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The Long View
Dana Anspach: Don’t Let Fear Ruin Your Retirement
00:55:50
The financial planner and author talks about building a strategy to endure the ‘retirement red zone’ and avoid underspending.
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Podcast Disclaimer
for important disclosure information at the conclusion of this episode.
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Christine Benz
Hi and welcome to the Longview. I'm Christine Benz, director of personal finance and retirement planning for Morningstar.
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Amy Arnott
And I'm Amy Arnott, Portfolio strategist with Morningstar.
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Christine Benz
Today on the podcast, we welcome back Dana Anspach. Dana is the author of a new book about retirement called Living off your Guide to the four Phases of Retirement. This is her third book. Earlier books are Control youl Retirement Destiny and Social Security Sense. Dana is also founder and CEO of the Financial planning Sensible Money, based in Scottsdale, Arizona, and she has been practicing as a financial planner since 1995. In addition, Dana is the author of the lecture series how to Plan for the Perfect Retirement, available on the great courses, and she has been blogging about her own retirement journey on the Retirement Manifesto website. Dana, welcome back to the Longview.
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Dana Anspach
Great to be here, Christine. Happy to be back.
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Christine Benz
Well, we're happy to have you and congratulations on your new book. We want to talk about the book which is centered around what you think of as the four phases of retirement. So a lot of our listeners are probably familiar with the go go, slow go, and no go phases of retirement. But the book also spends a lot of time on the pre go phase. Can you talk about what that is and when it starts?
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Dana Anspach
Yeah. So the pre go phase is I think of it as the 10 years leading up to retirement, but it may not be 10 years for everybody. For some people, you know, they wake up one day, they're 65, and they go, oh my gosh, I'm going to retire. And they get really serious about their retirement planning. Other people may start planning 10 or 15 years out. But I think of it as the foundation of what comes next. Just like if you're building a house, you have to have a set of plans and you have to have engineering and the foundation has to be solid before you can proceed to some of the funner aspects like the colors and the way the windows are going to look. And so that foundation is so critical to not only the numbers side of retirement, understanding the math and how much you can spend, but also mentally and behaviorally preparing for this big shift. Living off your acorns is scary. And you're suddenly going to wake up without all of the meetings on your calendar and thinking about what this new phase is really going to look like.
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Amy Arnott
So related to that, you note in the book that the pre go section is the longest section in your book. And that's intentional. Why is that?
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Dana Anspach
Yeah, that's where, as I mentioned, the foundation where you really want to spend the bulk of the time of running different iterations and different what ifs and thinking about what retirement will look like. I feel like as we move through retirement, the planning gets easier. I shall say, you know, if we have done our work on the front end, so if we didn't build the foundation right, and you're trying to put up the frame of the house and suddenly, you know, something falls down, it's because you didn't have a solid foundation. And that's why that is the longest part of the book is really understanding, you know, what does a cash flow projection look like? I think of retirement, for example, like a movie. It's a movie that you have to recast and update every single year versus a net worth statement is a snapshot, a point in time. And so in that pre go phase, if you're recasting that movie every single year, by the time you get to retirement, you're going to have a really good roadmap to follow, not only around the tax and planning aspects of what comes next, things like whether rough conversions make sense for you, or which types of assets you should dry out first, or what your Medicare premium situation might look like. But also by recasting, you know how much you can spend, you might think differently about front loading some of that spending into your go go years. And you're just going to have this general sense of, okay, this is how retirement is likely to play out. Of course there will be changes and adjustments, but having that big picture sense of how it might play out makes all of the rest go a little bit smaller, smoother.
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Christine Benz
We want to delve into some of those themes, but one thing you referenced, Dana, was that the retirement date itself can be a little bit fluid and sometimes difficult to predict. So I'm curious, have you seen many unplanned early retirements with your clients and how do you help them make sure that their plans, their financial plans are resilient in case that happens?
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Dana Anspach
Yes, unfortunately, we do see many unplanned retirements Many of us are going to have the option to kind of scale down work, but many others do not. They may be in the corporate world, the company may be doing restructuring. They may be in a profession that their skill set is not as relevant as it used to be. And first of all, just simply planning for that. So understanding I may want to work till 65 or 70, but that may not always be the reality. So can I save a little bit more along the way? That's going to give me the freedom to spend more if I can work until my desired retirement date, but also the peace of mind and the security to know that if I get, you know, forced into retirement earlier for some reason, I will have some wiggle room there. So just mentally being prepared. And then, of course, if that happens to you and you aren't prepared, it's, you know, recalibrating. We can spend some time in that, you know, this is awful. Why did this happen to me? State of mind. And that's normal and human. But then we have to pick up and recalibrate and say, okay, this is the new reality. How do I readjust my finances? What are the things I could do that can make this work if I'm not going to be able to work longer? And my income and financial situation is going to have to adjust accordingly.
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Amy Arnott
So what about people who do want to keep working as long as they can? Do you have any guidance for those people to help ensure that they can continue working? And are there things that people can do to make sure that they're not subject to ageism or kind of being phased out as they get older?
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Dana Anspach
It's such a challenge. I mean, certainly making sure that you stay up on the latest trends in your industry, whether that means continuing to take classes, continuing to read your industry publications. You know, I think there's. It can be easy when you've been doing this a long time, as I know, I have been practicing for 30 years to get complacent and, you know, to feel like, okay, you know, I've done this, I know what I'm doing. I don't need to go to that conference. I don't need to, you know, attend this new class. But I think staying relevant, being in touch with people in the younger generations in your profession to understand how they're approaching things, I think those things are critical. And it's less to do with age and more to just simply do with, you know, anybody who's been doing something a long time. It can be easy to get into that status quo and in order to keep creating value, it's really about creating value for your employer or your company or whoever you're working for. Then you have to stay fresh and you have to stay relevant. And so that's still gonna require some energy and some effort on your part, so making sure that we don't accidentally fall into that complacency. And then there's just a certain part of ageism that I do think exists. And if you're a big company and you're trying to cut costs, I think it naturally tends to happen from the demographic that's earning the most. And that's often people who are older and have been there a long time. And so, you know, kind of be working with your employer to understand that, you know, if downsizing were to occur, you're willing to shift into a different position, even if that means less income. Not sure how much flexibility people have, but those are things you could consider.
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Christine Benz
I'm curious, Dana, a topic like that, like keeping your skills fresh so that you can still be adding value for your employer or, you know, urging your clients to peer forward into retirement and think about their sense of identity and purpose. Purpose. Do you get any pushback from clients where they're like, that's not your lane. Your lane is helping me with my portfolio and the financial piece of this, but not this other stuff?
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Dana Anspach
Yeah, that's a great question. I mean, we don't necessarily broach these subjects with clients on an agenda. They make them up rather informally, just naturally or organically in the conversation. I approach it as a financial planner, more about simply introducing the concept, not coaching with the client about what their identity and purpose should be. Not coaching them on these career steps, but simply introducing concepts and then resources. And it's up to them to go out and decide whether that's relevant or how much time they want to spend. Particularly when it comes to identity and purpose. I think simply thinking about it. So someone introduces you to the concept. Like, I was introduced to the concept by Fritz Gilbert, who writes the Retirement Manifesto blog. And up until then, I hadn't really thought as much about it. And so simply being introduced to it makes my wheels start turning. And so it's a fine line. As financial planners, I don't think we are psychologists, nor should we be, were, in some ways coaches. But I think there's value in simply introducing the concepts but not feeling like you have to be that person to, you know, deep dive with the client. It's up to them to go find the resources to dig deeper.
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Amy Arnott
Let's talk about the financial side of planning in the pre go phase. What's the retirement red zone? And how can people try to mitigate risks as they're in the years leading up to retirement?
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Dana Anspach
Yeah, so the retirement red zone is generally about the first five years before retirement and the first five years of retirement where your portfolio and future outcomes are more vulnerable to big market shocks such as a bear market or particularly a prolonged period of time of underperformance with your portfolio. And I think there's several different aspects of this. One, we know that if we retire into a boom market, we're going to have better long term outcomes than if we don't. And there's a certain aspect of that that we don't have control over. You know, maybe we could work an extra year or two if we were in the middle of a bear market and didn't want to retire then, but maybe not. So the first aspect is simply testing your plan against these past historical outcomes. Would my plan have worked if I retired in 2008 or 2009 or 2000 or 1960s was a bad time? So would my plan have worked? And that brings a certain peace of mind right there. And if your plan would have worked over, let's say, the worst 1/3 of historical outcomes, well, most of the time we're not going to get that worst one third. So I don't like people who enter retirement and spend as if it is the Great Depression right now. That does not make a lot of sense to me. What does make sense is to have the plan tested and say, okay, it would have worked great. It's not the Great Recession. We're not in a big bear market. So let me adjust my spending to accommodate my go go years. And if a different set of conditions should materialize, I know ahead of time some adjustments that I can make. And so I have a plan if that happens. But the majority of the time that's not going to happen. So to me, that's how you plan for the long term outcomes of this retirement red zone. And then the other aspect of that is the behavioral risk. So if a big adverse market event happens, are you prone to panicking? Are you likely to go to cash? Are you likely to abandon your plan? And I do believe certain portfolio strategies help. I'm a fan of bucketing or time segmentation where using specific fixed income CDs or bonds that mature to match the cash flows that you're going to withdraw in the first five to 10 years because I believe that helps people stick with their plan and have a greater peace of mind and knowing, okay, if the market drops 20%, I know where my cash flows are coming from and I can think in five year chunks of time. I know I don't have to adjust my spending for five years. It's covered. I have time to make adjustments if this turns into a, a more prolonged bear market. So I think it helps to separate it into the, you know, the reality is if we tire into a really bad time, it's going to look different than in a really good time. And how do we design portfolio strategies to help us behave better if those bad times come along?
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Christine Benz
Let's delve into that two bucket approach that you use with your clients and that you detail in the book. So you use paycheck replacement bucket as well as a growth bucket bucket. So let's focus on that paycheck replacement bucket. What goes into it, how large is it and when do you start building it out in that pre go phase?
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Dana Anspach
Yeah, these are hard questions to answer and they vary by the client. You know, I think there's the bucketing and then the total return strategy. And if you're using the bucketing strategy, one of the big questions in the industry is, well, how long should my ladder be? You know, in an ideal environment, you would start building this bond ladder about 10 years out from your desired retirement date. But I have a paper called the Wind down on the Investments and Wealth Institute where rather than laying out a specific number of years of cash flow that's covered, it's more of a process. So if I have projected my retirement and I have a personal think of it, that's a personal benchmark to measure against and I'm ahead of that benchmark. I would sell out of my equity bucket. And let's say me, I'm 55 today. Let's say I'm going to retire at 65 and I know I'm going to need to withdraw 80,000. And so I might sell stocks today. It's been a good a couple of years in the market and I buy a bond that's going to mature for $80,000. And the way we like to do our planning, that $80,000 already has inflation baked in. So it's not $80,000 in today's dollars. I've already projected that's what I'll need in 10 years, assuming that inflation continues. And so now I've secured year one, the rung of spending on my ladder and next year of equity markets are up, I do the same. And the Next year, let's say suddenly we are in a down market and I have a negative return on my equity portfolio. Well, I don't, don't add on year three of my ladder. Now I'm 59 years old and so if the markets are up, I continue. And so by the time I get to retirement, depending on the market conditions I encounter, I could have anywhere from a five to an eight year ladder that I'm entering retirement into, knowing that amount of years are covered. And so I think of that process as more important than I have to get to retirement with 8 years or 10 years cash flow covered because it allows for us to adjust against the market conditions that we encounter and we don't really know what those are going to be ahead of time. And so instead of following a set rule, how do we follow a process that helps guide us and has some flexibility built into it?
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Amy Arnott
So you referenced buying a bond and it sounds like you do tend to favor individual bonds for your client portfolios. And I'm wondering is there a certain asset level where that is practical or not practical? And are there any cases when you would use a bond fund instead, such as maybe one of the new defined maturity bond funds?
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Dana Anspach
Yeah, and I use bonds. I mean we, we definitely use defined maturity bond funds. We use bullet shares quite a bit also. We also work with a lot of clients that have $2 billion plus portfolios where agencies or munis or Treasuries make more. And so it does depend on the individual situation. But I think the defined maturity products are very attractive, particularly as you get into smaller portfolios. They all mature at the same time at the end of the year, which is really nice from a portfolio management process. It makes things easier. There might be a little bit more risk. Although when you look at the default rates of bonds, I think it's really de minimis of using some of those defined maturity corporates versus if you wanted a pure risk free play, then you're going to use Treasuries. And those are nuances that really depend on the client.
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Christine Benz
So I'm curious at this point you referenced how well equities have performed for how long. Is it difficult prying your clients hands off of equities and getting them to de risk and move some more money into bonds. Do you find that has to be a little bit of a sales effort on your part?
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Dana Anspach
I have not found that recently. I think there's more and more great content out there like this that helps educate people on the various risks and understanding that it's Natural during the accumulation phase to focus on your net worth and those account values going up and your performance rate of return. But that is not the measure of success in retirement, and numerous research studies have shown this. And so having some income certainty is more important. You can have a portfolio that has a great rate of return, and then because of volatility, it can still run out faster than a portfolio that simply by measuring, you know, a time weighted rate of return actually had a larger rate of return. It sounds backwards, but. But when you look at how this can work, you can see, oh, okay, volatility and having a plan to manage spending. There's so many things that, that are more important to success than simple, you know, maximizing rate of return. And I think as people start to understand that, along with the natural fear of, oh my gosh, like, you know, one day I have a job and income, and the next day I have to live off my portfolio. And it's, it's so normal to feel a little bit terrified at that stage. That building that bond ladder for a lot of people does make sense, and they actually want that. They want to enter retirement with that peace of mind versus with that level of stress that they might carry if they had more risk.
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Amy Arnott
And I'm guessing that maybe an annuity might help with that fear factor for certain clients. How do you help clients kind of think through that decision about whether they should purchase an annuity or not?
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Dana Anspach
Yeah, absolutely. Annuities, I think of those as what we call lifetime flooring. You know, much like maximizing Social Security, I have guaranteed income for life. And we look at it in terms of what we call a coverage ratio. So if we were looking out, and typically we're going to kind of play our retirement plan movie out to about the mid-70s and go, okay, in your mid-70s, how much of your expenses are covered by guaranteed income? And if that's less than 50%, then maybe we want to have a conversation about layering in more guaranteed income. Now, I like to look out in the 70s because that's often when the early signs of cognitive decline can begin. And I think of having more guaranteed income simply provides more protection against any of life's unknowns. And then we also love Wade Pfau's Retirement Income Style Awareness Questionnaire, which helps people identify their own styles and preferences. And some people, even if an annuity is a good fit, they just don't like the idea of having something that they're committed to for so long. So they prefer more flexibility. And the nice thing about the bond ladder is. It's like building this, what I call flexible floor, right? I have guaranteed income for five or 10 years, but I also have the ability to shift. You know, maybe I lose a spouse or maybe I want to downsize. We don't know what's going to happen in retirement. So I have a little more flexibility. I like a combination of approaches, so I don't think there is a single right or wrong way. I think of it as having a toolbox. And then you're looking at the client, the household situation, and you're saying, okay, here are the tools that fit this client's not only financial situation but also their preferences, their desire for flexibility versus their desire for safety. We had a client once who wanted to put nearly half of his portfolio and half was 2 million, into an income annuity and did so simply because that peace of mind was worth more to him than any potential future market returns. So certainly preferences have a play in how you approach that.
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Christine Benz
I wanted to ask about inflation protected bonds, tips. Obviously, inflation is top of mind for many people today. How do you think about tips? There are people, you know, people in the retirement planning space who are pretty dogmatic that fixed spending ought to come from tips. But I'm curious how you approach that.
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Dana Anspach
Yeah, it's interesting because we build inflation into the spending projections. So we're typically using 3% on living expenses, 5% on healthcare expenses. And then we're buying, you know, Treasuries or agencies or bonds that are maturing to cover the cash flows. But inflation's already baked into the cash flows we've projected. And so I don't actually like doing the planning the other way. If I project out nominal spending and then try to buy tips, historically they have not always adjusted in line with inflation. You know, our preference is when we're looking at shorter timeframes covering cash flows five to eight years at a time that we baked in the inflation into those cash flows. Buying Treasuries and agencies works just fine. And our longer term inflation protection is really coming from the equity portfolio. And equities have historically proven to be a great hedge against inflation. But again, I don't think there's a right or wrong. It's. Does the portfolio strategy you're using align with the planning? If you are projecting your cash flows in nominal terms, then yes, you would need a mechanism within the portfolio portfolio to help make sure that those cash flows did adjust for inflation.
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Amy Arnott
So when you're doing that type of year by year cash flow projection, how do you Help clients forecast their spending. Are there any categories that you've seen tend to go down in retirement or other categories that tend to go up?
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Dana Anspach
I mean, definitely the research shows that lifestyle spending, you know, entertainment, travel, even transportation tends to go down as we enter that slow go and particularly the no go phase. Then in the no go phase, it's often, you know, replaced by healthcare related spending items. And so we see that not only in the data, but also in real client behavior. There's a couple ways we adjust for it. One, talking about it with the client. This is a pattern that we see in real life and all the data shows that. So can we build in some go go spending? What are some of the things you might want to do? And oftentimes that's just building in a fixed extra amount for the first five, 10 or 12 years of retirement. You know, it could be an extra 5 or 10,000 a year, depending on the client size. It could be an extra 50 or in one case, you know, 250,000 a year for the first five to 10 years of retirement. And so we're building that in so the client has the room to do those go go items. And with the that, yes, you know, as you enter the later years of retirement, your desire to go, go go usually changes. It's usually natural. And so I think that's the best way to build it in. Some other things we've done is simply adjust the living expense in the plan. So for example, you could say, well, I'm just going to assume living expenses go up statically 3% every single year for the next 30 years of retirement. Or what we'll do is use 3% early in retirement for the first decade of retirement. And then we might say, but that middle decade, you know what, those living expenses are only going to go up by 1% a year. They're still going up, but they're not going up at the same pace as inflation. And so that can be another way to account for that in the way you do the planning.
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Christine Benz
I'm happy to hear that there is more attention in the industry being paid to this idea of people not wanting to spend in line with what they could spend. That, you know, what makes you a good saver, makes you a poor spender in retirement. So I'm curious, in working with clients, have you hit on any techniques that help your clients get a little bit warmed up to spend when they eventually do retire?
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Dana Anspach
Such a great question. You know, we had a client that is, you know, across the country and they had stopped into the office and asked to meet me a few weeks ago. And I asked, you know, what brought them to us. And they said, said, you know, I just knew I could never bring myself to spend my money. And so they specifically wanted to work with a planner that would help them, you know, figure out how to get through this hurdle. And it can be a challenge. I've tried everything and it's hard to say what, what might work for one person. I, in one case, literally just set up direct deposits, said, look, I'm going to start sending you money to get you past this hurdle. And that worked. I've just built in the extra go go spending to show people, look, you could spend this much more. I know you're not going to, but you could, and you're still never going to run out of money. In many cases, it's not. It can often be a values based, you know, I don't want to spend frivolously. And that makes sense. You know, if we've been frugal with our money or, you know, intentional, I should say, with our money, then you don't just want to spend to spend. So it's finding things that really matter or can make a difference. Maybe that is getting more help around the house if you're struggling with that or it's just something you're tired of doing. It could be, you know, buying first class airline tickets if that makes travel a little bit more comfortable. It's often helping the next generation, helping adult children buy houses in this pricey housing market, or funding college or, you know, other extras for grandchildren. It's a process and it involves not just the numbers, but really thinking about, you know, what is this psychological hurdle that's keeping me from spending when I know my plan will still work. And sometimes it can be very deep seated. If we grew up poor, we grew up, you know, where money was really tight. Getting past that fear, you know, it can just take some, you know, having grace with ourselves and diving into why we're so reluctant.
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Amy Arnott
You mentioned helping adult children, and in the book you write about some examples of clients who wanted to help adult children financially after their kids had suffered a job loss or other problems. How do you coach clients through thinking about how much they can spend to help their kids without derailing their own retirement plans?
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Podcast Disclaimer
Yeah.
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Dana Anspach
For us, that is a matter of crunching the numbers and then understanding the composition of the client's assets. So we had one just recently who asked about, you know, helping a client who is a teacher move into a neighborhood where their Grandchildren would have access to better schools and that neighborhood was pricier than their, you know, daughter could afford. And so their assets are all in retirement accounts. And so to take a big chunk out to simply buy a property would have been a bit challenging, but long term their plan could sustain, helping. And so then it was more of figuring out the actual logistics of it, of saying, okay, well could you use a home equity line of credit? They had two properties themselves and they were both paid off. And so absolutely there would be a way to help your daughter do this. It would just, you know, we would need to find logistically a way to do it so that we can not take a big chunk out of your own retirement accounts in a single year and have that big tax hit. And so that's where it starts, is, you know, does this work financially without jeopardizing your own retirement? And then logistically, what's the best way to access the funds?
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Christine Benz
Sticking with the pre retirement period, I've become a big evangelist for the idea of people making some of their bigger tickets outlays while they're still working. Because retirement spending can be difficult enough just for your day to day expenses, let alone some of the big ticket ones.
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Amy Arnott
You, I would say seemed a little
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Christine Benz
bit more cautious on that idea in the book. Can you talk about that?
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Dana Anspach
Yeah, you know, I don't know if cautious is the right word. Definitely I've seen people who do want to get all that big ticket spending and I don't think it's a bad idea. So I didn't mean to convey it was a bad idea. But I also, you know, when people think, well, this is the last time I'm ever going to buy a new car, well, that's not quite true or most likely not true. This is the last time I'll ever be able to do a remodel. Well, that's probably not true. And so what I was really trying to convey is it's not that it's a bad idea, but there is still going to be lumpy spending these things and these needs are still going to happen throughout retirement. And I believe it's JP Morgan Chase that has data on spending volatility in retirement and they estimated it can vary by about 20% up or down throughout your retirement. And so those big chunky items that tend to come along, you know, throughout life, well, they're still going to come along in retirement. And so it's not necessarily necessary to front load all of that, but I certainly don't think it's a bad idea. You just have to be prepared that there will still be other items that will come along.
- [31:59]
Vanguard Marketing
Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. Vanguard bonds are institutional quality. Institutional quality isn't a tagline, it's a commitment to your clients. It means top grade products across the board. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself@vanguard.com audio. That's vanguard.com audio. All investing is subject to risk. Vanguard Marketing Corporation distributor.
- [32:27]
Amy Arnott
You've also written about planning for long term care expenses. How do you help clients decide whether to self fund any potential costs for long term care or use other strategies for long term care costs?
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Dana Anspach
It's a challenge. I mean, this is where we all would like a cookie cutter solution. But people have a lot of personal preferences in this area also often dependent on what they've seen with their own family or their own parents, or aunts or uncles. And so it's through a lot of conversations we like to use for the demographic we work with. In many cases there is substantial home equity and we like to use that as a reserve asset that may be used one day to buy into a continuing care community or to fund long term care expenses. And so if people are comfortable with that, then that becomes the plan. We have conversations around long term care, you know, costs and what that can look like. We think one of the most expensive situations you can run into is one spouse who needs extended, you know, care, maybe memory care, for example, and another who's still healthy and you know, out there going about living life. And so we run this projection and we look at it from a, you know, a net worth standpoint and say, okay, if this event were to occur at, you know, 75 or 80, wherever that might be, how many years of care and lifestyle for the healthy spouse would your assets sustain? And if that number looks solid, and it would sustain at least through, you know, another 10 years, we feel pretty good. You know, the average long term care stay, I believe. And not the average. I believe it's, I can't remember if it's average or median, but it's less than five years. Maybe one of you knows the stats. I can't remember it, but you know, we want to look at that and go, okay, could I cover more than what that average or median is and be comfortable? And then even if I could, there can be value in having coverage because people can be reluctant to spend their own money as we've just talked about. And so if there's that reluctance to get quality care, maybe insurance is a good idea because you know, it will make someone seek out care when otherwise they would not have. So it's all of those conversations that happen to determine what the right fit is.
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Christine Benz
The financial planner and Dr. Carolyn McClanahan made exactly that point to me, Dana, that insurance does help ensure that people will go ahead and get care and not just the retirees themselves, but also their maybe adult children who might be assisting them with decisions about whether to pursue long term care. If there is that insurance in place, people use it.
- [35:25]
Dana Anspach
Yeah, absolutely. And you know, one of the big insights for me in writing the book and particularly writing about the slow go and no go phases, is how important it is for us to think about those phases. I think naturally we don't want to, but it can really help inform us because make better decisions in our earlier phases. And talking with Denise K. She runs a business that helps people find both in home care and facilities that they might need here in Arizona. You know, really understanding, as she says, that, you know, most people don't make a plan for the last five years of their life because we don't, we don't want to think about it. But if we don't make that plan, someone's going to decide for us. And as you brought up, you know, the adult children, you know, needing to help make these decisions, do they know what you would want? Have you made your plans clear to them? What if you're not able to decide and they're arguing or, you know, there can be that desire to, you know, we have to do everything possible, but maybe that's not what you want. And so I have one client, they're, they're our current oldest clients. They're 89. And they have said, you know what, we have enough. And when the time comes, we hope our kids put us in a facility and they, they're out living their lives. You know, of course they'll come to see us, but you know, we don't want them disrupting our lives. There's other families who absolutely would want to move mom or dad in and spend some money, you know, adding an additional dwelling unit onto their house. So, so every situation is unique. If you haven't really thought about that and talked about that with the people around you, they may be in a situation where they have to decide for you. And I hadn't really thought about that before talking with Denise and I think it's, it's something that as planners we Want to spend more time talking about.
- [37:14]
Amy Arnott
So when people actually make the transition into retirement, you note that some retirees instantly thrive and others really struggle with that transition. Are there any common themes behind people who thrive versus people who struggle?
- [37:34]
Dana Anspach
I don't know if there's themes. You know, I definitely think entrepreneurs and that more a type personality can struggle a little bit more. I did have a client, I share a story in the book who didn't tell me that she had struggled so much with retirement until about a year or two after and she had owned her own business. And you know, just the lull of not having the same social connections and that same sense of purpose and routine and structure every day was just, just it was a hard adjustment for her. She and her husband went to a 55 plus community. So they, they made a move and suddenly everything changed. They had their social connections and their activities and they are thriving now. And that's part of that experimentation process. If our worth comes from producing and accomplishing things, I know this is me. I'm a type A personality is why I worry so much about my own retirement. Where is that sense of purpose going to come from in retirement? What's going to still light you up up? What are the things that are shiny that give you energy every day? And you have to either start to think about that before retirement or be prepared for a transition period and put some effort into it. Don't just, okay, I'm retired now, I'm going to golf every day. Ooh, I don't like this. But this is the way it is. You have to put some effort into developing what that's going to look like. And Fritz Gilbert has just been a master at writing about this and giving us all a path to follow on what that might look like.
- [39:12]
Christine Benz
And Dana, you have been thinking about your own retirement transitioning. I would say that kind of what you've been doing to visualize retirement has been a really good model for people in this phase as they transition into potentially retiring in the next five to 10 years. Can you talk about some of the practices that you've been using for your own transition phase?
- [39:35]
Dana Anspach
Yeah. So I share the story in my book of retirement for me was something I, I, I did on paper, I planned because I don't want to be a hypocrite. This is what I do for a living. So I'm gonna make sure I do all my numbers. But I didn't have any emotional connection to it. It was just, I'll probably work to 170 and then we were in Beaver Creek. It was two weeks. Normally, I'm a few days, you know, into vacation and I'm a little antsy and bored, but it just never happened. I was out hiking every day. I love the mountains. I did a little bit of work here and there, but it was at a relaxed pace. And it was my first mom. Oh, my gosh, like, one day I could actually be happy and retired. And so for me, I describe this like a little light switch went on, not a full bright light. I don't really know what that might look like, but it was just the glimmer of light that I keep moving toward. And so I think about first, you know, how do I just work a little less naturally? As a business owner, I work a lot because I love it. I enjoy what I do, and I like helping people and I like seeing the progress and developing young people, but I have to find other things I love as much. And so I just took a week, went up to Beaver Creek about two weeks ago prior to recording this, and had one of those what I call kind of light work weeks. So I worked, but at a reasonable pace. But I went out hiking every day. And so that was my first path of, okay, how do I do this more? Does that look like one week a quarter for me right now? And then, you know, for me, I think it will be a slow and gradual shift, and I probably will continue to work until 70, but I have to find a way to do it at a reasonable pace. So for me, that's my plan is this slowly, little tiny baby steps into it.
- [41:28]
Amy Arnott
So when people are putting together a retirement plan or working with a planner to do that, it can be difficult for them to estimate their own life expectancies. And you mention a society of actuaries survey that people actually tend to underestimate their life expectancies by about two years on average. Is there a better way for people to estimate how long that retirement period might be?
- [42:00]
Dana Anspach
So I don't know if it's necessarily a better way. I think there's a lot of misconceptions around life expectancy. My husband, who is in the healthcare industry, came in the other day and said, you know, I just saw this statistic that came out, and the average life expectancy now is down to like 76, or maybe it's 76.5 years. And I kind of launched into, yes, but that's from the day you're born. And so by the time you're 65, your life expectancy is actually much longer. And then if you are college educated, if you've had access to quality health care, if you've, you know, taken care of your health, well now your life expectancy is much longer. And so I don't know that we're all aware of those statistics. We can see the headline numbers and think 76. Well, if that's it, you know, why am I planning for 20 or 30 or even more years in retirement? So you have to take that down to your particular demographic. And then I like to use, I call them rolling retirement time horizons. So you know, we will typically default to 85 for males and 90 for females when we're running the projections. But then every year we're rolling that time frame forward. So you know, have my 89 year old clients, well, you know, I'm rolling their time horizon forward 20 years. Now they may think that is, you know, a bit of an exaggeration, but it could easily happen. But I would not have started at 65 and run their retirement plan to 109, nor do I think that was necessary. I think that would have caused significant underspending in early retirement. Instead, each year they're older, we're extending that time horizon a little bit longer and, and it, it works beautifully. So I think that is a, than saying, wow, I better run my projection as if I live to 110 because that does happen on occasion.
- [43:55]
Christine Benz
I wanted to ask about what you see as the biggest risks to new retirees today. We interviewed Adam Grossman, the financial advisor, a month or so ago and he said he was worried about the potential for another lost decade like we had in the, in the 2000s. Does that worry you or what are the main things that keep you up at night in terms of risk factors for retirees?
- [44:19]
Dana Anspach
I think, you know, another lost decade is always a reality. It probably worries me less because I lived through the last one and worked with retirees through that. And so, you know, it wouldn't be pleasant, it's not fun. But we all made it through and people's plans worked just fine. And yes, there were some adjustments that needed to be made. And so, so having the planning tools that we have today to stress test these types of things makes me less concerned about that outcome. Is there anything that really worries me? I mean, I would say the biggest thing we see in our practice still is people who have far more now than they did at the cusp of their retirement. And so it's understanding that. But most of the time we're not going to get that worst one third of history. And how do you have a more dynamic process so that you know you are spending along the way again, finding meaningful things that matter to you, that make a difference? That might be something that would be on my mind a lot more simply because I see it in the balances of where everyone is at and that they have far more today than they did a decade ago when they retired.
- [45:37]
Amy Arnott
What about inflation? Do you think there's a risk that the past couple of inflation reports have been on the high side? Do you think there's a risk that that could continue for a while?
- [45:52]
Dana Anspach
Certainly. I mean, we've experienced higher periods of inflation in the past and then during the last decade we had almost no inflation. It tends to, you know, as we say, that pendulum tends to swing. Right. So we had almost no inflation and then suddenly we got a lot of it in a short period of time, which makes it feel very unsettling and like everything is more expensive, which it is, you know, it has to do again with the way we do our modeling. So if you've modeled in inflation, I think that long term average of 3% still holds true. And if we've accounted for that, then along with the fact that people do tend to spend less, less in those slow go years that they're going to be okay. The people who didn't plan for inflation or who are truly living on a fixed income only, that's going to be a struggle. Certainly in a higher inflationary environment, maintaining enough equity exposure is key to keeping up with inflation. So people who are so conservative that they went all to cash, that's going to be a struggle also. So yes, that's definitely a worry depending on how someone has approached their planning.
- [47:05]
Christine Benz
The book has a lot of great detail on tax planning throughout the retirement time horizon. And I know you have a lot of expertise in that area. You take pains to point out that retirees are all really different. There aren't many one size fits all tax strategies for retirees. But are there any kind of strategies that you find yourself reaching for quite a lot with respect to helping your clients minimize taxes and retirement?
- [47:32]
Amy Arnott
Retirement.
- [47:34]
Dana Anspach
I'm, you know, I'm definitely a fan of Roth conversions, but when they make sense, and so it's hard to frame that in terms of reaching for a lot, you know, a lot of clients, particularly if they don't have pensions and so they have a good balance of pre retirement assets and some post retirement assets, a brokerage account, for example, they have the cash to pay the tax on the Roth conversions. Maybe they don't need to take any withdrawals until RMD age. But by taking those withdrawals, we are, I use the term filling up the tax bracket. It's more complicated than that. Sometimes you'll see articles out there today saying, well, that's not technically true. They are correct, that is not technically true. But it's still the easiest way to think about it. You know, you're, you're really looking at a client's effective marginal rate later and, and what it is today and saying, could I take advantage of, of some tax arbitrage? Is there a way that I could take money out today and pay a lower rate than what it would likely be if I take it out in the future? Whether that be through Roth conversions or through just simply taking withdrawals before you're required to from your retirement accounts or through the realization of capital gains. Those would be the three strategies we tend to look at the most. And realizing capital gains during years where the capital gains tax rate is going to be lower, you know, 0 or 15% for example, versus 20%. I would say those are the standard go to strategies you still have in some cases the ability to qualify for the healthcare tax credits for someone who's retiring pre 65. That doesn't come up as often. But when it's relevant, that can also result in some substantial savings. And then now we're seeing a lot more use of the qualified charitable distribution for those in the slow go and no go phase. And I think it's one of the most effective ways to do charitable giving if that's something that is part of your lifestyle and part of what you like to do anyway.
- [49:38]
Amy Arnott
Another big issue for individuals as they get older is financial fraud. Are there any best practices for individuals who want to insulate themselves against that risk?
- [49:52]
Dana Anspach
This is so top of mind for me right now. So we had a client situation, actually the family member of one of our, our staff whose brokerage account got hacked. Now the brokerage firm prevented anything from happening. So all the safety procedures that the brokerage firms have in place worked. But still what they determined was the cause was a very simple password. And not only had they broken that person's password, but they'd also been able to break into their cell phone carrier and redirect, I believe it was, you know, a text code or email so they would have access to it so that they could access the two factor code also. And so in that case it was using a simple password. So there's so many cases where we see people still using simple passwords where advanced Software can break those passwords in a matter of minutes. And the kind of pushback is, well, if I use more an advanced password, how am I going to remember something that has, you know, we require at least 14 to 16 characters. It has to have upper lowercase numbers and symbols. Well, how are you going to remember that? Well, well, that then leads to the use of password managers. And that can be hard if you're not in the working world. What is this? This is a new technology I have to learn. You know, how do you hire a technology coach maybe to help you set these things up? How do you go into all your brokerage accounts if you haven't logged into your bank or brokerage accounts lately? There's a whole new set of security features that you can turn on and you need to do do it. You need to go update your passwords, you need to learn how to use a password manager. You need to turn two factor on for everything that that will allow it. This is not optional anymore. And I worry about this a lot because when you're not in the working world, we have monthly cybersecurity training that we run at our company so that we're staying up on this. If you're not exposed to that, it can be easy to get complacent. You don't even know the advanced broad techniques that exist anymore. And so it's a big concern.
- [51:58]
Christine Benz
I wanted to ask about consolidating accounts from the standpoint of financial fraud. I think there's a lot to like about having maybe a single provider where you have your IRAs and your taxable brokerage account and so forth. But is there potentially a good case for spreading things around a little bit more just to mitigate that single provider risk?
- [52:19]
Dana Anspach
You know, I've seen, I can see both sides of that, that, you know, the spreading things around a little bit. Well, now there's more things to manage which that in itself could lead to potentially greater risks. I think there's so much benefit to consolidating in terms of the ease of managing things. And what we've seen is that bank accounts right now are far more susceptible than brokerage accounts. So, for example, brokerage accounts, you know, the way what we call the money link feature works, it can direct deposit to an account that has to have the same account registration as the brokerage account does. But with a bank, you have this ach and zelle capability. So if someone gets into your bank account, they can send money out instantly. There's no trades that need to be placed and so in many of the brokerage account cases, the reason these things are caught is there might be a set of trades that come through and the brokerage account firm's monitoring process will say, oh, you know, these don't look right, and they put a freeze on it. And so that money doesn't leave the account. And it would have been difficult for it to leave the account anyway because there's not that instant ach feature. And so right now I really see the bank accounts as being more susceptible. I'd say we have, you know, the brokerage account incident that we just heard about that just happened. Nothing was stolen, but we have had three incidences in the last year of clients having bank accounts hacked in one case up to the tune of $80,000. And so, so that right now I think is still the bigger risk.
- [53:51]
Christine Benz
Well, Dana, we always love talking to you. Congratulations on the book. Thank you so much for being here.
- [53:56]
Dana Anspach
Thank you both. I appreciate your time.
- [53:59]
Amy Arnott
Thanks so much. Dana,
- [54:05]
Christine Benz
Thank you for joining us on the Longview. If you could please take a moment to subscribe to and rate the podcast on Apple, Spotify or wherever you get your podcasts, you can follow me on social media hristinebenz on LinkedIn or ristinebenz
- [54:21]
Amy Arnott
on X and Amy Arnott on LinkedIn.
- [54:25]
Christine Benz
George Cassidy is our engineer for the podcast. Jessica Bebel produces the show Notes each week and Jennifer Garrett copy edits our transcripts. Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us@thelongvieworningstar.com until next time. Thanks for joining us.
- [54:48]
Podcast Disclaimer
This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording and are subject to change without notice. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. And its affiliates, which together we refer to as Morningstar. Morningstar is not affiliated with guests or their business affiliates unless otherwise stated. Morningstar does not guarantee the accuracy or the completeness of the data presented herein. This recording is for informational purposes only and the information, data analysis or opinion it includes or their use should not be considered investment or tax advice and therefore is not an offer to buy or sell sell a security. Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analyses or opinions or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile. Before making any investment decision, please consult a tax and or financial professional for advice specific to your individual circumstances. Morningstar Investment Management, LLC is a registered investment advisor and subsidiary of Morningstar, Inc. The Morningstar name and logo are registered marks of Morningstar.
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Incident (likely a transcript error or filler)
Incident.
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