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On Feb. 11, 2022, Robert Powell sat down with iii experts to talk about top-of-heed topics for retirees and soon-to-exist retirees this yr.
CJ Miller of Sensible Money, Marcia Mantell of Mantell Retirement Consulting, and Lee Baker of Noon Financial Services shared their thoughts and solutions about the bug facing retirees and how to take action.
Encounter the Experts
Lee Bakery
Marcia Mantell
CJ Miller
Transcript
Below is a slightly edited transcript of the roundtable give-and-take held on February. 11, 2022.
00:00:21
Bob: Howdy, everyone, and welcome to Retirement Daily'southward kickoff-ever live webinar, Smart Retirement Planning Moves for 2022. I'd like to welcome our panelists for today's program. Marcia Mantell, she's the president of Mantell Retirement Consulting and one of the country's tiptop Social Security and Medicare experts, Lee Baker, president of Apex Financial in Atlanta and host of Level Up With Lee on finStream.TV, and CJ Miller, a fiscal planner with Sensible Money.
Hither's our format for today'south program. I've asked each panelist to talk about what they considered to be the ii or iii about important financial and retirement planning moves you can make in 2022.
Inflation & Retirement
00:01:23
Bob:And then permit's get started. I call up 1 of the peak 2, iii things that people want to talk about today is inflation. What exercise people demand to know almost inflation and how might they prepare or change their portfolios given what you're seeing? CJ, you desire to become first?
00:01:49
CJ:Absolutely. I call up ane of the cardinal things to keep in listen is to proceed the inflation figures in perspective. When the news reports on aggrandizement, they are not reporting on how inflation impacts yous and your retirement plan, bluntly, because they don't know, and you might non know until y'all've adult a comprehensive and holistic retirement programme. And so if you lot've been measuring kind of your plan against benchmarks over time and y'all've been using a conservative rate of inflation, you've likely seen over the final 5 to 10 years that aggrandizement hasn't been what you've been projecting at. It'due south been below the historical average. And and so information technology's not abnormal at present to see aggrandizement be above boilerplate number for a twelvemonth or two, and it shouldn't brand or suspension your program every bit long as yous keep that in perspective and don't panic.
00:02:36
Lee: I agree with CJ. I mean, here's the thing. Going back to, I estimate, it was last May or June of 2021 is when nosotros first saw a big aggrandizement number, v%, 6% year over year. And I will be honest with you and admit, I was ane of the people in the camp that believed it to be transitory and that it would concluding six to nine months and as things opened up, inflation would brainstorm to recede back to more normal levels.
At present I all the same recall at this juncture, onetime maybe in the summer, nosotros start to run across the aggrandizement numbers recede but go back towards more normal, long-term historical averages. And then if you're talking to clients, or if we've got some retail investors on the line with us, practice not expect or change things making the assumption that, hey, we're having a return to the '70s, where we're going to have sustained years of five%, 6%, 7% inflation. I only practice not call back that's where nosotros are. But again, ii%, 3%, those are our long-term historical averages, and so we should exist there because, once again, as CJ pointed out, nosotros've been below those averages for quite a while.
And when you're thinking well-nigh inflation, listen, aggrandizement volition slowly, quietly rob yous of your wealth over time. I've got young kids, and I read comics and that sort of matter when I was younger, but inflation is kind of like Thanos from the Marvel Universe. If you're not paying attention, it'll just be a snap of a finger and your wealth has been eroded. And then when you're thinking about inflation, think Thanos from the Marvel Universe.
And Thanos can't be defeated.
Bob: Marcia, y'all want to be Wonder Adult female and share thoughts.
Healthcare Planning & Inflation in Retirement
00:04:32
Marcia: Oh, I'd love that. Cheers for that wonderful intro. My perspective on inflation — completely agree with both Lee and CJ — please don't panic. But the one area I practise watch since I spend a lot of time with Medicare and the healthcare side of the equation, healthcare consistently, and of like college tuition, consistently blows up inflation averages. So if inflation is on average running 2.3%, 2.5% over long periods, healthcare'south closer to double that. So that's something to plan for separately in retirement. And that often is an unpleasant piece of information for folks planning for their retirements, merely I always retrieve information technology'south better to know what yous're facing rather than not know.
Bob:Right. And every bit you know, and I'k sure equally Lee and CJ know, healthcare as an expenditure roughly runs around five% to maybe 15% of a household's budget. Not an insignificant corporeality.
00:05:36
Lee:And you've got a like dynamic as it relates to energy, and that'southward something that bounces around a whole heck of a lot more. I mean, literally just hither, probably in the last two to 3 months, we've seen the cost of a gallon of gas drop. That as nosotros've had these tensions with Russia and Ukraine we've seen the price of a gallon of gas starting time to pitter-patter back up. There's now discussion nearly some bills in Congress to append the gas tax temporarily to help alleviate some of those. But there'southward a lot of components to aggrandizement. And so we tend to call up of sort of that one monolithic number, that CPI, that, over again, historically, 2%, three%, but when you kickoff to look at the components, that gives yous a clearer, perhaps more than detailed picture of where y'all are with things. So you admittedly want to continue that in mind.
00:06:28
Bob:Lee, I call back that'due south a good identify to interrupt and say, when you look at the components of inflation, we tin think about headline inflation, core inflation, PCE. And so when you look at the various components, there are certain components that were largely responsible for the increase in inflation, like used cars and trucks, gasoline, meats, et cetera. Items like shelter are actually below the average rate of inflation. Then not each and every component has risen dramatically. Some have risen more than others. And I take to think at some indicate the inflation rate for used cars has to come downward because yous will have bought all the used cars that there are out there. We can't keep buying used cars and having the price get up.
00:07:xiii
Lee:Yeah, absolutely. I hateful, your point nigh used cars and some of the other segments is spot on. We looked at things... And we experienced it in our own house. We got a daughter in higher, and we bought a overnice little four-cylinder car for her to get abroad in college, and our younger daughter who'southward even so at home in high school said, "Okay. Well, what about when information technology'southward my turn?" And we looked at virtually that exact aforementioned car, the cost had gone upwardly 30% during the course of the pandemic. That is not going to continue to happen for a number of reasons.
At some signal, the components that go into the automobiles, the fries, at some bespeak, these backlogs where the supply chain is merely simply clogged upward, at some signal it'due south going to interruption loose. We're non going to exist in supply concatenation hell forever. Just like COVID was non going to final forever. So that'due south going to open up some things, and we'll begin to get chips that can get into new cars and some of those prices volition brainstorm to recede.
I also talked to some people that said some of the new car manufacturers are thinking almost letting some of the cars move off the lots simply you come back later on, like they get an upgrade, if you will, because many of the things that are controlled by the fries don't prevent the cars from being drivable. It may mean the navigation doesn't work. So if you lot as a consumer are comfortable driving a car without the navigation system in there, you can just take it dorsum later on on in one case the flake shortage has been taken care of.
The same thing with housing. Some of the price increases that we've seen in housing... Early on y'all got a location like here in Metro Atlanta, where there's a lot of stick-congenital homes, and so there'due south a lot more than lumber that goes into it, where we've begun to see that the future market for lumber has started to come dorsum some. And so if there was nobody there cutting down the trees, turning the copse into two by fours and two by sixes, okay, then it'south the constabulary of supply and demand, but now that people are out, we're starting to see the dynamics around COVID recede into the background, normal metrics are get-go to matter once again.
Wages Rising
00:09:24
Bob:One thing I've noticed in the inflation numbers too is that wage growth is likewise ascent, perhaps not every bit fast as CPI in full general, but obviously that's a good thing on the one hand that people's salaries or hourly wages are rising, perchance not quite on pace with CPI, but certainly they're rise. Good thing, bad thing? Thoughts near that?
00:09:49
CJ: Well, I think it'southward a skillful thing when wages ascent in full general. Typically it means people are more productive. That beingness said, when people think inflation, they remember near their expenses. And and so information technology'due south important to keep in mind that you can control your expenses in some means, whether it's for planning, where yous can add an extra 10% for miscellaneous expenses you might not be thinking most and and so when inflation creeps up you kind of have wiggle room there. And like Lee said, things like automobiles, if you can concur off that auto purchase till prices come down. That's going to affect you a lot more than. And and then extra wages on top of that can be helpful. Really expense planning can help yous hedge aggrandizement more than anything, I think.
00:10:31
Bob:There was an article in the Wall Street Journal this forenoon that said that the average increase for a household, given the electric current inflation charge per unit, is roughly around $276 a month, which on the i mitt seems manageable plenty if you're keeping track of your expenses and you accept discretionary expenses perhaps that yous can cut back on, or things that yous could do to make upwardly for the extra cost, exist it a function-time chore or some other tactic.
00:11:04
Lee:I saw some data, and I'll try to go dorsum and discover it and maybe include it when yous put this out on Monday, but even when you take a await at the increment in wages, in that location's been some interesting dynamics in the various segments. And and so the lower end of the pay scale has gotten a bigger increase from a percentage footing than towards the middle and upper of the pay scale. Personally, I think that is a very practiced thing. Economically speaking, through the years we've had these different stimulus programs and years ago where everybody got $600, those dollars tend to get correct dorsum into the economy, or those at the lower end of the pay calibration and the earning. So I think it is stimulative across the board, but I also retrieve it's about fourth dimension.
Once again, this is merely my stance. It is been quite a while since there was whatever sort of minimum wage increase. And if you take that in that location is a minimum wage, what you could get was $vii.25 an hour 15 years ago is not the aforementioned today. And then I think some of what we've seen and sort of that skew to the lower end of the pay scale has helped to close that gap in wages.
Bob:Marcia, any thoughts?
00:12:38
Marcia:Yeah. I would concord with Lee, and I think forth those same lines. It's long overdue to go a minimum wage increase. Only the gap is withal and so big. It's not going to empower necessarily those and, say, the bottom tertiary of the economic spectrum to brand these not bad strides forward. And where I go specially concerned with that is they're withal just, and exactly rightly, every dollar in goes right back out. Information technology'southward to buy all the basics: food, gas, sneakers for the kids. They still tin can't cleave out the amounts they are going to need for healthcare and for future retirement. It'southward just not in their reach. That's one problem that still volition need to be solved, just overall I'm delighted to come across the increase in the Social Security wage. COLA, cost-of-living adjustment, went manner up for 2022, five.9%, so the seniors were a little fleck happier. Doesn't keep step but information technology helps. Then any frontwards move in increasing wages does help.
Managing Inflation in Retirement Portfolios - TIPs
00:13:39
Bob:All right. So we've covered inflation. What nosotros know now is that the Federal Reserve is worried most inflation and that they probably will increase the funds rate in March. Right now there's a 50% chance that information technology will be a 50 basis-betoken increase. 1, talk virtually that, and also, what's the actionable advice in terms of what people might be doing with respect to their portfolio. Should they be thinking most adding TIPS, for instance, to their portfolios? CJ, you want to get starting time?
CJ:Certain. Well, I think the first matter you demand to think about with your portfolio and a rising interest rate environs is that usually people volition conflate their simulated bucket of money with their income bucket of coin. So they encounter bond funds in their portfolio and they recall, "Well, that's supposed to be my safe coin," but all the academics will tell you lot, in a rising involvement rate environs, those bail funds may lose money. So I think the get-go thing you want to do is understand what practise the bond funds or individual bonds look similar in your portfolio because they're non all alike. If you have a long-term government bail fund, yous may lose more than coin in a rise interest rate environs than if y'all have a ane-yr duration brusque-term bond fund. And so I think understanding the duration in your funds is the starting time step.
And and so the second step is looking at that safety bucket that is actually safe, the money you don't want to field of study to equity market run a risk or to involvement rate risk, and say, okay. The price for that condom bucket is a depression yield, and for me maybe I desire to make certain that I have three or four years of my consumption spending locked in and non field of study to those risks that I can't control, and I'm non going to injure very much on CDs, or ownership an individual bond till much already, but that's okay because I know I can slumber at night knowing where my next retirement paycheck is going to come from.
00:xv:38
Lee:I'll say from a standpoint of the interest charge per unit, and so permit'south expect at information technology on ii sides of the equation, if yous volition. l/50 chance that in that location's a l basis-point increase come next month. Nosotros all know with, I'd say, a fairly high caste of certainty that'southward not going to be the last. And then as we talk about the expense side of the equation, if you lot take some capacity to eliminate, reduce debt, any of those sorts of things, endeavor to practise that sooner rather than later because money will merely be more expensive a year to two years from now. I personally think we tin can exist in a rising rate environment easily through the remainder of 2022 and on into 2023.
At present, when nosotros flip over and say, well, what practise we practice from a portfolio standpoint? There'due south that old saying that history may not repeat itself merely it usually rhymes. At that place are some things that typically happen in a rising interest rate environment. There are some sectors that typically practise well. So do we begin to expect at things like financials? Do nosotros await at real estate and some of those things that again tend to practise well? And I don't advocate market timing simply if we've got a diversified portfolio, maybe you tilt a little bit. If we're looking at that safe saucepan, the fixed income CJ was talking nearly, well, there's more to it than the Barclays AGG, if you volition. In that location'south the credit markets, there's private credit, brusque duration, longer term. Specific to TIPS, okay, only I'm candidly non terribly excited about that prospect. More than inclined to, again, do some tilting or maybe overweighting, if you will, in some segments; real estate financials amongst them and looking into private credit.
00:17:40
Marcia:From my perspective, I look at interest rates on a very tactical level in 2 places. The first is my savings account. And by golly, I'm going to bound for joy if I could go v bucks in interest on my savings account for my emergency fund coin in the adjacent decade. That would be super. So y'all will run across some bits of an increase in your savings accounts. The other is on the mortgage side because the housing market does drive so much of the economy. I think information technology was today, or maybe last night, mortgage rates are up a tick, making them the highest they've been in quite a number of years. And if yous just listen to that on the surface, it can sound a footling scary. It'southward not. They didn't get from ii.8% to 99% interest. We're talking virtually minor increments. But, if you are trying to buy a house, or a condo, or something at present, or some type of real estate property, they're not going to be a lot lower going forward, then that's something to weigh into any conclusion making yous have.
I take ii millennial daughters, and this is the commencement fourth dimension they've seen rising interest rates on anything. They practice ain a house and it'southward like, "Oh, skillful thing we got it last year." I was like, "Girls, you have to live somewhere." Sometimes it'south but the timing is interesting but yous do the all-time you can to manage the interest rate in the moment that yous need to purchase something.
00:19:19
Bob:Right. CJ, I want to plough dorsum to you lot on the subject of TIPS. At that place'south a report out from Capital Grouping that says, in essence, consider TIPS for a rising interest charge per unit environment. Share your thoughts.
CJ:Well, TIPS are never... They are directly tied to inflation. The way these products work is every 6 months they are going to get an adjustment. And the nominal yield stated on TIPS are typically actually negative, and and so if that aggrandizement number doesn't hit and kickoff the difference betwixt what you lot could take gotten on a traditional bond and the negative nominal yield lifted on the TIPS, you lot're pretty much worse off. In most people's portfolios when they're buying TIPS information technology'due south considering they are concerned about inflation. And in my mind at that place are better means to hedge aggrandizement inside a long-term portfolio, because TIPS are never going to actually beat inflation, they're just at best typically going to match inflation. And so if you lot have a diversified equity portfolio, for instance, over the last 24 months, fifty-fifty though inflation's been high, your equity portfolio and assets have probably washed amend than the inflation charge per unit, if it's a responsible equity portfolio. And so in my mind, let that equity portfolio do its thing.
I'd rather, instead of selling out of equities and buying more TIPS to friction match inflation, sympathise what the job is for each asset class in my portfolio and stick to information technology for the long-term because those things are designed to work for a reason in most market place scenarios.
Consider I Bonds for Saving
00:20:45
Bob: Then we've talked about safe coin. Recently, many experts have been suggesting using I Bonds for your safe money, granted you can merely put $10,000 in, but at the moment the yield on an I Bail is adequately attractive.
CJ:Absolutely. I retrieve for I Bonds in that location are a couple things to keep in mind. The first, and for lack of a better term, the TreasuryDirect website kind of sucks, so devote yourself to a couple hours trying to navigate that thing to become the I Bail purchased. The other thing to continue in mind too, in that location are some alternating strategies you can use to really get more than $10,000 worth per tax filer. For example, you can put up to $5,000 in a tax refund and invest in those. But once more, the long-term perspective, like yes, that's swell if you're willing to practice it, but what is an actress v% or half dozen% on $10,000? It'south a few hundred bucks. And then maybe you lot're jumping through hoops to become a few hundred bucks more. That's smashing but it'due south not going to brand or interruption your retirement plan. Then do information technology if you want to do the legwork but don't expect information technology to take textile change on your overall outcome.
Behavioral Economics & Retirement Planning
00:21:58
Bob:One of the things, Lee, that you mentioned that you wanted to talk about is behavioral economic science, which is an interesting topic equally it pertains to retirement planning and fiscal planning. What practice people need to know almost that?
00:22:10
Lee:When we talk about behaviors, a lot of what nosotros do as financial advisors, nosotros spend a lot of our time coaching clients, and candidly, we should spend some time coaching ourselves, or being coached by someone. The theory here for me is is you don't want to make permanent decisions based on temporary feelings. For many of our clients, if you lot think about how yous felt in January here in 2022, or think of those people who made, candidly, what were permanent decisions because of how they felt February and March of 2020, for those people that merely went, "Ah, I'thou out of here," and jumped out of the market place, they missed in all likelihood a very quick run-up. Once more, the markets went down faster than whatever other time in history, but that initial rebound, information technology went up faster than any other time. And then if you are not conscientious, you tin can make very harmful decisions that are lifelong because of a temporary feeling of fear.
And so you desire to brand sure that you've got some guardrails. Make certain that candidly yous've got a programme. Be it a total-blown investment policy argument, really understanding what your take chances tolerance is. And doing that research, and the planning, and analysis to kind of become, "Okay. Well, this sounds expert that my portfolio might become upwardly 10 per centum." But nosotros know that these events are going to happen, where there's going to be a precipitous decline. Perhaps some people got lulled into a sense of simulated security.
Marcia mentioned she'due south got some millennials in that location, and mayhap just in the fourth dimension they've been paying attention to the markets, yeah, the markets went down pretty severely when COVID hit only subsequently that the level of volatility in the market was near nonexistent. I think prior to this calendar month, we didn't have more than than virtually a 5% pullback that lasted more than 2 days for a year and a half. That is not normal. A 10% correction periodically is the norm. And then we've got to be mindful and understand that, hey, listen, you lot don't want to make really permanent decisions. Now that doesn't mean you simply stick your head in the footing and you don't do annihilation, but take a look, empathise the environs. Again, we're in a rising interest rate surround. Are there some opportunities out there that you can accept advantage of? Merely again, don't let your temporary feelings wreck your future past making permanent decisions.
Marcia:Bob, tin can I tag onto that?
Bob:Yeah, please do.
Information technology'southward Important to Have a Retirement Plan
00:25:03
Marcia:Lee, I recall that is then of import, what you only said, that we are all bombarded right now with messaging and what nosotros think is real data from every minute nosotros're awake. And if it'southward not bombarding the states, we can only hop on our phones and get more than. So we're hyper-warning merely nosotros don't ever know what to do with that information. And both yous and CJ, well, said, the key here is to have a plan. And the existent value of the plan is not so that yous can say you have a plan, it's so that you tin can put all that racket away, because it doesn't matter. The but matter that really matters when you lot accept this program in place is how much cash exercise you have for the adjacent opportunity. If yous're fully invested, you don't have any cash for the next opportunity, that'south okay. Then you rebalance besides. But at that place are only certain tried and true behaviors that we know work.
Lee, the other affair you said, that I wanted to tag on, nosotros need to reset what we remember is normal. You're right. It is not normal to not accept at least a 10% correction that lasts like a quarter. This is a really unusual fourth dimension, simply when you're my kids, they're 25 and 30, this is what they know. This is now their benchmark. So I think equally an industry we could do a meliorate job of explaining what the real benchmarks are, and that'southward that on average we have a major correction of plus or minus 20%, usually we're talking about the downside, every four to five years.
Then when I talk to those who are going into retirement, it's a thing of helping... Explicate to them why you proceed to need a plan, only you're going to see in a 30-year retirement v or six more recessions. And are you prepared for that when you have no paycheck coming in from an employer? And that only helps them get, "Oh. That's why I need my portfolio to work the mode it does, or why I want some extra cash, and then I tin pay the bills when we do have a recession." And so we demand to reconfigure some of the language and some of the benchmarks. This has not been a normal menses during COVID at all.
Bob:Marcia, my kids, probably like yours, grew up in Boston in a time when it was normal for any Boston team to win a championship and they idea that was to exist expected.
Marcia:Of form.
Behavioral Finance and Bias
00:27:46
Bob:And then CJ, talk a trivial scrap about behavioral finance and maybe some of the biases that clients face, whether it'south recency bias, or overconfidence, or whatever information technology is. Do y'all witness this in your practice?
CJ:Oh, absolutely. Commencement I have to applaud Lee and Marcia for talking about this in general because it ofttimes gets overlooked, specially by the news of the day. And I felt similar it was a chip of a cop-out for me to take a plan equally the number ane thing for 2022 but that's what I would write for every year. And and then the reality is just because, like Marcia said, it gives you peace of listen, from a planning standpoint, having that perspective also allows you to wait at those biases and say, "Well, what is affecting my decision making?" And the truth about retirement planning is it's a serial of trade-off. And there are a lot of dissimilar levers you can pull, and there's no one right answer or one way to become from point A to point B and accept it exist the all-time. Information technology'southward a series of risks. And and then I call back benchmarking bias is a big i.
If you don't understand what every dollar in your portfolio is supposed to be doing, it's easy to read the news or look at the solar day-to-solar day marketplace action and say, "I'm not matching the Southward&P 500," but what you should exist benchmarking against is your programme. We like to tell clients, the goal in decumulation is dissimilar than accumulation. You're no longer as concerned about the day-to-day volatility of your portfolio minimizing that. Yous're concerned about minimizing the twenty-four hour period-to-day volatility of your income, and making sure that paycheck is information technology going to come regularly no matter the market environment. And so if you allow those cerebral biases affect you, you're going to be in a position where you might be led off-target and have to alter course mode also many times for that paycheck to be consistent.
Is Social Security Going Bankrupt?
00:29:33
Bob:Speaking of things that frighten people, Marcia, one of the topics that you like to talk about is Social Security and whether it'southward going bankrupt. Help us alleviate our fears effectually this.
Marcia:Yeah. Thanks, Bob. That is probably my biggest concern for folks coming, specially near retirement, I call it the hype and hoopla, that nosotros're all hearing out in that location, that Social Security is going broke. I wrote an article, I think for you lot Bob, at i point, and said similar, Chicken Little screaming, "The heaven is falling. The sky is falling." The sky is non falling. Social Security is not going broke. It just isn't.
And what we need to understand and have some noesis about, is Social Security is a police force. Really information technology's a massive law. It's well-nigh 4,900 pages long correct now. This is no small-scale animal. The only way changes can occur is if Congress makes it so. So are there rumors or room to amend? Absolutely. We demand to figure out something nearly our payroll taxes because money goes in, that we're all putting in as we're working, to pay our parents as they live in retirement and get this benefit. Then it's a pay-in or pay-to-play kind of system.
The savings account portion, the rainy 24-hour interval fund, that'south the office that is getting all the attending. Information technology does need to be shored up. Yes, indeed. But Congress is going to practise what Congress is going to do. We can't get too excited most that. Why this is then important... Nosotros all need to empathise that Social Security volition be there. Information technology is a social safety net and information technology is insurance. And once we empathise those pieces, it makes information technology easier for us to brand skillful decisions about when each of us individually tin can merits, and should claim. Though the business concern that I have is that with all of the very negative and very scary headlines, and news stories, or any you encounter on Facebook, when yous run across all of this, it's actually natural to go dorsum to behavioral finance, you want to get what'due south yours. Earlier that pot runs dry, I want to at least get the role that's mine as much equally I can. And that equates to claiming early on. And for the most part, or virtually Americans, the worst thing you lot tin practice is merits social security early on.
This is not meant for you when you're 62 and 63, it's meant for yous when y'all're 85 and 95, but the decisions y'all're making very early, often fifty-fifty before you're retired, and so those early on 60s, they will dog you in your 80s and 90s, and if you made a bad decision in your 60s, that'south but too bad. Y'all'll live with it for your unabridged life. And it's a significant reduction in benefits, up to 30% less per month because Social Security at present has to pay y'all for a lot longer. So that'south why I worry about these kinds of... Bankruptcy, information technology's such a negative word, and people are nervous when they hear it and they unfortunately make not equally practiced decisions every bit they could.
Building a Retirement Plan & Reduced Social Security Benefits
00:32:57
Bob:So let me expand on that. Nosotros do know that the trust fund will be depleted in 2033 or and then, and that the schedule benefits could be reduced by 25% or so. Maybe a question for Lee and CJ, would y'all build that into the programme? The possibility of benefits being reduced by 25%?
00:33:22
Lee:I'll toss it out and reply or reply just let me give this caveat. And I say this only because... From a volunteer perspective, I'm president of AARP here in the State of Georgia, and this is my personal positioning not AARP messaging. 1, purely from a planning perspective, most of the software that we as planners use have the ability to suit those kind of things up or down. And and so nosotros can illustrate to a client, "Hey look. Here's what it'll look similar if there is in fact this 25% reduction." Just we start with that baseline and have that conversation.
At present, Social Security has changed earlier. 65 used to exist the full number. Information technology hadn't been that forever. Over a period of years it ticked up, and at present 66 and two months, or 66 and three months to get your full benefit, and current, for folk like me it'll exist 67. Do I retrieve that Congress at some signal will assemble... As difficult every bit it may seem to imagine Congress agreeing to annihilation right at present, including whether or not information technology'south raining outside, at some betoken they'll get in that location and there volition be this come together moment. Now, does that mean we are going to play around with the age of getting benefits again? Does it mean ways-testing? Any of those sorts of things. I say, hey, listen, it's all on the table, but Social Security is going to crush that. Information technology's not going to go away. At that place is not an elected official in Washington that would cartel permit it go bye-cheerio. I call up the chances of that happening are zero.
00:35:13
CJ:I concord with that a 100%. I think information technology'd be political suicide to do nothing. So that'southward the number i incentive for politicians to human action. I have many working years ahead of me and I'm younger than, I believe a 100% of our electric current clients, specially the retired ones, and and so I similar to joke with them when they come in that, "Don't worry. My payroll taxes volition fund your Social Security." I can pretty much promise them that.
And I think information technology's important when information technology comes to what we model so that clients understand you lot don't necessarily desire to be too conservative. And it's not just Social Security. Nosotros could say we're going to run your plan with 50% less Social Security income, or even none at all if y'all're that worried about information technology. We could also run your plan then that you live to age 110. That could happen. We could run your plan at 0% market returns, because fifty-fifty though information technology hasn't happened in a thirty-year period, it could happen.
And the result is ever the aforementioned when you lot use two conservative assumptions, it's, well, you really can't retire when nosotros said you could or you tin't spend what y'all want. And you're not going to get the worst-case scenario except all but maybe i to 2% of the time. And so if you use that if you're planning for every time menstruation, generally you lot're going to end up being 85 with $10 meg more than you needed. And so for us it'southward about looking at information technology and proverb, "Well, how do we use reasonable and responsible assumptions but non be so conservative that yous're sacrificing the aureate years of your life when you're sixty and 70?" I would never want to tell a customer not to go accept that large vacation with their kids and grandkids considering Social Security might not exist at that place ten years from at present. I think that's just irresponsible.
More on Social Security Funding
00:36:53
Marcia:So Bob, I but want to chime in as well with... The last time Social Security's reserve account was running very dry was 1982.
Bob:Right.
Marcia:In 1983, we had the Social Security amendments to take care of that trouble.
Bob:Right.
Marcia:And so you're correct. 2033 is the year right now that's being projected when the savings business relationship portion will run dry. Well, probably 2032 Congress will put this on the agenda. They go downward to the wire, and nosotros can't overthink this or exist overly concerned but optics wide open.
Bob:Personally I'm of the opinion that I remember you have to plan for mayhap a worst-case event, the 25% reduction, then if information technology turns out that there is none, you've benefited from having a worst-case scenario in your plan. My personal opinion.
Medicare, Retiring Before Medicare & HSAs
00:37:53
Bob:Another topic, Marcia, that is on your list is how to become a better consumer of health insurance. In a world in which we take ACA prior to Medicare, and so Medicare mail service-65, lots of choices, lots of defoliation. Lots that could become wrong in terms of ownership more or ownership less than you need.
00:38:13
Marcia:Yeah. Health insurance is just a big mess at this signal. While I practise a lot in the Medicare side of wellness insurance, I also help people as they are leaving jobs, whether they chose to retire early or not... Because you accept this gap. So say you're 60, and you lot're leaving your job for whatever reason and your wellness insurance volition cease. You have to figure out what you're going to do between 60 and 65 because Medicare'south doors exercise not open until each individual turns 65.
Learning the organization is not an easy task. And there'southward an atrocious lot of racket, again, out there. The ads that run for Medicare Advantage Plans and Medigap plans in the fourth quarter, the drug ads. I mean, information technology's just an all healthcare environment these days. And then what I advise that people do, if you've got your health insurance at work, if you're working nevertheless and have wellness insurance, and it works for you to have a loftier deductible health program with an HSA... This is a peculiarly good strategy to put into place when you tin can, and it also really forces you into this whole notion of what it is to be in consumer-driven health insurance, because you lot have to have your hands dirty.
When you're in an HSA, are you going to spend money out of the HSA or can you afford to pay for that md visit out-of-pocket? How are the costs structured? What's this aligning? You know, I got a $3,000 bill but the insurance company'due south kickoff it or adjusted it by $2,900 and I owe a $100 . What? How tin that be? Or various drugs that you might accept prescription drugs that were zero last year in your health plan and at present they're 50 bucks a month. How tin that be? So you start to go more familiar and more of a consumer, even though I will tell you that it is all but impossible to become to any transparency of what the costs are for a particular procedure, or why the drug at CVS, the exact aforementioned drug at Walgreens costs 92% less. It is quite a crazy system but nosotros all owe it to ourselves before we become to Medicare to offset to acquire the ins and outs of the healthcare organization.
And I think one of the all-time things to come really since sliced bread is the Affordable Care Deed with the exchanges. It now allows all of us to become health insurance when we don't have a task. It just actually opened up a tremendous amount of opportunities for people to stay insured, considering non existence insured today will basically... That's where defalcation comes in, when you go a $55,000 blow or heart assault and you don't have $55,000 to coughing upwardly. That's what happens without insurance. And then stay insured, be insured, and acquire about the different types of insurance available to you at each different age.
00:41:35
Bob:I'd say the number ane question I used to receive prior to ACA was, "I've left the workforce pre-Medicare, how practise I get wellness insurance after I've exhausted my COBRA payments?". Lee, CJ, any comments almost health insurance in your world with real clients?
00:41:54
Lee:I am a huge fan of the HSA option when it's available. If you were to ask me, is there such a affair every bit a perfect investment vehicle, the HSA might be that, where y'all can have triple advantage, if yous will, of the tax code. So you've got money going in on a pre-tax footing and you know that in retirement you're going to have healthcare expenses and the ability to and so accept that out in retirement, it'due south tremendous. To the extent that it'southward an option for you, I encourage everybody to wait at that strongly because...
Nosotros've now been conditioned, if y'all volition... And it seems like 401(k) plans accept been around forever. That's not the example. Marcia, in the example of your daughters, it'south been effectually for the totality of their lives but perhaps not ours. Then yous take a look at that and kind of become, "Yeah, I get it." And there's a lilliputian coin coming out of my paycheck, and introducing my income so that's going in pre-tax and it grows and maybe I pay the taxes when I become to retirement, only here with the HSA, information technology's kind of similar, no, you don't pay taxes in retirement when you lot accept it out for healthcare expenses. It's a nearly "perfect" investment vehicle that can greatly do good and help.
When we go dorsum to the before part of the webinar and we were talking about the different segments of inflation and how you lot break down what'southward going on in healthcare infinite, the HSA and the nature of how it's taxed can help you grab up with some of that. Again, to the extent that it'due south bachelor to you and you can brand contributions and become it to a point where you can and so take the dollars that you put in it and grow information technology in the markets. So, absolutely take a await at that and encounter if you can have reward of it.
Bob:CJ, any thoughts?
00:43:55
CJ:Absolutely. Yes, I second that. The HSA is very powerful, non but an accumulation tool, only a decumulation tool. Some of the most flexible accounts out there. I practise encourage retirees to go on very detailed tracks of their receipts. And most affluent retirees can pay for their healthcare out of pocket, simply there's no deadline on when you lot demand to redeem those qualified medical expenses for a taxation redistribution. So you could have a leg surgery for $10,000 or something, pay for information technology out of pocket, and and then go on the $10,000 in your HSA growing for ten years, and then say, "Well, I need that $10,000 dorsum taxation gratuitous," go redeem the receipt 10 years later. And it's doubly important for your errors because unlike an inherited IRA where they can take it out over a 10-year flow and limit the tax liability, an HSA has to be redeemed with qualified medical expenses within 12 months after the decedent's death. And so if you don't have those receipts stockpiled, your heirs may accept trouble actually getting that money out without paying the taxes.
And the second point I want to make on the healthcare chat is that the cost is but 1 side of the coin. The other thing you need to go along in heed prior to retiring, before existence Medicare age, is coverage and admission. As much equally I love that the Affordable Care Human activity gives people an selection at present to take coverage, the options are very express in those states. For case, nosotros accept the Mayo Clinic here in Arizona, and many of our local clients will continue to work upwards to age 65 if they get coverage through the Mayo Clinic considering they don't have access to that on an commutation plan. Even if they can afford it on an Affordable Intendance Act, or even if they can afford the premiums for an substitution plan, they might not be able to go see their doctors or get the aforementioned level of care that they were getting while they were working. And so just make sure that you understand that the coverages may be different and it'southward not all about modeling in the cost.
Cryptocurrency & Retirement Planning
00:44:58
Bob:We take a question that came in about crypto, and it has to do with whether it'southward too tardily for the person to invest in crypto. I'll let that be a jump ball. Or peradventure, Lee, allow'due south start with yous since we talked about that briefly.
00:46:02
Lee:Okay. I'll swoop in. Fortunately just recently did a show with a genuine crypto expert. Again, put all the disclaimers, talk to your tax professional, your fiscal advisor, but no, it's not too late if in fact you lot believe in crypto. When nosotros talk virtually crypto, everybody'southward familiar with Bitcoin. I think that digital currencies are here to stay. They're not going to go anywhere. At present, are there a bajillion of them now? Absolutely. Do I think a bunch of them are just total garbage? Absolutely. Is it besides late? No.
At present, in that same vein, this goes back to that idea of behavioral finance and behavioral economics. It was at about this time concluding yr that Bitcoin started this run up and it'd perchance gotten to nigh sixty,000 and the telephone's ringing off the hook. I've got classmates pinging me and Facebook and all those sorts of things and asking these questions nigh crypto. Everybody's excited because Bitcoin was going to 60,000. And you lot have those conversations, it's really volatile, so on and then along. Bitcoin took a nosedive. By the time nosotros got to June, it was back down 25,000, xxx,000. Nobody chosen. And then my thing is, if you like Bitcoin when it'due south 60,000, you ought to love information technology at 25,000 or 30,000. It'southward a ownership opportunity. Buy low, sell high. But even in the world of cryptocurrency, consumers, investors tend to brand the same kind of behavioral mistakes with cryptocurrency that they practice with traditional stocks, if y'all will, or stocks. So I don't think it's besides late. I retrieve at that place'due south an opportunity there.
Now part of the trouble is, I've seen some projections, if you will, that they call up Bitcoin will become to a 100,000. And so you're not going to exist able to take advantage of some of the dynamics we talked about with my colleague, Bobby, and he introduced me to it, and looked at his mining rig dorsum in 2017 and what Bitcoin went to from 2017 till at present. That horse has then left the bar. Simply is there still room to run? Yes. How will some things similar Ethereum play out? We don't know. We're talking now NFTs and the metaverse, and I'll be candid with you, I'g however trying to wrap my heed around that real estate idea of location location but in the metaverse. I'm thinking, okay, if I'm logging in or pulling out my phone and going somewhere electronically, does it actually matter if that somewhere is next door to Las Vegas, or SoFi Stadium, or any it is? I don't know simply I'grand however trying to wrap my artillery around that portion of information technology.
00:49:13
Marcia:I'll say there are a few of united states of america here on the phone call onetime enough to remember Peter Lynch, who was the famed Magellan Fund manager at Fidelity. And I worked at Fidelity dorsum in the early '90s and Peter Lynch was still at that place. And he had one and only one phrase, and that was, "Know what yous own." And so my perspective on all the new crypto or the virtual currencies and the opportunities... In that location'southward e'er an opportunity. Remember the golden rush. A few people make it really big and most people don't, but you have to know what you own. And for people who have a difficult time understanding I Bonds, municipal bonds versus junk bonds, for case, and TIPS, possibly getting into crypto might be premature.
So if you lot want to invest the time, that'south when you win. If you just want to buy in because you like going to Vegas, you know the risks, you could lose it all, or you could gain big, but if you're not invested in the process and in the investments, then y'all shouldn't be at that place. And Bitcoin and the gang out there, no dissimilar. But y'all know, it'due south fun at a cocktail party or at Super Bowl on Dominicus to say, "Ah, I got Bitcoin."
00:50:42
Lee:Thinking of Super Bowl... I don't know perhaps some of you may have read the story of Odell Beckham. He's the receiver for the Rams and started the season playing for the Cleveland Browns and got traded mid-season, but decided to take his compensation in the grade of Bitcoin. So the remaining part of the season it was valued at $750,000. Well, dorsum in October, Bitcoin was at a high point so you lot got 60,000 coin. Well, you're in California, y'all took that as compensation so it'south taxable as income. And then where we stand today, you've got something that was worth $750,000 dorsum in October, maybe it's worth $400,000 now, you owe 300 and something in taxes. Y'all've got $40,000 $l,000 of Bitcoin now after you pay taxes. So it'due south a level of volatility that you've got to actually exist careful with.
And and so as nosotros begin to collectively endeavor to wrap our arms around it, from a regulatory perspective as fiscal advisors, the systems aren't built to bargain with, quite frankly. Secondarily, how practice nosotros comprise it into portfolios? It'due south a different level of volatility. When people become nervous about what happened last month in the stock market place where we had, again, a garden multifariousness 10% correction if y'all're talking about the Nasdaq, how do you bargain with 350% downward corrections in a space of 12 months? And what does that practise to your portfolio if that's a part of what you're looking to use in retirement?
So if you're going to wade into those waters at all, please, please, please, downsize it. Tip toe into those waters and have some time to try to acquire what that might do to your overall portfolio if you've got significantly more money in there. Because, once again, the final thing you want to take happen is... Yep, it sounds fun and it looks nice when things go upward, but they come up down, and so yous don't want your $5,000 a month retirement income to plough to $2,500. It's real hard to make that up when you lot're 80 years old.
Meridian Retirement Planning Moves in 2022
00:53:05
Bob:So we've got near five minutes left earlier the tiptop of the hr. What I'd love to exercise is to have each of you for maybe 1 minute or so depict, reiterate the top retirement financial planning move that people demand to make for 2022. CJ, let's become with you kickoff.
00:53:21
CJ:Build a programme, and I can't state this plenty, if a lot of the topics we discussed today were confusing or over your head, consult a professional. You don't necessarily need to become out and hire a professional person portfolio manager that you're going to pay for the remainder of your life. There are firms out at that place that volition give you hourly planning advice, or help build a comprehensive plan as a standalone offer. Only the biggest mistake you can make in pretending that you know things that yous might not know and acting on incomplete knowledge, so know when to hire somebody and build a plan this twelvemonth that you're actually going to stick to.
00:53:57
Marcia:I would say the number one motion to make is, start all of your preparation early on. Nevertheless old y'all are or whatever phase towards retirement you are, do things in a linear way. And then much of our tax constabulary, and the retirement laws, and Social Security and Medicare trigger on age. Start early on to sympathise what the opportunities are for y'all at various ages. Brand sure you're getting all of your ducks in a row well years before you lot need them. And if you lot're young, and even if you but call up you lot're young, proceed saving. The more than you lot can put into your 401(one thousand), your 403(b)... Open an IRA. Does not matter if it's tax-deferred or not. Any bucket you tin can cordon off, specifically for retirement, will exist found coin and y'all'll be grateful when you lot're over the 60s... When your numbers start with threescore for your birthdays.
00:55:02
Lee:I'll start with ane matter and information technology's strategic, and candidly, information technology'due south the tagline for our firm. Y'all desire to practise 3 things. You want to have a vision. So what is it that you're trying to reach? What exercise you desire your retirement to expect like? Start there. I hateful, we literally go into the conference room and get up on the whiteboard with our clients. I'g a horrible artist, and mayhap a stick figures, but we're getting up at that place and trying to get people to envision what they want and what their life looks like because once you lot've got that vision established, then you tin begin to outline that plan and draw upward a plan to get there. So step 1, have a vision.
Stride two, have a plan to get there. And if you lot do those things and monitor it, water it similar a garden, tend information technology similar a garden, sometimes y'all got to become out and pull out some weeds, tax changes are going to happen, and then you're going to have to course correct. I don't intendance where you lie on the political spectrum, hither in this state, we go a new president, we are going to get new revenue enhancement code. Information technology never fails. So understand that as we make these plans, they're written in pencil, so every now and and then you're going to have to pull out the eraser and make some adjustments. Pay attention to those things and you can live well in retirement.
00:56:23
Bob:All right. I guess I get the final discussion, which is... My advice would be, to become a student of the subject. I recently spoke to a adult female who was recently divorced. She asked me for some advice, I started throwing out terms like pre-tax and mail service-taxation, and she said to me at one betoken that her eyes were glazing over, that she really felt confused by just those terms lone and that she really needed to become more literate about all things related to money. And so for me, and for much of my career, helping people become students of the subject, helping them learn as much as they practise when they are investigating whether to purchase this or that washing auto, or to go on this or that trip is the same sort of intensity that yous should have when it comes to personal finance and retirement planning.
So with that I'd similar to give thanks CJ, and Lee, and Marcia for joining our first ever Retirement Daily webinar, and to give thanks all of you who attended today. It's greatly appreciated that you took the time out of your day to join us. So thank you.
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Source: https://www.thestreet.com/retirement-daily/planning-living-retirement/retirement-and-financial-planning-moves-for-2022
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