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welcome to the best interest podcast
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where we believe Benjamin Franklin's
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advice that an investment in knowledge
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pays the best interest both in finances
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and in your life every episode teaches
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you personal finance and investing in
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simple terms now here's your host Jesse
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Kramer hello and welcome to episode 88
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of the best interest podcast my name is
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Jesse Kramer later in today's episode
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Rob Berger will be joining me but first
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we'll do our normal housekeeping let's
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start with a review of the week this one
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comes from uh bing who left a review on
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Apple podcasts and Bing wrote in and
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said clear thinker clear Communicator
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I'm not a fan of financial advisers
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because in my own 30-year experience
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their self-interest in every case
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resulted in collecting abusive fees
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pitching inappropriate products or
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providing dismal analysis but I like
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Jesse I have no Financial involvement
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with him yet he has responded to my
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email questions with thoughtful and
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actionable ideas he thinks clearly
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cutting through the mudle of information
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to provide Clarity and understanding
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thank you for those kind words you're
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right like in many professions there is
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a spectrum of financial advisers
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financial planners whatever you want to
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call us that spectrum is pretty far and
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wide and and you're right some folks are
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not on a good end of that spectrum and I
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I do my best to stay above the noise and
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think long term and provide good advice
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to you guys whether you work with me
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professionally or not so thank you Bing
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if you're hearing this Bing feel free to
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shoot me an email at Jesse best. blog
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and I'll get you hooked up with a super
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soft bestest t-shirt like I alluded to
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before later in today's episode Rob
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Berger will be joining the podcast Rob
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is a contributing editor for Forbes
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advisor he's the host of the Financial
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Freedom show he's the author of a a
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really good book called retire before
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Mom and Dad and Rob has perhaps the
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single best YouTube channel out there
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for retirement planning education I can
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honestly say that I probably watch Rob's
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YouTube content just as as much as
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anyone else out there even when it's
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topics that I'm already pretty familiar
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with I just like Rob's presentation
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style and it's always good to to see how
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someone else thinks about these problems
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but before we get to Rob and before we
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talk about some retirement planning
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topics with him I want to read from one
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of my retirement articles I wrote it
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this past February uh February of 2024
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and I titled the article fundamentals of
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retirement is the summit good enough now
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the adarand Deek mountains there this
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gorgeous outdoor Wonderland land here in
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Upstate New York attracting tourists
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from all over the world the park
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actually covers about 20% of the state
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of New York that's three times larger
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than Yellowstone Park and perhaps you
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know the adks that's what people call
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the adarand deex perhaps the adk's most
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extraordinary natural resources are the
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46 High Peaks these tall mountains in
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the Park's northeast corner now a good
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friend of the blog and the podcast Tyler
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not the same Tyler who appeared here on
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episode 887 but Tyler soash is his name
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Tyler leted L me on one of my first high
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peak adventures and thanks for listening
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and reading Tyler he and I conquered the
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dicks range that's DX the dicks range
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summiting Four Peaks in one day trudging
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about 15 miles through the the
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mountainous Woods over about a 12-hour
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day and and it's hard work it was a
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draining day I drank much more water
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than expected I chafed in some
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uncomfortable ways I probably ate dinner
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for two people that night and slept like
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a baby and learned a lot of appc lessons
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for my next hike for example during our
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rest breaks at the summits I observed
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the other hikers around us and what were
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they doing that I wasn't some of them
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were fit and and lean other hikers
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though they were maybe a little bit
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overweight some of the hikers had
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expensive gear lightweight gear all the
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gadgets other people were wearing gym
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shorts and sneakers the people who who
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looked like they knew what they were
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doing they were drinking from Nene
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bottles they were eating rehydrated
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meals or calorie dense meals whereas the
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more amateur-looking people they had
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Poland Spring water bottles and neutr
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grain bars there were all shapes and
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sizes of hikers a really broad spectrum
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between the the expertly prepared hikers
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and the woefully inexperienced ones but
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all of these hikers as I'm sitting there
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on the top of the mountain I mean they
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all had reached the top of the mountain
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right and hopefully they were all going
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to get back to the bottom of the
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mountain too I for one I'm a little bit
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on the taller side and going down the
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mountain especially after you're re
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tired from going up can be just as hard
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but anyway that's a bit of a side quest
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a side topic for another day I'm sitting
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there and I'm seeing all these hikers on
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top of the mountain who they they've
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done something successfully even though
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they had different levels of
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preparedness to get there of course more
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preparedness it requires more research
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more time probably more money to buy
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that stuff but it also provides a higher
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probability of summoning the mountains
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for sure it probably provides a more
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straightforward path to getting to the
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top of the mountain and it also provides
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the mental confidence of knowing that
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you are prepared that you are ready for
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this hike that lies before you now less
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preparedness is certainly easier up
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front but is it easy in the long run
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probably not this is where we should
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invoke Benjamin Franklin's quote maybe
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my second favorite Benjamin Franklin
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quote a stitch in time saves nine that
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idea rhymes with the concept of hard
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choices easy life easy choices hard life
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where do you want to fall on the
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spectrum of preparedness that's a
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question I'd ask and it's totally your
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call there's no correct answer in
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General but only a correct answer for
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you you'll hopefully reach the summit
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either way but your preparedness it
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provides some flexibility in how easy or
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how hard that Journey will be in my
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experience running the best interest and
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working professionally in financial
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planning retirement preparedness works
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the same exact way and I received a
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perfect example via email from a Blog
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reader John John wrote in he said hey
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Jesse my wife and I are 56 and 58 years
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old respectively we're on the verge of
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retirement I hope we have about $2
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million in traditional accounts 500,000
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in Roth accounts about 400,000 in
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taxable accounts 95% of that money is
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invested in Diversified stocks we'll
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both receive significant social security
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benefits we live within our means and
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last year our total outflow of money was
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just shy of $100,000 do you think we're
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ready to retire can we chat with you
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about retirement Readiness so this came
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from John and his wife Eva and some
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quick math that I did so John and Eva
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they had 2.9 Million in assets to
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support a $90,000 annual lifestyle
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they'd be at less than a 3% withdrawal
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rate and that isn't even accounting from
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their very healthy social security
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income they're probably going to
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withdraw less than 1% of their Assets in
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retirement now do JN and Eva need
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professional help I don't see how they
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do if we think about this as as climbing
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a mountain they're definitely going to
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reach the top but could JN and Eva
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benefit in some way from some sort of
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financial professionals help I'm sure
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they could and this is where we get back
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to that whole preparedness topic it's
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like my adventure in the the dicks range
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in the around de I conquered the
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mountains I didn't need to be more
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prepared but I could have been and I
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probably should have been and I should
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have done a few things differently that
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day to make the day more manageable less
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tiring to eliminate the probability of
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failure or certainly just to eliminate
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some of the discomfort along the way now
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many of us especially the people who are
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listening to the best interest podcast
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right you have essentially self-
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selected yourselves because you're
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interested in personal finance and
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investing and you're taking this
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interest into your own hands right
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you're a DIY or you're a
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do-it-yourselfer you want to be in
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control you probably are pretty good at
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what you're doing right now right you
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have a good handle on your financial
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plan you probably don't need
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intervention but it might help one or
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two of you to get on the phone with an
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hourly financial planner and figure out
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what's going on to to get that little
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extra tip here or there or as I've
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alluded to here before right I don't
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provide hourly Financial Planning in my
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own practice I tend to work with people
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who are much further out on the Spectrum
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as far as DIY stuff and DIY financial
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planning I tend to work with people who
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have zero interest in all in the kind of
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things that we talk about here you might
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know some of them some people who they
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need the help and they have no idea
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where to go to and they need someone
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holding their hand for everything when
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it comes to their financial plan
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retirement plan all shapes and sizes
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right as a spectrum I find it hard to
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imagine a scenario where John and Eva
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live some sort of failed Financial
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retirement regardless of any
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professional advice they're on course to
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Summit the mountain but still many
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critical Financial questions come to my
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mind for them for example uh they plan
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on retiring before age 59 and a half so
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what's their plan for funding those
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intervening years they have a lot of
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different options but I'm curious what
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their plan is for 99% of people on the
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verge of retirement like John and Eva
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are I would say that their portfolio
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which is 95% in stocks is likely
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inappropriate in general I'm wondering
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how John and Eva plan on balancing
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withdrawals from their Roth accounts
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right where there's no more tax
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consequence with their traditional
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accounts which are fully taxable as
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income and their taxable accounts which
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will have some capital gains in there
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now done poorly they'll leak some money
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to taxes in some unnecessary ways again
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it's not going to prevent them from
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retiring successfully but it will be an
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inefficiency that working with some sort
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of financial planner would help them
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with are they sure that waiting until 67
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years old is the optimal Social Security
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move for both of them it usually isn't
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we've talked about that before there's
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usually some combination of one partner
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collects early another another partner
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collects late what is their healthc care
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plan before Medicare a very important
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question Do they have any significant
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financial goals Beyond just living their
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normal lifestyle are they prepared to
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fund those goals do they want to leave a
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certain amount of money to their heirs
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do they want to have a building named
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after them at the college campus for
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their alumni you know that kind of thing
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are they prepared for that and there's
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many more you know there are a lot of
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puzzle pieces to retirement and many
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different ways to arrange those puzzle
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pieces I'm sure John and Eva have some
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answers some semblance of answers to
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those questions but my experience with
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similar families is that their answers
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are rarely optimized so while it's
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terrific that they're better off than
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most people as I alluded to now three or
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four times I'm sure they're not going to
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fail in their retirement there's still a
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lot of room for optimization and
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therefore room for dollar saved and
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dollars earned if they were hikers
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they'd be in Peak Physical shape with
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plenty of water I can't see them failing
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to get up the mountain but did they
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bring their map and Compass just in case
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are they aware that those cotton
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Underpants are going to get very
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uncomfortable over the course of the day
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are they aware that the trail head
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parking lot is by reservation only their
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hiking day might be more annoying than
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it needed to be and who wants that so is
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preparedness worth it so just as I
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mentioned earlier here in this episode I
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went back to John and Eva and I asked
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them where do you want to fall on the
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spectrum of preparedness it's totally
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your call there's no right answer in
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general but only right answer for you
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now based on John's email to me I have
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plenty of questions for them I think
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they could use a sanity check or maybe
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even more for their retirement
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preparedness but of course that
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preparedness it costs time and money and
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energy and do they do John and Evo want
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to incur those costs to get even more
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prepared than they already are will they
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see enough benefit from those costs uh
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are they beyond the point of diminishing
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returns will paying those costs simply
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help them feel more confident get them
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more sleep at night and is that worth it
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perhaps they're ready to hit the trail
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as is perhaps they're ready to to retire
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today as is but they might have more
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annoyances along the way than needed so
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again that's the whole idea between is
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reaching the summit good enough if you
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finish your hike great but were you kind
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of uncomfortable along the way were you
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tired were you overly sweaty did you not
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quite have enough water I bet a lot of
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you might fall into that boat these are
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good questions to ask yourselves and if
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you need a little bit of help along the
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way there's probably an hourly or a
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project-based fee only financial planner
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out there who can help you if you need a
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lot of help if you want someone holding
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your hand the whole time
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if someone you know wants someone
00:12:01
holding their hand the whole time
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there's also going to be a the only
00:12:05
financial planner out there for you
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that's more that second boat that's more
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where I tend to focus either way I just
00:12:11
think that this is an interesting idea
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and a good thing for all of us to be
00:12:14
thinking about as we approach our own
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retirements here's a quick ad and then
00:12:19
we'll get back to the show every week I
00:12:21
send a quick free email to thousands of
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readers that shares three Simple Things
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One my new articles and podcasts two two
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from all over the Internet and three a
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financial chart that explains some
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important Concept in the news that week
00:12:38
it's a great primer to boost your
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financial knowhow ah but Jesse I don't
00:12:43
want another email well this might not
00:12:45
be for you but I do hear you which is
00:12:47
why I make it very short sweet and full
00:12:50
of only the essentials a whopping 66% of
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subscribers read my email at least once
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a month they're enjoying it and maybe
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you will too you can subscribe for free
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on the homepage at bestter interest.
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blog again that's a free no strings
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attached subscription at bestter
00:13:07
interest. blog so with that I want to
00:13:10
welcome on Rob burger here onto the best
00:13:12
interest podcast it's real honor having
00:13:14
Rob here as I mentioned before Rob is a
00:13:16
contributing editor for Forbes adviser
00:13:18
he's the host of the Financial Freedom
00:13:20
show and the author of retire before Mom
00:13:22
and Dad and among his many other
00:13:25
accolades I think Rob has perhaps the
00:13:26
single best YouTube channel out there
00:13:29
for retirement planning education so
00:13:31
here is Rob
00:13:32
[Music]
00:13:36
Burger well Rob thank you for joining us
00:13:39
today on the best interest podcast and
00:13:41
as the listeners heard in my intro you
00:13:44
haven't heard the intro yet but as they
00:13:45
heard I really love tuning into your
00:13:47
retirement planning content on YouTube
00:13:49
and I think many of the listeners if
00:13:51
they aren't familiar with you will find
00:13:52
that interesting as well and I wanted to
00:13:54
start today with a juicy retirement
00:13:56
planning question that came from one
00:13:59
your recent videos so what exactly Rob
00:14:01
is the retirement income death spiral
00:14:04
sounds pretty scary yeah it does doesn't
00:14:07
it first of all Jesse thanks for having
00:14:08
me uh I'm a big fan of yours I
00:14:10
appreciate you inviting me onto your
00:14:12
podcast that video came from an article
00:14:14
that a guy named Sandbridge if I've got
00:14:16
his name right wrote but the concept is
00:14:19
kind of simple we all want to know how
00:14:20
much can we spend in retirement without
00:14:23
running out of money and of course
00:14:24
that's a difficult question to answer in
00:14:27
the best of circumstances right cuz we
00:14:28
don't know how long going to live we
00:14:29
don't know what the stock market's going
00:14:30
to do we don't know what our health is
00:14:32
going to be like inflation but there are
00:14:34
rules of thumb we can certainly talk
00:14:35
about them the 4% rules probably the
00:14:37
most well-known but there's many many
00:14:39
more of ways to figure out that question
00:14:42
as best we can Sandage realized though
00:14:45
he did did some research he said you
00:14:47
know in those circumstances where people
00:14:49
run out of money we might mistakenly
00:14:52
think that the decline in their
00:14:54
portfolio sort of gradual got lower and
00:14:57
lower because maybe inflation that had a
00:14:59
take out more to keep up the stock
00:15:00
market was going down and sort of
00:15:02
gradually they just ran out of money
00:15:03
what he says is that's not actually how
00:15:05
it works in many cases what can happen
00:15:07
is you kind of gradually run out of
00:15:09
money and maybe even for a fairly long
00:15:12
period of time think 15 to 20 years in
00:15:15
retirement but then what happens is this
00:15:17
is the death spiral part of this whole
00:15:18
thing is you can then you might lose
00:15:20
half your portfolio in 15 years let's
00:15:23
say but you can lose the rest of it in
00:15:25
five you know a lot of it just comes
00:15:26
down to bad luck when did you retire and
00:15:29
what was the market going to do after
00:15:30
that in inflation you can enter again
00:15:32
what he calls the death spiral and you
00:15:34
can run out of money very very very
00:15:37
quickly in retirement that's what it is
00:15:39
so there's some Tipping Point in there I
00:15:41
mean is there any underlying mechanics
00:15:43
behind the Tipping Point whether it's
00:15:45
just increased withdrawals combined with
00:15:48
poor market returns combined with
00:15:51
principal value just isn't high enough
00:15:52
anymore well I mean that's effectively
00:15:54
what happens a big component is
00:15:56
inflation and if you think about it to
00:15:59
me inflation is far more dangerous than
00:16:01
a bare Market you know you go back to
00:16:04
like 2000 to 2002 when the tech Bubble
00:16:07
Burst or the Great Recession what ow 789
00:16:10
those were very bad Market times but we
00:16:13
recovered as long as you stayed in the
00:16:15
market even for retirees because you're
00:16:17
not spending your whole portfolio you
00:16:18
may be spending 3 or 4% a year so most
00:16:21
of it's still invested if you just stay
00:16:23
of the course you were fine inflation
00:16:25
though is cumulative you know I've
00:16:27
talked to people this year who Say Bo
00:16:30
inflation is terrible my first reaction
00:16:32
to that was well I don't know it's only
00:16:34
around 3% I mean it's higher than the
00:16:35
FED ones but I wouldn't call that
00:16:37
terrible and their response to that is
00:16:39
well have you been to the grocery store
00:16:40
lately have you been to Chick-fil-A I
00:16:41
mean it's outrageous and it hit me the
00:16:44
point is yeah inflation today is really
00:16:46
not that bad but it's 3% on top of
00:16:49
prices that are really high because of
00:16:52
the 9% inflation a couple of years ago
00:16:54
and the 8 and 7% inflation and that gets
00:16:57
built into the found of prices and
00:17:00
unless we have deflation which
00:17:02
occasionally we do but that's not normal
00:17:05
it's sort of built in to all future
00:17:07
prices going forward and that's
00:17:08
certainly true in retirement so anyway
00:17:10
yeah all of those things can cause this
00:17:13
problem now I will say he has something
00:17:15
he calls the momentum ratio I find it a
00:17:18
little convoluted but it's a way to try
00:17:20
to figure out are you heading towards
00:17:22
this death spiral it's basically taking
00:17:25
any increases in your portfolio and
00:17:27
comparing that to any in your portfolio
00:17:29
just looking at the total balance and
00:17:31
comparing it to your your starting point
00:17:33
and taking a ratio of that and when the
00:17:35
losses exceed the the gains you're in
00:17:37
trouble basically what he says and I can
00:17:39
give you a link to the article if you
00:17:41
want it you know I think there's a
00:17:42
practical side to this I've yet to meet
00:17:44
someone who says yeah I retired 12 years
00:17:46
ago I started at 4% I've adjusted for
00:17:48
inflation every year and that's exactly
00:17:50
what I spend every year I never look at
00:17:53
my portfolio balance that doesn't matter
00:17:55
anymore you know and people just don't
00:17:57
live that way we evaluate wait every
00:17:59
year the Market's bad inflation's High
00:18:01
we cut back the death spiral is
00:18:03
interesting and something to give some
00:18:05
serious thought to it's really just
00:18:07
another way of looking at sequence
00:18:08
what's called sequence of returns risk
00:18:10
but as a practical matter I'm not sure
00:18:13
very many retirees are going to be
00:18:14
calculating their momentum ratio
00:18:16
although by the way I have some that do
00:18:19
so you're an engineer or we're an
00:18:20
engineer maybe that's what you're going
00:18:21
to calculate I don't know I I majored in
00:18:23
English so I'm not going to calculate it
00:18:25
momentum is appealing to me but I'm I'm
00:18:26
not sure I'll have to look at that paper
00:18:28
that cited and then I'll look up the
00:18:29
momentum ratio for myself that is
00:18:31
interesting the the whole sequence of
00:18:32
returns risk and I never really thought
00:18:34
about this until you brought it up which
00:18:36
is there's almost Al also a sequence of
00:18:39
inflation risk 10% inflation strikes
00:18:42
once during my retirement I'd much
00:18:44
rather have it strike in year 40 than in
00:18:47
year one because of that cumulative
00:18:49
nature and so today's recent retirees
00:18:52
who might have retired in 21 or 22 or 23
00:18:55
for them having that what was it a year
00:18:57
of roughly 9% 8% % 9% inflation
00:19:00
something like that happened early on in
00:19:01
their retirements is not very good for
00:19:03
them well but there is some good there
00:19:05
is a silver lining maybe but you're
00:19:07
absolutely right I mean if you look back
00:19:09
they've done studies back to 1871 I
00:19:11
don't know why that's just because of
00:19:13
data that's what they have I you know
00:19:14
nothing against 1870 but they started at
00:19:17
1871 and basically depending on exactly
00:19:20
how you measure it the worst time to
00:19:21
retire is the mid late 60s 1960s 1966
00:19:26
1968 and the reason is because of of the
00:19:28
high inflation of the 70s and early 80s
00:19:30
but remember that lasted you know a
00:19:32
decade so it wasn't just one bad year
00:19:34
because of Co and all of that and now
00:19:36
we're kind of more or less doing pretty
00:19:38
well inflation wise it was a decade of
00:19:41
bad numbers but you're right if you do
00:19:44
experience significant inflation I I I I
00:19:47
don't know that I would put the 9% for a
00:19:48
year or two in there because we were we
00:19:51
recovered so quickly but when you look
00:19:53
internationally and again there are
00:19:54
studies that do this at Germany for
00:19:56
example they if you look back the same
00:19:58
time period their safe withdrawal rate
00:20:01
is not 4% it's less than 1% and you
00:20:04
think well wait a minute Germany is a
00:20:06
pretty strong economy what's going on
00:20:07
there and the problem is World War I and
00:20:10
they had hyperinflation late teens early
00:20:12
20s and when you put that into the
00:20:14
equation it just completely wrecks
00:20:16
retirement so yeah inflation can
00:20:18
absolutely create big issues for
00:20:21
retirees I'm cautiously optimistic that
00:20:23
our one year of 9% or two years of high
00:20:26
inflation in and of itself is not enough
00:20:29
to derail retirements I'll let you know
00:20:31
in 30 years if I'm right about that or
00:20:32
not when I hear people talking about the
00:20:35
dangers of inflation when it comes to
00:20:37
retirement planning the two asset
00:20:39
classes or maybe even three asset
00:20:41
classes that I hear talked about the
00:20:42
most some people talk about stocks
00:20:44
having a built-in inflation protection
00:20:46
some people talk about tips I mean
00:20:48
inflation protection is right there in
00:20:50
the name and the third category is gold
00:20:52
Andor Commodities in general as having
00:20:55
some sort of built-in inflation
00:20:56
protection do you have any thoughts on
00:20:58
on that or any maybe even things that
00:21:00
you do in your own portfolio when it
00:21:02
comes to inflation protection so
00:21:04
certainly certainly stocks longterm can
00:21:07
protect us from inflation in the short
00:21:08
term stocks can get brutalized and you
00:21:11
look back if we want to use 70s as an
00:21:13
example look at 73 and 74 terrible time
00:21:15
there maybe a lot of reasons we wouldn't
00:21:17
just say inflation but in the short term
00:21:20
yeah stocks can take a beating and you
00:21:22
know we saw that in 2022 but longer term
00:21:24
I think stocks can help protect us from
00:21:27
inflation tips of course do as well but
00:21:30
they do it as you know in a very very
00:21:31
different way and their expected returns
00:21:33
are a lot lower than stocks so I own
00:21:36
tips as part of my bond portfolio I
00:21:38
basically have about half of my bond
00:21:40
portfolio in tips and half of it in
00:21:42
regular we call nominal bonds as my way
00:21:44
of B that's my admission that I have no
00:21:46
idea where inflation or interest rates
00:21:48
are headed so I'm just going to hedge my
00:21:49
bets and and cover both types of bonds
00:21:52
but yeah they can be part of an overall
00:21:54
portfolio I don't personally invest
00:21:57
specifically in commodity including gold
00:22:00
now you know I own a total US market
00:22:01
fund among other things and that has
00:22:04
significant exposure to Commodities
00:22:06
through the companies it owns right and
00:22:08
I own International index funds so I'm
00:22:10
going to get everything from gold mining
00:22:12
companies in there to oil companies to
00:22:14
you know deer in company which it's
00:22:16
influenced by uh price of corn and you
00:22:19
know other Commodities so I'm certainly
00:22:21
getting exposure and the argument in
00:22:23
favor of Commodities is when prices go
00:22:25
up price of Commodities will go up they
00:22:27
you know so they do have this building
00:22:28
in inflation protection of course that's
00:22:30
not the only factor in pricing a
00:22:32
commodity right supply and demand does
00:22:34
play a role if someone wants to put some
00:22:36
small amount in gold or commodity fund I
00:22:38
wouldn't say that's a bad idea I do
00:22:40
think it's generally unnecessary gold is
00:22:43
a great protection against inflation
00:22:45
except when it's not if you look at the
00:22:47
history sometimes it is and sometimes it
00:22:49
isn't and the 70s are skewed right
00:22:51
because we went off the gold standard
00:22:53
and all that and it affected prices my
00:22:54
dad was in the gold business so I
00:22:56
remember that time very clearly you know
00:22:58
if you look at portfolios some exposure
00:23:00
to Gold actually can be a good thing if
00:23:02
you look at history but I'm just not a
00:23:04
big believer in putting direct money
00:23:06
into into gold or other precious metals
00:23:09
same here and and not espousing that
00:23:12
this is what all the listeners out there
00:23:13
should do I don't own any gold certainly
00:23:15
not directly but I have heard and I I
00:23:18
need to do my own due diligence I have
00:23:20
heard that there are some portfolio
00:23:22
designs out there with a pretty
00:23:24
significant gold allocation 10 20 30%
00:23:28
and there's this retroactive back
00:23:30
testing to say look at how stable this
00:23:33
portfolio was look at the withdrawal
00:23:35
rate that you could make from such a
00:23:36
portfolio so it's very interesting
00:23:37
anecdotally I I haven't done my due
00:23:39
diligence maybe we can pivot to one of
00:23:42
the other pillars of retirement planning
00:23:44
at least for our American listeners
00:23:46
Social Security people understandably
00:23:48
have concerns about social security and
00:23:51
and maybe they've seen a headline that
00:23:52
Social Security is going to run out of
00:23:54
money or something similar to that and
00:23:56
so my question to you Rob is will it
00:23:58
really run out of money and because of
00:24:01
that answer I'm curious what level of
00:24:03
conservatism you're using in your plan
00:24:06
your financial retirement plan or maybe
00:24:08
what you're suggesting that others use
00:24:10
in their retirement plans when it comes
00:24:11
to Social Security income assumptions
00:24:15
well that's a great question so first of
00:24:16
all it's not going to run out of money
00:24:18
in the way we normally think about you
00:24:19
know when we run out of money we just
00:24:21
you know we we got nothing left in the
00:24:22
bank account so we stopped spending the
00:24:24
trust fund which I know is technically
00:24:27
rated regularly really nothing in it
00:24:29
conceptually but it will eventually run
00:24:31
out of money based on a lot of
00:24:32
assumptions and projections but let's
00:24:35
assume that happens they can still pay
00:24:38
out the money that it takes in every
00:24:39
month through payroll taxes right
00:24:41
because it's constantly taking in money
00:24:43
you know every time you know we get paid
00:24:44
from an employer but if if it had to
00:24:46
rely just on those tax withholdings it
00:24:49
would not be able to pay 100% of the the
00:24:52
benefits and so when that happens and I
00:24:54
actually did a video on it about a month
00:24:56
ago I'm not going to remember the exact
00:24:57
numbers I want say it can pay out 87%
00:25:00
but that could be wrong so it would
00:25:01
still be able to pay out a significant
00:25:04
percentage of what it's paying out now
00:25:06
so where does that leave us though as a
00:25:08
practical matter so when I was still
00:25:10
working I mean I I do have a business
00:25:11
but I really consider myself retired but
00:25:14
when I was still working and planning
00:25:15
for retirement I just assumed I would
00:25:18
get nothing from Social Security and it
00:25:19
it wasn't because I actually believed I
00:25:21
wouldn't get anything CU I I don't think
00:25:24
Social Security is just going to
00:25:25
disappear politically that just doesn't
00:25:27
seem like a tenable mhm option but it
00:25:30
just seemed like a a nice conservative
00:25:31
approach to take now some listeners may
00:25:34
say that's great for you Rob I don't
00:25:35
know that I have that luxury and if I
00:25:38
didn't frankly I would probably be
00:25:40
reasonably comfortable assuming the
00:25:41
payouts are going to continue as they
00:25:43
are because I suspect our politicians
00:25:45
will eventually figure it out there's
00:25:48
three ways to fix Social Security tax
00:25:51
more spend less by perhaps raising the
00:25:53
retirement age or some some combination
00:25:55
of the two right those only that's it
00:25:58
those are the choices and something
00:25:59
along those lines will likely happen I
00:26:01
do think on a more negative side we are
00:26:05
spending more and more and more on
00:26:07
benefits whether it's Social Security
00:26:09
Medicare Medicaid and we're going into
00:26:12
more and more debt So eventually there
00:26:14
will be a reckoning I have no idea what
00:26:16
that's going to look like or when it's
00:26:18
going to happen but I think it would be
00:26:20
silly to believe that our government can
00:26:22
can continue to borrow trillion
00:26:23
trillions of dollars uh every year and
00:26:26
without some negative consequen the bill
00:26:28
will come due yeah I hear you right
00:26:30
right it has to right what what do you
00:26:32
say to a listener going back to the the
00:26:34
Social Security assumption now when I
00:26:36
hear you say rob that you for the sake
00:26:39
of conservatism assumed no social
00:26:41
security benefits to you and maybe that
00:26:43
moved around your safe retirement age by
00:26:47
I don't know a year or two or months or
00:26:49
something like that but what do you say
00:26:50
to the listener up there where maybe
00:26:51
Social Security is a pretty significant
00:26:53
part of their retirement plan and if
00:26:56
they assume full Social Security they
00:26:57
can retire at 55 if they assume no
00:27:00
social security they can't retire till
00:27:02
65 is there some sweet spot in there
00:27:05
they should assume for now they can do a
00:27:08
couple of things one they don't have to
00:27:10
assume All or Nothing On The Social
00:27:11
Security front right I mean they could
00:27:13
look at what it would pay out assuming
00:27:15
it went you know the fund got exhausted
00:27:17
and again I think it was 87% but they
00:27:19
could check that number and it changes
00:27:21
every year as they do different
00:27:22
projections so they could assume that
00:27:24
the other thing and this is actually to
00:27:26
me more important is back in the day you
00:27:28
worked and then you were retired that
00:27:30
was it you know you you had your little
00:27:32
going away party there the at work and
00:27:34
you got your watch or whatever and you
00:27:35
were done today retirement looks a lot
00:27:38
different than that for a lot of people
00:27:39
either because they go part-time they do
00:27:41
some Consulting I have my my YouTube
00:27:43
channel that generates some income other
00:27:46
people have different side hustles so I
00:27:48
think you certainly can just go cold
00:27:50
turkey and go from working 40 or 50
00:27:52
hours a week to zero but I think more
00:27:54
and more people are gradually moving
00:27:57
into retirement and I've personally
00:27:59
found that to be the The Sweet Spot
00:28:01
you're asking about and you know you
00:28:03
don't have to make a lot and work you
00:28:05
you can even go less than half time and
00:28:08
that extra income when you put it into a
00:28:10
a retirement planning software it really
00:28:13
makes a big big difference between that
00:28:15
and just going cold turkey here's a
00:28:18
quick ad and then we'll get back to the
00:28:20
show serious question why do podcasters
00:28:23
constantly ask for ratings and reviews
00:28:25
yes they do help highlight our shows to
00:28:28
to new listeners they help strangers
00:28:29
find us on Apple podcast and Spotify
00:28:32
it's totally true and a good reason to
00:28:33
ask for ratings and reviews but I have
00:28:36
something more important at least more
00:28:37
important to me I want to know if you
00:28:40
like this stuff I want to know if you
00:28:42
like my podcast episodes my monologues
00:28:44
my guests the information I share with
00:28:46
you and the stories I tell I want to
00:28:48
improve and make your listening more
00:28:50
enjoyable in the process so yeah I would
00:28:52
love to read your reviews and sure if
00:28:54
you throw a rating in there too that's
00:28:56
great if you like what I'm doing please
00:28:58
share it with me it's such a great
00:29:00
feeling to read your feedback I'd love
00:29:03
to read your review or see a rating on
00:29:05
Apple podcast or Spotify thank you it's
00:29:08
funny that when you turn on the TV if
00:29:10
you turn on a financial news which maybe
00:29:13
most of our listeners shouldn't be doing
00:29:15
I I try not to watch too much financial
00:29:16
news but invariably when I do they're
00:29:19
almost always talking about individual
00:29:21
companies individual stocks and stocks
00:29:23
get a lot of the Fanfare but cash and
00:29:27
bonds can also play a role in retirement
00:29:29
portfolios and I know you've had some
00:29:31
terrific videos recently on just that
00:29:33
topic so I have a bit of a two-part
00:29:35
question and the first one is should we
00:29:37
view cash and high-grade bonds
00:29:40
interchangeably within our portfolios or
00:29:43
maybe zooming out even further do those
00:29:44
assets belong in our retirement
00:29:46
portfolios and if so in what kind of
00:29:49
amounts they're not equivalents first of
00:29:51
all in my opinion so you have two things
00:29:53
with I'll call it fixed income which can
00:29:55
include cash and a savings account you
00:29:57
have credit risk the risk you can't get
00:29:59
your money back right so high-grade
00:30:01
bonds and cash cash being a savings
00:30:03
account maybe T bills with the US
00:30:04
government which are short-term bonds we
00:30:07
would say there's probably zero credit
00:30:09
risk or at least it's it's as as free
00:30:11
from the risk of default as we're going
00:30:12
to get right but then the other issue
00:30:14
you have is what's called interest rate
00:30:15
risk the risk that while you're holding
00:30:17
this bond interest rates go up but
00:30:21
you're stuck with this Bond that's
00:30:22
paying a lower interest rate so that
00:30:24
that's where the two you've described
00:30:26
are different or at least potentially
00:30:27
different if you're comparing say an
00:30:29
intermediate term investment grade Bond
00:30:32
or US Government Bond with cash long
00:30:36
term at least based on history the
00:30:38
intermediate term bonds are going to
00:30:39
outperform cash now I know that's not
00:30:41
true now yields on cash are higher the
00:30:43
yields inverted so that's why everyone's
00:30:45
excited about cash and T bills and I get
00:30:47
that but it's not going to stay that way
00:30:49
it's going to change again I don't have
00:30:51
any idea when but it's going to change
00:30:54
and longterm and actually Bill bingan
00:30:56
the father of the 4% rule you know wrote
00:30:58
wrote a lot of papers not just the 994
00:30:59
paper and he looked at this question and
00:31:02
I maybe 96 or 97 and he said look you
00:31:05
can hold a little bit you can take some
00:31:06
of your fixed income maybe put up to 10%
00:31:08
of it in cash that won't affect the safe
00:31:11
withdrawal rate of 4% at least not by
00:31:12
much if you go much above that or even
00:31:15
worse you take some of your stocks and
00:31:17
turn them into cash it's going to really
00:31:20
affect the safe withdrawal rate so long
00:31:22
term I think both are important you're
00:31:24
certainly going to want cash for money
00:31:26
say you're going to spend in retirement
00:31:27
over the next year maybe you're taking
00:31:29
that in the form of dividends from your
00:31:30
taxable account maybe eventually you've
00:31:32
got rmds required minimum distributions
00:31:34
and So you you're probably going to have
00:31:36
that in cash because you're going to
00:31:37
spend it in the next few months or you
00:31:38
know what have you but for the longer
00:31:40
term stuff I would stick with
00:31:42
intermediate term bonds because longterm
00:31:45
they're going to pay higher yields it's
00:31:47
not a huge difference but we know that
00:31:50
even small percentages when multiplied
00:31:52
over several decades which is how long a
00:31:55
retirement can be they matter a lot when
00:31:57
you say this is a simple question of
00:31:59
clarification intermediate term what
00:32:02
what's intermediate mean to you or maybe
00:32:03
there's even a textbook definition out
00:32:05
there I don't know if there's an
00:32:06
official definition I put cash at a
00:32:10
duration or maturity of say no more than
00:32:12
a year maybe some people might go to two
00:32:14
years and then from that point up to
00:32:16
maybe 10 years I would say is
00:32:18
intermediate if you look at like a
00:32:19
Vanguard Total Bond Fund which is based
00:32:22
on a Bloomberg index it's usually around
00:32:25
six I think is the average duration
00:32:28
around six years and that would be a
00:32:30
good example of an intermediate term
00:32:32
fund how that affects us is when
00:32:35
interest rates go up the value of bonds
00:32:37
go down conceptually it's easy let's
00:32:39
imagine we own a 4% Bond and we're
00:32:41
getting 4% every year and the rates go
00:32:43
up to 6% and you want to sell we want to
00:32:45
sell that Bond a buyer's going to say
00:32:47
wait a minute why am I going to buy your
00:32:48
4% Bond I can get a new one for 6% well
00:32:51
to convince them to buy that bond for us
00:32:53
we're going to have to lower the price
00:32:54
and we're going to have to lower the
00:32:55
price so they effectively get a 6%
00:32:58
return whatever that number would be
00:32:59
right so intermediate term bonds will go
00:33:01
down in value more than say a t- bill if
00:33:04
interest rates rise they'll go up more
00:33:05
if interest rates go down in any event
00:33:08
you know we could go longer term and you
00:33:10
will long term probably get a slightly
00:33:13
higher yield but in my view the risk
00:33:16
probably just isn't worth it at least
00:33:17
it's not for me so I just intermediate
00:33:20
term has been the sweet spot for me and
00:33:22
I think it's what Bill ban used in his
00:33:24
analysis not that that makes it right or
00:33:26
better but that's sort of the
00:33:28
right and when I see I think Wade fou at
00:33:30
one point published kind of a rehashing
00:33:32
of the 4% ruer did his own version of
00:33:34
the safe withdrawal rate series and I'm
00:33:36
pretty sure he used intermediate US
00:33:39
Treasury bonds as well that just seems
00:33:40
to be the gold standard when it comes to
00:33:42
like Benchmark in retirement planning
00:33:44
but it's interesting bonds or cash fixed
00:33:46
income in general at least when it comes
00:33:48
to the financial Independence Community
00:33:50
I think what I'm about to say is true
00:33:51
which is people squint their eyes at it
00:33:54
and say why do I even need it just look
00:33:55
at the data look at how much stocks out
00:33:57
perform bonds over the long run which is
00:34:00
true stocks have always outperformed
00:34:02
bonds over sufficiently long periods of
00:34:04
time but that being said I mean do you
00:34:07
feel like bonds belong in the average
00:34:09
person's retirement portfolio or what
00:34:11
kind of questions might you pose to your
00:34:14
viewers or our listeners today as to
00:34:17
questions they should ask themselves as
00:34:18
to whether bonds belong in their
00:34:20
portfolio well the the big question and
00:34:23
this applies to a lot of different
00:34:24
scenarios is whatever you've decided to
00:34:27
do with your port portfolio can you
00:34:28
stick with that no matter what so we've
00:34:31
had a really really good run in stocks I
00:34:33
mean there obviously 2022 was bad a
00:34:36
couple of months for covid was bad end
00:34:38
of 2018 was rough but since the Great
00:34:41
Recession it's been nothing but good
00:34:43
times and you know uh it's been a big
00:34:45
party on Wall Street how are you going
00:34:47
to feel when when another decade like if
00:34:49
you look at 2000 to 2009 or 10 it was
00:34:53
brutal stocks were basically flat we had
00:34:56
three years bad years years and another
00:34:58
two years were bad are you going to be
00:35:00
able to stick with your 100% portfolio
00:35:02
100% stock portfolio I don't think most
00:35:04
people will will be able to do that
00:35:07
particularly when you're thinking about
00:35:08
retirement I think taking some of the
00:35:10
volatility out of the portfolio is for
00:35:13
most people probably a good thing now
00:35:15
again how much what exact allocation you
00:35:18
get a lot of that comes down to personal
00:35:20
preference I mean there might be some
00:35:21
wrong answers at the extreme but there's
00:35:23
a lot of right reasonable answers in the
00:35:25
middle what you described
00:35:28
that idea of what is the allocation that
00:35:30
you can stick with through thick and
00:35:31
thin and PS the last 15 years isn't
00:35:35
probably the the time period that you
00:35:36
should look at to make that answer right
00:35:39
but I'm assuming Robin and correct my
00:35:42
assumption if I'm wrong that you were
00:35:43
probably invested during that 2000 to
00:35:45
2009 period I was not I was uh 10 to 19
00:35:49
during that period I was not invested
00:35:51
yet so could you share with us just some
00:35:53
of the memories that you have or some of
00:35:54
the emotions that you might have felt
00:35:56
during that period especially during the
00:35:58
dot bust and then the the Great
00:36:00
Recession well I was you know I was
00:36:02
practicing law at the time and I also
00:36:04
had started a personal finance blog back
00:36:07
in 07 so I started writing about
00:36:09
personal finance right when all the
00:36:10
trouble hit maybe I'm to blame I don't
00:36:12
know but I was still investing every
00:36:14
month 401K contributions Ira whatever so
00:36:18
in my mind I thought I'm just I'm
00:36:20
getting more shares of whatever mutual
00:36:23
fund I'm buying because the prices are
00:36:26
going down and that that what the prices
00:36:28
are doing now are totally irrelevant to
00:36:32
what I'm going to care about when I
00:36:33
retire now of course once you retire
00:36:35
that changes right but at least if
00:36:37
you're still accumulating assets you
00:36:39
actually want the market to crash you
00:36:41
don't want it to do what it's doing
00:36:42
right now it may make you feel good
00:36:44
because you look at your balance and
00:36:45
you're excited about it and I get that
00:36:47
but you really want it to tank and be
00:36:49
low for you'd love another
00:36:52
2202 and that's what I focused on yeah I
00:36:55
didn't deviate from my plan at all do
00:36:58
you remember any of the whether it was
00:37:00
colleagues or just people at the
00:37:01
barbecue was everybody else as calm and
00:37:04
as rational as you were well some would
00:37:06
say I was irrational I have a good
00:37:08
friend well I don't see him very often
00:37:10
now but a good friend who got completely
00:37:12
out of the market and he's he's done
00:37:13
very well for himself so it's not going
00:37:15
to matter but he got out of the market
00:37:17
and he told me and I believe it's still
00:37:19
true today he goes I'm never getting
00:37:20
back in I'm done and he went and put all
00:37:22
his money in real estate including a lot
00:37:25
of properties that are not incom
00:37:26
producing like he just bought raw land
00:37:28
and it just sits there bought a couple
00:37:30
of homes that he owns so he put all his
00:37:32
money in real estate uh and and most of
00:37:34
it not incom producing which is not
00:37:36
something I would personally recommend
00:37:38
so yeah some people just said I can't
00:37:40
take it I've got other family members
00:37:41
who got out of the market later with
00:37:44
profound regret and what's interesting
00:37:46
by the way I find it interesting these
00:37:48
are people that I I'm very close to we
00:37:50
can talk about these things not one of
00:37:51
them talked to me beforehand because
00:37:53
they knew what I was going to say and
00:37:54
they didn't want to hear it but we'll
00:37:56
try to keep that wisdom in mind just in
00:37:58
case something happens in the next few
00:38:00
years which when you look something bad
00:38:01
is going to happen there's no doubt in
00:38:03
my mind I don't know when but the the
00:38:05
longer the good times last the harder
00:38:08
bad times when they come and I'm not one
00:38:10
to predict gloom and doom but I am one
00:38:13
that believes in reversion to the mean
00:38:15
yeah same and well that word predict
00:38:18
right there there's a great Howard marks
00:38:20
quote really like reading Howard Mark
00:38:22
Writing he goes uh it's pretty simple
00:38:24
you can't predict you can prepare and
00:38:27
think that's what we all need to do
00:38:28
right we we can't predict when the crash
00:38:30
will come or just even the simple bare
00:38:32
Market as it were but we can prepare
00:38:35
whether it's mentally prepare or just
00:38:36
put our portfolios in a place where
00:38:38
we're okay writing it out through thick
00:38:40
and thin when I think about my listeners
00:38:43
Rob and potentially your viewers and
00:38:44
just the idea of DIY retirement
00:38:47
preparation or just being the person in
00:38:49
their Community who's pretty
00:38:50
knowledgeable when it comes to personal
00:38:52
finances and they they want to level up
00:38:54
with some of the more complicated stuff
00:38:56
that you and I talk about there's some
00:38:58
some commonalities there and because you
00:39:00
interact I think with many more fans
00:39:02
than I do your YouTube channel is huge
00:39:05
you might get the chance to spot more
00:39:07
patterns of what some of these people
00:39:08
are going through so I'm wondering if
00:39:10
you could share one or two of the the
00:39:13
most common lwh hanging fruit so to
00:39:15
speak that you see from the people who
00:39:18
you interact with who are pursuing
00:39:19
Financial Freedom I'm just thinking low
00:39:21
hanging fruit things that people you see
00:39:23
all the time and they can and they
00:39:25
should fix it ASAP several come to mind
00:39:28
one is keeping your portfolio simple and
00:39:31
low cost I would say a couple of things
00:39:34
keep your portfolio simple a good
00:39:36
portfolio a solid reasonable portfolio
00:39:39
has got nothing to do with how many
00:39:40
funds you have you can have an a
00:39:42
worldclass portfolio with a single fund
00:39:45
with two three five funds easily and and
00:39:49
by the way I would have the same view if
00:39:51
someone came to me and said I just won
00:39:53
the Powerball I got $100 million to
00:39:55
invest I'd say great here are three
00:39:56
funds go crazy that's what you need the
00:39:59
second thing I'd say is in a taxable
00:40:01
account be super super concerned about
00:40:03
complexity I mean in in a retirement
00:40:05
account at least you can fix it without
00:40:07
tax consequences in a taxable account
00:40:10
you can't you know how much you save
00:40:12
matters a lot and small differences
00:40:16
matter 500 bucks a month 1,000 bucks a
00:40:18
month don't dismiss the ability to
00:40:21
increase that by $25 PR because remember
00:40:23
you're automating this right you're
00:40:25
automating your 401k Maybe even with an
00:40:27
IRA you can automate that or into a tax
00:40:30
will account so when you get that raise
00:40:32
or whatever and pay off that car and now
00:40:34
you've got some extra cash and you can
00:40:35
throw another 25 or 50 or 100 bucks at
00:40:37
it over enough time it's going to make a
00:40:40
huge difference I would not be
00:40:42
dismissive of that I would look for the
00:40:44
opportunities to do that absolutely I
00:40:46
mean those small differences going into
00:40:48
the investment accounts it's it's one of
00:40:49
the few things that you can control
00:40:51
right you can't really control what the
00:40:52
market does but you can control what
00:40:54
you're spending hopefully over a
00:40:55
sufficiently long period of time you
00:40:57
might be able to control what you're
00:40:58
earning and that monthly cash flow
00:41:00
totally is the foundation and yeah when
00:41:02
it comes to advisers this is a common
00:41:04
conversation hourly fee flat fee AUM fee
00:41:08
hopefully you're working with a
00:41:09
fiduciary who is at the very least their
00:41:10
fees are easily explained but asking
00:41:13
that question of you know if I'm going
00:41:15
to pay x what am I getting for that and
00:41:18
I think it behooves anybody out there
00:41:20
you really have to justify to yourself
00:41:21
that you know that it's going to be
00:41:23
worthwhile for you that because you're
00:41:24
right some of these fees whether it's
00:41:26
10,000 bucks a year for planning a 1% or
00:41:30
a 75% fee $400 an hour for a plan it can
00:41:34
add up but you have to make sure you
00:41:36
want to do your due diligence beforehand
00:41:37
and say this is I'm going to get my
00:41:39
money's worth out of this otherwise just
00:41:41
like you said it it compounds in the
00:41:43
wrong direction and that's something we
00:41:44
want to avoid Rob last question for you
00:41:48
now we've been talking about your
00:41:49
YouTube you can be sure that not only
00:41:52
will your channel be in the show notes
00:41:53
but even some of these videos that I got
00:41:55
some of my questions from we we'll throw
00:41:56
that in the show notes if you want to
00:41:57
hear Rob's uh answers on his channel but
00:42:00
is is that the place where people should
00:42:01
go check you out Rob is is there
00:42:03
anything else that you would Point our
00:42:04
listeners to other than the YouTube
00:42:06
channel I send out a a free newsletter
00:42:08
every Sunday morning and you can get a
00:42:09
link to it under every YouTube video or
00:42:12
just go to rob.com
00:42:14
newsletter people seem to like it I I I
00:42:16
enjoy putting it together it's basically
00:42:18
links to articles around the internet
00:42:20
most of most of it is not things that I
00:42:22
write but things that I find interesting
00:42:24
related to retirement planning investing
00:42:26
and then a section on just things that I
00:42:28
find interesting which is usually
00:42:30
related to health Fitness technology
00:42:32
other things yeah but those two YouTube
00:42:34
channel and the newsletter and it's it's
00:42:36
a good read I'm a subscriber I open it
00:42:38
every Sunday once in a while I think
00:42:40
maybe twice now I've seen a best
00:42:41
interest article in there which I very
00:42:43
grateful for Rob because is true I can
00:42:45
always tell something's going on because
00:42:47
all of a sudden I'll get some new
00:42:48
subscriber emails out of nowhere like a
00:42:50
bunch all at once and I'll say okay
00:42:52
someone shared it and if it's a Sunday
00:42:53
morning there's a good chance it was Rob
00:42:55
Rob thank you very much Rob berer
00:42:58
YouTube Star thank you for joining us
00:43:00
here on the best interest podcast thank
00:43:02
you Jesse appreciate
00:43:04
it thanks for tuning in to this episode
00:43:07
of the best interest podcast if you have
00:43:09
a question for Jesse to answer on a
00:43:11
future episode send him an email at
00:43:13
Jesse bestin interest. blog again that's
00:43:17
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00:43:20
enjoy the show subscribe rate and review
00:43:22
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00:43:25
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00:43:27
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00:43:29
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00:43:31
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00:43:36
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00:43:38
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00:43:41
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00:43:43
Financial advice and is not prescriptive
00:43:45
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