Bogleheads® on Investing Podcast 058: Mike Piper on “More than Enough,” host Jon Luskin

00:00:00.000 | Welcome to the 58th edition of the Bobo Heads on Investing podcast.

00:00:13.040 | Today our special guest is Mike Piper, returning for his third appearance on the Bobo Heads

00:00:17.720 | on Investing podcast.

00:00:19.600 | Mike Piper has also joined us on the ongoing live Twitter series, Bobo Heads Live.

00:00:24.360 | I'm John Luskin, and I normally host that live show, but I'm taking over the prerecorded

00:00:29.880 | show, Bobo Heads on Investing, while the regular host, Rick Ferry, takes a break.

00:00:37.000 | Please allow me to introduce Mike Piper.

00:00:39.160 | Mike is a licensed CPA, author of the Oblivious Investor blog, and author of many finance

00:00:44.600 | and tax-related books, including Social Security Made Simple.

00:00:48.320 | He is a favorite among Bobo Heads for his straightforward advice on retirement planning,

00:00:52.880 | investing, social security, and many other personal finance-related issues.

00:00:56.680 | And for folks who want to check out the Bobo Heads Live podcast, including all three episodes

00:01:00.520 | where Mike answered questions about social security, taxes, investing, and estate planning,

00:01:05.520 | I'll link to those in the show notes.

00:01:07.920 | Some announcements before we get started on our episode with Mike.

00:01:12.320 | This episode of the Bobo Heads on Investing podcast, as with all episodes of the Bobo

00:01:17.360 | Heads Live show, is brought to you by the John C. Bobo Center for Financial Literacy,

00:01:22.360 | a nonprofit organization that is building a world of well-informed, capable, and empowered

00:01:27.080 | investors.

00:01:28.080 | Visit Bobo Center at bogocenter.net, where you'll find valuable information, including

00:01:33.640 | transcripts of the podcast episodes.

00:01:36.920 | Another announcement, registration is currently open for the 2023 Bobo Heads conference.

00:01:42.080 | You'll have until the end of the month to take advantage of the early bird discount,

00:01:46.000 | saving you $100 on registration.

00:01:48.460 | This year's conference is on October 13th through the 15th in Maryland.

00:01:52.780 | We have some phenomenal speakers, including today's guest, Mike Kuiper, as well as some

00:01:58.140 | personal finance and investing rock stars, such as Charles Ellis, Paul Merriman, Clark

00:02:03.580 | Howard, Jonathan Clements, Michelle Singletary, Barry Ritholtz, Wade Fowle, and more.

00:02:09.700 | And of course, Booklet's favorites, the normal hosts of this show, Rick Ferry, Christine

00:02:14.540 | Benz, Bill Bernstein, Alan Roth, and much more.

00:02:18.740 | Go to bogocenter.net/2023conference to see the full line of entry register for this year's

00:02:25.220 | event.

00:02:26.220 | And with that, let's get started on our interview with Mike Kuiper.

00:02:30.860 | Mike Kuiper, welcome back to the Bogo Heads on Investing podcast.

00:02:35.020 | Tell us about your new book.

00:02:36.780 | So the title is More Than Enough.

00:02:39.020 | It's a discussion of the questions that arise when you realize you have more than you need.

00:02:43.620 | So different financial planning topics that come up in that sort of scenario.

00:02:47.860 | Great book.

00:02:48.860 | And like all your books, quick and easy read gets to the point, doesn't get super technical,

00:02:53.740 | but a very valuable resource for those looking to tackle the issue of what happens when they

00:02:58.060 | do have more than enough.

00:03:01.020 | Let's jump to some questions we got from the Bogo Heads forums about your book.

00:03:05.540 | Dr. Jim Dolley, aka The White Coat Investor, writes, "This book is all about the nuts and

00:03:11.500 | bolts and doesn't dive at all into the big questions that those of us beyond enough face.

00:03:17.860 | What to do with the rest of our life?

00:03:19.360 | How do we work?

00:03:20.360 | How do we recreate?

00:03:21.540 | How do we find meaning and fulfillment?

00:03:23.740 | How do we choose how much to give to charity and heirs, now versus later, and the split

00:03:28.500 | between those beneficiaries and our own ridiculous spending?"

00:03:32.780 | The truth is that many of the practical issues he addresses very well in the book don't

00:03:36.580 | even matter at all, at much to anyone, at a certain level of wealth.

00:03:41.160 | Everything Mike does is very deliberate.

00:03:43.080 | Why did he decide not to include a section addressing these softer issues in the book?

00:03:48.780 | The short answer as far as why not to address questions like Jim raised, how to find meaning

00:03:55.380 | and fulfillment, is that those are questions that I'm not really qualified to answer.

00:04:00.340 | Those are the fundamental questions of philosophy that humans have been wrestling with for literally

00:04:06.220 | thousands of years, and I just didn't really feel that Mike Piper can step into that discussion

00:04:12.100 | and add anything particularly new.

00:04:16.260 | There's one thing that Jim said in his comment, and I'm actually going to quote it here.

00:04:20.440 | He said that the book focuses on the nuts and bolts, which is true.

00:04:24.060 | It does.

00:04:25.060 | And he said that the truth is that many of those practical issues that he addresses in

00:04:28.700 | the book don't even matter all that much anymore at a certain level of wealth.

00:04:33.540 | And that is an assertion that I disagree with pretty strongly.

00:04:39.620 | The reason for that, to kind of explain it, I often think of all of our money, every dollar

00:04:45.540 | we ever earn, ultimately going into one of five buckets.

00:04:48.980 | I'm not talking here about bucket asset allocation strategies.

00:04:52.060 | This isn't about asset allocation at all.

00:04:54.280 | Bucket number one is every dollar you ever spend, defining that really broadly.

00:04:58.380 | So it's discretionary spending, non-discretionary spending, taxes, and so on.

00:05:02.500 | Bucket number two is any money that you ever give to another person.

00:05:06.700 | So gifts to family members, other loved ones, et cetera.

00:05:10.220 | Bucket number three is any money that you donate to charity.

00:05:13.020 | And then any money that doesn't end up in buckets one, two, or three, so you didn't

00:05:16.100 | spend it, you didn't give it away, you didn't donate it, ultimately is going to end up in

00:05:20.100 | buckets four or five.

00:05:21.660 | Bucket four is money that you leave to another person as a bequest at your death.

00:05:26.200 | Bucket five is money that you leave to charity as a bequest at your death.

00:05:29.700 | In financial writing, and certainly on the Bogleheads forum, there's kind of an underlying

00:05:34.220 | assumption that we're dealing with bucket one, helping people make decisions that will

00:05:41.020 | allow them to satisfy their own spending.

00:05:44.020 | And I think that's a useful assumption, a reasonable one, because most people struggle

00:05:48.740 | with that, right?

00:05:49.740 | You have to make a whole bunch of smart decisions in order to just have enough saved to retire,

00:05:55.780 | to satisfy your own spending.

00:05:57.400 | And so we spend all this time.

00:05:58.700 | Bucket number one is what we're looking at and thinking about.

00:06:01.380 | I think it's easy to kind of accidentally make this leap to thinking that because bucket

00:06:06.980 | number one is what we're talking about most of the time, that that's the only one where

00:06:10.780 | the nuts and bolts decisions matter.

00:06:12.780 | It's just not the case because making smarter nuts and bolts financial decisions allows

00:06:17.180 | there to be more money for buckets two, three, four, and five.

00:06:19.820 | It's more money to go to your loved ones or causes that you care about.

00:06:24.820 | As the amount of money grows, the idea that it becomes less impactful, that's not true.

00:06:29.220 | The decisions you make become more impactful.

00:06:30.860 | The difference is just that the impact isn't felt by you.

00:06:32.980 | It's felt by somebody else.

00:06:34.500 | One more thing on this point, because I thought it was so interesting that Jim specifically

00:06:37.500 | is the person who asked this question, because if you've read his writing, you know that

00:06:41.780 | he does a lot of charitable giving, like you don't need to be telling him about charitable

00:06:45.780 | giving.

00:06:46.780 | If somebody like him who is thinking so frequently about charitable giving can still make this

00:06:51.680 | mental leap to thinking that, oh, the nuts and bolts decisions are about us satisfying

00:06:55.760 | our own spending and making sure that that's satisfied, well, then any of us can make that

00:06:59.200 | mistake.

00:07:00.200 | And so I think it's important to remind ourselves regularly that these basic decisions, they're

00:07:03.400 | still important, even as the portfolio grows to exceed our own needs.

00:07:07.120 | It's just that the people being impacted are other people rather than ourselves.

00:07:11.680 | And for those folks who do want to spend more time thinking about the softer sides of financial

00:07:16.320 | planning, they want to check out books by George Kinder.

00:07:20.000 | I will link to those in the show notes for our listeners.

00:07:23.200 | Mike, this question comes from the username Unwitting Gulag from the Bull Guys Forums

00:07:28.160 | who writes, given that a steady and concerted campaign of saving and investing, it's still

00:07:33.040 | a good thing.

00:07:34.240 | How do we avoid a perverse morphing of these thrifty habits into outright greed, recognizing

00:07:39.840 | our own greed?

00:07:41.180 | How do we manage it?

00:07:42.960 | So just like we were talking about a second ago, if you're somebody who is a natural accumulator,

00:07:48.640 | saving and investing and saving and investing, and you are not personally inclined towards

00:07:52.720 | spending, well then, whether you plan on it or not, these dollars are ultimately going

00:07:58.040 | to somebody else.

00:07:59.680 | Somebody might call that greedy because you're focusing on accumulating these dollars.

00:08:03.200 | But again, they'll be somebody else's dollars at some point.

00:08:06.520 | Although one point I make in the book, which I think is important, is that there is a big

00:08:11.120 | difference between leaving money as a bequest and making gifts, and that earlier gifts can

00:08:16.480 | be much more impactful than a larger bequest later.

00:08:19.200 | I mean, anybody who works in financial planning or even just anyone who's hung out on the

00:08:21.960 | Bogleheads Forum has seen this a million times, where you've got somebody who's in their late

00:08:27.240 | 60s or sometimes even older, their parents died, they inherited a lump sum, and they

00:08:31.160 | don't know what to do with it because they were already financially independent.

00:08:33.800 | It doesn't really do anything for them in any meaningful way.

00:08:37.680 | Earlier gifts would have had a bigger effect.

00:08:40.840 | And so that's a thing to be thinking about.

00:08:42.440 | If you've got grandkids or people roughly college age, helping them pay off their student

00:08:46.720 | loans is a big thing.

00:08:49.060 | It will put them in a much more secure financial position.

00:08:52.440 | It will probably improve their mental health because debt is very stressful.

00:08:56.220 | So smaller gifts at an earlier stage can be incredibly impactful.

00:09:00.880 | Another point, the person was asking about how to get started giving, it sounded like,

00:09:05.160 | was maybe a thought there.

00:09:06.440 | I would say just start with a small amount.

00:09:08.040 | If you're somebody who is inclined towards accumulating and kind of safe walling your

00:09:12.600 | assets, start with an amount that feels okay.

00:09:15.560 | What I think most people find when they do that is that it feels good and it's not that

00:09:19.640 | hard to give more later once you've gotten started.

00:09:24.200 | With a lot of personal finance, a lot of spending, it's often kind of sold to us on this idea

00:09:29.960 | that it's a way to express ourselves, right?

00:09:32.160 | Like you buy this particular car and it's a way to express who you are as opposed to

00:09:35.880 | that other car or these clothes or whatever.

00:09:38.040 | And that can be true to an extent, but I think with charitable giving, that's the deepest

00:09:42.320 | way to express who you are.

00:09:43.320 | You're giving to this organization instead of that one.

00:09:46.280 | And that's a really deep expression of your values and the things that are really important

00:09:49.680 | to you.

00:09:50.680 | And I think that most people find once they kind of get started with that, it feels so

00:09:54.160 | good that it's not that hard to keep going.

00:09:56.600 | Mike, that's really good advice.

00:09:58.480 | I really like that idea.

00:09:59.480 | Start with an amount that feels okay because that annual amount that you can give to someone

00:10:03.980 | is rather high at $17,000 per person in 2023, and it's only going to go up from here with

00:10:09.920 | inflation.

00:10:10.920 | So that might feel like too much for some folks, and reasonably so.

00:10:14.160 | So I really do like that idea.

00:10:15.760 | Start with something small and see how it feels.

00:10:17.320 | It's a great way to dip your toe into the water of gifting and giving.

00:10:20.680 | Yeah, absolutely.

00:10:21.680 | And Mike, you didn't spend too much time, I felt like, in this last book more than enough

00:10:26.240 | touching on what you mentioned just now.

00:10:28.080 | Hey, if you're going to inherit something from your parents, maybe you're already in

00:10:32.000 | your 60s, it doesn't make a big difference.

00:10:33.580 | But in your last book, After the Death of Your Spouse, I feel like you did spend some

00:10:37.060 | more time talking about that.

00:10:38.560 | And again, folks can check that episode out where we interview Mike on the subject in

00:10:43.840 | the Bogleheads live show, and I'll also link to that book in the show notes for our listeners.

00:10:48.920 | Mike, for those folks who may be looking at inheriting any amount from their parents,

00:10:54.320 | but they've already reached that state of financial independence, tell us what their

00:10:57.600 | options would be for leaving that money to a younger generation.

00:11:01.160 | Well, you can do this with anything, but retirement accounts is often where it comes up.

00:11:05.900 | You can disclaim an inheritance.

00:11:07.460 | So if you are the named beneficiary of something, you can basically say, "No, thank you," is

00:11:13.140 | what disclaiming means.

00:11:14.420 | A key point there is that if you disclaim an inheritance, you don't get to pick who

00:11:18.980 | it goes to next.

00:11:19.980 | It goes to basically whoever's automatically next in line.

00:11:22.880 | So if it's a IRA or 401(k) or something, then if you're the primary beneficiary, it'll go

00:11:27.980 | to whoever is the contingent beneficiary, the secondary beneficiary.

00:11:31.540 | That can be useful in certain cases.

00:11:34.500 | If it's, for instance, just a situation where you feel that somebody else should have inherited

00:11:39.060 | it, right?

00:11:40.060 | We're not talking about tax planning or anything like that, then that's an option, and then

00:11:43.300 | it'll go to them.

00:11:44.300 | But it can also be impactful from a tax planning point of view in some cases.

00:11:48.020 | For instance, if the person who is the primary beneficiary has a much higher tax rate than

00:11:53.380 | the contingent beneficiary, then the primary beneficiary could disclaim it, it goes to

00:11:57.380 | the contingent beneficiary who might be, you know, the grandkids rather than the kids.

00:12:00.820 | They might have a lower tax rate and they might be paying a lower tax rate on the distributions

00:12:04.120 | from the inherited IRA.

00:12:05.380 | Marc Thiessen: Mike, this question is from a user named Maneuvens with a plus one from

00:12:11.540 | Harry Livermore, who writes, "If I have more than enough, should I stop 401(k) and Roth/IRA

00:12:17.540 | contributions?"

00:12:19.180 | And more generally, the plus one from Harry just asks generally about contributing to

00:12:23.060 | tax advantage accounts, regardless of it Roth or traditional treatment.

00:12:27.660 | So if you've still got earned income and you can contribute to these accounts, almost for

00:12:30.980 | sure makes sense to continue contributing to Roth accounts, right?

00:12:34.860 | With Roth accounts, you basically, you just get tax-free growth, and there's not a lot

00:12:40.000 | of a downside.

00:12:41.100 | The only potential downside is the 10% penalty if you have to take it out early.

00:12:45.780 | But if we're talking about somebody who has more than enough assets, the likelihood that

00:12:49.820 | they need specifically these assets for spending prior to age 59 and a half is pretty limited.

00:12:55.380 | Very small likelihood.

00:12:56.380 | So Roth accounts, still definitely advantageous.

00:12:59.360 | There still could be something to be said for tax-deferred accounts instead, because

00:13:03.620 | they also get to grow tax-free.

00:13:06.060 | You earn the entire rate of return in a tax-deferred account, just like you do in a Roth account.

00:13:10.220 | The downside is you just have to pay tax when you take something out.

00:13:14.060 | So then we just get into the same questions we always talk about when we're talking about

00:13:17.340 | regular contributions to retirement accounts, is how does your tax rate right now compare

00:13:22.380 | to the tax rate that would likely be paid on these dollars later, whenever they come

00:13:25.980 | out of the account later?

00:13:27.100 | And if your tax rate right now is higher, then tax-deferred contributions likely make

00:13:30.820 | sense.

00:13:31.820 | And if the projected tax rate later is higher, then Roth contributions make sense.

00:13:35.800 | But in general, contributing to retirement accounts still absolutely makes sense for

00:13:39.700 | somebody in this more than enough set of circumstances.

00:13:42.740 | I certainly agree.

00:13:44.140 | I was working with someone on Tuesday, and they had access to a mega back-door Roth contribution

00:13:50.940 | feature in their Workplace Retirement Plan.

00:13:54.020 | And for those who aren't tax planning and investing nerds, just know that means, hey,

00:13:57.500 | we can get a lot of money into that Workplace Retirement Plan.

00:14:00.340 | Instead of that normal employee deferral of $22,500, we can get up to $66,000 into that

00:14:06.860 | thing.

00:14:07.860 | Much of that being in Roth dollars that grow tax-free.

00:14:10.740 | This gentleman was in the exact situation that we're talking about.

00:14:13.020 | He had more than enough.

00:14:14.020 | He had a giant plain and vanilla taxable account.

00:14:16.820 | So effectively, what we're doing by contributing to that workplace plan is we're just moving

00:14:20.260 | money from that plain and vanilla taxable account into that Roth account.

00:14:24.100 | So if the question is, hey, do I want growth that's going to be taxable every year, or

00:14:28.540 | do I want tax-free growth, that's going to be a relatively easy decision to answer.

00:14:33.100 | Exactly.

00:14:34.100 | Mike, this question is from username WatchNerd from the Bullheads Forums, who writes, "If

00:14:38.940 | I have more than enough, how much of my liquid net worth should I have in TIPS, which is

00:14:43.900 | Treasury Inflation Protected Securities?"

00:14:47.180 | That's an interesting question because there isn't one right answer.

00:14:51.020 | People who have spent time on vocal heads are almost certainly familiar with Bill Bernstein

00:14:54.420 | saying that if you've won the game, stop playing.

00:14:57.380 | And the idea there is that if you've reached the point, your financial assets could provide

00:15:01.100 | you with financial independence.

00:15:02.980 | But if a bad investment return outcome could remove that financial independence, then you

00:15:08.500 | don't want to be taking risk, basically.

00:15:10.300 | If you've won the game, but you would have the potential to lose the game if you then

00:15:13.980 | kept playing, you want to have a very safe portfolio, and TIPS and IBONs are probably

00:15:18.060 | the safest assets for that sort of plan.

00:15:20.980 | However, for somebody who has reached the point where even a series of bad years in

00:15:27.220 | the stock market and the bond market wouldn't really derail their plans, then basically

00:15:33.060 | anywhere on the risk spectrum could potentially make sense.

00:15:36.940 | They could say, "I don't need risk, so I'm going to have a very safe asset allocation."

00:15:41.380 | Again, TIPS and IBONs.

00:15:43.420 | Or they could do the opposite.

00:15:44.420 | They could say that, "I don't need risk, but my well-being is not at risk due to having

00:15:49.900 | a risky asset allocation.

00:15:51.540 | So I'm going to invest very heavily in stocks and then enjoy the higher expected returns,"

00:15:57.300 | with the idea that it's going to be more money left that we're most likely to heirs charity

00:16:02.020 | or what have you.

00:16:03.700 | For people in that set of circumstances, really anywhere on the asset allocation spectrum,

00:16:07.220 | either extreme or anywhere in between, can potentially make sense.

00:16:10.380 | Mike, your answer reminds me of what is now one of my favorite investing quotes, and this

00:16:15.700 | was from your last book, After the Death of Your Spouse, where you write, "There's no

00:16:19.980 | perfect portfolio.

00:16:21.460 | There's plenty of perfectly fine portfolios."

00:16:25.420 | Let's jump to some questions about some tools for retirement planning.

00:16:29.180 | Certainly important to be familiar with these tools if you're going to be a do-it-yourself

00:16:32.580 | investor.

00:16:33.580 | This question is from the user named Time Lord from the Bogladge Forums, who writes,

00:16:39.140 | "How much weight should I give to calculators like FireCalc in determining how much is enough?"

00:16:46.540 | So FireCalc, for anybody who hasn't used it, is based on historical returns.

00:16:49.980 | It basically lets you plug in a retirement spending plan.

00:16:53.220 | You could say, "I plan to spend this much per year and adjust it in this way, and these

00:16:57.420 | are my other sources of income, social security, et cetera, starting at such and such date."

00:17:01.420 | And then it basically says, "How would that plan have worked historically?"

00:17:05.700 | Personally, my preferred approach isn't the historical approach, although that's a philosophical

00:17:11.860 | thing.

00:17:12.860 | I'm not going to say that it's worse.

00:17:13.860 | My point of view is that if you're considering retiring right now, for instance, we have

00:17:17.540 | information right now about tips yields and about stock market valuation levels, which

00:17:24.260 | can provide us some guidance as far as what to expect.

00:17:26.900 | It's not as if you can predict exactly what you're going to get, because no, of course

00:17:29.740 | you can't.

00:17:30.740 | But if tips yields are pushing 2%, that's very different in terms of what you can expect

00:17:35.340 | from your portfolio than if tips yields are negative 0.5%.

00:17:39.260 | Those are meaningfully different situations in terms of what you can likely spend from

00:17:43.500 | the portfolio.

00:17:44.820 | And a historical approach is basically ignoring that information we have about what's applicable.

00:17:52.420 | That said, FireCalc, I still think it's useful.

00:17:54.980 | In general, I think tools like this are useful relative to the rules of thumb, the 4% rule,

00:18:01.700 | for instance.

00:18:02.700 | Because when we bring up the 4% rule, somebody's always going to say, "Oh, it should be 3%,"

00:18:06.060 | and somebody's going to say, "It should be 4.5%."

00:18:08.920 | So there's that question about it.

00:18:10.940 | And then there's the other question about the 4% rule concept as a spending strategy,

00:18:14.460 | where you just spend the same inflation-adjusted dollar amount, and you don't adjust based

00:18:18.040 | on portfolio performance.

00:18:19.700 | And maybe you should be adjusting based on portfolio performance.

00:18:22.660 | And that's another good question, too.

00:18:24.980 | But they have another limitation, these rules of thumb, in that they just can't account

00:18:30.220 | for the fact that your life outside of your portfolio changes from one year to the next.

00:18:35.660 | For a married couple, for instance, there's usually four big changes in their non-portfolio

00:18:41.420 | income.

00:18:42.420 | There's the day that spouse A retires, the day that spouse B retires, the day that spouse

00:18:45.900 | A's social security starts, and the day that spouse B's social security starts.

00:18:50.820 | And unless all four of those things happen on the same day, which I have never seen,

00:18:56.300 | then the spending rate from the portfolio is going to change dramatically from one year

00:18:59.620 | to the next.

00:19:00.620 | And so you can have this case where somebody's spending 7.5% this year, which if all you

00:19:05.660 | know is the 4% rule, you're going to look at it and think, "Oh my gosh, that's crazy."

00:19:09.540 | But maybe both people's social security kick in one, two, three years from now, and at

00:19:13.940 | that point it's going to fall to 1% or 2%.

00:19:16.420 | Well then that 7.5% spending rate's totally fine.

00:19:19.420 | That's just something that software can account for very easily, but 4% rule type rule of

00:19:23.900 | thumb just doesn't have any way to account for that very well.

00:19:27.940 | There was a couple I worked with recently, because of their modest spending, their social

00:19:32.540 | security income, and their pension income, they were going to be saving money once social

00:19:36.460 | security kicked on.

00:19:37.940 | So for them, that distribution rate beforehand didn't really have too much bearing on the

00:19:43.500 | success of their particular retirement plan.

00:19:45.900 | Yeah, exactly.

00:19:47.380 | There's another person who is a longtime reader of my blog who has talked about how she has

00:19:52.980 | a pension and social security, and they satisfy her basic needs.

00:19:56.780 | And so right when she retired, she intentionally planned on a spending rate in excess of 10%

00:20:03.220 | and used that.

00:20:04.220 | Because the goal was to not completely deplete it, still leave a bit of an emergency fund,

00:20:08.740 | but mostly deplete the savings during the first several years of retirement.

00:20:12.060 | That's what she wanted to do.

00:20:13.060 | That was the whole idea.

00:20:14.060 | So it made perfect sense, given the high level of very safe income that she would still have

00:20:18.620 | afterwards.

00:20:19.620 | Firecalc is one of many do-it-yourself retirement planning tools available.

00:20:24.660 | Rob Berger actually put out a nice blog post that talked about a lot of the different do-it-yourself

00:20:29.660 | retirement planning tools that are available.

00:20:31.740 | In his opinion, Empower and New Retirement were some of the best options out there.

00:20:36.900 | I'll link to that post in the show notes for our listeners that can check that out.

00:20:42.180 | And if you want to keep nerding out on do-it-yourself retirement planning, I'll also link to a few

00:20:46.580 | episodes of the Bogleheads live show where we tackled that topic.

00:20:51.100 | Most recently, in episode 41, we had Derek Tharp, who looked at a similar question, "What

00:20:56.180 | should I be considering in doing retirement planning myself?

00:20:59.260 | Should I be looking at something like the 4% rule, or should I be looking at Monte Carlo

00:21:03.300 | simulations?"

00:21:04.980 | We also interviewed Bill Behnken recently, creator of the 4% rule.

00:21:08.420 | I'll link to that episode.

00:21:10.020 | And then we also had Christine Benzon recently, and her study used Monte Carlo simulations

00:21:15.820 | to answer the question, "How much can I spend in retirement?"

00:21:19.420 | Again, I'll link to those in the show notes for folks who want to check those out.

00:21:24.580 | Let's talk some more about do-it-yourself retirement planning.

00:21:27.980 | This question is from a user named Travel for Fun from the Bogleheads forums, who writes,

00:21:32.860 | "Is 33 times enough to pull the trigger, regardless of one's age?"

00:21:38.820 | If their portfolio is 33 times their annual spending, is that enough to retire?

00:21:43.060 | Again, we're left with looking at these rules of thumb here, so limited usefulness, but

00:21:47.940 | I would say generally, yes, because we're talking about a 3% spending rate, which is

00:21:53.580 | pretty darn safe, especially because, just like we discussed a minute ago, at some point,

00:21:58.300 | there's probably going to be some other income kicking in, because if they're asking regardless

00:22:01.940 | of age, they're probably young, so they're probably before Social Security age.

00:22:06.100 | We're looking at a 3% spending rate, and then at some point, Social Security kicks in, and

00:22:09.580 | the spending rate might be even lower.

00:22:11.460 | I would say yes, probably.

00:22:13.200 | I'm always reluctant to make rules of thumb-based assertions, but I think it's probably a yes.

00:22:17.500 | Yeah, I'd certainly say it's quite reasonable, if you're going to ask me, "Hey, is that a

00:22:22.620 | good way to look at it?"

00:22:23.820 | It's reasonable.

00:22:24.820 | Now, nothing is guaranteed.

00:22:26.260 | That's why I always tell folks, especially those who are doing their own retirement planning,

00:22:30.340 | regardless of what metric or process or tool you use, you just want to look at it regularly.

00:22:35.460 | That's going to help give you the best odds of success.

00:22:38.220 | What you certainly don't want to do is look at it once, think you're okay, and never look

00:22:41.700 | at it again.

00:22:42.700 | Success comes from constantly reviewing and possibly updating your plan.

00:22:46.240 | Maybe that means spending a little bit less, if that's what it takes to keep you on track

00:22:50.500 | for a successful retirement.

00:22:52.100 | Yeah, absolutely.

00:22:53.340 | Updating is critical.

00:22:54.340 | The other thing I would add, the thing that would give me pause about that is just I would

00:22:58.500 | want to make really sure that that person is fully thinking about all of their expenses,

00:23:03.240 | because if there's a situation where they don't have all of the proper types of insurance

00:23:07.380 | coverage or something like that, it's a 3% spending rate, but you're still exposed to

00:23:11.460 | some other major risk, well, then it's maybe not as safe.

00:23:15.020 | As far as that spending rate, yes, 3% spending rate's pretty darn conservative, pretty darn

00:23:19.180 | safe, but you just still have to look at all of the other points of the financial picture

00:23:22.540 | and make sure that all of the other boxes are checked and so on.

00:23:25.020 | Yeah, absolutely.

00:23:26.020 | Some of those surprise expenses that I'm sure you're thinking of, Mike, is going to be long-term

00:23:30.700 | care, and depending upon how much 33X is relative to your spending and how much you have saved,

00:23:37.220 | that can make an argument for, "Hey, maybe you've got enough to self-fund for long-term

00:23:41.020 | care, or maybe you don't."

00:23:42.380 | That's to say, "Hey, if I've got a pension and Social Security, all else being equal,

00:23:48.500 | having that pension, that makes a little bit more of an argument for self-funding for long-term

00:23:52.380 | care compared to someone who doesn't."

00:23:54.980 | These rules of thumb, they're a great starting point, but then you want to look at your personal

00:23:57.780 | details to dig a little bit deeper, figure out what is the best answer for you beyond

00:24:02.060 | just that rule of thumb.

00:24:04.100 | Absolutely.

00:24:05.100 | This next question comes from username ThankYouJack from the Bogledge Forums, who writes, "For

00:24:10.020 | those with more than enough, how do you recommend overcoming the fear of running out of money?"

00:24:15.740 | I talk about this in the book, and to some extent, some level of fear and nervousness

00:24:23.300 | is just the reality, right?

00:24:25.420 | There's a lot that's outside of our control.

00:24:27.120 | We don't control what tax legislation gets passed.

00:24:29.560 | We don't control investment returns.

00:24:31.820 | We don't control how long we live.

00:24:33.100 | We don't control what our medical costs will be.

00:24:35.180 | There's a lot that we can't control, and so some level of nervousness or anxiety makes

00:24:41.220 | sense, especially if you're just a person who is prone to nervousness and anxiety.

00:24:45.300 | However, I do think that there are some circumstances, and if people can identify this for themselves,

00:24:53.780 | they can see that they are completely set financially.

00:24:58.640 | They have functionally no meaningful level of risk to their well-being from their financial

00:25:04.240 | side of their life.

00:25:05.620 | If they can see that and they understand that from a left-brain point of view, but they

00:25:09.960 | still are also regularly experiencing fear and anxiety, I think mental health care is

00:25:16.560 | a useful thing because mental health care, anxiety, and depression are basically the

00:25:22.260 | tax planning and asset allocation to a financial planner.

00:25:24.480 | It's the things that they deal with all the time, a mental health care professional.

00:25:28.400 | The idea that financial anxiety is just another form of anxiety, this is something that somebody

00:25:33.400 | can help you with, and a lot of people think that's crazy to be talking about that because

00:25:36.720 | I talk about this in the book, at least briefly I mention it.

00:25:40.260 | People are surprised to hear mental health care come up in a financial planning context,

00:25:44.200 | but if you really do recognize that that's the situation you're in, you don't really

00:25:47.520 | have a financial risk but you're still feeling severe anxiety about it on a regular basis,

00:25:53.800 | meeting with a mental health care professional is a great idea.

00:25:56.280 | It's a very low risk proposition.

00:25:57.720 | For some reason, people think it's a big scary thing, but you're just going to sit down and

00:26:01.280 | talk to a person for an hour.

00:26:03.240 | Worst case scenario is you wasted an hour and whatever the payment for one session was,

00:26:06.960 | which is probably not a huge amount, and this person's being paid to care for you and treat

00:26:12.640 | you respectfully.

00:26:13.640 | So it's not like it's going to be the worst hour of your life.

00:26:16.080 | It's going to be fine.

00:26:17.080 | That's the reality.

00:26:18.080 | Can't say for sure that it's going to necessarily help you, but it's likely to.

00:26:21.840 | And it's a very low risk thing to try.

00:26:23.800 | I went to mental health care immediately because that's what a lot of people wanted to talk

00:26:28.040 | about because that's the thing in the book.

00:26:29.520 | But a financial professional could be a great idea.

00:26:32.120 | The thing that people often ask me as a CPA is, do I have enough money to retire?

00:26:36.680 | And sometimes it's a close call and there's a lot of discussion and some difficult decisions

00:26:40.480 | to be made.

00:26:41.480 | But there's lots of times where the answer is they clearly could have retired several

00:26:46.120 | years ago and they just mentally and emotionally weren't comfortable with it yet.

00:26:51.320 | Even though based purely on the numbers, there's no doubt about it.

00:26:54.680 | And having an outside party just say, yes, you're fine, you're going to be fine, was

00:27:00.440 | really what they wanted.

00:27:01.800 | That's all they needed.

00:27:02.800 | And hearing that made a big difference for them.

00:27:05.000 | For those folks who don't have more income than they're spending, I'm going to say something

00:27:10.080 | really boring, and that is tracking your spending.

00:27:13.600 | That can help you with that retirement plan exercise.

00:27:16.040 | If you're concerned about running out of money, then take a look at where your money is going,

00:27:20.480 | figure out what part is discretionary versus not.

00:27:24.000 | If you do that exercise and you find that you have a big chunk of discretionary spending,

00:27:27.880 | that should let you know that you've got a lot of flexibility, you've got a lot of breathing

00:27:31.720 | room if things don't work out according to plan.

00:27:34.520 | Yeah, that's a great point.

00:27:36.200 | Absolutely.

00:27:37.200 | Discretionary versus non-discretionary.

00:27:38.200 | Splitting that up will let you know.

00:27:39.480 | Yeah, tracking your spending can be pretty boring, but it can be a pretty important part

00:27:43.580 | of the financial planning process.

00:27:45.320 | Absolutely.

00:27:46.320 | In our own household, we've never budgeted ever, but we've always tracked our spending.

00:27:49.920 | That's all we've needed to do, is track the spending, make sure that it's in line with

00:27:54.340 | our priorities, make sure that it's in line relative to our income and other resources

00:27:58.760 | and so on.

00:27:59.760 | And that works.

00:28:00.760 | Tracking spending is critical.

00:28:02.080 | Mike, this question comes from a user named JockDoc from the Bull Guys forums, who writes,

00:28:07.680 | if I name a charity as a beneficiary of an IRA, does the brokerage notify the charity

00:28:12.440 | after I pass, or is this something that the executor would have to do?

00:28:16.880 | How does Mr. Piper recommend that we proceed given our goals?

00:28:20.920 | The brokerage will notify the charity once the brokerage knows about the death.

00:28:27.240 | So it's going to be the personal representative of the estate, so the executor or the administrator,

00:28:32.520 | depending on context.

00:28:33.680 | It's going to be that person's job to notify the brokerage firm to let them know that the

00:28:36.600 | original owner of the account has died.

00:28:38.780 | But then from that point, the brokerage firm will take over having the assets transferred

00:28:43.660 | to the appropriate beneficiary or beneficiaries.

00:28:47.300 | And Mike, for those folks who aren't estate planning nerds, tell us what a executor or

00:28:50.940 | administrator is.

00:28:52.620 | So an executor is the person you name in your will to administer the estate.

00:28:57.260 | So they're going to have the job of basically collecting all of the deceased person's assets,

00:29:03.300 | satisfying any outstanding debt, and then distributing the assets appropriately to the

00:29:08.020 | appropriate beneficiaries.

00:29:09.500 | That's largely this person's job.

00:29:11.620 | And executor is when you name that person in the will, and then they agree to take on

00:29:14.580 | that job because they don't have to, it's optional.

00:29:17.100 | If a person is not named in the will, because usually that would be the case that a person

00:29:21.340 | dies without having a will, then the court will appoint somebody, and that person can

00:29:25.580 | be known as an administrator, and they have the exact same responsibilities, basically.

00:29:30.620 | Collectively, those two terms, executor or administrator, are often known as the personal

00:29:35.900 | representative.

00:29:36.900 | So the personal representative of the estate is the person winding up the estate, basically

00:29:40.660 | managing the estate.

00:29:41.660 | Marc Thiessen >> And as mentioned, Mike does a great job on talking about estate planning

00:29:45.740 | in his previous book, After the Death of Your Spouse.

00:29:48.100 | Again, that'll be in the show notes for folks who want to check that out.

00:29:51.780 | This question comes from username JBTX from the Boglads Forums, who writes, "How do you

00:29:55.420 | determine with some degree of confidence, if you have enough, how much you may need

00:29:59.900 | to have enough when you have special needs or disabled kids or children who may need

00:30:04.500 | additional help throughout their lives, or perhaps parents that could need financial

00:30:08.140 | help as well?"

00:30:09.140 | Mike Mead >> Again, this is one of those cases where the rules of thumb, four percent or

00:30:12.740 | three and a half or whatever we decide is, you know, the quote, right number, is of limited

00:30:16.700 | usefulness, because those rules of thumb typically assume we're talking about 30 years of spending,

00:30:22.020 | for instance, and a flat amount of spending, whereas here we're talking about a very extended

00:30:26.900 | term as well as a changing amount of spending, right?

00:30:30.180 | Because we're talking about the person's own retirement spending, as well as the needs

00:30:33.940 | of their child or their parents.

00:30:36.220 | And then, you know, at some point, if it's the parents, then that spending won't be relevant,

00:30:40.260 | or the person's own retirement spending won't be relevant at some point, and it'll just

00:30:43.420 | be the kid's spending.

00:30:44.420 | So those rules of thumb have limited usefulness here.

00:30:47.420 | So again, software is a great way to do it.

00:30:50.820 | If you want a kind of quick and dirty DIY approach in a spreadsheet, what you can do

00:30:55.540 | is calculate what's called your funded ratio.

00:30:59.220 | Basically what you would do is column A of the spreadsheet is all the years going forward

00:31:02.820 | 2023, 2024, et cetera.

00:31:05.380 | Column B would be all of your projected expenses that you want to make sure to cover, and column

00:31:09.860 | C is all of your expected income, excluding income from the portfolio.

00:31:14.500 | So we're just talking social security, pension if applicable, or any further work income

00:31:18.900 | that you expect to have, and we're excluding interest and dividends.

00:31:23.140 | And then you have Excel calculate the present value of column B, present value of all of

00:31:28.060 | the expenses, and then you have it calculate the present value of column C, so that's the

00:31:32.020 | present value of all of your projected income.

00:31:34.820 | And then you add your current portfolio value to the present value of your income, and then

00:31:40.260 | you divide that sum by the present value of your expenses.

00:31:43.300 | And the idea here is all we're calculating is we're seeing, do all of my resources, portfolio

00:31:48.340 | plus projected future income, how does that compare to all of my future expenses?

00:31:54.500 | After accounting for the fact that a dollar today is worth more than a dollar in the future.

00:31:59.060 | If that funded ratio, that quotient that we just calculated, is one or more, the idea

00:32:04.420 | is that you're good to go.

00:32:06.700 | If it's less than one, the idea is that you need to make some changes.

00:32:10.540 | The way that you can simply adjust for different retirement assumptions is just by plugging

00:32:14.840 | in different amounts in that future income as far as what year you expect your work income

00:32:19.020 | to stop.

00:32:20.020 | And that's a quick and dirty sort of analysis that you can do in a spreadsheet on your own.

00:32:23.580 | It's of course based on various assumptions and so on, but it does account for the fact

00:32:27.300 | you can make it look as far into the future as you want and you can account for all the

00:32:30.300 | different changing levels of income and expenses over time.

00:32:33.860 | One person I work with recently asked how much they should set aside for long term care

00:32:38.920 | for their parents.

00:32:39.920 | That is a very difficult question to answer because depending upon life expectancy, that

00:32:44.720 | could be over a million dollars.

00:32:48.020 | Another person I worked with recently, their parent needed memory care, and that was $12,000

00:32:55.100 | a month.

00:32:56.540 | How long could that person who needed memory care, a person with dementia, cognitive impairment,

00:33:00.780 | live for?

00:33:01.780 | Well, recently I had on Cameron Huddleston, who wrote the book, How to Talk to Your Parents

00:33:06.700 | About Their Finances, her mom, who was diagnosed with Alzheimer's relatively earlier, mid-60s,

00:33:14.300 | she lived for more than a dozen years.

00:33:16.700 | So that would be a dozen years paying $12,000 a month for memory care.

00:33:23.420 | That could be huge.

00:33:24.420 | Now, that's a little bit of an outlier case.

00:33:27.100 | Most folks with dementia don't normally live that long, but they could.

00:33:29.780 | So answering that question can be quite difficult.

00:33:32.380 | Mike, I'm curious, what's your approach when answering this long-term care insurance question,

00:33:38.100 | whether folks should buy it for themselves or not?

00:33:40.700 | What considerations should they be making in the decision to make that purchase?

00:33:45.140 | I'm looking at generally the same things that most people are looking at.

00:33:48.860 | What is the typical cost where this person lives?

00:33:51.940 | We want to try to get a ballpark of that.

00:33:53.920 | So that's cost per year.

00:33:55.600 | Then we can make some assumptions about how long might it last, the need for care, although

00:34:00.180 | just like you said, there are outlier cases for sure.

00:34:03.820 | And then we want to be trying to figure out how easily could they just swallow that cost,

00:34:09.340 | basically.

00:34:10.340 | If they could do that, then there's not such a need for insurance.

00:34:13.920 | If they absolutely cannot do that, then insurance is likely to come into play.

00:34:18.580 | And then there's also a different level of assets where instead of buying insurance because

00:34:22.920 | they probably can't even afford the insurance very well, then that's when you're relying

00:34:27.100 | on Medicaid.

00:34:28.100 | Even if that's not the outcome that you want, sometimes that's still the best bet to make

00:34:32.440 | if buying the long-term care insurance is going to make it so that the other goals basically

00:34:36.780 | just won't be met.

00:34:38.100 | Well, then that's the reality we're going to be relying on Medicaid.

00:34:41.440 | One thing that can be useful to make sure to incorporate in that analysis is if you're

00:34:45.340 | looking at long-term care, in many cases, it's not this care cost on top of all of your

00:34:49.780 | normal expenses.

00:34:50.780 | All right, if you're looking at your early retirement expenses, for instance, they probably

00:34:55.740 | include some travel and so on.

00:34:57.340 | And if you're in an assisted living facility or some other sort of care facility, you're

00:35:01.520 | not going to be spending money on travel.

00:35:03.460 | Also, facilities like that are going to be covering your food costs and so on.

00:35:07.460 | You don't just want to be thinking, "Oh, it's this cost plus all of my normal spend."

00:35:10.860 | You want to be also putting some critical thought into, "How are my other expenses

00:35:14.780 | going to change as well in that sort of a situation?"

00:35:18.800 | And that wraps up our interview with Mike Piper.

00:35:21.980 | Don't forget, you've got until the end of the month to take advantage of that early

00:35:25.280 | bird special for the 2023 Bogleheads Conference.

00:35:28.640 | Save yourself $100 register before the end of the month.

00:35:32.040 | That's going to be boglecenter.net/2023conference.

00:35:33.480 | I'll be back next month returning as guest host for the Bogleheads on Investing podcast.

00:35:41.760 | Until then, you can check out a wealth of information for do-it-yourself investors at

00:35:46.120 | the John C. Bogle Center for Financial Literacy at boglecenter.net.

00:35:50.640 | And check out bogleheads.org, the Bogleheads Twitter, Bogleheads Wiki, the Bogleheads YouTube

00:35:56.120 | channel, Bogleheads Facebook, Bogleheads Reddit, the John C. Bogle Center for Financial Literacy

00:36:01.900 | on LinkedIn, and local and virtual chapters.

00:36:06.240 | For our listeners, if you could please take a moment to subscribe and to rate the podcast

00:36:10.320 | on Apple, Spotify, or wherever you get your podcasts, and also please be sure to leave

00:36:16.400 | a review.

00:36:17.400 | The more folks who do that, the more folks will find this resource for do-it-yourself

00:36:22.000 | investors.

00:36:23.000 | Thank you for checking out this episode of the Bogleheads on Investing podcast.

00:36:26.680 | I'll return next month with another one.

00:36:28.960 | Until next month, have a great one.

00:36:31.520 | [Music]

00:36:38.520 | (upbeat music)

Bogleheads® on Investing Podcast 058: Mike Piper on “More than Enough,” host Jon Luskin

Chapters