How Retirement Planning is Like a Game of Chess

Welcome into another episode of Mr. Stillman's Opus. I am Ben George alongside John Stillman. John, welcome back.

How are you? You returned. I did. Our 51st episode, your second. Congratulations. Thank you, sir.

If you don't know John, John is the president and founder of Rosewood Wealth Managements and author of The Financial Buffet, which I did spend a weekend reading. Not too long ago. It definitely should not have taken you a whole weekend. Well, making you feel good. It was about a night, but still a couple of bowel movements took a weekend to dive into it. I enjoyed it. I will say I did enjoy it. Well, thank you.

You can also check him out at rosewoodwealthmanagement.com. So I don't know how often you play chess. You play chess at all? I used to play more than I do now, which is never.

I played a lot in college. I actually made a chess board. So this was fun.

Here we go. So I don't know why I was so incredibly bored at some point. I think it was over Christmas break during one year of college.

And for whatever reason, I had nothing to do that day. And I'd just been in some store that had these really cool hand carved chess pieces. Yeah.

Seen them. So I said, I can, I can do this. I can make my own chess board. So I got all these random spare parts around the basement. These let's call it intricately formed chess pieces. Hand carved might be a bit of a stretch, but you could recognize for the most part what each piece was. Just putting together different spare parts. Did you actually design them like a chess piece or did you go creative like Carolina basketball players?

Well, it's funny you mentioned that. I don't know how you knew to ask that question because what we had. So I took the chess board and I had blue and white. Squares on it. And I had, you know, the outline of the state of North Carolina in the middle like it was the dean dome floor.

Okay. And so I made the chess pieces look like the piece they were supposed to be. But, but then I cut out a picture of different Carolina basketball players and put them on each of the pieces.

That's awesome. So you had, you know, Raymond Felton as the king and, uh, you know, Sean May was a rook. You can, you can tell what era I was at school, uh, based on this. But yeah, so I had this chess board. We'd play it in the dorm quite a bit until I think some of my less than perfectly constructed pieces started to fall apart. So it won't be a family heirloom. Not part of your legacy.

I'll have to make a new one. But, uh, all that to say that was the last time I played any kind of chess on a regular basis. Okay.

Well, I ask you that because that's today's topic. It's how financial retirement is like playing a game of chess. It's not like checkers. There's a little more intricacy to it in your planning. And I want to go through each of those pieces. You're familiar with the pieces. Obviously, you've been designing every year.

I made my own. So let's start at the very bottom and kind of work our way up. And I want you to kind of explain which pieces in terms of retirement strategy.

So let's start at the bottom and pond. How does that play into your strategy? Well, so think about the pawn in a game of chess. A lot of people sort of see these as expendable. They're kind of in the way you have to start moving them so you can get your other pieces out that can actually do something other than move one square.

At a time. Um, but once you sort of have this war of attrition happening on the chess board, if you have some pawns left that can make it to the other end of the board, what happens? They become a queen, right? Right.

So completely different piece that we now have on our hands. So you don't want to just let all of your pawns get slayed early on because you lose the opportunity for that upgrade later. And quite frankly, they are good for blocking and kind of keeping the other player from being able to make some moves. You have pawns in certain places that are kind of holding them at bay. So you don't want to overlook your pawns even though they seem very expendable.

You have so many of them, they can't do much. Well, that doesn't mean they're worthless. Alright, so what is the pawn of the financial world? The pawn of the financial world is the monthly contributions that you're making to your retirement. And in any given year, they may not seem like much. If you look at how much you put in your 401k this year, this calendar year, you might say, well, that's not going to last me very long in retirement.

That's a couple of months worth of income. But if you're in your 50s or 60s and you look back at everything that you've put in so far, and you look at all that compounding and growth on that over the years, well, you have a lot more of those accounts than what you actually contributed. Unless you just invested it all in a money market account, which hopefully you haven't done for the last 30 or 40 years. But if you've been putting money in religiously for 30 or 40 years, you probably have 20, maybe 30 times what you actually contributed in those accounts because of the way that the market behaves over time. Now, the other thing to consider is if you're on the front end of that equation, if you're in your 20s or 30s, and you're putting money in, it just doesn't feel like you're doing a lot. And maybe you put in $2,500 this year. And let's say we have a downturn in the market, and that 2,500 becomes 1,800. Well, now you're almost demoralized. Because you think the little bit I was putting in is now worth even less than it was, but you have to look at it over the long haul.

Just like that pawn that survives to the end of the chess game and becomes a queen at the end, that's eventually what happens with your monthly contributions if you'll stay with it. Yeah, I love that. I love that. And that's good advice. I mean, same way for me. Like, you try to get to that finish line much quicker. You don't enjoy that process. That's just part of the process, those small investments. Well, I mean, it's like anything else in life. It's like losing weight or it's like changing a bad habit.

Like, it just doesn't happen overnight, and it's no different with your investing. All right. How about the next one, the knight? This is one that's got a very specific movement, doesn't move in big chunks at a time, but it's a big piece in your chess strategy.

How does it play into finance? Well, so the knight is interesting on the chessboard because if you think about it, the knight is the only piece that can actually jump over other pieces. So any other piece that you're moving, there has to be a clear path from the point that they are to the point you want them to be.

And if there's a piece in their way, they can't move to that spot you want them to be. Well, the knight is different. The knight moves up to and over one.

And so if there are pieces in his way, it's okay. He kind of moves in this L-shaped direction, and that includes being able to jump over pieces. So that's a very specialized kind of thing that the knight can do. Now, the knight is limited in how far he can go because that L-shaped up to and over one pattern is all you can do. It's a very specialized move he can make, but it is helpful because it's so different from what something else can do. So he's not the most exciting piece, but boy, when you need him, he's really helpful. When the board is really crowded, sometimes the knight is about the only thing you can work with.

And a lot of professional chess players, a lot of your grandmasters will tell you that it's actually really hard to win a game without at least one of your knights on the board. So what then is the knight of the financial world? Well, that's the conservative investments in your portfolio.

Not very exciting. When the market's doing great, you're kind of looking at these conservative pieces saying, well, I wish I was invested more aggressively here because they're just not growing like the rest of my portfolio. Maybe I should make some changes. Well, but sure enough, as soon as the market turns down and you have no losses in those particular investments or maybe slight losses or maybe even slight gains, depending on how those conservative investments are invested, then you realize why you had those in the first place. And so just like the pawn that you don't want to assume is expendable, you don't want to look past the knight just because he can't move all the way across the board in one move. He has a very specialized purpose, just like those conservative investments in your portfolio.

And yeah, they're not the most exciting thing, but they do have a specialized purpose that you don't want to look past. Very good. Very good. I like that. Now, let's go to the one that is the one we all talk about, right?

This is the one you have to have. If you lose it, you pretty much just want to tip your king over and move on because you feel like you've lost the game. But it's the queen. The queen can do anything, can move everywhere. She seems like the best piece.

Is that the same case for your financial plan? Well, so a lot of people get really fixated on the queen. And in fact, I read about a guy, I can't remember what his name was, was probably Russian, but he was a great chess player of the past. And his whole strategy when he was playing maybe a less experienced player than himself, he would always use his queen as bait. So he put the queen out there in a vulnerable position, and the other player would take his queen. And then at that point, he would offer them a draw on the match. And of course, they would inevitably decline because, no, I just took this grandmaster's queen. Yeah, no, I'm not going to take a draw.

Well, you know what happens next. He would then run the table on them and win the game. And they were wishing they'd taken the draw when they had the opportunity. And so what he was doing, it was sort of a misdirection thing. He was getting them so fixated on his queen that they left themselves vulnerable in other places because they were trying so hard to take his queen out. So you could get fixated on other people's queen, or you could be too fixated on your own queen. Like you might be too worried about protecting her or trying to get her out there making moves because she seems like the most powerful piece on the board.

You get too focused on that, and you lose sight of other things on the board you should be paying attention to. So just like the knight is our conservative investments, the queen is our higher risk investment. The queen is our Facebook stock or our Google stock or our Netflix stock, which you've seen big growth in over the last five, six, seven years. And it's exciting. It's cool to watch.

You feel like you're making a lot of money when this happens. And just like the queen can move all the way across the board in any direction. She can go side to side, front back, diagonal, very powerful piece. But we can't get too focused on that one piece. You're not going to win a game of chess just with your queen. In the same way, you're not going to win the retirement game just by picking a few stocks that do really well over time. You need to have a lot of other asset classes that do well for you. So don't get too fixated on these few stocks that you've picked out because you take your eye off the ball and you miss some other pieces in your financial plan that you should be focusing on because you're too worried about the PE ratio of a particular stock that you want to pick or really reading about a certain investment and finding out about the new CEO somewhere and determining if it's a stock you want to buy or not. All those things are fine to do but you can't make that the only thing you focus on.

Okay. Well, the one that you have to focus on because as soon as you lose it, the game is over indeed and that's your king. So where does your king fit in?

What is that one thing that you have to always protect no matter what? Well, the king is your income and this is true whether you're working or whether you're retired. It's especially true once you're retired but while you're still working, that income is so important because that's your most powerful wealth building tool for one and obviously it's also how you pay all the bills. So if you don't have an income, well, we're not making any progress toward future wealth.

You're just surviving. But think about it once you're in retirement. If you don't have income, checkmate, right?

Game over. You have to have those income streams coming in which seems obvious but a lot of people just say, well, you know, I'll have my social security and $900,000 and I'll just take from this pile of $900,000 as I need it and hope I don't run out. But psychologically, you can't really spend money with confidence. You can't have the lifestyle that you want in retirement if you don't have some systematic way of knowing that the checks are coming in the next month. So if the only check you have coming in the next month is social security, let's say you're getting $2,000 a month but you spend $7,000 a month which means you have to take $5,000 a month out of your pile of $900,000. Psychologically, that becomes really difficult because you see that you're taking money out, that pile is getting smaller and smaller assuming the market isn't just going through the roof and you start second guessing everything you do. Should I be spending less?

Should we not have done that trip? Should I really ratchet down my withdrawal rate because I'm taking too much out? Am I going to run out of money?

You start having those concerns and then you can't have the lifestyle that you want. You can't enjoy retirement because you're always second guessing how much money you're taking out of your pile. So let's suppose that you set up your plan in such a way that you have regular income streams that are coming in every single month. Social security is basically going to be the base for everybody but then you might also have a pension, you might have some rental income, you might have an annuity that's paying you out every month.

You might have owned a business and you sold the business and you're getting regular payments from the business, from the person that bought you out. There are a lot of ways to create regular monthly income but you want to have that structured in such a way so that you always see those paychecks being replenished every month. In the same situation, maybe you spend $7,000 a month but if $6,000 of it is coming in in a predictable way month after month and those income streams are going to last the rest of your life, well that $1,000 extra that you have to take out kind of for your fund money, now that $1,000 a month doesn't stress you out because you don't feel like you're taking so much out of this pile. And so that's a really important thing to have.

That's the king in retirement planning is your income and you want to be sure that you don't ever lose the income. Indeed, chess is just like financial planning. I mean it really makes a lot of sense. You've laid it out pretty well today, John. You've always said that. That's the one thing that I have said coming in from day one, episode 51 to now. I've said that exact same thing.

I hear you. But John can help you with this. This team will help you with this.

Try to figure out your retirement income. I mean that's a big piece of it and John can help you figure out what you need and how you're going to earn that after you decide to retire. You can find him at rosewoodwealthmanagement.com. You can also call him at 800-545-2991.

That's also available by text. John, another episode of the book, man. Make sure people got to subscribe and review this podcast too, right?

Yeah, I don't know that we've ever commanded people to do that, but no time like the present. Much like your basketball recruits, John. We need five stars. That's it. Only. That's Mr. Stillman's Opus. Until next time, for John Stillman, I'm Ben George. Talk to you later.