Masterclass 1.0 - Class 2: Retirement GPS Part 1 – Building and Presenting Plans

welcome everyone we'll give everyone just a moment to get logged on and then we'll get

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started all

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right well thank you for joining today's Master Class last uh session this is our second session with Justin Fitzpatrick

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and Jason juel and we'll get to the topic and the introductions here again in a moment but just a few housekeeping

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items um this is a cfpc uh webinar and for the webinar you

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have to have 50 minutes of live attendance so please if you are on here

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uh keep in mind that you will have to stay on at least till uh 50 past the

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hour uh because we have uh that requirement from the cfp board also we

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have an RCP certificate for those who are having are looking for that certification or uh proof of attendance

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for your RCP designation um when it comes to questions we do uh have the

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ability for you all to submit questions if you see a question on there that you would like to have answered please like

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it uh we will try to address the ones with the most votes uh at the end and

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with that I will pass it over to Justin we'll get started all right thank you Taylor and welcome everybody um Jason I

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are really excited to to get this going quick correction on the timing make sure you are on for 50 minutes do not log out

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at 950 if you logged in at 9:05 or whatever your time is um so you need 50

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minutes to get the c um all right so uh we've got a lot to cover today so we're

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just going to jump uh right in if you missed our first Master Class session

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um please uh reach out to us go ahead and check out Ashley is going to send

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out some um some links and materials where you can review that material again

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it was a great discussion we got a lot of really good feedback um and to start out we're actually going to do just a

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really quick review so that if people did miss or maybe you've um you know need a quick reminder of where we

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started building the foundation for this uh master class on retirement income planning we talked uh a lot and Jason um

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shared some really great stories about what it is retirees really want what their goals are in retirement we talked

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a lot of about this concept of living a fulfilling life living the best life you can not being a burden on your kids not

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running out of money um and really about how experiences um are are the driver of

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this and funding a a lifestyle that that retirees are eligible for is is the goal

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we want to avoid the regret Zone uh where somebody reaches the end of their

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you know maybe they reach the end of their health span but not their lifespan and they they realize oh I actually

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could have done more I could have could have uh you know lived a different life and now it's too late um we talked also

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about how the goal of some explicit um you know amount of money I want in my

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account when I die I want my executor to handle this much money that is not a top goal for people um often people say well

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you know I get there'll be some left that's great um we also talked about how

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unfortunately that low priority goal is actually the goal when you're using probability of success whether you like

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it or not the concept of probability of success is going to

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distort clients perception of the world and even advisor perception of the world

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and drive you toward this low priority goal and away from what what the real goals are we talked about how if you're

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doing if you're looking at the world and trying to figure out how much someone can spend there are many possible

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spending levels depending on if things are good or bad inflation is high or low returns are high or low and so on and

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that the most likely amount that they can spend is actually right here whichin

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that probability of success framework which is not a good one that's 50% success which no one has the ice in

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their veins to uh to follow a plan that says you have a 50% chance of success instead they tend to want to 100%

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success but unfortunately by definition mathematically the spending level that

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has 100% success is the spending level that is a 100% likely to be under

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spending and so this whole framework is leading people to under spending and to

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not um you know achieving their goals as stated the reason for this was that the

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word success already means something it means hitting your goals it means

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fulfilling life and so on Liv great life unfortunately probability of success doesn't doesn't guide you toward that

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goal it guides you toward um you know deprivation

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basically um and so we talked about how instead we need to think about retirement income planning the way we

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think about investment planning which is a a a balance between risk and reward or you could also think of it as a balance

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between the risks in retirement of under spending and overspending we tend to focus only on the risk of overspending

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but there's AIS risk of under spending as well and uh just like in investment

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planning very few people probably no one should be 100% cash or 100% um I don't

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know crypto um similarly in the spending World very few people should be you know

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at the extremes here um so while the most likely amount someone can spend is

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mathematically right in the middle here uh you you'll end up proposing spending that is somewhere along this spectrum

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probably probably in the under spending Zone but um hopefully you don't have a a system that's driving you toward um UND

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spending and regret so that's the that's the review

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of uh last week's content um today we're going to be diving into the nuts and

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bolts of the actual retirement planning process um but before we get there I wanted to at least um hit one of the uh

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one of the questions that we got from a few people which was okay I get it um

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you know maybe probability Success is Not uh a good tool it's not a good framing but um you know I still want to

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just use what I'm used to is there a way I can use my probability of success tools to do this kind of planning um so

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Jason what are your thoughts on that short answer because I'm not great at at being short short winded here well

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so in in all sincerity you know I think of really a couple maybe three components one of which would be the the

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client psychology the advisor psychology and then the scalability all three of

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those would really be challenges with continuing to use probability success in this decumulation phase you know as we

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think about from a from a client's perspective here we are scoring them

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with this probability of success and within that probability

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success whether the client financial plan is at an 80% 90%

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100% as we say the term probability of success success is automatically

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ingrained in the client's mind and I don't know about you but I've never felt

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that 75% or 80% was successful I certainly wouldn't give 75% effort or

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80% effort um as I'm looking to achieve my goals and so I think psychologically

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clients just strive for 100 and that becomes a really big challenge with

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probability success and so scoring anything under a 100 oftentimes for

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clients um does does mean that they they could have room for improvement mentally

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to them but as we have discussed scoring a 100% probability of success really

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just means you're underspending your resources and that's that's what we really want to help our clients avoid we

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want to help them be able to live the life that they're eligible for live the life that they've d and life they

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deserve you know another component is the advisor psychology as well you just said if if a probability success we're

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at 50% how many of us has ice in our veins to continue to pursue um that

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particular approach and I think as advisers we really continue to think about the 4% withdrawal rate or maybe a

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Target probability of success range between you know 80 and

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95% and so as scores start to to fall even me when I was working under

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probability success I would get anxious when clients would be in that 70 or 75 range and so there's my psychology as

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well as an advisor and um then last but not least there the scalability right

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you've got a a proactive approach versus a reactive approach and when you think

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about probability success oftentimes I was being reactive uh because clients were reaching out about their score and

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their declining score because of a volatile market and therefore that kind of put me in a little bit of a negative

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light sure I picked up the phone sure I addressed their question and I was able maybe to to help calm their nerves

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through our therapy session but wouldn't it be better if I was to able to reach out to them proactively and through this

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guardrail system and spending capacity it actually creates capacity for me within my

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practice and my ability to be proactive and to reach out with Solutions um in

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advance and so ultimately that opens up the opportunity for for introductions

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because if we think about our client experience that we're trying to deliver that we're trying to um preach to our

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clients we preach being proactive as advisers I talk about my job is to come

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up with Solutions is to pinpoint needs before you even recognize them as needs

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and by doing so that helps us develop a degree of trust between myself and my clients um and

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then it also develops a degree of happiness and therefore as my clients

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are happy they're going to share their experience with others and oftentimes that can lead to introductions and

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introductions is one of the the most uh valuable ways that we grow our business

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and so in a nutshell I just think it really boils down to decumulation is a unique phase it's a unique chapter

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doesn't this chapter deserve a unique tool and that that's guard rails that's retirement GPS that's income

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lab perfect so the answer is no you can't do it

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yes yeah I think that's uh that's right you can uh there there's a lot of things

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that are um getting in the way there um so given that we're not going to focus

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on probability of success we're going to focus instead on um

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the the question of you know what can I spend this

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uh this is actually um yeah let me before we actually get to this let me

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let me let's talk a little bit about that switch so switching from probability of success to what can I

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spend to you know what are you eligible for that actually involves a shift in

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how you do planning and specifically on what your first step is um because if

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you're doing probability of success planning you have to Define how much you want to spend it would make no sense to

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ask what your probability of success is without saying probability of success at what at doing what and so probability of

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success planning involves budgeting it just always does um and that shift I

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know from talking with advisers can be a little bit um jarring at first because you're used to doing that um Jason I

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know you you went through that shift from when you when you deemphasize budgeting and you go to how much can I spend

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um what's that like you know is that a good experience as an adviser is a good experience for clients what are the you

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know pluses or minuses of that shift yeah we've done away with the word budget most of our clients see the word

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budget as restrictive uh and almost a four-letter word so we we talk about

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lifestyle you know what kind of Lifestyle do you desire more importantly as we enter this this thinking of guard

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rails what kind of Lifestyle are you eligible for and I know we're going to get into how that calculation comes to

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be but you know it's really all about

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um helping clients live out their greatest dreams and the challenge is when you talk about

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budget oftentimes they think of a couple things number

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one they may not understand the type of income that they're resources support

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and therefore they they start to maybe not pursue some of their biggest goals some

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of their largest goals those bucket list items uh additionally they have these

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These past experiences of saving and investing and as you talked about in our previous session they've worked that

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saving and investing muscle for an extended period of time and their spending muscle they living their wealth

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muscle is maybe atrophied to bit and so that does create some challenges and

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also let's also address kind of the the other thought process and that is if we're talking about uh what a person's

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budget is and that client or Prospect gives us their budget what if they don't have the resources to support that

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budget so doesn't it make more sense to kind of back into the number and quite frankly when we're talking about

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retirement planning with clients I work with when I just asked them would you rather talk about your goals your dreams

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and your aspirations um and and paint the picture of your retirement as a first step or would you rather back into

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what you're eligible for in the spending that's possible nine times out of 10 they always want to know what they're

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eligible for yeah that that makes sense it's kind of when you know people have talked a

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lot about goals-based planning in the last you know 10 or 15 years um it

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always struck me as a little strange to begin just with a blank slate and talk about goals if you don't have context

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for it um and I think that's what you're saying is starting with what you're eligible for okay you now you can build

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in goals into what you're eligible for the other thing I've heard advisers say

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is that um although clients may agree to go through kind of a

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budgeting process what are you spending now and so on um when they're getting into retirement um in their working

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years they probably didn't have to do that they probably didn't have to share with their advisor how much they spend

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at Starbucks uh now maybe if they were strling and they needed some counseling and so on maybe they did do that but

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it's not it's not common and so to suddenly shift to retirement and now have to be you know can feel like an

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invasion of privacy whereas telling someone hey you know here's what you're eligible for go go build a life with it

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I don't I don't care if you spend it all at Starbucks or none of it it's just you know this is what you're you're eligible for that's a little more like their the

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life they LED in their working years you know we just kind of trust them to spend less than they make

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so um if we are starting with how much can I spend um you'll see that in this which

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is the highlevel process to building a retirement income plan that focuses on

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um providing you know for the actual goals people have which is to live the best life they can um and it all starts

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with this first step the resources plan um and this is instead of starting with

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what what can you know what do you want to spend it's starting with what do you have what are your um what are your

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resources um and so U I wanted to just quickly share um a couple ways that you

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can kick this off in the income lab software

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um so

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if you are just in the main list of households there are three ways to kick this

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off the best one is to import a household from another piece of software

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and we are building more and more of these I only have a precise FP integration in this in this example um

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we do have Orion um and a few other things fact I'm going to share the uh

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the list of those quickly here with everybody

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um so Orion precise FP and alist right now coming soon are options for red tail

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and black diamond um and what this looks like is you know I'll search

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for okay I've got the Smith Jones household uh I'm gonna import that it's

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going to try to do it and it often is everything

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thing but that one did succeed now I have the Smith Jones household I go in here it's building

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your plan and what that has done is it's it's looked at in this case precise FP uh and

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found this household and it's trying to create a plan with everything it found there now it's not going to be perfect

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right there could be some some mappings that weren't exactly what you thought they should be and so on but if I look in life hub this plan already contains

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seven investment accounts contains some uh some banking accounts it contains

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some you know some assets um you know a mortgage all of

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that and I that's all all I did was uh was what you saw that was that was live

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that was fresh so now I already have this thing built you'll notice though there might be some missing things like

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oh I don't I didn't get Social Security so maybe I want to add that and so on um so this is your best

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um your best bet getting the process going um and what we're looking for is

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to get income streams and investments into the plan um you know could be

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Social Security pensions annuities Investments of any stripe um and and get

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to that point now if you can't do import household um there are two options I'd

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say they're equal in uh in depends on your use case if you want to get a plan going super quickly and refine it later

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there's quick create and so quick create is is always

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going to guide you toward um you know the the bare minimum

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that you need which is your portfolio assets but then I can add a few other

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things I could add a pension I could add Social Security and so on so for

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example um maybe John has an IRA $2

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million um he has a pension for $1,000 a month it's ordinary

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income I think he's his Pia is 2500 bucks and you know he's still got a

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mortgage and it's a $150,000 paying $2,000 on it and it

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ends in uh you know 2030 boom so now there are still

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additional things I might want to do to refine these things the timing the you know inflation treatment all that stuff

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but you can see like if you were live with a client you're kind it's kind of like filling out a form easy it's uh you

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know you're tabbing between things and again now I already have a plan and now

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I can refine it so you know maybe this Ira is not invested this way it's more

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aggressive okay let's make that change that sort of thing um the last way to do this is with

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a a full um standard approach which just

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gives you access to all of the details up front so the use case for quick create is well you want do it quickly

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might be good I know Jason you mentioned that for a prospect you can create a plan in you know 10 15 minutes sometimes

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and you know you're not necessarily looking to have it all refined and perfect and full and so on you just want

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to get it quick that might be use case then the other option is the

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standard creation here you're going to um put in the the details of the

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household their birthdays and so on um and then you'll get

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just the uh just the basics of of the plan so you'll get plan info assets and

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income this one also has liabilities but I can take that out this is what you'll see because again we're just focusing

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initially on what those plan resources are uh and then we'll get to um refining

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the plan more fully so again first step

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to building retirement income plan is getting those resources is in there uh we want all the Investments all the

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income streams that can fund retirement um three ways to do it import

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the household that's the best way if you can otherwise quick create or the standard

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approach um so with that Jason um let's talk a little bit about best

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practices um you know often the the biggest question for someone who is

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trying to figure out what they can spend is uh does revolve around the Investments

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it's kind of you know how much can I spend from this and and so on um what do

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you find some best practices are for building the Investment Portfolio in a plan um I know this is a place where

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people can really go down the rabbit hole what are the things that are worth paying attention to and which things would you say are

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not yeah so I guess just the level set I go back to the client and I always try

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to put myself in the client or the prospect seat and what would I be thinking about if I was going to retire

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I'd be concerned about uh how I've worked for my employer for a period of time at least worked in my industry for

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numerous decades and I've received a paycheck because of my wages and because of my skills and now my paycheck's going

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away so how do I generate income and what accounts do I withdraw from at what

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time what's going to be the tax impact or benefit and so I just I like to acknowledge the fact that this is a

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challenging time this is um unique it's uncharted waters here in retirement and

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as your paycheck goes away from your employer we want to ensure you still get a paycheck and that paycheck ultimately

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is derived from your resources and so as we think about your resources resources

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can be Social Security pension rental income as well as your investment accounts that you've saved up and each

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of those investment accounts kind of has a different um tax status if you will and registration type and so my job is

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to generate the income you need to fund the lifestyle you desire and ultimately determine when the

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appropriate time to start Social Security is when the appropriate time to start that pension is or whether to do a

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lump sum or survivorship benefit and then ultimately fill in the Gap so you can go on and live the life that you you

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deserve dreamt and and certainly desire and so this this software helps us with

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the framework in order to provide and Define the parameters of how your

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resources will help us generate income and how much income do your resources

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support makes sense so tax status account type that stuff is super

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important because now we're not going to dive deep on this today but sessions four and five are going to be about tax

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Mar distribution planning so this is setting the Baseline the uh the foundation again for getting that right

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so making sure if it's a traditional IRA it's a 401k if you know when is is it you know in service withdrawals are they

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still working did they leave after 55 all those things are really going to help that tax smart distribution planning be better and more

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accurate um what's your approach toward the in the asset allocation of these

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accounts I know we sometimes get people asking you know what should I should I care about the little you know things

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one way or other should I be exactly what my you know ticker symbols are you know what are your thoughts there I was

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one of those Justin you probably remember uh me getting in your ear and and asking about the allocation those

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types of things um you know as as advisers I think we just want to try to

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do ab testing at least that's what I wanted to do was understand okay here's the tools the software I was using

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before here's the allocation I was using before in you know probability Success

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software here's how income lab Compares uh but the reality is De accumulation is

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all about a couple core components it's all about balances it's all about tax status and it's all about your target

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allocation those are really the three elements that drive um our

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positioning and driving and generating income and retirement so as long as our

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our allocation is appropriate from a risk perspective that that's really kind of

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solves that problem if you really want to get granular which what you can do and I've done is you can build out

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custom allocation models just to feel more comfortable and confident so that

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I've done that before and that is helpful but the reality is decumulation is more about the resources which are

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the balances in your accounts the tax status or registration type and then then just the general risk allocation

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I definitely like the best practice of using the model allocations so the software has some defaults that you can

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use um just on that slider um but typically people are if you use the same

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sorts of allocations it could be 5 10 15 however many you tend to use in your practice that's the best uh approach um

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and I think what I heard you say is you know getting the target allocations as opposed to whatever the allocation

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happens to be today so if you know you haven't rebalanced in a little while back to the Target well we want to model

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you being at the Target not at the slightly off the Target that you happen to be today because it's about 10 20 30

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years of of uh projections rather than you know the the down to the decimal point allocation also you said AB

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testing I suspect if you AB tested plans that differ Only You Know by one percentage point in asset allocation

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you're not going to see there's nothing to write home about those aren't you know differences matter and I I do just

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want to also note that I've found myself in situations

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where I kind of have paralysis by analysis and it was just fear of

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change because it it was hard you know we like we talked about it two weeks ago um it's it it can be mentally

28:49

challenging to embark on a new process there's new change and ultimately I was most concerned that the client was going

28:55

to ask me a question that I wouldn't have the answer to and the reality is when we're focused on

29:01

financial planning resources spending capacity and goals allocation is the

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last thing in a client's mind and it just it doesn't come

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up nice yeah that's a good point too sometimes our our fears are they're

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fears in our head they're not the thing that the client's going to bring up so the second set of things you just

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mentioned about resources getting these going it's invest ments let's get the tax status right let's get the

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restrictions right let's get the ownership right let's get the target allocation right it does matter if you're planning to be 60% stock versus

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10% but and the other big thing is non-portfolio income

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thankfully most people have some um at the least it's Social

29:48

Security um and so what are the you know again best practices what should I pay

29:53

attention to here um how should I model them what's different about inome income lab um in in terms of planning for these

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uh these other cash flows what what do you recommend paying attention to yeah so understanding if there is a legacy

30:10

goal or kind of a final portfolio goal that's always kind of a first check mark

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um but then also to understand you know those those variable expenses um how that's going to come

30:20

into play right if you're looking to pay off a mortgage uh in retirement or maybe there's a wedding or a major vacation

30:28

some of those Milestones um you know some of those elements that might be duration specific

30:34

or time sensitive goals uh that that's going to be an important element to

30:39

build in so I think you're you're talking about how do we go from resources plan to core plan um of adding in those

30:47

expenses let me just I'm going to hit this really quick before we go there um

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this one is one that especially brand new users to income lab will often um you'll

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think of things in annual terms that are really monthly so say oh yeah I got this pension it's you know $20,000 a year if

31:08

it is actually arriving monthly put it in as monthly that's uh you know it's it's a small thing but it'll make your

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experience much better it'll make the graphs look nice it'll be you know it'll be important and then the tax and

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inflation treatment are crucial so um kind of like with accounts let's get the

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the owners right um let's get the uh you know survivorship Behavior right I'm going to

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go over an example of that and let's get the tax treatment right because again for taxmart distribution planning you're

31:37

going to be basing that on a foundation hopefully it's a solid foundation and you know which things are wages and have

31:42

FICO which things aren't which things are you know investment income and so might be subject to net investment

31:48

income tax you know the Obamacare extra Medicare thing um all of that you're going to want to get get correct the

31:55

timing uh of things getting get those correct those are the the

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keys um let me see here okay I want to take just a second to hit

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why inflation and survivorship are really crucial um and

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this is also a difference in income lab that can um kind of confuse people uh

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occasionally so

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I have an example here this household has a million

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dollar um they have a $2,000 a month adjusted for inflation

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pension and they're taking about 3,500 bucks a month from their portfolio super super

32:50

simple crucially this pension we have it set to be adjusted for inflation and to

32:56

last for both of their lives so if I go to you know for example go to

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life Hub and look at that pension I got it adjusted for

33:09

inflation and it doesn't change if either person dies still

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$2,000 now unfortunately that's actually not that common that a pension would would have that um many pensions are not

33:26

adjusted for inflation they'll just be the same dollar amount for a long time if I make that pension not adjusted for

33:33

inflation my spending capacity just went down why is that well it's actually not

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that hard to see here it's because now in real terms it's going down over time

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and so more and more of the planned expenses have to be covered by the portfolio which means you got to spend

33:52

less right so that's just a clear case where I go to this all right I was able

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to spend almost 5,500 a month but if that's a nominal pension it's more like

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4,800 right so $700 less per month in order to handle future

34:10

inflation what if go back to it being inflation adjusted but now it's just

34:16

John's so if JN dies it goes to zero all right now our 5500 goes to

34:23

5100 why because we have to account for the idea that John Dies Mary's not going

34:29

to have that resource so we got to hold some money back in order to to be able to replace

34:36

it now we don't know when John's going to die it's often it's very common to this another place where um people are

34:43

used to stating a date of death for somebody in a plan the problem with doing that is if you go really long you

34:51

say John's going to live to 100 well that'll be conservative from a from a portfolio standpoint but it'll be very

34:57

aggressive in terms of what you're assuming this pension is going to provide probably John's not going to live to 100 but if you're planning if

35:04

you're saying No this household's going to have $2,000 a month from a pension until John's 100 you're going to overstate what they can

35:10

spend you'll notice if we shift it to Mary who's a little younger and she's female so we're using

35:16

female um mortality tables you still got to knock it down from 5500 but it's a

35:22

5,300 instead of 5100 right because she's probably going to live a little longer

35:28

so the nice thing about the way income lab treats mortality risk is we're really weighing those risks and saying

35:34

hey there's always a chance in any given month that one of these folks is going to pass away and then the other person's going to have to live on the remaining

35:40

assets how much less should we spend because of that and then

35:46

finally um if I shift to John's you know single life and it's not adjusted for

35:52

inflation now I'm at 4,500 per month instead of 5,500 right so I got to spend

35:57

$1,000 less to make up for the mortality

36:02

risk if John passed away this money's gone and the inflation risk if inflation's High they're going to have

36:08

to make up for it with um with money from their investment account so those are why you need to make sure that

36:14

you've got uh those those inflation treatments and the and the uh the

36:20

survivorship um amounts right Social Security which most people have um is

36:27

exactly like this now it happens to be adjusted for inflation but it it the combined Social Security of John and Mary is in a sense it it's not joint

36:35

life if somebody dies one of those Social Securities is going to go away um it's the smaller of the two typically um

36:42

and the the effect of that will depend on what the actual numbers are um but that's that's also included in this so

36:49

income lab does a great job of kind of helping um balance those uh the the

36:57

those RIS the um longevity risk and mortality risk is a way to think about it what if I live too long what if I

37:02

don't live long enough right those two things okay so now Jason was getting to

37:09

this next this next step which is now that we have a resources plan right we

37:14

got everything we can use to fund our lifestyle we're adding in The crucial expenses this is the first time you've

37:20

seen expenses in this in this process we haven't even talked about them yet um so what kinds of things do you want to add

37:29

to this resources plan to make it kind of the the core plan the thing you're going to base all your other planning

37:34

from and next week we're going to talk about uh those those steps um the steps

37:40

just to remind everybody are uh tax smart

37:45

planning um uh scenario planning um and so on so um back to you

37:54

Jason on on this what kinds of key and other variable expenses do you typically

38:01

see um and and which ones you know which ones you you typically include and which

38:06

ones would kind of leave for a scenario planning or a nice to have kind of

38:12

situation you know we like to in general if if it's a a prospect it's early on

38:18

we're evaluating resources spending capacity and we're not getting any of those variable expenses for the most

38:25

part now if we're dealing with a client that's where we will be very granular um

38:31

so if it's a goal they have that's a bucket list item that's going to be a bigger ticket uh expense we will build

38:38

that into the plan and that's ultimately you know those family vacations that's going to be the mortgage payoff the

38:45

wedding an anniversary gift those types of of items um and then you know we've

38:51

got a core driving Factor as well and that is if a legacy is is of desire and

38:56

Legacy mean a lot of things in this instance portfolio balance at end of plan that's the way it's oftentimes kind

39:04

of viewed as a legacy and so do they have a specified dollar amount that they

39:10

would like to leave behind and um oftentimes the answer is you get what you get and you don't throw

39:16

a fit and inevitably there typically is money left over um because when we think

39:23

about this guard rail system and spending capacity not all clients are comfortable spending up to their

39:29

capacity and so that opens up the opportunity for them to Think Through

39:35

gifting while they're alive and gifting their legacy and viewing their children their

39:42

grandchildren reaping the fruits of their labor and benefiting from those dollars where they've gifted with a with

39:48

a warm hand and a beating heart I really like that example um so

39:56

you can think think of all of these expenses whether it's the gifting that you just said or the um the

40:04

final Legacy you know let my executive Do It um as it as things that will

40:11

change what I can spend on everything else all right so if you said okay we're going to do these family vacations we're

40:17

going to do the you know we're gonna help our kids with a down payment we're gonna these are all going to mean okay that's that's fine here's what that

40:23

would here's how that would change what you can spend on everything else so for example I've got that same plan $5,500 a

40:29

month if I say no actually I want to leave half a million adjusted for

40:35

inflation that's just another spending goal essentially that you need to fund and so by funding it you're going to

40:41

have to spend less on everything else and you know you may actually be surprised at how little it is in this

40:47

case goes from 5,500 to 5,000 um but you would see the same effect adding any of

40:53

those other um other things and I like what you said which is really it's you

40:58

know typical ones might be paying off a mortgage or things like that but it's about the client and what what do they see as sort of the non-negotiable most

41:05

important the things they want to see listed in their plan and so on it's not that there is some list that everybody's

41:11

going to include and you know things things you'll never include you know if it's important enough it'll it'll be

41:18

included and I think you know as you build in those those variable items it

41:25

shows how in tune you are with your client it shows you're listening um it

41:31

shows that you're planning around their goals their dreams their aspirations and so there there is a client

41:38

experience uh to that that approach and a good one at that that makes

41:45

sense um this is also a place we we may go over a few more of these examples especially next weekend in the sixth

41:51

session where we're going to do some case studies this is where you would be doing some um you you you you always

41:58

have this core plan which contains the the absolute necessary all the resources and these key variable expenses but this

42:04

is also the place where you can start copying a plan and adding thing maybe hey what would this look like if we wanted to make sure we could fund

42:10

long-term care and you know for four years at the end of the plan or what would this look like if we bought the

42:16

lakeh house you know things like that the key um thing there is you're you're

42:21

kind of you're you're changing what the expenses are in a plan you might be changing the um the timing of plans and

42:28

the the key here which is what I did to create that list is we're just we're always going back to the core plan

42:34

copying it and then making the changes and so then you end up with this you

42:39

know now you're not typically going to be changing whether a pension is joint or not but you can see the example of

42:45

okay we've got all these different options um what how is spending capacity changing depending on you know which

42:51

expenses I'm putting in and timing and so on one if I could Justin just to add

42:58

there you know as you think about your working years you maybe have a a

43:04

paycheck from your wages and then you get a bonus so the way we talk to our clients about it is would you rather us

43:11

send your full spending capacity every month whether that's 5,000 in this case

43:17

or 5,500 and then you're responsible to budget for your vacations and those

43:23

items maybe a wedding and such or would you rather us send you a monthly

43:28

allocation of that 5,000 per month that's your needs and then these oneoff

43:33

wants and wishes that you're going to pursue call in and request an ad hoc

43:38

distribution or better yet if we know the date of when you're going to take that vacation or when you gonna pay off that mortgage or when you the wedding is

43:45

going to occur we'll reach out to you proactively and and determine the appropriate amount and win to send those

43:52

dollars so we think of it as salary and bonus would you rather have those lumped

43:57

together in just a monthly income or would you rather have a salary every

44:02

month and be able to call in on that bonus when you desire I like that a lot

44:08

and that's actually a nice thing you can do because you're you're talking about spending capacity which you're eligible

44:13

for and then you're saying let's live within our means well it's not about spending the same amount every month it might be about you know buying the new

44:21

car or um things like that and so if you're spending within your means nothing wrong with that um what's really

44:26

going happen is you'll just get a lot more um a lot more good news because you're spending a bit

44:32

less um diving a bit more into that the the types of expenses that you would add

44:38

to create a core plan um this is another place where things differ between um

44:44

income lab and um and other approaches what we've been talking about is these what we call other or variable expenses

44:51

it's the irregular temporary special big important stuff

44:58

we're not so far talking about Baseline expenses you know putting the gas in the car going to get groceries stuff like

45:03

that um so what is the difference between these the key difference is at

45:09

least if you're running a a standard income lab plan which is asking what can I

45:15

spend other variable expenses change your spending capacity that's because they're saying

45:22

okay well you're going to you're going to buy the lake house you're going to gift you're going to take that vacation okay how does that change your other

45:30

spending Baseline expenses on the other hand a they're optional but it's really just about how are you going to spend

45:35

the other stuff you know am I going to have details on the groceries and the gas or am I just going to have a big big

45:42

number um the the confusing thing here is so

45:49

other variable expenses are always actually spent in the plan these are goals they high priority goals they're

45:56

things we're going to do and so your spending capacity is going to change because of them if you're running a how

46:02

much can I spend plan uh Baseline he you don't have to put them in there I don't

46:07

mean that they're optional expenses I mean that it's optional to use them in the plan but they're really just there to compare to your spending capacity so

46:14

in that example you know if we said oh it's 5500 a month if you now want to ask the question well is that enough well

46:20

you might want to do some baseline planning hey what are we spending today um will we'll talk about this in

46:27

in session four and five if you are using a different kind of planning with income lab where you are targeting a net

46:34

of tax spending level then uh we'll use the Baseline expenses as that Target so

46:41

if you're doing it how much can I spend plan your income your spending capacity could be more than your based on

46:47

expenses and all that's saying is you can afford more than your spending and then you know what Jason was just talking about we start having some

46:53

conversations about it or there might be a shortfall where you say looks like you're thinking you're going to be able to spend more than you can afford let's

46:59

have a conversation about that um that can be confusing uh if you're used to

47:05

starting with the budget since you didn't start with the budget here you actually got an answer to what can I spend without even building a budget so

47:11

the Baseline expenses are really um the place where you can start to look at um

47:17

whether that spending capacity is is reasonable and so when we're going from

47:24

core plan which just has you know this stuff to um sorry from base from resources

47:31

plan to Bas to a core plan the main thing we're dally adding our expenses

47:37

all the things we were just talking about our other variable expenses um you can do Baseline planning or not it's

47:44

it's up to you you can list it as a as a big number or you can itemize them um but either way they're going to behave

47:51

really as just a point of comparison um here's an example

47:57

example um so here I had a plan with a $9,000 month spending capacity again I'm

48:03

using really really simple stuff uh here and then I added a mortgage

48:08

payment of $2,000 a month what happened well what I can spend right now

48:15

went up but that's because I'm paying off my mortgage too actually everything else went down right so it went from

48:21

9,000 to 8500 it didn't go to 7,000 which would be 9,000 my mortgage because the

48:27

mortgage ends right so it's just hey how how can I fill up the swimming pool um

48:33

given that I'm also going to pay off my mortgage that's what'll happen with other variable expenses with Baseline

48:39

expenses I could put it at $99,000 a month bottom line or I could put in all sorts of food entertainment travel other

48:45

you know medicare premiums and so on either way it's just a big block that goes up to $9,000 right so that's the difference

48:53

between um other variable expenses and Baseline expens expenses um variable expenses are going

49:00

to change things uh Baseline expenses just just make the picture more interesting that's that's really the

49:06

main the main difference all

49:12

right so um I know there's one other thing we

49:18

haven't talked about that was in that resources plan um piece Jason which is

49:24

there are some assumptions that also go into answering the question what can I spend and those are the length of the

49:32

plan and the assumptions around the shape of your spending will you spend

49:38

the same every month or will that change over time what are Best Practices there what do you do typically on both plan

49:46

length and um what we call uh income

49:52

path yes uh so Justin I do think you're you're still sh on your screen I don't know if that's that's by Design or not

49:59

but to your point the retirement smile right we think about the retirement

50:04

smile we've heard a lot of different ways uh you've got the go- go Years slowo Years the no-o years uh the

50:11

retirement smile is just like you think and arguably you know you you retire and

50:17

you've made all these sacrifices in your life you've got these bucket list items that you didn't pursue in your working years and you're looking to to take that

50:25

trip to your uh or buy that vacation home and that is typically where we see clients spending more money early in

50:32

retirement and that's an interesting concept because most folks have read

50:37

online that uh they're going to need 80% of their spending and so it is it is an

50:44

an interesting conversation and so we actually uh just anecdotally use evidence and talk about

50:52

the clients we've worked with clients we work with typically need 100 to 12 20%

50:57

income replacement in the first 5 10 15 years in retirement and the reason it's

51:05

for that period of time is based on the difference between kind of their their

51:10

lifespan and their health span so person might live to be 90 but are you going to travel to Europe when you're 90 I have a

51:18

client who's 87 traveling to Europe actually going to Italy here in two

51:23

weeks so yes it's possible but it's not the norm right the norm is uh after we get a

51:30

little bit older maybe we're not as mobile and we're just not as interested

51:35

in traveling abroad that's where we would be more in that low where we would spend less so just a recap right we're

51:43

spending more early in retirement we get more comfortable we've pursued some of those goals we've checked out those

51:49

bucket list items maybe we're more interested in stay being a home body or staying local that's where we have a l

51:55

and then at the end prepared for a potential Health event and uh those those can can be costly as well so um

52:03

you know some clients though what I will say is you know we have to to use some

52:09

different quotes to help them kind of understand this spending more money early in retirement um versus later in

52:16

retirement and so I share a quote it's a doy llama quote and uh so so the doy

52:22

Lama when he was asked what surprised him most about Humanity he said man because he sacrifices his health in

52:28

order to make more money then he sacrifices money to recuperate

52:34

recuperate his health and then he is so anxious about the future that he does

52:39

not enjoy the present the result being that he does not live in the present or

52:45

the future he lives as if he were never going to die and dies never having

52:52

lived so this powerful stuff it's deep it will certainly make make you think

52:58

and this is exactly speaking to the retirement smile this is the idea that tomorrow isn't guaranteed and we don't

53:05

know exactly what the future holds and so through the guardrail system having confidence to know okay money is going

53:11

to last me a lifetime what am I eligible to spend I've been I've been constrained my

53:18

entire life with my wages and what I earn from my employer I no longer have

53:23

those confines I no longer have those restraints now I really am in

53:29

control that's where the smile that's a great place to to wrap up it's actually

53:34

going back to what we were talking about last last week two weeks ago which was about you know making the most of of the

53:41

resources um just so that everybody can see I just added that retirement smile

53:46

same exact resources but now we're spending you know over 6,100 instead of

53:52

under 5,500 right so as Jason was saying if you if you have a situation where you're really trying to squeeze a little

53:58

more juice out of that lemon um early in retirement um that's a really nice way

54:04

to just uh just do that same resources you're just frontloading the spending when it's needed most and not planning

54:11

to spend as much when you probably won't be um we'll include a video of um a a

54:18

story for how to talk about this with clients in uh in some of the materials that we're going to

54:24

distribute um it's a a really nice way to talk about kind of the regret Zone and avoiding the

54:29

regret Zone using this kind of planning um I know Jason sometimes you you will

54:34

even start a plan you know without this just not to confuse people and then introduce the concept of the smile if if

54:42

needed um which I thought was a really nice uh a nice way to go so I want to wrap up um with uh with some questions

54:51

and and just so everybody knows next week we're going to continue this conversation we'll talk about um

54:56

scenario planning we'll talk about talking about the process with clients and setting expectations which I know

55:02

Jason you have some some really good thoughts on so stay tuned this is very much to be continued um but we have lots

55:08

of questions definitely not time um to hit all of them um but let's see what uh we have

55:16

that's most and I don't know if Taylor and

55:23

Ashley if you've had a chance to look at there's a lot going on in the Q&A today

55:29

so for those who submitted questions note that we will get you uh answers uh

55:34

that are uh direct to your questions so I I can't pinpoint one

55:41

Justin if you there's nothing with high number I'll just start knocking them off so can you do all this building

55:46

resources and core plans and life up absolutely in fact it's a really nice way to do it because everything's at the

55:52

at the touch of a fingertip so you don't need to click nowhere in a stepper to find stuff you just click on the thing

55:57

you want to change and do it um somebody was asking where do the

56:02

inflation assumptions come from I mean to some extent they come from you so uh

56:08

you can set your own inflation assumptions cool thing about income lab is it actually includes inflation risk

56:13

as part of the uh plan so what do I mean by that I mean that you're not just

56:19

setting an inflation assumption in terms of average you're also putting in uh standard deviation so can inflation

56:26

differ could it be higher or lower than expected absolutely we all know that um and actually there's an article in in

56:32

kidis that uh that I wrote exactly about that so we'll we'll link to that in the

56:38

materials as well uh there is one uh Jason can you remind everyone where you

56:43

got that who that quote was from just since we have you on here live Dolly

56:51

llama we can we can throw that one in the uh in the we have a little micro site that we're building for everybody

56:57

so we'll we'll keep throwing some of these things in there um when you're

57:02

building an investment portfolio for a prospect um what do you do there Jason since you're probably not going to know

57:08

everything about it yeah so I just used the the asset

57:13

allocation right so you choose the model whether you're 60% Equity 75 so from a

57:19

prospecting standpoint and then I also typically use the the flat spending for a prospect as well just because it it it

57:28

um it's B the least resistance and it's less to explain when it comes to the retirement smile it's building in some

57:36

theoretical Insurance metaphorical Insurance uh and they're going to have a little bit more left in their Planet

57:41

into plan but prospects that's the approach I've used here's one Justin is

57:47

there a way to illustrate the assumed uh as the assumed allocation to

57:53

the client so talking to them about it the when you talked earlier about your the assumed allocation and um

57:59

illustrating that yeah there's a couple spots you can certainly see it um just

58:05

by clicking on this um this piece so here's you know high level stocks bonds

58:12

other rates of return you know and then breaking it down by by the level and so

58:17

on uh you can also show how different levels of investment of uh of of

58:23

allocation would uh you know some so maybe I say um more

58:30

bonds and let's change the allocation here to you know be super

58:37

conservative and just like with inflation or with joint or not joint pensions you're going to or with adding

58:44

a legacy goal or an expense now you'll see a change in the spending capacity um

58:49

in this case not a huge uh amount which is which is awesome um couple hundred bucks

58:59

I think good there to wrap up on time Justin for the survey that comes out

59:04

afterwards to make sure everyone has their cfp ID entered um unless you had something pressing

59:10

Justin no I mean there's a lot of great questions here so I think what we may do is uh we we'll we'll we'll try to

59:17

include as many of these as we can in our continuation in two weeks um so that

59:24

you know people people don't feel that this is kind of left uh left un unanswered but really appreciate

59:31

everybody um coming on today Jason as always uh love your um you know Real

59:37

World experience and contributions here make sure to get that do Lama quote from you um and uh hope to see everybody in

59:45

uh in two weeks see you in a few weeks thank you all thank you