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November 27, 2021 9:00 am
Happy Thanksgiving! We hope you enjoy this holiday weekend "Best of" edition of Game Plan For Retirement with Peter Richon.
Service planning matters radio will come in the program planning matters radio show and found her advisor, Sean and I click on planning.com and downloading a copy of my book. Understanding your invest options and I appreciate you tuning into this special best of Thanksgiving addition of the program. Any questions about your financial your investment, your retirement planning and progress. I encourage you to give us a call at Rochon planning 919-300-5886 919-300-5886.
Get right to it because on this addition of the program going to highlight some of our favorite interviews over the past couple years. We got some fantastic guests. The first of which is the former Comptroller Gen. of the United States of America, David M. Walker, now in his role as Comptroller Gen. David basically balanced the checkbook for the United States in his interview. He discussed the role the reasons why he resigned from the role and how he is personally planning for a more confident and secure financial future. So without further ado let's get some of these best of them took a lot of hard work and dedication to high level position. Basically, as the Government accountability office or as the Comptroller Gen. and you made the hard decision to step down from that position. What led to that difficult decision while advocating Comptroller Gen. United States editor Government accountability office. I recall that I set for myself and I accomplished a great goal.
After about nine years.
I ultimately determined that I was not going to be able to accomplish the goal. In that position and that third goal being able to not just talk about the problem with regard to our nation, but to be able to address sensible solutions that are nonpartisan in nature but should be able to gain bipartisan support. So that's why left the mission of the GAL report to Congress to help improve performance and assure accountability in the Congress generally does not want the GAO to be in the policy develop the subject expect that you are going to be making specific recommendations about the type of tax reforms, you need to consider the types of reforms the social insurance program. This is what you need to do in the area of defense spending.
This is what you need to do in the area of government organization, operation. It crossed the line between what historically they wanted GAO to do and what I felt needed to be done. The only one that I get accomplished was to have a meaningful down payment made to be able to put our nation's financial and that's what I thought you had to get into specific reforms which the Congress didn't really want to Comptroller Delgadillo.
So I am not doubting my own Compaq America initiative and I proved that the American people a lot smarter than the politicians realized they could handle the fruit they're willing to accept our choices longer part of a comprehensive and integrated plan designed to achieve a specific goal that they deem to be fair that I in particular, we did a $10 million Minotaur, which is how fast the unfunded obligations and that was gone up at the time 10 million a minute and we were able to engage the public and gained a super majority support for range of budget will security, Medicare, Medicaid, healthcare, defense, tax and other reforms that were designed to achieve a specific goal in the whole point is if you want to solve this problem. You can't do it with an inside the Beltway solution.
The people need to put pressure on their elected officials to be able to come up with solutions because the far right is going to have to compromise in the far left is going to have to compromise in order to get this job done. Now what we need is accomplish work together to operationalize but that by itself is not going to get the job done. The president is not talk much about how do we eliminate waste in the Defense Department. How do we end up separating the wheat from the jet between which government programs working which ones are we reforms Australia Medicare make consultants stable, secure, while not bucking the bank and those are the things you gonna have to address were not going to be able to grow our way out of this problem that exposes the economy continues to grow and while I agree that we need to grow the economy, create more job opportunities were also going to have to end up reforming healthcare social insurance programs defense spending in other areas, I haven't seen is much talk about that. The fact of the matter is, the federal government scrawled two big promise too much and is going to have to restructure if we can get the economy growing faster that will help baton choices are going to have to be made with regard to spending, including social insurance programs.
People need to understand that eventually those reforms will be made, the like of the live longer than expected.
The likely have to pay more for healthcare than they expect to break the plant site and best preserved electronic gather data so that they can so that they can have the flexibility to be able to deal with the kinds of changes that ultimately are going to have to happen.
Former Comptroller Gen. David M.
Walker than expanded on the conversation by discussing his greatest concern with some specific government programs or personal security is arguably the most important and clearly the most popular federal program. It is underfunded by about $11 trillion. When the so-called trust fund goes to zero and get out. Frankly less than 20 years from now. It still got about $0.78 in revenue for every dollar promised benefits does not like it's going to have no money, but we need to reform it. Now to try to be able to make it solvent sustainable, secure indefinitely. People may have to work somewhat longer remain.
They may get somewhat different amount than they think you're going to get what they're going to get something real changes are going to be in a healthcare government over from Medicare is underfunded. About $30 trillion in current dollar terms its trust fund will run out quicker than Social Security and I was really at the end up deciding to go to do about the fourth cataract of the biggest changes within a common healthcare area and people better understand that there are likely have to pay more for healthcare than they expected to address the concerns that David Walker expressed about our fiscal policy on the governmental level.
He explained what he is doing and what he feels we as individuals should do in order to help secure our financial future where you have to plan saving best preserved when you get closer to retirement lot. Look at your investment strategy aggressive allocation to make sure you have as much volatility when you get to the point retirement you need to think about how you want to convert your savings. Agree you want to consider annuities as an option, which protect you against longer life expectancy than you expected myself, you know I've gotten out of that. I got a significant amount in Ira. I got several life annuities, two of which are indexed for inflation or other factors. And so I think I'm in good shape but you know they didn't happen overnight.
I had to contemplate that and take steps over many years. In order for myself the conviction that I am today.
And others need to do the same. I'm not worried about myself. I'm not really worried about my kids, but I'm very concerned for my grandkids future and that's one of the reasons I'm still engaged in this white try to be able to put our finances in order, because I think what's going on now is your responsible.
It's immoral overburdening the future of our children and grandchildren when they don't have a lot tougher competition in the increasingly competitive global economy.
That's not the right thing to do and I do what I can to change that, as the former Comptroller Gen. Mr. David M Walker certainly has a uniquely qualified perspective on how the government will raise the capital to meet their ongoing obligations. Nobody likes to pay higher taxes, especially Bill think that getting a good deal. With regard to taxes already paying and there's no question that we can generate additional revenue through more economic growth. Most of the changes are going to have to make agreement, the spending side, but I believe in time were going to have to end up getting more tax revenue as a percentage of the economy than we have historically so there will be somewhat higher tax burdens over time.
But the bigger changes are going to take place on the spending side as they should for sure. I think you need to save and invest for the future.
Reasonable people can and will differ on whether or not you want to do it through.
For example, a Roth Ira or a regular. The difference being is when you pay taxes, obviously, almost all Americans are covered by Social Security which is the foundation of retirement security. Many Americans are included in employer-sponsored plans like 401(k) plans, and so those are already set up that you need to take advantage of those of the maximum extent possible, at least to the employer match for the real decision and what if anything did you beyond that, with regard in Iraq and do you do want to do it through a loss or who are regular high technology.
The David Walker was describing way that was personally planning a more stable during competent financial future scholar Jean planning 919-300-5886 919-300-5886. Next up on the special holiday Thanksgiving best of addition of planning matters radio we have the man who was credited with excepting the 4% rule for generating income in retirement. Now this is a rule or model that has been used by the majority of Wall Street retirement forecasts for nearly 30 years William Mangan is the planner the designs that model and we talked with him about how he came up with the 4% rule land reflecting on that rule what careful savers planners and investors pay attention to in their situation where time. Now I know that you are retired, you missed the financial industry.
It was a great noble profession.
I really enjoy the years I spent at golf course. I still keep in touch with all of my former colleague, so I still feel involved, still keeping in contact well if you mind could you give us a little history.
Can you explain the original concept of your 4% withdrawal rate model. What prompted you to come up with it and how did it work if you could describe it. I began as a financial planner in the late 80s and by the early 90s had clients are asking. Make another click and hit 50 20th retirement how much I need to save for retirement and once I get there. How much can I take without running onto my fellow 3035 years more and quite frankly you know I would not remember anything being published in our area. Nothing by CFP courses also did a lot of research I couldn't find anything so I decided to diss adopted as a research project myself started using historical data or on investment returns and inflation going way back into the 1920s and basically reconstructed the experience that retirees would've had and the 4% rule came out that what I did. I look for the worst case that happened to any retiree that turned out the retiree that retired in the late 60s, and 1968, 69, ran into a couple really bad bear markets early retirement and then he was hit with really high inflation and that turned out to be with the situation. I created the worst-case 4% rule, and with that 4% can you explain what it means.
As far as when a retiree is looking at how much space saved, how much they should be able to generate for that income. Yeah sure it was, in terms withdrawal. Let's say you have $100,000 IRA account when you retire. If you use 4% rule.
We would take out $4000 the first year and then he would throw the 4% number way and then each year increase your $4000 by the percentage inflation that your experience here before. So if you start out with 4003% inflation. Go to 4120. The second year and saw a deer that is basically that your lifestyle Yuri withdrawal to keep pace with inflation so that your lifestyle is maintained and this would give somebody a pretty high probability of success in retirement you sell will based on history since the worst-case situation was 100%. But you know you picked out a grain of salt because the 4% rule is not like Newton's laws of motion, which is a law of nature is a rule based on experience in markets and markets could change is possible in the future we might end up with something lower than 4%, but it's also 50 years so since the time that you did in septa and and publicize this 4% rule both the interest rate environment and the stability of the market at times have changed.
I guess more so with interest rates at present time staying pretty low for an extended periods do these kinds of changes affect how you would predict cash flow to be created.
So far I haven't seen any effects that would invalidate the 4% rule. Take a look at 2000 investor who know who retired right to use bear market now take a look at the 2008 retiree who also retired. You know when to use bear market in both of them are doing okay for retirement. They don't.
Having problems on the regional courses that stocks can recover over time, but I think the most important factor is that and nowhere in the last 50 years have we had a person inflation like we had in the 1970s. Remember when I talked about how the 4% rule was used. You have to increase your withdrawals by inflation every year so if inflation is 10% of your increase in your withdrawal every year. It's really putting a hole in your investments very rapidly without high inflation.
I don't ethically take something really drastic, which we have experienced before, to invalidate the 4% rule so you think that the higher inflation may have more of an effect on us. Ultimately, over time, then the lower interest rates or some amount of market volatility.
Along the way. Yes, because of experienced marketers volatility in the past experience periods of low interest rates in the past, but inflation I think is the greatest danger for retirees. Now figure returned to 1970. Inflation is directly very dangerous for portfolio retirees in other sources where you also made some special considerations based on tax status of of the accounts from which the income was being pulled out of taxes affect our income in retirement and your 4% mark. Okay, the more the higher tax rate.
You know, the higher and even businesses that say this is dealing with a taxable account okay now were getting to the 4% rule really applies to text for Catholic IRAs to Roth IRAs and 401(k)s investing in taxable accounts, retirement you have to figure that it could be as much is a 10% lower withdrawal rate of tax rates were to go up much higher than the art today. It could be that the taxes are very important begin with a taxable account so well. We have seen down years where we have seen people creating income from accounts that may have taken a loss for the individual who may have retired in 2000, and then experience to come down years right in the beginning, or somebody who retired in the year 2006 and experienced a couple down years. What was your advice beat them to have confidence in their retirement market portray better nature. They go down the recover I don't think people need to be overly concerned about that. The only reason they might be if they start out very aggressively decided to cut fiber five and half to 6% and then run into no big bear market, then I may have to have their plan redrawn based on the new no valuations for market that's the beauty of his or you don't have to. When you start applying off cyclical retirement. You can redo it every year.
If you want take a look at it now and probably should be reviewed. Absolutely. I believe they should be reviewed periodically for some of the American public, though that may not be familiar with with you or this model for forecasting a safe withdrawal rate in retirement. I feel like some of the expectations are to be able to generate much higher cash flow in retirement and 8% to 10% withdrawal rate because people look at historical returns. What would you say to folks about the reasonable withdrawal rate that you have predicted when I started doing this research that was pretty much the mindset would you describe the people would make the straight-line projections and say well enough stock to earn 10% bonds and five through can take out 7%. Seven I have it completely ignores the fact that if you get a big bear market early in retirement diminishes your polio for much it can recover. It reduces the many years it can last so you cannot ignore bear market. You can't do those high withdrawal rates with confidence. No particular to strengthen high valuations. That's another researcher Mark Michael Pizzi look at this and he said when the stock market is very expensive like it is now strict with the most conservative withdrawal rate don't don't don't get 50 (well, I would advise clients right now on questions about generating cash flow in retirement. Give us a call to Sean planning 9193005886919300586 and finally here on this best of Thanksgiving holiday.
Addition of planning matters radio we have industry thought leader, Tom had no author of the books. Don't worry retire happy and paychecks and play checks and he reflected on some of the fundamental premises behind structuring a more stable secure retirement. Read the research and research really one optimally retired based on mathematical, scientific and economic fact.
So what I write about is the lesson five retire the optimal way. Nobody knows what will be the best way but I thought what the optimal way in an optimal simply means you will be the best. More often than anything else to be the best in November.
Be the worst people are facing a life were mostly with the location anymore, and time on any guaranteed lifetime income more than ever are living longer than ever.
The market is very volatile. Reprinted $4 trillion the government and deadly monitoring of unfunded obligation. There's a lot to be worried about that. Number one, you gotta cover your basic living expenses were guaranteed lifetime income. So figure out how much you need to live in a month-to-month database and that should be covered with guaranteed lifetime income so that's that were started at the bonds with the fellow Realty. That's were guaranteed lifetime income for then step number two you need to optimize the rest your portfolio. Protect yourself against inflation because you can't just have a steady income right so if you have that increasing income electrolytes that's were stocks in real estate and other things can sit step number three got a plan for long-term care. She that's the one thing most people forget about the can wipe out the entire life's work is a no retirement plan is complete without a plan for long-term care in step number four most efficiently pass your wealth, your children and grandchildren is with life insurance.
I tell people time. Don't leave your kids any money, spend your money leaving life insurance critically was so much more for so much less so those are the four simple steps based on math and science and how to take you risk off the table and I'll make sure you're going to be happy in them expanded on that in the TV special and the other but don't worry retire happy. Author Tom had no went on to detail and explain some of the key financial risks we face during retirement thing about it or if you risk, market risk, we see not market to drop Mark's good out of the graduate before you retire young big trouble. There's withdrawal rate risk might take up too much money.
And what's the safe withdrawal rate of taking money out there is a single sequence of returns risk that people don't understand we do a follow-up on that. If you want to live inflation by the deflation you might need long-term care, you might die and live a long time. There's a lot of risks in retirement. But when you study it. There's only one number one risk and the number one risk, by far, nothing. If you can close your longevity risk because longevity is not just a risk. It's a risk multiply volume risk seats. If you think about it, the longer you live more like the market crashed, the longer you live more like you're going to take up too much money. The longer you live, the more likely inflation. This major purchasing power alone you live, the more likely you're going need long-term care if you be retiring at 65 and you drop them on your 68. It doesn't matter if the market crashes 10,000 point it doesn't matter if inflation is 15%.
It doesn't matter if you were drunk 12% here. It doesn't matter if you forget about long-term care insurance because you didn't live long enough to be 75, 80, 8590 it's all those other risks that can wipe you out. Tom continued to explain why he believes many workers savers and investors have been reluctant to learn about and adopt some of the fundamental planning methods crucial for a secure retirement.
In the 80s and 90s. The market was going so well, everybody with us. They were an investor and they were investing in there in the market is all about diversification. At that occasion, and they would just make money and make more money in the 401(k) was going up land 2006 and we had two major market crashes in 2000 and 2008 and the 401(k)s returning the 201 days and that it happened again. And some people are out there better there. They never go back in and when you're an investor in your saver you have one mindset and that's diversification allocation of that type of thing when you're growing retirement funds. Once you're in retirement are nearing retirement. Once in your 50s and 60s. You can't do that anymore okay because if you lose money right before or right after retirement can devastate your retirement. So once you get into the retirement phase is way different than the accumulation phase. If you think you're going to retire with a portfolio just withdraw money that I don't get out of that store, you run out of money and so in the distribution phase but you got a habit you got it guaranteed lifetime income. You gotta take longevity risk off the table. You gotta take long-term care risk off the table. You gotta take withdrawal rate risk off the table sequence returns risk to gotta take these various risks of the table to retire successfully.
That's with the math and science shows. These are in my opinion these are what all the beasties of study retirement slaved out of doing. It is really a simple formula once you figured out author of the book and host of the PBS special.
Don't worry, retire happy, Tom. Hagner then explained the difference between an investment plan and an income plan and why having an income plan is so important in structuring a plan that provides for stability yellow back to the sequence returns receipt of stock market average 12% here since 1924, so people say well if you understood the money in the market are just withdraw money out of that will give you your money in a diversified portfolio take income if you can't withdraw 12%.
Here you can withdraw 10% a year, or 8% or 6%.
Not even 4%. MorningStar's is a safe withdrawal rate is 2.8% proceed to some people it doesn't make sense if the markets average 12% here.
Certainly I can take on more than 2.8.
They don't understand that no you can't because of you have a diversified portfolio. I don't care who's running that could be one profit if the first three years you retirement the market goes down, down, down, there is much else I can do for your reader going up to put in more take up less or you likely will run out of money. That's called the sequence of returns risk because of the sequence of returns, risks, you cannot going to retirement the same way that you saved accumulated money and so you've got to have a base level of guaranteed lifetime income to snow. There are three sources of guaranteed lifetime income.
The first source of Social Security. A lot of people know about Social Security but they don't know what it is Social Security.
The lifetime income annuity is a guaranteed paycheck for life. The second source of the pension. Now people know about pensions, but do they know the pension of a lifetime income annuity guaranteed paycheck for life and as I said math and science is your basic living expenses need to be covered with guaranteed lifetime income so Social Security counts and penchant out whatever your short you're supposed to go find an insurance company and by some form of lifetime income annuity. Now I've been around the block enough I spoken all over the world, people, communities like Tom, we don't like annuities around here.
Susie don't like annuities, they done like notice Ken Fisher takes Opal Bay jabbed.
I hate annuities and so should you. We don't like the ability to run here. I got surprised like seriously, could you tell me like annuities to let me understand what you just said you paid into Social Security for 35 years. Jorgen called the so security ministries they stop those checks. We know one another. Social Security check this out. We don't like annuities are you seriously going to do that you work for the company for 42 years, but you're gonna call up HR site stop those pension checks. We are not one another pension check in this house will like annuities. Let me say well I guess we like those kind of annuities is just as insurance company annuities we don't like I say, really. Why is that because they're all loaded up with these really what the total ongoing fees in a lifetime income annuity are there zero. It's not even a fee product of your guaranteed a thousand bucks a month retroactive summit to get a thousand bucks a month for the rest your life. Note there are annuities that have these terrible news of these men actually writers have fees.
It doesn't mean a bad what you do to get away what is to guarantee versus what is the feet, but basic lifetime income annuities are not even see products and people just don't understand, and you can have a check continued.
As you can up the check. Continue to a child he could have the check. Continual grandchild identity policing to pay for 100 years that the key is to have guaranteed lifetime income to at least cover those basic living expenses. If if your listeners only got that out of this interview happy happy because they would be much more likely to be happy and successful in retirement than the people say well I gotta broker my program is all that oh yeah they don't have some guaranteed lifetime income your portfolio, you're likely to have problems down the road but that's why when into the research. You know nobody's reading the speech. These white papers, but I did not put it in the book of people can simply understand the Wall Street Way is just put it in the market and the market does get overtime and by dividend by utilities and by real estate. That's the Wall Street Way. While I don't see any any PhD's writing white papers on. That's the way to be optimal in retirement. Certainly those things can play a role in your retirement. That's where you optimize or protect against inflation. But I don't see anybody out there saying, all by real estate and by dividend to cover your basic living expenses in retirement that be ridiculous, and so I just don't think a lot of the Wall Street people understand the math and science behind the successful retirement and I was always her daughter out there. Peter Strauss give people a chance to prove me wrong. It appears all you gotta do you think that I'm that I'm feeling affordable you don't believe me as I got it together for political stocks and bonds with STOCKS and bonds take some of the bonds out put a lifetime income annuity and you don't ever do that every single in your portfolios. It will lower the risk increase returns.
I tell people if you don't believe me.
Prove me wrong. But here's what you can't inside of the portfolio. The way the lifetime income annuity works works at a AAA rated bonds with a triple. She rated you with zero standard deviation of your AAA write about the trip. She rated you with zero standard deviation.
Everyone loaded with these this week's edition planning matters radio with David Walker Mangan and Tom Hagner some fantastic guest of the future. If you've got questions or concerns about your own planning. Give us a call Rochon planning and we will sit down with you talk about your goals and help you formulate and optimize retirement 919-300-5869 193005 didn't get overstuffed Thanksgiving turkey and hope to hear enjoying the holiday shopping. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy you were encouraging investment tax or legal advice from an independent professional advisor. Any investment and/or investment strategies mentioned involve risk and possible loss of principal binary services offered through Brookstone capital management. The registered investment advisor. Duty extends only to investment advisory advice but does not extend to other activities such as insurance or broker-dealer services advisory clients are charged a quarterly fee for asset management products and commission, which may result in a conflict of interest regarding compensation