How-To and Q&A User Webinar - What are holistic risk guardrails and how do I use them? - November 2021

hello everyone i see we have some folks joining so give it another minute or so and then

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we'll kick this off

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so

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this

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see looks like we got a few more folks coming in oh and let me

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get derek up on here as well

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okay perfect well um hello everyone thank you all so

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much for joining our webinar today um hope everyone had a great thanksgiving

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we are excited to uh bring this topic this really came from a lot of our users wanting to know more about our holistic

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guardrails and how do they implement them and really understand how they work inside income lab so as always we have

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our co-founder justin here to really dive in deep and give us some more information on and then we have our

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senior advisor derek darp as well to always share his feedback on how he's using the guardrails and approaching it

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with his real-life clients um and for those who are new to our webinar series

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we have a q a section at the bottom of the screen here um and so we will have a

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q a section at the end so please feel free to ask any questions uh they will

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get added to the queue so if you go in the q a you'll also see a like button where you can actually push up

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um a question if you have a similar question and would like that moved up to the queue uh to make sure we definitely

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get that answered and then as always we will record the webinar as well and send out the recording afterwards um and outside of

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that we're super excited to have everyone back for the webinar and if you um have any questions that you want to

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ask me directly or any issues with audio or anything you can um always chat me directly as well but justin derek can

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you guys hear us okay see us okay awesome i will kick it off to you then justin

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all right thank you mackley thank you derek thanks everybody for uh joining us for another of our um

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income lab user focused webinars hope everybody had a great thanksgiving

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um i definitely uh very very grateful this year for the growing

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community of uh of planners that we're engaging with through income lab so it's been just

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awesome really appreciate you all your feedback your uh your encouragement um your ideas

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for for future development and um just really looking forward to seeing this

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community continue to grow and and uh change people's lives so it's pretty cool um so yeah today we're gonna

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do kind of what we normally do hopefully keep the presentation to half an hour or less and then dive into questions

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um so the presentation today is is all about retirement income guard rails um

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and really taking a look at what holistic risk

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total risk means in retirement and how that can be used to um to do

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smart updated ongoing dynamic planning and i think somebody already said in the

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in the chat um kind of timely derrick and i just

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published a a blog article on kitsis.com

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uh using risk-based guardrails to project sustainable cash flows and uh

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the retirement distribution hatchet um we'll see if that catches on um so this is

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definitely uh related to to that topic so if you haven't had a chance to take a look at that article um

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please do okay so um

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let's uh let's begin here let me just make sure i'm on the right

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the right one i think you've got the wrong one open

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here guys let me open that again

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okay so um i'll share it as soon as it opens

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so the concept of total risk guardrails is crucial for um

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for the planning the dynamic and complaining that you do in

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an income lab so and and the the point of of using

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holistic guard rails is we need some kind of a measure that

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can handle any situation any client idiosyncrasies any

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kinds of outside cash flows their timing their frequency any kind of

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plan length any kind of you know fee structure or

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capital market assumptions anything like that we have we have to be able to handle that um

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in real life planning with uh with clients and so there are a lot of

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approaches to to dynamic income planning that are great that have a lot of merit to them

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especially in kind of a research approach or kind of helping people

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understand what's going on most common of those i don't know why it's not going full

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screen so i will most common of those deal with um

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withdrawal rate uh guard rails but as you'll see in the article that derek and

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i just uh published that's really it's not broad enough to handle um

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all of the all the possible client situations that you might deal with okay

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we just have to uh we'll just do it in the old-fashioned way here um

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so there's kind of a general kind of shifting of um of understanding

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that we need to do to understand total risk guard rails um from kind of a success and failure paradigm to an

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income risk paradigm okay so what you see here on the left is um just an

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example of something you've probably seen you know for the last uh 20 years um

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sort of the the spaghetti chart or we've called it the squid before

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but it shows you hey if let me let me test a particular income plan across a variety of

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scenarios some good some bad some in between and see how often i was able to

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sustain that specified income level um through the full plan so in this case

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very kind of plain vanilla it's a 30-year plan um starting with a million dollars you know

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this is a 60 40 portfolio and it's 50 000 a year in inflation adjusted withdrawals so nothing fancy here just

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keeping it super simple and as you might expect um some of those uh scenarios fail uh as

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you can see they start failing around year 20. right so this is the kind of thing that lets you have

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statistics like probability of success uh and its inverse probability of failure

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but that doesn't really give us a good feel for the you know what's the what's

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the range of possible income somebody actually could attain

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in the future it just says if you try 50 000 sometimes it'll fail sometimes it'll

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do great so the idea of an income risk a total risk

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is that instead of kind of seeing how things work out if you guess the income

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instead you say okay i've got a million dollars today i want to end up with

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x whatever my legacy goal is so i put it at 250 000 here but it could be anything it could

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be zero right some people want their last check to bounce could be two million dollars

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and then we say all right you've got the same als you know all sorts of different possible experiences you might have

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what are the income levels for each of those experiences that would take you

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from a million dollars today you know have you go through that sequence of returns and land on 250 000

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at the end of the plan so now we're not talking about one income level we're not talking about 50

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000 a year we're talking about all sorts of income levels right a different one for each sequence of returns

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and with that you can start doing statistics right you can start looking at okay

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what is kind of the possible income range that this household finds themselves in

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so i can take each of these you know the income levels that solve for you know getting from a

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million dollars to 250 down a particular path i can solve those income levels and then i can stack them together

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as a histogram or you know this kind of bell-shaped curve for the stats nerds

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out there this is generally what this curve looks like it's it's called a log normal curve for the people who aren't

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stats nerds ignore that completely um and then maybe more importantly i can

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actually figure out at each risk level how much income i can

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take so a risk level here means um what are the chances um

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in in kind of old thinking you might say what are the chances that i would fail at this at this income level given that

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we're doing dynamic planning we want to shift that language to what are the chances that i'll have to adjust my

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income down at some point in the future so there is an income level for each risk level right if i say hey i want it

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to be 50 50 okay it's right here if i want a 20 chance that i'll have to

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adjust down it's right here so this you know all the complexity of a client

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situation can actually be boiled down to this kind of income risk curve

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so crucially what we're not talking about here is withdrawals now withdrawals are obviously a huge part of

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this but we're talking about total income so for example here's

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uh in fact this may be the very picture we used in that uh in that article on kids.com the the source of the uh the

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retirement hatchet right um we see in this case we've got some part-time work we've got two different social security

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income streams we've got a pension and we've got portfolio withdrawals what that picture we were just looking

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at that risk curve it's is saying is what's the actual income level the total right between

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withdrawals and all these other income streams that we can achieve at any given

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risk level so ignore for a second kind of these end points the reason that that these are

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really steep is basically if you see here these tails right they they're that's that's showing you that there are

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tails you kind of look at the middle you're seeing that okay there's a trade-off

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um if i can go up in risk i can go up in income if i can go down in income i can go down in risk right so i can kind of

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buy myself some safety by going down on income um so this is really you can conceptualize everything that's done

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with dynamic planning and income lab as based on a curve like this but

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really crucially this curve will be different for every single possible plan

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at every point in its life and so on right so if you change the plan length if you change the fees if you change the

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um the allocation if you change the outside cash flows like when you take social security

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things like that this curve would change meaning the income available at any given risk level changes

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but let's stick with kind of uh you know this sort of uh baseline very vanilla um

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uh scenario and just take an example so let's say this is my risk line right

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and i and maybe i'm happy with a uh 20 income risk meaning

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again in kind of income lab speak really kind of shifting from failure to adjustment

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a 20 chance that that this is actually too much that i'm not going to be able to make in my my whole plan with this

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and so a 20 chance that i'll have to adjust down at some point well i can just look on the curve all

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right for these folks that's 57 uh sorry 47 706 a year right obviously income lab

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works in in monthly terms but sometimes i present these annually just because i

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think it's a little easier to wrap our heads around um and then maybe i'm gonna set my um

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my guard rails at some other levels so maybe uh my

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i will adjust up my income if i ever hit 10 risk nothing magic

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about that you put it at zero you can put it at any other level and maybe i'm going to adjust down my income if my

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risk ever hits 70. okay so let's uh let's do an example

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here so this is where we would start out in this situation right so i'm beginning

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with a million dollars i have uh you know a 30-year plan length and so on so we just look up all right 20 risk what

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what can i spend if i want 20 risk now let's imagine

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that 10 years later i have 1.2 million dollars right so

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things have gone well right i've actually more than i started with well my curve shifted so uh if i could get

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this thing to uh to load full screen you would see we'd go from this lower

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blue curve right the curve went up any time this curve is going up it means you're getting more income at each risk

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level right so now my my income level before

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is you know somewhere around here around two percent right so i kept taking 47

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000 and change for the last 10 years but now it's weighed the risk of that

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income level has gone way down right why well because 10 years have passed

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um and so my plan length is now shorter and i have higher a higher portfolio

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balance you know plus these folks you know they've moved closer to maybe they're already taking

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social security now so their entire future uh income stream

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looks different right so imagine that this were the plan we're dealing with here right so originally i'm looking at

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this entire income plan i'm looking at the risk of it you know 10 years later i'm at you

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know 2032 so it's only from it's only this that we're looking at

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right so the of course the the risk structure of this has changed quite a bit

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okay so what does my plan call for well my plan says if i'm ever below 10 risk

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i'll bounce back i will go back to my original 20 risk so in this case we just

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look it up now now chances are i would have actually done this you know

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soon you know and since my trigger point was 10 risk it probably would have this this trigger would have happened sooner

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but just as an example i'm going to now go from 47 up to 70 000.

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okay because basically what i've said is you know 20 risk that's that that's kind of giving me a little bit of a risk

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buffer right it's saying hey i want it to be really unlikely that i get a um a downward adjustment in the future so

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i'm not going to put it at 50 risk i'm going to put it at 20. so this is just saying okay well my buffer's gotten too big right i'm i'm uh i'm i'm much less

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risky than i would like to be i'm going to bump it up here okay so that's that's what's happening

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when income lab is you know if you ran a plan for a long time and then attached on the shoulder and says hey your plan

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for this couple was you know if risk ever got too low you were going to suggest that they increased their income

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this is what's happening there now the reverse would happen if uh

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if risk had gone up if this if this curve had gone down enough that 47 000 and change was

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now above a 70 risk level then it would call for moving down the risk curve

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um i don't have an example of that here but hopefully you can kind of imagine it um so to put the two curves together this

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uh this is what it looks like for anybody who uh whose eyes glaze over at really complicated graphs please uh

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close your eyes right now ignore this graph

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so that's that's really the basics of total risk guard rails um i want to see if i can

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get this to yeah we can okay all right so what does that mean within

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income lab well um all of these these guard rails have to

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do with what we call the income setting and really the income setting you could think of as

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your attitude toward adjustment or the attitude of your clients to adjustment so the attitude toward the trade-off between

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current income and my risk my risk of having to pull back in the future my risk of having to

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tighten my belt in the future and i like to say there's no right answer here um

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so for some people uh they will be able to afford

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taking low risk right they'll be able to say look income at a low risk level is fine for

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me i can live on that and it means that i can minimize the chances that my advisor calls me advising a pay cut in

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the future for other folks they'll say you know what i'd rather spend more now i know i'm alive and healthy right now

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um and take on the the possibility of that phone call but by the way

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any reduction would be a reduction from a higher level anyway right so maybe it's worth worth that risk so there's no

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right answer it's just about your attitude um toward toward adjustment and income lab

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helps you paint a picture with the plant test function of of what the future could look like so that

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someone can figure out is that a like a geography i'm comfortable traveling in

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right i can look at kind of simulated worst case scenarios or kind of lower you know lower possibilities hey can i

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deal with that and then kind of weigh that against the possible upsides of having higher income today

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so this um setting which you'll find inside the advanced settings of any plan

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is you could think of as your your your home risk level right it's

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saying this is what i'm going to start life with or my retirement with it's the

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risk point that i will um you know be drawn back to any time that i or back toward at least any time

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i make an adjustment um and usually people

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if they can they they like to have this number below 50. uh you'll you'll see that in a second

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okay but there are two other sections here that are really crucial and those are

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when am i going to make um when am i going to make changes now income lab has on its on its income

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setting slider nine preset mixes of all these settings those that we've we've uh done some

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exploration of the the possible settings you could use and we've come

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down on these these nine as kind of representative comfortable settings for people but there's you know we're

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certainly not going to claim that those are the magical nine that everyone should use so if you wanted to you can

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go into the advanced settings and make any other changes so i want to walk people through what those what those settings are

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so the first are the risk levels that would trigger an adjustment okay so again say maybe this sets me off

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at ten thousand dollars a month if ten thousand dollars a month if the risk of that

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behavior ever goes down to you know from a 20 risk to a 10 percent risk

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this plan is calling for a raise right it's saying hey my buffer my risk buffer's gotten too big

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you know let me know the good news and i'll uh i'll spend some money if the risk of ten thousand dollars a

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month uh ever goes up in this case to 75 i'm gonna take a reduction i'm gonna trim back i'm gonna say hey you know

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it's not a hundred percent sure that i'm gonna fail yet but i i'm gonna you know pull back um on this right now to be

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prudent um so those are those are crucial settings the other settings are

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over here and i like to think of these as the speed of adjustment so it's saying all right in the in the upper

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case my risk has gone down what should i do should i go all the way back to 20 risk

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should i say let's just reset everything reset my buffer almost as if i just retired again

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you know today um if that's what i want then i want a 100 adjustment i want to go all the way back

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to 20. and that's often that's that's the setting for um you know all of our presets um and

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that's because of this this um well we'll talk in a second about it but it's basically you know your your risk buffer

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has gotten bigger than you originally intended so by um by bouncing all the way back you're kind

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of just resetting things back to what the client was comfortable with to begin with on the other hand the speed of

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downward adjustment here in this case is set at 10 and we'll talk in a second about why but there's a trade-off in the

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speed of adjustment so that brings us to what income settings make sense

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again there just is no magic income setting it's it's really about client um

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preferences but let's talk about the adjustment points in particular so

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there are some kind of general things to think about that can help uh clients have a better experience one is those

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adjustment points should probably be far enough away from your kind of target you know that

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that load star um that you're not making adjustments all the time um this is

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really more of a practical uh matter um you you you don't want to bounce back

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and forth you know calling a client every month making changes and there's a chance of some whipsaw effects if you

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move too quickly so making sure those adjustment points are far enough away from the target risk that you can avoid

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frequent adjustments um secondly a lot of people wonder

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kind of what level they should set for an income decrease right so back here we

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had it at 75. um that may sound fairly high to people wow 75 risk that that's pretty high um

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we're not here to say what the right level is um for any particular client but i would say

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thinking about adjustments instead of failure can really help us here so if if you know that adjustments will happen

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long before anybody runs out of money it's it's difficult to see uh to set uh

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a trigger for it for downward adjustments at anything below 50

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and the reason for that is um a 50 risk is really a coin toss right it's

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it's equal chances that this is perfectly fine or that we're gonna have to trim back in the future

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so we really don't know in fact another way you could say it is a 50 risk is what we might call our best guess

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right the best guess that this is the income you can afford is a 50 risk um

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that doesn't mean that's what everybody's going to want to start with um but it's actually and derek's written

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on this it's maybe not as scary as it might sound if you put it in terms of probability of success or failure

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because they're going to adjust we can actually sort of you know let out a little sigh

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and and relax about 50 risk so those are some kind of guidelines

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there maybe more importantly or more um a little bit more foreign to to our

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thinking um is is the speed of adjustment concept um

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so again our defaults tend to set um

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set large adjustments or higher speeds for the income increases and smaller

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adjustments or slower speeds for the income decreases and again this there's no right answer here

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this is just a trade-off so you can think of slow speed small adjustments as hey let's not overreact right let's do

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things slowly the trade-off is you know um if let's say that risk is up right and so you

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make a small downward adjustment well that could be just the first of many right if things continue to go poorly um

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we may be calling you again in a few months with another change right but we're trying not to overreact

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however that can be attractive for decreases because clients probably don't

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don't really want to make major adjustments to their spending all at once and overreacting

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in terms of adjustments could be a problem right i mean if it turns out actually uh they're going to be fine

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with a smaller adjustment they probably would prefer that over the long term but again no right answer it may make

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sense for some client to uh do a larger adjustment for either of these you could think of this as ripping

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off the band-aid right let's just you know reset our risk buffer go go to a level that we feel comfortable with

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um the large adjustments the higher speeds tend to be more more attractive more

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comfortable for people when you're dealing with an increase right so you're saying hey i started out with 20 risk

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now i'm at zero or even below zero right i mean my income is lower than the lowest that the this uh you know risk

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assessment is is saying i could ever happen right so i should i can feel pretty comfortable just

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you know uh moving right back to uh to the place i started from

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um so that's sort of a um a quick rundown of the uh of the concept of

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of uh of total risk guard rails um and i think let's

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maybe turn it over to derek if there's any things that come come to mind either from the article that we just uh published or from your experience in

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dealing with uh with with clients with this that you want to add yeah i mean i think i'm certainly happy

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to address questions that might be in the q a too but for me you know going back to

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even just the concept of how that that curve is different for every single client

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is in every single client at a different point in time is such a big deal um that you

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know when we think to and i'm a big fan of guyton clinger and kids this is ratcheting safe withdrawal

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rate and some of those different frameworks that i think have taught us quite a bit about

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how we actually use guardrails and thinking about different strategies and so

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the point is not to be uh critical of those types of frameworks because they they work from a research

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perspective but when it comes to actually using those strategies with clients there's a huge

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limitation there and that you know if your strategy has the same triggers uh you know over time even just that one

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factor alone um then you factor in social security when does somebody take it the whole

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the hat hatchet the retirement distribution hatchet and just all the different um things that are actually

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going to vary something that's captured here in the curve that we're looking at the income risk curve

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but um just isn't captured when we're thinking about um you know the kind of

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more rigid or withdrawal rate driven guardrail strategies so having the

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ability to implement a strategy for clients that's going to stay updated it's going to be you know calculated in

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the background keep the clients on track with those guardrails and you know updating all these assumptions

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behind the scenes and taking account of this risk curve is

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just such a big deal from being able to serve clients best so um you know when i'm thinking about how

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i'm implementing with clients that's really the um the big advantage i see when i'm having

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conversations with other advisors that might be using a guidance clinger or more of a

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spreadsheet spreadsheet based uh withdrawal rate guard rails type approach that you know that it's nice they're

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still using the guardrails but that's just so limited in terms of what it can tell us

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analytically and how we can advise clients in the best way possible

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excellent thanks derek yeah thanks so much thanks justin um

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all right so i will kind of turn it over to our q a portion and we already have a few questions in here um twelve of our

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users yeah please feel free to start throwing your questions in that q a and then we'll start going uh through the

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queue um first one we have here is is there a maximum frequency of adjustment that you

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would recommend in price so example once a year two to three times a year every week

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any thoughts there and maybe derek you may have some inputs here as well

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i'll let um justin speak to whether you know any of the research so far has indicated perhaps a

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you know mathematical type optimal but i think you know in practice for clients this is partially going to

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come down to how you work with clients and what your meeting schedule

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even is um if you're an advisor that typically does one meeting a year versus two meeting year two meetings a year

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versus four meetings here um that could have some impact although i would say

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just personally and i'm not basing this off of any calculations or anything like that this

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is just me meeting with clients i think i would be a little hesitant to suggest something more than once per year unless

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there was like some really compelling something else changed or it was a huge market downturn something

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um that would allow me to justify i i really just don't want to get my clients in the position of constantly adjusting

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their income i think once a year is probably a pretty practical um

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level that i would initially go to unless someday down the road evidence suggests

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otherwise justin yeah i know i i agree with that i think

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it's a kind of a it's mostly a practical matter and there's a couple places

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where you can kind of ensure that there's that you're not making adjustments

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too often um both because that's administratively odorous might be annoying to clients but maybe more

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importantly because of that potential whip saw effect so if you're trying to keep things in a really tight range of

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risk you know you might just bounce around a lot without actually adding value to it to a

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a client's situation so there's two places you can make sure that's not happening one is

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what we talked about was setting those guard rails widely enough that you're not going to hit a risk

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guard rail you know every month or something like that another place you can do it is with the um

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with the the uh i think it's called the minimum spending change or minimum income change um i can share my screen

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with you here um

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so uh yeah i think it's probably in here actually

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this is a planned scenario but you'd see the same thing in the uh so income changes minimum income change this is saying hey

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i you know i only want to make a change if the change is at least five percent um so for example if you have an

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implemented plan and income lab so we're tracking it we we update things monthly so i guess one answer to your question

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is well uh you know we're doing it monthly because we think that's a sweet spot in terms of we're keeping track but

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you know if we did it daily or something that could be that could be too much um so we even track cpi so we'll basically

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we're keeping estimates of how much uh the income that clients are getting has suffered from inflation

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but we're not going to update their income every month right i mean that would just be annoying so if there

34:15

is a five percent or greater change to income that this plan is calling for then we'll tap you on the shoulder and

34:21

let you know that that's a um that that's something that a a client's plan is calling for

34:28

um we have done a little bit of research actually on on um the frequency question

34:34

and um i would say you know again it's not it's not that we've found hey there's a perfect

34:40

optimal um cadence of updates um but what we have seen is there

34:47

there probably is not much to be gained by going more frequently than monthly um in just checking plans right this isn't

34:52

calling clients every month this is just checking plans um so uh

34:58

i think we feel pretty comfortable with um that with that frequency um the other

35:04

thing you can do is in the test plan section um and this may still be running actually

35:10

let me find another one for you you'll see

35:16

um in the income adjustments section

35:21

you'll see a cadence right so in this case now there's a very very low risk plan

35:28

this on average had an adjustment once a year if you have a plan where this adjustment

35:33

level is you know every six months or every three months or something you know that that may you may want to make adjustments because it's estimating this

35:40

is basically this is estimating for you how often you're going to be making these phone calls so in practical sense you could look at

35:45

this and and and see if it makes sense for you

35:50

and while you're here justin um we had one question earlier that i answered via chat but could you just show our users

35:56

quickly for those who don't know how to get to the advanced settings yeah so anywhere if you're in a plan uh

36:02

either the house household uh plan i'm actually in our demo environment so you're gonna see some

36:08

slightly uh different things here then you'll see these uh these changes will come out in a in a little bit but if you're on

36:15

what's currently called the household plan or any income scenario or plan scenario you'll see these little

36:20

three dots and you can go right to advanced settings and then income settings now this one

36:27

was solving for income so um it's sort of running things in reverse right so

36:32

think of that income curve again instead of saying uh in fact i'll just i'll share the curve again with you

36:39

um this particular plan is saying all right let's uh

36:47

uh instead of starting with risk and finding an income this is starting

36:52

with income and finding the risk okay so that's what solve for income means it's saying you tell me the income will tell

36:58

you the risk um so in this one you'll see this plan is set to solve for ten thousand dollars of income um

37:06

uh now this is our demo environment so this is probably bro not working in the demo environment but uh

37:11

it'll tell you what the what the what the risk levels are let me go to the other one we had

37:21

okay so you can see this is using um one of the settings on the slider for

37:27

income setting uh if i change that slider these numbers that are sort of gray would change but i can go in here

37:33

hit customize and now i can you know make any changes to this you know maybe i actually want to do you know 22 or

37:40

something um and and you would see the changes then and this one is kind of a great

37:46

follow-up to where um to what you're just saying but do do we have a a best practice or a guide for

37:52

how to decide which income adjustment settings um would be best for each client um

37:59

and do you kind of advocate or for advisors to do it based on individual clients or do you typically

38:06

advocate for like a single strategy for an advisor's whole client base

38:12

this is really i think um this section or or if you're not kind of

38:17

you know fine-tuning and let's face it the difference between 20 and 22 is going to be negligible right this is not

38:22

a a good example but this is all about risk tolerance and

38:27

attitude toward risk and the trade-off between income and and the risk of a future adjustment

38:34

so um you know you may happen to have a client base where people's attitudes towards adjustment are all very similar

38:40

in which case you'll end up using similar settings but you know generally it's it's climbed by client household by

38:45

household and it's really about that you know um uh

38:51

capacity to take on the risk versus the um versus the uh you know

38:57

preference uh for taking risks right so there's kind of just just like with portfolio management it kind of it's the

39:02

same concepts that are going on here right if it's the kind of um family where

39:09

you know their budget their standard of living is well within their means they may be able to get away with you

39:14

know a very low target risk level and um you know just

39:20

just have a plan where the chances are they'll be getting lots of great news or it might be the kind of folks who maybe

39:25

they want to retire a little earlier and it's a little more on the bubble but they're willing to take on the risk and so they'll take a higher risk level but

39:32

understand that the adjustments may happen yeah one thing i would add to that too

39:38

going to the income experience and seeing those summary statistics about what somebody would actually experience

39:44

in retirement is a really nice way to perhaps make some adjustments and see what would happen for the client

39:51

and have a conversation around that that's that's one thing too that again using like a

39:58

very simple um you know excel spreadsheet based kind of guardrails framework just doesn't

40:03

work as well because you can't have that long-term conversation about what the the impact of different strategies could

40:09

be so you know looking at a more conservative setting and then a more aggressive

40:15

setting and seeing you know between those uh does a client feel more comfortable

40:20

with one of those than the other that would be a good way to have that conversation i'm gonna actually set the

40:26

strategy there the um to reinforce one of justin's points as

40:31

well i do find myself in practice often and also being a risk capacity type

40:39

situation i think many of my clients you know i think if i just looked at their preferences around risk right the idea

40:45

of not having to have that downward adjustment is comforting um and so in an

40:50

ideal world if they've really saved aggressively then maybe i am kind of defaulting to the more conservative

40:56

strategy to start with um just to because they can make it work but for my clients that um you know

41:02

perhaps got a later start saving for retirement or for whatever reason aren't as far along

41:09

then it is more of a conversation of um you know finding finding that level that's going to be right for them and

41:14

where is that right trade-off in terms of future downward adjustment potential

41:20

um and also they're meeting their current spending goals and this is kind of a follow-up question

41:26

to that um and also uh an additional document i think we can add to the knowledge base for the users

41:32

but is there a reference document that shows what the income settings are for the nine presets

41:37

um i know we do have a reference document that just talks about the income settings and helping understand

41:42

the concept of the income settings but justin i'm thinking that might be a great addition to add to that document

41:48

it's just kind of what the actual uh values are for those nine presets um but

41:54

while we're doing that do you want to maybe show the users how to look at the um maybe the power planning section

42:00

inside of uh of a plan or the household just say they know where to see kind of the

42:05

initial information for the presets yeah so um

42:11

if that's not in the knowledge base we'll get it in there quickly um that would be just an oversight if it's not there um so what you'll see in the

42:19

power planning section which is within the retirement step either in the household info or in within a plan

42:25

scenario there's the last step is always the retirement step and part of it is income and legacy goals right so think

42:32

of this as the goals based part of income lab and then the other part is power planning which you can think about

42:37

as the risk settings part of income lab so income setting is about attitude

42:43

toward adjustment what you see in the kind of guidance text here is your target risk level

42:50

right so this the middle is that 20 chance of reduction 80 chance of increase

42:57

the most conservative preset is zero percent chance estimated right everything's always estimates this is

43:03

not a guarantee that you'll never call them with a pay cut but it's saying hey we're going to

43:08

minimize it and uh you know estimated 100 chance i'll call you at some point in your life

43:14

with a pay raise um that seems like a pretty pretty good bet i'd take that bet um

43:20

and then our our most aggressive preset is a 40 chance of reduction so it never even gets up to the

43:27

best guess level or the coin toss level but if you want to do that that's entirely up to you you can get into the

43:33

advanced settings and do that so this is telling you that that target

43:38

level will will post in the knowledge base the the guard rails for each of these the guard rails tend to be they

43:44

don't change a whole lot so often you know if you're starting out a little higher maybe that look the guard rail

43:50

for an income increase you know will creep up a bit um

43:55

the guardrail levels for income decrease will also move just just to keep it wide enough but but they do tend to be sort

44:01

of you know um if you're starting out with a

44:06

you know a 10 20 chance or a 15 chance or a 10 chance then you know you'll get

44:11

a raise at let's say a zero percent chance zero percent risk you know if you're up here then maybe it's a 10 or

44:18

20 risk is that because that's the point at which you'll you'll bump things back up but we'll we'll put those in the

44:23

knowledge base and just in addition to the knowledge base you can also if you have it set on something you can

44:30

always go to that advanced settings and you'll see the grayed out reporting what those those would be so

44:37

that's right yeah there is a way to see it even right now it's maybe a little cumbersome but uh yeah we'll put that in

44:43

there and then you'll also see that effect um when you go back to um just the main

44:50

uh section in the middle here um so

44:56

that's affecting where these um adjustment points are

45:01

right so when you see that the the the the space between now and the pay raise

45:07

is pretty small and the space between now and a pay decrease is pretty big that basically means

45:13

you know the space between those risk levels is smaller or large right and over time you would see

45:18

you know if things are going well this this this number is going to get closer and closer if things are going

45:24

poorly then this number is going to get closer and closer

45:30

and then this uh next one's more around taxes but um it seems that tax bracket management

45:36

strategies and income lab results in very aggressive annual partial roth conversions when compared to other

45:42

planning software um can you discuss why this might be and also how can advisors use the

45:48

software to explain this and help clients become more comfortable with uh more aggressive roth conversions and tax

45:55

bills yeah i mean my my main

46:00

uh comment on that is um the tax center on income lab is

46:06

just doing up uh a let's say completely statistics-based

46:12

um ranking of those strategies and so you know if the only thing that

46:19

mattered were minimizing taxes over a particular plan length

46:25

then that might be prudent but usually there are many other

46:30

uh things that are involved in making choices about the best plan for a client some of them could be simply

46:36

their comfort with making large roth conversions sometimes it could be well you know it's going to take a while

46:43

for these roth conversions to pay off for us and maybe you know maybe we're not all that confident that

46:49

uh you know we'll live that long or something so there's a lot of things that go into it we've also talked about the fact that

46:56

taking higher roth conversions early on could even increase your risk some right because you're taking higher withdrawals to pay

47:02

for those taxes so it's really it's not um we're certainly not trying to um

47:09

to say that you know you should be guided entirely by those tax statistics we view it as just one more an important

47:16

but one more input to choosing a plan that works for for clients

47:24

derek i wonder if you have any kind of feedback to speak towards maybe how advisors can help clients understand

47:30

maybe if they're more not feeling as comfortable with more aggressive roth conversions or if you've had a chance to

47:35

kind of help a client navigate that conversation and i think for me

47:41

a big thing to do is go to the visuals and really show somebody

47:47

recently i don't know why it is i've had three prospective clients where in each case one

47:54

one spouse was advocating for a roth conversion strategy the other was on the fence about it and

47:59

just showing kind of that um justin i don't know if you want to hop over there but the visual with the blue

48:06

and the yellow bars that indicates kind of the total taxes paid

48:12

that can be a nice visual to help somebody understand yes your taxes are going up

48:17

now in the short term but you know long term here's uh what's happening um and

48:23

that's where the the value of the strategy can come from um you know this is this might be an

48:29

example where intuitively it's a little bit less clear just the one on the screen right

48:34

now but there's definitely times when i show this particular chart and it's like you know a few years of the blue and

48:40

then the yellow actually starts to tower over the rest of it and it becomes very

48:45

very apparent why using a strategy like this would would make sense for clients so that kind of visual presentation

48:52

is something that i personally like to lean on because i think it it helps communicate

48:57

a little bit better than throwing a lot of numbers at somebody perfect thanks derek um and then this

49:04

next one is um so with giant klinger they have a withdrawal strategy sourcing

49:09

rule um you know overweight first then dividends etc um and the question here

49:14

is just does current research show that rule is still valid or is withdrawal

49:19

sourcing not as important in this scenario

49:31

so one thing that um [Music] i would say is uh the level of

49:37

withdrawal so how much of this income is is coming from uh investments

49:45

how those investments are allocated and so on is is definitely part of the total risk

49:53

guardrails approach um so it's not that there's you know withdrawal rates don't matter whatsoever it's that uh what

50:00

we're saying and i think what derek and i said in that article is um it's not really possible to know

50:07

whether let's say a six percent withdrawal rate is risky or not risky i mean it's just there's no such thing as

50:14

as knowing whether it's six percent is risky or not risky independent of a particular plan with a particular

50:19

household in a particular situation um it may be that a plan starts with eight percent withdrawals you know before

50:26

social security is is taken and then goes down to two percent later um and so eight percent might be perfectly fine

50:32

early in the in the in the plan um and so that's that's really what we're saying i think like derek said you know

50:38

we're really building on some uh some of the research that decided to use withdrawal rates as

50:44

triggers um which was totally reasonable when you're using you know kind of simplified assumptions where the only

50:49

thing somebody has is a portfolio and withdrawals from it are the sole sources of income

50:54

so this allows you to kind of you know just handle all sorts of situations and also you no longer are

51:01

setting explicit withdrawal rate guardrails for clients um and so you know it's not like something they'll

51:07

fixate on and say hey you know you promised me if my withdrawal rate went down to three percent you'd get a pay

51:12

raise right that's that's not anywhere in the plan instead you're you're always getting updated risk assessments um that

51:19

are driving the the device awesome um then

51:26

last question i see here is uh what analysis method were you using and how

51:31

do i compare one method versus another so the example that i

51:38

used in the in the uh in the um [Music]

51:45

point um was uh well i used just traditional monte carlo

51:51

because those those make really nice smooth risk curves so it was really uh

51:56

like an aesthetic thing um if you use historical then it tends to be a little bit of a different shape

52:02

curve and actually derek and i are working on a piece on that as well but

52:08

yeah there are three ways you can run a plan analysis in

52:13

income lab and again that's in the advanced settings um so it's under plan analysis

52:20

and here are the three you can use historical sequences of returns as the source for

52:26

the that range of possible outcomes you can use traditional monte carlo which depends on one set of capital market

52:32

assumptions um or you can use regime based monte carlo which depends on two sets of capital

52:37

market assumptions one for the near term one for the longer term so that's where you set this and in

52:44

order to to change the

52:50

um this will teach me to

52:56

oh there we go you'll go to analysis methods under settings

53:02

and you can see the capital market assumptions for the monte carlo approaches so traditional again one set of capital

53:09

market assumptions um regime base there's a near near term you can actually decide

53:15

what you mean by near term the default is 10 years regime based long term is anything past 10 years

53:21

the defaults here are set you know just formulaically from historical patterns

53:27

maybe at some point we'll we'll do a webinar on how those uh how those are set um but uh you know this isn't uh

53:34

income labs predictions of the future it's just uh based on historical patterns of these asset classes

53:40

perfect sense all right um and let me see if we have any last questions that come in here

53:52

um perfect and then outside of that i'm just a reminder that we will send out the meeting recording um tomorrow

53:58

morning to anyone who would like to review the meeting again

54:03

and as always reach out to your account manager our team here if you have any detailed questions or would like to hop

54:08

on a zoom call to review a plan or review any questions you have we're more than happy um to meet with our users and

54:15

help give them a little help as well um and you can also access any additional information inside our help center um

54:22

with that feedback as well but um again justin derek thank you guys so much we really appreciate taking the time to

54:29

help help our users continue learning income lab and derek to continue learning how you as an advisor using

54:34

income lab for your clients consistently talking with users we

54:39

everyone has just given us so much great feedback so um really appreciate the time you take to present and to really

54:45

share this information with everyone um outside of that i will close it for now you all have a great and we will see

54:53

you on the next one