(audience applauding) - I am thrilled to kick off this panel discussion by introducing our panelists here today. We've got three great individuals who work on various aspects of retirement planning. On your far left is Rob Berger. Rob is the founder of RobBerger.com and the Financial Freedom Show. He has a YouTube channel where he has interviewed a lot of folks, he's interviewed me, I know he's interviewed a lot of people who work on retirement planning.

He has also published a book called Retire Before Mom and Dad. And Rob was a fairly early retiree and often writes about how he was able to achieve that and how he manages drawdown during a fairly long time horizon. John Luskin is here in the middle of our three panelists.

John, many of you know, does a lot for us in the Bogleheads community. He hosts the Bogleheads Twitter spaces where he has managed to land some amazing guests. And I believe those are all recorded for posterity. So if, like me, you're not sure how to operate Twitter spaces, you can replay them.

He also is the producer of the Bogleheads Live podcasts. And John is a certified financial planner. He's fee-only, advice-only. And last but not least, Steve Chen is here to my immediate right. Steve is the founder and CEO of New Retirement, which is a fabulous resource, great website, financial planning platform that includes some do-it-yourself software for retirement planning, articles, podcasts, access to CFPs, importantly.

They will help you find a CFP that matches what you're looking for. So we thought, for this session, that we would dive into some of the big questions that cross our minds as we approach retirement and as we move into retirement. So at the top of the list, I thought we would kind of think about people in the 55 to 65 year range, the pre-retiree range.

And one thing that they might be thinking about is how to think about spending in retirement, how much you'll spend in retirement. There are these rough rules of thumb, like the 80% income replacement rate. But I think a big question for people embarking on retirement today is, with inflation as it is, how should I think about how much I'll actually spend in retirement?

Steve, you wanna take that? - Sure, thanks, Christine. So I think for a lot of our users, they definitely, when they're preparing or measuring expenses, taking a close look at what they're actually spending, breaking it down, building budgets so they have a good handle on what's happening. And then as they transition, I think a big consideration is, are they gonna make any giant gear shifts?

So if they're thinking about relocating, will that change their expected expense ratio? Like, I live in California, if I was gonna move to Florida, would my cost of living be lower? My tax rate from a state income tax perspective would be different, so that kind of factor would go into it.

And I think at a high level, you know, what Michael Kitsa says in some of the research he's posted about spending in retirement, it does tend to decline over time. So I think on average, people can expect that their expenses will decline about 1% on a real basis every year, so about 10% per decade.

And if you step back, and I think a lot of people are really, hey, I'm planning on having the same spending rate at 85 as I have at 60, and the reality is that for most people, that's not true. You're gonna be spending a lot less at 85. You're gonna be traveling, moving less.

Typically, you know, you're gonna be, your costs will be generally lower. So you shouldn't necessarily over-save and over-optimize for, you know, long-time horizons, and think about using some of your, you know, spending more earlier to enjoy your human capital. - So David Blanchett did some research on this, the retirement spending smile, so folks can check that out, and talks about that phenomenon.

Spending does decrease as you move through retirement. In those earlier years, those go-go years, you're gonna wanna travel, you're gonna go out to that fancy restaurant, but then as you get older, you're not gonna wanna do that stuff, and maybe it's just gonna be at the soup plantation for you at that point.

So spending on a real basis does decline throughout retirement. Now, a related question I get from a lot of folks is can I retire? And then my question to them is gonna be, well, how much are you spending? And a lot of folks don't necessarily know the answer to this, and this is where I ask them to, all right, now you've gotta go out and do some homework.

You've gotta track your spending, figure out what you actually are spending, what you're spending it on. Now, this doesn't have to be a hard or difficult process. There's a couple, or gosh, there's more than a couple. Great financial tools that can help you with this process. Mint.com is a free tool that can help you track your spending, it can categorize your spending.

Youneedabudget.com is also a popular tool. It's not free, it's $12 a month or something nominal like that. And I mention those tools 'cause those are a couple tools that the folks that I work with, a lot of do-it-yourself investors, a lot of bold heads seem to like a lot.

So that's gonna be a big part of the early steps of retirement planning, figure out what you're spending and figure out what categories you're spending is in, and that's gonna help you with your retirement planning. - Okay, so another question on our list was Social Security. And my guess is that many, most of you were in Mike Piper's great session earlier where he talked about the various dimensions of developing a Social Security strategy.

But one thing I wanted to pick up on, I was looking on the boards where we ask people for questions, so on the Bogleheads forum. And a great question came up is that I think a lot of people understand why they should delay Social Security. But the question is, how do you bridge those years from when you retire to when you eventually begin claiming benefits?

Where do you go for those funds? I guess Mike somewhat addressed that, but maybe you all can talk about that. And also what those funds should be invested in in the years that you are drawing more heavily upon your portfolio than you might later on when Social Security comes online.

Rob, maybe you wanna tackle that one? - Well, I'd take, I don't know if it's a controversial view, I don't feel that it is, but in terms of where you should invest your money, even as you're spending it, I kind of view you should have an asset allocation. I think for most retirees, it's in the 50 to 75% range for stocks, and that's a gross generalization that won't apply to countless situations.

But when we think about safe withdrawal rates and that sort of thing, if you go back to Bill Bingen's work and Guyton Klinger and others, that's generally where they say your stock allocation should be. And I think that's true even if you're 60 and you're taking out money before you take Social Security when you're 70.

And I'm just a big believer in you pull the money out, maybe it's gonna come from dividends and interest in a taxable account first, and then maybe you're selling shares and whatever accounts make the most sense from a tax perspective, and then you're just rebalancing. Others might wanna hold more cash just to have some level of comfort.

And that becomes, I think, just a personal decision, as long as it doesn't become too much cash, in which case, other than in 2022, might weigh on the portfolio a bit. But I think it comes down to a lot of personal preference at that point. - Okay, so I wanna follow up on that because there was another question on the boards about in-retirement asset allocation, what that should look like.

And this question was starred an asterisk by several users, so I wanna make sure we get to it. The question is, if someone has, say, a pension and Social Security that is supplying much of their income needs, how should the portfolio be invested? And how do non-portfolio income sources like Social Security and pension affect what the asset allocation should look like?

Anyone? - Yeah, I wanna just back up one second to talk about the Social Security timing questions. One thing a lot of our users talk about is using that window. So they're delaying Social Security to try to maximize their lifetime income, protect their spouses, right, all that good stuff.

But they're also, it creates, many of them, if they have the opportunity, they can engineer their income levels over multiple years, and they're trying to create this window where they can do Roth conversions. And so in an ideal world, they walk into that environment with taxable, tax-deferred, and tax-exempt, and then they're essentially trying to move money between tax-deferred and tax-exempt and leverage their taxable account to pay the taxes and survive in that window.

But if they're, I think the interesting perspective is, is that if you get to a certain level of assets, you can really, and you look across long enough time horizons, you can really start to engineer your tax situation in a much more meaningful way. So I just wanna touch on that point.

- Okay. So in retirement asset allocation in the presence of non-portfolio income sources, how they affect, how they relate to one another? - I'm happy to try. So, you know, there's one theory that says you may maybe try to calculate the present value of these guaranteed incomes, and maybe that should be part of your fixed bond or fixed income portfolio.

I think there's some merit to that. But for me, the starting point is fine, you've got whatever sources of guaranteed income that covers a certain amount of expenses, what's left? How much do you need to spend beyond that? And what percentage of your portfolio does that additional expense represent is how I like to think about it.

Because if the answer to that is 4%, so even after the guaranteed income, I need to take, let's say 4% on my portfolio in the first year, then I'm still at that 50 to 75% stock range. Unless maybe, again, there's countless exceptions, maybe it's 4%, but a lot of that is for wants, not needs.

And so maybe, you know, that maybe that's your fund money and your guaranteed sources of income pay the utility bills. So, you know, there could be a lot of variation there. But if you're gonna still need 4% from your portfolio, I think that really should, in my view, that should drive the asset allocation decision.

And if the answer is, yeah, it's not that bad, I only need one and a half or 2% of my portfolio, then frankly, at least from a surviving retirement, the asset allocation at that level probably doesn't matter much. - Wanted to talk about annuities and we had a lively discussion about annuities at our lunch table.

So I wanna recapture some of that magic. But annuities are starting to get more interesting, more interest, especially as yields are higher and that in turn helps enhance annuity payouts. So maybe as a starting point, we could talk about who is the best candidate for some sort of an annuity product.

And then I'd also like to talk about when, how much and what types. - Well, first things first. So first, I know a lot of folks that hear the word annuity and they cringe or they get terrified and they wanna run screaming, but annuities themselves aren't the issue. The issue is high fees and complexity.

So it's not necessarily that all annuities are bad, it's that those annuities that are high fee and complex, those are bad. Those are the ones that we generally wanna run screaming from. Same thing when it comes to mutual funds, high fee, complicated mutual funds, really fancy active management strategy with high fees.

That's what we wanna run screaming from. That's not all mutual funds entirely. So when it comes to annuities, simple low cost annuities can be a reasonable approach for some retirees. So specifically a single premium immediate annuity, you're creating your own pension. You're gonna put in a lump sum once and then you're gonna get a monthly income payment for life.

And depending upon your goals and what your preferences are, that could be reasonable for you. So if you don't like managing a portfolio, then a single premium immediate annuity can be reasonable. If you are very risk averse, if you don't like seeing the value of your investments decrease, then maybe a SPIA is right for you.

So you wanna look at your personal goals, your personal preferences to figure out if a simple low cost annuity could be appropriate. One more consideration in buying a SPIA, that longevity. So if you're really concerned about outliving your money, SPIA can be a reasonable approach. - Yeah, I agree with that.

Just to refund this a minute, I think you have to think about insurance. I mean, an annuity is an insurance product, it's not an investment product. And so if you're using it, think of it like insurance. So if you're buying a SPIA, you're essentially insuring I wanna have a certain quality of life.

If you wanna layer that annuity on top of your social security, and if you wanna buy a deferred income annuity, some people call it longevity insurance. You're basically hedging out, hey, I might live a long time. One strategy some people are thinking about, but I think almost no one does is, okay, I could buy a deferred annuity at 60, have it kick in at 85 when I'm not expected to be alive, so you can actually get quite a lot of income for a pretty low cost.

But it does constrain your planning window, 'cause then you only have to plan for a set amount of time. So there's a purpose for an insurance. You're essentially leveraging your mortality credits, you're mutualizing your risk. It's very different than being an individual investor and trying to manage your portfolio for an unknown inflation and longevity horizon.

- Yeah, I think it's important to understand why you want the annuity in the first place. So like you've mentioned, in some cases, it's longevity. You're afraid you'll live to 110. And that could dictate the type of annuity or the amount you put into an annuity. But for others, it's really just part of retirement planning from the very beginning.

It's not so much a fear of longevity, but it's just a comfortable way to manage your portfolio. And so for me, for that kind of person, the ideal candidate is someone who, one, has not under-saved for retirement in the first place, 'cause if you have an annuity, it won't save you.

You haven't over-saved for retirement, 'cause if you have, you don't need an annuity. But you're somewhere in the middle, and 2022 scares you to death, and you're not sleeping well at night. It may make really good sense to annuitize a part of your portfolio. On the other hand, maybe you're very comfortable in 2022, and you haven't lost any sleep, and you're gonna rebalance, and you're like, bring it, I got whatever you can bring me.

I can take it, except for 8.2% inflation. But other than that, you can handle it. Then annuity might not make sense, particularly if you're thinking about bequests to family members or charities or that sort of thing. - Well, Rob, I wanna pick up on something you just said, which is inflation in relation to annuities, that if we continue to see fairly high inflation, it eats away at the purchasing power from that income stream that you're able to earn.

So should that turn people off annuities? How should they think about that, protecting their purchasing power if that's the goal of the annuity? - Yeah, I don't think it disqualifies an annuity, and I'll just say right up front, I'm not an expert on annuity pricing. But the interest rate environment and inflation is obviously gonna affect the pricing of annuities.

So it's really a question of evaluating the pricing under the economic circumstances that we have. If I were going to do that personally, I would hire someone to help me with that analysis. Obviously not someone who was gonna actually sell me the annuity. But yeah, I mean, I think it's a good question, but it's all gonna get factored into the pricing of annuities at some level.

But whether any particular annuity is a smart purchase is just gonna depend on countless factors, I think. - One related topic on this is you can actually dollar cost average into annuities and hedge out the interest rate movements over time if you wanna do it. So if you're committed to that strategy, one thing is you're accumulating, and then when you go to transition, you have a five-year window or something, and you start buying layers of income over time if that's what you wanna do.

- Yeah, it's certainly not gonna be a one-for-one, but we talked about, hey, spending decreases in retirement. So yes, you have some risk of losing purchasing power from those annuity payments, but you're probably gonna spend less money in retirement anyway. Now, to manage that inflation risk, maybe it doesn't make sense to put all your money into the annuity.

You're still gonna have a portion of your money in a stock and bond portfolio, and that stock portion in the long term, hopefully, is going to grow more so than inflation, and that can help you with that tail end of that spending smile when you get really to an advanced age, and then you have those higher medical expenses.

That's when that inflation adjusted part of your portfolio, those stocks can help manage those expenses. - Okay, and I wanna hit on that topic of higher healthcare, long-term care costs in just a second, but before that, before we leave annuities, I want to tackle a question that came from Squirrel1963 on the Bogleheads Forum.

At what age should someone annuitize? - That's a fantastic question. The first thing that comes to mind is gonna be that fragile decade. It's a term by Wade Fowler. There's a ton of research on retirement planning, and that fragile decade is gonna be those five years before and those five years after retirement, and the reason why it's that fragile decade is 'cause you generally want to avoid having a stock market crash at that time.

Now, certainly, we can't avoid that, so we have to figure out what is gonna be our risk management tools in doing that, and having that annuity payment come in at that time is gonna mean you don't need to take as much out from your portfolio. Now, being flexible with spending can also help manage risk at that time as well.

- Yeah, I mean, not to be self-serving, but I think this is an example of where we think people should build their financial plans and talk to a fiduciary who's completely independent about these kinds of decisions, 'cause, I mean, every situation's unique. It's hard to answer that question, right?

There's like a million different variables that are happening around you and your family and what you think the future's gonna hold and your asset size and so forth. So, I mean, I think thinking through where you're at, what could happen, where you wanna go, what might happen, and then intelligently hedging those risks out is a good conversation and a good use of capital.

Doesn't mean signing up for like a 1% financial advisor that's gonna take that for life. You can get a flat fee or fee-only financial advice, just like you talk to your CPA these days. - Yeah, I wanna add one more note on annuity 101, is that this is an insurance product.

This is not an investment. And on average, when you buy insurance, you lose. So if that's not a prospect that you're comfortable with, consider that in the decision to purchase an annuity. Now, in the rare event that you have prolonged life expectancy, more so than what the actuaries at the insurance company think you're gonna live until, then certainly it can come out ahead.

But generally, you're gonna buy insurance to manage risk, not to come out ahead financially. - So I want to move over to a perennially hot-button issue in relation to retirement planning, which is spending, safe spending. So let's just use the 4% guideline as a starting point for this discussion.

Rob, I'm hoping you can start here. And also just to keep everyone following along, let's talk about the 4% guideline, what it holds, what it means. Maybe you can even give an example of how that would translate into cash flows. - Yeah, so the 4% rule comes initially from a paper by Bill Bingen in 1994.

And what he tried to determine was, as a percentage, what's the most you can spend from a portfolio in the first year, such that you then adjust that amount, whatever it happens to be, a million-dollar portfolio, let's say it's 40 grand, that you can adjust it by CPI each year thereafter in retirement.

And the goal was to live 30 years with money still in the bank, and then you could die. And so he looked at it from 1926 to 1976, no, yeah, to 1976, I think. And he found the amount you could take out each year and still last for 30 years, of course, varied from year to year significantly.

Some years you could take out 8% or 9% in the first year. But the lowest, which I think was 1966, was 4%. So that kind of gave us the 4% rule. And since then, there's been just a ton of research. Michael Kitsis took it back to 1871. And so far, the lowest is 4%.

It comes from, we'll call it the late '60s. Why? Because of the inflation that I think everyone in this room remembers, just about in the '70s and into, what, '81, '82, and the stock market returns. It just crushed retirees, a very difficult time to retire. But so that got us the 4% rule.

So when we think about managing sequence of risk, one way to do it is to start with a very low starting, spending percentage. And if we follow the history, it's 4%. And of course, the big question is whether the 4% rule is still valid today. Do you want me to dive into that or should I stop talking?

- No, please. - Okay. (audience laughing) So my view is it's still as valid as it's ever been. It certainly has, I think, some limits as to practical application. I've only met one person who ever told me that in retirement, they actually followed the 4% rule and that person's name was Bill Bingen.

He told me that about two months ago. I think as a practical matter, most retirees just, we don't think about it that way. It might be good for planning. But at least even in 2022, I think it's still valid. Now, could we have a decade of 8% inflation? Sure, I guess we could.

And could the stock market go sideways for a decade? And could it turn out that, I don't know, 2019 gave us the 3.8% rule? Sure, that's very possible. But at least so far, what we're experiencing as difficult as it is kind of pales in comparison to the decade or more that folks that retired in the late '60s had to live through.

And I don't have an opinion as to whether that will repeat itself. I have no idea. But I still think it's as valid as it's ever been from a planning perspective. - Yeah, I think Carson Jeske, who's early retirement now, I think he's like a 3.3% safe withdrawal rate.

And I feel like that's in the range. I mean, in general, like all of us are, definitely the Volga folks are betting on the long-term productivity of the US economy, that it's gonna kind of keep generally going in that direction. And you wanna be generally betting on that. And if that persists, we'll be good.

I mean, I think the thing that keeps me, that I think about, if you really zoom out, is did demographic trends in our country lead us down the path of Japan, which had a really long-run bad return scenario, I think mainly driven by demographics. Although we don't face the same thing here.

We just have to be careful about continuing to grow our productive population. - I think the 4% rule of thumb is fine. What I encourage folks to consider is that, hey, Bill Bengen, he wrote this paper a few decades ago, and he got 4% more recently. He's done some more research.

He added small cap value to his portfolio, and now it's 4.5% or 4.7%. Bill's not the only person to look at this question. A lot of folks have looked at this question. They all have come up with their own unique answer. Wade Pfau, he got 2.4%. Christine Benz and her team, they did a, rather, let me give some context.

So Bill Bengen, right, historical-looking performance. Christine Benz and her team, they put some numbers into a computer. The computer made up some simulations, and the computer said, hey, it's actually 3.3% if you can accept the 10% failure rate. And if you can't accept the 10% failure rate, now you can only take out 1.9%.

Correct me if I'm wrong on that number. So that's to say, whether you choose 4% or 4.5 or 1.9, or the Guyton-Klinger model, which is a variable distribution strategy, which says, hey, market does well, you're gonna spend more. Market does poorly, now you're gonna spend less. I think all those are fine, right?

Whether you use historic based on that safe withdrawal rate, whether you use the Monte Carlo simulation, that's all okay, but you just wanna look at it regularly. That's gonna be more important than whatever strategy you choose. Don't go forward blindly every single year, not making any adjustments to your plan.

- Yeah, thanks for that, all of you. I wanna follow up. It does seem like within the research about safe withdrawal rates, there's convergence around that idea that you should be variable if you possibly can make adjustments. And there are all sorts of methods for making those adjustments. Any favorites if someone is going to employ a variable strategy?

- I'll tell one quick story about a guy. I just interviewed this guy named Joe Kuhn. So he's a quick backstory. He was a plant manager, and then he retired at 54, and started making YouTube videos. And anyway, became kind of YouTube famous. You can check him out. I was doing a quick podcast with him, and what he's done is he's got a bucket strategy, but he has four years in cash.

So we were talking about the situation. He's like, "Well, yeah, if things stay volatile "for another two and a half years, "I'll start getting nervous." Now, that's a huge cash allocation, but he's basically sitting tight like, "Okay, whatever, I'm just gonna keep spending my money." And then he's got a bucket and a balance fund, and he's got the rest and 100% equities, and that's how he manages it.

Now, he lives in Evansville, Indiana. Cost of living is lower, and everything seems to be fine. So, I mean, that's one kind of massive longer cycle market timing variability approach. - Yeah, a couple of thoughts here. It's very difficult to know if things are going poorly. We may feel that they're going poorly, like in 2022, but if you look back at 1966, there was nothing going on in 1966, really, that would have said, "Oh my goodness, "this turns out to be the worst time to retire "since the Civil War." Because the things that made '66 so bad hadn't happened yet.

And it turns out if you retired in 1974, which was inflation was bad, stock market was bad, you actually did okay. And if you retired in '73, you barely made it. There's one year difference, which can be a little unsettling, I suppose, but it seems to me that, kind of like along what John had said, I really think it's important to continue to evaluate your spending and using whatever tools that you use, and there are plenty of great ones out there, including new retirement, but whatever tool you use to have an understanding of, based on Monte Carlo analysis simulations, how your retirement is looking as you move through it.

If, you know, it's difficult to come up with rules of thumb, but if you're actually calculating your withdrawal and determining what percentage of your portfolio you're taking out in a given year, even if you started at 4%, you know, as inflation goes up and maybe the market goes down, you could be at 5% the next year or 6% or 7%.

And as you get into those numbers of six or 7%, to me, that's when you should at least be taking a serious look at it. Does it mean that we're in 1966 and we're going straight down? No, but that's, to me, the six or 7% range is sort of the canary in the coal mine.

And I wanted to start taking a real look at my spending, and at least that's sort of my approach to it. - Yeah, insofar as, hey, the market's down, should I spend less? How much less should I spend? Well, you can get really geeky with this, or you can keep it really simple.

For example, on the really geeky front to give an example, Wade Pfau, again, he's done a lot of research on this, and he has a buffer asset strategy which says, hey, if the market's down, instead of spending for my portfolio, I am going to take money out of home equity of my home, wait for the market to recover, pay it back.

And to determine whether it's the right time to do that or not, you have to project what your portfolio balance is gonna be over time, right? So that's a pretty geeky way to do it. Alternatively, hey, the market's down, maybe this year I'm not gonna take that big vacation.

Maybe I'm gonna wait till next year to buy a new car. Maybe I'm gonna wait till next year to do a home remodel. So you don't necessarily have to take a really complicated approach to, hey, market's down, maybe I'll spend a little bit less. - John, I wanna pick up on something you just said, which is the reverse mortgage idea.

There's been a fair amount of research in that space. Alicia Manel, for example, has looked at how home equity is underutilized in a lot of households, where people are dying with a lot of housing wealth that might have improved their quality of lives. I'm wondering if the panel has any thoughts on the role of home equity potentially funding retirement needs.

And it seems like that's especially relevant for people who live in very high-cost places where their real estate assets have escalated in value very quickly. Anyone? - Yeah, I mean, I think it's a huge factor. Essentially for everyday Americans, half their wealth is in their house, and it's largely untapped.

So I think there is definitely a huge opportunity, and there's different ways you can do it. I mean, in my family, my brother's essentially done a synthetic reverse mortgage by buying my mother's house in advance and then subsidizing it. And between him and I, basically, he's gonna get that house, and that's how it works.

It's fine. We did it inside the family. Other families can't necessarily do that, but there are products. The reverse mortgage has gotten, it has a bad reputation. It's actually gotten highly regulated. So the government's done, I think, a pretty good job of regulating out a lot of the negative features and making it a much more accessible product.

I'm actually curious if it'll start getting more widely adopted. And for mainstream folks, because of what's happening in the equity markets right now, will people start to think more widely about that product? - So a couple of thoughts on this. So insofar as the strategy, hey, access to that home equity, spend from it during those market drawdowns, that there is a component of insurance to this strategy.

That's to say, well, firstly, not all reverse mortgages are created equal. The home equity conversion mortgage insured by the Federal Housing Administration, that is gonna be probably the best tool for accessing this strategy, for using this strategy, in that with this particular type of program, you pay a lump sum, and I wanna say it's five figures, for upfront insurance cost to the Federal Housing Administration, and now you get to access a line of credit on your home.

So that's not a small feat, but this is something you wanna consider as a risk management tool. Is this necessarily gonna generate the greatest amount of wealth over your lifetime? Maybe not, but that's not why we're doing it. We're doing it to manage risk, not necessarily to have the most money.

- Okay, so I have one more question that I definitely wanna ask, and then we wanna open it up for questions. We'll put the mic in the middle of the room here. So my question is about long-term care and how people should address the risk of long-term care in their plans.

We've all seen that the traditional long-term care insurance market has been incredibly troubled. So what's the solution? Who should self-fund long-term care? Who should purchase insurance? And what do you think of the hybrid-type products? - Yeah, I mean, definitely long-term care has a bad rap because the insurance companies wildly underpriced the product and then proceeded to jack up premiums on a lot of folks, and a lot of folks dropped their coverage, which is terrible.

And they then left the market. Products are, I think, getting better, but it's, and I think it's, I mean, at a high level, it's like, if you don't have a lot of money, you can just spend your assets down and go on Medicaid. If you have a lot of money, you can self-insure.

If you're in the middle, that's where this product makes sense. I do think the hybrid product's an interesting idea, but I don't have direct experience. I think the idea of combining an annuity or potentially a death benefit with long-term care coverage makes sense, as long as you feel very confident that you understand the product, the pricing is good.

And I think you also have to understand that when you get this product, you have to pass a test around. They're called ADLs, Activities of Daily Living. And so, in the past, you could get this product and they could say, "Okay, well, actually, John, "it looks like you can dress yourself and bathe yourself, "so we're not gonna pay this benefit." You have to understand how that test is administered and how your rights for claiming the benefit.

- Yeah, going back to Insurance 101, again, this is a risk management tool. On average, you buy insurance, you're gonna lose, but that's not why we buy it. We buy it to manage risk. Insofar as what products to buy, now you've got the two options. You've got plain vanilla insurance, you've hit annual premium, and then you'll have a bucket of money that you'll be able to access.

You can qualify for benefits, those two of six daily living activities, or you have cognitive impairment. That's simple, easy to understand, and then there's the more complicated financial product. So earlier, I talked about, hey, if something's complicated, generally, you wanna run screaming from it, and that's gonna apply to these long-term care hybrid policies too.

Ideally, you wanna get that simple insurance product. Those more complicated products are really only a last resort if you don't qualify 'cause of underwriting requirements for a more basic, simple insurance coverage. And then if you are looking at that decision, I consider folks to take a lot of time to think about that.

Is this really the right product for you? And then in making that decision and in getting advice on that decision, figure out who's advising you on that. That's to say, don't ask the insurance salesman if you should buy long-term care insurance. Get advice from someone who has expertise in the area that doesn't have that conflict of interest.

- This is a practical point 'cause this is what we did. The benefits for long-term care insurance are quite limited, I think. I mean, they're gonna give you a dollar amount per day, maybe 100 bucks for a period of time. And so what we did was said, okay, well, if we actually used up all of these benefits, what would that number be?

And can we self-insure? Now, of course, the answer to that may be yes, maybe no, but I would encourage you to at least do that math. I can help inform the decision. - One note, I just wanna add on that. Certainly there's an argument for self-funding, right? Hey, you've got the money.

Maybe you don't need to buy insurance coverage. Here's an argument I heard from an insurance salesman, right? So take this with a grain of salt with respect to, even if you do have the resources to be able to afford that coverage yourself, consider when that day comes, you might be inclined to not pay for professional services, trying to do some of that in-house yourself.

That's gonna be that survivor, or not the surviving spouse, but the spouse that's more abled, right? And how is that gonna impact their quality of life? So I can certainly see the argument there, but of course, again, that's also the argument being made by an insurance salesman. - I have a follow-up question on that, and I just want to reiterate.

We do have a mic here in the middle. If people have questions, feel free to queue up. I wanted to ask about the people who might have life insurance, and whether that can, in some cases, be transferred or switched into a product, a hybrid product that covers long-term care.

I know that sometimes that can be an elegant solution if someone has some sort of a permanent life insurance product. John, you're nodding. Can you talk about that? - Yeah, I've only ever actually been remotely involved in helping the client with this once, but if the question is, hey, I'm gonna pay five grand a year to buy a new Span-and-Loan policy, or if I can take an existing whole-life insurance policy and then change that into an existing whole-life insurance policy with a long-term care writer, certainly that can be more cost-effective than shoveling out five grand a year, every year forever.

- So, a follow-up question on the topic of long-term care. I'm guessing a lot of people in this room probably fall into the self-funding category, where they've probably amassed sufficient assets where they feel that they could absorb a long-term care shock. So, a question on that front is, how do those funds get invested, assuming they're earmarked for long-term care, and also, how do you right-size that allocation that you're setting aside, or do you even need to?

How should people approach that if they're in the self-funding camp? And, Rob, maybe, since this is your approach, maybe you should grab it. - That's an interesting question. I haven't thought about whether I should change my asset allocation in the event that we have to spend a lot on care.

I've certainly factored it into potential expenses, and we can cover it. At least off the top of my head, I don't see asset allocation changing. I mean, I suppose, in theory, you could earmark some amount of money that says, okay, we're gonna put this aside, eventually, for long-term care, if that ever happened.

But even then, it would be a tricky allocation, because you don't know when it's gonna happen. Could be tomorrow, or it could be 20 years from now. So, I think, for me, I would probably just stick with my overall asset allocation. Yeah, and then just know that I've got the assets to cover it, if that should come up.

- I wanna ask about the bucket approach to retirement allocation. We had a good conversation about this at lunch, and I'd just like to get the panel's thoughts. Maybe you can each address the question of whether you think it's something people should use, whether you think they should avoid it.

Whoever wants to jump on that one. - I mean, I think that, if you, like, back to Carson Jeske, he definitely believes that it's inefficient, and you should just stay completely invested, and ride it out, and so forth, but-- - The bucket strategy is-- - The bucket strategy, okay, sure, yeah.

I mean, basically, what you're doing is you're setting aside a bucket of money for near-term expenses, some period of time. It could be a year, it could be two or three, or, in this other guy's case, four years, which is a pretty long time. And so, you're not getting any market returns on that money, but you're sleeping better at night.

So, it's a drag, essentially, on your portfolio. But I think, from a simplicity, and behavior, and psychological perspective, it really works, 'cause people are like, okay, I have a set of money, it's like my checking account, I can live on this, essentially, they're creating a paycheck, like a potentially year-long paycheck, all at once, timing when they take that out, which they can control.

So, if you load it up for 2022, at the end of 2021, or whatever, the latter half, you'd be good to go, and you're feeling like a genius. And so, some folks do do this, and if they stay active, and they have a long period of time, I mean, they sleep well at night, and it works for them.

But it may not be the absolute perfect performer over time, but maybe you're dealing with a lot of stress, because you're trying to manage that, and it's somewhat complicated, too. - Yeah, pros and cons to any investing approach, the strategy you can stick with is likely better than the one that you can't.

If a bucket strategy sounds great to you, then certainly that can be reasonable. Now, cons being, you're gonna have that cash drag, so maybe that means you're gonna have a smaller investment return, and likely that'll be the case on a long-term timeline, 'cause cash, historically, hasn't done as well as intermediate-term bonds over the long-term.

But again, that's less important than as a strategy that you can stick with, and if that's the one that sounds appealing to you, then certainly that can be reasonable. - So, there's a lot here, but I won't go into all of it, 'cause of time. I think there's different issues with the bucket strategy, and why you wanna use it.

If the question is, you wanna keep a certain amount of cash because you wanna feel comfortable, then that's fine, right, I mean, as long as it's not too much. And whether you call that a bucket strategy or not, or it's just money in your checking account, and then you've got your portfolio over here, that was sort of the father of the bucket strategy, Harold Levinsky, that was his idea, two buckets, one for cash, he started at two years, it was too big of a drag on the portfolio, so he ended up taking clients down to one year, which, by the way, is what Bill Behnken did, right, he pulled a year's worth of income out of, in his assumption, his analysis model, so really not much different than that, and I think that's a certainly reasonable approach.

I think where I have trouble with it is if we start to have multiple buckets, and we start to do our asset allocation by years of expenses rather than percentages, which is how I started to think about it when I got into the retirement phase, and for me personally, I just found that harder to actually implement, to know when to go from one bucket to another, it was just easier for me to have whatever cash I wanted, and then, you know, a 70/30 portfolio, or whatever it's gonna be.

But others might find the bucket strategy easier, you know, there might be just the opposite, so a lot of it just comes down to personal preference, but I would always think about, even if you use a bucket strategy, what is your percentage asset allocation? I wouldn't lose sight of that if you're gonna go with the three or even more complicated bucket strategy.

- Okay, hi. I've read, actually, it was a Michael Kitsy's article, that there's a possibility that you could look at annuity as part of your fixed income asset portfolio, not to annotize it, you know, you'd sell it afterwards, but as a good source of income, in terms of, you know, comparatively, I'd be interested to hear what your thoughts are.

- Yeah, there's a guy, he's V. Bodie, that I know, he's an economist, and he talks about life cycle finance, and so one way you can think about your portfolio is you think about your expenses, and what do you have to spend, just your needs, and then your likes, and then your wants, and if you cover your needs with Social Security and annuities, then theoretically, you can take more risk with the rest of your portfolio.

So that is one strategy, is you basically try to hedge out, you know, the stuff that you have to have, make sure you're fully covered, and then you dial up the risk and the rest of it, and you know, hopefully you get very good long run returns. - Yeah, that's certainly an approach that I think a lot of people follow.

You do have to do the calculation, and I can, you know, there's some assumptions in terms, including the discount rate to figure out present value, so that can just get a little dicey, but the thing I would say, though, is I would still look at how much I need to pull out of my portfolio after the annuity check comes in, and what percentage of my portfolio is that, and what is my asset allocation of that portfolio without considering the annuity.

I personally feel more comfortable running through that analysis, at least as part of the process, even if, for your overall asset allocation, you wanna view an annuity as part of the bond portfolio, which is certainly a reasonable and logical, I think, thing to do, but I would still wanna know, you know, 'cause if I'm pulling 4% out of just the portfolio, and because I'm considering the annuity as part of fixed income, I have some allocation that's, say, outside 50 to 75% in stocks, which maybe you wouldn't, but if it was outside that range, it would at least be something I'd wanna think about.

You know, am I too far outside that range that at least history tells us, could be wrong in the future, but history tells us is the range we wanna have, you know, if we're somewhere around that initial 4% withdrawal rate. At least, that's how I think about it. - Oh, hi.

My question touches on several topics you brought forward, so just what a great panel. We've all thought about the 4% rule, and several of you mentioned how many of us are in the position of having at least, well, mine is about half of my overall wealth is in my house, and I'm really loathe to take out a reverse mortgage.

They've had such terrible, I really don't wanna do that, but my question is this, as, I have to laugh, I'm so far ahead of the 4% with my withdrawal just for living expenses that, you know, I don't have to calculate that to see where I am. It's way above that.

As my portfolio's going down, both because of withdrawals, and because of this last year, my house value is skyrocketing, and I still have a big mortgage. So, my question is, do you think a home equity line of credit would be useful so that I could, in effect, increase my mortgage temporarily borrowing money, admittedly, a line of credit is at a higher rate than a traditional mortgage.

Do you think that would be advisable, sort of hoping, waiting for the market to turn around so that then I can start repaying that mortgage and the line of credit? - Yeah, that's a great question. I mean, if you ask Wade Fowler, that's basically what he's saying. He's saying either through a HELOC or with a HECM, which is a home equity, it's basically a reverse mortgage, it's a government-backed version.

You can also get a line of credit to make that available to yourself, and then potentially engage in that. And essentially, you could draw from that to cover your expenses instead of selling off of your depressed portfolio. And then you're waiting, essentially, for the market to recover. So you have to have confidence and the patience to wait for the market to come back.

And that comes back to kind of the emotional side of managing your own behavior and feeling like you've got enough of a window for this to come back. I mean, I think we've gotten conditioned to markets coming back really quickly, and now we'll see. I mean, personally, well, I won't give my opinion on this, but yeah, I think it's a potential strategy, but you really should consider forecasting it out over the long-term horizon.

- Yeah, so I'm very nervous about this. This strategy gives me the heebie-jeebies, if I'm gonna, you know, that's a very technical term. So, because first of all, you're borrowing to invest, which is effectively what you're doing. Now, some could say you're doing that if you don't pay off a mortgage, but you're doing it while in retirement, not when you're 30 and are working and have income, you know, earned income.

And if it's a home equity line of credit, you're subjecting that to interest rate risk, right? If interest rates keep going up. So to me, that would be, for me, would be like the option of maybe last resort. That would make me very uncomfortable. I would think more about, depending on the circumstances, downsizing even, maybe you don't wanna leave the home, I know, or maybe you're already downsized or, you know.

But for me, that would make me very uncomfortable to start borrowing out of a home equity line of credit so that I could keep more money in the market in retirement. That would, I think it could work out, but it could also end pretty badly, I think. - Okay, thank you.

- Hi, I'm Vijay from Ann Arbor, Michigan, planning to retire in five to seven years. Question for Steve. Steve, I used New Retirement, fantastic tool, but maybe I'm lazy and ignorant. I'm unable to use the full potential of the tool. But however, Rob Berger made a video and I'm able to use the tool as far as, you know, by following Rob Berger's video.

So my question is, are you guys going to collaborate and make a few more of those so that people like me can benefit? - Yeah, thanks for the feedback. (audience laughing) It's a team effort. I would say we started it with power planners and that's informed what the product does.

And we are working very hard to make it simpler and easier and more accessible. You know, we're building our own health and classes and we believe in, we're really here to try to, you know, bring literacy and planning to the mass market. That's why we've built kind of like TurboTax equivalent and price it in a low cost way.

But yeah, there's a ton to learn. There's a ton of, there's a million edge cases, a million edge cases. That's why it's such a hard problem and no one's really solved it. And yeah, no, I mean, I appreciate that Rob has building videos to make it more understandable. So thank you very much for doing that.

- Well, in my case, my wife is the brains in the family and I don't know if there's any correlation, but she has no interest in this financial stuff. Okay. Let's assume that we have plenty of money. We're not any risk of being near the edge. She currently has an IRA that has maybe 10% of our assets and she's got a financial advisor for that.

If I kick the bucket, I know exactly what's gonna happen and I don't want that to happen. He's gonna suddenly have 10 times as much money. I'm wondering if you guys have any suggestions that actually work on how to do this transition other than simplifying as much as I possibly can.

Are there any other techniques or anything else that you can suggest so that if I pass away first, that she has some other alternative to a 1% charge on our assets? - Yeah, so first things first, if you haven't done this already, make sure you've got all those estate planning documents in place, right?

Will, trust, power of attorney. And then, so that's the formal estate planning stuff. And then it sounds like you also have a big need for an informal estate planning document, which goes by many names, emergency letter, side letter of instruction. And what you're gonna do is you're gonna list out everything that's not listed out in the wills of trust and everything else, which is to say, "Honey, here's the name "of our estate attorney.

"Here's the name of our tax preparer. "Here's where all our accounts are "and how to access them." - She got all that. That's not the problem. - Okay, beautiful, perfect. So it sounds like we have a need for a financial advisor who's gonna do the asset management or maybe an asset-- - He's a great guy.

- Yeah, exactly, yeah. (audience laughing) Yeah, that is the issue. So, gosh. So the relationship component aside, 'cause that's a whole another can of worms, we need someone to manage the portfolio in your absence. So it sounds like if you want to go the portfolio route, then possibly transitioning now to a more competitively priced asset manager via-- - Like Vanguard or something like that?

- Yeah. - A company that starts with V, sorry. - Yep, yeah, no. Like, that's fine, or a flat fee, right? You wanna find a flat fee asset manager, you're gonna know exactly how much you're paying to the dollar, and that can help you decide if that's a reasonable price to pay.

So taking those actions now, and again, that's gonna be, oh, looks like, okay. - Quickly. - Yeah, just real quick, I think I agree with John. I mean, there's a definite movement now for flat fee, fee-only advice, and it exists out there. And if you frame it up for your wife or your family to say, okay, well, at 1%, it's 20,000 a year, right?

Or what the number is, and what does that buy? And would you rather pay your friend here 20 grand or give it to the grandkids or fund college or something like that? I mean, you frame up the alternative, but there's definitely, you should be able to find a fiduciary advisor you can play on an hourly basis, just like you pay a CPA, right, or a lawyer.

So I would look more widely and try to have that discussion now. I agree with the risk. - Thanks. So super quick, I know we talked about the 4% rule. Bill Bangan, we're gonna have Bill Bangan on the Bogleheads live show this December. So if you want to ask Bill Bangan, father of the 4% rule, maybe now the 4.5% rule, your questions, make sure to check that out.

You can follow the Bogleheads on Twitter for dates and times. - Thank you. - So thank you so much, Rob, John, Steve. Thanks for being here. We're going to take a 10-minute break, or I guess like eight minutes now, and we will reconvene in this room. Rick Ferry will be interviewing Dr.

Burton Malkiel. Thank you. (audience applauding)