The Worst Time in History to Retire had a 7.5% Withdrawal Rate?!?! (February 2022)

good morning everyone we will kick off the webinar in a few minutes as we give folks time to uh log in and get our

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panelists set up as well

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morning derek good morning can you hear me okay i can hear you can you hear me

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yep all right and then let me just get justin up in here

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good morning justin

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justin can you hear us okay

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oh [Music]

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looks like you've got folks getting in here oh excuse me i think justin we're figuring out his

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audio um

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dustin do you want to say a few words so we can make sure we can hear you

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i'll see a few more people walking in here so i'll give him one more minute

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and you can hear us did the audio work

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okay there we go i think i have it working on my side now okay perfect yeah we can hear you perfect okay

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and looks like we still got a few more folks but we'll go ahead and get started

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good morning everyone uh welcome to our income lab webinar this month we're excited to have

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everyone back and to our new folks uh welcome my name is malcoly i will uh mc today

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and uh justin and derek will be our panelists so uh generally they'll go through their presentation and then uh

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you'll see in the uh zoom meeting here we have a q a section set up so after

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you know as you have questions throughout the presentation feel free to put your questions in that q a section

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and um keep an eye on the q a section as well if someone has a question that that you like um you can kind of vote it up

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and move it up in the queue and so after the presentation we'll then run through the q a and get all the questions

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answered um we will send a meeting recording after this as well so you'll see that come out tomorrow and um

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if you would like to set up a meeting with our team to walk through a demo or just go deeper into the platform

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please reach out to us via email or through our website and we are more than happy to set that up for

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you perfect and outside of that justin derrick sounds like we got audio

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working now so i will turn it over to you guys all right thank you sorry for that

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everybody user error um so today we're gonna um you know this

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series of webinars we try to cover kind of general topics and retirement income

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research and um so today uh we have kind of a provocative title of uh the worst time

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to retire had a 7.5 withdrawal rate um so we're gonna be talking about withdrawal rate research withdrawal

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research in general um we'll weave in some of the themes that you've seen over the past few months as well regarding um

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you know things like economic context and so on so it should be a it should be a fun one

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all right so uh one reason we're doing this webinar is withdrawal rates are in the news or maybe back in the

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news maybe they never left i'm not sure it's definitely a um a popular thing for um

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for journalists and and researchers to to write about um i think that

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this last round of headlines was kind of sparked by this new report from

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morningstar um from last year uh it's actually it's it's quite a rich

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report it's very long but of course uh you know kind of the headlines of it were that now the safe withdrawal rate for

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retirees is uh three point three percent not four percent um

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in fact i i wrote a little something as well that appeared in financial planning you'll see the url at the bottom there

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um covers some of what we're covering today as well but before we talk about retirement

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withdrawal research um i i want to uh cover kind of a caveat

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here which is that this sort of research is is really

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useful for teaching us kind of how to think about certain issues in retirement

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but it's really not useful for developing a particular plan for a particular household

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that's because things like what derek and i have called the retirement hatchet which you see at the

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bottom here um and differences in longevity expectations fees investment

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approaches assumptions all sorts of things they they don't have the form that this

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research usually assumes that that a household would have and that's not that's not a problem with the research the research needs to assume something

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um but it's just important to understand that it's not meant to match up to a particular household so just to give an

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example the retirement hatchet here you see that kind of the dark blue is the portfolio withdrawals for this

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household and because they're deferring social security for looks like four or

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five years they're going to have substantially more withdrawals early on than they will once

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social security starts so in this case probably far more than

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3.3 or 4 of their portfolio would be coming out that's not necessarily a problem just

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because it doesn't match with this kind of rule of thumb research the problem is trying to apply rules of

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thumbs to particular situations

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that being said what usually people do in withdrawal rate research is use an extremely simplified

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household situation again to try to discover some things some ways to think about

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funding retirement income from an investment portfolio so um you know this research really

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began or at least you know kind of took the imagination in the early to mid 90s with bill

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bengan's research and the trinity study and usually what we're dealing with there was a 30-year retirement funded

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entirely from an investment portfolio where the withdrawals um

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are you know some amount usually that's expressed as a rate of withdrawal so the amount based on the

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initial portfolio and then those are adjusted for inflation going forward there could be different inflation

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assumptions sometimes could be based on historical inflation sometimes you'll see just an assumed three percent rate

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but that's kind of that the core of this simplified picture that's then used to

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try to extract some knowledge about the world um so what we have here is a uh a

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historical picture of exactly that a 30-year inflation-adjusted initial

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withdrawal rate this is from a 60-40 stock bond portfolio and the research you'll certainly see people play with um

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with the asset allocations and um i've pointed out in in kind of

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the the brighter colors the periods when these withdrawal rates these sustainable withdrawals were below

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five percent um so we we kind of have four main areas

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um two fairly short um and two fairly long

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so pre-world war ii or you know kind of through through world war ii uh and then we have a brief

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period at right before the crash of of 1929 and then another period in in kind of

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the late great depression and the biggest and most relevant period to us is what i've called the lost decade um

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basically the 60s and early 70s and the reason that's most relevant to us is this is also the historical period

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that gave us the four percent rule so there's a period as you can see in kind of 65 66

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that hits the gray line here um and that is the the minimum in in this kind of research

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the lowest withdrawal rate ever right so it makes it appear that well that must have been the

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worst time to retire right um because here's who's the same uh at a in

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a larger larger zoom and you can see right there 65 66 is where we're hitting the gray line we almost hit it back in

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the gilded age but uh you know that that's a little harder to connect with for for today's retirees

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of course the problem with this is uh we spend dollars not percentages and so

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although this is this is interesting information it's useful um i'm certainly not saying we should we should ignore

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withdrawal rates or withdrawal rate research it's um it's just part of the picture

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um in order to explore another part of the picture um

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i i want to look at this sort of save then spend life cycle

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now this is not what people actually did in the gilded age or in the you know

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but we're going to pretend that uh historically people saved money over time into something like a 401k

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and then spent their accumulated nest egg over there uh over their retirement

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again super simplified there's no social security in this picture there's you know again we're assuming that people

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had access to to these sorts of things so what we have is a 40-year accumulation period saving a thousand

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dollars a month adjusted for inflation followed by a 30-year decumulation period with flat inflation-adjusted

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withdrawals my guess is no one in the history of humanity has ever done this but it's a good uh

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it's a good kind of uh model to to play around with so what happens when we when we look at

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the world the history in this way we see that if we measure the

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sustainable income in dollars instead of percentages

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that that november 1965 happens to be the absolute low in that particular um

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that particular study yes indeed had a four percent withdrawal rate but an annual real income so adjusted for

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inflation of 86 000 in today's dollars which is at the 45th percentile of

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everything um in this study so here we have retirement dates from 1911

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um through uh 1992 so 30 years ago

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um and so roughly average it turns out that uh the 60s were a time that could have

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sustained uh let's say a standard of living um that's roughly average

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not the worst time to retire but the average time to retire um there are two periods that i've

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pointed out here one is kind of you know pre-great depression

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where the the minimum of that red section here is uh is in 1918

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and the i i figured i'd point out a minimum from from that more recent period so the minimum we find uh for the

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more recent period of the last decade it's actually a little after that is uh 1974

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when we would have had an inflation-adjusted income of 62 000 so the worst time ever in this picture of

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kind of the 40 years of accumulation and then the um 30 years of decumulation

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is 52 000. um and the withdrawal rate at that point

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that you could have had and with full uh foresight uh was 7.5 percent so that's

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that's the title of this webinar so what's going on here why do we see

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such a different picture the main reason is pre-retirement

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sequence of returns right so because we are having our hypothetical

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savers save over time you know a thousand dollars a month slowly accumulating this this nest egg

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um the sequence of returns before retirement has a huge effect because it will determine the size of your nest egg

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when you do retire and here your inflation-adjusted nest egg sizes

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[Music] given that 40-year savings behavior

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and the red ones are the nest eggs that are below 1.2 million dollars

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um and so again we we see here that there are these two periods um

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there's there is a third kind of in the great depression again but uh sort of this pre-great depression and then um in

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this case uh mid 70s to mid 80s period that were particularly tough on nest eggs right so

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where if you had been a saver um in this way investing um it would have been you

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would have found yourself um you know with with not as big of a nest egg as as through the rest of history

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crucially when we also show withdrawal rates so we combine basically that

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chart with the first chart that we saw which is maybe the more familiar one from bill bengan's research and and the

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trinity studies um we get this uh you know kind of

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beautiful butterfly uh picture right where there's an obvious um inverse

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correlation between these two things the size of your nest egg and the withdrawal rate that um

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that we know could have been sustained from that portfolio this the correlation

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here is about negative point eight so that's quite a

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uh well i guess low correlation but uh it's it's high uh in in the sense of it's it's uh it's quite

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a quite an effect right um and so what this means is

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it's actually possible to find uh the same

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uh income the same standard of living

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that could have been sustained historically um with totally different recipes um so

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a low balance at retirement with a high withdrawal rate um

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can produce potentially the same income as a high balance of retirement with a low withdrawal rate um so we picked out

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a couple of pairs here um february 1921

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and march 1916 which are marked in with the red lines to the left um

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we can see they both produce the same income but with very different sets of of nestegg

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and um and available withdrawal rate and then november of 1985 and march of 1961 uh

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are producing almost twice that income level but again with very different sets of of

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nest egg and withdrawal rate um it's it's really remarkable here to to

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to see how focusing only on withdrawal rate uh misses a huge part of the of the

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retirement picture um because we're thinking only about percentages instead of thinking about

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standard of living the issue though that i'm i'm sure many of you are

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thinking of is okay well this is great this is all research that knows exactly what's going to happen after these

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points in time right because we're dealing with history um and that's great but in february of 1921

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assuming the world were more like it is today um would anyone have felt comfortable recommending to a client that they take

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an 11.4 withdrawal rate or in november of 1985 would anyone have

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felt comfortable recommending to a client that they take a 9.1 percent withdrawal rate

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those seem high right and so um potentially very risky

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and i'd say that's a it's a really good question and this is the problem with with looking at

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these kind of perfect withdrawal rates right solving for exactly we know what you could have had is that um when we try to apply them in

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practice when we don't know the future um it can feel like we're at a little bit of a loss well what do we do um it's

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it's fine to know what i would have done the past monday morning quarterbacking but um what do i do when i'm providing

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advice right now um and i think one of the the keys to

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answering this question is you know putting yourself back at these

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periods in time so the most recent one that had a really high withdrawal rate and this is a a chart from from income

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lab and the historical analysis section just a just kind of a

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just an example household nothing nothing special going on here but you'll see some peaks in the in the

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early 90s or sorry early 80s early to mid 80s and the question is well what what could

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we have done at this point we know in retrospect that a household could have afforded

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quite a high um withdrawal rate um again we saw that

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actually their nest egg would have been fairly low but we might not have felt comfortable recommending a high withdrawal rate because we didn't yet

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know the future so what can we do um there's we can sort of judge ourselves only in retrospect right did we did we

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get our clients the standard of living that they actually could have afforded um

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we'll know in retrospect what they could have afforded but at that time we won't so the

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the answer to this is we need to be we need to be ready for adjustments

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so it's i think totally reasonable and rational not to recommend an 11 withdrawal rate

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um and to recommend something a little bit lower

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and then just be ready to adjust right so as the future plays itself out or if

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we go back to 1982 for example imagine you retired with a or this is 1986 sorry you retired with a

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relatively low withdrawal rate i mean 4.3 is very low historically um in terms of what was available at

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different points so even if you had begun very low as long as you had a plan in place

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that was going to tap you on the shoulder and let you know that hey you know life is playing out here and it

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is giving us messages that we started too low um as long as you have that in place you

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can rapidly um increase the income level in order to capture some of that standard of living

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that the actual experience the household is having is offering to that household what you give up here is the income at

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the at the earliest periods right and so that's the cost the cost of being cautious

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is that they may have to wait um to have a higher income level um

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the benefit would be well if you know if we're wrong uh we don't want to be wrong on the 11 maybe we can start at i mean

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this is this is quite low 4.3 but you'll see over time we add you know

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50 100 160 to their purchasing power um and for those of you who followed

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some of the work on total risk guard rails and things like that these

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increases of income are they're not increasing risk in fact all

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they're doing is returning you to the same risk you began retirement with so

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what's happening as you're increasing income is your plan is saying hey

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we started with with a nice big risk buffer which is which recognizes that a lot of people are risk-averse

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but if that buffer gets too big we're really um we need to adjust right so we we can

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start with a risk buffer but if the risk buffer grows let's let's just reset the risk buffer right let's make it not get

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too far off and so that's that's what's happening here so 1986 is a great example of something that

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originally we know we know from history now that they could have started with a high withdrawal rate

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but if they hadn't you still could have provided them with a very high income over time if you've been ready to

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adjust um so that's uh that's the end of

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kind of the the slides but uh i think usually what we do here is kind of open it up to derek if there's any kind of uh

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um points on practice and or or just on the topic in general and then we'll take

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some questions i mean i think for me just the ability to actually have these conversations

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around what happened in the past um there's a really big deal that's something that you know i think

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it makes all this abstract planning just so much more tangible when they at least you know you can talk to somebody about

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what's happened in the past these different time periods what somebody could have spent going through there that to me is um

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you know it really takes that really abstract hard to grasp kind of concept and at least puts

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it in a context people can understand now of course we know the future could be very different than the past

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but um you know at least that gives somebody something that might give some peace of mind and comfort when they

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think okay yeah you know we've we've seen markets go through some tough times um it's not like it was all

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great in the past um but um just having that that context i found is big but um

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yeah with that i think good to jump into questions yeah one thing i thought i'd point out i realized i missed um while we're queuing

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up questions uh malcoly is um if you are wondering you know you just

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saw a bunch of historical examples pairs of of time periods that could have produced different kinds of income and

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so on where are we today right so sort of what's what can we learn from this what you

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will see here is the nest egg for this you know again nobody saves a thousand

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dollars a month from age 25 to 65 exactly right but if they

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had they would be at a red relatively high nest egg uh compared to history

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right and so although i just kind of belabored the point of hey even even

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those periods where you had really high withdrawals you eventually could get there by adjusting in fact today it looks like we're in kind of the opposite

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position right so so we have high nest eggs which usually pair with you know relatively low withdrawal rates

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okay um thanks guys i do see a few um questions coming in uh to our viewers uh if you

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find the q a section you can see the questions that other people have um

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asked and you can like and kind of move those up in the queue or start adding your own questions as well but i will

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start from the top here so first question is um so these withdrawal rates in the research are

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telling us how much someone could have withdrawn annually if they retired in that specific year correct

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that's right so now this is just just nest eggs and we're able to go through today because we're only looking at nest

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eggs um but if i pair it with the withdrawal rates then the most recent withdrawal rate i

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know is 30 years ago because i'm using 30-year um a 30-year retirement um

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and so yes this is that the dates along the bottom are the date of retirement and so the 40 years of

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savings would have been before that date the 30 years of retirement would be after that date

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and then um next question is do you have insights about stock market valuation measures and withdrawal rates

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um yeah so actually last month we did a webinar on um

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on economic context and what it can teach us about

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or or the the ways that it can be used in retirement income planning or even just retirement income conversation and

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communication um and uh we're actually working on some uh

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some uh blog articles as well uh covering more uh

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more ground in terms of economic context um but it's not nearly as good of a correlation

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as what you see here um but there's definitely a something to be something to be gained

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from measures like cape and actually what'll be in this research is that

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especially cape over measured over longer periods of time so typical cape is a 10-year cape but even

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if you go a little longer you get even better better information for retirees the reason is

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uh you know retirement is a really long term process right and so um

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we we can kind of get information from that is useful for for long term

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uh decisions which is harder to get for short-term decisions like whether to buy or sell a stock right so that's sometimes people

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can get a little uncomfortable with okay well is this you know some kind of market timing or something and gee there

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seems to be a lot of research that market timing is tough if not impossible um and

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you know looking at economics for retirement income planning is a little bit different there because it is such a

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long long-term effect and next question is um will you

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revisit the notion that nest eggs and withdrawal rates are almost perfectly negatively correlated

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yeah i i mean this is it's it's a it's a you don't see these sorts of things just naturally occurring in nature very often

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right that's a it's a really um

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low correlation i guess in this case but you know almost perfectly negatively correlated um

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yeah i mean it's it's in a way what we're seeing here is just uh

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market cycles right so if you've had really good returns you're gonna have a high nest stack

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if you've had really good returns you know more and more historically you're getting closer and closer to worse

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returns uh in terms of sequence of returns right so we tend to see good returns followed by bad returns followed by good returns

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followed by bad returns and that's really what this is showing so um

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i take it as very encouraging that really at least historically

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you're if you've if you've had the benefit of a high nest egg you get the benefit of the high nest egg

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maybe you don't also get the benefit of a really high withdrawal rate but you know nothing's perfect on the other hand

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if you happen to be in one of these periods where you've had really poor pre-retirement performance

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i think we can be justified in expecting things not to be the worst ever than

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going forward right so because of this cyclical nature of of returns i think that's that's what

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we're seeing here that's the explanation for this for this chart

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and uh one other kind of comment related to that i think for me a big i'm i'm not a fan at all kind of

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the nest egg targeting um you know that people sometimes do going into retirement and

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this is often one way that i'm using income lab to kind of reframe some of those conversations as the client says

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you know i want a million dollars in my my ira by whatever date retirement date and to me

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that's just you know you i don't necessarily go in this level of depth with the client but you know this

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is a reason why nest egg targeting really isn't better and i try to move the conversation to let's talk about the

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guardrails let's talk about how much you can spend let's think about um and

30:33

just in terms of dollar amount of income that you can generate instead of trying

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to target a portfolio amount just because of this general relationship um and why nest egg targeting just

30:44

really doesn't work and then of course you know having a tool that takes that economic context

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into consideration helps inform the guard rails in an even better way and so that to me just to get practical about

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it like that's the the real takeaway here is that um you know for me being able to shift the

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conversation from the nest egg to just the income level which will be a little bit more stable

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because of this and then also um you know just reframing that

31:13

client expectation and having that conversation you know sort of really i hadn't thought of it that way derek i know this this

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presentation seems to say hey maybe we pay a little too much attention to withdrawal rates you know this is

31:25

withdrawal rates are just part of the picture if if we had a focus on nest egg we could say the same thing right i mean

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so maybe we focus too much on nest eggs right if they're not they're not the whole picture like if you look at the

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the jaggedness of this right which is nest egg it's it looks really volatile right you can

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have all sorts of different experiences compared to this which is you know the um

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the standard of living with this simplified picture you can see it's incredibly smooth

31:54

compared to both the withdrawal rate and the nasdaq pictures

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okay and next question is what about those clients who have little spending flexibility based on fixed costs whether

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that's real or perceived there's a tension between spending to enjoy early years while

32:14

health is usually better and it's often more difficult to cut spending later when there's less discretionary spending

32:22

kind of what are your thoughts on that yeah i mean that

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my thought is that's that is that's the crux of it that's the hard the hard conversation and it's probably

32:34

a little bit more of an art than a science but derek you probably have more i was i was just gonna say that i mean

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that's always a challenge it's good to identify what that real floor is and you can build a floor into the plan and say

32:46

that you know spending is not going to go below a certain level just anytime you put a floor in now

32:52

you're introducing the risk that you actually do deplete the portfolio um but at the same time that's

32:58

uh i know i think it's finca and blanchett uh i might forget the third i think there's a

33:03

third author on the paper but they have a paper from a while back where they were looking at you know how we actually

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uh you know the whole four percent rule is you know just based off of not depleting a portfolio but when people

33:17

have some sort of backstop they have some social security pension other type of income

33:23

it's reasonable that they'd be willing to actually take some risk of depleting a portfolio and then that alone moved

33:29

the kind of range from four percent up to like i think it was five to eight percent based on

33:34

somebody's risk aversion as a starting distribution rate so um you know thinking about that you know

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yes uh there's no mathematical answer i don't think that you can give in terms of what's the

33:47

optimal thing to do but you're always trading that off and you're thinking about where do we want to set that floor what

33:53

is the client's true floor um and understanding that and then proceeding accordingly and if

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somebody really doesn't want to take that risk that the their floor could ever be depleted then you know maybe

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it's not even an investment portfolio maybe it's more of an annuity product or something else but then a risk inflate

34:10

of inflation and everything else but yeah it's i think justin's right it's more of an art than a science

34:16

it's a good point though so all this entire presentation has just been portfolio withdrawals and when you bring

34:22

non-portfolio whether social security is most typical right starting to think about okay how

34:27

do those decisions affect my kind of dependable floor i mean now things like deferring social

34:34

security there's an extra benefit there right because and

34:39

that inflation-adjusted non-portfolio income is is incredibly powerful

34:45

um in producing you know better experiences

34:51

all right and uh next question here is uh i've seen evidence that a 80 20 mix is

34:56

better than a 60 40 mix um are there any major differences if we use that allocation

35:05

um i did not run these uh with an 80 20. it wouldn't be hard um

35:10

i i suspect you would see a little bit more volatility but otherwise the same shape um so just you know a little bit

35:17

different between the peaks and the valleys um but uh who if we take your name down we can always shoot you over

35:23

some charts yeah i might just add to that i think it's it's always tough too to you know

35:31

what what do you mean by better right that what what's the objective that you're going for and um particularly somebody that's

35:37

prioritizing uh legacy type balances i i think that'd be very true that historically in 80 20 probably yes

35:44

you're introducing more risk of depleting the portfolio but the remaining portfolio balances will be substantially larger

35:51

um and you know then then you get into the the oldest discussion of you can actually vary the allocation over time

35:58

and i i do think there's really something to like michael kitzis's the rising equity glide path and that's

36:04

been something that you know really for somebody who's 85 at this point

36:10

oftentimes they could be uh take on about as much stock risk as they personally wanted to because the once

36:15

they made it through that initial period and got through the the phase where seeking sequence of returns risk was the highest

36:22

um at that point there's just so much upside for the typical retiree um that yeah it's all sorts of different

36:29

ways you can go about it um but yeah you have to figure out what you know what you mean by best because

36:35

however you define best then that's going to impact the the actual portfolio allocation decision

36:40

as well i think this is uh this next question is kind of touching up on uh the social

36:46

security um comment you made justin but um you know what's the impact of

36:51

fers and other pensions on the withdrawal rate decision

36:58

um so i'm not familiar with fvrs it's something federal um it's a it's the federal

37:04

employee retirement system yeah so is that inflation adjusted um

37:10

i i don't deal a lot with furs i i believe they do get an inflation adjustment i'm i'm just not sure if it's

37:15

the as robust as social security and i defer to somebody that actually deals with first clients more on that

37:21

yeah there is some adjustment to it yeah i mean i think maybe that was a little cryptic when i

37:26

said you know inflation-adjusted lifetime income like social security is incredibly powerful

37:33

um maybe i can add a little bit of meat to that so um in fact you can just go into income lab

37:40

and add a pension that's inflation adjusted and every if you're also using the retirement

37:46

smile for example which recognizes that people tend to want to spend more when they're young and active and less as

37:52

they age you can add more than a dollar of current spending with every new dollar

37:59

of inflation-adjusted future income um because of the smile right um and that's

38:05

one way in which this is incredibly powerful um so yeah when we when we complicate the picture

38:10

or maybe the better way to say it is when we make the picture more realistic um there are um you know more tools that we

38:17

have available than just altering the portfolio and things like that and yeah decisions on

38:23

whether to defer um or you know i don't know all the options

38:28

with furs but if there are you know survivorship options and things like that that would start to become very relevant yeah

38:36

and um thank you thank you robert for uh sharing that that link there and um it's

38:42

yeah it looks like i'm reading quickly again and i'm not a first expert by any means

38:47

but um it is that whole weird thing with fers where under two percent you get the cpi w two to three percent you only get

38:54

two percent and then more than three percent you get cpi w minus one i think that's that's

39:00

correct uh but the so that that's going to be you know extra extra difficult to model um the impact

39:06

but just generally speaking thinking about the principle of it uh yes certainly incorporating that um

39:14

the the inflation adjusted income into the plan is going to have a big

39:20

big difference in terms of you know what retirement outcomes somebody experiences and oftentimes

39:26

you know i've found the results look really good you know for social security in particular that's when i deal with

39:32

more but you know that really delaying social security makes a lot of sense um

39:37

the thing that i think is under-appreciated about that is you are actually kind of front loading you're going back to that hatchet right you're

39:43

front loading the distributions when you do that you're introducing maybe a little bit more sequence of returns risk

39:49

but i've always approached that with clients as saying well you know let's say you know we do encounter a bad market

39:55

when we're in this the blade of the hatchet there in the high distribution years if things get so bad that we feel like

40:01

we shouldn't continue down that path you can always turn social security on so that's um you know certain pensions may

40:07

not have all that flexibility but that is one way that i'm addressing that conversation with the clients is this

40:12

this makes a lot of sense if the market absolutely craters you know maybe then it's something we should

40:18

you know revisit and reconsider and at least we can always opt to turn social security on earlier

40:25

um and then next question here is have you considered results from other economies economic history u.s capital

40:32

markets have generally outperformed in modern economic history

40:37

yeah so um i know wade fowle has a good article i mean it's probably

40:42

i don't know 15 years old by now but it's it's it's really good where he basically redoes this withdrawal rate

40:49

research um with other other return sequences

40:55

and as you say finds that there are certainly um countries where

41:00

um the withdrawal rates would not have been nearly as high so that the minimum withdrawal rates could have been

41:05

extremely low in some economies and yeah that's that's the other big caveat with um with really

41:12

any historical research is just understanding that the the future could be worse than the past that being said

41:17

it's also important to remember that you know historical data is the only data we have um and so it and it's uh

41:24

it's often been a a reasonable thing to take into account um so it's not that we know nothing um

41:30

so um and i would say my own preference is that uh dealing

41:37

with the fact that the future could be worse in the past uh by having plans for change

41:43

um is is a a good way to go um as opposed to you know assuming things will be really

41:49

awful and and beginning life that way or beginning retirement that way

41:55

and uh this next one's maybe more of a comment but maybe uh another webinar we can do but it just said it'd

42:02

be interesting uh this advisor would be interested to see the opposite scenario starting um

42:08

uh starting to a high at a at a bad time [Music] so

42:14

starting

42:21

so if we look at this oh you're talking about

42:26

right a time where so i gave the example of if you had retired and kind of in this area in the in the mid 80s

42:33

you know it would have been tough to to just take a leap of faith and and start really high but hey you could have

42:39

adjusted so you're saying well what if you were in the 60s

42:44

and you had started with a high withdrawal anyway um what would have happened yeah we actually have um

42:52

i think there are some pieces that we have on our website that do go over a 1960s example i mean it doesn't start

42:58

super high but you still do have to have some adjustments down i think even if you started at four and a half five percent you do i

43:05

think it's uh three adjustments two of them are just less than full inflation adjustments um

43:11

one is an actual reduction in your in your income in order to kind of keep the plan on track but uh yeah so plans that

43:17

start even higher than that will be a little have a little rougher road but um we do have

43:24

you know a reasonable example that that addresses that on our website

43:30

and then next question is um what does the high inflation rates of the last decade say about today's plans for

43:37

withdrawal rates yeah this is interesting um and actually

43:43

i think i just did that piece just come out loudly i think on advisor perspectives maybe we could drop that

43:49

link in the uh in the chat chat um so i just published a short article on inflation

43:57

about exactly this so the last decade let me get back to the

44:03

withdrawal rate right here so um what's interesting is

44:10

we had sideways stock markets and high inflation which the two of

44:15

those things together are what produce bad pro prolonged low real returns that's

44:20

that's really the the worst environment for a retirement income that is funded by

44:26

investments um but it is interesting if you look at the timing so really the high inflation didn't start until

44:33

into the 70s i would have to look at the chart again but i think decently into the 70s you know 72 73 something like

44:39

that and yet your withdrawals um in retrospect would have been quite low

44:44

in the 60s so and then if you look at withdrawals that would have been possible you know later

44:50

in that high inflation period they're quite high right so there's unfortunately

44:55

uh high inflation is a little bit of a lagging indicator or maybe not even a little it's it is a lagging indicator on

45:02

on retirement experiences so they're not particular it's not we would love to have it be a leading

45:08

indicator to help us make decisions but um it's not so inflation was pretty low in the 60s um so it's it's hard to kind of

45:16

see it as a as a great trigger for for decisions the other thing is that it

45:21

really has to be prolonged um so short periods you know a year two three even um

45:27

there's been very little to no correlation between that and and how much income you could have had in retirement there are periods with

45:33

extremely high income and you know short bouts of high inflation so

45:39

that's not very helpful i know but really it's uh well it will depend on how long this high inflation period is

45:44

uh to see whether it affects retirees and if it does um it will affect the

45:49

retirees who retired years you know several years ago um and so it may be a little bit it's not something that they

45:56

could have accounted for at the time when they they launched their retirement and justin what was the name of that

46:02

article um on the website um around the research of the in the 60s i think the one on uh

46:08

it's actually the pdf the um uh i forget what it's called but something about um the value of oh the

46:15

ebook um value of ongoing management i think yeah

46:20

okay perfect i will post that one um i posted your uh think advice article in the chat as well

46:25

so i'll get that one and post it in the chat um while i work on get you guys on this next question um so next question

46:32

here is uh for those retiring or accessing tax deferred accounts after 72

46:37

and who defer social security until 70 what are your thoughts on defaulting to irs mandated r d percentages as a

46:44

baseline to maximum derick maybe

46:50

if you have any what was the last part of that question uh what are your thoughts on defaulting to

46:55

irs mandated r d percentages as a baseline to maximum

47:03

um so is that saying that basically that that becomes a cap on spending or

47:12

meaning either uh baseline or cap okay yep so i mean that's gonna

47:18

if you do treat the rmds as a cap and that's gonna be a very i think conservative spending levels is

47:24

where you'd ultimately end up at and i think uh blanchett uh recently had some

47:30

has done some writing kind of around uh how you know maybe his blanche you didn't think of it about how you can use rmds

47:37

as actually kind of a strategy on their own for controlling putting in a dynamic spending policy i

47:43

don't think it's you know the best because you know there you're if you're relying just on rmds you're

47:48

really getting isolated and focused just on the the ira portion of the portfolio

47:54

you're not accounting for what taxable assets are there what roth assets are there what's the what's the guaranteed

47:59

income sources what's all that bigger picture um because it might mean that particularly for somebody with a healthy

48:06

amount in their in roth accounts um you know you're probably

48:11

it might make sense to deplete

48:18

did we lose derek or is that just my wi-fi i think we may have lost him we may have lost eric okay

48:25

um give him a few seconds to get back

48:36

maybe we can move on to another oh there it is are you back derek

48:42

we lost you for about a 30 seconds maybe 30 seconds oh um

48:47

well i i guess i'll try to i was just saying i i like using um

48:52

that target income level that takes into account everything because maybe you actually do want to deplete the ira um

48:58

if you have say a lot of roth assets it might be a perfectly reasonable thing to do but if you treat the rmd as a cap

49:05

that is a very conservative strategy in the sense that it will at least preserve um ira assets because

49:12

you're just never going to spend everything that way

49:17

um and then uh next question here is um can you speak to how income lab uses economic context

49:25

yeah so um we have a a picture of economic context um that we build every

49:33

every month so we're tracking and this if you want some more details on this i think the uh

49:39

the recording of last month's webinar is available um and we'll probably re re-visit that topic again because it

49:46

sounds like it's uh it's of interest um and we just build a view that says you know

49:52

let's measure how far away from today's situation every point in the past was um

49:59

and just rank them you know and uh so it's things like inflation although we

50:04

use longer term inflation to try to get at least some some useful uh you know one month of inflation is as i said

50:11

basically not not useful um uh a a market

50:17

valuation measure we use um unemployment there are several other things that you'll see in that and then

50:24

when you are looking at the uh historical analysis chart which is

50:33

an example of which is right here um you'll see you're able to um change the

50:41

shading here so the shading you see here is show me in blue the one third of history that is most

50:47

like today right so you're able to say well to the extent that i can use this historical context to understand today

50:54

well gee it happens to pick out the periods that are it's kind of excluding some of these peaks you know other than the 1870s but

51:02

most of the time work it's pretty tough to connect with that uh that environment right so just to be clear there is

51:08

nothing in the software that said hey exclude the peaks that was not part of this it just happens to be the periods that are more

51:15

like today along those measures uh we know could have produced lower withdrawal rates um and so that's

51:22

that's one way that that we use it if you're using historical analysis you can actually apply that

51:28

when you are uh proposing income so what it tends to do is really just tilt your income so it's not it's not

51:35

making a major you know bet it's very difficult to get the the system to

51:40

you know choose an income level that's at the peak here but in times of relatively higher

51:46

retirement risk your proposed income will be slightly lower in periods of relatively lower retirement risk your

51:51

proposed income would be slightly higher because of this effect um and we have about five more questions

51:58

left so try and get through these but um is your monte carl in your monte carlo simulations how do you model

52:05

the auto correlation and annual returns

52:12

i mean there's no explicit modeling of autocorrelation in in this it's it's a it's a random

52:17

random walk uh kind of uh you know picking from the

52:22

picking from the distribution so i don't know derek i know you've done a lot of monte carlo work give comments

52:29

it's a topic that's always intriguing and interesting to me but yeah it's it's not something that's done within income

52:35

lab i do think for practical purposes relying on like the regime based monte carlo where at least we can use some

52:41

kind of different forward-looking tenure to assumptions and then let things drift

52:46

longer term um i think that that's useful and practical um

52:51

yeah it's uh i've never even seen uh i know it's talked about in research

52:58

uh i've yet and i'm sure somebody out there's probably done something with it but i've i've been looking for a little

53:03

bit more on that topic myself um next question here more kind of

53:09

specifically to this uh the platform um on the lifetime experience um when

53:14

scenarios are below plan is this after taking into account inflation adjustments for example if they start

53:21

out taking 10k if 20 of the scenarios are below plan does that mean they are below 10 000 or

53:27

below you know 10k adjusted for inflation it's it's all adjusted for inflation so

53:32

yeah we're not we're not giving you credit in the 70s for having really high nominal income uh even though maybe your

53:38

purchasing power was lower unfortunately those scores would look much better if we did but um

53:44

but yeah it's it's always compared to the plan the original plan you had which um

53:51

just to go back to the seems like i'm going back and forth between these two charts a lot but uh

53:56

it's basically saying okay well if this was your plan in you know inflation constant dollars um

54:04

how did things work out compared to this are you above or below it in inflation-adjusted dollars

54:11

next question here is that would a reverse reverse mortgage line of credit be a way to mitigate the issue of

54:17

spending in flexibility example the inability to cut spending

54:22

later know wade fowl's done a lot of good good work on that topic and i think

54:28

um yeah definitely it's a probably an underutilized tool currently in that

54:33

from that perspective um yeah i don't know if justin had anything else no that's exactly what i

54:38

was going to say i think does he call them like buffer assets or something actually your comment about social security made me think about that too

54:44

right whenever you have the flexibility to call in a buffer asset if things really are

54:50

you know turning out worse than expected like your point about well maybe you planned to to defer social security but

54:55

you take it a little earlier um yeah any anything you tap into like that seems like a good

55:01

a good bit of flexibility and then uh two more questions derek

55:07

i'll do this one first because this is specifically for you um so you previous uh earlier in the webinar you mentioned

55:13

the client having the option to start social security income if negative returns or you know they encounter bad

55:19

luck early in retirement during high withdrawals um this uh use advisor said i think about this and deal

55:26

with this regularly do you consider more conservative equity bond or acid allocations during the blade of the

55:33

hatchet time i don't have a good answer but it's on my mind a lot these days

55:39

one thing i've actually started doing um i'm not a i like buckets from a psychological framing tool and michael

55:46

kisses has talked about using them that way um and so i i do like to look at you know what what's the income that we

55:52

would need to get through the blade basically and that's something i've been talking to clients more and more about

55:57

uh because you know sometimes it would be too conservative of a portfolio in my opinion to fully fund it

56:04

but let's say somebody's coming to me they're 67 they're only deferring three more years fully funding that blade um you know in

56:12

a kind of protection bucket or however you want to frame that might actually only be 30 or 40 percent of the

56:17

portfolio and definitely that's something i'm going to be talking to them about in terms of well yes we are

56:22

actually you know not only could we turn social security on earlier if we had to

56:28

but here's what we need you know to kind of fully fund so you can get to

56:34

social security without having to pull from your stocks and you know a very reasonable allocation

56:39

towards fixed income cash could could cover that so that is something that i'm talking to

56:45

clients about and i think it makes a lot of sense to me thanks derek and uh this last question

56:52

more of a thought than a question so i'll just read it and see if you guys have any final uh remarks after this

56:57

so just the thought it's clear to me that clients should be presented with potential results of their decisions

57:03

before selecting specific goals derek's careful answers focusing on goals and risk aversion got me thinking

57:09

about this in terms of clients not really knowing uh what they don't know about retirement income versus legacy

57:15

desires yeah

57:21

i think it's a it's a good point that certainly clients may not know i think some a lot of times you know if you're if you're

57:28

showing information like is available within an income lab to a client you're probably the first person who's ever

57:33

showed them that first person having a conversation with them about that and so yeah it absolutely um

57:41

the client probably doesn't know they can't give you a clear answer

57:47

i think we lost there again justin we would say the same thing yeah i mean

57:53

asking for you know having a good system for for helping clients figure out goals

57:59

figuring out lifestyle goals and legacy goals and things right rather than um kind of

58:06

hey you know fantasize about it um is is it's definitely better to provide

58:12

them context and things right i mean there are uh if you just say hey what do you want um well we can build a plan that that'll

58:18

get you there you know 0.5 of the time right but like uh what income lab really tries to do is provide you a way to

58:24

provide context around you know what our reasonable expectations for

58:30

lifestyle and legacy um often we actually find that that it's

58:35

very good news for clients so it's not that this is you know we're gonna have to talk people down off of huge goals

58:40

but i i definitely agree with the sentiment okay that is it on the questions again

58:47

thank you both so much for the time and effort you put into bringing cool topics for webinars and

58:53

really helping um our advisors and advisors new to income lab to really kind of

58:59

just grow grow their knowledge on on dynamic retirement income planning

59:04

for our users and attend these i will send out the webinar recording um tomorrow but if you

59:11

would like to set up a meeting with our team to look more into the software maybe uh and get some more questions

59:16

answered feel free to reach out to us um through our website and we are more than happy

59:21

to set up a time and be on the lookout for the invites for next month's webinar as well

59:28

alrighty well guys thank you so much i will close it out for now and we will see you all on the next one

59:34

thanks everybody