(audience applauding) - All right, folks, welcome to our second breakout session for retirees and pre-retirees. My name is John Luskin. Joining me today is Dana Anspach, and I'm gonna read her a little bio. Dana is the founder and CEO of Sensible Money, a firm specializing in retirement income planning.

She's the author of "How to Plan "for the Perfect Retirement," a lecture series, and "Control Your Retirement Destiny," available on Amazon. So, folks, I'm gonna start with a Q&A that I got from the Bogleheads community online before the conference. And then if you have a question for Dana, then Christine Benz up front, she is gonna be collecting your questions.

So give your questions to Christine, and then she'll hand them to me, and then we'll answer your questions. So let's get started from those questions we got from the Bogleheads community. And the first one is from Greg Wilson from Bogleheads Twitter, who writes, "Ask her to name her three most common "tax mitigation recommendations." - Ooh, tax mitigation strategies.

Well, I would have to ask Greg, does he mean long-term tax mitigation or short-term? I will kind of assume he means long-term. So when we're talking about retirement income planning, we're typically looking at how do we reduce the tax liability over the course of your life, which is very different than how do I reduce the tax liability next year?

And so I would have to put at the top of the list would be Roth conversion strategies. Absolutely, when done correctly and filling up to a marginal bracket using some of the types of analysis that Wade showed, you can reduce someone's lifetime tax liability. Now included in that lifetime tax liability, we might also count IRMA premiums.

And so when you're reducing the RMDs later in life, you can have a meaningful impact on someone's long-term tax liability. Probably number two would be simply managing gains and losses. And so we have seen people in their first few years of retirement who would be able to realize capital gains in the 0% bracket with proper planning.

And so that can be pretty meaningful. And I might put number three would be qualifying people for the healthcare tax credits. And so if we have someone retiring earlier than 65, we've had people with close to $3 million portfolios that for several years, all the way up until they turn 65, were able to qualify them for those tax credits just by where and how they take their cash flow from.

So they're not living on nothing, but the way you're structuring the portfolio and the cash flow, you're able to keep their AGI low enough that they're qualifying for those tax credits. And in one case, that added $30,000 a year. So it was $30,000 a year of tax credit subsidies.

So that would probably be, when I think of long-term, probably the top three. - Yeah, absolutely. Let me ask a follow-up question about that. With respect to the Roth conversion planning, does it always make sense to do a Roth conversion? How do you know a Roth conversion is gonna be the right strategy for a retiree or pre-retiree?

- Well, with a lot of analysis. (laughs) So we use projection software that maps out someone's tax rate now, someone's tax rate later. And when I say tax rate, it's not just the marginal tax rate. It's including all of the things that Wade talks about in terms of how much of your Social Security is taxed and you'll be subject to an IRMA premium.

And if we do this, will it push you into a higher capital gains tax racket? So all of that is factored into that long-term tax analysis. So it's not as simple as saying what's my marginal rate now and what will my marginal rate be later? Because it gets more complicated in retirement with all of the different formulas that are tied to some form of modified adjusted gross income.

And so we map it all out now through your lifetime and then do a form of testing that says, well, if I did this series of Roth conversions, does that make your plan look better, more funded? So we use the same kind of fundedness analysis that Wade was talking about.

And we can quantify everything into that number. Did this decision add fundedness? Did it increase your fundedness? Or did it decrease your fundedness? And so it's not easy to determine it if you wanna do it in a mathematical way. - Certainly, and you touched on with respect to, because it can be so complicated because of the IRMA breakpoints, et cetera.

Folks certainly don't wanna be doing this on a spreadsheet. To paraphrase Mike Piper, he talked about this at last year's conference. There's a great video up that you can find on the Bogle Center that he goes over how to do Roth conversion planning for do-it-yourselfers. And he says, hey, you wanna use some sort of software, don't do it on a spreadsheet because the tax code just is that complicated.

Let's jump to our next question. This one is from Ryan Richardson from Bogleheads Facebook who asks about the age in bonds rule. So probably this doesn't need much explanation, but the age in bonds rule is, hey, if you're six years old, then you wanna have 60% of your portfolio in bonds, the rest in stocks.

What's your take on that age in bonds rule? - Well, I've never been a fan of that age in bonds rule. I think a much more customized approach is more appropriate. So the amount of cash flow that we might need from our portfolio isn't really dependent on our age.

There's all kinds of other circumstances that can come into play. You might have plenty of cash flow to cover all your needs despite your age. And so I'm a fan, as you know, if you've been listening to my presentation yesterday of implementing bond ladders, of actually using what is called an asset liability matching approach where you're determining the amount of fixed income by the years of cash flow that you want covered.

And so that's a very personalized analysis. If you study some of Michael Kitsy's work and Wade was referring to a paper that he and Kitsy's did where they talk about your glide path in retirement, there is some thought of creating something called a bond tent where you would have a higher allocation to fixed income to cover what are called the retirement red zone years, that five years leading up to and perhaps first five to 10 years of retirement where you can be at the greatest risk of sequence risk.

And so you could have a much higher allocation to fixed income as you're approaching that retirement date and then actually let that fixed income allocation decline a bit, which would be the opposite of the age and bonds rule. So of course, you all have to make that decision for yourself, but I don't like the just automated rules.

I think looking at it in relation to your actual situation makes the most sense. - Yeah, no, certainly I agree with you. As you move into retirement, yes, you wanna be taking less risk, but then that first day of retirement at that point, maybe it doesn't make sense to decrease risk at that point.

It might not be completely unreasonable to increase the amount of risk that you're taking. So let's say the age and bonds rule is good up to a point, the first day of retirement after that, it might not be as useful. We've got one more question from the Bogleheads community that I got beforehand.

If you've got your question, make sure to give it to Christine Benz. She's up front here. She's gonna be our question moderator. All right, so our final question that we got beforehand from the Bogleheads community, this one is from Patty Fairchild from Bogleheads Facebook, who asks about alternative assets, such as private equity and private credit.

What role do they have in a retirement portfolio? - Well, I could give the very simple answer that William Bernstein gave earlier and just say none, but that wouldn't really be the answer. I've been practicing as a financial planner since 1995, and I've had clients come in that did all kinds of private equity, private credit investments, and that's a pretty broad category in itself.

Oftentimes it's, you know, a friend is starting this, or I've heard about this private offering, and without exception, I have seen every single one lose money. Every one. Now, the one exception was a company called iMortgage that the client invested 25,000, and I think it turned into about half a million over a 12-year period.

So it was, you know, by far a winner. But when you're looking at private equity, private credit investments, you know, as we say, there's no free lunch, except apparently for the Vanguard Total Market Index return fund, where maybe there is some free lunch right now. But typically, higher returns mean higher risk.

And so you have to decide, like, is it worth it? You know, what's the potential value that adding this asset class is really gonna do for your portfolio? They're often illiquid asset classes. I don't like illiquidity in retirement. And are you really gonna get enough to have, you know, potential return to make that additional risk worth it?

In most cases, I think the answer is no. Where I could see it be appropriate is when you're talking about much higher net worth clients, you're talking about $20 million portfolios where they're really looking at adding diversification, then maybe adding some of those alternative asset classes starts to make sense.

- So to be a bookhead, I'll say one thing that's really important that's missing from this question is what are the fees, right? We're asking about an investment, but we're totally ignoring the fees. And that's the problem with a lot of the private investments that are out there. Yes, maybe you're able to access a different asset class as sexy as it is, but you're ignoring the really important factor of cost.

So once you factor in cost, maybe these products aren't gonna perform as you think they might. So Christine is going around now collecting your questions, and I will wait for her to come back 'cause I can ask you another question in the meantime. So let's, thank you. So let's start with where often do you see money getting left on the table when it comes to retirees?

- The biggest areas I've seen money left on the table would be people who don't do planning. And by money left on the table, a lot of people are gonna be fine following a rule of thumb, and they're not gonna run out of money. But as Mike Piper was just talking about, that idea of giving more or you have enough, and so what do you really want to do?

And we talked to our clients about this also in terms of what are the things that can really make a difference? And so it's not leaving money necessarily on the table, but quality of life on the table, or we have a client who, as most of you are, very frugal, and that's why they've been successful at saving.

And so when we talked about spending more, I didn't mean much to them, but they have a family member who has always lived paycheck to paycheck and had some healthcare problems, and they thought, "Wow, if we can give this person $10,000, "what a difference it would make." And they did.

And this person at first was just like, "Why are you doing this?" And they explained their rationality. They had read the book "Die With Zero." And it just, you know, they were able to firsthand see what was the impact that they made on this person's life. And so that can be something that gets left on the table, that if you didn't do the proper planning and know that you could do this, you missed out on that experience.

- We've got a follow-up question to what we were talking about earlier, which is that age and bonds rule. So related, is a Vanguard target date fund adequate for a retirement portfolio? When would it not be adequate? - Is it adequate? Yeah, you know, I think it would be.

I think, who was it that talked about the reasonable retirement portfolios? Jim. And so I haven't seen that, but it sounds like there's hundreds of reasonable retirement portfolios. And I think a Vanguard target date fund could be one of many of those options in terms of reasonable retirement portfolios.

Could you have a different approach that, you know, it's all that might allow you to have different results or different outcomes? Yes. But is it a reasonable approach? Absolutely. To me, what's most important is whatever approach you're gonna use, is you stick with that approach. And so where I see the most trouble happen is people start and then they jump ship and then they jump ship.

And oftentimes those times where they're making a big shift are, they may not think so, but they're because of market-driven events and perhaps emotionally they're fearful that they made the wrong decision. And those changes end up hurting them a lot more than if they had just stuck with whatever strategy it was that they wanted to follow and used it in a very disciplined fashion throughout their retirement years.

When would a target date retirement fund not be appropriate? Well, (laughs) I can tell you, so as a financial advisor, I wouldn't use a retirement target date fund because I feel like people are paying us to do something that is more customized. It is more complex. And so does that complexity pay off?

We're not being paid to necessarily deliver a superior result. It may or may not. We know we can't guarantee that, but we are being paid to manage risks and outcomes and provide advice and planning. So if you were to hire a financial advisor and they were charging you 1% to put you in a target date retirement fund, I would think that would be not an appropriate use.

Other than that, if you wanted a very simple strategy and you were willing to leave it and forget it and were comfortable having all your money in a target date fund, they're very diversified in themselves. It's very simple. It could be just leave it alone and I don't have to think about it again.

- So here's a great question. Lots of people make some significant financial mistakes. What are some of the ones that you've seen that we can avoid? - Oh my goodness, I have stories. So the first one that comes to mind is a client. So he was a pilot and mandatory retirement at 65.

And so we'd been planning for years and he was gonna be very comfortable and is, but right before he retired, he came to me and he said, "Dana, I am not gonna need to take anything "out of my portfolio." And I was like, what? Like, why? Well, I put this $80,000 in this currency trading program and it is paying me $5,000 a month.

And I just thought, oh no. Like, he's getting real checks and so it's very hard to argue with that, but you know instantly this is not sustainable. It can't be true. And so about four or five months later, it was of course discovered to be a Ponzi scheme. And he did get five months worth of checks back and then lost the remaining amount of the 80,000.

Luckily, that was only a small portion of his portfolio. His core portfolio remained intact and so he's just fine. The worst that I saw was a client, she was a widow. She had four daughters and remarried and they decided to move their assets to a firm that was of the same religious affiliation as them and had thanked me for all our years of service and they moved on.

And a few years later, I got a call from the husband and said, we'd really like to come in and see you. It was a $4 million portfolio and they came in and brought me all the paperwork. And I literally remember it turning white as a sheet. So they had basically signed away all the assets on three promissory notes into private real estate lending things.

And I had to send them to an attorney, contact the local regulators, but basically that money was gone. And so that was the worst thing I saw of someone that based a decision based on trust and they really got snowballed and just didn't know enough to know the level of risk that they were taking.

Those are some extreme mistakes. Some more common mistakes, concentrated stock risk and so clients that simply won't diversify out of a concentrated stock portfolio, executives at Fortune 500 companies. I have some that will absolutely set up a diversification plan, one that did not and they'll still be okay, but it's hard to watch.

One of the foundational things I saw when I first moved to Arizona, I worked for a CPA firm and we were in Mesa, Arizona, which is pretty close to, there's an Intel facility down there. And so we had a lot of Intel clients and there was a woman who was in mid to late 60s, she had $10 million in Intel stock and we were trying to convince her to diversify, it did not.

And then the 2001, 2002, Intel went down, I believe it was almost 80%. I know her 10 million went to three. And so just someone that refused to diversify that concentrated stock position, that's a more common mistake than you might think and one that could easily be avoided. - Yeah, no, I certainly see that one a lot, especially with tech employees, Facebook.

Yeah, Google, yeah, quite a common one. Folks, I'm gonna keep running through the questions, but if you have a question, go ahead, write it down. Christine Benz, she will take her questions from you and then if you're lucky, we'll get them answered by Dana Anspach. Let's, oh, here's a great one.

For someone who will never need to withdraw from their portfolio because of income and perpetuity exceeds expenses, so maybe lots of social security, maybe some rental property, maybe an annuity, and the person is comfortable with equity risk, is there a need for bonds or significant cash in a portfolio?

- Probably not, although, you know, my understanding of real estate and I now own an Airbnb property myself is it does take deep pockets, so you have to be prepared for whatever repairs might come along. I have a good friend who they built their entire net worth on real estate assets, about 10 million.

Her husband's an engineer and so that was her role was building up their portfolio and she had several properties in Texas in the Houston area when the freeze happened and I remember her telling me, wow, you know, I never really accounted for the fact that all of these properties would be empty at the same time and I would have to replace all of the pipes and yes, there was insurance, but she still had all of the deductible costs, so would there ever be a case if someone had real estate investment where they needed no cash?

You know, probably not. They're probably gonna need enough cash on the side to cover these types of situations, but if they're comfortable being all equity and they're confident in the cash flows they're getting, you know, they could certainly have a much higher risk portfolio than someone that didn't have that.

The only other thing that I would add to that is what we saw in 2008 and 2009 is a lot of people that were relying on dividend portfolios saw their dividends get cut in half and so when people ask, you know, why isn't that our approach? Well, I don't, you know, I don't wanna go through that again and tell a client, oh, I'm sorry, you know, you're gonna have half the amount of cash flow this year that you had last year, and so if you're relying only on the interest income that your portfolio produces, well, that's easier today than it was two years ago, but at the same time, those dividends and those interest rates can change, and so I think you would always want something on the side to cover those gap years, to make sure you had some consistency in cash flow.

- Yeah, certainly, so naturally, we can't give an investment advice here, so this is for education purposes only, but it's really dependent upon your personal circumstances, so maybe it makes sense to be really aggressive if you don't have any cash needs, add off from a portfolio, but life is unpredictable.

We don't really even need a freeze in Texas, it could even be the COVID crisis, right? So maybe if you even had long-term rentals, it wasn't even dependent upon tourism, you know, folks weren't able to make rent, that can be really hard if you need that cash flow from your rental property.

- And then if folks want to nerd out on income investing versus total return investing, we interviewed Vanguard's Colleen Giaconetti on episode 26 of the Bill Glatz Live Show, you can get that wherever you get your podcasts. All right, here is a great question, what is the most actionable tip for those of us 50 years and older?

- Ooh, most actionable, that's a challenge, because just because you're over 50, you could still be 20 years away from retirement, or you could be five years away from retirement, or you could be wanting to retire in two years, so it's very difficult to narrow that down. What I will share is, and I shared this a little bit on stage the other day, is my own retirement plan, so I'm 52, I am 100% equity, and my plan is to do my own projections, the same way I do them for clients, the same way you would for a client, and look out and say, well, if I were to retire at 65, what is the cash flow that I would need for my portfolio during that year?

And I will most definitely delay Social Security. And so then, around the age of 55, I will transition whatever that dollar amount is, let's just say it was $50,000, and I would buy a bond that matures for the year that I turn 65, and that would be rung one on my income ladder.

Now, it's not exactly the year I turn 55. If that's a strong year in the market, for sure, I would do it, but if we're in a bear market, the year I turn 55, then I would probably not build out the first rung of my income ladder quite yet, and probably wait another year.

And then, when I'm 56, I would repeat that process, and when I'm 57, I would repeat that process. And so, by the time I got to 65, I would have this runway of fixed income assets maturing to meet my expense liabilities, and I would know that I was somewhat insulated from the stock market moves for at least the first 10 years of my retirement.

And so, I like that process of very slowly building out that income ladder. There's been a lot of talk about bond funds versus individual bonds. I find the behavioral aspects of having the individual bonds, we're talking treasuries, CDs, agencies, is easy to understand. And so, when it matures, you spend it.

That's your cash flow. It dumps into a cash bucket for the year. We typically direct deposit it on a monthly basis, so it replicates someone's paycheck. And so, that simplicity, and it helps prevent some of the behavioral challenges that we see. Now, I know most of you here are very disciplined, and so those behavioral challenges may not be such a challenge for you.

You may be much more disciplined than the average person. But I really like that process of slowly building out the income ladder. What we see in our practice a lot is people that come in the year before they retire. And so, now we're having to build out, if we're gonna do an income ladder, we have to build out all of those rungs at once, versus if they had started about 10 years out, it would be a very slow, gradual process.

So, I don't know if that's the most actionable item for someone 50 or over, but that's what I would be thinking about if I was looking at transitioning my portfolio toward a decumulation-based portfolio. - Oh, this is a fantastic question we just got. So, certainly, annuities can be complicated financial products, some of them anyway, but certainly, in some circumstances, they may be helpful tools for retirement planning.

If someone is looking to purchase an annuity themselves, do the due diligence to make sure they're buying the right type of product for them. What are some objective resources you can suggest on researching annuities? - Ooh, that is a really good question. I don't know if blueprint income is still around.

Does anyone, I hear some nods. So, I know that is a good resource. We have, often, as quirky as he is, if you've seen Stan, the annuity man's resources, he will tell it to you straight. He has a lot of books out there on annuities, and so he has some excellent resources, too.

And then, I believe there's just some simple websites, like immediateannuities.com. Now, I don't know if that one has since sold. And so, when you put your name in, if they bombard you with quotes, that would be my concern. So, a lot of those websites, you can run quotes, but you have to put your email address and your phone number in, and if you're like me, you don't wanna get bombarded by sales calls from those kinds of things, so you have to be a little bit cautious about that.

We work with organizations that work with fee-only advisors. So, we work with companies like DPL. There's another one called RetireOne. And so, they will help bring fee-only or no-commissioned annuity products that we can suggest or run quotes on, and we also have a commissioned annuity agent, so it's hard for me to know what's out there that you can work with directly.

- Super. Folks, I'm gonna keep running through these questions for Dana. If you've got questions for Dana, write them down, and Christine Bennis, she will collect them from you. Oh, we've got another one in the back there. Here, we've got another investing question. What are your thoughts on MLPs in a retirement portfolio?

- MLP, okay. - Master Limited Partnerships, yes, yeah. - I love so many acronyms in this business. I haven't seen MLPs in portfolios in a long time, so I did spend a few years at Merrill Lynch in my career, and we would see them more frequently then. I know at that time, they were very high interest-bearing investments or dividend-producing investments.

So, I don't know. We don't use them. I think my answer to that question will be going back to a different approach. When we look at different retirement income approaches, we saw about total return this weekend, we talked about income annuities, and we talked about probability first and time segmentation.

One that didn't really show up, that used to be more popular, was what I called the income-only approach, where people built a portfolio and simply lived off the interest and the dividends. Well, that got a lot less popular when interest rates were zero for a decade. You couldn't do it.

And so, I think we stopped hearing about it. So, if you wanted to build a portfolio where you only lived off the interest and dividends, that could be a place where something like an MLP could have a position in your portfolio. I'm more of an index fund, like most of you.

I think simpler is better. I love index funds, so they're not my cup of tea. - Yeah, I'm with you there. All right, here's a question I get all the time when working with folks, and I would imagine you do, too, when you're working with someone for the first time.

If I have a complex portfolio, do you suggest ripping off the Band-Aid or more slowly moving towards a simple portfolio? - That is a challenging question. Some of it depends on if it's in taxable accounts or if it's all in tax-deferred accounts. It can be very easy to rip off the Band-Aid if everything is in IRAs and Roth IRAs, but when you're looking at holdings that are in taxable accounts and you have a lot of low-cost basis assets, then it's usually a much slower approach.

- And then we got a great tip here. To learn more about Master Limited Partnerships, see the Bogleheads Wiki. Thank you, Lady Geek. Yep, yeah, yeah, yeah. Extra tax challenges with that MLP route. All right, awesome. Fantastic. And then we have a similar question with respect to what is the best strategy to mitigate, and again, this goes back to ripping off the Band-Aid or not, best strategy for mitigating capital gains on a $1 million single stock position with a $300,000 cost basis.

And again, not specific investment advice, folks. - No, no. So one, I'd have to know, of that $1 million, what portion of your portfolio is that, right? Might only be 10% of your portfolio. It could be a $10 million portfolio. It could be all your portfolio in a single stock.

And so if it's all your portfolio in a single stock and this million dollars is what you have to live off the rest of your life, I'd be much more prone to rip off the Band-Aid and say, let's reduce that single stock risk. I don't care what stock it is.

I don't care how great it's been. I don't care what you think it's gonna do. Like, you could lose your entire life savings. Reality, you could. And so why take that risk? Why would you take that risk? Just pay the tax and diversify. But if that $1 million was part of a $10 million portfolio or you had substantial social security or pension or other rental income coming in, it might be a completely different story where you could very slowly scale out of it in a more tax-efficient way.

- Yeah, I think you nailed it. It basically comes down to what is your ability to manage the risk if that million dollars goes to zero tomorrow? So if you've got other income sources, then certainly that million dollars going to zero wouldn't feel great, but at least you could manage that risk.

I think about someone that I worked with not too long ago. They were a trust fund kid. So effectively, they hadn't really worked a day in their life, couldn't really generate their own income, and they had 90% of their net worth in one stock. Now, it was a great stock, don't get me wrong, but without the ability to manage the risk of that stock going to zero, they simply had to pay the taxes, diversify, make their investments less risky.

All right, gosh, here's another great annuity question. I'm age 70. What are the pros and cons of purchasing a SPIA, a single premium immediate annuity that's effectively you're gonna buy yourself a pension, you put in a lump sum once, you get an income stream for life, versus waiting until age 80 to buy that SPIA, or simply using a deferred annuity?

So similarly, that's gonna be, hey, I put that lump sum in now, and then at age 80, that income kicks on. What are your thoughts there? - Well, technically, in the immediate annuities, you are participating in something called mortality credits. Sounds, you know, it's not an exciting thing to talk about.

And I can't remember the technical age, but there is a point where you get essentially more participation in the mortality credits. I see Christine nodding her head. I seem to remember at a conference, an industry conference, I'm talking at around age 72, 73. So it is possible that there could be a benefit to waiting a few more years before you purchase that SPIA, but don't quote me on that right now.

The insurance nerds will have those statistics somewhere out on the internet, I'm sure. You know, the other pros and cons, a lot of it has already come up in some of the things other speakers have talked about. Do you just wanna lock in the outcome? You know, you are cognitively aware of the decision you're making now.

Will you be at 80? And so you know the value of your assets today. We know where interest rates are right now. In 10 years, could we be back down to lower interest rates again? We don't know. And so I can say, you know, it's a better time to buy a SPIA now than it was two years ago, but we don't know what that will look like 10 years from now.

So, you know, we don't know the future. You have to base that decision on your situation and what is really appropriate for you today, as it stands today. - Here is a really interesting question and curious how this shows up in your practice. How and when should one discuss their assets with their adult children?

- This is a great question. You know your family, right? And so I think it's wonderful when people do bring their adult children in. We've had meetings where we set up Zoom calls where we walk the whole family through the client's financial plan. In a healthy family, the children are gonna care about you, right?

They're gonna care just as much as you care about them. And most children in a healthy functioning family are gonna be concerned that their parents might run out of money. And so in those situations, I think it can be really useful to have a family meeting and have someone walk through the whole thing and you're reassuring them that you're okay, that you're gonna be able to take care of yourself.

In a unhealthy family dynamic, that could backfire. And so it's hard because I think you know your family, you know your adult children, you know which ones are gonna be responsible with the information that you might share. And so you're gonna have to weigh all of that out in making that decision.

- Yeah, certainly. Absent any sort of spendthrift considerations, sooner is better. We don't know when ill health is gonna show up, so being bread prepared helps you in that situation. Thank you, Christine. We interviewed Cameron Huddleston on episode 34 of the "Bogleheads" live show. She's author of "How to Talk to Your Parents "About Their Finances." And she shared a story about how her mom had dementia onset at a relatively early age, right?

And for her, her mother, Cameron's mother, didn't necessarily put together in place the right estate planning pieces beforehand to make Cameron's life easier. So we don't know when ill health is gonna show up, so doing that planning sooner, that helps manage that risk. All right, we've got lots of more great questions from the community here.

Great job, guys, keeping them coming. Lot of questions about bond ladders. So since you do that in your firm, let's talk about that. We have one question here that wants to know about what type of specific bonds you invest in in taking that bond ladder approach. - Well, treasuries, munis, CDs, agencies, not corporates.

With the exception that in smaller accounts, we will use bullet shares, which is a package of corporate bonds that all mature in the same year. So it will depend on the client. Like so much of what we say. You know, if their tax rate's high enough and they have a large taxable account, we may be building that portion of the bond ladder using muni bonds.

Sometimes it's state-specific, particularly if they're in California. Sometimes it's national munis if they're in a no state tax, no income tax state, you get that correct. And then agencies and treasuries and CDs would be our go-tos so we really don't like to take risk on the fixed income side.

I know that question came up earlier. We'd rather take risk where we think it has a higher probability of paying off, which is on the equity side. And so then it will just depend on where we're gonna get the highest yield at that time. The fixed income market can be far more complex than the stock market, and so it can vary from day to day.

One day you might get a higher yield than an agency, the next day it could be a CD. It really can vary depending on where the bond market is at that day. - Practical question, what do I do with all the funds in my employer-provided retirement plan when I'm ready to retire?

Yeah, I'll leave it at that. - Well, that's a good question also. I don't know because I don't know what those funds are. And there's all kinds of pros and cons to rolling over your 401(k) into an IRA. Some 401(k) plans have unique investment options like stable value funds.

And in the past decade, that may not be true today, but we could earn a higher yield in those stable value funds than by building out a fixed income bond ladder. And so that was a reason to leave a large portion of the money in the employer plan, to take advantage of some of those investment options.

If you wanna build a actual bond ladder, it's very difficult to do within a 401(k). They may allow you to do it if they have the self-directed brokerage option. So if you're in a company large enough where they allow you to open, it's usually either a Schwab or Fidelity brokerage account, you can do that.

Some of the challenges that I see, 401(k)s decide to change plan providers. You get a blackout notice. The money has to move to a new provider. That can happen at any time during retirement. Now you have to revisit everything. We just have a client that got a notice of this happening.

He does have a self-directed brokerage account. In their case, they're gonna allow all the investments in that self-directed brokerage account to transfer in kind to the new brokerage firm with the 401(k) so they won't have to liquidate them, which is a nice option. But there's all kinds of complexities that you would need to address or we would need to know to actually answer that question.

There's other things I've seen. If you have outside accounts, a 401(k) requires its own required minimum distribution. And so if you also have an IRA, it will require its own required minimum distribution versus if you have two IRAs, you could take the RMD, consolidate the RMD amount and take it all out of one.

But you can't take the 401(k) RMD out of an IRA. So if you don't want that level of complexity, that could be a reason to consolidate. I've also seen cases where 401(k)s will have restrictions on how often you can change the investments or how often you can take withdrawals.

So if you wanted to set up a direct deposit on a monthly basis to replicate your paycheck, that may be more challenging or sometimes they tack on administration fees. So all of those things would have to be considered. - As touched on in the last session, that workplace retirement plan, that 401(k), that ERISA plan, state by state, you may be looking at better credit protection in that account, but again, it does vary state by state.

So you can speak with an attorney in your state to figure out just how much credit protection you might be losing if you move from that ERISA plan, that 401(k) to a rollover IRA. Thank you. - All right, here's a great question. I am sitting on a large capital loss, unrealized capital loss in my investment account from a company that went bankrupt and I can't stand to sell it.

Any guidance you can give this person? - I think Mike Piper talked about mental health. (audience laughing) So if the company went bankrupt, I mean, that's hard, right? It is hard to manage your own investments, even for us advisors. So, you know, I have my retirement portfolio and I do with it exactly what I would do with the clients.

And then I have this other pot of money that I do horrible things with and it never works out. And so why is it that it's so much harder to make decisions on our own money? And it really is, right? It's just, it's harder to be disciplined. And so you're sitting on this large capital loss.

It absolutely would make sense to sell it unless you really think that that company's coming out of bankruptcy and, you know, gonna do something spectacular. And so I don't know. I don't know what advice to give you other than Mike Piper's advice that a mental health professional might be appropriate.

- Yeah, no, certainly seems reasonable. All right, any suggestions on how to balance tax treatment of accounts by the amount that's in them, taxable, tax-deferred, and tax-free? - How to balance them is the question? - Yeah, what guidance do you give when working with folks on how to balance how much you have in each of those account types?

- Well, it's interesting 'cause most of the folks we see are at the tail end of that decision-making process, right? They're getting ready to live off their acorns. They're in the decumulation phase. So that decision has already been made. So I can answer that question from the rear view mirror standpoint that it is better to get to retirement usually with the diversification of account types.

And so the most challenging retirement plans or the most constrained plans we often see are people who have usually over a million, sometimes two million, all in a tax-deferred account. Usually it was a 401(k) or employer plan and nothing else. No, nothing else. And so there is not a lot of flexibility there.

Every dollar is gonna be taxed. There's not a lot of tax planning opportunities. And so I do think as you're saving along the way, making sure that you're building up buckets of both tax-deferred and taxable accounts can give you a lot more flexibility when you get to the distribution phase.

- I like this next question because it is thinking about that worst case, which I'm always thinking about. So this question asks, should I be thinking about splitting my assets between multiple brokerages in the case of a cybersecurity hack or being locked out of my account? - I personally don't think that's necessary.

I have seen people, however, who wanna keep their assets across multiple custodians just in case something were to happen at the custodial level. And so I understand that. Do I personally think it's necessary? No, I really don't. I think the level of security in our financial institutions and being able to set up two-factor and learning about cybersecurity yourself offers a great deal of protection.

But I can certainly understand why in a kind of Armageddon scenario, why someone might wanna have a pot of money in the second place. - Yeah, I'd certainly echo that. I don't think it's absolutely necessary, but I don't think it's unreasonable either. And the other thing I encourage folks to think about is in making that decision, not for some folks, if you're, maybe you're still working or maybe if you're just leaving your old workplace plan as is because you wanna maintain that credit protection, it's an old 401k, it's got some good investment options in there, maybe your money is gonna be split across two different investment accounts anyway.

All right, let's jump to, can you tell us more about the client with a $3 million portfolio and qualifying for healthcare tax credits? - Well, yes, they have both taxable account and they have tax deferred IRA accounts. And so in a laddered bond strategy, when that bond matures, that's not taxable income, right?

Only the interest income on the bond is what's showing up on your tax return each year is a 1099. And so they're able to have, I think they draw $11,000 a month out of their portfolio, but their actual AGI taxable income has basically remained under 40,000 a year. So they're able to qualify for the healthcare tax credits, even though they have a substantial portfolio and they're able to have that $11,000 a month cashflow because everything else in the portfolio is primarily long-term capital gains and we're not gonna realize it and then we'll do the rebalancing after they're 65 and around Medicare.

- Dana, thank you so much for answering all these questions. Any final thoughts before I let you go? - It is absolutely an honor to be here. And so I just wanna thank all of you. You make people like me better with your questions. And I had shared with a few people earlier, I started writing online in about 2007.

It was always a member of the Boglehead community that would reach out with corrections to my articles, suggestions to my articles. (audience laughing) And you may laugh, someone asks, didn't that annoy you? No, I was always so grateful for it because it made me better. And so I really appreciate this and the opportunity to be here.

- Wonderful, thank you, Dana. (audience applauding) (applause)