0:07
All right, welcome everyone. Thank you for joining us for our lab talk Tuesday
0:13
for June at a a new time. Uh trying out something a little bit
0:19
later for this uh for the summer here for help our uh Pacific time friends.
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Uh, anybody here from uh in Pacific time, drop it in the chat. Let us know
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if you uh appreciate the difference. We may, you know, shift shifts times uh you know in the seasons to try to
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accommodate everybody. But welcome. We'll give everybody a a minute to come
0:44
in and then we'll follow our normal um agenda of new features, presubmitted
0:50
questions, and then um questions that everybody who's here is submitting.
0:55
Please submit those in the Q&A uh and upvote any ones that you want to see
1:01
answered. Uh and we'll try to get to as many as we can today. Um as usual, I'm
1:06
joined by Derek Tharp. And um while we're waiting, just want to let everybody know uh Derek and I will be
1:13
hosting a webinar next week on Tuesday, uh I believe at the same time as this one. So we're, you know, pushing things
1:19
a little bit later for the summer. Um, and it's uh covering uh one of our most
1:24
popular webinars and articles that we did together on the Kitsus blog a couple years ago now about um forecasting in in
1:34
uh financial planning assumptions, models and basically how accurate are
1:39
these things anyway and how do they affect how people actually um would uh live out their their retirement. So um
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definitely join us for that. uh I believe it is uh is is uh available for one hour of CE for CFP and you can use
1:56
it for other uh sorts of CFP often uh CE as well. So um definitely join us for
2:03
that. All right, let's kick it off.
2:09
Um, so, uh, to start out with new features, um,
2:17
I'm going to, we'll spend some time today on the, uh, on the new Social
2:23
Security optimizer. Um, but I want to go over a few things that are, um, that have come in in the last, you know,
2:31
month or two. Uh, for, you know, not everyone makes it to these, uh, to these webinars every every month. So, just
2:38
want to make sure um people are aware of some some great new things that have that have come up
2:44
in the last uh in the last couple months. So, let me share my screen.
2:49
Let's see here.
2:56
And amazing, it seems to have worked first time. Um okay, so uh couple of new
3:01
features. Um, first of all, we've had this request for a long time and just want to make
3:06
sure everybody was avail.
3:22
And then we have an actuarial model built in the background that'll help you figure out a reasonable plan length. And
3:29
you know, you can see that if you go to there's a couple places, but I'm going to go to advanced plan settings up here
3:35
in the upper right. And then go to
3:41
um longevity settings. And you can see here I have by default I'm using these
3:49
sliders where it is using um longevity expectations in this case joint
3:56
survivorship expectations um based on the people in the plan. And then as I
4:01
drag these sliders you can see down here that the total plan length is changing. So if I move them both to below average
4:07
I'm at 25 years. What does below average mean? It means um plan to live longer
4:13
than 30% of people your age. I could go way to the other side and um now I'm
4:20
planning to live longer than 90% of people our age and we're planning for, you know, almost 38 years. So huge
4:25
difference there, right? Um and that's super useful if you don't have a particular plan length and you just want
4:31
something that's uh reasonable and based on, you know, actuarial science. On the other hand, you may want to specify the
4:40
actual end of the plan for each person in the plan. Uh, in the past, we only
4:45
allowed it for one person. So, it was kind of the use case of it was more of a like, hey, this is a a unique situation
4:52
where one person of a couple has a shorter life expectancy. That was the typical place that you would use it. Um,
4:59
and so you can either, you know, change the life expectancy with these arrows or
5:04
you can, you know, pick a date and it will do it for you.
5:10
Um, but now you can also do this will also be available if you're doing a plan with only one person and you can do it
5:17
for both people. So, um that's all available in the app and um super useful
5:23
and it'll just change the um the the length of the plan will now be the the
5:29
longer of the two, right? So, in the in what I had um you know, so in this case, for example, they're not they're not
5:35
currently the same age, but if I plan for both of them live to 85, the plan would now go through 2046 because that's
5:40
the later of the two. Okay.
5:46
and we'll just leave that in place. Um,
5:53
there's a few other things that I think we we might have gone over at last talk Tuesday, but I wanted everybody to be
5:58
aware of it. Um, one is that uh in the settings, so your overall settings,
6:05
there's a default value section and there is a new section which is your default income
6:12
path. Um the default default so what you'll see here is uh flat meaning uh just adjusted
6:20
for inflation over time. Income path is is basically saying how do I think my income needs will change over time
6:26
through the plan. Um flat means they won't change. They'll adjust with inflation. Um age-based is the
6:33
retirement smile. Um and you can also do a custom uh a custom uh path there. Um,
6:40
so by default you'll see flat here. Um, you can change that. This will affect any
6:46
new plans you create for a new household. Um, so it won't affect any existing plans. It won't even affect any
6:53
new plans you create in existing households because actually what you're doing when you do that is um is you're
7:00
copying uh the the primary plan uh for the household. So it won't affect that. It's just for new households. So, a lot
7:07
of people prefer to always start with um you know, the retirement smile um or
7:14
flat um and now you can just do that. Saves you a little bit of clicking um
7:19
over time. So, um
7:25
those were two things that I wanted to to cover right off the bat, but now let's get to, you know, the meat of it.
7:31
A lot of the questions that we've been getting over the last um maybe less than a month I guess uh surround
7:39
the uh the new decision lab feature. So you should all see on the low the bottom
7:45
of your navigation this blue navigation bar this uh little you know arrow icon
7:53
uh about decision lab. And if you click on it you'll see there's currently one
7:58
uh item in here. Uh we we hope to in the next couple months have a few more.
8:03
Those are in uh development right now. Um and the decision lab is about helping
8:11
you zoom in on a particular uh topic in financial planning in
8:16
retirement planning and just sort of put blinders on or you know take out a magnifying glass or whatever your
8:22
metaphor and just focus on that and have really good conversations with clients about that topic. And social security is
8:29
uh you know if you look at Google Analytics or anything like that it is a huge topic for retirees and and that
8:35
makes sense for for someone even somebody with you know $3 million in retirement assets it social security is
8:41
still a major part of their plan. Certainly if someone has you know $500,000 or something like that it's a
8:47
huge part of the plan. Makes sense that it's a big deal. And so that's why also as our first tool in decision lab we we
8:54
chose to do social security. Um so we also chose to kind of ease people into
9:02
it or allow you an experience where you can ease people into it by kind of first saying okay this is what we're about to
9:08
do. Um and then giving you a look at what's already in the plan. Um
9:14
and even letting you you know change those values quickly. Um, I'm actually
9:20
going to go to an example that I used more recently, which is
9:27
where people are um are a little bit different. But once you get used to this plan, you may choose to just skip to
9:34
results, which will just take you right to um to the plan. Um, you can always go
9:40
back and see what those social security settings were here in that little um pencil icon. So here you will see I have
9:46
a 3000 and a 1,000 primary insurance amount already set in the plan. And for
9:53
those who don't know, primary insurance amount is the amount that your benefit would be if you claimed at full retirement age. Um
10:00
so uh for those of you who haven't seen, we've done a couple webinars on this. Derek and uh um Michael Kakakota and I
10:09
did a uh a webinar on kind of social security claiming and um and a lot of
10:17
the complexity around psychology and so on. And then uh Johnny Pollson and I did
10:22
a a webinar just on this particular software feature. So those are both available um in our uh in in our on our
10:32
website um the recordings of those. So, I know there were um questions that
10:37
people had just just more on okay, how do I use this um and so on. Um I think
10:45
I'll just go over a couple of those uh quickly and I'll probably ask Derek just, you know, to chime in uh on sort
10:52
of preferences there. The the key, I think, thing to note about this is it's not about kind of
11:00
finding the perfect setting. what it's meant to be here is a tool that you can,
11:05
you know, drive with your clients in having a conversation. And so there's some things that are like a little
11:11
confusing to people sometimes. I have actually defaulted to showing this um this green line. And a lot of times the
11:18
first question I get is, well, what's that green line? Um, if you go up to the little settings, uh, the the view
11:24
settings, uh, menu up here, um, this is what we're calling target highlighting.
11:31
Um, you can turn it on or off. And what it's doing is showing you the claiming
11:38
options here. I've got a couple. So, it's two-dimensional heat map where the
11:44
darker parts have the higher uh, projected total lifetime benefits. Um,
11:50
but one thing we've noticed is a a lot of times depending on the settings, um, there may be quite a few claiming
11:57
options that are within a very small kind of range of each other. And so, one thing we wanted to do is help you have a
12:03
conversation with clients that makes it clear that, yeah, okay, maybe technically when you do math in this
12:08
way, you're going to find one particular cell that's the highest, but um, it's
12:13
based on all sorts of assumptions, including how long you'll live. You know, if you claimed one month different, uh, you know, let's look at
12:21
this, right? Claiming one month before age 70. Okay, I gave up $294 over my entire lifetime. You know,
12:28
whoop-dedoo. All right. So, what we're trying to do with this this highlighting is help you kind of tell a story that
12:34
lets you say, hey, there's sort of a zone that are the highest. Um, yes, there's one in particular that meets all
12:41
like the math, but um, there's so much unknown around life expectancy in particular
12:48
that it's helpful sometimes to show it as sort of this zone that we outline in green. Uh, and you can always just click
12:56
snap to optimal to get back to the top. Um, but that's what that's all about.
13:02
Um, couple other questions that we've had. Um, so the life expectancy when you go
13:09
first to Social Security Optimizer, it's preloaded with life expectancy numbers
13:15
and all this is doing initially is showing you how old these folks would be at the end of their actual plan. We've
13:22
gone we've done webinars before about mortality planning in income lab and it's probably we don't talk about it
13:28
enough. I I'm it's actually amazing what we do with mortality planning in order to make sure that people aren't, you
13:34
know, overstating what's available in terms of spending uh by overstating how long someone might live. That's all
13:41
handled in the plans themselves. But this is just saying, okay, how old would you be if you happen to make it to the end of the plan? In income lab plans,
13:48
there is not an assumption you really do make it to the end of the plan, right? Because we're really trying to make sure
13:53
we're not overstating we're not overstating how much someone can spend because we assume they'll live a long time. Um, but a really great I my
14:01
preferred um thing to do is to start playing with these smart tools. And probably the first thing I do is bring them to more of a um life expectancy
14:08
number which is kind of 82 to 84 85 um
14:14
depending on um what you look at. And um but other people will have will have
14:21
other things they like to do uh around this and particularly the ordering of it. And it will depend a little bit on
14:26
what your clients are most worried about, right? So maybe the first thing you do is the social security stress
14:31
test if the solveny of social security is the main thing they're worried about. Um there's no, you know, one right
14:37
order. Um but you can see when I just brought their life expectancy down to more of a, you know, standard life
14:44
expectancy, you get um you get a movement and you get a a much wider
14:50
range of that kind of good enough zone. um which is really interesting and a lot
14:56
of what we've heard from adviserss is most clients don't want to wait to take social security. It may be the right
15:02
move for them but it's not something that they inherently want to do. They want to take as soon as possible. And so often what they'll what I'll see is
15:09
someone will maybe do this and say hey we're planning for a long life because that can be prudent, right? We want a
15:15
plan that will make it if you make it. Um but let's face it, life expectancy is
15:21
not 97. um let's look at, you know, if that if you live to life expectancy instead and we looked back on it, when
15:28
would have been a good time to claim. And here you can see uh for these folks,
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uh uh 68 and 66 is the quote unquote optimal. But, you know, I'm within one and a half% if I even claim at um at,
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you know, 68 and 62. So, that's kind of the the talk track or the way to use it
15:47
with clients. Um, Derek, I don't know if you have preferences on how to do it or if you're still kind of playing around with this, but do you have thoughts on
15:53
sort of how to use this with clients? Yeah, I mean, still pretty early in the playing around with it for me um with
15:59
clients. But I do think like, you know, I'm really interested in that opportunity cost playing around there.
16:05
Um, I think it's something that really I haven't been able to do in in other tools. So being able to bring that in
16:10
and say, "Yeah, you know, some of this actually changes a little bit based on when where we're claiming." And I'm it's
16:18
definitely not a like I'm solidly there is this is always going to be my final sort of advice, but where I find myself
16:23
landing more having played around with the tools is more in kind of the middle of the spectrum rather than so much on
16:29
the extremes. Uh, you know, a lot of times even if somebody does really want to claim right away, maybe it makes
16:36
sense to delay that claiming a little bit because we're doing Roth conversions or we're doing something else where that doesn't it just doesn't help as much.
16:43
Um, so maybe instead of claiming at 62, we do Roth conversions first couple years and they claim at 64. Um, instead
16:49
of um, you know, defaulting all the way to 70, but I still have clients that have a strong preference for 70 and I'm
16:55
fine with that. But um it is has kind of pushed me towards the middle I'd say in my at least early playing around with
17:01
the tool and talking with clients. Yeah, I think what you'll notice, you know, and that's interesting that sometimes
17:07
people do come in wanting to do 70. And it it can be really helpful, you know,
17:13
maybe just by a little guess and check here, you know, if you get the life expectancy long enough that that will be
17:18
the right answer, quote unquote, uh right answer. Um, but I think people can see, oh, okay, yeah, really kind of
17:24
depends on how long I live, which is, I think, relatively intuitive, right? I mean, if if social security is sort of
17:30
actuarially fair, right, then, uh, you you might expect, um, that, um, yeah, on
17:38
opportunity cost. Um, and by the way, you can always reset back to what the plan has just with this little reset
17:44
button here. And then you have to hit apply changes to actually see it in the heat map. But it will change your um
17:51
your uh you know your settings here. Um people have asked about opportunity
17:56
cost. That is for those of you who you know different people think about this in different ways. This is a discount rate. If if you're used to net present
18:04
value type math, that's all this is. Um we called it opportunity cost because
18:09
that's a word you might be able to explain more easily to a client. Um hey, what is that? Well, it's a dollar today
18:15
is worth more than a dollar eight years from now. Why? Because of all these reasons, right? Um, I'm alive today. I'm
18:22
probably as healthy as I'll ever be today, right? There's all these things that make a dollar today worth more than
18:28
a dollar tomorrow or eight years from now. That's what opportunity cost is. You can also explain it as, well, it's,
18:34
you know, a dollar of social security is a dollar I don't have to take from my investment accounts. And so it's what
18:41
you know that that dollar in my investment accounts could earn money. Um and so I don't know Derek, you said
18:47
you've been thinking about this a lot. I think this is a place where there's a lot of opinions, right? People could think about well okay but what what part
18:53
of my portfolio am I replacing and things like that. So I I would say there's no like one right answer. You'll
18:59
probably have philosophies on how to do this. Um I don't know if you have one in particular if you're still playing
19:04
around with it. Yeah. No, I mean I think that's right that many advisors are going to differ in how they look at it.
19:09
For me, you know, I have kind of go back to what is the actual ultimate impact on
19:15
the plan. Well, it is going to reduce a dollar from the portfolio. So, um, you know, there's there's that component. If
19:22
somebody feels like that's too aggressive, you know, to go with that, sure, there's, you know, other reasons and I think, you know, there's other
19:27
justifications as well for why you put in opportunity costs that aren't investment driven. So, it's kind of
19:33
something I've been really trying to think a little more deeply about, but I'm not really solidly landed anywhere
19:39
on exactly what assumption I'm always going to use or anything like that. Right. Um, so the other questions that
19:45
we had on this were really just about navigating it and using it and so on. I think uh um we've talked about it's
19:53
meant to be kind of like, you know, a a Game Boy, like make changes, hit apply,
19:59
look at them, explore, right? really um you know play with it. Um there is if
20:05
you ever want to dive into a particular um strategy up here at the top you know
20:12
we see scenario selection scenario details and if you click on scenario details that's how you get to just a
20:18
deep dive on that one particular strategy. Um, and you'll see how all the
20:24
ordering happens, when you know the benefits hit, the different types of benefits. You see it in terms of a, you
20:30
know, annual table here at the bottom and and so on. So, it's it lets you dive in. Um, there's also a break even tab um
20:39
that gives you the uh the break even point compared to claiming as early as
20:45
possible. Um, so those are all super useful. Um there was a question about
20:50
inflation. Um and I guess the main thing to point out is um we're assuming that
20:59
social security um you know gets inflation adjustments. So if I go up
21:04
here to nominal um then I will get uh the same view but with inflation
21:11
adjustments. Um, in fact, if if any of this were in the past, you would actually see the
21:17
actual social security inflation adjustments. Um, but these are just, you know, assumptions toward the future. Um,
21:23
all of that when we're looking at break even, we strip that out. So, we're really for the break even, we're taking
21:30
the um the today's dollar amount and then we're applying whatever discount
21:36
rate or opportunity cost uh could be zero, but whatever one you have in order to create the break even. So um and
21:43
that's also true for total lifetime benefits. That is just a net present
21:48
value of the discounted real dollars. So inflation is also stripped out of there.
21:54
So if you're to looking at opportunity cost, since inflation's already stripped out, um this would be a real return if
22:00
you're thinking about opportunity cost as a return rate. Um all right, so let's go on to
22:10
something completely different. had a couple of other uh really good presubmitted questions and then we'll
22:16
get to uh any questions. Well, I'm going to just check at at the uh
22:28
questions that we've had already. See if there's any.
22:33
Okay, so there was one on um on the social security and decision lab. Is it considering marriage, divorce or widow
22:41
history? Um yes it is. So it will automatically
22:46
take into account um spousal benefits. It will automatically do um survivor
22:53
benefits. Uh I think in the example that I'm showing here there should be some. This may not be the most uh interesting
23:01
scenario. Maybe we can um find one there where there's a good
23:08
Um, oh yeah, here. Let's
23:16
give them a little bit more of an age diff or a a life expectancy difference.
23:24
And now if I go to scenario details, uh you'll see what's taken into account
23:31
here. So here we can see that Mary starts her
23:37
benefit early. This is often the case when you have very different PAs. Um by the way, that's why I'm using that as an
23:44
example here that the optimal one will involve the person with the lower PIA starting and then um the person waiting.
23:54
Um there's no longer a file and suspend or or anything like that. Um, and so
24:01
spousal benefits will only start when the spouse actually begins their benefit. So that's what you see here.
24:06
And then you see the survivor benefits starting um at the specified life
24:11
expectancy. Um, and there's a little uh gap month there, which is correct. Um, so that's
24:19
that's all taken into account um there. If you had a divorce situation, you would um you'd have to put in um the the
24:28
PIA differently. Um for the widowed scenario, I believe here if you actually
24:34
set the um the life expectancy earlier, then you'll get this the survivor
24:39
benefit automatically starting. Um so that's the case there. Um so good
24:45
question. Okay. All right. Another question on
24:51
social security. Um uh so somebody was asking how do I turn
24:56
on the green line? Um it's up here in the upper right. There's this little
25:01
view options setting. This is just you'll see this all over the app and it's really about how do you want to
25:07
view things on your screen on this particular screen. Um, so if you're ever looking for view options, you know, like
25:13
rounding, um, real nominal, that kind of thing, you're not changing the plan. You're just changing how you're viewing the
25:20
outputs. And that's how you do it. Um, if you want it to be a default, like
25:25
let's say I wanted my default to be on and 2%, um, I would do 2.0, hit apply changes,
25:33
and then I could save it. And now that's my default. So when I come back in here,
25:38
it will all ready have the green line on. It'll already be set to 2%. So, uh, somebody was asking, do we, if
25:47
you're tracking and monitoring a plan, is the actual Social Security COLA applied each year or do we need to go in
25:53
manually and adjust them? They are applied each year. Um, they typically are announced, I think it's in October,
26:00
November, something like that. We will apply it at the beginning of the year, so we give it a little bit of time. Um,
26:06
and it applies with the February check is is how it actually works. So, that's all taken care of automatically for you.
26:13
Um, which is really awesome, you know. Uh, it kind of surprising. I don't think
26:18
any other software does that for you. Um, but we do.
26:24
All right. Um, oh, and and actually, yeah, this is
26:29
a good point in that question. Does that also apply to people who have not yet taken social security? And yes, it it
26:35
does. So that's really great point. A colas apply to everyone, not just those who have already started social
26:40
security. Um, so your future projected benefit would also get get a uh and
26:47
we'll will get the benefit of the of the cola.
26:53
Okay, other presubmitted questions and then we'll get to some of these other um
26:58
questions that are live here. So, one was I'm going to go back to a more complex uh plan here. This is the
27:06
retired household. Um uh one was about what you see in um in
27:15
LifeHub uh for um the you know the growth that you see
27:22
in in Lifehub. So, what's what's going on here? Uh, and I think the question said they seem hyperbolic, which is a
27:29
good way to put it. Okay. So, um, in LifeHub and in Tax Lab, um, we're
27:36
showing you the plan itself projected out through however long the plan is.
27:41
So, this plan happens to be 30 years long, which is a pretty long plan. Um, and so,
27:48
and and it's showing you down to the account level and down to the, you know, income item and and and all of that. um
27:56
it's showing me values, right? Whether that's income received or balances over time. And
28:05
so we're in a position where we have to ask, okay, well, what return should we
28:10
show here? We can't show every possible return, right? The the plan itself, the
28:16
the the amount we can spend, the guard rails, all of that is based on things like risks in the plan. Um, so we're not
28:23
assuming for those that you actually get, you know, your average return every month or year. Uh, we're assuming that
28:29
things could be up and down, inflation could be high or low and so on. But to show you one set of numbers, we do have
28:34
to show something. Um, and so what we choose to do and what this is what you
28:40
would see in in I think all other software as well is we use the average uh assumed return. Why is that? Um, it's
28:49
because it's the the least bad way to show it to you. Um, so I I sometimes
28:55
like to paraphrase Winston Churchill on this. It's the worst possible thing we could do except for all the other
29:00
options. Um, and why is that? Well, if I showed you some years up, some years down, but I'm projecting into the
29:06
future, you would be showing your client, let's imagine, for example, that in 2027 it showed a negative return.
29:12
Your client would say, "Well, why are we projecting a negative return for 2027, right? Do do you think that's what's
29:17
going to happen? If so, we should pull all of our money out of the market that year, right? So you that that's obviously kind of a not a good
29:24
conversation to be having. Um and so the average return, another way you could put at it is that's your expected
29:30
return. If you expected something different, you would change your average return. And so what we're doing is applying the average return here. Now,
29:37
what that does though is it's um if you really received your average return
29:43
every single year, that would be an amazing outcome. That would be really really good. In fact, some years are
29:49
really good, some years aren't so much, right? And so, there's a sequence of return effect. We're not showing that in
29:55
LifeHub because again, it would make for very confusing conversations with clients. So, it's just using straight
30:00
line appreciation using your assumptions. If you have um you know if
30:06
you're using regime based Monte Carlo, you'll have two sets of assumptions. It might be low returns at first and higher
30:11
returns later. Um what that does though is it means if you look out you know a
30:17
bit into the future, your your accounts even with the withdrawals in the plan and so on, they're going to grow pretty
30:25
well. I mean we're we're starting out um in 2025 here at 2.75 million. Even with
30:32
all my withdrawals, I'm at 3.1. Uh, and then at the end, I'm going to be, you know, 4.4, right? Those are very high.
30:39
In this plan, I do not have a plan to leave $4 million behind, right? So, you'd say, why do I have so much money
30:44
left in here? That's that's why. It's because we're applying average returns. The other thing that we're not doing is
30:50
applying guardrails in this particular view. Why? again because if we were
30:57
showing you an increase in income because you hit a guardrail, I have to show it in a particular year. So maybe
31:03
it ends up showing in 2032. And so your client looks at this and says, "Oh, great. In 2032, I'm going to get a pay
31:08
raise." Well, only if returns are good enough to do that. And so again, what
31:14
we're doing here is sort of the the least bad thing, which is we're saying, well, let's not show a pay raise because that could, you know, kind of
31:20
unnecessarily anchor clients to that idea. Um, and so we're just showing kind of a simple straight line appreciation
31:26
with no uh pay raises or pay cuts. Um, and that's that's what's going on here.
31:32
Um, so I would say, you know, that the further out into the future that you get, uh, these, you know, the the
31:38
account balances and so on are obviously uh you're you're further out on a limb. You know, within a few years, I think
31:44
most people will understand what's uh what's going on there. Um, so really great great question. We do have um
31:51
articles in our knowledge base on this uh if you you know forget some of that.
31:56
Um but really really good question. Okay. Um and Derek actually maybe I can
32:03
ask you about this because I know you do sometimes use LifeHub. Like is this does this tend to be a problem? Do you run into that with clients? Are you having
32:10
to kind of explain away some of this? Yeah, I mean I I do definitely have clients that look they go way out on the
32:17
right hand side of the slider there and they're like, "Wait a minute, these numbers are huge. It doesn't make any
32:23
sense." And so yeah, I do kind of talk through the big thing I try to emphasize is that especially when if we've talked
32:29
through the guardrails sometimes it's a little harder with maybe an accumulator client where I'm just using Lifehub and we haven't really talked about
32:35
guardrails, but especially for somebody who we talked through the guardrails. I just try to emphasize that, you know,
32:41
remember part of those upward adjustments is to try and avoid that accumulation and that this is really
32:47
just kind of a straight line assume the market gives you your return every single year kind of approach. And what
32:53
we're actually trying to do is avoid you getting into one of these scenarios where you have accumulated a bunch
32:59
because you didn't increase your spending. Um, so I kind of use it that's my angle for most of the people I'm
33:05
replying to that have that question. Yeah, I definitely do run into it sometimes when somebody's just looking
33:12
way out in the future and wondering what's going on there. Yeah, actually that's a good way to put it. It's like, okay, we took the guards out. If we did
33:19
and you got average returns, we'd be way under spending, right? If you don't have a goal of 4.4 for a
33:25
million left in 2055. And and so, you know, that's where probably the retirement stress test is
33:32
maybe a better place to if you're looking for examples that are more realistic in the sense of sequence of
33:38
returns being up and down and actually taking payraises and pay cuts. Um, LifeHub's not where you'd want to go.
33:44
You'd want to go to retirement stress test, I think. And you can see, okay, here's a down situation. Here's an up situation and so on. Um, so, um, on that
33:54
note real quick, I do very, very often transition directly into looking at, you
33:59
know, sometimes we've already even looked at a downside type scenario, but going back to the stress test and
34:04
looking at more of a positive, you know, if I retire them during the global financial crisis or something like that
34:09
and say, okay, here's, you know, why we're doing that so that we can and show kind of the portfolio view as well and
34:16
how, you know, it still means their portfolio might be going up in some scenarios, but for reducing the rate um
34:22
that it's going at compared to just not making any spending adjustments along the way. Yeah. So, this is a great
34:29
example. And for those of you who didn't see it, what I did is I went to retirement stress test over here on the left. It stays in the same plan that you
34:35
were on already. Um and this may not be obvious because it's in line, but you can actually choose for
34:41
each time period where it's still in the global financial crisis, but I can do during. And during is essentially going
34:49
to put you a after the big drop if there was a big drop which for most of these there is. Um and so what happens you
34:56
know it's it's it's happy times right? Uh maybe not in reality you probably wouldn't have been happy earlier in 20
35:02
in 2009 but it turns out to be right. So you get this uh these great returns this
35:08
recovery. So you're going to see lots of green lines here of right you're hitting the upper guardrail hitting the upper guardrail getting pay raises. And um now
35:16
this is not a full plan, right? It's only, you know, it's not even 20 years. Um but you can see that the balance is,
35:23
you know, kind of kept from exploding into space um the way that it would have
35:28
been if we if we didn't take these uh pay raises, you really would have I mean it would have been quite high because
35:34
you'd been taking a lot less money. Um so that's a that's a nice I like that, Derek. Um,
35:41
all right. Let me see. Couple other questions before we move on.
35:47
Um, Derek, maybe I I don't know if you use the software to do this, but um, we did have a question about how would you
35:54
show kind of a sideby-side comparison of like if do you do you play much with like the allocation and maybe it's a new
36:01
client and so they're allocated one way and you have, you know, preferences for them, maybe you think they're allocated the wrong way. Do you create two plans?
36:08
um how do you deal with sort of maybe not even just allocation but sort of comparing two plans?
36:15
Yeah, I mean personally not so much from a allocation standpoint. I just don't
36:21
many of my clients it's not really a point of resistance. We kind of talk through the logic for their whatever I'm
36:26
recommending as a portfolio and kind of go from there. So I don't necessarily build a lot of plans that way. But if I
36:32
was going to do a comparison, um, a lot oftentimes stress test is where I would look at that like maybe we're looking at
36:38
the difference between aggressive guard rails and more conservative guardrails or we're looking at a plan that has some
36:45
extra spending in it or something like that where I would definitely come to um
36:50
the the comparison view here where we could put two different plans in, look at them side by side, see that okay,
36:57
maybe one plan gets you higher initial income, but there's greater risk that, you know, as we go through tough
37:02
markets, you might be seeing some cuts. Um, you just really try to look at those trade-offs more from the ultimate
37:08
retirement paycheck perspective. Um, and help guide our decision for which
37:14
strategy makes the most sense. That's a really good idea. So, the way you would do that, I didn't uh preload one here,
37:20
but um if I created maybe I just copy this plan um and then I go to the assets
37:28
and um I'm just going to pull all of these to be more aggressive.
37:37
So, I'm moving them up to, you know, 9010 from roughly, I think, 6040. Obviously, you could uh
37:46
customize it, do it, you know, however you like. Um I probably would have actually called this, you know, more
37:51
aggressive portfolio or something like that. Um and then in the upper right of the stress test, you have this little um
37:58
two columns. And um now I can see two
38:06
uh port two plans. Um, and you can see that the more aggressive
38:11
one is the blue. Um, and it starts out with higher income. It's got more aggressive portfolio. Uh, and you can
38:17
see that they have different uh different paths. The the blue one gets um, you know, two pay cuts and it ends
38:23
up more deeply in the red. Um, so that even though the one with the 60/40 portfolio um did take a pay cut during
38:32
the global financial crisis, uh, the more aggressive portfolio is actually $1,600 a month lower in income. And so
38:39
this kind of points out the cost of taking more risk. Uh, you can also see the difference in in portfolio level,
38:46
which is, you know, pretty profound actually. Um, so the the balances are,
38:52
you know, $400 uh,000 or so different, which is really quite huge. They do, this is also pretty
38:59
interesting, you know, they get much closer together by about the 2020s, but um, you know, very seriously different
39:06
experience um, in terms of looking at your statements over time. So yeah, I think this is a great way to kind of compare
39:12
two different different strategies. So I like that. Um, all right. Last question before we
39:21
move on to some uh some ones that people are asking today. Just uh you know, how do I change the guard rails? Um, so
39:29
there is in um I'm going to go back to the, you know, kind of the uh the plain old
39:35
plain vanilla plan here. Um if you go to the main plan dashboard which is the you
39:42
know the first one below the line here um this is the you know summary of the
39:47
income plan. It shows you how much you have today in terms of balance um to gives you the full retirement paycheck
39:53
which includes things that are not in your portfolio includes social security includes pensions and so on. Um but down
39:59
here you see your guardrails and it's saying hey um you know here's my upper
40:05
guardrail. If I hit this, I would take a pay raise. Here's the estimate of what the pay raise would be if I hit that, you know, exactly. Obviously, if I blow
40:11
through it and I'm twice that, I'm going to get even bigger pay raise. Um, and here's my lower guard rail. Here's my
40:17
adjustment. If you click on this, um, which is, by the way, you can click on any of the, uh, any of these cards and
40:25
get more information, and then you just X out of them. But if I click on the guardrail one, I'm going to see
40:32
a range of nine preset um settings of uh spending capacity or retirement paycheck
40:39
and the uh guardrails. And as I get less aggressive, the guardrails get farther away. Uh and
40:46
then if I get more aggressive, uh they get closer together. Uh or at least the lower guardrail gets gets closer to me,
40:52
right? And so this is a really nice way to kind of view, hey, how could I just make some shifts um in terms of how much
41:00
I spend and my guardrails. So there are nine kind of preset packages um that really they make sense, they work well
41:07
um for the most part. I find very few people are having to to to choose options other than these um and and they
41:14
they'll make sense to clients. Derek, do you use this view with clients? Is this something that or or do you Yeah, you
41:20
do. Yeah. Yeah, I definitely use this especially when I'm trying to talk through like what guardrails risks are,
41:27
especially if it's like live in a meeting and I've got the settings pulled up and somebody sees like there's a risk
41:33
on the income side of things. Like what does that mean versus portfolio risk? This to me is a good view just to come
41:39
in here and say, well, you know, we can start out with more conservative aggre guard rails. We can start out with more
41:44
aggressive talk through the dynamics of, you know, what that entails. Then I feel like this chart can be pretty nice to
41:51
just put up there and and show if it's a live sort of meeting like that. Yep. And
41:56
then one I think probably really important thing to know is if you've clicked on this that has not changed
42:02
your plan. You're just viewing what that would be if it were applied to the plan. If you want to apply to the plan, you
42:08
have to hit apply changes here. So that that could be a little confusing. Um super important to understand.
42:13
Otherwise, you know, if I get if I X out of here and then go back in Oh, wait. I'm back on the 19400 because that's
42:19
where I had already set the plan. So, so that's how you change the guardrails. If you want to do something more
42:25
sophisticated and complicated and fine-tune things, you can do that in the advanced plan settings, which is always
42:31
available from the three dot menu. Um, if you go to advanced plan settings and then go to income settings, um, you
42:39
would have to hit customize. And now you can, you know, customize to your heart's
42:44
content. Um, all of this is in the language of overspending and
42:49
underspending, which is the language that we've kind of adopted at income lab for thinking about balancing those risks
42:55
in retirement, which are the risk of overspending is the one that most people think about, right? It's the risk of
43:00
running too hot, you know, using too much of your resources and so on. But the risk of underspending is the
43:06
opposite side. It's the risk of uh regret. it's the risk of um you know having that really high balance at the
43:12
end of the plan that you didn't intend to have. Um so that's where those is are and it's these are these guardrails are
43:18
defined in those terms. So the um upper guard rail gets hit if your risk of
43:25
underspending is too high. Right? So it's basically saying like you you got
43:30
some assets here, you could spend more. Um and then the lower guard rail is defined in terms of when your risk of
43:36
overspending is too high. So, two risks, two guardrails. Um, and that's that's how you do it. Um, if you want to
43:43
customize. Okay, let's go to
43:50
back to the Q&A. Got a few minutes here. Let's see. And please uh do you know upvote um any of
43:58
these. Um so, let's see here.
44:04
Okay, great question. and I think it's the only one with an up vote is um if you're using what can I spend and you go
44:11
to LifeHub and there's an income surplus um uh what's going on it's not level each
44:18
year what you know what's what's the deal with that um really good question and it's kind of a a core of you know
44:26
the income lab approach by default plans ask the question given my resources and
44:33
my expectations how much can I spend? Um, and often that's actually the right
44:41
question to start with. Um, I've heard from adviserss that, you know, if they start with, uh, how much would you like
44:46
to spend, uh, clients will just ask, uh, well, how much can I have? Um, because that's how we're used to living our
44:52
life. We we make a certain amount and then we try to live within that. Um, but what that means because we start there
44:57
is that we're not tying the plan to the expenses in the plan. So essentially, you could create a plan. So, this one,
45:04
for example, is saying you could spend $19,400 a month. You could create a plan where the expenses are $5,000 a month,
45:11
or you could create a plan where the expenses are $50,000 a month. Um, and what you'll see is that, uh, in the
45:17
first case, you'll have a surplus. In the second case, you'll have a shortfall. And so, you can see those,
45:23
um, probably most easily in Lifehub. Um,
45:28
and probably most easily in this, uh, San key diagram, the flow diagram, which I get to by clicking this little kind
45:35
of, you know, flow thing. Um, so this one in the first year has an $8,000 surplus, which is basically saying, hey,
45:42
you know, given your spending capacity, or I think in this one I'm I have it set
45:48
to retirement paycheck. Um, and all of your plans, uh, your planned expenses,
45:54
your PL, your taxes, your Roth conversions, all that stuff. um you actually have a surplus, which in this
46:00
case is really just saying there's a difference between what this plan says you can spend and the expenses you've
46:07
actually already itemized. So, another way to think about it is like, okay, there's 8,000 bucks that you could spend. If you don't, great. You're just
46:15
um you're kind of storing up some you're buying a little insurance essentially. You're you're kind of giving yourself a
46:21
little buffer. Um, another way to think about it is it's just I haven't fully itemized all my spending, but I I will
46:28
spend that. Um, and and so that's where that comes from. If there were a shortfall, it would be pointing out to
46:34
me that, hey, uh, there's a problem here. Um, potentially, I mean, if it's a small shortfall, right? I mean, no one
46:41
is usually, you know, down to the dollar on their uh on their actual expenses, right? Things happen. Um, but if there's
46:48
a large shortfall, you could say, okay, maybe there's a problem with the plan. maybe there are things I could do to improve the spending capacity or maybe
46:55
there's a talk I need to have about how much you can actually afford to spend. So that's that's the conversation that
47:01
you would have um you when you're asking how much can I spend. The next step and
47:08
I think Derek you you often run into it in the uh in the surplus vein is okay
47:14
well this is what you could spend. Let's compare it to what we think you will spend and and talk about that. So Derek,
47:20
I don't know what like I said, you you typically deal with surpluses. I think the question here was also about a surplus. What what do you do in that
47:26
situation? For me, it's really just trying to kind of position it as you
47:32
could be spending this if you're not spending this. Like a plan's kind of off track in terms of the risk level. Um,
47:37
and that really what we're trying to do, especially if somebody's indicated some sort of preference of like I don't want to leave a huge estate, that's not my
47:44
goal. He's like, well, if you don't want to do that, you know, we need to find something to do with this funds. And it doesn't mean you have to spend it on
47:51
extra frivolous frivolous things each month. Maybe it's, you know, more of a lump sum type take family on a trip or
47:57
donation to an organization you care about or something like that. But really just trying to get them thinking of, okay, if you know the risk has gotten
48:04
really, really low if we're in that surplus sort of territory. Right. Right.
48:10
And the surpluses will be different in LifeHub each year. Again, the further out you get, kind of like with portfolio
48:16
balance, the less, you know, that I would kind of anchor myself to those numbers, right? I mean, no one knows
48:21
what taxes will be in 20 years. Actually, no one really knows what taxes will be next year. Um, I'm not sure I know what they'll be this year. Um, so,
48:29
you know, again, the further out, the less I would anchor to those, but um, but yeah, I think it's it's really about
48:34
that. And you can start playing with the plan, too, right? So, for this plan, if I have a huge surplus, that probably is
48:40
telling me I don't have to be so aggressive here. I mean, maybe I want to be way down here, put my guardrail really far away. Maybe that's
48:46
appropriate if this client is particularly, you know, they don't like bad news and they're fine with just going on with their spending as it is.
48:53
Um, that that's fine. I know Derek, you've also played around with uh the income path, which um we used before we
49:02
had this default thing. we would default it to the uh retirement smile, which is
49:07
great and probably a more reasonable expectation, but what it does tend to do is mean you can spend more today. Uh and
49:14
and so if somebody's got a surplus, you know, do you have to assume that? Probably not, right? Yeah. I mean, I'll
49:19
I will play around with some of the plan assumptions, especially if it's, you know, sometimes despite the surplus sort
49:25
of nature of the plan, they might still be really cautious or skittish, worried
49:31
about retirement. And so, you know, maybe looking at things like, okay, well, let's start them on the most
49:36
conservative guard rails. Let's do a just inflation adjusted retirement spending into the future because that's
49:42
going to give them more confidence rather than saying, well, we're actually assuming you are going to taper down your spending as you get older. Um, and
49:50
then you especially going into um the stress test at that point, the results
49:55
tend to look so positive in terms of just, you know, often getting through. It's not that uncommon that I can run
50:02
some plans to get through um you know flat financial crisis, great depression, stagflation, all with no cuts. And if we
50:09
can kind of say, you know, you could make it through all those kind of some of those hardest times in US history that we can throw out a plan without
50:15
having to cut your spending, like that's a very conservative level to be planning from and just try to use that as kind of
50:21
the um starting point for the conversation and then kind of shift back
50:26
into here's how we could ramp up or think about loosening up those uh purse strings when somebody's thinking about
50:32
spending in retirement. Right. Right. All right. Um there's a few other
50:39
questions um that I'm seeing in the uh
50:44
here um there was somebody asking about retirement paycheck versus um spending capacity. That's just a setting um that
50:51
you can change in your in your version of the app. You can decide which you want to do. People have different
50:56
preferences about how to talk about this concept. This is the answer to what can
51:02
I spend. Um, so the way you do that is you go up to your little icon in the upper right and there is a um there is a
51:11
uh display settings option there. That's also where you could do things like turn on dark mode or you know uh do some fun
51:18
things like that. So so that's that's where that is. Um if um if you want I I
51:24
also saw some some comments there about like needing something a little bit more uh introductory about how to use income
51:31
lab. To be fair, these uh these kind of Q&A events we have every month are they
51:36
can sometimes feel like you're getting in the weeds or uh you know, it's like 302 uh as opposed to 301 versus 101 type
51:44
level. So um there are every month we have an an intro to income lab webinar
51:51
um that you definitely want to want to um jump on um as well. So let me have a
51:58
quick look. Got a few more minutes.
52:05
All right. See if there are any with uh
52:14
so since this one's related to what we were just talking about. Do you recommend adding expenses when building a plan or leaving it blank? Um
52:22
I would say this depends on which parts of the app you're going to use. if you were just using this main, you know,
52:29
thing, you probably wouldn't need expenses. But most of the time, you're going to want expenses if you're using LifeHub. Um Derek, I don't do you have
52:36
thoughts on this? I And one thing I use kind of just like baseline expenses for
52:41
is also what somebody tells me their spending target is. Before I ever run a plan, I do often like to ask what
52:48
somebody thinks they would spend in retirement. And so if they tell me that number is 10,000 a month, well, I can
52:54
put that in as a as a baseline expense and that helps me remember kind of where the target is as I'm building the plan.
53:01
Um, and just kind of use use that. Um, also then flows through to the kind of, you know, solve for spending, right,
53:08
level if I wanted to to do that. So that's, you know, if I'm building a quick plan where we're not going to put
53:14
in a bunch of extra expenses and things like that, that's one way I'll handle that is to at least put that baseline in
53:19
there. Yeah. And here I've I have itemized expenses. So you could itemize your
53:24
baseline expenses. I only have one. So that's essentially equivalent to just entering the totals, which you can you
53:30
can do uh here. Um so I could just put, you know, $10,000 a month. Um this plan happens to
53:39
have uh Medicare premiums uh itemized, so those would be included too in in
53:44
this case. But yeah, those that's where you would do that. So yeah, I like that approach. like if you happen to have a number here, but you don't have to feel
53:51
like you have to itemize every little thing, you know, you don't have to put your Netflix uh subscription in there or
53:56
something, although you can. Uh it's it's totally up to you. So, yeah, it's kind of one of the nice things about Income Lab is you you can bring your own
54:04
budgeting approach, whether that's zero budgeting whatsoever or really detailed budgeting, you can do it all. Um yeah,
54:11
either way. Um,
54:16
but there's nothing wrong with starting without any expenses and then adding in them in later. They're not required to
54:22
build a plan. Um, somebody's asking why the middle part of the longevity settings uh slider is
54:29
above average. Uh, that's because everyone's above average. Um, it it
54:34
really is. Uh, you can certainly slide it over one. Um but people when people come to plan length um expectations um
54:42
there is a worry right people worry about longevity risk and so selling some having the default be slightly above
54:49
average says hey you know we're we're watching out for your longevity risk instead of assuming that you're average
54:54
nothing wrong whatsoever of moving it to average or even below average but that's that's why it's the middle of the
54:59
slider. So, um because we do some really
55:05
great mortality risk, uh adjustments in these plans, which we don't have time to go over today, but there are recordings
55:11
of webinars. Um that's you you're really at a little less risk if you extend the
55:16
plan. Um because we're still accounting for the fact that you may not live to the to the uh to the to the end of the
55:24
plan. Um all right, I think I thought I saw one with an upvote. Um,
55:35
okay. So, this was more of a feature request. Um,
55:40
it's complex and you probably don't want to all uh watch me read here. So, uh I will just it seems to have to do with
55:47
net numbers. So, um we can maybe finish on this one because it is a another
55:53
thing that can be a little bit confusing um about income lab. So on this main
55:58
dashboard like we're viewing things. It actually tells me right here I'm looking at things in today's dollars. The values
56:05
are rounded. Uh I'm looking at monthly and it's gross of tax and savings but
56:10
net of variable expenses. So super complicated, right? And all that's doing is telling me what this this set is. If
56:16
I wanted to view things in net of um taxes, I would just flip over to to net
56:23
here. Um, I can actually save this as my default for this view. Like if I always
56:28
want to come here and view it. Crucially, I'm not looking at a different plan. It's the same plan. It's just changing the sorts of, you know,
56:35
the the version of the numbers I'm looking at. So, I can take the rounding off and now it doesn't say 131, it says
56:41
13127, right? Um, so that's a a useful thing and you can choose how you like to
56:46
view it. One thing that can be fairly confusing to people and it is related to the expenses is there is this concept in
56:53
income lab of a variable expense which you could think of as sort of a lumpy or
56:59
significant or temporary expense. Um a really classic one would be paying off a
57:05
mortgage. So if that mortgage will be paid off in 5 years, you want to pay it
57:11
off but when it goes away you're not going to replace that expense with something else. You'll just be done. Um,
57:16
and so, um, it's nice to include those if you want to show someone that, yeah,
57:22
they can pay off the mortgage. But since once it goes away, you won't replace it with something else. Sometimes you want
57:27
to say, "Yeah, but show me just the number, but remove that expense because I want to give you a feel for what your
57:33
long-term longer term um, spending might look like." So, that's that's what
57:38
that's about. So if that's why there are all these options and um it can be a
57:43
little bit confusing because you know if you add a variable expense that's that's applying today um then the uh the number
57:51
will go up because you're your spending will go up because you're going to you're going to um be paying that off.
57:56
Um but you know that that usually will mean that the the income net of that
58:01
expense will actually be a little bit lower because you have that added expense. So, um, that probably was a
58:07
mouthful and I didn't, uh, I didn't land it, but hopefully that made some sense. We have a lot of, um, great content on
58:15
those concepts. I think one thing that comes to mind is the the master class we did with Jason Juul last year. Um, and
58:22
all that's available on our website. Uh, you can access the uh the recordings of
58:28
those. Um, if you're looking for kind of some of the basics of workflow, how to build a plan, what these different
58:34
things mean in income lab, that's also a great way to go. So, I know somebody was asking for something a little bit bit
58:40
more basic. I think that's another place I would start if you're kind of just looking for an act an advisor walking
58:46
through, you know, the concepts and and how he does it. Um,
58:51
so with that, I know there are some other uh questions in here we didn't get to. We we do try to look through these
58:57
questions afterward and uh email you if we have your email address uh and uh and
59:03
respond to those or save them for next time. Um we never get to all the questions so I do apologize for that. Um
59:10
but thank you Derek and thank you everyone for joining us. Please do join us again next week for our um retirement
59:15
income intel CE webinar on um forecasting and Monte Carlo and uh hope
59:21
to see you then. Thank you everybody.