so grateful for it

00:46:00.040 | because it made me better.

00:46:01.760 | And so I really appreciate this

00:46:03.440 | and the opportunity to be here.

00:46:05.400 | - Wonderful, thank you, Dana.

00:46:06.720 | (audience applauding)

00:46:09.880 | (applause)

Bogleheads® Conference 2023 - Dana Anspach & Jon Luskin on Planning for Retirement

Chapters