RAIRA-Show-EDU-Y24E28

The Retirement and IRA show hosts provide insights but not financial advice. They discuss various financial topics like IRAs, 401ks, and annuities. The hosts emphasize the importance of consulting professionals before making financial decisions. Despite a change in plans due to an unexpected event, they continue their discussion on retirement planning strategies and question the traditional probability-based approach. The hosts share personal experiences to highlight the significance of preparing for unexpected circumstances in retirement planning. The retirement and IRA show represents the words and views of the show hosts exclusively and should not be construed as investment, legal or tax advice. All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy. All economic and performance information is historical in nature and is not indicative of any future results. Any indices mentioned on the show are unmanaged and cannot be invested indirectly. Diversification and asset allocation strategies do not assure profit or protect against loss. Never make any investment or financial decisions based on information offered on this show without first consulting your financial, legal or tax advisor. Financial planning services offered through Jim Saulnier and Associates LLC, a registered investment advisor. This is the retirement and IRA show coming to you from beautiful Northern Colorado. Join us as certified financial planner Jim Saulnier as well as Colorado State University finance instructor and certified financial planner Chris Stein teach you about IRAs, 401ks, annuities, social security, pension plans, and estate planning in a fun and enjoyable show. Whether you are listening live in Colorado or streaming from their website or iTunes podcast, Jim and Chris want you to know that they're available to help you plan for your retirement. Just visit their website at jimhealth.com, that's jimhealth.com and click the meet the team button on the homepage. And now here's Jim and Chris with today's show. Well hello and welcome to the retirement and IRA show, EDU edition for this week. On today's show we had big plans to pick up with where we left off at the end of May before National Annuity Awareness Month and continue our kind of a how we do it or the why of what we do and how we do it kind of series that we are revisiting after doing it about three years ago or so. But as Jim will share with us to some extent or another, he had the other guy episode today. So he's fine physically and I think mentally, but he had an event that kind of derailed our plans a little bit. So what we're going to do today is actually investigate something we called out to our listeners, if you all recall back in May and we solicited input on how we might describe our approach, philosophy and exactly what we're all about in 10 minutes or less instead of the, I don't know, 7, 10, 12 part series that we're doing that goes into the nitty gritty details of the whole thing. And we wanted to see what people would put together if they felt they understood our process and approach well enough and we've gotten several submissions and we're going to talk about at least one of those submissions today. So it'll still be in the spirit of what we've been talking about now that we're exiting National Annuity Awareness Month and getting back on track with, you know, the why and how of what we do in the retirement planning area at our firm and what we share with people all the time on the podcast. So, Jim, I'm glad your other guy episode still allowed you to join me on the podcast today because we all would have missed you dearly. Yeah, I'm sure. But it's good to be here, folks, here being I don't think we even announced because it's kind of a last minute decision. I actually flew home to Massachusetts, so I'm broadcasting remotely from today. Right now I'm at my sister's place. My mom and sister live right next door to each other and I'm broadcasting from her place. But this was not going to be the topic today that I wanted to talk about. I was going to listen to the last podcast episode that we did before National Annuity Awareness Month and pick up with our process. That was my intent. I was also supposed to meet today with all our employees and have our Tuesday office meeting. And we also had another meeting, Chris, you'll know, scheduled for 10 a.m. All of that came to a grinding halt when yours truly was involved in an automobile accident. So that's what I mean by the quote unquote other guy. We talk about this a lot, not auto accidents, folks, but we talk about how life changes very, very quickly. I've shared openly with everybody here about the massive stroke that I suffered due to AIDB three years ago. And we've mentioned other issues that we have seen firsthand in our practice. And sadly, people we work with share with us their experiences where they're considered to be the quote unquote other guy. But I also shared with you very openly as we talk about our approach to retirement planning, not just how we do it, but the why. And I told you that I spent an entire career, if you will, eight years of a career, if eight years is an entire career, working as a police officer and really running into the other guy every day that I was working. And when I was evaluating financial planning, when I first got into the industry 25 years ago now, and I was trying to find myself and figure out what I was going to do, I didn't even know at the time that I was going to do retirement planning solely. It took a business consultant to show me the light, if you will, that I had this passion for retirement planning. Before any of that happened, I was questioning almost from day one, why do we do retirement planning the way we do? I would ask the instructors at Boston University who were teaching me financial planning. I would ask people in the office when I was working for several firms before I started my own firm, why, why, why do we do this? Why do we do it that way? And I always questioned, if you will, the rationale behind a probability statistic. And no one could give me, Chris, and maybe you can shed some light because I didn't even know when you teach your students, those who don't know, Chris is the director of the financial planning program at Colorado State University. And I don't know, maybe you can enlighten our listeners, if you delve deep, or is it part of the courses that the CFP board mandates you cover when you review with your students to make them eligible to sit for the CFP exam? Do you cover Monte Carlo, do you cover probability statistics? And if so, is there an industry standard or a Chris Stein CSU standard of what a reasonable probability is? But when I was being taught, folks, and I was being told from the companies that I worked for two different firms, one national, one independent, for about 14, 15 months each before starting my own firm, nobody at the national firm or even the small local firm could answer what a reasonable probability to project was. And no one could also answer when I would say to them, well, what happens if our clients are that 5, 8, 10, 12, 15, 20% failure? You talk about the 70, 75, 80, 85, 90% success. What about the failure? And I've shared with you that maybe my exposure as a police officer, where I bumped into the other guy every single day I was working, got me to concentrate more on the failure rather than the seemingly large success number. And the type of personality that I have never, it never impressed me to hear, oh, the client has an 80% chance of success or an 85% or a 90% because I would always sit there and say, well, what about the 20% or the 12% or the 15% or the 5%? Someone is going to be that person. And I was that person today. Fortunately, I'm not quite sure my mom's car is going to come out of this okay. I think it may be total, although the tow truck driver feels it may not. But I was the other guy and the other guy for the worse. I was in an accident, sadly, an at fault accident. I did not see this car at all. I don't know where the hell it came from. And as I proceeded through a stop sign, which the police officer can see that I stopped, but I did not proceed in a safe manner because there was a car there that I just didn't see. And I have been questioning myself repeatedly, how the hell can I see this damn car? And caused an accident and young driver, I think he was 16, 17, 18, he didn't seem very old at all, shook up, but did not seem injured. But this car was definitely total. That's the other guy. Why we always preach on the show about the other guy, and it led me to adopt and come up with what I feel is a superior approach to retirement planning. Now I'm biased, I concede. And Chris and I freely admit to anybody listening to this podcast, ours is but one way to project retirement. We're not saying it's the only way we're not saying it's the best way. You're going to project your retirement whichever way you feel appropriate. I just always questioned a probability approach to retirement planning, because I would sit there and simply think to myself, in these terms, would I go to a doctor for an operation if he or she only had 80 85% success rate? If the remaining 15 or 20% of their patients died? Would I not try to find a better procedure or a better physician with better odds? Yet my industry approaches retirement planning and many people approach it with, oh, my God, I've got a 70 75 80 88% chance of success, this is a no brainer, I'll be fine. And I think it's because humans are wired to think that bad crap is going to happen to someone else. Well, today going out for a damn Dunkin Donuts iced coffee before my morning 10 o'clock meeting mountain time, that's noon for me, I just thought, hey, I'm not going to be meeting my staff until noon, Eastern Time, I'm going to go get a Dunkin Donuts coffee. It's what you do in Massachusetts, you don't go to Starbucks, folks. In Mass, you go to D&D. And now it's just D, Dunkin, they got rid of the donut. And I'm going to go get me an iced coffee 6.6 miles from my mom's home. I was one mile away from my return trip, and boom, I don't want to say life ended, but the other guy came to me. And when we talk about the other guy in retirement, it could be a good other guy in that you have longevity and live much longer than average life expectancy, or it could be a bad other guy, something can happen to you. And you will be left with a life of regret that you didn't spend on fun when you could. My dad affectionately called those people Debbie Downers, and I've shared that with you. So, yes, I experienced the other guy today. And I told Chris, hey, I haven't had a chance. He didn't know that I had this accident. I could only call Steph real quickly after the accident to tell them to cancel our meetings and reschedule that I was in an accident. But it means I didn't have a chance to go listen to the podcast and pick up where we left off, but I also felt now is a chance for us to maybe chat a little bit about this other guy phenomenon, if you will. And why I passionately believe in trying to fund your retirement through the fund number approach and not a probability statistic approach. So, Chris, with that in mind, what do you do or does the CFP board require a discussion of Monte Carlo? And if so, how does you at CSU approach it? Or does the CFP board not even want to go down this this hornet's nest of what ifs and do they ignore it? What did they do with Monte Carlo? I will have to admit that I don't recall if Monte Carlo is an expressly listed what's called PKT, which are the primary knowledge topics that are required by CFP board registered programs. Those are the programs that the CFP board has judged teach the content that they expect a educational program to teach in order to qualify you to sit for the CFP exam. The program we have at Colorado State University is such a board registered program, and they review our program periodically to make sure that we are teaching those PKTs. It's a long list, and I don't I don't believe that they expressly call out Monte Carlo. It's probably it's embedded, I believe, in a more broader, more broad topic requirement. As far as what we do, it certainly comes up because in a couple of the the different textbooks that are used in the financial planning classes, as well as some of the software programs like the E-Money's, Money Guide Pro, et cetera, that we we take a look at. And, you know, it's a part of those. So our discussions in the educational program are really about what is it really telling us? What does it mean? How do you use that to describe to a potential client the robustness, if you will, of their situation, their financial situation? And we assign to them readings mostly from I like how Michael Kitsis addresses the Monte Carlo interpretation, if you will. And it really boils down to kind of unlike in the early days of Monte Carlo, where you were really questioning what happens in the you know, if you have a ninety five percent chance of, quote, success, what happens in the other five percent? But you also recognize that and you mentioned it all the time here, people don't intentionally fly the plane into the ground. So when they see that their own trajectory heading to, quote, failure, they don't just say, oh, well, you know, we set this plan in place 20 years ago. We're just going to stick to it. That's not how people behave. So what a lot of people who are kind of thought leaders in financial planning have essentially evolved to is using Monte Carlo simulation percentage results as a way of indicating what's the likelihood that you're going to have to adapt or change your plans that a ninety five percent success rate is actually quite high, meaning there's about a five percent chance that something's going to happen and you're going to find yourself on a path you don't like and you're going to have to alter your plans from what you initially thought, which means that this is kind of evolving into, I guess, broader Monte Carlo discussion. But Michael Kitsis even posits that what if, you know, is a 70 percent success rate and necessarily bad for a retirement plan, all that it's essentially stating is that there's a 30 percent chance that you're going to have to alter your plans, that something's going to come up and you'll have to change gears, if you will, as long as you're, quote, willing to do that, then maybe you have a viable plan, a 70 percent success rate indicated by a Monte Carlo. That's just which brings us to the whole discussion, are you able? To cut exactly your minimum dignity floor expenses to a level, and that's where I disagree passionately, vehemently, unquestionably with the Monte Carlo approach. It is difficult to cut food, utilities, transportation, housing and health care expenses. Can they be cut? I say they can be massaged, not necessarily cut because cut is permanent, as in eliminated. You can't eliminate those five very broad categories of expenses. You can massage them, but you can't eliminate them. And most people don't strive to leave the older them living a lifestyle that the younger them were not planning on the older them living. And it's why I believe in covering those expenses with lifetime guaranteed secure income. Which would make it easier if things don't go as planned, at least your minimum dignity floor to a very strong degree will be protected and covered. So anyways, because the other guy came and visited me today and again, the other guy can be good and it can be bad. This was a bad other guy. But in the realm of retirement planning, a good other guy can still be a bad other guy. A good other guy is you live a very long and prosperous, relatively healthy life until the very end. But you live longer than your life expectancy. That's a good other guy. You're still alive. But it could also be a bad other guy. But it could also be a bad other guy. You could. And I agree with Chris, because we always point this out. Few people, especially people who are listening to this podcast, I'm not saying few people in the American general public as a whole, but few people who listen to this podcast will truly get to the point where they have nothing left. But we did receive an email question that I do want to address, not today, but at some point by someone pointing out to us that 40 percent of U.S. retirees, I didn't vet the statistic, but it seems reasonable, live on just Social Security. And that often fails to cover their retirement. And do we have any recommendations for people like that? So I do want to address that email. I don't think many people who are listening to this podcast will fall into that category where you will truly run out of money. But I think many people listening to this podcast could fall victim to having to make some very difficult changes in their spending later in retirement. And it could be difficult spending that the older you is not going to appreciate or want to do. So let's keep that in mind when Chris and I talk about Monte Carlo and our distrust or dislike of it. It's not that we feel someone will truly just, as Chris said, ride that plane into the ground. We don't see that happening. And many in our industry say, hey, most people won't outlive their assets because they won't let it happen. They are going to make major changes. And that is what the probability statistic of Monte Carlo is addressing. What is your probability that you may have to make a major change? My point is, even with a low probability, it's got to happen to someone. Most accidents happen within a few miles of your home. We've all heard that statistic. It happened to me today, first time in 60 years. It happens. My chance of a stroke, I was told, was less than one percent. My chance of a full recovery was less than half a percent. I experienced both. I don't even know what the odds of that are, where I have a stroke at a young age and fully recover, a massive stroke that I had, not a light stroke. It was a serious one. So someone has to be that other guy. And it's part of the reason we created our approach. I'm just trying to eliminate the other guy syndrome, but also encourage you. We personally, Chris, and I think you would agree, most people listening to our podcasts, it's not that they will experience the risk of outliving their assets. They will experience almost the opposite, but a fear to do what? I know I'm throwing you under the bus here, but a fear to do what? Where do you think I'm going with that? That most people listening to this podcast, especially when it comes to fun, they have a fear to do what, Chris? Well, I would assume you're talking about the fear of spending their own money to later find out that they wish they hadn't because they didn't expect something, something surprised them, things were worse than they expected, basically kind of a proactive regret, I'll call it, where they hold themselves back because they don't want to regret having spent money, what in their minds they see as frivolously on things like fun. Well, they just can't. Before coming to Massachusetts, folks, I stopped in Ohio and went on a hike. You all know I'm considering moving to northern Kentucky, southern Ohio. And when you're leaving Denver and flying to Providence, it's easier for me to fly into Providence than Boston. I'm going to go right past Ohio. So I stopped in Cincinnati for a day and a half and went on a hike. And on that hike, I was chatting with a gentleman who shared with me that he has, I can't remember if it was 2.3 or 2.8 million. I can't remember. When he found out I was a retirement plan, and he was asking me some annuity questions and my thoughts on him annuitizing some of his money, approximately $300,000. And he thought it would help to placate his wife, who has a fear of retirement, but also help him a little. He has no idea about our approach and anything like that. He's not a podcast listener. And he was just explaining to me that he's been retired for several years and he can't bring himself to spend money. He just can't do it. And he feels he's missing out. And that he probably could be spending more. Obviously, I didn't have enough time on a hike to bore the hell out of this man, start telling about our entire process. I supported his decision to annuitize a little and told him the bottomless cup of coffee analogy, and it may help him feel more comfortable. But I think most of you listening to this podcast are going to be in his boat, not the boat of the other email we received pointing out that 40% allegedly of U.S. retirees live on just Social Security and have a very, not a risk of running out. They have nothing else. They just have Social Security, like the woman I bought strawberries for 30 plus years ago. So the other guy syndrome can also impact this particular person I was hiking with, in the sense he runs the risk of becoming a Debbie Downer, something happens to him, could be an accident that could have been very serious injuries at this accident. Could have been very serious injuries at this accident, the other car flipped over. The person driving that car walked away, I walked away. It could have ended a lot worse than it did, seems that just two cars got injured, not two people. But it happened in a split second. And failure to spend money while you can, while we often say have the health, inclination, desire and ability. Failure to spend on fun and truly enjoy yourself on some misguided notion that you can't watch your portfolio drop. This gentleman on the hike admitted this is totally irrational. But he shared with me, he spent his entire career growing this wealth, he's loathe to spend it, he doesn't want to see it drop. And it makes no sense, I told him, you've got to stop looking at this and calling this what it is, don't call it an asset, call it what, Chris? Delayed spending. Delayed or deferred spending, absolutely. And I said, if you don't trust me, excuse me, believe me, I gave him the old, give a thousand dollars of it away to someone and tell me what they do with it. They will spend it. And if you don't spend it, someone else will. And that will be your uncle or your human beneficiaries or a charitable beneficiary. They are going to spend what you consider to be an asset. They are not going to idolize it. They are not going to preserve it and count it and watch it grow. They are going to consume it and spend it. And that's a difficult concept for many of you to convince yourself to do. And it's part of the reason we've created our approach to retirement planning, because it's designed to help you feel comfortable knowing these are the dollars I can truly spend on fun. This gentleman I spoke to again, I can't remember if he had 2.3 or 2.8, between his Social Security and his annuitization, he said it will cover a good chunk of his expenses. I didn't get into minimum dignity, I didn't get into any of that. You can't on a hike. And it was towards the latter half of the hike. I knew there just wasn't enough time. Plus, I just didn't feel like getting into it. But his thought process on wanting to consider this annuity was to help him feel comfortable spending his money if he knew it was just there and always coming. He liked the analogy of a bottomless cup of coffee that I shared with him. So our approach to retirement planning is to help that person or you as current listeners as you crunch your own numbers and try to do this out of the 2 point something million he had, 2.3 or 2.8. How much of it can truly be spent on fun? That's the concept of the see-through portfolio. He just kept seeing his money as one big pool of money, one accumulation asset that he was loathe to see drop for the last several years of his retirement. And he's only in his early to mid 60s. He's got plenty of life to live, he's a much stronger hiker than me. Seems plenty to live and do, trying to get himself used to spending money. So that's kind of our approach and why we believe in our approach. And why we're doing this today on the other guy and instead of picking up where we left off. But I did send you the email. Let's jump into this email because she does a good job, not an excellent job, but a good job. Actually, I give a better than good. She does a good B plus to A minus on our method. She gave a bulleted point description. This is, remember, we got an email from someone asking me to try to summarize our approach to 10 minutes or less, to which Chris laughed and probably most of you laugh too if you long time listen to this podcast. Takes me sometimes 10 minutes just to say hello. I certainly can't describe my approach in 10 minutes, but several people have tried. So Chris is going to kind of go through the bullet points because then she gets into them a little bit deeper. And I'll start reading her email at that point. And Chris and I are just going to share our thoughts on some of what she wrote of our approach. But this whole background leading up to it is, again, get you guys to understand and remember if you're listening to us, especially on a regular basis, or if you're a new listener. You're going to want to believe if you want to try to project your retirement in the way that we do it or believe in what we believe, it's to help you feel comfortable spending your money while you can on fun, because at any moment, the bad other guy can come visit you. And if it doesn't kill you outright or your spouse outright, it could impact you to a manner where you cannot spend on fun and do the things you enjoy or have enjoyed for the first 50, 60, 70 years of your life, and then all of a sudden they're over. My dad called them Debbie Downers when he used to stay at the, I don't want to say retirement, retirees, but it wasn't assisted living, they were all living independently, but a little home full of retirees, that the Debbie Downers were the people who had money, but could no longer spend it on fun. And their life was full of regrets. And they were just miserable to be around because they did nothing but obsess over what they should have, should have, would have, could have, as we like to say. OK, Chris, why don't you begin with this list? I believe she's from New Mexico, but begin with her bullet point summary because you can get through this. She does a good job. I think you can get through in less than 10 minutes. Well, the bullet point list, to her credit, she essentially gave us a 30 second version in the bullet points. And then her longer write up, I think, still would fit in 10 minutes easily, where she kind of expands on it. But I like this. It's 10 bullet points that I guess I'm not going to time it, but I suspect I'll easily be able to read through this in 30 seconds or less. And this pretty much sums things up. It obviously is devoid of details of how to accomplish each of these steps, but kind of brings it together. So the 10 steps are these. First, identify the amount of spendable assets likely at retirement. Second, come up with your minimum dignity floor. So those required expenses of, in our world, food, utilities, transportation, housing and health care. Calculate or estimate your secure income. Figure out your delay period shortfall and set aside those dollars, essentially seeing how much shortfall do you have of covering that minimum dignity floor. It's my embellishment to that. During that delay period, figure out the minimum dignity floor shortfall after your secure income is turned on. And when that happens, discount those dollars needed for that future shortfall and set those aside. The post-delay period funding. Figure out or forecast the desired fund budget and deduct that from the remaining assets. Assess if there's enough remaining need for needs such as LTC aging, emergency reserve inheritance. Possibly solve for LTC and inheritance with insurance to have enough assets for fund. And then finally, make adjustments to fund if needed for the remaining underfunded items. So I think that's a pretty nice list of 10 bullet points that kind of walks you through our general approach, the devils in the details of how you accomplish each one of those. And it takes some nuance and thought. And some of these steps are quite easy. Some of the steps are very involved. The number two I'll point out, come up with your minimum dignity floor. It's more involved than just looking at your current household budget because the minimum dignity floor oftentimes has elements that change, are added or subtracted over time. And you've got to factor those things in, like a transition from employer-based medical to Medicare, having a mortgage which gets paid off at some point to something that could be subtracted at a certain point. So you've got to pay attention to those things, adding things for items that later on you might want to include that you don't pay for now. So it's going to take some thought and energy to actually come up with that step. But it's a pretty clean list, Jim. So I see now why you brought this particular email to our attention, because I think she's got a pretty good understanding of what we're doing. She does. She has a really good understanding. And then she shares with us and with you, listeners, a more detailed assessment. And it's this detailed assessment that I kind of want to read through and with Chris, dive in and share some of our thoughts on what she points out. Okay, so she continues. She says, the broader write-up of mine is as follows. And she just kind of asks the rhetorical questions, their first point. What are we solving for? We're solving to enjoy our retirement to its fullest while ensuring a safe and dignified life for as long as we live without the fear of running out of money. I like that summary. I think she did a pretty good job there. It captures my essence. What if someone was the other guy? The 5, 10, 15, 20% failure that Monte Carlo was shouting. But even if someone isn't the other guy, how can we ensure that someone isn't going to necessarily curtail spending on fun? Which is my summary of why I don't like safe withdrawal rates and Monte Carlo. If you remember during the market downturn and during the low interest rate, and they're still low. If you look at interest rates relative from the late 70s, early 80s, they are outrageously low. If you look at them in the time frame of over the past four or five years, they're modestly high. So I guess it depends if you're an optimist or a pessimist where you feel interest rates are right now. But what we want to do or what I always want to encourage people to do, and one of the reasons I don't like Monte Carlo is the 4% safe withdrawal rate, as you know, Chris, was going through an identity crisis over the past three, four, five, six, seven years. You pick a time frame. And we heard numbers as low as 2.8. There was a 3.2. There was obviously the steady 4. There was some people saying, no, even with all this ugliness going on, you can go up as high as 4 point something. I forget what it was. It seemingly couldn't be a month or two without a new story from a new talking head with a new assumed safe withdrawal rate. Morningstar is the one who came out, I believe, with a 2.8 at one point in time, or that was Harvard or someone. I forget. Seemingly, every asset manager, every research institution, every advisor had their own assumption of what this new safe withdrawal rate should be. And my thought was always the same. Most people are going to spend on funds early in retirement in a phase affectionately called the go-go phase from a gentleman named Stein. I can never remember his first name. Chris hopefully does. It is no relation to Chris, but he is from Colorado. But in the 1970s, he coined go-go, slow-go, no-go phase of retirement. I applied to those towards just fun spending, but it always rubbed me the wrong way when I was being told that I had to tell someone, oh, nope, you can't go on that trip. Nope, you can't go do that fun thing. Nope, you can't do that fun thing because you can't spend more than this much on fun. And I used to think to myself, who the hell am I to tell someone they can't go do something? They might not be here tomorrow. They could be the other guy. And again, I think it was my caught brain, my police experiences. I sadly shared with you recently the story of the young, I believe she was 28-year-old, who died two days after I saw her in a grocery store in my hometown city when I was working an overtime shift. Two days later, she was dead in an accident. Through the grace of God, that could have been me today or the other person driving that car. It wasn't, but it could have been. It always rubbed me the wrong way that a probability statistic was applied to fun the same way it's being applied to expenses that will occur for the rest of your life. And the cynic in me says the financial planning industry, because of their love of the all-mighty God known as the AUM, assets under management, and their desire to collect as much assets as possible as a firm and charge you the industry standard 1% or somewhere around there to take your wealth, it always rubbed me the wrong way. That maybe, maybe this whole safe withdrawal rate was being designed solely to facilitate their love of AUM. This is the cynic in me coming out. But I do feel the industry sells many retirees short by forcing them to not spend on fun when their life could be altered at the drop of a hat and they'll be Debbie Downs for the rest of their life. So I like her summary. It's to enjoy our retirement to its fullest. But before we do that at our practice, Chris and I, it's a non-negotiable. The younger you must make an explicit promise to the older you that their food, utilities, transportation, housing, and health care expenses will be covered, or at least covered to the best of their ability to project those needs today, but will be covered with lifetime guaranteed secure income, no matter how long you live. So no matter your age, you will be able to afford strawberries like that woman couldn't afford when I purchased them for her in my early 30s and she was 78 and changed my life forever. So this listener continues, we do this, and again, she's referencing living a dignified life and spending, we do this by creating secure income or income that will never stop no matter how long we live, even if we run out of other assets, and this income will cover the expenses that never go away as long as we live. These expenses are called our minimum dignity floor and our food, utilities, transportation, housing, and health care. So she has, at least in our opinion, a very good understanding of that. Anything you want to add to that more deeper dive so far, Chris? No, I still think she's right on track. So she continues, folks, using secure income to cover your minimum dignity floor expenses allows us to spend more freely in all stages of retirement so we can experience the joys life has to offer without fear of damaging our older selves. That is spot on and it's what I was trying to create with this concept. The gentleman I met hiking, folks, just a couple of days ago, 2.3, 2.8, can't remember, but a good amount of money, irrespective, Chris, whether it's 2.3 or 2.8, I think he'll admit, but freely admits any rational inability to spend as well because he doesn't like seeing it drop. That is a very real issue. He cannot do what she has said. He does not feel comfortable to spend freely, but perhaps, and again, I didn't get into everything with him, but perhaps if he could look into his 2.3 or 2.8 million and see, after taking care of food, utilities, transportation, housing, and health care, after putting in place a plan that reasonably reflects his and his wife's fear and need for aging assistance, after putting in place a plan, if it's important to him, for a guaranteed inheritance, and after addressing the emotional buffer or reserve in case things may go wrong in the future, maybe he could see into his 2.3 or 2.8 million and realize, damn, after all of this, there's still 800,000, a million, a million three, a million five, I don't know, left over. Wow, I can watch all those other assets I'm reserving grow and maintain and stay, but now I've given myself a budget, some clarity, what we call the see-through portfolio, the ability to sit there and say, wow, I can spend this 800,000, 900,000, a million dollars on fund. This isn't a safe withdrawal rate, this is a budget, and I'm going to spend this during my go-go phase. Maybe not all of it, but I'm going to put a little bit aside for my slow-go and no-go phase, which can start at any time. We'd like to think we will age into our slow-go and no-go phase, but as a former cop, I will tell you, the other guy can happen at any time. Anything you want to add there, Chris? No. One has to always recognize that we're, as much effort as you put into estimating these things and doing these projections, that we're always trying to tell the future, so as people listen to this, it sounds very detailed, she's expressing it quite nicely, and I just felt this is probably a good time for us to point out that these are estimates that have to be monitored and revised and watched and admittedly have errors in them, so keep that in mind, which is later on in the discussion, that's one of the reasons why we encourage reserves or buffers above and beyond what these projections might show, but always keep that in mind. These are estimates based on best information available. Exactly, and thank you for mentioning that, and we do mention that quite readily. It's not a set it and forget it. No retirement plan is, even a Monte Carlo probability-based safe withdrawal rate approach to retirement plan, folks, it's not a set it and forget it. You have to constantly monitor a plan. Things are going to happen to you that you can't even unmatch, and you have to be able to roll with the punches, as they say. So she continues, these segmented needs, she's talking about the see-through portfolio concept for all those expenses that I just listed, these segmented needs are calculated by first determining your minimum dignity floor by examining your current budget, and even though we're not going to get deep into the MDF, Chris, she is correct there. We work with our clients to project their MDF, not solely, but I would say 60, 70 percent of the MDF is based on looking at their current budget. Would you agree? I mean, there's a lot more to it, but for the most part, she's correct. Current budget analysis for a good chunk of it, at least. Yeah, I agree. Now, she does continue with one of your concerns. She says, make adjustments for spending in retirement, and you may have to increase the spending for inflation. Now, I do know, and most of you use some form of software. I can't remember what it was. We had a listener question once, and people wrote in with the software they use, and do you remember the one that most of our listeners, was it called Write Retirement or Retire Now or something like that? I don't remember now what it was. I remember it surprised me a little bit, but. Yeah, it was something. I mean, it seemed like everybody and their uncle was using it. I can't remember the name of the program, but you all do, because most of you wrote to us and said you were using that. I do know for Chris, because we are constantly evaluating how we do things at the firm, and right now we're knee deep in evaluating all our software programs, and nothing is on the safe zone, if you will. Every program would and could be replaced if we find others we prefer, but we're looking at it from tax planning software, financial planning software. I would say CRM right now, customer relationship management software, but all software types are on the chopping block. One of the non-negotiables Chris wants, though, when you do your projection, is to be able to have total flexibility in cash flow planning. Why don't you share a little bit about that, Chris, because that's what she's saying here. You're going to need to make adjustments for your spending in retirement. You may pay off a mortgage. You may end up with higher health care as you age. You may need to increase for inflation. Why don't you talk about one of your non-negotiables and how we adjust MDF to help people come up, not with the headline inflation number, but what we call your personal inflation rate. Yeah, one of the critical things when you're doing any kind of cash flow analysis for retirement planning is that it handles every situation you might face, which includes expenses that come and go, that increase and increase at different rates, software that uses one inflation rate for all expenses. I personally find worthless for cash flow planning because I think anyone who's lived life recently for the past 10 years, paid any attention to their budget, realizes that not everything inflates at the same rate. So we've got to be able to accommodate that. Now, there's some ways you can accommodate that using some manual number crunching before you put it in the software, but that just adds time. We don't generally do it that way. So you've got to have the amount of flexibility in the software that you're using, even if it's something you wrote yourself in an Excel spreadsheet, that can handle those types of events over time. The keys are expenses that exist now that might stop. There's kind of three categories. There's expenses that exist now that are going to exist forever. Say your electrical bill. That's a good example. That's what you're doing now, probably going to go on forever, but inflation is going to affect it. There's expenses now that might stop, and she called out the obvious one, mortgages that you pay off, or maybe insurance premiums that stop at some point, or a car loan that stops at some point, or a common one is I'm helping support my adult child as they have a little trouble launching from the nest, if you will, or having some other financial difficulties, but that doesn't go on forever for most people unless it's a special needs case. So stuff now that will stop and being able to stop it at the right time. And then the third one is stuff that's your expenses you're not experiencing right now, that are going to spring forth at a later date. This could be lawn care and home care that you aren't doing now because you do it yourself, but you want to add it later. Medical costs that aren't necessarily happening now that are going to change later. If you're pre-Medicare age, your Medicare costs or your medical costs are going to be quite different than they are after you transition on the Medicare, being able to shift those gears. So this is getting into the weeds, right? This is the detail that's required to form that, you know, that I've mentioned mostly minimum bingley floor items, but this would apply to fund expenses or desired expenses as well, being able to have the flexibility to model any of those scenarios. Perfect. So she continues, folks. You then determine the amount needed for the delay period. That's our verbiage. We use it, we call it delay period. She says, which is essentially between retirement and when all secure income is turned on. So what she's starting to describe, especially if you're a new listener, is the concept of the Seabrew portfolio. Again, let's borrow from the gentleman I was hiking with. He either has 2.3 or 2.8. Let's just call it 2.5 since I can't seem to remember if it was 3 or 8. Let's just say he has 2.5 million. He's freely admitted to me, a near total stranger to him. He's having difficulty spending those dollars irrationally, but he has that difficulty. So he just needs to shed some light. He needs to lift the shade. He needs to open the lid of the toy box that his 2.5 million dollar portfolio is in this big brown pine toy box. You know, open the lid of that toy box and he's trying to find his fun. He admits he's not spending enough on fun. He can't bring himself to spend. Well, maybe if he could look into the 2.5 and realize, wow, I can spend 800, 900,000, a million, a million three of my 2.5 on fun. I have these other elements covered. Well, how do we find these toys to quote unquote pull out of the toy box? One of the easiest toys to find, and toys is a metaphor. It's not specifically saying that all the spending is going to be fun. We got an email not too long ago of a gentleman pointing out and encouraging me not to call them toys because he said spending on long-term care, for instance, Jim, is not going to be fun. And I agree, it wouldn't be fun. But I'm trying to carry the metaphor of a toy box is at least the one I had as a young boy with a solid pine box. Mine was painted brown and it was in my den. And invariably, the toy I always wanted to play with seemed to always be at the bottom of the toy box. So I had to pull out all these other toys. And that's the analogy. If I had the time, I would have shared with this gentleman on the height in your 2.5 million, you have to help figure out or you have to help yourself figure out how much of that can truly be spent on fun. Well, in order to do that, that number, that fun number, that toy is at the bottom of your 2.5 million dollar toy box, you have to pull out a couple of other toys that are above it. And toys in a metaphorical sense, not toys that are truly going to be fun to spend money on. Because I agree with that listener, spending money on LTC will not be fun. But it needs to take precedence over spending on fun. Because you can only spend a dollar once. So she talks about one of the easiest toys. And Chris will explain why it's actually an easy toy to figure out. It has two crucial elements. It has a start date. And Chris will share with you another element it has that makes determining this first toy quite easy. And she doesn't mention that it's easy. But for us and for most of you listening, because you're so good at this already, it's a fairly easy number to determine. Why don't you just share a little bit, Chris, because she does point out the first toy she got to kind of pull out is the delay period. Why don't you just share a little bit about that? Yeah, so the delay period is retirement until all of your social secure income is turned on. So any spending that you have to satisfy is likely to require distributions from assets. And solving for the size of this, quote, toy is as simple as looking at those projections of what your expenses are going to be during that time period. And estimating what the distributions to cover those expenses are going to be, add them up, and there you go. And the reason why it's quite simple is we don't have to do anything fancy. We just have to budget for it. We just have to pull that toy out and say this is going to cover my mainly this approach is for minimum dignity floor during that time. But I would argue, you know, fun during that time can be looked at a similar way. But at least the minimum dignity floor needs to be set aside as untouchable for fun spending, because it's needed for your food, utilities, transportation, housing and health care and anything else that you've added to your minimum dignity floor during that period. And the easy part is, we've got it happens in the near term. So our forecasts are probably pretty reliable. We know when it ends, which is one of the key things that makes this easy. We don't have to worry about longevity risk. We have a known end date. And we start this period with all of our assets still intact. The toy box is still full. So there should be a toy in there that we can pull out and have it represent this delay period minimum dignity floor funding. Exactly. So it's a fairly easy number. And we have other shows where we go deeper into how we calculate that number. But out of all the numbers to me, it's one of the more accurate, as Chris rightly pointed out, because it happens soon. And the sooner something happens, the more accurate it is. And with the end date makes it incredibly accurate. Whereas the next number, the post delay shortage, that is still fairly easy to determine, but needs to be covered quite differently. It's the post delay number that begins when the delay period ends, which is when when all your secure income is fully turned on. For 90 plus percent of you, that's going to be age 70 with Social Security, or if you're a couple, maybe full retirement age for one of you and age 70 for the other one. But when all of your secure income is fully turned on, that's where the post delay period begins. But I say this is a difficult number to determine, because what is this number Chris missing? The most difficult aspect is it's missing a known end date. Exactly. And without that end date, it's hard for you to reserve dollars. So again, what we try to look for in this case is do some projections, see how much of your minimum dignity floor is not being covered by secure income. I would say this is a fairly good rule of thumb, but it doesn't apply to everyone. Most people, when their secure income is fully activated, which is around age 70 for most of you, you will be pleasantly surprised to see that Social Security and any pension benefits you might be entitled to will cover a good portion, if not all, of your minimum dignity floor expenses, at least initially in this post delay phase. We see anecdotally in our office, most people will be covered at 70. But between 78 and 83, a crossover point begins, where the trends are indicating your secure income at some point in the future is telling us may no longer cover your minimum dignity floor needs. That crossover point is crucial to us, because it's in or around that timeframe that you're going to need to generate more secure income. We're not telling you now as somebody in your late 50s, early 60s, you have to purchase an annuity now, because our projections or your projections, if you're doing it yourself, are showing that the 81-year-old you may have a shortage. But what we are saying is the late 50, early 60-year-old you needs to reserve enough dollars to cover that shortage now, using a reasonable discount rate to come up with a present value today and check this number on a regular basis. That doesn't mean every six months, it doesn't even mean every 12 months, but every couple of years minimum, you should check this number for accuracy. We utilize annuity quotes, we explain to you, you could go to many different websites, immediateannuities.com is one of them, and get quotes of what an insurance company would want to help cover some of this income shortage. And it gives you an idea of what you would need in the future in a dollar amount, and then you could discount that down at a reasonable rate. We use 3%, you can use any number you want. But the idea is to try to come up with a dollar amount. Not going to get into this deeply because we cover it in earlier shows and previous shows. But she is correct. And she goes on to say you need to do similar calculations for your emergency reserve, aging and long-term care, and desired inheritance, if that's important to you. Netting you out your fund budget. And then she rightly points out that you can segment this fund budget. I think what she means there, Chris, is go, go, slow, go, no-go fits. And in our opinion, and Chris got me to change my thoughts on this. I used to tell people when I came up with the concept of the fund number, to spend 50-60% of it during the go-go phase. Chris got me to change that. Because you, watch you share a little, I don't want to put words in your mouth. But you never agreed with me on that. You wanted people to spend even more. I did because a couple of things are likely to happen. Later on in life, you're not going to be doing a lot of the things that are expensive in retirement for fun. Namely travel and expensive hobbies are usually what drives a significant part of a large go-go spending budget. So those are going to go down. So you're spending later on 80s, 90s is going to be substantially lower. Plus, when we're setting aside money today, for a need out that far, it's likely that money is going to have the potential to grow over time. So that reduces what you need to set aside today. And when I was looking at it, it just appeared to me that we really, if we look at it kind of backwards, focusing on the slow-go and the no-go period. So that slow-go, us kind of by default, we kind of look at it at 75 plus. And then 85 plus age is the no-go period. I joke with people sometimes we shouldn't call it no-go sounds like you're just sitting on the porch in a rocking chair. It really should be slow-go and slower-go. But we didn't coin the term and everybody embraces go-go, slow-go, no-go. So, but start with the no-go and say, I probably only need about of my total fund budget, maybe 5, 8% of the total for 85 and older because it's got 25 years to grow. Plus, I'm probably not going to do a lot of expensive stuff. It's mostly going to be hanging out with friends locally. The slow-go period, maybe another 10% or so on that or 10 to 15%, which then leaves us more like 80% to use during the go-go period. So I'm a big fan of people who really kind of, once they dial in what's truly available, once they get to that fund number that we talked about, put the pedal to the metal, 70, 80% of it during that go-go period is my preference. But again, you got to decide what's comfortable for you. And if you want to protect more eventuality, then you would reduce that go-go percentage. But I just see so many people that either by choice or necessity really drop off their spending levels in the mid-70s ages, especially if they start retirement at a reasonably young age, early 60s. You're going to be exhausted doing a lot of expensive travel and other things by the time you're 75. Even if you're healthy, you're likely to start winding things down. So I'm a big fan of trying to maximize that go-go period. Yeah, and I think one of the most poignant emails we received with respect to that, Chris, and you may remember it, I could probably find it, not today. They very rarely delete emails. I've just saved them all. And for some reason, you'll have to explain to me, they disappear on my iPad, but they're available on my work computer. My iPad only goes back like six months. My work computer, I get years and years and years of emails and then it's weird. But anyways, folks, we got an email, if you remember, Chris, of a listener, I believe he was 75 when he wrote to us. But it was right after the whole COVID fiasco. So after people hadn't done things for almost three, four years, or at least done things in the way that they used to do. And he shared with us that he was an avid traveler. And when they started traveling again, finally, and it was several years since he traveled because of COVID, I believe three, and he was now 75. They noticed how much traveling was a pain in the you know what for them. And how much they've slowed, how much they started to not like it. And he shared with us, he had his doubts about ever slowing down. But it happened to him. And he was definitely entering the slow go phase. And he thinks he noticed it. Because it wasn't a slow progression. It was so abrupt. He went from a go go phase. And when things built up again, and he thought he'd jump right into go go again. He realized he had aged into slow go. And traveling was not as fun. Now for many people, traveling isn't everything myself included. I mean, I'm in Massachusetts now and I was in Ohio a few days ago, merely because I wanted to come visit family. But travel for me is not a passion. I actually despise it. It's fun when I'm there. I hate the act of getting there. But I may not have a strong desire to travel in my particular retirement. But I do have a strong desire to continue hunting and fishing. I want to get back into competitive shooting. I want to do sporting plays. I want to grow my garden and get it bigger. And so there are things that I'm going to want to do that I definitely will go through a slow go, excuse me, a go go, slow go, no go phase. Absolutely. So we all have differences in these phases. But we will experience them. And again, our approach is to help you feel comfortable spending your money, especially during the go go phase. So anyway, she continues, folks, with all the other reserves. She doesn't get into how to calculate them. But she goes into the emergency reserve, which we often say we call it the buffer. And that's an emotional number. Aging long term care reserve, inheritance, if that's important to you. For many people it's not. For some people it is. And she does point out, and I thought this was kind of interesting, she picked up on it, all these segments, she noticed, Chris, some we discount down and some we do not. And she is correct. For instance, the delay period, minimum dignity for reserve, that's the period with an end, if you will. We don't discount the delay period. We've shared on previous podcasts why. But we don't discount those dollars. We'll inflation adjust those dollars, but we do not then discount them down for an ensued growth. It's just kind of a way we can build in an extra layer of inflation protection for our clients. But there are some reserves, like the post-delay period reserve we just described to you, we discount that down. So she's right. Some we discount, some we don't. That's how we do it. You can do it any way you want. You can discount all of them. You could discount none of them. I don't need to get into what we mean by discounting, if you're listening to this podcast, you probably know what we mean. So that's something that's going to be totally up to you as you decide to do this. And then she ends with, we've secured a safe and dignified life for the older us. And that is key. I often say retirement planning is an explicit promise the younger you make to the older you that their food, utilities, transportation, housing, and health care expenses will be covered at minimum with a lifetime guaranteed secure income. And the older you gives an implicit permission. You give them a promise, they merely give you some permission. Permission can be pulled at any time. You know, there's permission granted, sir, permission denied. Yeah, that goes back to my police academy days. But permission can be denied or pulled or revoked. The explicit promise, to me at least, cannot be revoked. Needs to be monitored, but it can't be revoked. But in exchange for an explicit promise from you, the older you will give the younger you permission to begin spending on fun. It's permission that can be pulled. If the other guy happens, the bad other guy, and something bad happens to you and those dollars now can no longer go towards fun, they need to go towards something else. But it is a permission that they're going to give you that. She said, once you secure a safe and dignified life for the older us, the younger us can enjoy the remainder, while we still have the health inclination, desire and ability. She said interest and desire. I always say desire and ability. In other words, the younger you can spend freely, knowing the older you is financially secure. I do want to caution her in describing it with such surety in her language. I would say that the younger you can spend freely, knowing the older you is on the road to possibly being financially secure, or some hedging that you should put in there. Because again, the permission to spend on fun can be pulled by the older you at any time. And it does need to be monitored and updated on a semi regular basis. Again, as a firm, we generally don't tell our clients they have to update their plans every year. Many of them do, they'll contact us and say, hey, we'd like to hire you for an update. And that's more emotionally, I think you'll agree, Chris, they just feel comfortable knowing that it's been updated again. But for the most part, what every three years, sometimes you can go a little bit further out, you should update these numbers and make sure they remain accurate. Okay, anything you want to add to her whole summary and our, again, rehashing of our approach, and we're going to try next week to pick up where we left off. Again, assuming the other guy doesn't impact me again next week, a couple hours before we're scheduled to record the podcast. Anything you want to add to the summary? I just want to give her a little more credit, because people know that took a lot more than 10 minutes to get through the the embellished part. That's because Jim embellished it a lot. And and to her credit, I think she does, you know, expand on her bullet points, and keeps it well within that 10 minute mark. And I guess I'm undecided, I'll bow to pressure if I'm asked to come up with my own 10 minute version. Because actually, a lot of the submissions that we've gotten, including this one, did a pretty nice job. See, I must have misunderstood her. I think the bulleted point that you read was her 10 minute version. No, it's not. No, it's the part of the broader write up, which she states specifically, still should be less than 10 minutes. But Oh, well, it would have been if I was just reading it without embellishing, but we always embellish. Well, you do I can hardly keep you shut up. But I would have just read it and then moved on to her to her credit. I think she did. She did it. I think she easily that might be a five minute read. So she might have overachieved if you will. Okay, well, I do appreciate this listener reaching out to us. One thing that I will share with everybody. She did share with Chris and I, that she was a realtor, and she's confronting her own retirement. And because of her love of retirement planning, and to a degree, I guess our show, she said, I started pursuing my child financial consultant designation. And I'm thinking about doing retirement planning as part of my own retirement plan. And her target market, retiring real estate agents. So she's doing a few good things here. She does want to get into financial planning as a career, she's got a lot more to do. But she's trying to find a niche. She's trying to identify who her target market is. She's trying to develop her approach. But more importantly, folks, she's doing a, I like to call it a jet landing or glider approach. That is probably a better analogy to retirement than helicopter. A helicopter retirement, you hit a date, boom, straight down, you're retired. She's saying, hey, not ready to walk away from the workforce now, either because she can't or because she just has no desire to stop adding to society. But she wants to change. She's never too old to change. And she wants, as part of her retirement, to continue contributing somehow. And her contributions will help her make some money, I would assume. I don't know to what degree she's going to take this. But she did share that with us. And I wanted to share that with you. That for many people, myself included, I am not going to be a helicopter retirement. I'm not going to get to a certain age where I'm like, okay, that's it. I'm going to hang up my keys and stop this and just retire. But I don't want to do this forever at the rate and level that I'm doing now. And I want to diminish and slowly begin to approach my own retirement. Chris, I don't want to speak for you. But Chris will need to make a decision similar to that as we all do. I spent 25 years helping people retire. I myself will retire someday. But in a similar strategy to hers, it will not be a helicopter. Mine is going to be a glider. And knowing me, it'll be a very slow moving glider. But it's going to be a glide. Any thoughts that you want to share on that with respect to yourself? Or you still haven't figured that out? I suspect some type of glide path. I just, I do find that when I'm away from work, occasionally, which is not often, it doesn't take too long before I'm kind of bored. So I think just for something to keep my mind active and personal fulfillment, I'll be doing something for quite a while. Not sure what that would be too early to judge that. But I think I'm more of the glide path style personality than the helicopter style. That's what I thought. All right, folks. Well, hopefully next week, we will pick up with where we left off. Assuming something else doesn't happen out of the blue. But I think for a last minute topic, I think we did a pretty good job. So hopefully everybody will appreciate our efforts to bring you a show today. And yeah, we'll continue on next week with us. Chris, that's a brand new show. Thanks, everybody. Thanks for your submissions. This was a great one. And as Jim said, we'll be back with you next week with a brand new show. You have listened to Jim on the radio, read his quotes in the media and enjoyed his banter on iTunes. But even now, you may wonder what sets Jim Saulnier and Associates apart from other financial planning companies. The answer is quite simple. Jim's diverse team of professionals specializes in retirement planning. They form a lifelong relationship with you and measure their success not through product sales, but through the security and prosperity you may achieve in your retirement. Jim's entire team shares his unwavering commitment to placing their clients best interests first while offering their services at fair prices with full disclosures. The professionals at Jim Saulnier and Associates are available to assist you with your retirement planning needs. Visit jimhelps.com to schedule your complimentary coffee and a second opinion meeting. That's jimhelps.com or call 970-530-0556. Indirectly diversification and asset allocation strategies do not assure profit or protect against loss. Never make any investment or financial decisions based on information offered on this show without first consulting your financial legal or tax advisor. Financial planning services offered through Jim Saulnier and Associates LLC, a registered investment advisor.