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- [00:00]
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- [01:34]
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Bloomberg Audio Studios Podcasts Radio News.
- [01:49]
Maren Sumpset Webb
Welcome to Marantalk, you Money, the personal finance edition of marantalks Money. In these bonus podcasts we talk about the best strategies for making the most of your money. I'm Maren Sumpset Webb and with me senior reporter and Money Distilled author John Stapek. Hi Jon.
- [02:03]
John Stapek
Hi man.
- [02:09]
Maren Sumpset Webb
Okay, we have got great listeners and so this week's episode was inspired by an email from one of those listeners. So fan of the show, Craig, thank you. Craig wrote in to ask about his retirement. He's writing about his own experiences. He's worked hard, he's saved, he's planned, he's budgeted and he has, as he puts it, developed for frugal skills. Your wartime Grandmother would have been proud of now. And I'm still quoting Craig here, now you're suddenly 60 something, you have that pesky mortgage paid off and some money put aside, but you can't bring yourself to spend it, can't bring yourself to splash out on yourself. And the worst is that you can't find anything you really need anymore or even want that badly. So all that pain endured, accumulating and saving through your younger life seems like a waste. Maybe you should have just enjoyed your life more then. Oh God, this is terrible. Craig, I'm feeling for you here. Your kids are grown and settled and working. They don't need a financial legacy, tell you what, Craig, but they think they do. Enjoy your money, they say, and live your life to the full. But the lifelong habits persist and I can't. Can you help with this dilemma? Well, so the first thing to say on this is this raised a mixed reaction from the team. So you and I, you know, we're getting old now. We get immediately understand what Craig is talking about, but some of our younger production stuff, you know, they're a bit shake. Cause it's even a real problem not knowing how to spend your money. You know, I have been thinking about this quite a lot since we got this email and you know, I really do get it. And we have said on this podcast a lot that when you are thinking about your spending and your saving, you're trying to find a balance between today you and tomorrow you. And you've got to find the right balance because of course tomorrow you might not even exist and we have no idea what's gonna happen between today you and tomorrow you. So you've gotta find the right balance. You've gotta live now as well as saving to live later. But there's more to it than that. There's this idea which again, we've talked about that pretty much everyone. And even if they won't admit it, they have in their head a target level of accumulation. I'll be fine when I've got a million quid, I'll be fine when I've got one and a half. I'll be fine when I've got two. Whatever it is, everyone has this in their head. And everyone was adding up, my house is worth this, my pension is worth this, my savings are worth this, et cetera, et cetera. You get there, you get to your target and then you have to run down your target. You're moving away from something that you spent 40 years heading towards. That's a kind of psychological hell and at the same time, you're confronting your own mortality. I've got the target, I got to the top, now I'm on the way down, I'm on the way out. And when I think about my money and how much there is, I have to think about how many years I think I'm going to live. I mean, I'm done now. I'm never retiring, I'm never gonna be Craig. I'm just gonna keep accumulating forever. I can't even begin to face the psychological issues that Craig has brought up here. Have you been thinking about it like this or have you just been counting your money?
- [05:19]
John Stapek
Those are exactly the things I've been thinking about. I mean, this is fundamentally a problem with the human condition. It's like you may get hit by a bus tomorrow, but you might not. And that's the uncertainty that you have to live with and plan for. And you don't have the number. Well, you don't have the key number in the equation that you need for absolute certainty, which is, at what age am I going to die? And the problem is, yeah, you do get to the point where, you know, like you say you've, you've got all your money and at this point it's been that goal for such a long time and if you are someone who's heavily goal orientated, then it's suddenly like, well, what do I do next? And one other issue I think, and I think this afflicts men or at least full time career driven people quite badly. Your goal is, okay, let's retire. And then your next big goal becomes, well, actually my next big goal is his death. And if you're not careful, then you sort of spend your retirement with that sort of. Luminova is almost like, it's like, well, what am I doing now? And I think that, I do think that, I mean, part of what Craig is talking about here, and we probably won't discuss this in particular, but is what purpose do you replace? What is your new purpose? How do you keep building?
- [06:43]
Maren Sumpset Webb
Yeah, but is this why so many people are obsessed with inheritance tax? Your new goal becomes not paying inheritance tax. You know, first you're accumulating and now you've got to find something else. Something else financial. And it's all about that. I don't know. Anyway, that's a really good point. Yeah, Everyone needs a target. Everyone needs an obsession. Target driven people are the most. Well, this is not a self help podcast. We keep saying we have a guest coming up and now he's Gonna think he's on a self help podcast. George, you're not on a self help podcast, okay? Financial podcast. So moving on. The key point here being there are no pockets in a shroud. So this. Well, that's a wonderful phrase, isn't it? Keeps coming up on this podcast. All this raises some really interesting questions. What is the best way to scenario plan for your retirement? How can you feel well informed about what your realistic spending limits are? How can you give yourself a spending target to work for as opposed to a savings target to work towards, particularly if you have spent the last 40 years aggressively saving? Which by the way, is not exactly what we would advise on this non self help podcast. So to help us talk about that and address some of the issues that have been brought up by Craig. Thank you again, Craig. We have invited on George, who is a chartered financial planner and retirement planning specialist. His firm is called Flying Colors Advice. Welcome, George, and thank you. Sorry about that lengthy introduction, but you know, I was up all night worrying about not having a target anymore as I age.
- [08:07]
George (Chartered Financial Planner)
I was going to say no. I absolutely loved the introduction. It was great. And you perfectly articulated what I've heard so many times from clients. Maybe not said directly, you seem to have every detail kind of worked through, but it was an amazing intro. So I was nodding my head along to it, thinking, that's great, thank you. First, I just want to acknowledge that, you know, it's really difficult to get this right because this is a first world problem, but it's a problem nevertheless. And you hit the nail on the head where it's as much psychological as it is financial. We're creatures of habit. And at the end of the day, the same habits that are going to make you financially successful are probably going to make it quite hard to spend if you are financially successful. The vast majority of us, part of our identity is we become accumulators. And that's all well and good, but then the problem is what happens when the figures are supposed to go down? How exactly do we plan for that? I think when I read Craig's question, the thing that really struck me, if I'm being honest, is don't we beat ourselves up so much on everything? Which is that if it's not crisis because you're not saving enough, it's crisis because maybe you've not spent the right amount. And this, especially in retirement, this is so challenging. William Sharp, he's a Nobel Prize winner in economics. He called turning your lifetime savings into sustainable income the, the nastiest, hardest problem. In finance. And the reason he did is because, as Johnny said, we don't know how long we're going to live. We don't know what inflation's going to be, we don't know what market returns are going to be, we don't know if we're going to need care, and we don't know what the sequence of returns are going to be. So all of this kind of adds together. But for Craig, I think the thing to pat himself on the back with is he said kids settled, no mortgage retirement, where it seems like he's acknowledging he's got financial security, he has options. And probably the first step to resolution might just be taking stock of what he's achieved first as opposed to looking at the missed opportunity. But there are things we can do to address the missed opportunity bits as well.
- [10:06]
Maren Sumpset Webb
When you say the missed opportunity, what do you mean? The fact that he has possibly over saved and he hasn't. This man has not spent enough time in the Maldives in his 30s.
- [10:15]
George (Chartered Financial Planner)
Yeah, exactly. And I am kind of inferring slightly from the question, but I think there's the kind of the end that he says, enjoy your money, live your life to the full. Lifelong habits persist and I can't. And kind of the indication is sort of maybe wasted opportunity. I think the big thing I'll be saying to him as an individual and then maybe we can kind of take some lessons from it, is you are at retirement. You are at the ultimate point where you have freedom. And sometimes we look at wealth in a really kind of binary, singular way. We think of money. But in my view, and certainly why I encourage my clients, wealth isn't just money. It's health, it's relationships, it's purpose, which is what you touched upon.
- [10:55]
Maren Sumpset Webb
Freedom.
- [10:55]
George (Chartered Financial Planner)
It's freedom. Yeah, exactly. And he's ticked that box. But especially if you are someone listening who is approaching retirement, you need to spend as much time thinking about what you're retiring to as much as you're spending time thinking about what you're retiring from. You know, what happens that first day on perhaps a rainy Tuesday. And you're probably listening to this in a very rainy January where other people are at work or maybe you're down the golf course and, you know, saying the same jokes for the fourth time. How are you going to fill your calendar so that you can continue to have some purpose?
- [11:27]
Maren Sumpset Webb
I suppose the other thing we should say about Craig before we move on is that he does seem to have a very interesting setup here where his children are grown and settled and working and don't need a financial legacy. I mean, as I said, I'm sure that they'd appreciate a financial legacy. But he's in an interesting position there. I think there'd be very few people there these days in their 60s who could safely say that they felt their children were fully financially settled. And, you know, spoken to a reasonable number of people recently of this sort of age group who look around themselves and they see, you know, the value of their house, which might have been the thing that they intended to leave to their children as their financial legacy. That value is falling, particularly if they're in, maybe in the southeast or in central London. So their. Their mental mind map of how much they might have to leave to their children is falling. And possibly they're also seeing their own children having trouble with cost of living crisis, getting on the housing ladder themselves, financing their children's education, all these things. So there is a group of people, Craig is not among them, who are suddenly finding in their 60s that they have financial pressures they didn't expect.
- [12:31]
George (Chartered Financial Planner)
Yeah, absolutely. As far as kind of practical stuff to try and address this. And it's so difficult because we can never summarise a generation, we can never really generalise. But as far as what I do day in, day out with my clients, the heart of it always has to come back to a cash flow plan. So we talked about. So if you think about, on the way up, your budgeting and especially Perhaps in your 30s and early 40s, the reality is you can just go on a mode where I just want to accumulate as much as I can. The number needs to go up in the fastest possible, most tax efficient way. But I would say, especially when you start to get towards retirement, start to approach it, that's really where a cash flow plan comes in. And professionals like myself, we use kind of quite sophisticated modeling software where you can go in and actually you can put into the system, if I wanted to die with zero, how much do I need to spend based on these figures? And then I've got to spend the rest of the meeting go, no, we're not going to spend that amount, by the way, because it's really risky.
- [13:30]
Maren Sumpset Webb
But I mean, that is the target, right? Die broke.
- [13:33]
George (Chartered Financial Planner)
Is it, though? Is it Marinette, though? That's interesting, though. But is that a good target for that?
- [13:37]
Maren Sumpset Webb
I don't know. I mean, it feels like a good target. Then there's no tax to pay. Everything's been either given away or spent. You accumulated perfectly and then you decumulated perfectly. So Maybe we can offer that as a goal to people to get rid of their decumulation anxiety, make dying broke the goal.
- [13:54]
George (Chartered Financial Planner)
Yeah, and actually let's dive into that because actually there is some things to talk about, especially when we're talking about property and pensions. So I'll kind of dive into some kind of legislation. So from 2027, start a new tax year, pensions are going to be inside of the estate for inheritance tax. And this has fundamentally, for my clients who have a bit more money, this has completely changed the cash flow plan entirely. So just to recap on the rules, basically this is not including defined benefit pensions because they generally die either with you or they die after your spouse or civil partner passes away. This is specifically around flexible pensions where you have a pot. Now, under current rules, these were actually very tax efficient legacy vehicles because effectively post 201515 you could leave them outside the estate. And it meant that, okay, if I don't spend my pension, it's an incredible legacy option because at the moment, nil rate bands are £325,000 per individual. You also have what's called the main residence nil rate band. And this effectively means that a single person is up to 500,000. If you're married, civil partner, it can be potentially up to a million. Now, pensions are going to get dragged into the estate from 2027 and it's not just that there's a cliff edge around. This is assuming you've got a flexible pot, so not a defined benefit pension. And if you die after 75, not only will that be inside of your estate after you and your spouse die, assuming you leave it to your spouse, but also if you die after 75, it's taxable at the beneficiary's marginal rate. Now, let's say you are based in the south and let's just say your house is, you know, worth over a million, which is a substantial amount of money, but let's just say that is the case. You've also got then your pension part and you don't know how long you're going to live. The problem is if your pension is inheritance tax eligible, that means they will lose 40% inheritance tax. And then in like Craig's example, if the kids are settled, perhaps they're higher rate then post 75. If they then try and draw out the pension they've inherited, they've not only paid 40% inheritance tax, but then they might pay an extra 40% if they're higher rate and withdrawing. So the tax rate for them would actually be 64% when you work it out, 40 and then 40% of the residual. So what does that mean? Well, going back to Craig's position, we do need to kind of reframe it, is that if you are affected by that, you might not be wanting to spend as much. But how do we feel about legacy? How do we feel about inheritance tax planning? And sometimes that can get them off of the fence, little bit towards action.
- [16:30]
Maren Sumpset Webb
Yeah. So you need, basically you need to spend all the money inside that pension wrapper sharpish to avoid your heirs having to spend, having to pay 64% taxation on it. So that's quite a driver for Craig.
- [16:45]
George (Chartered Financial Planner)
Yeah. I think the other thing I think was interesting about Craig's comment as well is he says, what was it? I don't want to splash out on yourself. So nothing to splash out on yourself. The thing I would push back if he was a client is I would say, what do you mean by that, splash out on yourself? You know, what do you mean by that? Is that. Is there anything that you're not spending on? Is there anything you want to do kind of intentionally? Because we do have this, you know, this mindset sometimes where no one wants to be seen as extravagant. But a pound when you are 60 or 55, it has a different utility to a pound when you are 85, 90. I'm not saying all 85 year olds don't spend anything. I'm saying no one's promised tomorrow and we can't be guaranteed to be going down the ski slopes at 85. I think that's a fair thing to say.
- [17:31]
Maren Sumpset Webb
If Craig wants to climb Kilimanjaro, he needs to get moving. What are you saying?
- [17:35]
George (Chartered Financial Planner)
Exactly. Exactly. And a good financial planner should be always encouraging someone to spend their money purposely for today. It's not about being wasteful, but it's about going right. We've got a cash flow plan. Are you making the best use of the money? And I'm quite proud to say that quite a lot of my meetings with clients, I will be saying, look, we can spend a bit more. Is there anything you've not done? Is there anything you would regret not doing? Because we all live our lives a bit on autopilot, don't we? And especially if we're used to accumulating, sometimes you need a bit of permission to go on the holiday or go business.
- [18:10]
Maren Sumpset Webb
Oh, good business. Now you're talking.
- [18:14]
John Stapek
These are really tough questions which I think is sort of getting to the other, if you like, the psychological point, what Craig is talking about. But is there any advice that you give to people who are sort of like sitting there saying, well, actually I don't know what I want to do. And I think this is probably something that hits maybe in the very early retirement rather than once they've got used to it. But that is just part of that big shift and suddenly thinking, actually wait a minute, what is the point? What am I doing here? And then you've got the risk that you sit there and think, well, actually that hobby that I spent ages saying I was going to spend age, you know, the rest of my life in the golf course, I don't actually fancy that anymore. Is there anything you ever turn around to people and say, well, look, I don't know, like, you know, take a holiday for a fortnight and just, you know, start like think about this problem. I mean, if you get any sort of suggestions for that early point after retirement and how you can sort of ease yourself gently into that, it's just because change is traumatic. It's like, how do people take time out from that?
- [19:19]
George (Chartered Financial Planner)
Yeah, this is a really good question. And the truth is the best time to think about this is before you retire, not on the day of retirement. There's going to be so much that will change at that point. You'll have that identity shift that like anything, if you're going to make a big change, the best thing to do is to ease yourself into it. And that doesn't necessarily mean continue working, although sometimes part time work can be a really good way to ease your way into it. But you should be looking at your calendar and thinking, where am I going to get the purpose that I had from work? Where am I going to get the engagement? If we go to the gym to keep ourselves physically fit, how am I going to remain mentally strong and resilient and make sure that I've got things to fill my time? So absolutely. In answer to your question, John, I am speaking with my clients and saying, okay, so what are you retiring to? Tell me about your weekend. Tell me about what you're going to be doing to fill your time. Now for those that are highly engaged, they will list tons of stuff around the house, hobbies, things they're going to do, volunteering. Often it tends to come with maybe perhaps a bit of extra family support, they've got grandkids on the way or something along those lines. And that's always great to hear. The people who I worry about and I always push back and just say, look, I think you really need to think about this. Is the kind of the, perhaps the one who's been the busy executive who has maybe not had time or the inclination to think about it. Maybe, if I'm being honest, it's something they don't really want to think about because they've got a lot of their identity from what they're doing in work and it's so individual. So it's difficult for me to, to take a sweeping statement. But I would often push back in those conversations and say, are you sure you've got enough to, you know, to really enjoy your retirement? Because the truth is there are some who regret retiring and we don't want that. As a planner, I don't want to see that. I don't want to see you a couple of times a year looking more miserable every time I see you.
- [21:06]
Maren Sumpset Webb
But isn't that what charity boards are for, George?
- [21:08]
George (Chartered Financial Planner)
Yeah, exactly. Exactly.
- [21:10]
John Stapek
Yeah.
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Maren Sumpset Webb
Half the charities in the world exist to give retired people something to do.
- [21:15]
George (Chartered Financial Planner)
Yeah, there is that. There is that. But I think it comes down to intentionality. If you think about retirement being, you know, it's not a one off thing. There is no way that we would plan for something as big in our life without or we would go into something as big without a really well thought out plan. And sometimes I think we feel like retirement is just this thing that happens that you just disappear off into the sunset. It's not. It's a phase of life. It's the third act and we need to make sure that it's actually worth all the things that you've sacrificed for.
- [21:47]
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George (Chartered Financial Planner)
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George (Chartered Financial Planner)
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- [22:53]
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- [23:29]
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- [24:27]
Maren Sumpset Webb
Co. I can't tell you how anxious I am now feeling Geor Really? Yeah. I'm now so terrified of the idea of retirement looming in a decade or something, I would sit down and make plans. I've got to make some lists. There's so much stuff I've got to do in preparation for this. But listen, let's go back to making an actual plan. How do we sit down and figure out how much we should be spending? I'm using the word should quite carefully here. What does Craig do now? How does he sit down and find out what he actually should be.
- [25:05]
George (Chartered Financial Planner)
Spending? Yeah, and it'd be very self interesting to say work with a financial planner. But this is.
- [25:10]
Maren Sumpset Webb
Genuinely. Absolutely. Call.
- [25:11]
George (Chartered Financial Planner)
George. Yeah, this is where we have a lot of value because it's what we do day in, day out. But even if you don't, I think unless you are just that person who has just a defined benefit scheme and it meets your needs and then it will get topped up from your state Pension. The vast majority. Yeah, the vast majority of us have all these moving parts we've got to consider. And also your spending will change, your family needs will change. Maybe you want to gift. Gift part for a house deposit for the kids. There's so many moving parts. I think you're going to need to construct some sort of financial plan perhaps maybe in the show notes, if you allow us, we can put some links to some resources. So a financial plan is better than none. And what you're effectively going to need to do is you're going to need to look at your different income sources. So we know that you'll have your state pension. You should check if you're entitled to a full state pension. So go on, check state pension forecast to check your national insurance record. And then we need to really get intentional about your pension planning. So have you got defined benefit schemes? When do they kick in? What's the impact? If you take them earlier and you can ask the schemes for things like that. What are your underlying investments with the pensions? What your pensions and ISAs, which are you going to draw down bit by bit? One of the things I'm doing for my clients with a little bit more money is actually we're being much more thoughtful in relationships to doing things like when they come to retire, maybe even using their full basic rate band. Because if they're using their full basic rate band, actually when you compare it to that potential 64% tax example I gave for the legacy, it actually can be worthwhile doing that. So it's about looking at your assets and the income streams they can or are potentially going to provide you in retirement. Some people will be in drawdown where you're drawing down the pot bit by bit. The areas you have to watch out for. There is. There is a specific risk in retirement called sequence risk. If you're entirely reliant on your pension pot, that is, it's not just the returns you get over retirement, it's the order of returns that can have a substantial difference. If you're that unfortunate person who retires in the 1970s when we went through the stagflationary period or 2009, you're going to be in a difficult position because you are drawing down on your pot when the markets are down, down. So you need to have a look at your expenditure, which is the cost of your lifestyle. Make sure you increase it with inflation. Don't forget about inflation. I've seen some DIY cash flow plans where people don't include inflation. It will half your Spending power over your retirement, inflation. So make sure we factor that in charges and so forth. I know that sounds like a lot. It sounds overwhelming. There are templates that can help.
- [27:42]
Maren Sumpset Webb
You start and you'll have.
- [27:43]
George (Chartered Financial Planner)
Time. Yeah, well, do it before. Do it before. This is a working activity, I would say, just because going back to Craig's point actually on that, it's insightful to do it earlier anyway, because let's say Craig had done this 10 years ago and he'd actually realized, you know what, I think I've got enough. What happens if he had then decided, actually, I'm going to go part time or I'm going to maybe go on a few more holidays. Wouldn't that be a great result of someone listening to this podcast if they actually ended up living a bit more intentionally today as well? So I don't think there's a. There's a point that you can be looking at a cash flow plan for yourself too early. How much you need one depends on how complex your finances are. I would kind of say similar to it's important to have a budget if you don't have a good handle of your finances. If you have more complex finances, it's good to have a cash flow plan because it's going to need that extra level of kind of scrutiny and check. But, yeah, that's what professionals do and you can certainly emulate it to a degree yourself, which will give you a lot of.
- [28:40]
Maren Sumpset Webb
Clarity. Let me ask you both a question. John, I really want your input on this one. So Craig is having trouble spending. Maybe a lot of people, Craig's Egg, are having trouble spending, but is there a moral imperative for them to get out and spend? You know, here we are with a sort of stagnating economy. Pubs are in trouble, restaurants are in trouble, all kind of hospitality are in trouble. Craig, get out there, have dinner out two or three times a week, get down the pub, take a taxi home, help us all out here. Is that not a moral imperative for people who have the money at this age to get out there and spend it? His children's jobs depend on somebody creating activity in the economy. Is that fair.
- [29:27]
John Stapek
John? I mean, I like that approach. I think definitely. Part of the problem is if you've got a saving mindset, then they can sometimes feel more realistic and that, oh, you're squandering money. So flipping that around and saying, well, actually, no, you should be supporting your local cafe, you should be supporting your local taxi company. I think that makes a lot of sense. And also at the End of the day, if it helps you feel better about going out and spending your money, then that is quite a nice way to reframe it. There's a mischief to it. But yeah, if it helps, then I think that's a good way to think about.
- [30:03]
Maren Sumpset Webb
It. Maybe this is a self help podcast. I don't know. George, what do you think? Is there a moral imperative for older people with money to get out there and have lunch? And by the way, do not take weight loss jabs because if you take weight loss jabs, you will not be spending enough money in the pub. Down with weight loss jabs, up with going out for dinner and.
- [30:22]
George (Chartered Financial Planner)
Drinking. Yeah, I don't know about the moral stuff. I think it's a nice add on, I would definitely say. Yeah, why not? Because it gets the economy going and if that gives you a push, then amazing. But the phrase it's better to give with a warm hand than a cold is probably also true. If there's a way that you want to start giving your money while you can get to see it again, no one's getting out of this alive. So yeah, go for it if you've got the.
- [30:48]
John Stapek
Money. I think the gifting is an interesting one because there's always something that's needed and at the end of the day, if it's something like school fees or starting a pension for, you know, maybe your grandkids, that kind of thing, you know, there is always stuff that you can do. So I think, yes, the moral imperative to spend is good as well.
- [31:11]
Maren Sumpset Webb
Though. Yeah, less worthy but pretty good, right? I am changing our key phrase on this from no pockets in a shroud to no one is getting out of this alive. Thanks for that.
- [31:23]
John Stapek
George. You.
- [31:24]
Maren Sumpset Webb
Will. Thank you very much for coming on today. Thanks for listening to this week's Marin Talks yous Money. If you like our show, rate, review and subscribe wherever you listen to podcasts. Also, be sure to follow me and John on X or Twitter aurnswtepping. This episode was produced by Sama Saadi and Moses Andam. Questions and comments on this show and all our shows are always welcome. Our show email is merriamoneylumberg.net these.
- [31:51]
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