Masterclass 2.0 - Class 1: A Tale of Two Bear Markets

all right well we still got people coming in here but I don't want to um delay too long because we got a

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packed agenda today so um thanks everybody for uh for jumping on to the

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first of our four class masterclass series here today um with Ryan Townsley

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give you a quick intro to Ryan uh then go through what the uh what to expect from this series and um then do a quick

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intro that kind of kick off Ryan's um Ryan's presentation for today so really

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excited and grateful that Ryan Townsley could join us today to lead this master class um Ryan is founder and Lead

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adviser at Town Capital uh he was born and raised in Baltimore Maryland as we just heard East Coast guy served in the

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US Naval nuclear program power program from 03 to 09 and worked as a commercial

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nuclear power uh engineer radiation protection supervisor and licensed senior reactor

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operator for 13 years so um I imagine we could do some master classes on that too

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someday uh Ryan completed an NDA and discovered the world of personal finance uh and followed his passion to helping

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his colleagues retire from nuclear power and that's why he started Town Capital the only financial planning firm in the

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world created exclusively for nuclear power plant professionals uh he now manages over 110 million

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and about uh for about 80 households and has a heavy focus on retirement income

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and tax planning which is the topic of this master class we've

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got four sessions um today is a tale of two bare

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markets next week we're going to talk about next level tax planning then we'll

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have a it'll be a two- week jump to best practices and presenting retirement income plans and then another two weeks

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for advisor and practice management efficiency so just to you know make sure that you've got your calendar set for

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those it's uh it's it's going to be awesome so I'm I'm very excited about it too um so in order to kind of Kick this

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off um Ryan asked that I kind of set the stage because you know this is we're

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hosted uh by by income lab Ryan's going to be using um a lot of uh the income

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lab software to display some of the concepts so we thought it would make sense to do a little bit of a high level

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intro to what's different about doing retirement planning with income lab um so that for those of you who aren't

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already income lab users you kind of can can follow along without just thinking like what the heck are they talking about here um so I wanted to start with

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kind of the highest level which is really what it is that retirees want

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what are we trying to do how are we trying to help people in retirement and and there is work on this and then I

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imagine the you know hundreds of people on this and thousands of clients that you've represented would um would uh have some

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some feelings on this as well but if you ask people about kind of their life goals and things they they typically can

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sort of line up on the side of live the best life I can you can get that either

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in a positive or A negative way so you you will get things like don't be a burden on my kids don't run out of money

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and so on um but if you kind of dial into like what is a good life in retirement it tends to be hey help me

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live the best life I can with the resources I have and the years in health

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that I'm given right so it's this kind of help me navigate the world with the

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resources that I have um help me make good decisions on this so that I can live the best life I can you don't tend

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to get many people saying well my primary goal is to leave money behind when I die you can ask them hey you know

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you want to leave some money behind you'll get them to give you a number but it's not usually the top

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priority um another thing that I heard from a lot of advisers when we were first building income lab was oh I used

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to ask people hey how much would you like to spend in retirement and often the answer would be

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well how much can I have right because we don't no one asks you in your working

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years hey how much would you like to spend they just say well this is what the job pays do you want it or not right

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and then you build a life within that my grandma says just spend less than you make that's that's how you live the

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problem is in retirement it's not entirely clear what you quote unquote make and so that's the first question

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advisers have to answer in retirement planning is what can I afford to spend and we do that through you know

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complicated analysis and so on as our clients expect us to and you could think

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of it as all right well there's there's a lot of ways the world could go for you right your returns could be good or bad

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inflation could be good or bad um you know if it's a couple you know you might both be long lived or somebody might not

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be there's a whole range of ways the world could go and it kind of feels like people want the best answer to that

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question what can I afford to spend and if I ask you well what's the most likely amount I could afford to spend if I lined up all the possible worlds you

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could live through and how much you could spend in each world you would say well it's right there obviously right

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it's right in the middle that's the most likely amount doesn't mean that's what's going to happen but it's the most likely

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amount now we have depended for the last 20 plus years maybe closer to 30 at this

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point years on this concept of probability of success in retirement and

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I know Ryan will be talking a little bit about the shift away from that um so it it's worthwhile asking okay what is the

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probability of success of that spending level of the spending level that's most likely um right for these these folks

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well it's 50 which that should be incredibly shocking like you would never present a

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plan to a client saying uh hey this one's great it's a coin flip um instead

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by using probability of success we tend to We Tell clients hey this is how you

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should think about the world you should think about it in terms of probability of success and it's a z to 100 score

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well what score do they want they want a 100 right so where's 100 on

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here it's all the way over on the left it's the it's the spending level where

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in 100% of the ways that the world could go they could have spent more in other

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words it is 100% chance of under spending in other words probability of

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success that word success doesn't mean what clients think it means as I just

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went over success means do the best I can live a great life have you know just the the most fulfilling life I can with

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the resources I have and the time and health that I'm given so it you know richness of Life tends to be about time

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with family and friends and um you know what what's in the book die with zero

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the author calls memory dividends right building up um this uh this set of of

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memories and experiences that continue kind of paying you dividends what success means in

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probability of success is spend as little as possible leave a lot of money behind when you die

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now I'll shift over to the uh the the app here to show you a little bit of of

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how we deal with that problem of probability of success driving people

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not toward kind of optimizing or maximizing their their life um but but

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toward underspending and regret and worrying about it while you do so what

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you see in income lab is taking headon the the question of given what I have

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what can I spend so these folks have you know almost $3 million but they have other resources too this is the the key

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thing to retirement spending is it's not just about your portfolio it's about everything else that you can use to fund

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your lifestyle so all told whether it's you know with Social Security pensions and so on we're seeing that they can

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spend 19,600 a month but they're not going to fail in retirement instead the

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adviser will be monitor ing the world as time goes on and letting them know when an adjustment would make sense so for

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them if their account goes up a bit they'll be able to spend more that's great you know start knocking off some

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bucket list items what people tend to care more about is when would they have to spend less and we can see here that

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you know there's a pretty good gap before they would have to tap the breaks on their spending but crucially that

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break tapping is not you know the end of the world for them it's a $1,000 a month

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uh reduction reduction in spending about 5% so this really helps advisers talk

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with clients about how retirement really works which is it's a journey it's a

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journey where you have this incredible superpower to make adjustments along the

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way to keep your life on track both to make sure that you're optimizing and living the best life you can if things

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are better than expected but also to make sure that um on the downside you're able to adjust and kind of keep things

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on track um typically through through relatively minor and temporary

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adjustments rather than through you know failure Financial ruin uh and and things

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like that so that's I think a very high level view of what how income lab views

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retirement uh planning and retirement spending there's much much more to the app and I know uh Ryan will um will go

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over some of that U but that's a nice uh intro so Ryan over to you all right can

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you see my screen yep wonderful all right hello everybody

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very very excited uh to show you exactly over the next four classes how I use

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income lab in my um firm like Justin said I managed about it's about $120 million now for about 80 some uh

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households uh the vast majority be tire retirees so we're going to go through uh

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during this class kind of I call it a tail two bar markets and just a funny story about this is progressively like

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my best attempt at me trying to make AI photos of two bears two different bear markets and so I made one and I said no

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make it meaner and the next one was that and then I said no well you know the spirit of Charles Dickens tale two

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cities two bare markets and they gave me two bears dress like Charles Dickens character so I thought that that was hilarious but um as we move through of

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course for anybody watching this that's not licensed this isn't investment tax or financial planning

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advice and like Justin mentioned I do run the only financial planning firm in the world created EXP exclusively for nuclear power plant

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professionals and there's three promises I can make you watching this uh webinar

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this series right I really do encourage you to watch all four part because it's the the what you'll take away from all of them will be greater than the sum of

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their parts um but I did the graphics myself so they're going to be bad right um I use terrible i' say I give myself a

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little more credit but they'll be bad uh I definitely spelled at least one thing wrong and the content will be pretty

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good though so if you can get over the production value I think you'll take a lot away uh from the actual content

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itself right uh I opened my firm in 2019 I did not have any experience so uh I I

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left the nuclear power production world uh after working there for almost 20 years um I got a MERS in finance and was

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really studying financial planning kind of on the side because I wanted to make a career shift and just naturally um you

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know making that shift and wanting to serve I wanted to stay connected to my old industry and I wanted to serve the

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people that I saw as really really smart people in the nuclear industry some of the smartest I ever met um and just but

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also like making maybe decisions that weren't the best when it came to their money and that was intriguing to me and

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I wanted to be able to provide them better service so just basically due to the

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demographics of the industry and you know it's a more seasoned industry it's a really nice way of saying uh it's an

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aging or an older industry uh the my focus with 10 to be on retirees right

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just naturally a very large portion of that industry is retiring in the next uh in the next decade or less uh and my

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clients saved well right they worked at the power plant for 30 some 40 years some of them uh average family about one

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to two million in in retirement funds Alone um some some more um few few with

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less but some with less and in general they just you know like Justin mentioned they they wanted to be able to live

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their life travel hang out with their grandkids do all the fun stuff didn't have big desires to leave any money in

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particular although you know there's always ways to leave someone something and we'll talk about that but I of

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course I started my retirement planning journey by using probability of success

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right and just due to that inherent nature like Justin said right just think about how we've been taught our entire

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lives grades standardized testing survival rates anything that we're talking about that has a probability we

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tend to naturally whether consciously or subconsciously just lean towards higher

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is better we just do right so it's it's it's not necessarily A Fault of the program it's just how we've been wired

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for a very long time is that a higher number is always better right so and I you know I thought that myself now

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there's ways to talk to clients of course about you know hire isn't necessarily better there kind of is a

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sweet spot and depending on your goals higher might be better if you're more conservative higher might be better if

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you do want leave a big Legacy right there's other reasons where higher might be better but in general if you don't

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give any context I think for the most part people are going your clients are going to assume that the higher you make

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that number the better until you convince them otherwise right and most of the programs that use probability of

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success use color coding all right so you can see just naturally the color coding tends to drive you towards to

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feel a particular way if you're in that color code right if you're in the you know the the big range you know we'll

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call it for this one the red range uh you think you probably got work to do right if you're in that green range you

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think you're probably good to go and if you're in the blue you're either really good to go which is where you want to be

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maybe based on your goals or personality or maybe just you're a little too good maybe the plan is a bit too conservative

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right so in general this color coding automatically whether again without adding context will make clients feel a

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particular way when they look at it especially when they see where their probability success lines up in those

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color codes so this is basically you know if you're here that feels great right you

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that's that's a win you you have done fantastic and if you're here that feels pretty good you know that you're not you

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know pegged out you know that there's definitely risk in the plan but if you have this bottom plan right here that's

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at 50 just inherently being at 50% it's not a passing grade if you will if you were to put a grade on it and it's

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clearly in the Red Zone you would think that that would be very risky to spend in that

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capacity so my clients naturally gravitated between either making their plans land in the green

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zone or if they were it's very high correlation I'd say probably 0. N9 on

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clients who were more conservative in their investment risk tolerance also more conservative in our retirement

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planning where they wanted their probability success to be in the Blue Zone so if a client was more

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conservative in their Investments it would I could pretty much predict that they they would want to see that 98 99%

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on their retirement [Music] plan they also recognized that the lower

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the number the more likely they would run out of money and of course we don't frame it that way and we don't want to frame it that way that you know you're

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going to run out of money what that means is if you don't take action you're going to run out of money but just the

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inherent way that the programs tend to present right especially if you look at and we're going to look at this later

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like a bad timing type of scenario things like that it literally says run out of money right now that's assuming

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you're just along for the ride and that you as the advisor and the client are

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just going to let that happen which you're not but when you let people's emotions and their thoughts kind of run

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away with them that is tend that tends to be again without context where they would think that these all of these

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other things that are not successes inherently would have to be failure

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because it's the counterpart all right so you know just

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remember basically I wanted to recap uh this graph this is something I use client facing uh you guys are welcome to

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have it after this Ashley if you want to send it out uh but this is just philosophically the difference between

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how your standard 4% rule type spending plan would would work you know you've

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got your initial retirement income you adjust it for inflation from the time that you retire until the end of your

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plan and that's it right the problem is nobody spends money that way or at least

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they don't want to and that the vast majority of people want to have a little

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more income in the beginning some a lot more income depends on your personality that way you can build those memories

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and those things that we talked about you can have the experiences you can take the trip you can you know do the things for the grandkids right and then

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typically in your middle of life you tend to slow down a bit it does not mean that you're still not keeping up with

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raising cost of living but maybe at that point you're not taking a one for one because it's being offset the amount

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that cost of living go is going up is being offset by the amount that you are slowing down and then usually you have a

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little bit of a tail up at the end of life is because at the that point the car needs a little more maintenance

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right you you've got to uh you got to spend a little more on your health care and things like that right so if you overlook these two you get where you

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have more income in the beginning and a little less income at the end the interesting thing from a math

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perspective though is that the area underneath of these two which would be the total spending is probably pretty

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close to being the same you're just moving the spending profile and shifting it either slightly moderately or more

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aggressively which income allows you to do towards the front of your life right

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now there's always tradeoff to that you know long-term care planning things like that we are going to talk about that at

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length in these four uh this four-part master class so don't sweat that we will definitely get to that but if you look

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at all of the surveys done with retirees in their 70s and 80s the vast majority

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say that they wish they would have done more it's not that they spent too much

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uh that that is one of them some do right um but the vast majority are I wish I wouldn't have been so

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conservative in my spending and I do see it right I see people that say I'll take that trip next year I want

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to let me get acclimated to retirement for a year and then a year comes up and they say oh well the markets down a little bit let me wait till next year

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and then that turns into a decade very quick we all know that right so you look back and you have this where you have

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this regret Zone where you're you're in your mid 70s or 80s you look back and say man I really should have taken

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advantage of my 60s or my 50s whenever you retired um because now I can't do

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those things it could be Health it could be Mobility um could just be energy right or a lot of different things that

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can change so what we're really trying to do is maximize the spending in the goo years the early years uh kind of

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flatten it out in the slowo years and then um you know tail it up in the no-o

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years if we did have a health issue which we plan for in here right so just general philosophy now with that because

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you are spending more you have to be careful right so you know I was a new advisor helping retirees the had been

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open about a year uh I had a really good client base at that point because of the relationships that I built over 20 years

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and then Co happened right which completely um tested I'd say my

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qualitative and quantitative abilities right not only from calculating retirement income but necessary

20:49

adjustments things like that but also my ability to coach people through this tough time right so I'm going to compare

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kind of my experience during covid and then my experience during 2020 22 now take that with a grain of Soul there's

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no way that you can compare the stress level of 2022 with 2020 right markets

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both went down but there was this added thing during 2020 that was a pandemic Health crisis people were stared for

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their life right so but this is just the best comparison I can show at least quantitatively side by side Apples to

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Apples portfolio income all of those right so we're kind of going to have to at least

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um I want to say disregard the other aspects of what we're going on in Co but just consider that you know this is this

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is the only method of comparison that we have right so as you know this was kind

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of like Peak to bottom of Co the S&P dropped about this is called 32%

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right so I just kind of wanted to walk you through a a real client right obviously

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names and things like that change and how the experience was for

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them and then you know many other during this this sequence of events right so we

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had John and Jane investor they retired in December 2020 so um in hindsight like

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if you look at especially from a from a probability of success perspective really bad timing right right before co

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uh they were not yet drawing Social Security they're not eligible they have about 1.4 million combined in IRAs

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they're invested at about a 6040 and they're spending about $84,000 a year after taxes so let's just call it $7,000

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a month now they retired a little before they wanted to but they kind of had to they had a health and some family issues

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and things like that going on that they wanted to attend to um so they were at 76% probability success which is really

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good right in the eyes of you know if you're using the probability success meter it's good right it's not overly

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conservative it doesn't have a ton of cushion you know that there's some risk in a but it's in the green zone right

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the green zone is where you want to be when you're using the probability of success and they knew based on all of

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our stress tests right any probability of success Monte Carlo type of um type of software has the ability to show

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average return versus bad timing now I recreated this graph because I didn't want to use uh anyone else's software's

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graphs so it's ugly but you get the point you all have seen it before that bad timing when you're just along for

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the ride meaning you you don't have prescripted changes and

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and way points if you will along which you will make changes really does change

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the outcome right the sequence of your returns in retirement I would say matter even more than the actual returns right

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you can get the same actual returns but the sequence can build you to a drastically different outcome so this is

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their bad timing versus average so they knew that if they had bad timing that

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they could potentially run out of money and obviously like an adviser you want to coach them and say well you're not going to run out we're going to make

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make adjustments but at the bottom of this in most softwares it literally says run out of money so it's really hard for

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someone to see that and ignore that right so let's just kind of follow along

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you know imagine their they they have the ability to log into their portal so they can see their money guide Pro their

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right caler whatever their whatever their software they're using it doesn't matter which one they can see their probability of success right and

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starting February 19th right they would have had 76 % which is exactly where we

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started so the clients are confident right they're not overly confident um like I said they retired a little before

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they wanted to uh they knew they didn't have like excessive amounts of margin um but they were very disciplined Spenders

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so they were comfortable saying we know we can stick to our budget so we're comfortable with retiring with this

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budget February 27th so you can see I plotted just a standard like Vanguard

24:56

6040 alongside the S&P so we're going to follow the 6040 because that's where

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where they were invested and by this time they were down about let's just call it

25:07

6% so this is where their their probability of success moved to so not a massive change probably one you would

25:13

expect and say okay well that's that's tolerable right I unfortunately it does dip down into the Red Zone a little bit

25:20

so it's a little worrisome but if I'm looking at this 76 to 67% I can say well

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it makes sense that my plan and My outcome changed because I did have a decrease in my assets right so you know

25:32

that does make perfect sense so at that point you know clients may be starting

25:38

to get a little concerned they have questions right they want to talk about it and the first question you get from a retire at least from the vast majority

25:45

of my clients are are we okay right is everything okay and that's they want you

25:50

to provide that Comfort right that we do as advisers which is really like one of

25:55

the most important things if not the most important thing about our J is are we okay and we we tell them why and how

26:02

they are okay and whatever capacity we need to do depending on their personality so then now we're at March

26:08

9th right so we're looking at about minus 10% and they would have fallen to 60%

26:17

probability of success so now they're clearly in the red zone right and they're now they're starting to think

26:23

okay I'm getting anxious and now the question isn't are we okay it's do we need to make a change right so it

26:30

typically evolves into like a general question into okay give me a yes or no like do we need to take action and as

26:36

advisers we we usually give really good advice here which is you you typically no right for especially from an

26:43

investment standpoint you know stay the course stay invested right you know typically people make changes at the

26:51

wrong time when it comes to Investments right so you know look at history and we do all kinds of things to to comfort our

26:57

clients and that's great advice for Investments and we can even maybe take advantage of that we can rebalance we

27:03

can buy some equity on the way down but how do we answer this question for taking income right making investment

27:09

changes you can't control what the Market's going to do after that so your change is purely with you and then

27:16

you're at the mercy of the changes you made where income changes are very easy they can be changed at any time and if

27:22

you're changing income down in any way it it can't have a detrimental impact unless you're changing income to the

27:30

point where the client no longer enjoy retirement or pay their bills or other consequences like that right so now it's

27:37

March 12th and the 6040 is down about

27:42

15% and here we are and this is kind of the the magic number and Justin was talking about this is if anybody looked

27:49

at this without the additional description of you know the the bell

27:55

curve and the middle spending and shooting for average and thing if you just look and said this if you gave this to somebody had knew nothing about

28:01

retirement said this is your probability success in retirement I think they'd be terrified right so you you saw this

28:07

client drop from 76% down to 50% and it appears that there's no end

28:13

in site right you know if you remember Co just I don't know if it felt like it went fast or slow it's probably different for everybody but the market

28:20

was dropping very fast and it was terrifying right terrifying for clients and you know worrisome for advisors

28:27

especially new advisors right you were uh more seasoned like I like to say you might have handled it differently and

28:32

that's great but I think um anyone who looked at this would be at least a little concerned by that point so really

28:39

what I got is I'm very worried at this point uh now it the question evolves from do we need to make a change when do

28:45

when will we need to make a change so now they're asking for okay things are going south quick give me a definitive

28:52

point where we have to take action what is that and when we take action what will it be what do I need to do to

28:58

protect my family this is a hard question to answer using probability success the magnitude of of the change

29:05

needed at that point may be really hard to calculate because if you're going to adjust the spending back to get to the

29:13

original probability of success due to the just inherently the way Monte Carlo

29:18

Works Monte Carlo it's also going to include a lot of tests in that Monte

29:23

Carlo that also have the continuation of really bad markets including like starting the global financial crisis

29:29

with a Great Depression from that point which are going to inherently mean that you're going to have to make a huge change to get back to your original

29:36

probability of success so then here we are this was kind of let's just call it the the

29:42

bottom Ballpark and remember these numbers are meant to be close not exact but the 6040 was down about 20 and a

29:49

half percent March 20th and we're at 38% uh this is terrifying so what I

29:58

heard was well there's now a 62% chance I hope that math works of running out of

30:04

money will'll never recover from this I should not have retired and like that

30:11

just made me feel like this big as an advisor I'm like okay what what can I do

30:16

to make sure this never happens again right I know in my heart and soul that

30:23

everything is going to be fine I know the Market's going to recover I know that the you know from where these

30:29

clients are spending from we're not selling Equity to fund their retirement or anything but the fact that they feel

30:35

this way makes me feel like a failure I don't ever want a client to feel this way again it really would have

30:42

been a better experience if we were able to provide a definitive predefined plan upfront

30:51

here's how things should go but if they get a little rocky here's the exact

30:57

point where're going to make a change and here's what the magnitude of that change is going to be in my opinion what

31:02

I've seen working with you know out of my 80 clients I'd say probably like 50

31:08

some are retired and another 20 are like retiring in the next year or two so it's the vast majority right is that

31:14

uncertainty in my opinion is the biggest driver to fear and anxiety for a retiree so my question is is this a good

31:25

experience so multiply that client times 50 probably had about 40 or 50 at the time some were a lot less concerned

31:32

right they were like I I know it'll recover everything's fine that's some were more terrified than this I would

31:37

say this was like the average experience right and as Retirement experts I think we could do better I think there's a way

31:43

to to present retirement in a different fashion in a way to give to empower clients to be more confident during that

31:50

right so let's take the same client and let's say the all of the conditions are

31:56

the same but except for the fact that there spending a little bit more money here and the reason why we do that is just that's inherently what income lab

32:02

is meant to do it's meant to allow them to start at a higher income but put protective features along the way to

32:10

make sure that we stay on course and we never get in a position where we're withdrawing too much money to where it

32:15

becomes unsustainable that's the whole point of the guard rails right so if you log in to income lab right you

32:23

see and let me go to my I'll go ahead and pull it up for you

32:34

right you see what the income income plan is going to be you can change this to be net you can

32:40

change it to be annual right so that way you know you speak in whatever terms the client's comfortable speaking in I

32:47

typically provide monthly net I think that makes the most sense right you have a client that's retiring and they take home x amount of dollars per month in

32:53

their paycheck and you're telling them that now they can take home x amount of dollars per month in their paycheck that

32:59

equates really well right and then you see down here we put guard rails in

33:04

place and these guard rails are meant to show you when you're not spending enough money that's the upside guard rail right

33:09

you could take out more or else you're probably going to end your plan with a whole lot which if that's not your

33:15

intention then that's what that's there for and the downside guard rail which is always typically much further away is

33:22

okay at this point we need to make at least a minor adjustment to your spending for a a relatively short amount

33:29

of time typically a finite period to be able to make this plan sustainable and it defines it right up there right up

33:35

front right so here's your value here's what the portfolio would have to fall

33:41

to and over here on the right here's what the the spending you would have to

33:48

make the spending cut you would have to make to make the plan sustainable right so just keep that in mind as we go

33:54

through and we'll go through the 2022 now and interesting enough I know it's a

34:00

hard comparison I probably could do both 2020 versus 22 and just make them all 2020 but I just want you to see that

34:06

from a from a market perspective it really wasn't that different right so if you look at a 6040

34:11

just because of the horrible performance of bonds in 2022 it actually performed just about as bad as the S&P and almost

34:18

exactly what the 640 did during Co so if we start here this is what our

34:24

income plan looks like right we know that we're taking exit amount of dollars per month this is our value here's our

34:30

guard rails right and here's the pay cut we would have to make if we reach that lower guard rail so then we're here right so now

34:38

we're on January of 2022 we're a couple months in we're down down about 5 six per. so pretty similar start now realize

34:45

this was over a much longer time frame I get that like I said this is not a perfect comparison but I think it's the

34:50

best one we can make at least in recent future or recent history so now we're down and your

34:57

income la if if you were logged in would not show this value and this value I want you to see the

35:02

progression so you're at one you started at 1.4 million you're down to 1

35:07

31900 and you still have a ton of room left to the guard rail so if a client logs in and sees this if they have a

35:14

copy of this and they're looking at this instead of seeing a changing probability of success meter what they're actually

35:21

seeing is okay I've moved closer to my guardrail but I still have a really good margin away from that guard rail and

35:28

even if I do hit the guard rail I can afford to take this pay cut right

35:35

because if they're so close that they can't afford to take the pay cut that may be another conversation itself of

35:41

okay well maybe you're spending too much or maybe you should work longer you should save more right really what you want to be cutting is discretionary

35:47

spending you can't be at the point where you're cutting necessary spending so this is also a really important planning

35:52

tool I'm going to show you a little bit more too so now we're in May 11th 2022 two

35:58

we're down about 133% or so and now here's where we progressed to so we started here and now we're down to 1 198

36:05

still plenty of room to the guard rail so even though that probability of success meter would have been

36:10

fluctuating at this point and it would been all the way down the probably you know 50 some perc the guard rail stands

36:18

steady and gives your clients the stability that they need to say I am still

36:24

fine we've answered all the questions without ever a conversation with a client is do we need to make a change

36:32

when do we need to make a change if we when we hit that point where we do need to make a change what will the change be

36:38

it's all answered up front never in the moment and then at the end this was

36:44

about the Max draw down about 21 22 percentage and you're here right so

36:52

close to a guard rail it wouldn't be a surprise if they that we had to have the

36:57

conversation right depending on their spending like this doesn't include really a whole lot of like spending and stuff like that so that could have

37:03

driven them even closer but had they hit the guard rail they would know exactly okay I know what to expect I know

37:09

exactly what this pay cut would be so when Ryan calls me and says hey we hit a guard rail we got to protect your plan

37:16

let's make a pay cut of $460 a month they say okay it's already they already

37:21

know we've discussed it up front at length so just think about that again

37:26

during the entire sequence of events they knew exactly where they

37:32

stood they knew precisely what that Line in the Sand was and they knew

37:37

definitively what the magnitude of the change would be and that it would be a change that would they would be

37:43

comfortable with not that anybody wants to take a pay cut but in general if you

37:48

do have to take a pay cut to protect your plan you want it to be one that you that that does not hurt your lifestyle

37:55

that much or especially doesn't go into your NE Neary spending so just My overall how I felt in 2020 versus 2022

38:04

as a real adviser who manages retirees who actually used these two different methodologies during these time periods

38:11

2020 I felt very reactive right I was unsure when when to

38:16

make a change in how much and I know that there are some methodologies where

38:24

you know people do like and I'll try to articulate this the best I can but maybe

38:32

we'll do a little drawing on here so there are some methodologies where people say okay we're starting at 76%

38:37

with probability of success but we're going to draw a line here and we're going to draw a line here and we're going to say forgive my bad drawing

38:44

we're going to say that if our probability success gets down to here we're going to make a change and if it gets up to here we're going to make a

38:50

change so if it gets up here we'll spend more if it gets down here we'll spend less the problem is is that it's really

38:55

hard to Define that upfront not even like at what point would that

39:00

be in the market because I think we could predict that a little easier but what would the magnetude of the spending

39:06

change be if that happened I think that's really hard to answer with probability of

39:17

success all right um another thing is from an efficiency standpoint right you

39:24

as the adviser you have limited time you're trying to serve as many clients as you can with the highest quality that

39:29

you can and be as efficient as you possibly can if you had to monitor plans individually I don't know of any good

39:35

way in a probability Monte Carlo type software to monitor plans in Mass right

39:43

I just don't know how to do that so if I have you know Joe's plan is dropped by

39:49

10 percentage probability success and you know Kate's plan dropped by 15 whatever I wouldn't know that without

39:54

going into each individual plan and looking at it so that's very time consuming it's also very reactive like I

40:01

said if you look at income lab you actually have a feature in here once you implement a plan so Implement a plan

40:08

means you've done your planning and you actually put it to action your client is actually living in retirement taking

40:14

income and you've got your linked accounts right you can link your custodian accounts in here and other

40:19

types of accounts so it tracks the values and it will actually notify you right here on this needing attention

40:26

section when you need to to make a change now this is a a dummy login so you don't see any here but what it would say is if it said one two five however

40:33

many you click this it would show you the families that you need to make a change on and that change isn't

40:38

necessarily always downside guard rails it could be upside guard rail it could be a change in a pension amount or

40:43

Social Security amount that would change other aspects of spending so it's going to from it's going to notify you when

40:49

you need to take action rather than you have to go through every single plan and look at the the the magnitude of how

40:55

much the probability success has change during it might be during an event or

41:01

just during the course of normal spending right so it takes out a lot of

41:06

the manual work of monitoring plans especially for people taking distributions right because it's one

41:12

thing to be an accumulator you don't have to monitor at so much of a frequency but retirement is you only get

41:19

one shot at it and you really have to pay close attention to the level at which people are spending the level at

41:25

which they planned on spending their portfolio performance things like that because it's the series and the sequence

41:32

of which they spend and they get returns matter so much more so this just takes the burden of having to monitor plans

41:39

completely manually uh communicated individually so I had a lot of individual conversations

41:45

the conversations that I just kind of went through where I was showing you like do we need to make a change things like that I had a lot of those individually and my goal is not to try

41:52

to convince you that we should not be having individual conversations but I think there's a more efficient way to do

41:59

it so I'm going to show you like kind of my bare Market plan but I think there's a way to communicate in Mass to get the

42:06

bulk of the information out and then have either smaller more directed more susin succinct internal 101

42:13

conversations right again the point and the magnitude of the change is not defined where in a income lab type plan

42:21

it would be clearly defined and the client knows that they see it uh it's hard to plan for increasing income and

42:28

budget that's kind of like what we just went over with like kind of setting the parameters on the probability of success

42:33

and I did not this is not like a knock on anything that uses Monte Carlo versus income lab style or anything this was

42:39

like my personal is I did not have a scripted bare Market plan I think that's important uh it there's actually ways to

42:48

I wouldn't say get your clients excited about be markets but to maybe add some positivity to it and in our next I'm

42:56

going to show you two things so in the next webinar when we talk about taxes I'm going to show you what I believe is

43:02

it's probably the only original thought I ever had in my life um what I believe is an amazing way to get clients really

43:08

excited about Market declines especially when it comes to like Roth conversions and things like that I'll save that for

43:14

next webinar I'm telling you I think I think it's an original idea so I think it would be something that maybe most

43:19

people are not using right now um but this bare Market plan is basically at this level of decline we are going to do

43:27

this so at 5% we'll rebalance at 10% I'll send out an email referring people

43:34

back to their guard rail say say remember during times of Market volatility which we know are going to

43:39

happen H we know this right it's not if it's when refer back to your guard rails

43:45

take a look at them let me know if you have questions become familiar with them become comfortable I even make a this

43:50

will be in the third maybe the third or fourth master class I make a retirement plan video for everybody using like a

43:58

loom software uh it's a little F minute video that walks through all of this the retirement plan the guard rails how they

44:04

work everything like that it's a really great reference for your clients to go back and take a look at and then at 10%

44:10

we may expedite a partial Roth conversion I'll talk about that a lot more next next master class and then

44:16

there's tax loss harvesting at down 10 to 15% I'll do a market webinar so everybody we can chy to just recap and

44:23

we'll do those usually typically just as often as needed while the market is

44:28

declining or is is is depressed and of course rebalancing

44:33

things like that so there's a prescripted plan that says okay we're not excited necessarily about this market decline but there's ways to at

44:39

least put some positive spin on it and I I wanted to conclude with this

44:46

is not I know it may seem like it it's definitely not a slam session on like probability of success of Monte Carlo I

44:52

still use it I I think it's a great way to plan for accumulators I think it's a

45:00

most of them have wonderful features that are necessary like long-term disability do you not have enough life

45:05

insurance all those things so it's not my argument that the this should replace

45:12

probability success but I do believe that for Distributors it should be it should

45:18

replace how you calculate the retirement income right So for anybody who's de cumulating I think it's a necessary to

45:25

have this supplemental this added tool to be able to to give your clients the

45:31

comfort and then therefore make your firm more efficient which makes you more profitable more productive whether it be

45:38

more time on your hands to spend with your family more proactive less reactive all those things are very important

45:44

right so for accumulators it clearly shows probability sucess clearly shows that doing something has a result all

45:51

right so if you save more if you do this if you do that you can see that meter go up which is training that okay if I do

45:58

more I see my probability go up that's actually a great thing it just when you start to get into the life phase of

46:04

decumulation I don't believe it provides enough of a concrete plan for retirees

46:11

to to keep that anxiety out of their life they're already anxious big life change they've worked for 30 40 years

46:19

and they are transitioning to a point where they're not getting a paycheck anymore they don't have to set an alarm there's other aspects there's social

46:26

aspects of not going want to work anymore there's what am I contributing to society so there's a lot of emotions

46:31

running and we don't want to be the ones to add any of that we want to take that away so my opinion is probability excess

46:38

is not for retirees uh it's for everybody else and then having just this clear defined plan of when we need to

46:45

make a change and how much that change would be really relieves a lot of the anxiety that goes into and into

46:51

retirement and then for someone living in retirement and actively taking distributions

46:57

um I talked a lot I'm going to go ahead and stop there we'll open it up for questions we'll bring Justin back to

47:03

answer the technicals if you want to ask me anything about how I do something in the firm um go ahead and throw it out

47:10

there yeah we've got a few of those for sure Ryan and uh I believe we will be um

47:17

there'll be a website for the master class so people will be able to access slides and so on I know several people were asking about that um we had one

47:25

kind of group of technical questions I'll take super quick and then we'll get to more to the practice stuff um so

47:30

people were kind of asking you know where is this number from the you know how much can I spend number the uh you

47:36

know how much would I adjust number and so on um although that like best guess

47:43

you know most likely number is at at 50 typically people um will actually not

47:51

spend at that level at least at the beginning of retirement and that's because they want some buffer so people were wondering hey why is you know that

47:56

red one so much farther away than the green one well that's because people are risk averse um and so we've actually

48:03

there's a an article in on kits.com uh about this I also put one I think on think advisor about hey rather

48:10

than success and failure we need to think about retirement spending as are

48:15

you overspending or under spending right are you living within your means are you living like way too within your means

48:21

are you living above your means and so that's what all of that the answer to all those questions how do you figure

48:27

out how much to spend how do you figure out when to adjust how do you figure out the adjustment level it's all related to

48:33

um look I'm only going to adjust down I'm only going to take a pay cut if I'm pretty darn sure I'm

48:39

overspending right and okay why is it a small adjustment well it's because I want

48:45

to the default is to adjust slowly like make a small adjustment see if that's enough if it's not enough do another one

48:51

right rather than rip the Band-Aid off make a huge adjustment that might be an over action and you'll end up being

48:58

whipsawed um of course it's possible to build a plan that way it's just that people tend to prefer to tiptoe into pay

49:05

cuts rather than than take big ones so I think that addresses a ton of these kind of more technical questions happy to sh

49:12

something real quick Justin yeah sure yeah I think um you guys can still see my screen right should see income

49:17

lab okay um this is one of my favorite features because instead of just kind of

49:23

modeling what the what a portfolio would look like during a bad time this stress test actually models the income

49:30

experience so if if we're have if we're planning for retirement I do multiple like many many meetings with their

49:36

client before they actually pull the trigger to retire because it's a big deal right and you know more often than

49:41

not they don't end up going back to work at least we don't want them to so I want them to know okay like we don't know the

49:47

future but let's go through some really bad times in history and yeah we can predict what your portfolio would have

49:54

done with pretty much any software but what if about your income experience so what if I told you that you retired and

50:00

the global financial crisis happened like a few months later and horrible timing right that would have absolutely

50:07

been a bad timing scenario if you were using money Carlo but what if I told you that you had to take a pay cut it was

50:13

$410 a month and that would last for a couple years and then you would be back to getting pay raises after that how

50:20

would that make you feel and they typically say that wouldn't impact my life really that much at all um so just

50:27

think about that you may say well small how does that small amount make a big difference it's the same way we think

50:32

about saving we encourage people to start saving young because a little bit goes a long way it's the same thing in retirement if it's early retirement and

50:39

they've got 30 40 years left of retirement a small pay cut for a finite period of time that also isn't

50:45

automatically compounded after that with cost of living raises makes a huge difference in the plan so I just wanted

50:51

to share that I think that's important I think that's a really good point to to any of you who have these questions about well is that going to be enough

50:57

what would it look like the stress test is the is the place to get those questions answered I also had people asking well wouldn't the guard rails

51:04

change over time yeah absolutely they would I think Ryan was you know showing you a kind of idealized thing not to be

51:10

distracted by that but certainly if your guard rails aren't different five or 10 years from now there's something wrong with your software right I mean like

51:17

your plan is totally different at that point you're older you're right so and that's true on a smaller scale month-to

51:23

month as well so as you saw in that stress test you'll you'll see the guard is changing as as they

51:28

should um all right so we had a few folks asking um you know is this the

51:35

presentation you use with clients or if it's not and I suspect it's not uh what kind of deliverables or or or visuals do

51:43

you use with them to go over this kind of this kind of approach so this is

51:49

definitely one of the main ones just to get them used to the concept of

51:55

age-based spending spending more early and things like that and then I honestly just present right out of the software

52:01

um I prefer to do that I think it's more natural it's more genuine like you just kind of progress through them I'm

52:07

actually going to show you later in this master class like a mock presentation like here's how I go through everything

52:13

um with prospects and um and actual clients because I think that's really important um income lab is when I start

52:20

to start to show you like the tax stuff in the tax lab it's probably one of the best prospecting tools you've ever had ever see um but so for prospects and

52:28

clients I'm going to go through in the later Master Class exactly what that looks like but I think this one right here is a really good way to introduce

52:34

them to the concept and I can share that with everybody when we're done perfect and

52:41

you may be talking about this in future sessions as well I know we have some others on this but uh you mentioned the

52:48

regret Zone you mentioned kind of um freedom to spend or permission to spend

52:53

um someone was asking you know what do you do to kind of nudge people toward

52:59

you know living a a life where they're spending a little closer to their spending capacity instead of kind of

53:05

cowering in fear well um typically the people that

53:11

are are more concerned also tend to you know that correlation I talked about also have really conservative risk

53:17

tolerances when it comes to investment so it's kind of that's all in all like that takes a little time for them to you

53:23

know to to get them acclimated but I think the best way is to show them what they can spend to

53:29

show them the stress tests to show them the relatively small pay cuts they would have to make if things don't go well and

53:35

to do it multiple times um retirement confidence when I say when I tell

53:40

somebody when they come in to talk retirement with me my first presentation meeting you're going to leave at like 50

53:47

to 60% confident which is good if you started like near zero and then as time goes on a little bit that's going to wne

53:53

that's going to you're going to lose some and then you come back in I'm going to get get you up to 70 and that's going to decline a little bit and then you

53:59

come back in I'm going to get you up to 90 right so it it really is it's it's a bit inefficient but I think it's a big

54:05

enough step in their life that it's worth multiple meetings and the muscle memory of seeing this over and over

54:10

again naturally I think drives them towards spending and speaking of that do you give clients access to the income lab

54:18

client portal is this something that you do just in in update meetings what do you do most um I share a plan just

54:25

through our you know our file sharing software uh I send them a recap email because some just want the cliff notes

54:32

like tell me the 50,000 foot View and I don't want to see all the other stuff um now that's not usually my clientele

54:37

they're Engineers so they want to see everything um I think the best best

54:42

practices would be to share it if they have linked accounts that are tracking if they're not linked accounts which

54:49

need to be updated um pretty constantly like so if they had held away accounts or something like that that may be a

54:54

little more challenging so I think that's definitely on a Case bye basis I do firmly believe that the

54:59

retirement for somebody who's retiring or retired that that five minute video that I make them to walk through their

55:05

plan is the best piece like the best thing I can give them right that makes

55:11

sense and how quickly is this the kind of thing right so income lab updates every month which

55:17

is just kind of a nice Cadence just to make sure you're never too far out of sync but if you did hit a lower guard

55:24

rail a red guard rail or are you you know immediately calling the client what's your feeling on that yeah I mean

55:30

within a few days we'll we'll you know they hit the guard rail I'll I have a whole process for that so everything I

55:36

have is a process probably too much but um I initiate a workflow that's like hit a guard rail um if it sustains for a day

55:43

or two right we'll say okay we're there uh I will send them an email it's it's kind of just a script that says hey you

55:49

hit a guard rail and here's my you know we talked about this right this isn't a surprise and here is the pay cut that we

55:56

talk talked about right just want to reiterate let's talk about it and then we set up a time to talk um I don't want

56:01

to just adjust or pay via email so email just an introduction for us to have a conversation yeah I mean the other

56:07

interesting thing is um you know if they can adjust their spending that's great but sometimes I've seen that there there

56:13

are other levers in a plan right like if you say um hey that you know that the

56:18

the four-week trip to Europe is going to be two weeks instead or in the future well by the time we get there it

56:24

actually might be back to four weeks but you know there things you can move around there you're going to see in the

56:29

um best practices Master Class where I build different things into the income

56:35

lab plan it's almost like I think of it like features um that not everybody has

56:41

to have but that do add some like redundancy and flexibility and things like that you're GNA that's going to make a lot more sense in that third

56:47

class but it's a way for them to Maybe not immediately have to take a pay cut if they hit a guardrail because we

56:52

planned some other things in there like a discretionary asset fund or stuff like that but we'll get into those

56:58

details okay last question as we wrap up here you mentioned that you still do use um probability of success and failure

57:06

although you say it's not for retirees and I agree um how how do you shift people from one to the other do you get

57:12

any client push back or is this just kind of a natural thing and they get it no I tell them up front now that like

57:18

this is the way it is that one of the softwares are really good at one thing and one are really good at the other and

57:24

just like you know I can equate that a million different ways metaphorically to nuclear power so it's easy you know we

57:31

use this meter for this and this for that um but there so probably about four

57:36

to five years out is is a good time to start introducing the income lab and running concurrently and then purely get

57:41

them on income lab like two two years out yeah and I've heard this from many I've heard this from many advisers

57:49

like the the what can I spend here are my guard rails I I don't think anybody's ever told me they got push back from

57:55

from client no never as long as it's not a surprise just introduce it up front hey here's what we're going to do um and then do it

58:03

and then it's it's did very little if any push back right okay well thank you

58:08

Ryan we had several other questions we'll go through and make sure uh if there are any that are very different from what we answered we'll get those

58:14

answered but uh we will see you all next week and um yeah again just big thank

58:19

you Ryan that was awesome thank you take care everybody thank you very much for joining