(applause) You can sign them. I want to introduce this great panel here. Mike Piper is here. Many of you know Mike. He's a phenomenal resource for so many of us. Mike is the treasurer of the John C. Bogle Center for Financial Literacy. He is an invaluable resource to the Center.

He's a CPA, and he also offers hourly consultations on retirement taxes and investments. Mike, quick question, are you still accepting new clients for that sort of work? Mostly no. My schedule is very limited just because, as most of you know, most of my time is spent writing and doing the work related to that.

So, my capacity is pretty limited. Okay. Mike has a fabulous blog, Oblivious Investor, and he also has written a number of super helpful small books on single topics. So, social security and tax planning are big areas of expertise for Mike. His latest was called More Than Enough, and it's a great resource for people whose retirements are well-funded, but they're thinking bigger picture.

Mike has also created a wonderful social security calculator that I think many of you know. It's called Open Social Security. I'm seeing nods out there, which is great. John Luskin is also here. John is an hourly financial planner. John, too, is on our board for the John C. Bogle Center for Financial Literacy.

He co-hosts the Bogleheads on Investing podcast, or at least he was doing it for a good period this summer while Rick was on his sabbatical sojourn in Alaska. John also hosts the Bogleheads Twitter spaces and is a great resource for many of us in the realm of retirement planning and investment planning.

Last but not least, Wade Fow is here. We're very privileged to have Wade here. You all probably saw Wade in the general session just before lunch. Wade is a professor, researcher. His Retirement Planning Guidebook is the resource, in my opinion. If you're looking to buy a single book that covers every important topic under the umbrella of retirement planning, that's your book.

And I had a friend recently reach out to me and say, "I've heard you talk about this book. Is it good for novices?" And I would say if you're serious about retirement planning, you owe it to yourself to get Wade's book. So, I want to get into the substance of the conversation, starting with retirement today and thinking about pre-retirees or people who expect to retire maybe within the next year or two.

How's their timing right now? Wade? >> So, certainly it has never been a better time to access a variety of low-cost, do-it-yourself investment options. So, certainly investors have that going for them. I think about a case that Mike makes with respect to investing. I know you have your own 80/20 single fund that you use in tax advantage accounts.

And there's no reason why retirees can't use a similar type of fund where they put all their money in once and it rebalances for them. It's just zero maintenance. It's low cost. It's a very great set-and-forget investing approach. Maybe 80/20 isn't the right mix for retirees, but Vanguard does have some other mixes in those life strategy funds.

And even for taxable accounts, iShares, they have their line of tax-efficient ETFs, their allocation ETFs, which also could be a good fit, too. So, insofar as investing complexity, you don't need it. There's a lot of great solutions out there. And then even retirement planning, there's some great do-it-yourself tools for retirement planning.

We interviewed Stephen Chen recently on the Global Heads on Investing podcast. We talked about do-it-yourself retirement planning tech. So, there are really some phenomenal resources for do-it-yourself retirement planning, financial planning, and investing out right now. Okay. And I should note, Steve Chen is here in the audience. Maybe not in this room, but he is here at the conference.

I think one obvious point that we've been talking about the last couple of days is inflation-adjusted interest rates being high makes it a lot easier to feel comfortable spending at any given level from the portfolio than when inflation-adjusted interest rates are very low. So, in that sense, now is a good time to be a retiree.

And I would definitely second that point. The real interest rate is really important. And then just to have a different answer also, there's some good news on the horizon in the Medicare prescription drug world. In 2024 now, there's no more catastrophic phase where the - if your drug insurance costs - I'm sorry - prescription drug costs are getting too high, there was an unlimited window on how high those could go.

The catastrophic phase is gone in 2024. And then in 2025, there will be a $2,000 cap on out-of-pocket expenses related to prescription drugs. So, if you go with original Medicare plus the Plan G Comprehensive Supplement, and then now with this out-of-pocket limit on prescription drugs, you can predict pretty well what your potential insurance - or your health care costs will be in retirement.

And that can help manage a significant spending shock of, "I don't know what kind of health care bills I will face." There is a way now, increasingly, to be able to manage that better. So, I wanted to mention Alan Roth is here in the room. And Alan will be taking questions and collating them and he's right there.

He just raised his hand. So, if you've got a question, write it on a piece of paper and hand it to Alan and he'll take a look and hand us the best ones. Mike, I wanted to ask you about the Social Security Adjustment that was just announced, the inflation adjustment.

Can you talk about that? It came on a day when the new inflation number was above that 3.2 percent inflation adjustment. Maybe you can give us a little bit of background on how they come up with that. 3.2, right? Yeah. It's looking at quarterly CPI figures, basically. And it's not - it's essentially inflation over the last year, except it's a lag.

It's not a calendar year. That's really the gist of it. So, on the one hand, that's a lower adjustment than we've seen in the last couple of years. And so, that might feel like it's bad news because you didn't get as much of a raise, but it's because there wasn't as much inflation and that is good news.

So, you know, it's good and bad news, however you look at it. And the CPI number can be a little bit different because usually when we talk about inflation, we're talking about the CPI-U index. That's the mainstream what the media is talking about. Social Security actually uses something called CPI-W, which is Urban and Clerical Workers, and it can be a little bit different.

That's why the announcement of what the overall inflation was over the 12-month lag period can be different from what the Social Security goal is. Okay. So, you just addressed some of the positive tail winds for new retirees. How about things that you perceive as headwinds? Certainly one thing I think about is elder abuse, fraud.

You know, there's a whole industry where we have these robo-scam calls and Social Security benefits have been suspended or your grandchild has been kidnapped, you know, what have you, they're in a jail in Mexico, you know, send us $10,000, haul it out in a book in the mail. So, that's certainly going to be a really big challenge, especially as we get older and we're not quite as sharp as we used to be.

Navigating those challenges is going to be quite a lot for retirees. And the best solution there is, you know, have that resource, you know, set up that financial power of attorney, have those trusted parties that are going to help you manage your finances when eventually you may not be able to do so yourself.

Seems like that's an argument for simplifying a financial plan too, right, as you age? Okay. You all work with clients to varying degrees. How do you help them when you have a new client who comes in and says, can I retire and when can I retire? What are the key things that you put on the dashboard and what's sort of the exercise that you take them through?

I think since we can't know what the future holds in terms of investment returns, inflation and life expectancy and taxes, I think it's always important to have some flexibility baked into a retirement plan. And for some folks, maybe that means working longer, maybe that means possibly working part time, but for pretty much everyone, that's going to mean having some flexibility with your spending.

The probably easier way to do this is to put off big expenses during years of poor market performance. So, if you have a bad year in the market, maybe it means you'll buy a new car next year. Maybe it means you'll do the home renovation next year. Maybe it means you'll make that big spend in a year that the market hasn't performed poorly.

But having some wiggle room in your spending, that's going to be critical to any retirement plan regardless of what metric or technique you use in putting that plan together. In terms of trying to assess, do you have enough, are you ready to retire financially speaking, a lot of the approach out there has been like you do a Monte Carlo simulation and look at the probability of success.

I've really become more enamored or comfortable with a funded ratio approach, which is basically you assume your investments are going to earn a basic rate of return. You can link it to tips. So, you use tips as the underlying discount rate in the analysis and then you add up, well, what are all my liabilities?

What are the goals I have for retirement? My expenses, if I have a legacy goal, what I want to have set aside as reserves for spending shocks and so forth. And then you start adding up all your assets as well, the different investment accounts, Social Security as an income stream, other pensions, that sort of thing.

And then you calculate the present value of all this using the simple interest rate that's not assuming stock market risk. It's just, can my plan work without taking risk as a starting point? And you look at how much assets do I have compared to liabilities? And if your funded ratio is over 100 percent, that's a pretty good indication that you can start thinking that you're in a pretty comfortable place, that you have what you need to successfully retire and to also meet the kinds of spending shocks that you want to be prepared for.

Like, do I want to plan for a specific long-term care event or that sort of thing? >> I do like the funded ratio concept a lot, just like Wade. My primary approach is Monte Carlo analysis, and that's not honestly because I think that's the best approach and it's better than all of the others.

It's just what I use. I think there's other good approaches also. If you are using Monte Carlo analysis, the big output number it's going to give you is probability of success, just like Wade said, and that's important. But you also want to look at a number of other metrics.

So, in the failure scenarios, when did failure occur? Right? Did it occur at age 73 or at age 98? And that's a big difference. And so, we want to look at other metrics as well as, you know, remaining portfolio value in the median case or the 75th percentile case and 25th percentile case and so on.

And so, I think I am a big fan of Monte Carlo analysis, but I definitely don't think that you need to look at it from a lot of different points of view, not just the probability of success basically. Well, I wanted to follow up on that probability of success point because it is an important dimension of the Monte Carlo analysis.

In the simulations that we run in our retirement income research at Morningstar, we use 90 percent probability as kind of the baseline or the target case, and we sometimes hear pushback, especially from individual investors who say, "No, I want 100. I want 100 percent chance of - 100 percent of odds of not running out of money." Can you all discuss the pros and cons of sort of what is - if you're using Monte Carlo simulations, what is a decent success rate to target?

Yeah. So, on the Longview podcast, Christine interviewed Derek Tharp several months ago. I don't know when exactly, but go look that episode up. It's excellent. The thing he talks about is if you are going to do a one-time analysis, you're going to make a single plan and then just not change the plan at all, no matter what happens, then yeah, you do want a super, super high probability of success.

But if you're willing to update it every single year, maybe adjust our spending a little bit this way, a little bit that way, then a somewhat lower probability of success can be very reasonable. And exactly, you know, I'm using fuzzy words here, right? A high probability of success, a somewhat lower probability of success.

And what those words will mean to one person is different than to another person, because when we talk about risk tolerance, classically we're talking about, oh, how volatile is my portfolio? And that's a real sort of risk tolerance, but this is the real risk tolerance, is how okay am I with needing to change my life because of something that happened in the markets?

And so, the right answer for one person is simply not going to be the right answer for another person. >> Yeah, and it relates to like not just of the portfolio itself, because the probability of success, the software is not, probably not assuming any sort of spending adjustments. So, it's really if you don't change your spending at all, what's the probability that you'll deplete?

The reality is, as you get closer to running out of money, you're probably going to adjust spending and that can help. So, it's not like necessarily the catastrophic scenario. Plus, you may have other resources outside of the investment portfolio that speak to, if I have plenty of my Social Security is a big one, but other reliable income outside the portfolio, if I have some flexibility for my spending and so forth, there's two ways to be aggressive in retirement.

You can invest aggressively and you can spend more aggressively. And if you spend more aggressively, you'll have a lower probability of success, but you may be willing to take on a lower probability of success because you can make these adjustments and it's not catastrophic necessarily if you deplete your assets because you do have other spending resources outside of that.

So, 90 percent is often the default, but in a real world case with somebody who's got some flexibility and so forth, you might be able to talk about like a 70 or 80 percent success rate target because you're going to be adjusting that, as Mike said, over time. Yeah, certainly for that 90 percent success rate, that can be a reasonable way to do it.

And I use the word reasonable as a keyword there because none of this is guaranteed. Whether you're doing a Monte Carlo simulation or a funded ratio or anything else, it's going to be a little bit of a broken record. You want to have that flexibility baked into your retirement plan because that 90 percent success rate, that's going to be based upon some guess about future taxes, some guess about future inflation, some guess about future investment return, life expectancy, et cetera.

And if any of those guesses are wrong, well, now your results are wrong. That's why, again, it's so important to have flexibility baked into your retirement plan. So, one question I've been thinking a lot about based on my interactions with actual retirees is that people who have been diligent savers throughout their lives oftentimes have a really difficult time transitioning into spending mode and a difficult time giving themselves permission to spend from what they've managed to save.

Can you hear me okay? Okay. So, I'd like to hear from the panel about how people should get themselves over that hump. Wade, I noticed you mentioned in the preceding session the role of an annuity in this context. I guess a question I have based on that is if someone is having trouble spending from their portfolio, it seems like it could be really difficult for them to part with a substantial share of the portfolio to put into that annuity in the first place.

But, anyway, maybe you can tackle that question. Yeah, and I'll try to actually answer the question without referring to an annuity. Okay. So, you've got - there's - like the pair - like Aesop's Fables, you've got ants and grasshoppers, right? The ants are preparing for the winter. The grasshopper is out having fun.

I think a lot of bogleheads tend to be ants. And what the whole retirement world is telling you is you've been an ant your whole life. You're not supposed to flip a switch at retirement and become a grasshopper and enjoy yourself. And you're supposed to spend more money. And that can be hard if you're fundamentally frugal.

You don't necessarily get satisfaction out of just spending more money just because you can. So, part of it is just recognizing what your lifestyle is and if you're comfortable spending what you're spending. Just because you could spend more doesn't necessarily mean you have to spend more. But the other angle of that, too, I think one of the big drivers of this idea that people are worried about spending money relates to this health care concern or long-term care concern.

It's like I'm worried I can't spend my money because I'm worried I may need it for a big nursing home stay in the future. And I think the way to help with that consideration is I like to talk about assets as reliable income, diversified portfolio, and reserve assets. And reserve assets are what you have that's not been earmarked to something else.

And so, if you can kind of work through this and say, well, I do have a home or I do have some surplus assets over here. I do have something that I can call reserves that if I do have a significant long-term care shock, I'll be able to use that to help fund the long-term care need.

If you can actually picture that in your mind, that may be a way to make it easier to then go ahead and spend some of those assets because you're not like overwhelmed by I've got this one pot of assets that I need to use for everything and I'm worried about spending it.

You can say there's some reserve assets on the side that can help manage that type of spending shock. >> Sounds like a bucket. I want to stick with the long-term care question because I had it last in my queue, but since Wade brought it up, I would like to hear from the panel about how they think people should address the long-term care risk.

So, Wade just referenced the idea of having a separate silo of assets that you could use. I'm guessing that probably a lot of folks in this room have gone that route, the self-funding route. But I'd like to hear the panel's thoughts on insurance products, specifically the hybrid type products.

And one of the most compelling arguments I've heard in favor of them is Carolyn McClanahan made the point to me that families that she's known who have had hybrid long-term care life policies have been more able to use the benefit than they would feel to spend on long-term care, that they would have been reluctant to invade their portfolio to get the care that they needed, which I thought sounded like a pretty compelling argument.

Yeah, so certainly you want to look at your total assets and figure out, is it reasonable for you to self-fund or not? And the folks that I work with, sometimes they've got way more money they can possibly ever spend, especially if they're the aunts who have trouble moving to that grasshopper stage of life.

And so, for them, self-funding can be reasonable. But one consideration there that I do want to add is that if you are going to self-fund for the possibility of long-term care, you want to think about investing appropriately. That's to say, hey, you might need long-term care tomorrow, so perhaps investing very aggressively with your portfolio isn't going to help you best self-fund.

Alternatively, for those folks who don't have enough assets, long-term care insurance, as tough of a bullet as it might be to bite, it can help manage risk. I've got a bias towards managing risk, so using the right insurance product can help. Now, generally, I like a pure insurance product as opposed to a hybrid product because it's going to be a better deal.

But if there's some, you know, human behavioral issues in there and it's, you know, don't buy that pure long-term care insurance or nothing at all or, you know, buy that hybrid product, then I guess I'll prefer the client buy the hybrid product in that situation. >> So insurance works best when it's a low probability but high-cost scenario we're trying to insure against.

Long-term care is a high-cost scenario, but it's not a low probability event. That's the issue. It's very hard for traditional long-term care insurance to be affordable at a reasonable premium just because the odds of somebody actually using the benefits are relatively high, at least compared to other types of insurance out there.

So there are the different hybrid options that combine either a life insurance or annuity with long-term care. They can work. Like, I'm not a big fan of them or necessarily I don't think they're a bad idea. But to the point you made, Christine, there can be value in at least having some sort of small policy in place, both for the reason you mentioned where a lot of times someone might be thinking of self-fund, but then when the time comes, they feel worried about spending their children's legacy or inheritance, and so they don't get the care that they need.

And nobody's worried about spending the insurance company's money. So if you have the policy, at least it helps get you moved towards getting the care that you need. The other thing is also a lot of policies have a care coordination benefit where there will be a professional who will help you find the services you need, which may be otherwise very difficult because when you need long-term care, you're probably going to have a hard time figuring that out, what you need specifically, and it's a big burden for other family members as well.

So having a care coordination benefit as part of a policy can help get you to the right institution, help get you the care you need, and help get you going down the road in a correct direction in a manner that's not burdening your family to such an extent. >> So going back to the self-funding folks, in terms of how to invest, John, you referenced that, but I'd like to talk about how big that fund should be.

So say you're a married couple, how much you should set aside or a single person, and then also where to silo those long-term care assets? What's the best account type if I'm thinking of earmarking a portion of my portfolio for long-term care expenses that I'll pay out of pocket?

>> As far as amount, that's going to depend significantly on where you live because the cost of long-term care is dramatically different from New York City to a more rural location. So that's what I would do. I would simply research what is the cost where I live and looking at studies, because there are studies, but also looking at specific facilities literally where you live, not just at the state level, but in your local area.

And this is a facility that I could see myself living in, how much does it cost? Like that's the shopping we want to do, not just looking at, you know, a paper that somebody put out. As far as the account, that's a tricky one because we don't know when it's going to happen.

So frankly, I don't, at least what I'm discussing this with clients, I don't treat it any differently than any other spending in that regard because the only way that we could make a very good decision is if we could predict exactly when you will need it, and we can't.

So I don't separate out a separate portion and say this amount in this account is the long-term care bucket. I don't do that. >> Yeah, to echo Mike's point, insofar as, you know, this account is for this goal, et cetera, I don't necessarily do that because you can just buy whatever investment you've sold back from another account, so you don't necessarily have to do that compartmentalization.

Insofar as the cost, you want to be looking at, you know, setting aside whatever amount to something that you might get for an equivalent benefit of purchasing a long-term care insurance policy. So if you're looking at maybe a $300,000 long-term care insurance policy benefit that you would purchase, that wouldn't be an unreasonable amount to set aside.

And then, touching a little bit more about that investing component, because you might need as much as $100,000 in that first year if you're in a moderately - insofar as the facilities of a long-term care facility, your portfolio should be not very aggressively invested, because if you have to take a $100,000 distribution, it's probably not a tiny part of your portfolio, and you don't want to be doing that during some poor market returns.

So investing appropriately, relatively conservatively, if you're going to self-fund for at least that portion of your portfolio, it helps better ensure that money is going to be there when you need it. Can we go back to the ants and grasshoppers for just one second? Sure. Thank you. So this is something that people ask all the time, is, you know, I'm not comfortable spending for my portfolio.

And relatedly, a question that I get a lot is just the "Can I retire?" question, and a lot of times, as soon as I dig into the math, you could have retired seven years ago. (Laughter.) And when that's the situation, that's - I mean, that is the bogal head prototype, honestly.

Like, when that's the case, if you're still feeling anxiety about it, having somebody else tell you that, yes, you could retire, could help. But there's also a very real chance that what's going on here is not about your portfolio, right? It's about something inside you. And so, I mean, I mentioned this in my most recent book, and I didn't know how people would receive it, but it's gone over well, so I'll say it here, too, and that is mental health care is a good thing, right?

I mean, I've been through counseling. Most of my loved ones have, too. It's very valuable. And if you're feeling intense anxiety, and there's simply nothing in your finances that should be causing you anxiety because you've really got these things taken care of from a purely financial point of view, looking into mental health care is a good idea.

And people are scared about it. And I will tell you, it is a low-risk proposition because you're going to spend about one hour. The person is being paid to be nice to you, and that's it. It doesn't cost that much for one session. So, if that's a thing, a situation you're in, the solution frequently is not a financial solution.

It's something else. That's good advice, Mike. Thank you. I wanted to, Mike, go back to your book more than enough because you and I had a conversation about that, and we talked about this idea of sort of consumption. People hear that they should be spending more, and it doesn't have to be on themselves.

And you made the point that it can make a bigger impact on kids for them to inherit some money from you when they're younger, when they're launching, when they're buying their first home or trying to decide whether to go back to grad school. Can you expand on that? Yeah.

Another thing we see in bubbleheads - you see it on the forum all the time - is people who have done a great job saving and investing through their careers, and then at age 65, they inherit a big lump sum from their parents. And at that point, it doesn't do anything for them.

And if we think about it, that's honestly just kind of how the math works. The age most people are when they have kids, the age to which most people live, your kids - kids, they're not kids anymore at that point. They're most likely to be inheriting this money at a point where they're already financially independent.

And so, doing this giving a much smaller amount can be very much more impactful at an earlier age. You know, whether that's - it could be the home down payment money for their first house. It could be the helping to pay off student loans. And so, if your kids are already past those points - now we're talking about grandkids - but those things, even if they're smaller amounts, can be just enormously impactful in a way that even a mid seven-figure inheritance isn't.

I want to switch back to portfolio structure, and we touched heavily on investing in the first half of today. But I'd like to go back to bonds, because I think many of us have heard that we should have bonds in our retirement, pre-retirement portfolios, and yet bonds have just behaved terribly over the past year and a half.

They've been very disappointing in the face of rising interest rates, doing exactly what we would expect them to do, but nonetheless unwelcome. So, can you talk about how investors should think about bonds, especially relative to cash, with cash yields looking so attractive, it's very hard to get excited about parking a portion of my portfolio in something that could have losses, when I can lock in almost five percent without any risk of at least near-term loss.

Rick Ferry talked about this earlier in a little group, so I'll paraphrase him, because he said the point well, is that adding bonds to your portfolio don't mean nothing bad is going to happen, it just decreases the risk that something bad does happen. So, much of investing, nothing is guaranteed.

If we look at the S&P 500, for example, from March of 2000 to March of 2009, it offered a negative return. So, now, we're certainly not throwing out the S&P 500 from our portfolio, but investing takes time. All asset classes, all different types of investments have their day in the sun.

As Jack Vogel would say, we just need to stay the course. One thing I'll just add is that if you're looking at cash, you're not locking in that rate. That's how cash works, right? The interest rate changes, whereas - so, the reason you might be inclined to stick with intermediate term bonds or something other than cash is because you would be locking in that rate for a longer period of time.

That doesn't necessarily mean it's a good idea, but that is the tradeoff that you're making. Yes, so, relatedly, it seems like a lot of financial advisors I talk to have found religion about not taking risk with fixed income, that they're all governments, they're all short-term. Is that a reasonable way to think about it?

It seems like the assertion that I hear is that this is not a portion of the portfolio you want to take risks with. What's the case for venturing out on the maturity spectrum, at least? So, I'm the one who doesn't really like traditional bonds for the retirement income portfolio.

So, it's - you've got tips, and one case for a longer term tips wouldn't be just a tips fund with a long duration, but if you're laddering bonds, if you want 10 years of expenses, inflation adjusted, you could build yourself a 10-year tips ladder. If you want 30 years, you could build yourself a 30-year tips ladder.

That would be a reason, when you look at what's the duration on my 30-year tips ladder, it's going to be high, but as an individual household investor, you're not exposed to that interest rate risk. If you really are truly planning to hold those bonds to maturity and spend those proceeds when they mature, that can be the justification for going towards a longer duration.

But even with all the retirement income research out there, Bill Bingen looked at the different - you use treasury bills, you use intermediate term bonds, you use long-term bonds. Long-term bonds are just too volatile relative to any additional yield they may provide. Treasury - T-bills were a little bit - they're less volatile, but not enough yield.

He found that the sweet spot was the intermediate term government bonds, and that's about a five-year maturity. So, that's really what the research is pointing to. Now, right now, if you want to go less than five years, I do think maybe you're venturing into market timing a little bit with that, moving away from whatever the standard approach is.

But yeah, and then otherwise, again, just if you're using bond ladders, that would be the way to start thinking about going to a longer duration with your bonds. >> So, I've been hearing a lot about bond ladders during this conference, and a question I have is sort of - and they touched on it in the previous session - but the bond versus bond fund, and can part of that be addressed by just buying the right maturity bond fund?

Can part of the risks associated with owning a bond fund relate to just having the right time horizon in mind for that bond fund? >> So, it's mathematically possible that you can duration match your bond fund to the liability you're trying to fund, but your retirement spending goal liability, that's going to have a fluctuating duration.

And so, in practice, it becomes very difficult to duration match your bond fund to the liability that you're trying to fund. There are a few commercial companies that have provided a solution, but even then, they have to assume things like, well, is it a 25-year retirement or what the case will be?

So, yes, in theory, you could try to use a bond fund to duration match the liability in your retirement that you're trying to fund. In practice, it's a very heavy-duty math problem to try to solve, and very few companies even offer solutions trying to do that. >> So, certainly doing a Treasury ladder or a TIPS ladder isn't unreasonable, yet, to be a little bit of a broken record, I always encourage folks to think about the complexity of the investment plan that they're going to put in place.

Yes, you could do that, but I want you to consider, if you're making a 30-year ladder, and maybe you're in your 60s now, that means you're managing this thing into your 90s. Is that something that you want to be doing? And then, you also should have some considerations about your legacy investment plan.

Maybe you love a bond ladder, but maybe your spouse doesn't. So, yes, it is one way to do it, and it's certainly reasonable, but I always want to encourage folks to keep it simple. Again, there's some really great zero-maintenance funds out there that have bonds of various maturities that, when you look at the total bonds that are in a bond ladder, aren't going to be too dissimilar from what you're going to get in a fund.

>> We will be taking questions. Alan Roth is collecting your cards, so raise your hand if you have a question that you would like to turn over to Alan. I wanted to ask about taxes, and I think we could do this whole session on tax planning during and leading up to retirement.

But I'd like to ask about people who are in the home stretch maybe five years before retirement. They're trying to decide what account types to prioritize if they're saving, which ones they should fund. Mike, maybe you can talk about how to triangulate that question, whether to make traditional tax deferred contributions or Roth contributions at that life stage.

>> Sure. The answer there is actually the exact same answer it's been your whole career that you've had access to Roth and tax deferred anyway, which is it depends on the tax rate that you expect to be paying whenever these dollars come out of the account later as compared to the tax rate that would apply now, like what rate of tax savings would you get on tax deferred contributions.

So, it's the exact same question. The only thing is that the circumstances, the inputs are different because A, your income in the years, at least for a lot of people, in the years immediately preceding retirement is often the highest it's been, not necessarily for some people, you know, you're scaling back.

But the higher your rate of income, the more appealing tax deferred contributions become. But on the other hand, the closer you get towards retirement, the better we can see what did the account balances look like. And I know that for a lot of people, especially in the boomer generation where you had access to tax deferred for a good number of years before you had access to Roth at all.

And when you did first get access to Roth, it was Roth IRAs with a tiny contribution limit. And so, for so many people in this room, you've got big tax deferred balances and much less big Roth balances. And so, that kind of starting to tell you the story of what the retirement tax rates going to look like.

It's going to be higher than you might have guessed 20 years ago when you first started, you know, or however many years ago when you first decided to start contributing to tax deferred accounts. And so, once we start to get that sense that, boy, there's a lot of tax deferred balances here and the tax rate in retirement is likely to be higher, then suddenly we're looking at Roth.

Yeah. So, I did the presentation on this yesterday. It was like a fire hose, but I don't know if I ever really articulated, like, what you are actually doing. So, the kind of, for me, the tax efficient drawdown strategy with this is, while you still have taxable funds, you cover your spending needs through the taxable account, and then you're looking to see if on top of that you can do Roth conversions and pay taxes from the taxable account on those Roth conversions.

And that's what's happening until the taxable account depletes. Then you switch over to, you now need to cover your spending needs through the IRA, the tax deferred account, and you're managing the tax threshold of, well, maybe you can meet all your spending needs and still do a Roth conversion.

It's going to be a lot harder at that point because you've got to cover your spending needs through the IRA first, and that's generating a lot of taxable income. But if, otherwise, if the tax bracket you're managing is lower, you may, you're going to blend between the tax deferred account and the Roth to cover your spending needs.

So, part of your spending comes from the IRA, the rest will come from the Roth. And then when we're talking about, well, what's the efficient tax rate to manage? The answer is partly driven by the tax rate that's efficient to manage is what's going to be allowing you to smooth distributions from the tax deferred and Roth accounts throughout your entire retirement so that you maintain that capacity to manage the particular level of income that you wanted to manage for that.

Just to add one tiny point, because everything there is exactly how I would put it. I'll just add that it's, you're trying, ideally, not just to smooth the tax rate through your retirement, but also retirement and the ten years after you pass away because that's, frankly, when a lot of the money is going to be coming out of the account, most likely.

And then, of course, we're looking at somebody else's tax rate or some, plural, somebody else's tax rate. And we started to talk a little bit about giving and one important question there is charitable giving to the extent that you're planning on leaving assets to the nonprofit, then that future tax rate is zero and that has a huge impact on all of these retirement tax planning decisions that we make.

If a chunk of the money is going to be coming out later at a zero percent rate, that affects all of this math. Great point. And I would just note the Bogle Center is, indeed, a not-for-profit, a 501(c)(3). Now we're on to the good questions. Should you pay off your home before retirement?

And just really quick, that's boglecenter.org/donate. Thank you, John. So, going back to, we touched on, hey, if I'm going to have long-term care expenses and there's going to be a big distribution, again, $100,000 maybe in that first year I need long-term care because that stuff, those facilities are expensive, you want to be investing not very aggressively because you're going to need that money to come out, ideally, not during a market correction.

If there is a market correction, you want your portfolio less impacted and investing more conservatively helps ensure that. So, it's going to be the same thing with the decision to pay off that mortgage because if you don't pay off the mortgage and now there's a market correction, that means that's a bigger amount that has to come out of the portfolio during a market drawdown.

It's that mortgage payment. So, by not having that mortgage payment, now you don't have to take out as much of your portfolio during a market drawdown. So, paying off your mortgage is a risk management strategy in retirement. That's what folks want to be thinking about with respect to, hey, should I pay this thing off or it's not.

So, how do rising yields figure into this because many people now have mortgage interest rates that are well below what they could get on very safe securities? Yeah, so if you're looking at your total portfolio, the total portfolio performance, again, let's think about that one single balance fund. I'm going to keep my investments simple.

Your portfolio is still going to be down regardless of what you're getting on the bonds. So, to manage risk, to avoid having to spend more from your portfolio when the market is down, you don't want to have that mortgage payment. If your mortgage rate is 3% and cash or bonds are yielding 5-ish, it's not super appealing to eliminate 5% yielding investments to pay down 3% interest rate.

On the other hand, for anybody who has a new mortgage, and so it's a 7 point whatever percent interest rate, that's, you know, the math is exactly the opposite. Yeah, okay. Mike, can you talk about your funded ratio Excel? Sure, so this is just an article I wrote a while ago that just explained the funded ratio concept, which is what Wade was talking about.

And frankly, Wade is a much deeper expert in this concept than I am. In the article, I just made a very, very quick spreadsheet to illustrate the way that the math works, just so you can see how it works in Excel if you're an Excel sort of person. Wade has built an actual application, which includes tax calculations and on and on.

And so, the spreadsheet is basically an illustration of how funded ratio math works. That's what I would say. But I think really, if we want to hear more about funded ratio, Wade is definitely the person. At Retirement Researcher, we do quarterly retirement income challenges. A lot of local heads have joined them.

They're free and it's a week-long thing and you have access to our funded ratio tool during the week and you're free to use it for the week. And run your plan and all that sort of thing. And it's no obligation involved. Just kind of leave it there as a plug.

Okay. Here's another household capital allocation question. My husband retired three years ago and I have three or four years before I retire. Does it make sense for me to keep contributing to my 401(k) while my husband is taking from his IRA? I can't get a grasp on what to do.

We are debt free. Sorry, could you repeat the scenario? Yes, she is contributing to her 401(k), still working. Husband is retired and pulling from his IRA to maybe meet additional living expenses that they need above and beyond her income. And is it wise for them to continue down this path?

Knowing that we can't provide anyone with specific advice knowing that we don't know their whole situation. Sure. So in that case, basically all we're doing is we're swapping IRA dollars for 401(k) dollars. They're both tax deferred in that sense. It's a wash and 401(k) dollars can become IRA dollars later.

So I guess a couple of concepts there that might apply is that 401(k)s have better asset protection in terms of if you get sued, that might be relevant, might not be relevant to your household. Another point that is relevant I guess also as I just think about this is that we're not only swapping IRA for 401(k) but we're swapping his for hers.

And so if they're different ages, then that could be relevant also potentially. But it's probably really not that big of a decision, frankly. It's not changing that much to go from one account to the other, especially once you're already retired and you've got the ability to move the money between them.

Oh, yes. Then that for sure. Right. That's a great point. If there is a match in the 401(k), we still definitely want to be getting at least that match. Excellent. And related to what Mike said too, if she's younger, that would be a way to help defer R&Ds into the future as well.

Yeah, good point. You know, related to this, Jamie Hopkins, who's a retirement guy, made a point to me that for some people, the greater good is actually to stop contributing to their retirement plans if it can help them continue to work longer. If they can spend what they would otherwise save and that makes them - just gives them a better quality of life.

John, you're nodding. Have you run into this with clients? The math is certainly there because if the option A is, A, I retire and now I'm pulling $100 grand out from my portfolio, or option B is I'm just not going to put $10 grand in more next year, then certainly not taking $100 grand out, that's going to increase the odds of your retirement plan.

So if someone's looking at that decision and their retirement plan needs some work, they're not really fully funded, that could be a very reasonable way to go. Yeah, just the best way to get a retirement plan on track is to work longer. Just what you're doing with that is it's another year of work, so more time for your savings to grow, a shorter than subsequent retirement horizon.

You may be increasing your Social Security benefit as well by working longer. So at the end of the day, if doing this idea of taking it, don't contribute to your savings, but instead take a vacation and then that allows you to work longer, yes, financially that would be better than worrying that you didn't make the full contribution to your retirement plan.

Question related to long-term care. My long-term care insurance premium is going up for the fourth time. Is there a product available where the costs are more predictable? Does anyone have any specific knowledge of, I assume this is like a pure long-term care insurance policy. Yeah, that's where the hybrid products usually have guaranteed premiums and part of the whole effort to create those in the first place was this issue that with traditional long-term care, premiums can be increased over time and that's what's tended to happen.

So that is one of the selling points of the hybrid products is that you are guaranteed not to have premium increases in the future. I don't know the scenario at this point about switching to something else. You really have to do the analysis at that point, but that's an option.

Do any of you have experience with switching from a pure life insurance product to a hybrid product doing, you know, 1035 exchange from one to the other? No? Not personal experience, but that is another point. When I mentioned in the previous session I got a whole life policy and I didn't realize it when I was purchasing it, but it has an acceleration of death benefit rider that if I have a long-term care need, I can - it's not a hybrid policy, but I can accelerate to receive the death benefit to pay for long-term care needs.

So that - you may have something like that already. You might want to check your life insurance, but if not, you can do the 1035 exchange where you switch from one life insurance policy to another, including these hybrid policies, without creating a taxable event. So I assume this is from someone who is already retired.

The question is for each year, would it be better to withdraw once a year, semi-annually, quarterly, or monthly? Any thoughts on sort of the cadence of distributions? So again, I've got that bias for simplicity. Make it easy on yourself. Do it once a year and then, you know, go live your life.

Don't, you know, look at your portfolio every month. Yeah. Mathematically, obviously, in theory, the longer you leave your assets invested, the greater the return will be. But if we're talking about leaving them invested for a few more months for a relatively small amount because it's just a few months of spending, it's not a big difference.

Yeah. A lot of the research just assumes you take out once a year at the start of the year because it's using annual data. But the reality is you might smooth that over time. And also, just if you're spending the qualified dividends and interest payments and so forth, that may be an automatic way over time of replenishing your checking account by having those payments go there rather than necessarily reinvesting them when you're in the retirement phase.

Okay. Here's a question to end on. Best DIY tools for pre-retirement and retirement income planning? Wade's book is great, but I don't want to build ground-up spreadsheets from the ground up. So, quick, maybe lightning round here. What are your favorite go-to tools that are maybe free or, you know, very nominal charge or even maybe some that charge a little bit more that you think are worthwhile?

Yeah. So, a bit of a broken record. So, I care less about the exact tool that you use, but understand that this is just one calculator making a whole bunch of silly guesses about the future that probably aren't going to all come out. So, regardless of what tool you have, again, understand that if all doesn't go according to plan, you might have to change it.

So, expect to make changes to your plan. That's going to be way more important than whatever tool that you use. Yeah. Unfortunately, I don't have a very satisfactory answer here because the software that I personally use is priced for advisors, and it really wouldn't make sense for somebody to pay that full price themselves just to use it one time.

New retirement is the one I hear about the most, without a doubt, and I don't know if Steve's in the room, but he's in the Bobleheads community. He's active here. He cares about your input. I can't say that I've test driven it thoroughly myself, so I can't say very much, but I hear generally good things.

Other software that I hear good things about, Maxify Planner by Lawrence Kotlikoff, is something I hear universally good things about, and he's a deep subject matter expert on a range of retirement topics. Yeah, I will say really quickly that new retirement is quite similar to the very expensive advisor software that's out there, but again, just have flexibility in your plan.

And on the software, I've been meaning to do a deeper dive into that. I haven't yet, but what I have heard from a lot of individuals, so in addition to doing retirement and Maxify, they have the full list of things I've heard good things about. Prolana Gold is another software package, and then Flexible Retirement Planner.

I think all four of those get pretty detailed in the calculations. Okay. I want to note that we will have a 10-minute break, then we will reconvene in this room for a conversation with Dana Ansbach. I want you to join me in thanking Mike and John and Wade here today.

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