The Value of Dynamic Income Planning Webinar - September 2021

good morning everyone we are just having some more folks log

0:31

in so we will kick off the webinar in another minute or so but thanks so much for coming

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let me get derek up in here

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all right and derek can you hear us see us okay

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i can hear your time awesome we can hear you too perfect okay

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give it another minute as i'm still saying folks come in

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okay seeing a few more attendees coming in

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perfect all right well i will get us started um welcome everyone uh to our

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september webinar here at income lab my name is malcoly i am our vice president

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of customer success um and we are excited to put on this webinar today talking about dynamic

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income planning and specifically focusing on longevity we have two great panelists here justin

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fitzpatrick who is our co-founder and chief innovation officer as well as derek darp who is an advisor a

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writer on the kids vlog as well and one of our board of advisors um and so guys

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i will kick it off to you um but for everyone who's attending this meeting is being recorded so we will send out a

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recording afterwards um but you will see that in your panel here we have the q a

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section throughout the presentation feel free to drop your questions there um if

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someone asks a question that you like uh like that question and that will move it up on the queue so that way when we get

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to the last 10 minutes or so we'll kind of work through the questions and have our panelists answer from there

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all right guys well justin and derek i will kick it over to you all um and be

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back for the q a okay thanks maclean thanks everybody for attending this is

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a monthly webinar from income lab focused on retirement income research

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so kind of high level um pieces of the income lab platform here and there but

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really kind of focused on topics in retirement income planning and

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both analytically and from kind of a practice management and client experience standpoint so

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um today's presentation really contrasts um kind of standard uh static planning

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in which we analyze the possible experiences of a household through retirement

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if that household held firm to one set of pre-planned predetermined financial behaviors kind of through thick and thin

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come hell or high water we'll contrast that with dynamic planning in which a plan is constantly

4:03

and consistently reevaluated with kind of prudent adjustments made through time to ensure things aren't too

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far off track and in order to discuss that distinction we'll kind of focus on the effects of just one factor

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that changes over time namely longevity estimates and use that as a window through which to view dynamic planning

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there are other factors that change over time of course right things like portfolio balances you'll see a little bit of that today but you know inflation

4:32

economic situation projected future cash flows so any kind of holistic or integrated approach to dynamic planning

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would also need to to take those into account so we'll just kind of be using simplified examples here to focus on uh

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dynamic planning with longevity but the the goals for embracing dynamic

Goals for embracing dynamic planning

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planning are really twofold so one is we're focused on

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kind of the income outcomes the retirement experience of of a client

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and how those could differ both in terms of kind of just client experience and interacting with advisors and then also

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in terms of kind of optimizing for goals so we could view retirement goals as

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generally having two parts um one is uh you know standard of living so

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achieving kind of a reasonable standard of living given financial resources um and then the

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other would be legacy goals some folks may have no legacy goals some may have substantial but kind of uh

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constantly trying to optimize uh across those two large categories

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of goals um and you can see that there are kind of two main there are a

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bunch of main differences between static planning and dynamic planning generally static planning treats planning as kind of a point in time exercise um focused

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often on a deliverable you know kind of the classic ring binder but maybe the most important distinction

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that you'll see today is that risk is viewed as failure or financial ruin

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um which evidence shows can lead to higher client anxiety whereas what we found that the

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evidence is is still coming in but but definitely is showing that kind of the ongoing nature dynamic planning where

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planning is an ongoing service which fits well with you know kind of the business model of a lot of advisors

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and where risk is is not failure it's adjustment um can lead to to greater client confidence

Portfolio balance of a plan

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and one place where we can really see this uh come to light

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is in this uh in this chart which is you know a a version of a chart i'm sure

6:50

many have seen many times so this is a the portfolio balance of a plan

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over time in kind of a classic monte carlo type simulation this happens to be using

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historical data but it'll be similar if you're using monte carlo so um you know these are folks with a million dollars

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spending i believe in this case forty three thousand dollars a year in withdrawals adjusted for inflation over

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time but honestly it wouldn't matter it could be any plan that may look like this kind of having that broad spray

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of of possible outcomes and the question here is what's wrong with this picture

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um if this picture is intending to show the possible outcomes

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of following this particular plan then what's wrong is it's making it look

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like this is a terrible plan because probably the goals of the clients are not well i would be fine

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with running out of money in year 23 or i would be fine with you know 30 years from now having

7:50

over 6 million dollars in today's dollars so adjusted for inflation this would be much higher

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most clients have a little bit more specificity in their goals than this um so ten percent of in in this you know

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admittedly arbitrary example ten percent of the scenarios ran out of money um and over half of them ended up with

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more in real dollars than than we began with so this is not a particularly um

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encouraging chart to share with clients if it is interpreted as hey these are the

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possible outcomes of this plan and that is how um this is kind of framed um in in the

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minds of clients um whether we like it or not uh and so this is static planning on on

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display so um it's treating uh retirement income planning

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a bit like the only time it's it's as if the only time you have to make any decisions or any adjustments is at the

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very beginning so i i think about um sort of the u.s uh

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space program and uh alan shepard was the first uh american in space in 1961 and in that

8:59

case they basically you know strapped him to a rocket and shot him into space and he landed in the ocean um so there

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was there was no piloting uh involved in fact that was kind of a big deal at the time so a lot of the early astronauts

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were um test pilots and the fact that they weren't really pilots on these missions was kind of a big deal um so in

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that situation they had to be very very conservative they had to know that be very confident

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um in the trajectory um eight years later with apollo 11 landing

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on the moon um they wouldn't have been able to land on the moon if neil armstrong hadn't been a pilot and been able to actually pilot

9:37

that craft the lunar lander so the that moon mission could not have been

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accomplished if they hadn't acknowledged the fact that adjustments along the way would be

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crucial and important um so that's really the the key difference that you'll see between static and dynamic planning and what we

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want to get to is a plan where the possible outcomes are not such a broad

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spray but where we can hit those client goals of standard of living

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and legacy with a little bit more accuracy and so we'll focus on here is

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how along the way to kind of re-center a plan based on changes in longevity

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so what you see here is a kind of a combination of two charts that i'll show you in a second which is um how

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plan length and withdrawal rates um change with age

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so first of all plan length um let's introduce a term that uh uh you

Longevity risk

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probably heard before longevity risk it's basically the the risk that a

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person or one person from a couple may outlive a given plan

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um and so that could be any kind of percentile here what i've shown is a 30 longevity

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risk meaning at any given point the chances that at least one person from a 65 year old couple male female

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would live beyond a given uh a given plant length so early on we we

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see you know about 34 years there's a 30 chance that someone lives beyond that

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from age 65 but over time we see these going down quite a bit right so by the time we're kind of in

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the in the mid 80s we're closer to 15 years and these are based on society of

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actuaries retirement plan participant mortality rates and improvement scales so those have longer longevity than for

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example a social security um mortality tables

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basically because people who have retirement plans often have longer

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longer life expectancies so if we do static planning

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and this where 65 year old couple who was retiring today we would probably set the plan length at the beginning and um

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you can see if we don't kind of keep rebalancing toward the the current

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facts on the ground what happens is we are not acknowledging how withdrawal

Withdrawal rates

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rates and their associated risk have changed over time so this at

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various um you know levels of success or sustainability shows

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how constant risk withdrawal rates so each one of these these lines is at a constant risk levels

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and here risk is not living beyond a point it's

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the chances that a portfolio will run to zero um so um

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or rather the opposite the chance that a portfolio will survive um so we can see that the higher the

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withdrawal rate the more chance that uh that it's not sustainable and that some adjustment would have to be made but

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again if we set for example um you know at a 90 90 success rate early in

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retirement at 65 we'd be just above four percent um but this is a an incredibly um

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conservative uh uh level once we get into you know the 80s and 90s and so on

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um a similar thing if we compare you know even a 50 you know sustainability level so we

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could view this as kind of the coin flip uh of retirement income uh a little bit below six percent at 65 but that same

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six percent level um by the mid 80s or even a little bit before that

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actually is has a 75 chance of of sustainability and by the late 80s has a 100 percent

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chance uh sustainability so if we're not acknowledging this over time

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and kind of rebalancing the risk of of of an income plan we are

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um we're not being efficient so in order to show this uh i want to

Two retirements

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tell a tale of two retirements um conveniently and by design 20 years

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apart 1966 which was one of the worst times retire not the absolute worst but

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uh the mid to late 60s were where um bill bengan got uh kind of the minimum

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in his study in 1994 so that the area that the four percent rule came from um

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and i in 1986 which was one of the best times to retire so um you know we had

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lowering inflation lowering interest rates and rising uh equity value uh markets um in the future there and

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i've just basically plucked these two lines out of that original chart so 1966 was one that ran out of money

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pretty late in retirement but still did and 1986 ended with uh an account

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balance of almost three million again these are in inflation-adjusted dollars so quite a bit more than that if you

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were to look at it in nominal you know real dollars in your pocket

Two retirements 1986

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so what happens in each of these scenarios well in good times so 1986

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what happens you you can see here the red line is that um constant risk

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withdrawal rate line uh from the earlier chart this happens to be the 90 success

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or 90 sustainability the blue line is the actual withdrawal rate if this family followed the you

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know kind of flat inflation-adjusted spending um static plan and again you can see it

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starts out a little bit above four percent and the actual withdrawal rate is going down down down

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and eventually is well below two percent so what's happening here the gap between these two if if the risk level that that

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you're shooting for for this family is at the 90 sustainability level the gap is growing growing growing and

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so we're not optimizing for achievable standard of living

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in 1966 the opposite is happening so same red line here 90

16:06

sustainability constant rate um this one's a little bit shorter because uh if i included uh the the full length of

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retirement the uh the axes would would become huge um because eventually the

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withdrawal rate gets to 100 um but you can see here slowly over time

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at first things are sort of staying on track but then we start heading into the stratosphere on our

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withdrawals and getting away from the withdrawal rate so we're taking on excess risk

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and the important thing for kind of the framing of retirement income and dynamic planning is we can see this happening so

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it's not like we you know close our eyes in 1966 and then we open them again in 1988 and realize oh my gosh we're we're

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out of control here along the way we see this this gap this increasing risk happening and so there's a chance for um

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adjustment over time so this is you know the the moon landing uh comparison right

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we have a pilot who can make adjustments along the way so what happens with this inefficiency

Inefficiency

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is that both in good times and in bad times

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we have um we have a plan that's that's kind of failing to hit those two goals

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of uh standard of living achieving what can be achieved uh and uh legacy goals

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which which here we're we're just saying well we don't want to run out of money so in good times risk is going down over

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time so income becomes too low and the potential for legacy is far exceeding goals

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in bad times risk is going up over time income becomes too high and we have a chance of exhausting a portfolio

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so either side inefficient so the obvious

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solution is not to do things statically right it's to monitor how risk is changing

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and we need to do that by using updated longevity

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assumptions along the way so updating plan lengths and understanding how that changes what's achievable for

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a given household if um you know risk is too low we're basically you know we're

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not staying on this curve then we can consider taking taking more income

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that may be an increase in standard of living could also be um you know charitable

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giving gifting maybe it's just you know temporary additional consumption or it could even

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be a an adjustment of the plan to include more legacy goal or a change in portfolio but that gap that we saw um is

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a is a point at which uh a good conversation can be had with the client

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if on the other hand risk is getting too high it might be time to consider tightening the belt or

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again changing the plan maybe this family did have a large legacy goal and they might want to change that to say

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well it's you know current consumption is more important than leaving a lot of money

Dynamic planning 1986 1966

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okay so let's see how dynamic planning would affect these two situations 1986 and 1966. so here we just again we're

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being extremely simplistic we're using some very basic um kind of risk-based guard rails from within the

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income lab platform um and in 1986 we would have had what you see

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here the blue line is real dollars so everything is in today today's dollars

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um the uh the red line is uh nominal so you're

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also seeing inflation adjustments on the red line and you can see that um really just a handful of adjustments over time but

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enough to really improve the standard of living um would have would have arisen and what

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would that have meant well now the blue line is tracking much more closely with the red line we certainly

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could build a plan that was just obsessively keeping us on the red line but

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for practical purposes and really even for income um efficiency that's not

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generally how people um run dynamic plans so instead of saying hey we're gonna change every month or every year

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what this is always asking is hey have things changed enough for us to bother with an adjustment and if they have

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that's fine it's let's call the clients and let them know they can afford more but we're not going to call every month we're not going to call every year if

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the changes would be small on the other hand 1966

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we see that um in in this scenario two adjustments um in

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real spending um one in 1981 another in 1984 would

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have happened in nominal dollars which that's how that's how we live our lives right dollars in the wallet um there was

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actually only one decrease again that was 1981. um

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the second was actually a just a not not a full inflation increase right so that

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one was a little bit more hidden from from the household they might not have noticed that not to mention that actual

21:10

spending if we had used a more um realistic spending pattern may have followed

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something like the retirement smile where full inflation adjustments weren't really required to begin with

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um but in both cases oh sorry so in this case we we see that kind of there's this

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red line is is this magnetic pole to which we're we're trying to re return or at least not not get too far away from

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it and so you can see we kind of keep the withdrawal rates um in line keep keep risk um

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in a reasonable range and so in both cases you know instead of the 1966 line going to zero in the 1986

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line ending up uh trying to remember what that was maybe over four million dollars um

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we are kind of always reevaluating rebalancing

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um and and and trying to um you know balance those income needs and

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the legacy needs so neither of them ran out of money neither of them even really was at risk of running out of

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money and in both cases actually these are real dollars again in the 1966 case because of rampant inflation this this

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would have been uh in actual dollars quite a bit more so crucially what's happened by

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constantly reevaluating plan length through updated longevity assumptions comparing

22:30

that to possible withdrawals at that given plan length and then making adjustments when needed we're really

22:35

able to keep clients on track and now if you compare this to kind of that big spray of the classic monte carlo

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outcomes where 10 ran out of money 50 had more than it they began with um

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we can see that um we're getting you closer to the goals along the way um so

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you know it's it's not the you know alan shepard um shoots you into the sky and have you landed the ocean it's it's

23:00

landing on the moon um so maybe one of the most important

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things here is it's not just that this helps us provide um kind of better standard of living

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something closer to um achievable standard of living so if we knew the future we would know exactly

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what standard of living you could um you could achieve right but of course we don't and that's what makes retirement income planning so

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so difficult um in fact bill sharp calls it the the hardest nastiest problem he's

23:30

ever worked on um but if we did know the future we would know what you could achieve and

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dynamic planning constant adjustments or adjustments when needed can can get us closer to that kind of you know optimal

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uh income level that that in theory could be achieved but

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maybe more important is the experience that clients can have in the planning process

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and in the in the uh ongoing relationship with their advisor so instead of framing

24:02

retirement and retirement risk in terms of success and failure the chances of running out of money or financial ruin

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which like it or not is something that that clients kind of can take away from static planning

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um dynamic planning allows us to frame it uh as a relationship an ongoing

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monitoring situation where um you will be you know you're always on the job and

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you're and you're going to let them know when a pay cut would be prudent or you know if it's a relatively

24:33

conservative plan more often when they could afford to spend a bit

24:38

more um so on that point i actually wanted to turn it over before we go to questions

24:44

to derek thorpe to kind of talk about using um dynamic planning in with in client

24:51

conversations practice yeah and i think for me it's really a

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it's a pretty massive shift in terms of going from an old static

25:02

you know just probability of success result how that's um you know in some ways scary clients i think there's a lot

25:08

of misunderstanding about what that result should even mean and how to interpret that but really the conversation can just be

25:15

so much richer you know when you're actually talking about potential income experience and here's you know the types of adjustments

25:21

we might see it really helps for i think finding that right risk level um

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in terms of going into retirement um how you know how aggressive does somebody want to be with their

25:33

uh distribution rates so that they you know increase or decrease the likelihood of future adjustments

25:39

and really just having that that conversation i think is something that you you can't really do

25:46

well with the probability of success kind of tool um but having some of the analytics that

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can provide an understanding and paint a picture of what that retirement could actually

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look like is a big deal and we've even seen in some other research um i've done some research with michael

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kitsis basically directly testing kind of a success failure framing versus an

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adjustment framing and even they're seeing that um clients are they they find the results more

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meaningful um when when it's framed in terms of adjustment they feel like they understand it better

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and when we we haven't actually done a test where we've taken real people through real

26:29

kind of market cycles but even when we show somebody kind of hypothetical scenarios and have them

26:34

evaluate how financial advisor did we find that people tend to be

26:40

more critical of advisors when they were presented with this probability of success failure framing and then they

26:46

actually go through a downturn because you can see a 95 probability of success fall to 50 or lower

26:53

and that really kind of shakes kind of that confidence in an advisor whereas the adjustment framing which

26:59

already helped set expectations of what would happen and how adjustments would be made didn't have that same response and so um

27:06

i think for many different reasons just dynamic planning really helps with the client conversation and the

27:12

communication around it as well yeah that's a a good point so like the

27:19

the concepts that you're talking about with clients about um risk and retirement or

27:25

um you know what is gonna cause an adjustment um you're not you're never having to show

27:32

them uh this chart right so you never like you're

27:37

kind of removing [Music] you're going like up a level of abstraction away from the nitty-gritty

27:43

of you know statistical analysis and things and just talking with clients about hey you know

27:48

[Music] risk has gone down for you right you've lived some

27:54

years um maybe your portfolio is doing well maybe inflation's been lower than we thought whatever it is right so

28:00

the fact is your risk is much lower than when we began you can afford x amount more in spending and kind of have a

28:06

informed conversation about whether they want to do that or make other changes or vice versa

28:11

you can say hey you know as you know you know we've had a prolonged period of inflation or

28:16

whatever it is and because of that you know risk has gone up enough that i think it might be prudent to to tighten

28:21

the belt um but there's never a point at which we say something like your probability of

28:26

failure has gone up or your probability of success has gone down right and so we can help the clients avoid

28:33

viewing retirement risk as something where there's the risk is catastrophe right and

28:39

because in fact that's that's not the way that retirement generally works out you can you can usually make uh well

28:44

historically in all cases if you had a relatively conservative plan to start out small adjustments um were enough to

28:50

kind of save the plan save the people from financial ruin so the 1966 example here though it's not the absolute worst in

28:57

history is certainly among them and you can see in that situation the experience of the client would have been um

29:05

you know not not what i wish for myself or my parents but um you know it's it's

29:10

not failure right it's not risk so depending on the client um you know this is the kind of thing

29:16

that that could be shared hey what could what could life feel like in those bad situations you know i i

29:22

i know most of the time we're probably not sharing like a huge squid chart of spaghetti with clients and getting a lot

29:28

out of it but kind of backing up and saying hey you know worst case in history or worst case in a simulation

29:34

was you know you ended up with uh you know five or ten percent less um

29:40

that that can help them sleep better at night yeah i think it really does and just that ability to

29:46

actually put a number to it um even if the number itself at the end of the day

29:52

may not matter so much but just the ability to quantify that you know we're not talking about you

29:57

know your portfolio is gone and your income has dropped eighty percent we're talking about relatively minor cuts

30:04

um rel uh compared to where you started out but that is much more palatable and

30:10

um i think it gives clients confidence going into retirement

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um so i think that's uh that's the presentation for today i wanted to open it up to to questions so mouthly do you

30:23

have any questions there we do um

How to put the checkins into practice

30:30

first one here says how do we actually put the check-ins into practice do you have to run the

30:37

software each year to see what the income could be at that time or does the income stay the same until the portfolio

30:43

reaches the upper guideline or lower guideline is hit yeah so specifically so income lab as a

30:50

software platform was built to um to help um you

30:57

produce you know develop and then follow plans that have dynamic planning

31:03

built in and of course those plans um are not as simple as the ones that we just saw where all we have was a single

31:09

portfolio right they're often um you know cash flows like social security

31:14

pensions and things um you know sometimes people are following the retirement smile not the um you know

31:20

kind of flat income um assumption and so on so it can get really difficult a way to uh to to talk

Constant rate withdrawal curves

31:28

about that is you know this is how these uh you know constant rate withdrawal curves um if

31:34

you were in that simple situation but if you're in a complex situation these curves would not be nice and smooth they would be incredibly

31:41

complex and as time goes on and you make adjustments they change as well um so the software

31:48

is there to to tap you on the shoulder when it's time when the plan is calling

31:54

for a change um and that's done uh so you you this is

32:00

how the process works you you build a plan often you'll do some scenario planning right some a b testing hey what

32:06

you know what do we want to do here do we want to um you know retire now retire later social security now so security

32:12

later that kind of thing okay and you pick one that seems like it's going to work because you've been able to that that

32:18

income level will work and the picture you've been able to draw of risk works for the client they feel

32:23

comfortable with it so then you implement the plan and then monthly uh

32:29

the the software checks to see if any of those risk-based guard rails have been hit so

32:35

risk here is holistic right it takes into account longevity changes which we focused on today but also changes in

32:42

economics you know portfolio balances and so on but crucially

32:48

once you've begun retirement and you have a plan that you're following the default is do nothing right so it's

32:54

it's uh you know we we like kind of momentum we like uh not

32:59

not doing anything unless we have to as as humans right i mean i don't i probably don't want my advisor calling

33:05

me you know once a month with with income changes an example of that is we track

33:10

inflation every month there's a new inflation number right um but we probably don't

33:15

want to make inflation adjustments in clients income every month so

33:20

the system is checking hey have things changed enough have our you know

33:27

just focusing on risk level for a section for a second um you know have

Riskbased adjustments

33:32

has this risk gone off the rails enough that we want to do sort of a nudge back toward where we want to be so

33:38

maybe early on in this 1966 example maybe not even until you know the mid 70s

33:43

would we be making a kind of risk based adjustment we probably would have been making many inflation-based adjustments

33:49

along the way um but so that's how it works so this is done monthly

33:54

automatically um within the software thanks justin um and derek this next one

34:01

is specifically for you how do you present income lab to clients

34:06

who you've already put into static plans i found it's actually pretty pretty easy

34:13

um you know just really introducing hey you know i'm using a new tool

34:18

i i tend to um explain the benefits what i see you know why i think this is going to be

34:25

advantageous to um start working within kind of a guardrails type framework and

34:31

for me it's been a very smooth transition i can just think of one

34:37

one client that i was working with that put together very

34:42

several actually monte carlo based plans in the past came back for another plan put it

34:47

together and it really was a um the the feedback was very positive in terms of actually feeling like they had

34:54

a i think their their words was a something along the lines of a plan for spending in retirement now whereas

35:00

before they didn't feel like they had that so i really think it's pretty easy to

35:06

sell just in terms of here's the benefits and how we actually can put together kind of a

35:11

policy for when you would increase or decrease your spending rather than just me

35:17

using the tool to try and come up with the same uh conclusion for them so i i found the

35:22

transition pretty smooth thanks thanks derek um next question here is for implemented

35:30

plans where the account values need to be manually updated i.e because they're not linked to the custodian um how often

35:37

should the advisor be updating the investment account values yeah um

35:43

so with an implemented plan where you have not um [Music] been able to to do a data link through

35:49

an integration um and we actually have more integrations coming so we want to uh

35:54

our goal is that at some point everyone will be able to do data links for almost all accounts um but for those that

36:01

aren't linked the system will guess at how the portfolio balance may have

36:08

changed over the last month based on the asset allocation um now that should be directionally correct it

36:14

might even be close um but you know indexes which is what it's using to to guess on on direction and

36:21

amount are are not going to be the same as actual investments so um

36:26

i in practice we found that you know monthly is probably not what you what you need there um certainly as a

36:33

as a client meeting is coming up or maybe quarterly and certainly the first

36:38

thing to do if the system taps you on the shoulder and says hey it looks like this plan is calling for a change the first thing

36:44

to do is update the balances and

36:49

you know rerun it because it may be that you know maybe it didn't go as up as much as the the system thinks and so

36:56

that increase in income isn't quite needed yet or maybe it didn't go down as much as the system thinks right so those

37:02

are the points when either because a decent amount of time has passed a client meeting is coming up or

37:08

because the system has said there's a change those are times to to kind of update those account balances

37:14

perfect um next question is the income increased at the rate of

37:20

inflation at that time in history for example is this addressing the question of how will this plan do in an

37:26

inflationary environment yes so the um

37:33

all analysis methods within the income lab have um they include variation in

37:39

inflation so it's not a flat inflation environment within kind of the modeling

37:45

um the examples that we've seen are using historical numbers so that's why

Inflation risk

37:50

uh you know the 1966 and really even the 1986 example uh

37:55

there were very high inflation um during these periods and so that's taken into account um

38:03

we've definitely seen this that the the fact that kind of inflation risk is included we've seen that um be really

38:10

important in certain in certain client situations you know maybe somebody has a really large pension you know that

38:16

dwarfs everything else in their income picture um but that pension's not inflation

38:21

adjusted well you'll you'll really you know depending on the risk levels you've chosen uh you really will see that

38:27

effect right it's kind of transitioning it to okay what this is a riskier income

38:32

stream than if it were real gotcha and derek did i saw your hand raised did you want to add to this one

38:39

no i was actually trying to look at the question in the chat and actually click on that sorry yeah yeah uh

38:47

next one says is there a recommended number of number of years before retirement that

38:52

seems optimal um for starting to use the tool to project spending

38:57

that's a a really good question i don't think there is um it would depend more on the client

39:04

um so if they are the kind of client who kind of always wants to know how they're doing in terms of um

39:12

retirement then it it's useful as soon as that's an important question but

39:17

crucially and i i imagine this is what's kind of behind this question um you know the farther from retirement you are the

39:24

more is going to happen before then um so the less uh sort of likely that projection is to be

39:31

correct about what you'll be able to afford at retirement um you know think about if you're if you're holding a stick

39:36

um and it's if it's uh you know a foot long and you move your hand a little bit that the other end doesn't move that much

39:42

if it's 10 feet long it moves a lot so um we do have people who will produce plans

39:48

you know quite a bit out from retirement and you can even implement a a pre-retirement plan it's a little bit different than in

39:54

retirement what all it's doing is it's just automatically re-running every month and saying hey what do we think we'll have in the future now right so

40:01

it's not it's not causing changes it's just automatically running for you um and so you'll as you approach retirement

40:07

you'll get a more and more stable projection for what these folks could

40:14

have could afford in the future that can also help um you know you could run a couple

40:20

different scenarios with different retirement dates and you may find you know before the farthest retirement date

40:26

they can now afford to retire awesome and we did just have uh one of our current advisors say they're

40:32

currently using it 50 years away from retirement and loving it so looks like that's

40:37

that's a great great use case some that they're finding um and then uh

40:43

last one i see here is um dynamic planning seems seems like it would make clients without

40:49

significant pensions or social security more comfortable for going an annuity type product um to guarantee adequate

40:55

income uh have you seen this and i guess this is probably for both you and derek um

41:02

as well so whoever wants to take it first yeah i mean i can jump in and i think

41:07

definitely there is um an element of having that conversation about how much is guaranteed and you

41:14

know where is that floor for somebody um i do

41:19

uh you know every retiree is quite different it seems like in terms of how much they

41:24

want that guarantee versus how much they would rather you know preserve potential legacy or other

41:31

other factors but i do think it it definitely helps paint that picture and have that conversation

41:37

um and again give something better because that it's actually really hard like monte

41:42

carlo when you have a very pension um or annuity driven plan

41:47

you end up with like this cliff where you have basically an extreme example somebody living off of uh just social

41:53

security they have 100 probability of success as long as their spending doesn't go above their social security

41:58

benefit then it drops to zero as soon as they get above uh whatever they're spending so

42:04

i think that's hard to do like um to give some of those comparisons on well here's you know

42:11

here's what retirement could look like with these different types of guaranteed income sources harder

Income Lab dashboard

42:16

with monte carlo and with dynamic planning you can at least paint a better picture in my opinion but i'll kick it

42:23

over to justin to see if he yeah point out that the the main place that i've i've really seen

42:30

so so this is the the kind of main income dashboard of income lab and you see you know proposed income monthly and

42:37

these folks are already retired so this is their current month and then you see hey you know if despite withdrawals

42:43

we're up five percent we could afford an increase if despite withdrawals we're down or

42:48

partly because of withdrawals we're down 16 we would have decreased what i've seen is if you do scenario planning um

42:55

the more uh you know non-portfolio income you have whether it's a security pensions annuities and the sooner it is the

43:02

larger this um basically buffer is right so that the more um

43:08

damage that has to be done before you have to make a an adjustment which makes sense right because less of your portfolio or less of your income is is

43:15

subject to that externality right and on the other hand the more

43:22

portfolio income you have or we've also seen this as a difference between social security claiming so if you push

43:27

social security claiming out that may be a good it might increase your income um but it may also bring that kind of lower

43:34

guard rail part um closer to you so that's that's a good place to see the effect of

43:40

you know non-portfolio external income so thanks guys um and we did have one

43:46

more coming uh in this one i think back to kind of implementing plans for

43:52

someone pre-retirees it says if someone is retir if someone is retired and you have oh sorry if

43:58

someone is retired and you've implemented the plan can you still run another scenario to determine if they

44:04

can afford a one-time expense for example to buy a second home and how does that work

44:09

yeah absolutely so um this this plan is extremely this

Scenario planning

44:16

household is a a demo account right but if i had an implemented plan i would be able to just go

44:22

um to the uh oh my computer is very slow right now and say copy

44:28

but i could actually even copy the implemented plan um and then just make that one change and see how that

44:35

would affect things so that's really the plant scenarios the scenario planning section is is meant for exactly that

44:41

kind of question um both before you've implemented plan and even even during so

44:46

as i mentioned you know sometimes these pings these uh you know hey your plan is causing for an adjustment

44:52

sometimes it's very easy we just you know you keep following the plan make the make the inflation adjustment make

44:57

the you know risk-based adjustment whatever it is everybody's happy but other times it may be just an opportunity for

45:04

conversation and maybe a slight change to the plan right and at that point you may implement a new plan with a

45:11

different longevity or a legacy goal or a different portfolio or a different spending pattern or something like that

45:17

so this is not meant to say like um you know similar to static plans that you

45:22

are absolutely going to follow this dynamic plan no matter what right things change external to the plan right um

45:29

people's desires change their family situation can change and so on so it's really truly meant as an ongoing

45:36

you know kind of relationship um a way to facilitate that

45:43

thanks we're still getting questions coming in uh so i'll keep it going uh since we still have time um how does

45:49

this compare to guyton klinger card rights so let me go back to the uh

45:57

presentation here um so guyton klinger i think it's probably

46:03

one of the best well-known um and most kind of worked out approaches to dynamic

46:09

income planning so when once you've kind of embraced the idea that you're going to make changes over time which by the way even in that original bill bengan

46:16

four percent rule article at the end he talks about dynamic planning so it was never you know the four percent was never meant as a you know do this

46:23

forever kind of rule um once you embrace that the next question is okay how do i figure out when to make changes

46:29

and so guyton klinger um tries to do that with uh

46:35

with withdrawal rates so how does it compare well it embraces the idea of dynamic

46:41

planning but it tries to be more well and it is much more applicable to real

46:46

situations so um instead of saying um you know i'm going to set my

Setting guard rails

46:53

guard rails based on withdrawal rates right so i might begin life with a five percent

46:58

withdrawal rate if that withdrawal rate gets up to six i will reduce my income if it goes down to three i'll increase

47:04

my income we can see here setting withdrawal rates like that that's too static right because three

47:11

five and six are the risk of those withdrawal rate levels is not going to stay the same

47:16

over time um and so this is sort of the next step um beyond guyton klinger is to say well

47:23

let's let's do something that actually takes into account all of the complexities and idiosyncrasies of a

47:29

real situation so actually as an example

47:34

you'll see here these folks

Holistic riskbased guard rails

47:41

have um you know some part-time work they have a a pension and then social security

47:47

kicking in at different points so the planned portfolio withdrawals are quite high at the beginning and then

47:53

they get very low later in life so this shows really setting guardrails

47:59

with um with withdrawal rates it just is not practical it it simply can't be done in

48:06

situations like this so instead what income lab does is it it always it's holistic risk based guard rails so at

48:14

each point in this plan based on what's already happened and what the plan is for the future we can

48:20

figure out the risk level of of a given behavior and yes involved in that is certainly withdrawal rates but

48:27

but there's no sort of well you know six is always high and three is always low

48:32

um it's it's so complex that you know sometimes six is very low or there could be cases

48:39

where three is too high right so it's always evaluating that what that also does is it allows you to

48:45

step back from withdrawal rates and just talk about risk which is something that you know it's sort of

48:51

uh derek actually had an article on kind of talking at the right level of abstraction and you know diving into mathematics

48:58

even if it's just talking about withdrawal rates may be a little much whereas risk is kind of something people can understand

49:04

um derek do you have thoughts on that yeah i mean i think you described it well in terms of that

49:10

evolution from you know guy and klinger and it works great for research purposes um

49:16

you know it's taught us a lot but i really think it's that the fact that even and diet and cleaner does relax

49:21

withdrawal rates in the later years of the um you know so it does it does

49:26

account for some of that but i actually have another kid's article too on

49:32

using probability of success driven guardrails that kind of dives into the the distinction a little bit further too

49:38

but i think the real difference there is of course that you're you know with with something like uh

49:44

probability of success or you know um it's not necessarily what i would communicate to the client but when you

49:50

have um a plan that is taking into account all their specific cash flows all their specific goals

49:57

all their um you know anything unique to the client that you can build in then you have this sort of like justin

50:03

said the risk based uh guardrails and ultimately i think that just is captures

50:08

so much of that client specific information in a way that um as much as i like guy cleaner i'm not

50:16

trying to criticize it it just it's too rigid um to really be as useful

50:21

in practice got it thanks guys um

50:27

and uh another question here do you recommend adjusting the longevity settings as the

50:32

client ages and their health changes so

50:38

i'll take that in two parts um the i mean the answer is yes

50:43

um but part of that if you're using income lab is done automatically so when those

50:49

monthly updates are done part of that is saying well how old are the clients now um and so

50:56

you know in that very simplistic situation that that we're showing um here

Automatic monthly updates

51:02

it will say you know maybe we began at 66 and now we're 65 now we're 75 it will have said hey

51:10

what's the new plan length and it does that every month now you you know mortality tables are are annual so but

51:16

any time a birthday passes you would see the plane like change um so that's done automatically for you so the answer is

51:22

yes but some of that you can do automatically the second part which is um really crucial you know if there's a

51:28

change um you know a diagnosis or something or the death of a spouse i mean

51:34

clearly in the second case you would always be changing the plan but um definitely it's time to to go in and

51:41

reset the the risk level

51:47

and then this one's around kind of the expense details on the um planned dashboard but it says uh you know i

51:53

noticed under expense details there are discretionary expenses and essential expenses can you explain the difference

52:00

there yeah so that that was actually a um

52:06

uh a categorization kind of inspired by michael kitchis in an article about budgeting um

52:12

where um he was making the point that you know there's there's kind of no such thing as uh well very rarely such thing as a

52:20

purely discretionary or a purely essential expense so you know groceries are essential

52:26

but you know artisanal pickles are not um

52:31

uh in the uh in the budget section for each budget

52:37

item um you can set um at percent essential

Realitybased planning

52:44

um you can also you know if it's joint expense which is um

52:50

often the case uh you know how much that would change if one spouse were to pass away um

52:57

so this is really just an attempt to we we call this reality-based planning every week

53:02

we try to get as close to how things really work as possible so you know how much of your grocery bill is essential

53:08

how much would that change if somebody if somebody passed away and then in the chart you're discussing um

53:18

it sums all those up and gives you a picture of that

53:24

perfect oh you're not going to see anything i don't have a budget so you're not going to see much interesting in this case i guess

Is Income Lab meant to replace software

53:35

and then is income lab meant to replace software such as the money or working

53:40

coordination uh generally the latter i mean uh in

53:46

practice that's what we see um so income lab is really focused on retirement income planning

53:52

um again whether that's pre pre-retirement at retirement in retirement um and all of our kind of

53:58

product road map is is focused on improving that um and diving deeper or expanding the parts

54:05

of of planning that have to do with retirement income i can let derek address this a bit but i

54:10

know almost all of our other advisors who use income lab have um

54:16

uh i think a good way to put it would be a holistic planning platform um you may use that in

54:21

in different ways and then they use income lab to when they're diving into retirement income

54:26

but i guess the main the main way to answer that would be it kind of depends on how you run your practice there are some cases where people are

54:33

slowly transitioning things more but i think in general they live really well side by side

54:38

yeah i would agree with that and i would say if you're really focused on let's say you're you're you only work

54:45

with retirees um and you're currently running monte carlo type plans for those retirees then i could see somebody

54:52

making more of a transition what one tool between the two might be able to do more

54:58

but if you're also using education planning and all sorts of the other

55:04

suite of tools that are in more comprehensive plan um than it uh wouldn't necessarily work to

55:11

to make that switch um because of all the the other capabilities as well

55:21

and then i will just give one more minute to see if there's any last questions here

55:27

as we're wrapping up

55:34

don webb said you guys a great excellent webinar you guys did a good job appreciate the feedback don

55:41

um i guess any um last closing remarks from either of you justin or derek

55:50

um just to say you know thank you for for attending we're going to be running these um

55:55

monthly a lot of you probably know we also run um kind of more

56:00

how-to or application-based webinars so we'll have another one of those next month as well so

56:06

we may increase the cadence of those if there's if there's demand for it so just

56:11

you know really really happy to get the conversation going income lab is really focused at being at the

56:17

intersection of you know practice advisor practice research

56:22

and technology so this webinar is trying to be focused a bit more on the research side so we have some exciting things

56:29

that uh that derek and i are are working on um so just a teaser on that hopefully in the next uh

56:35

months and and over the long term you'll you'll see more of that so thank you very much

56:41

and i'd say um thanks for the great questions everyone um for those of you who are new to us at an income lab feel

56:48

free to reach out to us on our website with any questions um or subscribe to our our website to also get access to

56:56

those uh resources and cool articles that justin mentioned that are on their way um and you can also contact us if

57:02

you'd like to see a demo and kind of get your hands into the platform but as always we're open through any channel

57:08

to respond and connect with you and we look forward to having you all on the next webinar

57:14

and derek as always thanks again for for joining and giving us your great feedback and insights from the advisor

57:20

perspective yeah and thank you everyone for joining all righty well i'm going to stop the

57:25

recording and end the meeting take care everyone