Welcome to the Bogleheads Chapter Series. This episode was hosted by the Bogleheads Pre and Early Retirement and Retired Life Stage Chapters and recorded February 21st, 2024. The presentation features an open discussion on the Bogleheads Conference Panel Discussion on Advice for Pre-Retirees and Retirees found on the Bogleheads YouTube channel.

Bogleheads are investors who follow John Bogle's philosophy for attaining financial independence. This recording is for informational purposes only and should not be construed as personalized investment advice. To talk about, I just posted in the chat a link to an interesting thread that just started on the forum about the concept of a rising equity or a bond tent approach in retirement.

That's the Wade Fow and Michael Kitsis study, which has been somewhat controversial. I'm not going to go into detail about the concept there other than the fact that some of us that are doing Roth conversions in retirement, at least in early retirement, end up forcing ourselves into a rising equity glide path.

That's certainly happened with me because my IRA is 100% bonds and as I'm doing substantial Roth conversions in the early years of retirement and then having 100% converting those fixed income to 100% equities in my Roth, that's shifting my asset allocation higher and higher in equities. I'm also spending down the CD ladder that I had created for early retirement.

I've gone from about a 50% equity allocation when I started retirement into about a 64% equity allocation now. It'll probably, depending upon the market, continue to rise, but it's an interesting concept to read up on both the concept of a bond tent, which may or may not be useful to minimize sequence of returns risk.

It's still a relatively new concept and we don't have any long-term data as yet, as far as I know from Michael Kitsis or Wade Fow, on how well it holds up, but it's certainly something to consider as you approach and prepare for retirement or are already in retirement. Can you give us a quick what's a tent?

What does that mean? Well, the idea basically is to increase your bond allocation, fixed income allocation as you approach retirement much higher. He used to say typically that you would want to have increasing bond holdings as you move through retirement with age, was it age minus something in bonds, 100 minus your age in bonds or something to that effect, and that your bond allocation increases in retirement.

But Michael Kitsis and Wade Fow did a study where if you start off with a very high bond allocation and do the reverse, where you basically spend that down in the early days and let your equity allocation rise, that that may provide some protection if you have a poor sequence of returns situation in early retirement.

There are arguments for and against it. I don't know how many people practice it. Is there anybody here on this Zoom who have played around with that and are putting it into practice? If I can be so bold, I'm doing that exact thing. I'm doing an 80/20 portfolio, and I've been heavily into bonds and heavily into cash.

And to tell you the truth, I took a bath in my bonds. With rates increasing, my bonds took a dive. The cash has been pretty nice. I get their CDs and their money market accounts, and they're just strictly interest earned. So you tell me, what am I doing wrong?

Well, last year was like a hundred-year storm as far as the bond market and what happened. In retrospect, it makes perfect sense because of the rapid rise of interest rates by the Fed. So what happened is expected. But the fact of the matter is if people stay the course and just hang on and let the bond market recover, it's partially recovered, it'll take some time.

But it's unlikely to happen again. In fact, if and when the Fed starts lowering rates, the reverse should occur where we start seeing that the market price of bonds is going up, and we'll get further recovery from that. The key thing to know, and I think a lot of people aren't aware of this, that the expected return from a bond fund is basically whatever the yield to maturity is at the time you purchase shares in the fund.

So if the total bond market has a yield to maturity of, say, 4.5% now, whatever it is, if you hold it at least for its duration, which is about six to seven years, and then some, barring any huge changes in interest rates, you should get that return long term.

So starting at this point, we should see pretty good returns from the bond funds, total bond market fund, if you hold on to it. And then you may get additional return as interest rates fall and bond prices go up, and the market price of the bond fund will go up as well, giving an additional yield for you if you sell it.

- Okay, now let me throw you one more curveball. Big picture time, I was 80/20 stock, 80% stocks, 20% bonds. My stocks and my stock funds have been doing spectacularly. They're doing really well. My bonds stink. They're terrible. Being in retirement, I was under the impression that the bonds were not going to move very much.

It was going to be my opportunity to keep it steadfast. This cash, I subscribe to that bucket theory. I put a little bit everywhere so that in fact, as I'm in retirement, the cash is not going to move one way or the other. The cash, meaning my bonds, are not going to move one way or the other.

Well, I found out the exact opposite is true. I'm not interested in being in bonds for a long period of time. I want the stability of cash. Now you tell me, am I thinking wrong? Am I doing something illogical? Hell. - Well, right now, obviously, cash has a pretty good yield, but you have interest rate risk.

As interest rates fall, if you're in money markets or short-term T-bills, what are you going to do with that money when it matures? Whereas if you're in a bond fund long-term, you'll reap some of the benefits, but the bonds are there for ballast, as Jack Bogle would say. Although we didn't expect, we should have known that this could and would happen, but we were so lackadaisical and comfortable that bonds were going to maintain their value all the way through, but there's no way that low interest rates would have been maintained to this degree.

They had to go up sooner or later. The fact of the matter is, though, if you look, the bonds fell, what, 17%, I think, maybe, total bond market, but they didn't fall as much as stock funds did. The total stock market fell worse. There's less volatility in the bond market.

We just got hit hard for one year. There's a lesson learned. I'd be curious to hear feedback from everybody here as to how they have handled that. A lot of us have a significant portion of our portfolio in bonds, and how did you all handle this situation last year, and to some extent, this year?

Yeah, Mel, you have your hand up. Do you want to speak to this? You're muted. There you go. Good hearing you, Mel. Muted again. Let's move over to Laura, and we'll get back to Mel after this. Yes. I'm about to retire at the end of this month, and my ASA allocation is 50/50.

I chose, and I work for the federal government, so I chose to put my bond allocations in the G fund, in my TSP, and mostly I bonds, small smattering, a double E bonds, and the reason I picked those vehicles for my bonds is because my understanding that they would not lose principal regardless of what the interest rates did, and I found that to be true, especially when all the bonds were dropping in value.

My I bonds did very, very well, as well as in some cases, I was making over, like a little over 10% on some of my bonds, but I've been collecting those I bonds for about 15 years in anticipation of one day retiring, and if I retired in a bear market, I would have someplace to go that for sure would not lose its value, and in the case of I bonds, would at least keep up with inflation, and for some of those I bonds that had a fixed rate above zero, it would be even a little better than inflation, so that's my only comment.

You know, the one thing I've heard, and I don't dabble that much in bonds, but one thing I've heard is let's say I get a double E bond at 5%, and then the next day, magically, CDs are paying 7%, although I may not lose principal, and it's redeemed at the full face value of the bond, technically, I could get 7% somewhere else, so I'm technically kind of losing money even though it doesn't look like it.

I think that's the general argument there, so just to bring that up. Except that, you know, they can make, you know, you don't know for how long they'll make 7%. No, you're right. You're buying a contract, yes. It's not buying 10% for, you know, indefinitely. Yes. Yeah, and I'm not arguing either way, but that's what I've heard.

Jim, do you have a comment? Yeah, I've taken a different approach. I start off with the concept that stocks and equities will perform much better over time than bonds will. If you look at history, that has largely been the case, and theoretically, bonds are in there to stabilize things.

However, it's clear, I think, if you do the math behind bonds, that if you're in a rising interest rate environment, which we did experience these last couple of years, then the value of the bonds will go down. In a like manner, if you're in a declining interest rate environment, the value of bonds will go up just because of math, everything else being equal.

I personally have been very heavy in stocks, 80, 90%, but recently with the Fed talking about lowering interest rates, I've upped my bond percentage to about 20, 22%. As far as bonds that pay 4%, somebody mentioned that earlier, well, that's hardly keeping up with inflation. That's not doing you a whole lot of good as far as an investment is.

If you think about insurance, yeah, there's some insurance there. I did an analysis. This is before interest rates started rising. If I was better off having money in cash that I would use if the stock market went kaboom versus bonds, and leaving more money in stocks and having a pot of cash, which I would call on if the market really tanked so I wasn't selling in a declining stock market, came out far better than bonds because it takes less cash to generate cash you can take out than it does in the value of a bond.

Bonds have their place, but I think that unless you're really interested in safety, tends to not be nearly as good as a much more aggressive equity portion. Okay. I just put this up. I'm no expert at this. Somebody showed me this the other day, and I'll put this in the chat.

What I did was I said, "I want to go from 1990 to 2024, but I could change that if somebody wants me to." I started with 10,000, and then I told it I wanted the U.S. stock market or the total U.S. bond market. I could pick treasuries and different things.

I just took this total U.S. bonds, and in this portfolio, I have 100% in the U.S. stock market. It doesn't really say what, S&P 500, whatever, and then this is that 100% in portfolio number two, so you guys can set this up yourself, and if I click Analyze Portfolio, and then this is I think the blue is the stock.

Yeah, there's the stock market. That's from 1990, and you do have a very steady climb on the bonds, and then you have this little problem here, as Alan and Scott were talking about, but that's in the chat if you want to play around with that and change the times.

It also tells you your worst year in the stock market, so down 37%, and the worst in the bond market, and this was 13 and a quarter percent, so it's kind of interesting. Okay, Jim, so Scott, how long of a period was this? Were you like a lot of stocks a long, long time ago, and you did this over a long period, or was this recently?

And you're muted, Scott, if you could unmute. Still muted. I'm sorry. There you go. I have a few windows open, and so I'm there. Yeah, I have a very short timeframe. I've been looking at the bonds for roughly say the last year or so. I'll give you a for instance.

I can change this date if you want. Let me change this to the date range you're talking about. What should I do then? 20? Yeah, do 2020. That's fine. 2020 to 2024, and then I've got the 100%, 100%, and I'll hit add those here. Oh, I know exactly where you're at.

Okay, cool. And then this gives me this, which you probably lived through, right? Yes, that's exactly what I'm dealing with. So for instance, the S&P 500, the VOO, I'm getting 24% return in the last year, whereas my bond fund, I'm maybe getting 4%, 5% when I'm looking at it just in the last year.

And look at, I mean, here we're talking $10,000 to start, an initial dip. This must have been the COVID downturn, right? Right when COVID started, I think? Okay. And then now we're still below the line here. We're at 9,600 versus this one. But obviously, we could have a bigger correction than this, and we'd be wishing we had bonds, right?

That's exactly right. And for me, being a newbie, as far as the retirement thing, I just retired. I don't want to lose any money, period. And I'm familiar with the stocks going up and down, I can handle that. But I'm trying to equate whether just to keep that money in cash or to put it in bonds.

I don't want to look long-term, I don't want to have a five-year window for bonds. I want to be able to have that money, that cash available to me tomorrow. Yes, Alan? Yes, well, I think you need to look also, remember, a couple of points. Number one, we want to look at our overall portfolio return.

Don't just focus on the equity returns and the angst that we're not getting that elsewhere. We want to look at how the whole portfolio is performing for us and making sure we have enough to live on. And we want to run out of life before we run out of money and be able to sleep well at night.

So we have to look at the two together and accept what the combination gives you. And again, even looking at the bond market, it went down, it dipped down, it's slowly recovering. So we'll be OK. Those who stay the course and don't try to time the market and don't bail, just as when equities are falling, you don't want to bail and sell at the lows, you likewise don't want to do that with bonds, unless you are taking advantage of it as a tax loss harvesting opportunity, which is another thing we can delve into.

That's something I did in my taxable account. As bonds fell, I had some municipal bond funds that took a beating also, and I sold them and tax loss harvested to get some benefit there. So even when the market is volatile, certainly when bonds are volatile, there are some potential opportunities in a taxable account to benefit from that.

But the bottom line is we want to stay the course long term. And if necessary, you can kind of build a liability matching bond portfolio that ties into the time when you need the money. You may have a combination of short term, say, treasuries, and then some intermediate term treasuries.

Feds tend to advise against holding long term bonds because of their increased volatility, but some folks still do. But if you kind of split up your bond fixed income holdings between intermediate term bonds, short term bonds, and then some cash as well, certainly with good yields now, that's reasonable, and you're further diversifying and just stay the course and rebalance.

That's what I tried to do. Okay. Thank you, Alan. Mel, do you want to say something? Let's see if this... Can you hear me on this one? Yes, perfectly. Okay, good. My other computer, the speaker wasn't working. When Scott said he simply doesn't want to lose any money in bonds, there are several ways he can do it or a combination of the two.

One is build a treasury ladder, buy an auction, and hold a maturity, and you will not lose any money. You may lose spending power, and another way to cover that is to buy your allocation of I bonds. So a combination of the short term at the present time, short term treasuries, bought an auction, held a maturity, and I bonds should cover him, and you won't lose a penny on either one.

Okay. Okay. If I could be so bold, I love what... I think her name is Christine Benz over there at Morningstar talks about in the different bucket strategies, and so I have a huge bucket of stocks. I'm used to stocks. I'm familiar with stocks. I've been invested in stocks for 50 years.

I'm used to that. The bond situation, I'm relatively new in the bond thing. I've been doing the bond for roughly a year, two years, three years. Bonds have been losing money like crazy lately. I've been taking a bath in my bonds. Then I have a whole bunch of money market or CDs or online savings accounts, and they're not losing any money on a monthly basis, and the interest I'm getting is 4% or 5%.

I'm having trouble sleeping at night knowing that my bonds are being affected so dramatically whereas I've been doing really well in the stock market for the last, say, 10 years I've been doing really well. Now I'm taking a bath in the bonds, and with my limited experience in the bond market, losing money year after year, I'm really...

I'm hesitant. I'm having trouble sleeping at night knowing that I have 20% of my portfolio in bonds that I've been taking a bath, and you're telling me I just need to ride away, just stick with it. I mean, if the Fed announced tomorrow that the interest rates were 1%, wouldn't you be just...

Yeah. You'd be whole like tomorrow morning, right? That's right. You're absolutely right. I don't think it's going to happen, but it would. Scott, did you hear that you can buy treasuries at auction and hold a maturity and you will never lose a penny? You can also buy I bonds, which will give you inflation protection and you'll never lose any money.

So there's two solutions right there, and then you can sleep at night. It's also good to hear, Scott, that it's 20%, not 80% either, right? I'm sorry. I missed that. You said... I think you said it's 20% of the portfolio, right? Correct. Correct. 20% of the portfolio is in bonds.

Yes. And from a diversification point of view, and as Alan was saying earlier, what age minus... What was your number, Alan? I think it's 100 minus age is one of the rules of thumb, I believe. Now let me be brutally honest with you guys. I've been 100% in stocks for 50 plus years.

I've ridden the wave. I've been exposed to back when the market dropped 50% in 2008, I rode it out. I didn't move. I didn't lose a dime. I stuck with it. I'm used to things like the stock market going up and down. You rode this. This is what you rode.

You were the blue line. Oh, yeah. I rode it. I rode it. But the red line's not so bad either. I mean... You guys are killing me. Jim, if you can show- There's people that live through the depression that wish they had some money in bonds probably, if they were solvent.

I don't know. Jim, can you create a third portfolio there on Portfolio Visualizer, a 60/40 portfolio of equities and bonds to show you what that does? Yeah. I think I can go 60 here. Do you want 60 on the market and 40 on bonds? 60 equities, 40 bonds, and then- Okay.

That should do it. And then that gives us that. And that's the orange line, I believe, right? Right. Yeah. Portfolio. I got it. I got it. Yeah. I got it. So, as somebody said in the comments, there's no free lunch. And there's some other comments about cash. Although it's paying great now, when interest rates drop, you're not going to get that.

People also commented that VOO is high return because it's high risk. Is VOO this Vanguard thing? Is it? Yeah. This is VOO. Yeah. So, I like that curve too. But look at this. You got some things like this. Hey, I was there. I felt it. It was there. You get to take the good with the bad, right?

But, you know what, see, the thing is, I'm used to that with stocks. I want that to happen with stocks. I'm not going to lose any sleep. But the bond market is something that's new to me that is killing me. Yeah. It's new to me. I mean, I get the same feelings.

Let's see. Jim, do you have another comment? And you're muted. Okay. Anything else, Scott, before we move on? I don't know if we can give you anything that would make you sleep better other than Mel's advice. I mean, the bucket strategy is cast in stone. That's a good one.

Some of it in bonds, some of it in stocks, and some of it in cash. Yeah. In fact, if I do what Alan was talking about here, let me go right to here. And you were saying 80-20, right? That's what I'm at right now. Let's put this 80 and 20, okay?

And then I'll hit this. So now that's not so bad. I mean, you could do a lot worse, I think, don't you think? I know it's not what you want, but it's not so bad. I'm being retarded as a bitch. Okay. David, did you have a comment from Detroit?

Yeah, I think so. I think, I mean, this conversation is really focused on some extraordinary times we've had in the past couple of years in terms of specifically the bond market. And I guess my thinking is that what's happened in the past few years is interesting to learn from, but we need to be looking forward and understanding what the nature is of the different things we want to be invested.

And I think, so I want to be forward-looking, first off, and second, I think maybe it sounds like some lessons have been learned here, right? So if something about your asset allocation is causing you to lose sleep, I think that's a red flag that says maybe your asset allocation doesn't suit your risk tolerance.

And so, yeah, so let's just understand what happened in the past and that we've gone through an extraordinary couple of years here and think strategically going forward. Okay. Thank you, David. And Jean, do you have a comment? Yes. Like Scott, I was heavily in stocks and as I've gotten into retirement, I moved to bonds.

And before I totally got into bonds, I started to study bonds and realized that not all bonds are equal. And going back to Mel's message, Treasury bonds and I bonds are a whole lot different than municipal bonds and corporate bonds and junk bonds, and there's all kinds of bonds out there, Scott.

What are you invested in? Oh, you're muted, Scott. Go ahead. Unmute yourself. I'm in T-Bills. I mean, I'm as golden as I possibly can get. I'm not buying any I bonds, I'm not buying any junk bonds, I'm not buying anything other than Treasuries. Short-term, long-term? I think I can pick Treasuries here.

Right now, I'm in, gosh, not long-term, medium-term and short-term. Okay. How about if I just call it intermediate-term Treasury here? There you go. Okay. So, and that would be 20% here, 80%- Intermediate is anywhere from four to eight years or something? What is the duration of those? No. The bond market I'm looking at is five years is the maximum, five years is the maximum.

Which one do you guys think I should pick here? That's short-term. Five years maximum. I think Mel, Mel, come on on, come back, come back to us, Mel. Yeah, you're short-term, you start to hit at the five to six years, you start to hit the intermediate. Right. So, he's right at the cutoff point.

All right. I'll pick short-term. He's long on short-term. I'm going to pick short-term. Intermediate. All right. And are you, you're in strictly Treasuries and you're having, and you're having trouble sleeping at night? Yeah. Ambient, ambient. I'm looking at my S&P 500 and I'm getting 24% return, and I'm looking at my Schwab bond fund and I'm getting 4% return.

But there's your problem, Scott, don't buy a, don't buy a fund if you cannot afford to lose any money. Correct. Individual bonds, buy Treasuries and hold them to maturity. You will never lose a penny. Treasuries, yeah. Bond funds have a high, high fees. This orange line, Scott, I just want to make you sleep better at night.

This orange line, a lot of people who are paying high commissions, high fees, and are invested in the wrong stuff are not getting anywhere near this orange line. So you should sleep better than you are. Okay. So to get the orange line, what do I got to do? That's what you're doing.

Treasury direct. You're not blending the 20, you need to blend the 24% you're getting in your market, stock market stuff with your 4% you're getting in the bond. That's what this is doing. This is the stock down here, the bonds in the red and the stock market generally in the blue.

And because you're 80/20, you're 80% closer to that line. And you have the diversification, which when the Fed lowers the interest rate to 1% tomorrow morning, you'll be completely opposite on this topic. Well, you can see the volatility though. What you're doing is adding volatility. If you see that the yellow line more or less parallels the blue line, because they're primarily equities compared to the lack of volatility of the red line.

So it's a matter of risk, how much risk and volatility you're willing to accept to allow yourself to sleep well at night. We're all individuals. We have to decide that for ourselves. So backing up big time, I am used to volatility. I want to take advantage of the stock market.

I want to get that 24% return. I want to get that 50% return. I can handle, I'm keeping 20% of my portfolio, roughly five years worth of cash, living expenses. I'm not working anymore. I want to be able to have five years worth of income that I can just access tomorrow.

So what you're telling me, I'm not going to find that in the bond market. I got to put that in CDs and mutual funds. If you put it in CDs, you don't have immediate access to it without paying penalties. So you can, a penalty is a loss. So if you- - Once again, you heard somebody else mentioned having a tree, having a CD tree, have something that's going to mature in five years, have something that's going to mature in four, three, two, one.

- Okay, so that I have access to, you know, 10,000 bucks a month that I can play with. - So you can do that with CDs, or you can do it with treasuries. Take your pick. - Yeah, but once again, the treasuries, I'm not doing well. You know, when I'm getting- - What do you tell, Scott, what do you tell somebody that went full into the market right here and dropped this much versus the guy who bought bonds on that same day who rode right through this blip?

As I think David mentioned, we've got extraordinary circumstances going on in the last few years here. - Okay. - Do you have a Vanguard brokerage account? - Yes. - Okay, you can buy treasuries with no problem, no cost, and you don't have to deal with treasury direct right from your brokerage account at Vanguard.

- Okay, do I have to do 10,000 bucks at a pop? - You can do 1,000, you can do 5,000, you can do 100,000, you can do 10 million. - Okay. Big picture time, guys. Let me ask them, point blank. That 20% that I would allocate towards bonds, what if I pull that 20% out and put it in mutual funds, put it in money market accounts, put it in CDs?

- Well, the CDs aren't gonna be available to you without paying a penalty if you need it right away. You mentioned that. - I do that tier thing. Let's just reuse some round numbers, that 20% let's say is a million bucks. Let's put $800,000 in four years, a CD that lasts four years.

Then let's put another $100,000 in a one-year CD, you follow me? And put the rest in a mutual fund that I can access next month without a penalty. - Not without a loss though, which is what you wanna avoid. - What kind of a loss am I gonna get in a money market?

- You've already experienced it, Scott. - How? Where? - The whole problem is you've already experienced it and you can't handle it. So you gotta work around your inability to handle losses in bonds. - If I can interject, Jim, I think we probably ought to move on, but one thing I wanna say is just as a little disclaimer to remind everybody that this meeting is for informational purposes only and should not be construed as personalized investment advice.

We can't delve into extreme detail for everybody. We're just gonna talk in generalities and basics. But if there's anybody else who has a little bit different perspective regarding bonds and how they handled the downturn last year, we'd like to hear from you. Otherwise, I think we perhaps ought to move on.

- Okay. Anybody else, raise your hand if you wanna speak about bonds. Okay, well, we'll move on. Thank you, Scott, for sharing that with us 'cause it was good discussion. The next topic is pre-retirees, traditional or Roth retirement contributions. Well, I think on the video they said not everyone had access in their early days if they're retiring now to Roth accounts.

And now they had a discussion about whether you should be contributing to a traditional or a Roth. And I forget if it was Mike Piper or somebody said, they always base it on if you could predict your tax rate today versus when you retire, that should be part of your guidance.

Does anybody have experience with that? Maybe they've switched from traditional to Roth and they're not yet retired. Anybody there? David from Detroit. - Yeah, actually, I've sort of gone through sort of my thought process on that as I look forward to retirement. And so I'm in my sort of wanna expect the sort of peak earning years.

So one, you know, sort of, if you'd asked me 10 or 20 years ago, you know, where I would be at this point, I'd say, oh yeah, I definitely wanna be, you know, contributing pre-tax. But then as I look forward and, you know, actually, so now that I have like line of sight to what cash flows might actually look like at, you know, a future retirement time, I realized that those, that RMDs, you know, wind up catching up with me in a couple of decades should I still be around.

And so that changes the math entirely. But even though I'm at my peak, you know, salary earning years, that income for me is gonna wind up being, you know, substantially less than what my income might be in RMDs would likely be or my projected to be at that time.

So even though I'm at my peak earning years, I have completely shifted and put nothing into pre-tax savings anymore and I'm actually converting, you know, hundreds of thousand dollars over these next three years while the current tax cuts are in place. So I've had to completely shift gears. That's a purely personal situation, but I mentioned it because it's contrary to what sort of one might intuit if one looks at this from a couple of decades back, right?

I'm at a place where one would expect to be really definitely abusing that tax deduction, but it turns out it's small potatoes compared to what I'd be facing at RMD time. And somebody commented on one of the other calls that having high taxes at RMD time is a good problem to have, means you've got some money.

Probably the kind of problem we'd always to have. And so Leslie, do you have a comment on that or you want to talk about your situation and you're muted. Okay, Jean. I've been, I've been taking RMDs for several years and now that I have the hindsight, I would have done it differently.

I would have taken my nest egg and divided it in half and had half in 401ks and the other half in after-tax monies because when the RMDs hit, they hit hard and you're just creating a huge tax bomb. And that applies, and yes, it's a nice problem to have, and it applies to those people that were steady savers.

You know, they started their IRAs when they were 25 or 30 and they saved every year the maximum amount. When you get there, you've built yourself a tax bomb. Second thing is, is I believe this is a lower tax season than we'll see in a while. So it's better off to pay the taxes now.

Okay. It makes sense. I think Alan, you talked about the RMD alternatives with charity or something last call. You want to mention that again? Well, they're qualified charitable, what they call them, QCDs, Qualified Charitable Distributions, I think. I haven't done those, but you can donate from your tax deferred account to a charity and that will count towards your RMDs.

Perhaps somebody who's doing that or Mel can provide details on that. But one thing I'll add, it was Mike Piper, in fact, who commented primarily deciding between Roth versus traditional contributions while you're still working. And as he pointed out rightly that a lot of us retirees never had Roth contributions as an option in our working days.

So now's a good time for us to be doing those Roth conversions and also to consider, as David did, to put more money into a Roth, especially if you were in a, expect that we'll have favorable tax status in the future. But if you have a match in your IRA or 401k, I should say that is reasonable to at least contribute as much to get the match.

You don't want to turn away from free money and thereafter put more money into a Roth if it's appropriate tax wise. The other group of people who need to be thinking about whether they're about consider putting money into Roth instead of a pre-tax are those with pensions. And you mentioned sort of the previous generation that was more likely to have a pension and less likely to have access to Roth 401ks, for example.

But especially those in the middle who had both, for those who've had access to a lot of pre-tax contributions and also have a pension who may not be drawing down investments early on in their retirement, then those, when one is receiving maybe a couple of pensions, a couple of social securities, when one hits RMD age, a lot of those returns from investments can really wind up stacking on to create higher income levels and tax brackets than anticipated.

Yeah. If I can interject one thing, it's helpful. I believe it's Swab. I was looking for the URL. I don't have it in hand. But I think Swab has a free online calculator for RMD payouts, and you can plug in where your current tax-deferred account is and some other key information, and it'll project out what your RMDs will be in the future.

So you can kind of use that as a gauge as to whether you want to continue contributing the maximum there or perhaps shift dollars towards Roth or otherwise. And that's a useful modeling tool. You do have to make some assumptions on what the return will be. But if you're typically primarily fixed income, as many of us are, we're predominantly fixed income, you can kind of model it pretty well what the future return will be and then see what your RMDs will look like years later.

Yeah, Alan, Keith, go ahead here. I was just noticing in the chat, there's a couple of comments right after Keith. I'll make some comments that might get some discussion going that's in the chat right now. Go ahead, Keith. Yeah. So I'm kind of in the situation that David from Detroit was describing, have a pension and I'm a few years away from collecting Social Security.

I want to get to at least full retirement, if not a little bit later. And what scares me is having to take RMDs. So as I mentioned, I think when I talked earlier, I'm going through and doing Roth conversions. I didn't have the opportunity to have a Roth 401(k) that I could contribute to until the last month of my 30-year career.

And so it was way past. I had advocated for it for about 10 years and the company never did it until I literally had one month to go till I retired and I wish I had that option. And I look at it from two perspectives. Number one is just having the ability to put that in tax after tax.

But to me, it's really the flexibility because you don't know what kind of situation you're going to be in later on when RMDs happen. Between my pension, Social Security, my wife will get a spousal benefit. And then having to do RMDs, I think it was Jean that mentioned, it can hit you pretty hard.

And so I'm kind of taking the pain right now and doing Roth conversions and paying the tax on it, but I wish I had the opportunity to do it while I was working. So I have two working adult kids with 401(k) plans and I tell them, do Roth if you can and make sure you're contributing to your Roth IRA so that later on, no matter what fiscal policy there is and tax rates there are, you'll have the flexibility, more flexibility than someone like myself that has to do Roth conversion.

So I like that and the fact that I'm doing something that I know right now what the tax rates are so I can plan with a known, known, so to speak, as opposed to not knowing what's going to be like when it comes to Roth conversions. I just prefer to make decisions based on things that are factual rather than guessing what it's going to look like in the future.

I think the diversification aspect there is really important. And I think he and I, this is David, we've both learned a lesson that having some more money toward the Roth side might've been helpful in retrospect. But don't forget, depending, there's lots of people online here, people are earlier in their career, especially, that what you certainly don't want to do is be in a situation where you're pulling out funds out of your Roth, out of a Roth account in retirement for your first dollar, right?

Because those for married filing jointly today, your first $27,700 are tax-free. And then for some portion after that, you're only paying 10%, which is almost certainly less than you're paying today. And so you want to plan on having money in both accounts. Gene has said 50/50, Keith has said he wishes more on the other side, but I think tax diversification was also mentioned in the round table.

And I think that's sort of what we're talking about is it's not all or nothing, but I think at some point you need to start projecting future cash flows and that's where everybody alluded to. You need to have plans and you really need future cash flows. I found that new retirement was the calculator that put me on the path of understanding where I might be and help me sort of understand what the right mix might be for my situation.

If I can just add really quick before you go to Marion, I think the tax comment that David made is very important. For those of you that are five or 10 years away from retirement, I personally used TurboTax for a long time. So I saw the hard numbers that I was entering and thinking about.

I have two friends that are near retirement and they both have somebody else do their taxes for them. So they don't really think about tax consequences and moves they might want to make. And now that they're thinking about retirement and they're asking me my advice, one of the things I say is get familiar with how things are taxed because there are smart ways and not so smart ways to spend in retirement, certain money that you want to spend, others that you don't, depending on whether it's a taxable account or not, and just understand how things are taxed and where money is coming from and how it affects your individual tax situation.

And that can be thousands of dollars a year difference in an available income, depending on how you handle certain things. So for those of you that are five or 10 or 15 years away, and you're just maybe starting to think about it, my advice is to at least get familiar with taxes and how they work and how it's going to affect you so that you start making the right decisions now and don't put yourself in a situation where in retirement, all of a sudden you're paying more taxes than you thought you were or needed to because it affects it more than I think people realize when they're working and they're busy with their work lives.

Okay. Thank you, Keith. Miriam. I agree with what Keith just said. I agree with that. One thing on the forum, many will say that it's good to go into retirement with equal amounts in your taxable account, your 401k, your pre-tax account, and your post-tax account, your Roth account. Have equal amount in each more or less because as David mentioned, when you get into retirement, each account has different, there are different things you can do with each account, pre-tax money, post-tax money, and your taxable account.

It gives you flexibility and especially for our kids. For our kids now, they can put a lot of money into those Roth accounts. They can pack it into those Roth accounts, but not to neglect the pre-tax accounts. For example, my kids, they can have their 401k be pre-tax and then they can max out their Roth IRA, which is now $7,000 a year.

That's a pretty good chunk into your post-tax. By the time they reach retirement, they will have a big chunk in the Roth IRA already, which we did not have because there were no Roths when we were accumulating money. It's good for them. Also, for the kids, when they put it into the 401k, remember that money is not taxed, so their income tax is lower.

They have a lower income tax because the 401k is not taxed, therefore, they have a little extra money. They can then put that over into their Roth IRA. That's how that can work. Yeah, kind of like investing the tax savings, you're saying. Yeah. Anyway, for me, it was interesting.

I kept investing in my regular traditional IRA before there were Roths. By the time Roths were born, I had this huge, well, a large traditional IRA. I just kept investing even though I could not deduct it. What was nice is that by the time I converted, really only about 50% of my conversion was taxable because the rest had already been taxed when I put it into the traditional IRA.

Even if you're in the position I was in, hope is not lost, you can still do a nice conversion into your Roth IRA and not pay a giant amount of taxes now, a huge amount of taxes now. Okay, thank you. We have a caller, or not a caller, but we have a person named 14056, if you'd like to go ahead.

Yeah, this is Pat. Right now, they're telling a lot of young people just to go into Roths right away. I'm talking about people graduating from college because they said your income for many jobs is never going to be lower than it is right now. Just keep doing that. Right now, I think my company now will also match Roth 401ks.

Right now, I'm about 50% pre-tax, 50% post-tax. My issue right now is I really need to not take Social Security until full retirement age. I want to work indefinitely. I work on call as an editor, and I'm part-time on call, and I'm really, really enjoying it, but there seems to be no good time for me to do any kind of conversions or whatever.

I'm starting Medicare in July, and I don't really want to do anything that's going to ... What is it? The Irma? You know what I mean? Yes. It's like somebody can't say, "Oh, wait until you retire," because I'm happier when I'm working. I'm single, and I have friends and everything else, but just somehow making money, even if it's a small project, it gives my life structure, so I'm just really kind of struggling.

Somebody was talking to me about ... Apparently, I'm pretty well set. I was told that they did a Monte Carlo, and I should be able to live the rest of my life with no problem. I can't bring myself to spend my money. For 32 years, or actually closer to 35, I've been investing and reinvesting dividends and capital gains, and it got me to where I am now, and now I have a cash flow problem because I'm really heavily invested.

I could take money out, but I hate doing it, so I'm just kind of stuck. I have to figure out what to do, but I can't spend my own money. That's a common problem that they talked about that on the ... What did you say, Alan, last time? Either you fly first class, or your heirs are going to fly first class, right?

You said that. I love that one. Right. I'll throw in something. I'm just putting this in the chat, but just to reiterate, for those of you who can, having the majority of your bonds in the tax-deferred account may be beneficial, because the slower growth of the bonds will help moderate your future RMDs, because if you have more of your equity holdings in a taxable brokerage with favorable long-term capital gains tax rates or a Roth with no taxes, have your main growth occurring there, and slow down your tax-deferred growth by having most of your bonds, if not all of them, in that account.

That's another way to control future RMDs long-term. And Leslie, did you have a comment? Your hand's up. I do. Sorry, I had issues with my microphone. One thing that I've learned over the last couple years is my company allows us to max out the IRS pre-tax savings, so $23,500 plus the catch-up, and they'll match that.

And once we hit that IRS limit, they allow us to put money in post-tax dollars up to the IRS limit, which is now close to $76,500. That money can be immediately rolled over into our 401(k) Roth. So it's a mega backdoor Roth concept, but that's the way where I'm putting a large amount of money into the Roth to kind of spearhead what everybody's been talking about, trying to be able to maximize our taxes when we retire.

But so anybody who works for a big corporation, you know, double-check. I would say I've actually done some education for our employees, and I would say 90% of them did not even know that this benefit, and I considered a benefit, existed. So for super savers, it's a way to get the pre-tax savings as well as get money into the Roth environment.

Okay. I'm just going to ask Margo, if you wanted to get on, you know, at least speak to it. You mentioned in the comment about psychologically on a hard time having, having a hard time spending money that you've so diligently saved. Could you maybe express your comment audio-wise? You mean me?

1-4-0-5-6? Well, it came up in Margo on the chat. I was addressing it to you, to 1-4-0-5-0-6, but I just personally, I'm like known as El Chifador among my family, and I just have a really, really hard time spending money. It's so hard for me. And I like, you know, comparison shop for everything, and it just, it got to a point where I had to realize, like, this is not productive.

This is not a good use of my headspace, a good use of my, like, limited time on earth. It's just not what it's meant to be used for. And I read, I can't remember where I read it, but it said, I can't remember now where I saw this, but it said, if you have a hard time enjoying or employing money productively, a great way to begin to get over it is to, you know, find a cause that you're passionate about and donate whatever amount is like a little bit painful.

Psychologically, like, that's a good idea. Yeah. Right now, I'm, I'm turning 65, I don't even know what's going to happen to me. I don't have long term care insurance, I probably can't get it. I instead of trying to sell stuff, I do donate like to a lot of animal shelters have a thrift shop.

And I like getting rid of this, it's really easy to get rid of this stuff, knowing it's going for the animals. But, but right now, I still have an issue that I don't know that, you know, they say I'll be okay. But if I end up in long term care, either dementia, God forbid, you know, it's not going to be easy, because by the time I'm old enough, you know, we could be paying a heck of a lot of money.

So I really can't, you know, right now, I have to really keep a tight rein on my own money right now. I understand. One more comment from the, from the chat, I was wondering if Matthew Heaney could speak to some of the issues about not wasting space in the lower brackets and smoothing out the marginal rates.

I think you made comments about that. I've seen a few comments in the chat. Are you still here, Matthew? Okay. So I think, actually, Alan, you've already touched on this tax efficiency of drawdown strategy, right? Which is this topic here. Not, not per se, I guess I'd like to hear other folks' thoughts, other than, as Maria alluded to, having tax diversification is key and having, you know, three buckets, relatively well balanced, it gives you options, depending upon what the future tax situation is that you find yourself in.

Historically, I know they say that draw from your, your taxable brokerage first, and then you go to the IRA or tax deferred, and then leaving the Roth for last. But there's times, as I think Wade Fowl alluded to during that round table discussion, that there are times that you may want to switch that up a bit.

It has to be, you know, it's an individual situation and you have to decide what's best for you and your tax situation. I'm not a tax expert by any means, so I'm curious to hear other folks' opinions. Would anyone like to speak about tax efficiency drawdown strategies and what you're using?

Okay. So I guess the next topic was pay off the home mortgage before retirement. Anybody chose that or chose to go the other way, mortgage to the hilt? Okay. You know, I'll just say, Jim, I'm a big believer in having, you know, known things that to deal with. So to me, and, you know, we paid off ours, we don't, I didn't want to have a mortgage in retirement because what if something else happened that it needed to be piled on top of that?

You know, I have adult kids and, you know, help them a little bit to get on their feet that maybe I didn't think about 10 years ago. You know, as you get older, obviously you start to have more health issues, whether it's just co-pays or whatever. And so for me, less debt, the less debt, the better is what I aimed for.

So when those unexpected expenses came up or just maybe wanting to travel and the difference between being able to travel and not, it would be a mortgage payment that I'm a big believer in and having as little debt as possible when you go into retirement. And you sleep better, right?

Absolutely. And Jean, would you like to make a comment about that? Yeah, before I retired, I paid good money three different times to go out. And I always ask that question, the financial advisor, should I pay off my house? Should I pay off my house? And I constantly got the advice of no.

Now of course, I'm in retirement and I see it would be very handy to have it all paid off. It would require less monthly output of cash every single month. So I am now an advocate for pay it off. The only con to that would be, let's say you had one of those really bare bones mortgage rates of two, I don't know what the lowest it ever hit recently, but like say two and three quarters or something.

And as Scott was talking about interest rates and CDs, there would be a big marginal difference. And I think that's partially what's going on in the housing market. People with those mortgages say, if I sell this house today and buy this other house, I'm going to trade it two and a half for a seven.

So there's that going on. I have a 3% mortgage, so I am one of those people. And I still see the advantage to having it paid off. Oh yeah, I agree. I agree with you. I'm in your camp, but this is, I'm just saying what other people might say.

Jo, do you have a comment on this? I think that's the wrong way to think about it is compared to the open market rate, because that's always going to fluctuate. This really fixes your cost in retirement and it's your number one expense, well, it's actually number two. Taxes is your number one spend and your house payment is number two.

So it controls number two, and I'm all for controlling the top five spends that you have. And the sleep at night factor is nice. I totally agree with you on that one. So I think the professionals just don't really have a clue yet because they haven't retired. Yeah. Hey, Jo.

Yes. One thing we did, we noticed a fair time before I was ready to retire that just adding a little bit of extra principal to the mortgage greatly reduced the duration. And that was a very good feeling of being able to just make some extra payments on it that greatly reduced it.

Then about the time I was retired, we did pay it off and I slept much better. I just felt very good then that it was totally paid off and that was out of the way. And most people will find in retirement sometimes the property tax goes up. So even though you don't have the mortgage payment, you do have non-insignificant property tax payments.

Yeah. And insurance, if you're in an area where insurers are getting out, like some areas of Florida, I think you could have a lot more homeowners insurance than you had before. All the insurances are going up, but even in areas, we're in Alabama, which is not a particularly other than tornadoes, but anyway, but still, we see that going steady climb.

Thank you. You're welcome. I noticed in the chat from Margo, Kim, and Carolyn, the opposite about the good rate mortgages that they have and the fact that they can pay them off whenever they want. Does any one of you guys want to comment on that? This is Carolyn. Go ahead, Carolyn.

Yeah. I would just say nobody's giving me money at 2.875%, so I'm going to keep my mortgage and just pay it off as usual. If I needed to pay it off, I could, but I sleep fine at night with the mortgage. Good. Okay. Anyone else? This is Kim. Yes, Kim.

I think my comment was really related to how "money managers" being paid, and they generally don't want you to take money out to pay off the mortgage because it reduces their income for charging you based on assets under management. They would never do that, would they? Maybe. That's a very good point.

Yes. I'm going to take a controversial idea right now, and I have a proponent of Dave Ramsey, and he talks about paying that thing off to sleep better at night. It's a hard sell when you're paying 2.75%. Yeah. I just wanted to ask Leslie, who has her hand up, if you really have your hand up and would like to say something, or is that just stuck on right now?

Okay. Let's move on to Joe. Joe, you have a comment? No. I hadn't taken my hand down. Okay. There's a DC, username DC. Go ahead. Yeah. Can you hear me okay? Yes. Okay. Go ahead, Joe. Yeah. I'm in the process of paying down our mortgage, and I'll explain my reasoning on that.

We have 2.99% mortgage. It's a decent amount of money on there, say about $70,000, but we're going to pay that down before we retire, even with the lower rate. Our reasoning is based on our ages when we retire, so I'll be going on ACA or Obamacare for about 4 years.

My wife's going to be on Medicare, but she's also going to collect her Social Security at FRA. She's older than me. So our reasoning is let's pay it down because I want to keep my income low when we first retire so I can qualify for ACA subsidies. Okay. We want to keep our Social Security taxes low, so I want to keep my income low, so I don't want to be paying a mortgage once I'm actually retired, so that's our thought process.

That's an excellent idea. So if you were to take -- if you had to pay all that out of 401(k) or something, draw down, that would be income, and that would affect your ACA subsidy, which could be substantial, right? Right. Okay. Very good comment. Sonny? I was going to say, yeah, I'm in the process of retiring, and I have a 2.5% rate and a decent-sized mortgage, but my cash portion and my short-term bond portion, there's more than enough there to pay that down.

So I don't really have an issue sleeping at night, but I can pay it off whenever I feel like it. Let's say two or three years down the road, rates go back down and end up back at -- you're looking at 1% or something in terms of savings rate, you can just pay it off at that point where I'm making 5% now in savings or a CD.

Okay. So that's my view. Yeah. Very good. Let's see. Our next topic was funding ratio tool for retirement readiness. I don't remember what they said about that. Anybody remember what that topic was about? I say, Jim, if I can interject, there's a good comment from Maggie Wood about this.

Is anyone considering selling their house and downsizing and/or renting in retirement and also throw in the concept of geographic arbitrage, moving from a higher cost of living area to a lower cost of living area during retirement? If anybody would like to address those options. Carolyn, go ahead. Yes, I've thought about that, and I'm kind of looking at it two ways.

So my younger retirement years, I'm going to stay where I am. I purposely bought a ranch and remodeled it and plan to kind of stay here for that first 15, 20 years when I'm more active as a retiree. And then I will probably downsize from there and go somewhere where more kind of independent living situation for seniors because I'm single and I don't have kids.

So I think at that point, you know, I'll be ready to kind of slow down and it'll probably be someplace like Vegas or somewhere warm and low taxes. And what area of the country are you from now? I'm in Michigan. I'm in the Detroit area. Okay. All right. Thank you.

Sam? I don't, my, our house here in retirement is only 900 square feet, so there's no way down to downsize unless we move to a tiny home, which with our aching osteoarthritis, we can't even climb up the stairs nowadays. My neighbor next door, he's a millennial, just starting with the first home buyer program.

He says that, yeah, we will, we need to live in a bigger house. I'm going to move. If we end up later in retirement, we still live in this house, which is the same size as my house, 900 square feet. That is a failure for us. He said, "Uh-oh, here we are." It's paid for, 900 square feet, but it's paid for.

And you sleep well at night? Certainly. There you go. That's all that matters. I want to thank that person who says that he is, his strategy is to pay off the house so that the, for Obamacare purposes, great idea. I didn't think about it. Very good idea. Yes. Yes.

That is, that is good. That is a good one. One idea we heard on a previous call a long time ago on a Obamacare discussion about subsidies was somebody actually took out a home equity because they needed cash for daily living, and it ended up, it was better than taking money out of their 401(k) to ride through from like 62 to 65.

So that was an interesting strategy. Okay, I think we can move on to the next topic. Back to the funded ratio concept. I don't even know what, I'm sorry, but I don't know what that is. If anybody can help me with that. It's the same analysis that pensions use to see basically how well capitalized they are for future obligations, and I think, I don't, I think it might have been Wade Fow who said that, it might have been Mike Piper who has a calculator online or a spreadsheet where you can plug in your data and see what your funded ratio is.

I'm not that familiar with it. Maybe somebody with expertise could speak to that. Anyone? I'll see if I can look it up. Oh, if not, let's, let's move on to the next topic. Let me get my cheat sheet here. Retirement contribution when one spouse is still working. So this, I guess the assumption here is one spouse retired, the second one is still working.

And I think it belongs to, I'm not sure if Carolyn said it or Sam said it about the Obamacare subsidies could be significant if you're, you know, in that pre-retirement age. Does anybody have any comments about making retirement contributions with one person retired and one working in a two-person family?

Jeanne? As I recall, they summarized that one with the only advantage was if there was an age difference between the couple, one was putting it into a 401k and the other was drawing it out of their IRA. And if there was a significant age difference between the couple, it could be an advantage.

Otherwise it was a wash. Yeah. It kind of sounds like putting in one pocket and taking it out of the other. That's what I recall the conversation ended up with, because I was really listening to that one for some friends of mine. Okay. Let's see how we're doing on, it's 825.

The next topic, spend more now and also work longer. Maybe we could take a show of hands of people who are actually retired right now. Just hit that show, raise hand if you could. And I think we have 64 people on the call. And I'm seeing about 6, 7, 8, 9, 10 and 11, 12, 13, 14, 15, 16, 18.

Okay. So about 18. So maybe a third. Okay. If you could lower your hand and let's say you're going to retire in the next five years, raise your hand like we have about 10, 11, 12. Okay. And the people that are between 18 and 24, I don't think we have many, but we're open for everybody.

And, you know, if anybody wants to get advice as a younger person, feel free to ask. We have a lot of experience here. And who on this, who on this call has had a lot of trouble spending money now that they are retired and are not accumulating, anybody? You can just raise your hand if you want.

Mary, would you like to speak on that? Or Joe? Or Keith? We, I mean, we have to withdraw more RMD than we have any need to spend. Plus we have social security and we just, we're satisfied with the way we live, which doesn't really cost that much. We have our house paid off, don't owe anything on cars.

We don't have an extravagant, we do eat out, but we don't eat out extravagantly and it really doesn't take that much money. We're in a fairly low, we're in Alabama, which is fairly low cost of living area. Taxes are fairly low. And so, you know, we have much more than we need, but we have, don't, you know, kind of that thing of we've saved and, you know, I still look for bargains, I still use coupons.

I still, you know, look, you know, you can't get over that. You've been trained for 50 years, right? Yeah. Or 70 years. Right. And, you know, it, you, but, you know, I say I'm frugal and I have a friend who's cheap. So he's worse than I am. I think that's my favorite thread on the, on the site is that what frugal thing did you do today?

You know, where the guy's gotten 50 days out of the same teabag, you know, that stuff just getting so excited, you know. Well, this, my friend, the one I call cheap, one of the local pizza places had that if you paid a certain amount, you could have a slice of pizza every day for a month and he bought it and then, then would just drink water, wouldn't even buy a drink when he went in.

And did he get pizza almost every day? Yes. Yes. For a month. Great. That's great. Okay. Thank you. Mel. Yeah, a number of years ago when I was doing Forbes column, my editor got in touch with me and asked me about, she was getting ready to retire and she was really concerned about going from having a salary to not having a salary and not having money coming in and happened to start to spend down.

And I told her that I had a problem with that. And I thought it would be a good subject for an article. So I interviewed a lot of the Bogleheads and I was not really surprised, but I found out that there were a lot of people who had a serious problem transitioning from saving to spending.

So I did a column on that and it's still available on Forbes, it's called Shifting Gears, Going from Saving to Spending. And it is basically a real problem that a lot of Bogleheads said they had. And I knew that I had the same problem. So yeah, there's the article.

It's still up. It was 10 or 15 years ago. But you might look through that and see that if you do have a problem that you're not alone. I was really amazed to find out that I wasn't the only one. Yes, it's a common theme. Somebody said on the last call, I think they, you know, you basically get, you know, make yourself a paycheck and whether you give it to charity, as somebody suggested, or you buy something you want or help somebody out, just you got to spend it.

Keith? Yeah, I'll second what Mel said. It was extremely difficult. You know, you're used to looking in your checking account and seeing that direct deposit from your paycheck every couple of weeks. So you feel okay with buying some things here and there, and then all of a sudden you don't have that, even if it's investment income or a retirement.

And I'll just throw out there that some people making comments about frugal. I came across, for those of you that are on Facebook, there's something called, there's a group called Everything Frugal on Facebook. And I joined it maybe a month ago. And it's kind of interesting. It's a lot of the same kind of talk that we have here, but it's more related to spending, being better for spending decisions, finding ways to save money, not necessarily on the investing side, but more on, hey, I'm doing this and how can I save an extra $50 here and there.

So for those of you that like to call yourselves frugal or cheap and are on Facebook, it's called Everything Frugal, and it's kind of interesting. And there's a lot of people make comments and they'll give their advice, maybe something they did. And I've picked up an idea here a couple of times on utilities and services and things like that.

So it's kind of interesting. - Okay. I put a link in the chat for anybody that needs it. Sam? - Hi, Keith, I disagree for going to Everything Frugal for us who are already frugal because it will, the opposite of the antidote to being frugal. In the Boglehead conference, Mike Piper say the antidote is to get counseling.

Ouch, pay a psychologist, it's not that much, Mike Piper says, to get counseling. And he even does it because if you worry about not having enough money or what, anyway, Joe, I agree with Joe that to give yours, no, for Jim, I agree with Jim, give yourself a paycheck.

So that, yeah, otherwise, I mean, you think about like our safe withdrawal rate is, we already set it for 3% and then it ends up being a lot less than that. Could you believe it? We can't even reach 3%. - And if the market does well for a while, it's going the opposite way, right?

- Yeah. - If we only knew how long we were going to live, it would be very simple. - I think there's a website for that, it'll tell you exactly. And then last comment about to Joe, I say that the cost of living for his lifestyle is satisfied. And the only thing that he spends is eating out, well, I don't even eat out, Joe.

I cook all the food myself, thanks to YouTube, literally. And with COVID, we really cut that back and we spare no expense on groceries, that's for sure. But we really enjoy cooking now. Okay, Alan, thank you, Sam. - Yeah, these are all great comments. I too have suffered with this, being a longtime individual living, my wife and I both living well below our means, and it's very hard to break that habit in retirement.

But one thing that I have found useful in initiating a step in the right direction is focusing more on creating memories with our friends and families, say, trying to take vacations and paying for the kids to come along. And those are the long lasting things that you want to hang on to anyways that bring you joy and can reflect back upon much more so than buying things.

So focusing on experiences and creating memories with family and friends is one way to kind of break the mold and dip your toes into spending a little bit more money. And over the last three, four years, what we've done is an Airbnb in a central area and paid for all of our kids to come and spend.

We bookend two weekends and the week in between they come whenever they can, all expenses paid and we just hang out and it's been wonderful. And no guilt whatsoever in spending the money there. - Thank you, Alan, yes. And Ray, do you have a comment on that? - Hi, this is Raj, yeah, one way for us to deal with that problem is to gifting to the kids that 18,000 to one person from one of us.

So that's about 36,000 to each kid and we have got two kids. So this way, we just have started giving them for the last several years now. So that is one way we deal, we dealt with our problem, like in difficulty, spending our money. - And you get to see the benefits, right?

- Yeah, yeah, they seem to like it, they enjoy it. And we like them, like enjoying themselves. - Oh, that's great. Versus if you were gone and they get it, you wouldn't see it. - Right, with a warm hand rather than a cold hand. - Yeah, as Alan said before, I told that to a lot of people in the last couple of weeks.

- Okay, let's go back to where we were at here. I think we got one or more. How often to take distributions, does anybody have any strategies on distributions? And are you talking about like, I don't know what they were talking about on the call, was it monthly or yearly or what was the issue here?

- Yeah, I think that was it, whether to take it like the beginning of the year, the full year's worth or divide it up monthly. - Does anyone have any strategies that they're using? - Yeah, we usually take my wife's at the beginning of the year and I save mine for November or December because I pay 100% of our taxes from the previous year, have it withheld so that I don't have to do the quarterly estimated taxes, which I did for 40 years.

And it's considered to be any tax that's withheld is considered paid equally throughout the year. So you get rid of the estimated taxes. So that's the way we do it. I know how much, I know that I've got enough in my RMD because it's fairly large to cover the taxes of the previous year, plus have some leftover.

So after I do my taxes for this year, I'll know how much I have to take from my RMD later in the year. I don't bother to take it now because I can, I can adjust it over the course of the next six, eight, 10 months and get 5% or whatever.

And then I send it in at the end of the year. So that's my strategy. - Okay, thank you. And finally, we have some, people can talk about the tools that they're using for retirement planning. I think we touched on this a couple of weeks ago also. Somebody earlier in the call mentioned new retirement.

Is anybody else using any other tools? I think, Alan, you mentioned that Mark Zorrill, what was the thing you mentioned last time? - Well, yeah, there's Mark Zorrill at PlanVision. He uses eMoney Advisor. It's a relatively low cost way to access that tool and his expertise. He has now, I think he has three, oh, three, Mark Zorrill, Jason Lynch, and somebody else that I believe that just joined their team.

For people who need a little more sophisticated modeling, even for basic modeling, it's a worthwhile approach. Also, I personally really like Empower, formerly Personal Capital. I think it has very fundamental but useful retirement modeling tools that I found very helpful. And I actually am a client of Mark Zorrill's as well, and I've consulted with them a couple of times more or less just to confirm that I'm on track.

One individual I'll mention, a YouTube individual you're probably all familiar with or should be, and that's Rob Berger, who's been to the Boglehead Conference the past couple of years. He served on the panel last year, I believe, or 2022. He's excellent giving no-frills, objective advice from his website and YouTube channel.

And he said that he's going to start focusing, he's already building an online resource of all the available tools for financial, personal finance and retirement planning. It's very rudimentary at this point. One of his recent YouTube videos, he goes into a little bit more depth explaining what he's going to do with that, but that'll definitely be a resource to keep your eyes on as he'll be listing the pros, the cons, and delving a little bit into the details of each of these tools.

And they're all a little bit different. The one thing I might add is that remember that when you're using any online tool, there's usually embedded assumptions either that were built into the program or assumptions you're making. And we don't know the future. We do not have a crystal ball.

So take everything, all the output with a grain of salt, because it could be that you're putting garbage in and getting out garbage results. It's probably useful to have at least two, perhaps three different resources that you consult and see if they're roughly within agreeing with one another. And even so, I still would be willing to change, adapt as your situation changes.

Okay. Thank you, Allen. There's a bunch of tools here. I'll put this in the links. Keith, do you want to talk about tools? Yeah. I would just, you know, for me, you know, I guess I'm just thinking about calculators just to make sure that I was on track. Fidelity did the 401(k) at the company that I was at.

And they had, I've mentioned this before, they had a tool where you could either make it more kind of general, you know, five or six inputs, or you could go and put in all of your expenses literally line by line. I actually found that to be very helpful. And I dug out all of our bills and said, okay, how do I feel that this is going to change in retirement?

And was able to get a more manageable number in terms of what the expenses were going to look like versus the income that I was going to generate. And then I kind of bounced that against the Monte Carlo simulation that Vanguard has. And there was a third one that I use that escapes me.

It might've been Kiplinger. And so when I used all three of those and all three of those came back positive, that's really when I felt more comfortable and kind of taking that plunge and feeling like I was on the right track. So like you mentioned, Jim, you know, you do, or Alan might've mentioned it, you do several of them.

And if all of them kind of give you the same answer, that's probably, you know, something that you can not necessarily bank on, but at least feel comfortable with it. And I would just mention also in terms of planning, you obviously need to be realistic with your inputs. You know, a lot of them will ask you, what is your expected return, et cetera.

You want to be realistic in terms of what you're going to put in there, because just a variation of a percent or two on your return can have a fairly significant impact on what your numbers are going to look like. And then also with your expenses, you know, everything showed the rule of thumb being something like 70% of your expenses in retirement is what you can calculate.

And I found that to be incorrect. Ours was closer to like 90 or 95% of what we had pre-retirement. And so if I had used the 70% number that the benchmark or the rule of thumb was, I would have been a little more off in my numbers. So be realistic with those numbers.

If you can find one that breaks down expenses by line, that's going to be more accurate than using that 70% benchmark. Okay. Thank you, Keith. Jean? Ah, very cool, very cool comments there. In the last meeting, there were several tools mentioned, and I made a list of them, and I sent them to Lady Geek.

And so we're going to post what I found, what I captured out of the chat with this meeting on your website. So there was 10 tools mentioned, and I had no idea there was that many tools out there. So Alan, you brought up a couple I don't think that are on my list.

Maybe I'll send you the list too. And you can add to it, and then we'll post it with this meeting so that people could find tools. If I can interject, Rob Berger is so thorough in how he is approaching this. I was going to suggest to Lady Geek that maybe rather than us trying to replicate that on the Bogleheads wiki, which is lacking, since it's constantly got to be updated, it might be one instance here where it might be better just to refer everybody over to Rob Berger's website.

I think where he's building this tool repository in the chat. Has he got the list available now? Yes. I just put in the chat, Jim, if you want to share your screen, click on that link for the Rob Berger tools, and you can just show them what's up there thus far.

Great then. Yeah. Because see, I went looking for tools and couldn't find anything. Is it on the, is this it here? Is this what you're talking about? Yes. I'll put that link in the chat. Cool. It's in the chat. Yeah. Then I won't bother to send it back to Lady Geek.

I'll tell her it's already done because all the tools on my list, I could see they're on there. Cool. Thanks. I didn't know. And I think we have videos on the site. You can find them where we went through a number of retirement tools. They've all probably been updated since then, but at least it gives you some tools to take a look at.

I'll put this in the chat also. Great. I had no idea that there was a list that you could go to, and if I had known that, I wouldn't have wasted my time. Later. One thing I can add that's very important, I know a lot of people are fearful of using online tools, especially if you're, it's an aggregator or you're linking your personal accounts.

And that's very important to think about security and so forth. There are tools that you can download and just do everything locally on your computer. There are others where you can manually enter in information without having a link to your accounts. And then there are others like Empower, formerly Personal Capital, and I think New Retirement and others that you actually can use one of the aggregators and link to your accounts.

It doesn't mean you have to, but you certainly need to be aware of what the security risks are. With Personal Capital, Empower, you actually can manually enter everything in. A lot of people are not aware of that. I don't know about, I presume New Retirement as well offers that.

I signed up for New Retirement, and you can manually enter or link. And for security reasons, I manually entered. Yeah. So that's an important consideration with any of these tools. Uh-huh. Uh-huh. Agreed. Okay. And I think I was going with Rod Berger. It's Rod Berger. Somebody pointed out. And this is the site here.

Rod Berger. Great. Thank you, guys. I think this is a great resource, because I had no idea there was that many resources out there, and I needed some help. So it was really, I wanted to help others with it. Yeah. And there's the old, what is it called? FireCalc?

I haven't looked at this in a while. Mm-hmm. Yeah. FireCalc was one that hit the list. Yeah. So if I would like to spend $40,000 a year, and I have a $1 million portfolio, let's say, and I want to go 30 years, I think what this thing does is it simulates some split between the S&P and bonds for 30 years with all the returns from the different years, like through the depression and all that.

And it says, "These are all your glide paths." So in this case, I've got a very small percent here chance that I would run out of money. These cases below the red line, and it looks like there's three cases below the line. And I think they give you some results.

They're saying at 123 possible 30-year periods, you, I don't know where the results, six cycles failed out of the 123. And it actually included, how far back did it go? It's got some historical data. I don't know how long it goes, but it's kind of like a sequence of returns, like you started.

If this was the day the Great Depression started possibly, the purple line might be that. And then maybe during the '70s, you did bad again, and then you did better in the '80s. But that's the whole thing. It just wraps around the various years sequentially, I believe. And there's a number of tools like this that we reviewed.

But once you start, and it usually falls in line with a 4% withdrawal thing, right? I'm sure this is some of the baseline that everyone's come up with, to have come up with 4% withdrawal rates. It also points out that if everything goes well, you might end up with $6 million instead of being broke.

Yeah. Big split between the two. Yeah. Big difference. Yeah. I mean, this is where a thing that's probably accurate to very little, even though it's very precise, to seven decimal points. Okay. Anybody else have tools? If you want to, you can put them in the chat. Raj has his hand up.

Oh, yeah. Raj, go ahead. Sorry, I missed you. I had a question about people who use the empower. I have trouble deflecting those questions, those phone calls, which keep coming to me whenever I put my portfolio in the empower, and I wanted to have some clues how to go about it.

I've been using it for six years. They called me twice. I said I'm a do-it-yourselfer, not interested in their services, and I've never gotten another call from them. Gee, for some reason, they keep calling me and I have to get down. You can change your phone number on the, put in, some people use a Google number, or I think you have to have a phone number in there, but don't make it your primary one and you can just block the, use your mobile number and block it.

Okay. Maybe. Okay. Well, that's a good one, Alan. Another small piece of information I have is I use a new retirement and I have Fidelity as my broker and Fidelity, you cannot really connect to the new retirement. You have to have like, put it, put the numbers manually, you cannot really connect the Fidelity thing.

So, okay. So Fidelity blocks it? No, Fidelity doesn't connect with new retirement. Okay. Interesting. You cannot really. So you have to put all your totals like, you know, manually. So would you do that monthly or how long would it take you? Like, you know, you would do it maybe every six months once you are here, you don't have to do it.

I don't do it like monthly. And how long does it take you every six months? Like, you know, depending on how many accounts you have, maybe if you have eight account or 10 accounts, like IRA, Roth IRAs and taxable. So those numbers you need to put it in. It takes me two hours.

Okay. How about you Raj? How long does it take you? No, it doesn't take me that long. Maybe an hour at the most. Yeah, it might be worth it for the security risk. I don't trust anything anymore. I don't either. Yeah. Yeah. I wouldn't put all my information in that way.

Okay. We're going on almost two hours here. So does anybody have any other topics they'd like to talk about? If they do, I see Sam has their hand raised. Go ahead, Sam. Like for example, in new retirement, how is it different than just the, I'm using Excel spreadsheet and just entering it in here.

What does it do more than just doing like what I do? I already know that I can retire. Well, I am retired. So what, what is this for? And I would suggest you watch one of the YouTube videos that demonstrates all the features of new retirement or any other tool there.

They're far, they're all very in their sophistication, but there's a lot more than just a spreadsheet. But one thing I'll add that I like what I most like about the empower tool is that it breaks down your holdings into their actual sub asset classes. If you've got a balanced fund, it breaks it down into whether it's bonds, stocks, large cap, small cap, you know, and so forth, breaks all your bonds down to the appropriate sub classes.

And it shows you your entire portfolio, the actual true asset allocation. Whereas something like the Vanguard, for instance, Vanguard portfolio watch is horrible. It just may classify their small cap value fund is a hundred percent small cap value when in fact it's a mix of mid cap and small cap, and it's not all value.

So I find that tools that can do a much more sophisticated breakdown versus a spreadsheet. And I've got a custom spreadsheet myself that I've toyed with, but I can't get it to break down all my holdings that are, have mixed classes. So I'd like to see that and help me rebalance, but there's a lot more they can do just Monte Carlo analysis and Charmin, you know, spending strategy.

Some of them new retirement, I think has a Roth conversion tool as does e-money advisor can model Roth conversions, but you have to use the plan vision service because they need to customize that for you. I'm sure as these tools become more and more sophisticated, they'll all veer off into different directions with some overlapping features and some that are unique to each tool.

Thank you, Alan. That is useful. Yeah. So it seems that you do slice and dice where I only have one fund, total stock market index fund period. That's a good one. That brings up a very important point that we didn't discuss. If you don't mind me bringing that up is about how, how we should try to simplify our portfolio as we enter into retirement, both by consolidating accounts as, as best we can, and then simplifying our holdings.

Because if we have, if we happen to have a spouse, significant other who might ultimately inherit a complicated sliced and diced portfolio they may not be comfortable handling that. And as we get older, we don't want to necessarily spend as much time. Those of us on this, on this zoom are probably for the most part, you know, personal finance geeks, but our, our significant others may not be, nor our kids.

And simplifying things and make it understandable and also including your plans and, and philosophy in your investment policy statement for others that may need to deal with it after we're incapacitated or no longer here is other, another useful step. That's something I'm working on. So there's a lot more to consider other considerations as well to make our lives simpler and the simpler our overall finances and portfolios are, as we enter in retirement means we'll have more time to spend on other activities, such as figuring out how to spend our money.

Okay. Or going to therapy to spend your money. Thank you. You're welcome. Thank you, Sam. How about 14056? Try not to throw rotten eggs at me, but I've been toying with the idea of getting an annuity. And for a couple reasons, it's going to force me to take out the money and I have a cash flow issue.

And also I can, if I do it with my 401k, I could start to peel down some of that, you know, nastiness that's going to hit me when my R and D kicks in. I had two people bring up two things. One person said the only annuity they would consider was a SPIA, S-P-I-A.

And then another option was a fixed index that would, and either of these could be like just 10 years rather than a lifetime. So I'm going to throw it out. And if there's any annuity that you guys think is not as nearly as odious as the others, please let me know.

No, I think Wade Fowler has talked a lot about the fact that you can't really annuitize yourself. So, you know, and I think the recommendation is usually for the SPIA, isn't it, Alan? Yes, single premium immediate annuity, which is the simplest, lowest commission, lowest cost approach, which in some instances is very reasonable.

Would you, right now, you know, I can't imagine myself living like my dad did who died at 99 and he was going to the gym at age 97 three times a week. But would you consider like if I did like a five-year or a 10-year or something just to kind of see how it goes?

And I don't know, you know, I visited somebody who wanted to see me put around $650,000 in a lifetime annuity and, you know, yeah, believe me, I wasn't going to hand over my money without really studying this. But I started to think that maybe, and I did a calculator, you know, I can't remember who it was, whether it was a Fidelity calculator or whatever.

There's an intermediateannuities.com or something. And I thought like, you know, a SPIA with 10-year SPIA seemed like it was kind of like an okay idea. That might have been where I went. Yeah, this is it. Yeah, that's where I exactly where I went. Okay. To help you, Marilyn Dower did a one, I think, one hour, one and a half hour overview on annuities and we recorded it is on the Sacramento Bogleheads YouTube channel.

And he did a wonderful job explaining all the annuities, pros and cons. And I think he's no longer on the call, so he probably wouldn't speak about the fact that we've got it recorded and it's a wealth of information. Thank you. And I think this is the Wade Fowl article or something about it.

Yeah, right here. I'll put this in the chat also. One thing important to note is that, of course, annuities nowadays don't offer any cost of living adjustment, which is a bit of a concern, but instead of buying a single, if you're going to purchase an annuity, especially a SPIA, what you could do is instead of buying one single one is kind of build a ladder of two or three annuities at various times.

And that way you may get some inflation benefit from that based upon the current market conditions and interest rates. Split it up instead of one lump sum, divide it into three and divide it up over a period of time to purchase them. So then maybe I should start with like a five year and kind of see how it goes and make it small.

But you know, you can make it so small that what they're really giving you every month is not is chicken feed. Well, and then Harry Sitt, the finance buff, also does a lot of conversation about annuities. And I think he talks about laddering annuities, Alan, to your point. So that might be another resource for you.

Thank you. Okay, Sam, did you have another question? Yeah, back to Alan talking about simplifying our accounts. In addition to simplifying the number of funds, like me only holding one index fund for stock. And then you go so we can simplify the number of the brokerage account, like for example.

But if I put everything into Fidelity, then it will be big. Instead of diversifying the risk between Vanguard and Fidelity and Merrill, it will be all in Fidelity and if Fidelity goes under, I'm done. What do you think? Fidelity, any of these brokerages, they don't hold the assets. There's another holding company.

So there's no risk there in losing everything. The bigger risk would be if there's a breach, a security breach, and you lose access to your account for a while until that's rectified. That's a bigger concern. So it's always a good idea to have some other bank account, checking account, maybe another account somewhere outside of a brokerage.

I personally have no qualms about holding all my money at Vanguard, although it turns out for another reason I have some money at Fidelity, but what are everybody's thoughts on that? That's oftentimes posted on the forum and that's, I think, not a valid concern about Fidelity or Vanguard or Schwab or anybody else going under and losing your assets there.

No, but somebody made a comment. I think Margo made a comment about the concern about the long-term annuities and the solvency of the company. And I think there's some kind of cross-insurance between these companies. I don't understand it all because they really don't want the word to get out that annuities don't pay out and they're just liquidate and screw everybody over.

Does anybody know about that? Maybe Mel knows about it? I was told that the annuity actually has a little bit of an insurance policy. The annuity companies, the insurance companies have insurance policies, not a ton, but some. Well, it's a state issue and it varies from state to state.

Typically it's around $250,000. So it pays to go with different insurers and it pays to make sure that you stay under the amount that you're guaranteed by the state, especially if you're going out a little bit on the risk, the companies are ranked and the lower the ranking, the higher the payout normally is.

But a lot of people are tempted to go down on the risk scale and on the safety scale and will buy to get a little more. And in a situation like that, you want to make sure that you stay under, know what your state policy covers and stay under that.

So Mel, are you saying if I was in a state where it's limited to $250,000 and I plopped down a million bucks and they went insolvent tomorrow, they'd give me back the state guarantee or I'd only get $250,000 back? That is a possibility. Now, of course, you've always got the other thing where the other insurance companies come in and buy the ...

But the problem is, is that as with some assets, there's still assets to be had by whoever takes them over. But in this case here, they got a half a million or a million dollars and if they've already blown it, there's not really a lot of assets for them to take over because all they're taking over is debt, the annuity to pay out.

So I would say that either go with top rated companies if you're going to go over the insurance amount or stick with the lower, if you're going to go down on the risk scale or safety scale, buy from mobile companies. And there's nothing wrong because somebody mentioned it before, I'm not sure whether it was you or Alan, but one of the ways to offset inflation is to buy one today and buy another one a couple of years from now and a couple of years from now, instead of putting it all out right now, unless you feel that this rate is as good as you're going to get.

In other words, if it's an exceptional period where the rates that they're paying is extremely high, then you may go for it. But if the rates are low, you might buy some today and some a year or two from now and some a year, a couple of years after that.

So you're laddering it, which also helps to offset inflation and gives you a safety feature. Okay, thank you, Mel. Somebody had posted, I think Matthew posted in the chat about a comparison of fixed index annuities and bonds by an article by Wade Pfau and Alan Roth there. I posted that in the chat here, he did.

Well, just to, now Wade of course is associated with the insurance industry, so there's always that possibility, something you have to keep in mind. I did a six-column series at Forbes on annuities, which are still up and people can search for them and go through the whole series and it goes over all the different types and the things to look out for in that.

So all you have to do is search for Forbes Lindauer and it should bring them up. I wanted to say that Taylor Laramore has two SPIAs, single premium index annuities. I think, Mel, I can't remember, I think he bought one, his first one in his 70s and his second one maybe in his 80s and he's now, he just turned 100 years old and they're still paying him.

And in fact, his son told me that every year Taylor gets a letter from the annuity company and says, "Are you still alive? Are you still there?" And he asked to sign the letter and send it back. Yeah, Taylor is one of the ones that really made out on it.

I heard rumors that they fired the guy that wrote him.