Bogleheads® Conference 2023 - Bogleheads 2023 Financial Planning Experts Panel

00:00:00.000 | So this is our financial planning experts panel.

00:00:10.120 | I'm delighted to have four people here who have been with us in other sessions already

00:00:15.680 | during the conference, Mike Piper, Alan Roth, Anne Garcia, and John Luskin.

00:00:25.440 | Please look at their bios on the website.

00:00:28.600 | Look at their websites.

00:00:29.600 | There is so much wonderful information.

00:00:33.440 | I wanted to start with Mike earlier today did a session that was intended for the less

00:00:41.740 | involved spouses in our couples to tell them about what they most need to do in financial

00:00:50.720 | planning.

00:00:51.720 | And there were so many people in this room, and that was very early on our third day together,

00:00:56.400 | which I think is a testament to how much value there is there.

00:01:01.320 | So I wanted to just start by asking Mike to give us a quick synopsis of his message for

00:01:06.720 | the less involved spouses, and therefore the related message for those of you who are the

00:01:12.160 | more involved spouse in the family finances.

00:01:15.240 | Sure.

00:01:16.240 | The very short summary, since I know that most of you are here for that, is that obviously

00:01:24.600 | those of us who are the financial manager for the household, we want the other person

00:01:28.400 | to be ready if they have to take over that responsibility at some point.

00:01:32.120 | That's one of the most common questions I receive.

00:01:34.480 | And so encouraging them to, the way my spouse and I do it, is just a once a month money

00:01:41.640 | talk, and it's not all of our personal finances, just one topic at a time.

00:01:45.720 | This month we talk about this.

00:01:46.720 | Next month we talk about that.

00:01:47.720 | So it doesn't take forever.

00:01:49.000 | It's not a big thing to try to get them to do.

00:01:52.320 | And it gets easier over time because, of course, you know, next time you talk about life insurance,

00:01:57.200 | there's not much that's different than last time you talked about it.

00:02:01.360 | And the other important point is that getting that input from your partner, even if they're

00:02:07.760 | not the one who does most of the financial planning, is super, super valuable because

00:02:12.920 | they're going to be able to relate other things going on in your life that maybe you haven't

00:02:17.960 | thought about and haven't included in your financial planning.

00:02:20.080 | And so it's going to be valuable to you.

00:02:23.080 | And if you can encourage them to take on that role of oversight, is what I call it.

00:02:27.800 | They're the oversight committee.

00:02:29.640 | Encouraging them to take on that role, that, from what I've seen, can help get them involved

00:02:35.360 | in a way that they might not be if it's just you teaching them stuff, I guess is what I

00:02:40.080 | would say.

00:02:41.080 | I'll just start off by saying I'm glad you didn't call those gatherings the money date

00:02:45.080 | because that has always kind of made me cringe.

00:02:50.040 | I wanted to ask you, I will start with Mike, but I think probably this goes for the whole

00:02:53.740 | panel, is when you talk with people, what are the gaps you often find that you think

00:03:00.620 | people, couples, need to address?

00:03:05.200 | It's going to vary, obviously, depending on life stage and so on, but the one I always

00:03:07.680 | mention every year is disability insurance, just because it's critically important, right?

00:03:14.820 | For some reason, people know that life insurance is important, but don't always know that disability

00:03:20.080 | insurance is important.

00:03:21.560 | And so you'd be surprised, maybe you wouldn't be surprised, but there's lots of people who

00:03:25.360 | just don't have that coverage, even though they're very much dependent on their income

00:03:28.840 | from work.

00:03:29.840 | And so that's the number one thing that I see, they simply don't have coverage in that

00:03:33.080 | area.

00:03:34.080 | I know when I talked to John before the conference, and he was saying when he does his planning,

00:03:41.580 | he will often start off by highlighting some areas for urgent action.

00:03:46.200 | And I think it's really interesting, when we talk about investing, is that's the part

00:03:50.120 | of personal finance that often seems urgent and timely, because the markets did something

00:03:55.080 | today, and interest rates are where they are, and things are always changing, but he was

00:03:59.120 | saying that the urgent list is typically not investing, so why don't you tell us what those

00:04:04.520 | tend to be?

00:04:05.780 | Yeah, so disability insurance is usually going to be on that list, at least if you're pre

00:04:11.400 | retiree, life insurance is also going to be a big one that's on that list.

00:04:15.600 | Doing your estate planning, and then as well as the formal estate planning, meet with an

00:04:19.580 | estate attorney, create the will, the advanced healthcare directive, the power of attorney,

00:04:24.440 | et cetera, you want to create an informal estate planning document, and this is something

00:04:28.000 | that can actually be put together in the process of the meetings that Mike mentioned, you just

00:04:32.160 | want to create a resource for each other, especially that non-involved spouse, but then

00:04:36.980 | also your trusted party, so that contingent attorney, in fact, that's the person you entrust

00:04:43.060 | on your power of attorney document to handle your finances when you're not able to.

00:04:48.080 | Having that resource, that emergency letter, listing out, hey, here's the professionals

00:04:51.620 | I'm working with, here's where all my accounts are, how to access them, here's my different

00:04:55.820 | insurance policies, putting that stuff together makes way more of a difference than whether

00:05:00.720 | you have a tips fund, or a bond ladder, or anything else.

00:05:06.320 | Personal insurance as well, that's something that always makes page one urgent and important

00:05:10.480 | projects for the documents that I put together when working with folks.

00:05:14.920 | Investments rarely ever make it on that list.

00:05:17.440 | Maybe if they've got a really concentrated stock position, maybe if they're invested

00:05:20.680 | really aggressively, but otherwise, investing is just not going to be an important and urgent

00:05:25.260 | project for most folks.

00:05:27.520 | Alan, Jeff?

00:05:29.960 | All of these areas are incredibly important, and I won't work with a client unless both

00:05:35.200 | spouses are going to be involved, but my clients also tend to be, I would argue, better than

00:05:42.480 | most financial planners, and what I look at is people tend to be overinsured.

00:05:48.880 | For instance, the doctor at 63 years old that has disability, they've been paying the same

00:05:53.360 | rate for 30 years, and guess what?

00:05:56.840 | If they became disabled today, they'd have a three, six-month waiting period and only

00:06:01.560 | collect about a year.

00:06:05.360 | You want to look at insurance.

00:06:06.640 | Are you adequately insured?

00:06:09.120 | Insurance companies are not not-for-profits.

00:06:11.760 | Even mutuals have to make a profit, so don't buy insurance you don't need.

00:06:15.880 | I don't have my iPhone insured, for instance.

00:06:19.160 | I don't have collision on my car.

00:06:21.200 | I have an umbrella.

00:06:23.640 | Ann, you had shared that your twins recently graduated from college and that they are both

00:06:34.060 | gainfully employed, so congratulations on that.

00:06:42.880 | I'd like to talk about, for people who are at that stage in life, early 20s, first jobs,

00:06:50.360 | what are the lessons that you would share with those individuals, or it could be with

00:06:55.040 | people here who want to help their children or their grandchildren.

00:06:59.600 | What should people at that stage be doing to get their financial lives off to a solid

00:07:04.200 | start?

00:07:05.200 | Yeah, we're very much in the thick of that right now in my family.

00:07:11.600 | I think one of the things that young adults need to pay a lot more attention to than they

00:07:16.560 | maybe already think is their credit score.

00:07:20.400 | I always tell young adults that your credit score is like your GPA of your adult life.

00:07:26.640 | It's equally important.

00:07:30.000 | Having good credit will save you so much money over time, and also they need to understand

00:07:34.720 | that credit scores have nothing to do with your income.

00:07:37.120 | You can have a very high income and a very low credit score, but good credit is built

00:07:45.160 | through using credit.

00:07:46.800 | One way that parents can help their young adults to build credit is by adding them as

00:07:51.400 | an authorized user on your credit card.

00:07:53.880 | That doesn't mean giving them a credit card, but it does mean that your good credit gets

00:07:57.440 | reported to their credit history.

00:08:00.240 | It's kind of a free way that you can help your kids build credit.

00:08:03.640 | I talk to so many young adults who can't get a credit card with more than a $500 credit

00:08:07.800 | limit, which does not even buy you an airfare.

00:08:12.600 | They're regularly going home after a night out and making a credit card payment.

00:08:18.320 | Credit scores are an important thing for young adults to think about.

00:08:21.760 | Emergency savings are another frequently overlooked area, and so I've been encouraging my kids

00:08:26.720 | to put 10 percent of their income into a savings account until they build it up to a certain

00:08:32.520 | level.

00:08:33.520 | Then, of course, once you get a job, taking advantage of all your benefits.

00:08:39.520 | If your employer offers a 401(k) match, think of that match as part of your salary, and

00:08:44.480 | the way you earn that part of your salary is contributing to your 401(k).

00:08:49.840 | That's kind of the three-legged stool, emergency savings, long-term savings, and paying attention

00:08:55.520 | to credit.

00:08:56.520 | Anyone else have other things they want to emphasize for an early career?

00:09:06.720 | Just get in the habit of savings.

00:09:09.040 | When I was a kid, we didn't have a total stock index fund with a 0.03 percent expense

00:09:14.800 | ratio.

00:09:16.480 | It helps the simplicity.

00:09:18.400 | You can keep that simplicity for the rest of your lives.

00:09:21.400 | I can't get to simplicity because of tax ramifications I have.

00:09:27.360 | Do it on an automated basis.

00:09:30.240 | You get used to, by the way—when Michelle Singletary's kids were talking about how the

00:09:34.320 | portfolio went down, it hurts a whole lot less when you're young and have less investment

00:09:39.000 | capital and more human capital than it does later on.

00:09:42.680 | Get into the habit.

00:09:43.680 | Harness inertia.

00:09:45.080 | Give part of your raises to yourself in terms of savings.

00:09:51.340 | Have it automatically taken to the 401(k).

00:09:53.600 | Never miss the employer match, et cetera.

00:09:56.320 | It's a great time for young people in financial planning right now.

00:10:02.080 | To talk a little bit more about credit, Clark Howard, he has a great resource on freezing

00:10:06.760 | your credit, so that's going to be an important part of maintaining a good credit score.

00:10:10.880 | Just Google "Clark Howard credit freeze," and that can give you a resource on going

00:10:14.560 | down that path if you guys haven't already frozen your credit.

00:10:17.000 | I know one of the other things Clark mentioned was about the Roth IRAs for young adults and

00:10:24.080 | early on offering a match from the bank of mom and dad.

00:10:29.360 | That is something I did.

00:10:30.360 | Again, it's a way to introduce that habit.

00:10:32.520 | I know, Ann, you had also said about setting up Roth IRAs early, right?

00:10:37.200 | Yeah.

00:10:38.200 | I was going to say, one of the best things you can do is set up a Roth IRA while your

00:10:42.200 | kid's a teenager, because then you can set it up as a custodial account, and you don't

00:10:47.440 | have to wait for them to do it.

00:10:48.960 | Once they turn 18, they have to do it themselves.

00:10:52.640 | If you've ever been the parent of an 18-year-old, you might know that that is hard.

00:10:59.200 | It's not just that it's hard for them to do, it's just that they have no concept of thinking

00:11:06.920 | of things.

00:11:07.920 | I think Michelle's family is that rare group where her young adult kids are actually thinking

00:11:14.480 | long-term with their money.

00:11:17.720 | Most 18-year-olds don't do it that way.

00:11:20.080 | If you can get that set up while they're 16, when they have their first paycheck and get

00:11:24.920 | some money into it and get it invested, that is a tremendous gift to give your kids, because

00:11:30.360 | then that means that account is there and ready and waiting for them when they get to

00:11:34.680 | the point where they have the money to do it themselves.

00:11:38.480 | Let me say what I forgot to say starting off, that Rick Ferry is walking around collecting

00:11:45.120 | questions, so please share your questions with us.

00:11:49.280 | In this session, we're going to try and stay on the non-investing parts of personal finance,

00:11:56.600 | so I know there are still a gazillion questions out there about tips and bond ladders, but

00:12:00.880 | I think we're going to not go there.

00:12:03.360 | We're going to try and do everything else.

00:12:07.880 | It's interesting.

00:12:08.880 | We're talking about these different themes throughout the conference.

00:12:11.760 | One theme is starting off right early in your financial life, and then another theme we've

00:12:18.760 | talked about is a bit later on when many people have gotten to a strong financial position

00:12:27.040 | moving forward from there.

00:12:29.040 | Alan, you wrote a piece earlier this year entitled "How to Get Clients to Spend More

00:12:35.840 | Money."

00:12:36.840 | Tell us about that.

00:12:37.840 | Did anyone here frugal like me?

00:12:43.720 | We were frugal because we were afraid of running out of money, and we needed to build a portfolio.

00:12:50.040 | The thought of spending it down is incredibly scary.

00:12:54.400 | Even though likely we have more than enough, a Japan could happen, hyperinflation.

00:13:03.200 | I'm going to use an example of somebody who is extreme, me.

00:13:10.280 | How to spend more money?

00:13:12.200 | The first thing I did is—I'm really sorry, but I built a tips ladder.

00:13:19.040 | Bill mentioned he counts his tips at night.

00:13:21.840 | $1,076, that's what I have.

00:13:26.720 | Between that tips ladder and Social Security, which I've delayed, of course, I've got a

00:13:32.720 | six-figure income coming in, and that is a license to spend.

00:13:38.000 | Number two is reframing.

00:13:40.400 | Clark Howard, for years, has been telling me, "Get a Tesla.

00:13:43.440 | It's so much fun."

00:13:44.440 | Eventually, the prices of Tesla got down into the 40s, but I couldn't buy it.

00:13:51.640 | I said, "Clark, I love my Chevy Volt."

00:13:54.800 | What I did is I had to reframe it from a hedonistic to a utilitarian decision that I live in Colorado.

00:14:03.560 | I will drive is important.

00:14:05.520 | It's got more safety features, etc.

00:14:09.560 | Then a third way, there are other ways, but I use our dysfunctional political system.

00:14:15.800 | In other words, I tell the client that they have to spend a certain amount of money each

00:14:20.920 | year.

00:14:21.920 | If they don't make it, they have to donate the rest of it to political candidates they

00:14:28.280 | hate the most.

00:14:33.920 | They'll spend it.

00:14:35.480 | In a similar vein, Mike published a new book earlier this year called More Than Enough,

00:14:42.960 | geared to people who have gotten to that point in their lives that they have enough financial

00:14:48.400 | resources.

00:14:49.400 | Tell us about some of the key messaging that you want to share with that audience.

00:14:58.520 | There's the spending topic, which we've been talking about all along, the different ways

00:15:00.920 | to get yourself to spend more, and then the giving side of it.

00:15:05.880 | To me, that's the more exciting side.

00:15:10.480 | If somebody is having a hard time spending, try giving.

00:15:16.080 | Some people have a similarly challenging time giving, so start with something small if it

00:15:21.000 | makes you uncomfortable.

00:15:24.240 | Every time, basically, it feels good, and then it's not so hard to do more.

00:15:30.720 | This can be giving to your loved ones, of course, or giving to charity.

00:15:34.160 | Giving to your loved ones, the message I always try to hammer home for people in this More

00:15:39.540 | Than Enough category is that just actuarially speaking, given the age at which most people

00:15:47.400 | have kids, by the time your kids inherit what's left of the portfolio, they're probably already

00:15:54.660 | retired or just about there, and so they get this big inheritance, and it might not really

00:16:00.920 | impact their lives.

00:16:02.140 | It might not make their lives that much better at all, really, and so if that's a thing that

00:16:08.080 | you can do the math and you can look in your family and you can say, "Yeah, that might

00:16:11.720 | be where this is headed," then take a different path.

00:16:16.140 | Start to make some gifts to them earlier.

00:16:20.120 | Your gifts, even when they're smaller, are so impactful, so helping your grandkids, for

00:16:25.080 | instance, finish school without any student loans, the impact on them is enormous, not

00:16:31.200 | just in terms of their financial well-being, but their emotional well-being.

00:16:34.920 | You were hearing that from Michelle's kids yesterday, that when they look at their peers,

00:16:41.120 | their peers are stressed about those student loans, and that is a burden that you could

00:16:46.900 | save your loved ones from, or the first home down payment.

00:16:50.460 | Those are the two examples I always give, but there's other examples.

00:16:53.740 | Pay for a trip with your family.

00:16:55.840 | That is some of the best spending that people could ever do, because it's memories that

00:17:00.880 | they'll have with you, so spending on your family, or charitable giving, and there's

00:17:07.560 | all sorts of tax planning things that we can get into there, but that's kind of a whole

00:17:13.120 | other thing.

00:17:14.120 | I was going to say, we always try to give people some low-barrier spending goals to

00:17:19.880 | get started, because it's very normal that it's hard for people to go from saving to

00:17:25.480 | spending, and so it might be hard to say, "It's okay for you to take a trip to Europe

00:17:30.680 | and bring the grandkids along."

00:17:33.160 | It might be easier for them to, say, plan a nice dinner out every month with their family,

00:17:39.640 | so you can try taking those low-barrier steps, and then work your way up from there as well.

00:17:47.080 | Work your way up to the Tesla.

00:17:52.780 | Coming back to people who don't have enough today, I'd like to talk about how you advise

00:17:59.320 | people to balance saving for multiple goals, like, for instance, for college and retirement.

00:18:04.200 | What do you tell people, Aileen?

00:18:10.640 | The conventional wisdom is save for retirement, not for college, because there's loans for

00:18:15.000 | college and not for retirement, and that's why we have a trillion-plus dollars in outstanding

00:18:19.520 | student loan debt.

00:18:21.320 | I do think when you have big goals, you need to save for both.

00:18:28.400 | One of the ways I've found people are most successful saving is that rather than giving

00:18:32.800 | yourself a spending budget, give yourself a savings budget, because when you have a

00:18:38.320 | savings budget and you hit that target, you feel successful.

00:18:42.320 | When you have a spending budget and you hit that target, you feel deprived.

00:18:49.160 | If you can set that budget for yourself and hit it, that's a great thing.

00:18:52.960 | My rule of thumb for balancing the two is if you're not saving for retirement, don't

00:18:57.680 | save for college.

00:18:59.200 | If you're saving for retirement but not maxing out, then only 10% of what you save for retirement

00:19:04.640 | should go to college or any other goal that you're trying to save for.

00:19:09.460 | If you want to save more for other things, bump up your retirement savings rate in order

00:19:13.760 | to bump up those other savings rates as well.

00:19:17.800 | Everything is available at every conceivable cost, including college.

00:19:22.120 | You can go to college for $0.00.

00:19:23.800 | You can go to college for half a million dollars.

00:19:26.800 | Just make sure that whatever that goal is besides retirement, you're creating pathways

00:19:30.920 | that are acceptable to you.

00:19:32.600 | >> I'd like to ask you a question that came up earlier this morning in Mike's session,

00:19:39.960 | which was about education funding.

00:19:42.640 | What would you tell people who were interested in ROTC or joining the military as a route

00:19:49.200 | to pay for education?

00:19:51.720 | >> My dad went to college on ROTC.

00:19:55.480 | That was part of my upbringing and my life.

00:19:58.840 | I think it's a great pathway for students to do.

00:20:03.440 | Of course, there is the military service obligation once you graduate, but any way that someone

00:20:12.120 | else pays for your college tends to have some sort of obligation to it, whether it's a merit

00:20:17.200 | scholarship that you need to get a certain GPA, whether it's a student loan that you

00:20:21.680 | have to repay, whether it's ROTC where you have a service element to it.

00:20:27.320 | I think one of the considerations with ROTC is what does the ROTC course load look like

00:20:31.840 | and does that leave you enough room in your schedule to pursue the major that you want

00:20:36.600 | to pursue?

00:20:37.600 | That would be, to me, kind of the one consideration about it.

00:20:43.280 | >> One other thing we've talked about a lot over the last few days is how a lot of us

00:20:47.840 | accumulate a lot of complexity in our financial lives as the years go by and the value of

00:20:54.720 | trying to simplify, and so we've referred briefly in a few places to trying to simplify

00:21:02.080 | the number of accounts you have and the number of specific investments, and I wondered if

00:21:07.520 | the panel could just talk a little bit more about any specific advice you have in that

00:21:12.400 | area or other kinds of simplifying that we should be thinking about.

00:21:19.040 | >> You know, I'm a hypocrite.

00:21:20.840 | For a living, I help people move towards simplicity, but my own portfolio is complex as heck.

00:21:27.840 | New products come out, like the BlackRock tips funds, and, you know, I have to buy them

00:21:34.580 | to be able to write about them, the Intelligent Portfolio, lots of different things.

00:21:38.780 | The tips ladder is complex to create, but it's simple once you've done it.

00:21:45.880 | So certainly within the tax-deferred, tax-free account, you can get to simplicity, but you

00:21:51.720 | have to do a cost-benefit analysis on the taxable account on moving towards simplicity,

00:21:57.400 | but, yes, I wish my own portfolio were a lot simpler.

00:22:00.880 | There weren't total stock funds out there when I started.

00:22:06.040 | I think about that human energy, time, and attention is limited.

00:22:10.740 | This is something that Paul Pant talks about a lot.

00:22:12.720 | You can afford anything but not everything.

00:22:15.560 | So even if you have all the money in the world, your time is still limited.

00:22:18.480 | So going back to the list of really boring but really important financial planning projects

00:22:23.880 | that folks will have on their list, again, life insurance, disability insurance, umbrella

00:22:28.300 | insurance, long-term care insurance, doing your estate planning, creating an emergency

00:22:33.460 | letter, super boring but super important.

00:22:37.300 | So if your time is limited, which it is, that's to say you can be here in this conference

00:22:41.840 | room right now, you can be on the phone with your insurance company right now buying umbrella

00:22:46.140 | insurance, or you can be creating an emergency letter right now, or you can do one of those

00:22:51.340 | things right now.

00:22:52.500 | You can't do all three at the same time.

00:22:54.900 | So if you keep your investment simple, it leaves you more time, more energy, more focus

00:23:00.500 | to do the much more important, albeit much more boring, other financial planning projects

00:23:05.220 | on your to-do list.

00:23:08.500 | Last night Clark Howard had mentioned that one of his biggest concerns is scams as a

00:23:14.020 | risk to everyone, and I'm thinking, you know, scams come in every flavor, and then we have

00:23:20.060 | I.D. theft, and we have medical I.D. theft, and probably many things I've never even heard

00:23:24.860 | of.

00:23:25.860 | So I'm wondering if there are any particular strategies that you recommend to help people

00:23:33.220 | stay safe or protect their money.

00:23:35.700 | And John briefly mentioned the credit freezes, and, like, when do you recommend that?

00:23:40.660 | Who should do that?

00:23:42.420 | You want to do a credit freeze immediately, and you want to do it as early as possible

00:23:45.860 | for your kids.

00:23:46.860 | I know it varies state by state insofar as how early you can do a credit freeze for your

00:23:51.340 | children, but you want to get that done as soon as possible.

00:23:54.580 | Open your credit.

00:23:55.580 | It's free.

00:23:56.580 | It takes a few minutes.

00:23:57.900 | You do it online.

00:23:58.900 | It's a really easy way to protect your credit, your family's credit.

00:24:02.780 | But only if I'm not going to be taking out new debt of any kind, right?

00:24:06.740 | Yeah.

00:24:07.740 | If you're opening up a new bank account, a new line of credit, absolutely.

00:24:13.500 | The other thing that we always recommend is that you check your credit on an ongoing basis,

00:24:17.340 | and you can do that at annualcreditreport.com.

00:24:20.080 | You're entitled to one free credit report from each credit bureau every year, so every

00:24:24.880 | four months you can get one of your credit reports.

00:24:28.380 | And that shows you all of your credit activity.

00:24:30.680 | It shows you what accounts are open, what accounts you've closed.

00:24:34.620 | If you're someone like me with a common last name, you will see lots and lots of interesting

00:24:38.360 | things there.

00:24:40.120 | And that's your opportunity to identify these things early and get them dealt with.

00:24:47.880 | Scams are everywhere, and they're getting worse.

00:24:49.840 | And AI is going to make it even worse, I think.

00:24:54.680 | You know, I'm 66 now.

00:24:55.800 | I'm getting to the target age of these scams.

00:24:58.480 | So, you know, I would just say make sure before you do anything, you're discussing it with

00:25:04.180 | another loved one.

00:25:06.480 | Don't just send money in.

00:25:07.680 | Anything that looks too good to be true, guess what?

00:25:11.740 | But yeah, it's getting harder and harder and worse and worse.

00:25:15.160 | These scams are everywhere and proliferating.

00:25:20.760 | There's also just some, you know, basic online safety practices, I guess.

00:25:26.280 | Whenever you receive an email or a text or a phone call, really, from somebody saying

00:25:30.720 | they're from Bank of America or Vanguard or wherever you have assets or any other financial

00:25:35.440 | relationship, don't reply.

00:25:38.280 | Don't click on their link.

00:25:40.000 | Don't call them back.

00:25:42.480 | Instead, you know, go to Bank of America's website and sign in, you know, through the

00:25:47.760 | way that you know is trusted, and then see if, you know, there is an alert there or whatever

00:25:51.800 | this thing was supposedly about.

00:25:53.440 | Don't reply, because there's a huge chance that this isn't Bank of America contacting

00:25:57.360 | you.

00:25:58.360 | Okay.

00:25:59.360 | Yeah, the unfortunate truth is, as we get older, we're not as sharp as we used to be.

00:26:04.760 | And that's why doing that estate planning, finding those trusted parties, that attorney

00:26:10.040 | in fact, that successor attorney in fact, the person you trust to manage your finances

00:26:14.360 | when you're not able to, is going to be a really important part of financial success

00:26:19.720 | in the future.

00:26:21.400 | To share a little bit of a heartbreaking story, there's one person that I worked with.

00:26:26.800 | Their parent, they had cognitive impairment.

00:26:30.640 | The family wasn't quite aware of that yet, because they were hiding it quite well, which

00:26:34.680 | is something that folks with cognitive impairment do.

00:26:38.120 | They get really good at hiding it, or even able to fool medical professionals.

00:26:42.160 | I believe it's Cameron Huddleston talks about this in her book, "How to Talk to Your Parents"

00:26:47.680 | about their finances.

00:26:49.560 | And this person, they were making political donations, forgetting they were making them,

00:26:55.680 | and then making them again.

00:26:56.680 | And it was to the tune of five figures.

00:26:59.360 | So again, putting together that power of attorney document, appointing the attorney in fact

00:27:06.760 | that you trust, bringing them into your finances sooner rather than later, that can help you

00:27:12.120 | set up yourself for success.

00:27:13.520 | - Sounds good.

00:27:15.160 | I think we're gonna go to some audience questions now.

00:27:20.560 | First question.

00:27:21.800 | What types of disability insurance do you feel are necessary for a working professional?

00:27:27.840 | Long term, short term, or both?

00:27:32.480 | - Generally both, is the short answer.

00:27:35.240 | Lots of disabilities last longer than a short term policy will pay benefits.

00:27:40.000 | So if you have a long career, or you're planning on a long career still, long term disability

00:27:46.880 | is generally what you need.

00:27:48.180 | Social security is long term disability, but it's hard to qualify.

00:27:52.200 | The benefits are very limited.

00:27:54.200 | So a long term policy is necessary.

00:27:57.680 | - I would add to the long term disability, most employers provide long term disability.

00:28:04.280 | If that's your only source of long term disability coverage, it's important to review that policy

00:28:09.040 | because employer long term disability is generally designed to cover illnesses as opposed to

00:28:16.400 | actual not being able to work for the remainder of your life.

00:28:20.040 | So typically there's a limit to coverage.

00:28:22.000 | They're assuming you might get a cancer diagnosis where you're going through chemo and radiation

00:28:25.920 | and unable to work for some finite period of time.

00:28:30.600 | And it's possible that you could have a ski accident and be unable to work for much longer

00:28:37.440 | than your employer disability covers.

00:28:39.320 | So just make sure that you review that policy if that's where you think your long term disability

00:28:44.160 | is coming from.

00:28:45.160 | - Yeah, Anne's absolutely right.

00:28:47.120 | Usually that workplace policy is not going to protect you in that worst case.

00:28:50.880 | That worst case is you're disabled now through the rest of your life.

00:28:54.040 | You're no longer able to work another day.

00:28:56.480 | There's a lot of really fine print in a disability insurance contract.

00:29:00.160 | That's going to determine if that policy is any good.

00:29:03.200 | And again, the one that you get from your employer is not any good and the employer

00:29:06.080 | doesn't really want to spend $1,000 generally per employee in a high quality long term disability

00:29:11.320 | insurance policy, which means you've got to go out and purchase a high quality one yourself

00:29:15.800 | looking for that very important fine print in that contract.

00:29:20.240 | So own occupation definition till age 65, that's an important clause.

00:29:25.180 | Having an inflation adjustment, a COLA rider on that policy, that's going to be important.

00:29:30.040 | Social disability provision, residual disability provision, these are all the really important

00:29:35.280 | bits of fine print that you want a high quality long term disability insurance policy to have.

00:29:40.320 | Good news, we did a Bogleheads Live podcast episode on this, so check that out.

00:29:45.720 | We go over all the fine print in that episode of what you want in your high quality long

00:29:50.520 | term disability insurance policy.

00:29:51.760 | - Thank you.

00:29:52.760 | - I'm just going to say long term.

00:29:54.040 | You need both, but long term disability is far more devastating.

00:29:58.320 | So you want to have that, but you also don't want to let inertia take over and you want

00:30:03.560 | to reduce it or cancel it when you no longer need it.

00:30:08.360 | - Another insurance question.

00:30:10.040 | Is there a rule of thumb to use in determining the right amount of umbrella liability coverage?

00:30:15.740 | For instance, should it cover 100% of my net worth or what amount is too much?

00:30:21.760 | - There's an old rule of thumb that says you should have your net worth in umbrella insurance

00:30:25.760 | and I've researched it as far as I can tell.

00:30:28.480 | It was invented by an insurance salesperson.

00:30:33.840 | You can have $100 million net worth, knock a school bus off a cliff, it gets sued for

00:30:38.080 | 200 million.

00:30:39.440 | So I just think you want to be reasonable.

00:30:42.480 | If you drive fast sports cars, do extreme sports that could injure someone else, you

00:30:47.520 | probably need more.

00:30:49.520 | You also want to look at how much of your net worth is in a risk of protected 401k sorts

00:30:56.440 | of thing.

00:30:57.560 | So be reasonable.

00:31:00.880 | Umbrella insurance, it's cheap.

00:31:03.140 | It's cheap because the likelihood of needing it is low, but the consequences are very high.

00:31:10.720 | - I'm always thinking about that worst case and so I certainly like the net worth rule

00:31:15.920 | of thumb, but for really young folks, that net worth rule of thumb doesn't really apply

00:31:19.640 | because their biggest asset, bless you, isn't what they're worth today, but it's their future

00:31:25.960 | earnings.

00:31:26.960 | So think about someone who perhaps they're working at a tech company, they're earning

00:31:31.720 | maybe $300,000 a year, but they're in their mid-20s, maybe early 30s.

00:31:36.720 | They don't have a huge net worth, but they have millions of dollars of future income

00:31:41.460 | ahead of them.

00:31:42.460 | So to be a little conservative, maybe get a little bit extra umbrella insurance.

00:31:46.840 | It is very inexpensive for the coverage that it provides.

00:31:50.720 | - Thank you.

00:31:52.800 | - You can increase the umbrella over time, though.

00:31:55.880 | - Here's a different kind of a question.

00:31:59.560 | Do you think financial planners have some responsibility to encourage healthy living

00:32:04.760 | for their clients, or is that discussion overstepping the bounds?

00:32:09.760 | After all, why plan for a long retirement if the client's lifestyle or habits would

00:32:15.700 | greatly shorten it?

00:32:19.540 | - I'm a financial advisor, not a life advisor.

00:32:23.580 | And when you think of it, if you eat poorly, don't exercise, it's actually good for your

00:32:27.300 | financial plan because you're less likely to outlive your money.

00:32:32.620 | There's no flaw in my logic, is there?

00:32:38.780 | We want our clients to live as long as their money, so some we should encourage to have

00:32:42.060 | healthy lifestyles, and some we should encourage to have an extra piece of cake at dinner.

00:32:51.420 | - What's your advice for a single person with no family to decumulate?

00:32:56.100 | How should they approach that?

00:32:58.100 | Decumulate, sorry if I didn't say that right.

00:33:03.660 | - I don't think it's particularly different than for a married couple with kids and grandkids.

00:33:10.180 | We're still looking at the question of what asset allocation do we want to have through

00:33:13.780 | retirement, which accounts are we going to spend from.

00:33:17.220 | Really the one thing that strikes me immediately is that there's one complicating factor that

00:33:23.420 | we don't have to worry about, which is for a married couple when we're trying to figure

00:33:28.580 | out what account to spend from, one of the factors is if we spend from tax deferred,

00:33:35.580 | what tax rate will we pay now, and how does that compare to the tax rate that we would

00:33:38.980 | pay later if the money comes out of the account later.

00:33:43.580 | For a married couple, there's going to be a later period that includes only one of the

00:33:50.620 | spouses filing as single, which often means that there's going to be a period with higher

00:33:54.460 | tax rates later.

00:33:56.740 | That's just a thing we don't have to worry about for a single person.

00:34:00.500 | Also for a single person, the question is who is the bequest going to?

00:34:09.080 | It's more likely in that case that if it's a single person without kids that it's going

00:34:12.980 | to a charity, which would mean that Roth conversions become a lot less advantageous during retirement

00:34:19.060 | because the "later tax rate" on a lot of these dollars is going to be 0% because the traditional

00:34:24.980 | IRA dollars are going to go to a charity, but that's not necessarily the case.

00:34:29.500 | Obviously plenty of people who are unmarried and don't have kids aren't leaving the money

00:34:33.660 | to charity.

00:34:34.660 | They're leaving it to nieces and nephews or somebody else.

00:34:37.540 | Thank you.

00:34:40.260 | Question for Anne.

00:34:41.260 | If you have your house paid for and you pay cash for cars, why do you need a credit score?

00:34:50.860 | Well, things could change.

00:34:53.060 | You could decide you want that vacation house, and mortgage rates being as high as they are,

00:34:58.020 | you would want to get the best possible rate.

00:35:02.580 | I think life is unpredictable.

00:35:05.060 | We can think we're going down one path and we end up going down another.

00:35:15.460 | Why would you do things that wouldn't make things as easy as possible for you?

00:35:19.300 | Having a good credit score is something that makes things really easy for you.

00:35:25.100 | The way you have a good credit score is you pay your bills on time.

00:35:30.180 | Even if you're not using a credit card, most utility bills get reported to the credit bureaus.

00:35:37.540 | People with better credit scores don't pay deposits for certain services that people

00:35:41.660 | with bad credit scores do.

00:35:44.180 | I think your credit score is something that benefits you over the course of your lifetime

00:35:47.620 | regardless of where you are with debt.

00:35:50.660 | Can I just add insurance companies can charge more for people with lower credit scores because

00:35:56.220 | they have proven that claims are higher?

00:35:59.020 | There are other things, even if you're not utilizing that credit, such as, as you mentioned,

00:36:03.340 | the deposit, that keeping a high credit score is important.

00:36:08.460 | Sometimes an employer can also check your credit score as part of the job application

00:36:11.780 | process, so lots of benefits just keeping that score high.

00:36:14.900 | Here's an interesting question.

00:36:20.380 | What have you changed your opinion about over time?

00:36:23.340 | We'll take that in the financial planning space, not your taste in music or whatever

00:36:28.060 | else.

00:36:29.060 | Something you've changed your thinking on.

00:36:32.300 | Certainly, not to talk about investing, but keeping the investments as simple as possible

00:36:39.460 | because, again, that's going to free you up to do those other much more important projects.

00:36:43.620 | When putting together an investment plan, there's always the option to add complexity,

00:36:49.140 | but I think when adding that complexity, there can be a lot of uncertainty if there's really

00:36:52.180 | value in doing that.

00:36:54.860 | Quote Jack Bogle, "When there are multiple solutions to a single problem, choose the simplest

00:36:59.460 | one."

00:37:00.460 | Yeah, I would second the vote for complexity.

00:37:04.540 | I think that we as advisors tend to think people come to us wanting this really complicated

00:37:09.220 | stuff that they can't figure out on their own.

00:37:11.460 | I think over time, I've realized people come to us because they want to live their best

00:37:15.140 | life now and in the future.

00:37:18.220 | One of the things that we've added to our planning projects is at the end of every topic

00:37:22.700 | that we discuss, we show a matrix of the time versus money of the different strategies that

00:37:30.540 | we're recommending.

00:37:31.540 | We talk our clients through which ones make the most sense for them to do because, yeah,

00:37:36.700 | you can do so many things to squeeze a little extra juice out of your dollar, but for many

00:37:44.260 | people that's not really necessary.

00:37:46.500 | There are some people who just like action for action's sake, and they'll go and do all

00:37:50.900 | that stuff, but I think simplicity is something that I've come to cherish.

00:37:58.460 | I've changed my view on safe spin rates.

00:38:00.860 | I was very, very conservative.

00:38:03.260 | Christine just left, darn it.

00:38:04.820 | I wrote a piece a little over a year ago why I disagree with Morningstar's new higher safe

00:38:09.420 | spin rates, and about a month ago I sent an apology to everyone that I'm wrong because

00:38:16.860 | what happened, our real interest rates went from minus 1.6 percent to 2.55 percent on

00:38:25.060 | those instruments that I'm not allowed to mention.

00:38:28.740 | But by the way, ibonds.com and tipslider.com are just best places to get data for that

00:38:37.180 | thing I'm not allowed to mention.

00:38:42.540 | This one maybe feels obvious, but early in my 20s, coming out of school, and soon thereafter

00:38:52.580 | was the financial crisis a few years after, and for me that was not scary at all.

00:38:59.660 | That was a buying spree, and it felt so obvious, and early in this era I just had this idea

00:39:09.620 | because my risk tolerance is very high.

00:39:13.340 | It must be a mistake.

00:39:14.680 | Anyone without a high risk tolerance must not get it, and it sounds so dumb to me now

00:39:20.500 | just having met more people and seen more people's life circumstances, but I sincerely

00:39:25.940 | believed that, that if you're not 100 percent stocks, you're just a wuss, and that's what

00:39:32.140 | everyone should be if they could do it.

00:39:34.460 | And if you have a hard time doing it, maybe you just need somebody to talk you into doing

00:39:38.100 | it, and that's what's going to get the job done, and it's just not right.

00:39:43.060 | I don't know, it sounds obvious again, but that's what I thought early on.

00:39:49.100 | I'd like to hear you talk a little bit about how you think about home ownership in financial

00:39:55.180 | planning.

00:40:00.500 | I don't consider it an investment, but the home is the one thing you can enjoy and generally

00:40:06.220 | goes up in value, so certainly if one's going to buy a home and stay there for a long time,

00:40:13.100 | I think it's a very good thing to do.

00:40:15.580 | The one thing I do is when I look at safe spin rates, I don't include furniture or cars

00:40:21.860 | or things like that, but I do include a discounted value of the home, because later on, one could

00:40:27.900 | downsize, one could, in my opinion, last resort—sorry, Wade's not here—take out a reverse mortgage.

00:40:36.900 | So I would count that as part of the safe spin rate.

00:40:40.740 | Yeah, I would say there's—home ownership plays a different role at different points

00:40:46.580 | in your life.

00:40:47.580 | One of the great things for retirees is having a fixed housing cost, which home ownership

00:40:52.500 | provides in a way that renting doesn't, and like you said, your home is kind of your insurance

00:40:58.720 | policy.

00:40:59.800 | It could cover long-term care, it could cover all kinds of things.

00:41:02.860 | On the other hand, I don't think that we should be rushing young people to buy homes.

00:41:07.380 | I keep hearing this from my family, I grew up in California, that's where my family

00:41:11.220 | all is.

00:41:12.220 | My kids both have jobs in the Midwest, and my parents are like, "Oh, they'll be able

00:41:15.700 | to buy homes."

00:41:16.700 | And I was like, "No, no, back off."

00:41:19.100 | Not so fast on that, because there's an opportunity cost of home ownership, which is that you're

00:41:24.820 | giving up flexibility, you're giving up the opportunity to move for better opportunities.

00:41:30.060 | So I think that home ownership is maybe something to start thinking about when you have young

00:41:34.780 | children and you want to be locked into a school district, and be at a point to start

00:41:41.360 | building equity.

00:41:42.700 | But there doesn't need to be a rush to buy your first home.

00:41:47.460 | Yeah, enthusiastically agree with that point.

00:41:51.540 | Because people say rent is throwing away money, and okay, fine, but then property tax is throwing

00:41:57.740 | away money, and homeowners insurance being more expensive than renters.

00:42:02.140 | There's things you're paying for when you own a home.

00:42:04.420 | And the thing that I think often gets missed is that when people go from renting to owning,

00:42:11.660 | they don't just go from renting to owning, they also dramatically upgrade, almost every

00:42:16.100 | time.

00:42:17.100 | In my entire personal life, I can't think of a single person I know who, when they went

00:42:22.340 | from renting to the first home that they bought, every single one of them, it was bigger, it

00:42:28.260 | was nicer, it was in a nicer area, or whatever.

00:42:30.740 | And so the financial decision, then, is not just renting versus owning, it's and you've

00:42:36.660 | stepped up your quality of living, or whether that actually improves your quality of life

00:42:41.860 | is another thing, but the costs associated go up, and not just because of the renting

00:42:47.460 | versus owning shift.

00:42:48.460 | Not to mention the to-do lists of things that go with that house.

00:42:52.860 | Yeah, when you rent, things go wrong in multiples of $100, and when you own, they go wrong in

00:42:57.340 | multiples of $1,000.

00:43:00.220 | Okay, I think we're going to wrap up here because we've run out of time.

00:43:05.380 | Thank you for so many great questions.

00:43:06.380 | I want to thank our panelists.

00:43:07.380 | [applause]

00:43:07.380 | Thank you.

00:43:08.380 | [applause]

00:43:08.380 | Thank you.

00:43:09.380 | [applause]

00:43:09.380 | Thank you.

00:43:10.380 | [applause]

00:43:11.380 | Thank you.

00:43:12.380 | [applause]

00:43:12.380 | Thank you.

00:43:13.380 | [applause]

00:43:13.380 | Thank you.

00:43:14.380 | [applause]

00:43:14.380 | [BLANK_AUDIO]

Bogleheads® Conference 2023 - Bogleheads 2023 Financial Planning Experts Panel

Chapters