How Income Lab’s New Social Security Optimizer Challenges the Status Quo - Webinar

So, um, today's webinar is, uh, covering Income Lab's new Social Security

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optimizer, part of a, um, a new decision lab that we've launched that'll have a

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bunch of tools, um, to similar to what we're going to talk about today, but in other areas. So, but today we're going

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to focus on the social security side of things. and uh my partner Johnny Pollson will will kick us off um kind of with a

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with a highle review of why social security is so important and what this tool is meant to do.

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Thank you, Justin. Again, good morning, good afternoon to everyone. I can see we have La Hoya coming in here as well. Uh,

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excited about having this conversation today. But before we dive into Social Security, I just wanted to kind of share

0:46

this book. If you haven't read this yet, uh, I highly recommend it. Die with Zero

0:52

by Bill Perkins. You can simply put it into Google, die with zero. It'll come up. It's a great book. And if you're in

0:59

retirement planning, I feel it's it's sort of a must readad. Not that it's super sophisticated, but it certainly

1:05

cleared my mind in many ways. And so, Bill Perkins, the author, sort of starts out by defining how he views life

1:12

itself. And he will share with you that as you sit here today, as you're part of

1:17

the webinar, he believed he could define your life as the total sum of all the

1:23

experiences you have. And attached to every single one of those experiences are these memory dividends. And for me

1:30

personally, that made me think of when my wife turned 40. We decided to check off a bucket list item. We flew down to

1:38

Peru to do the old Inca Trail in Zamata Pedro. It's a 4 day, three nights

1:43

through cloud forest and mountains. Unbelievable. The food, the people, the

1:50

nature, and of course the history. It was a lifealtering event. And so if you take that same concept of

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memory dividends and and what we're trying to do in life to retirement and more specifically baby boomers, baby

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boomers now in a young age dates are are 60 and this year the oldest one are turning 79. And for them retirement is

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not just a topic. It's it's really a very real subject. I uh about four weeks

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ago I was in Boston attending the um the Tibberon conference and Chip Rome the

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CEO of Tibbrron was talking sort of a quant guy really great presentation one

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of the things he shared was when when you look at this independent wealth transfer intergenerational wealth

2:34

transfer we're looking at he feels it's it's greatly um misunderstood and and

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one of the things he talked about is first and foremost you know most of this wealth is going to go from one spouse to

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a next spouse, not intergenerational. But also he said if you do the analytics more than half of that wealth is um

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controlled by people with 3 million and less and actually quite a lot of it by people that have a million and less. And

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clearly if you have a million or two to invest, you know, social security is the

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cornerstone of your retirement. Yet we tend to not get great advice on it. Going back to the baby boomers, it's

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it's really interesting also to sort of hear that sentiment like they think very

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differently on retirement as did their parents. The silent generation sort of thought of retirement as an opportunity

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to slow down, to be frugal and leave a legacy. When asked, most baby boomers

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view that very differently. Most of them would answer the question something like this. We want to live the best life we

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can given the resources we have and the time we have left. And so as advisors,

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we really got to a use the tools that can help them get there. But I think one of the the most important pieces there

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is simply how do we time social security? How do we make sure that that cornerstone is taken care of? And so at

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income lab, we're really excited about launching our new social security optimizer. I'm going to kind of lead

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into it here and then I'm going to hand it over to Justin and take it from there. Just a second.

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Justin, can you see my screen? I can now. Yep. Great. So, this is what

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our new social security optimizers going to look like. And here we have a a sort

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of a typical plan. You know, a lot of financial planning softwares, you know, you you'll see people plan to old age,

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95, maybe even 100, which if you think about it, makes a lot of sense, right?

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Because longevity risk is real. The risk of us living a long life and therefore

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have to fund a long life. And when we build a financial plan, that is certainly important to consider into

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your plan. However, when you when you file for social security, there is certainly longevity risk and and that's

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real. But there's also sort of the opposite of longevity risk, which is mortality risk. The risk of us dying

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young. And income lab is really set up to have these type of conversations real

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time with clients, right? When we file for social security, we probably want to say, well, you know, we got to factor in

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maybe we got to be a little bit more realistic around what their actual life expectancy is. So here we have a male at

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age 61 and a female age 61 as well. And so we can go ahead and say well probably

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82 is about a right life expectancy for him, 84 for her. Go ahead and take that

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and then we simply change it. I should say the heat map here is all the different combinations you can have when

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you file for a joint couple today. It's all actually more than 9,000 opportunities and income lab

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automatically snap to the optimal month for both spouses. And you can see here

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by adjusting their life expectancy we went from the best option being filing

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at age 70 which is typically what we see on planning software in America today to you know what maybe it would be better

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to file after you've heard 67 and for him at 69. So we're changing it somewhat

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here. Now the next thing we can then do and again this is very much of a conversational piece. We can look at the

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fact that if your clients and a lot of them will are going to the social security websites of social security.gov

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they will see that the social security administration believe we might be seeing an adjustment

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to social security a cotton social security benefits by the year 2033 by 21%. Now, of course, we don't know

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whether or not that is actually going to take place, but it might be be a good idea to see how could that impact our

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filing strategy today. And as you can see here, quite profoundly now, the

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ideal is actually for her to file at age 66 and for him at 68. So, as we're

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making those little changes, you know, we can go in and say, well, what my personal situation, my dad at 69, well,

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how would that change? and we can kind of click forth and back and see how that would impact our filing strategy. The

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last piece here is opportunity cost. And I think this is this is one that's very

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simple to explain to clients and it's probably obvious to all of you guys. It's simply the fact that a dollar today

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is worth more than a dollar eight years from now, right? And so we can go in here and add opportunity cost. I'm going

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to be relatively conservative and say what what about if the opportunity cost would be 3% and we can apply those

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changes. Now that is a dramatic change. We essentially went from the ideal filing

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being at age 70 for both spouses to now it's 62. And again this is where you can

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go forth and back and have different experiences with the clients and see how you know different life events would

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affect them in different ways. Justin, I'm going to hand it over to you and you can talk about some of the other

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capabilities in here and I can talk about the the stress testing uh opportunities as well.

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Sounds great. Let me uh share my screen.

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Oh, all right. There we go. So, I have a a

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similar plan to what Johnny was showing you. So, um, slightly different ages, but both before age 62. So, really the

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full range of claiming strategies is available. And like Johnny said, if you

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just Can you share? Can you reshare, please? It's just gray on the screen here.

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Better? Yes, there you go. Okay. Um, so similar um to what Johnny was looking

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at. Um, and maybe not surprisingly, I think the reason that you'll see if you're

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googling or more importantly if your clients are googling uh, you know, when should I claim social security, you'll

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often see rules of thumb um, going over why waiting till 70 can be a good idea

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and it can be a good idea for for some people. Um, but a lot of that, again, this is basic math, right? The longer

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you assume you'll live, the the more uh delaying social security um, is

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important. There's a few things here. Um, one is no matter what life expectancy we put on here, it's just

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it's just one it's just one set of life expecties that you're exploring. So, the goal of this

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tool is not to help you find the life expectancy. It's you imagine this left area as like

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your uh, you know, Nintendo controller. Like the the goal here is play around with it, right? Try lots of different

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things. um you know, click on things, explore, and the goal is that you could actually have that conversation with a

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client. They can say, "Oh, you know, like like Johnny was just saying, your dad died um at at 69." Okay, we could

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explore that. We can explore in this case more of an average life expectancy. Ex explore big differences. Maybe one

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person living quite a long time and another person um dying at a more more average age. You can also look at um how

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there is a range of claiming options that's within a very small distance of the quote unquote optimal amount. So

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yes, there is an optimal amount. You can snap to it here. But let's face it, there's a lot of uncertainty and

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unknowns in the future. And so it helps a client to understand, hey, you know,

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finding this exact point, that's not really what we're after here, right? There's sort of this cloud of decent

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options if this is the world we end up living through. And of course, we all know we don't actually know what world

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we'll live through. We don't actually know when people will die. We don't actually know if there will be a cut in benefits or if there is that it will be

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this particular one. Um, by the way, you can you can explore other things here. We preload it with the Social Security

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Administration's projection of 2033 and 21%. But you know, of course, you can

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you can change the both the percentage and the date. Um, another thing that you

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can look at, we don't show this automatically because it can be a little bit, you know, busy on the eyes, but if

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you want to look into, all right, let let's see a little bit more detail on this, right? If I'm going to claim at 68

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and 66, well, what's the break even point? All right, it it's it's in the

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late 70s, maybe that's fine. But hey, just a reminder, that's 2 years before

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um uh you know, John's life expectancy here, and we're going to wait 6 and 12 and 7 1/2 years um to get our our

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benefits. So there there just always are these trade-offs. What we're doing here is focusing on

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just social security. By the way, we're going to talk in a little bit about zooming out uh backing up and kind of

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seeing social security within the full range of of a retirement plan. But it is

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common, we hear from advisers and clients for people to think about social security on its own. And this is one one

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of the goals of this part of the social security optimizer is to allow you to take that magnifying glass, zoom in, and

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say, what are all of our options? How does the best choice, quote unquote,

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best choice change depending on the world you happen to live through? And have that conversation. And what does

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end up happening, at least with with these tools, if you're backing up life expectancy, if you're looking at stress testing reductions, and if you're adding

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opportunity cost, you do tend to move from that upper right corner toward the lower left corner. Um

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and and so this is I would encourage people to to play around with this kind of learn a um kind of a a method of

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adding in these these variables talking through with a client. You know maybe

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there's okay let's look at a long life. Let's look at medium. Let's look at a little bit earlier. let's split, right?

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And have one person earlier, one person later, and just show how, hey, there's a real range of possible good options

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here. And time will tell which is the best one. We won't know ahead of time.

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If you do want to dive into a particular strategy, so let's say we we want to look at this strategy. Up here in the

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upper right, we can go from scenario selection to scenario details. And now we'll get a full view of when the

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benefits hit, what types of benefits there are, survivor benefits, and and so

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on, along with some uh some milestones in the plan, you

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know, when they turn 62, um John's full retirement age, Mary's full retirement age, um all sorts of

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things. You can see this in a table as well, the different types of benefits, the annual amounts. I'm looking at this

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in today's dollars, so I've stripped out inflation, but you can view inflation just by switching from real to nominal.

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Um you can also look at a break even point um which will show you cumulative

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benefits and when the chosen strategy um begins to out outpace

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claiming as early as possible which for these books claiming as early as possible is claiming at 62 for for both

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of them. Um you'll also see cleaning at 70 on this graph um just because that is

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such a common um strategy for people to consider. It's again it's something

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they'll find uh on the so on you know Google you can always just like with all

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income lab graphs you can turn off uh any of these uh if you'd like and again

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see it in a in an annual view as well. Um, coming very soon, there's also a um

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a PDF output that would show you a report on this particular strategy. So,

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you can always go back to scenario selection, pick a different strategy, go back and export that, right? Maybe there's a few you want to look at um and

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so on. So, it's really meant to be a very comprehensive tool for exploring

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social security um on on its own. Um,

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so with that said, you know, let's reset back to, you know, the original plan

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because as Johnny said, um, it it actually there are two risks in retirement. There's longevity risk and

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mortality risk. Um, it's it is perfectly reasonable to have a plan that is fairly

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long. It's a 90 95 and so on. Um, we just want to make sure we're also handling mortality risk um, within that

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plan. And for those of you interested in that topic, um it's actually a really big one. I think one that's not

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particularly well covered in financial planning software. Um we've done webinars on how to handle mortality risk

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uh which is the risk to the surviving spouse that they lose um income when one

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spouse dies. I also wrote an article in uh on the kitsus.com blog um about that.

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So please please check all that out. But going back to the plan as it is, we can now step back and um and see, you know,

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how the overall plan is affected by each

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um social security claiming strategy. And so what we're doing now is, you know, before we had every claiming date

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uh for each person along the x and y axis, 9,000 plus options. Um, now we're

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saying, okay, how would the overall retirement paycheck for this couple um

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change depending on when they claim social security? So, this is a very simple plan. All they have is social

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security and an investment portfolio. Um, if this were a more complicated plan with other sorts of resources, assets,

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um, you know, spending plans, all sorts of things that would be taken into account here. Um but what we're seeing

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now is uh every um every year's claiming strategy

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um along the the top and bottom. The reason we don't do every month is actually there there don't tend to be

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big differences um in in in the retirement paycheck um based on the

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based on the year uh based on the month that you um that you claim. So what we've seen now is we've stepped way

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back. We've said, okay, given these folks resources overall, how would what they can spend in retirement

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um change depending on when they claim? So, think of this as you know, you created 81 plans varying all the ways

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they could uh they could take their social security. And again, we see um

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you know that at least for these folks, it's not it's not 70 and 70. um this hap even with a longer plan um they're

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actually this is fairly common if you have a a difference in social security

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benefit. So here I had on on purpose I made Mary's social security benefits

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much lower than John so that there would be a spousal benefit. Uh and when you see that it's not uncommon to see that

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the you know quote unquote optimal place is to be um you know relatively early

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for her and and and a little bit later for him. But you also see a real range of um of options including you know a

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$100 difference between you know based on a three three years of uh earlier claiming. So again not not much to write

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home about on on the differences there and you can always um snap back to optimal.

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Um, so I think what's really interesting about stepping back from just looking at

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social security and looking at claiming within an overall plan is not just that,

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you know, there's all these interesting interplays between the different parts of the plan and income lab is of course

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like that's that's one thing we're really good at. Um, but you can really uh help people understand how a claiming

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strategy actually affects other parts of the plan. So I know Johnny um I'm going to turn it over to you so you can share

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a way that you can use income lab stress test tool to to show that. Yeah, it's

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really fascinating as as Justin and I have been on this journey with income lab done a lot of research with the

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different universities. We we tend to see research in the retirement space sort of isolated

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meaning we're going to research social security assuming everything else stays even. Well, that is rarely the case,

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right? And I think another good example there is investments, right? I mean, if

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you were to go in and take an income lab plan and you get more aggressive, you put 100% into equities, your retirement

19:44

paycheck will be higher than if you only had 60% in equities. That doesn't mean

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it's a better asset allocation. It just means everything else being equal is going to increase your probability of

19:55

success or increase your retirement paycheck, right? And the same thing is true for social security. If uh if we

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choose to retire at 62 and we're delaying social security, well that means we have to drive income from

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somewhere else and we know that sequence or return risk is probably one of the most significant risks facing retirees.

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Yet that is not factored in at all here. So when you go to income app, we of

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course have our stress test capabilities. This, by the way, right now I am stress

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testing a portfolio of $2 million and a couple that have sort of uh reasonable

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social securityities, both of them. It's just a second here. And simply what

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I'm going to do here is I'm going to allow this particular family to file early. So file at age 62. So kind of

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have the two extremes. is one where we filed at 62 and I'm going to compare that

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to a plan where we would have fired or filed late at age 70 here right we're

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running them through the global financial crisis in this particular case I get a little more technical I've taken the guard rails off in other words I say

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let's just assume we want to maintain the same income and we can then see what sequence of return risk would do to our

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portfolio and this is where you know I I I got to say even when We saw it in the

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beginning. It was a little surprising to see the impact that can have. So what you're seeing here is because we're

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retiring into the global financial crisis, the market is turning down. If the yellow line here is filing late, if

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you decide not to take social security upfront, that means you're going to stress your portfolio more because you're going to drive more of your

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income from the portfolio, which is really going to have an impact long term. It's interesting if you go back,

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of course, we can go back and check out the different periods of times here. the.com bubble. So again, income is

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stable here, but again the same picture, right? It's it's pretty significant. More than almost $250,000

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more in the portfolio here and you back through all of them. Now, what I find to

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be really interesting, too, is say, well, okay, this is if we stress test the bare market. But of course, it would

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be interesting to see what what would the impact actually be if we file into a bull market. So again, we have the

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ability to say before and after here. After would typically leave lead you to have more of a bull market experience.

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Let me go back to the global financial crisis here. So you can see here we're we're choosing to retire in November of

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2009. So we're retying into a bull market. Income stays even yet the sequence of return risk is actually

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working in your favor filing early here as well. because now if you're taking less out of your portfolio that means

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more of your portfolio will benefit for the wonderful bull market we're retiring into. So that is sort of the first piece

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here. Now this of course changes as your portfolio balance change if if you have

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a client with sort of a smaller portfolio. Say we have uh 500,000 so you

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know less in the portfolio we're more relying upon social security. We'll see a pattern that's a little more extreme.

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And again, I'm going to take a person at 62

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and then the same person with $500,000 filing late. Again, the income is close

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here. You'll see once we come down to the portfolio, however, the difference here is very significant

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at that point. Right? So the more reliant we are upon social security, the more this matters, right? And I think

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that's intuitive makes sense, right? The less portfolio value we have probably makes more sense to file earlier on

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here. But this is sort of the data behind it and really shows you the sequence of return risk. This one, this

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is the com bubble, right? Most people that are thinking about contemplating

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filing for social security today probably remember the.com bubble, right? And here you can see the yellow line is

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filing late and my guess is they would experience some some significant stress here where their portfolio balance would

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have been down to 224,000 and so on. Now I will say it is not

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always beneficial to file early. I want to make that very clear if you have different portfolio balances, different

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scenarios, but this gives you the opportunity to take a client their real

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life situation and seen at least in the past how this would impacted their

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sequence of return risk. We can go up and we can even take a portfolio that that is quite a lot larger. Here's a

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portfolio of $5 million.

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And again, I got to find the $5 million filing late here. And of course, here

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you're less rellying upon social security, which means your portfolios are not going to be as extreme, but you

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see the same pattern here, right? You would have had almost 600,000 more in

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the portfolio if you filed late. Justin, anything that you are seeing here you

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can think of that you want to share? I know we have a lot of questions also. Yeah, I mean I would just say a couple

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things for those of you who aren't familiar with the the retirement stress test. You know what this is doing is it's taking the plan and it's running it

25:22

through the actual returns for the asset allocation in the plan and the inflation

25:29

that from that period in time. So what Johnny's showing you here is the um

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today's dollar version. um you if you switched to nominal you would actually see the the true returns right the turns

25:41

you you would have seen on your you know on your statement if you had gotten index returns um and and so yeah it's a

25:48

really interesting thing that you know as Johnny said there are scenarios where

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filing late results in a higher uh portfolio balance um and we can talk

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about which ones those are but it is remarkable that often the the portfolio

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IO is benefiting from early claiming uh either in down or up markets. So in the

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down markets, it makes sense because a dollar of social security is a dollar you don't have to take from your

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portfolio. And so it's a dollar that you know it's it's it's a dollar less of sequence of return risk is a as a way to

26:23

think about it. But in the up markets, um it's kind of the reverse of sequence of return risk. It's it's the

26:28

opportunity, right? It's the it's the investment return. Um so anyway, that that those are my comments on that. we

26:34

did have some questions, you know, sort of on on that topic. So, yes, can I add

26:42

to that for a second? So, again, this is nominal. You can see there's almost a $3 million difference here. If you go to

26:48

the $500,000 level, of time, you will actually see some of these plans, if you don't have the guardrails, would run out

26:54

of money when you file late. Now I I cannot stress the importance of

27:00

this enough and I see this as a massive opportunity in the marketplace today. This is what clients want better advice

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on on at scale, right? And so you think about it today, we know that more than

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4,000 Americans are turning 62 every single day. That means 4,000 Americans

27:20

are waking up having a clear-cut decision to make, which says, should I file today or should I delay filing? And

27:26

if so, how can we better do that? Now, you could get more sophisticated and income lab can certainly get more

27:31

sophisticated if you add in say a Roth conversion strategy. Well, that's going to impact how you want to file for

27:37

social security as well, right? So, there's a lot of different components you really want to consider here. But

27:43

being able to paint a picture for your clients, for your prospects of how does

27:49

social security actually incap, you know, impact their entire life situation. It it's really a big

27:56

difference maker. And the other piece of this is we see from and I even saw a few

28:01

people mention it here that a lot of people want an excuse to file early but today they're simply getting told by

28:08

chat GBT or Google say no no no delay delay delay. Well, when we actually take

28:15

into consideration their entirety of their situation, many times that's not the case and it's truly in an

28:22

opportunity for you to separate yourself in terms of the advice you give to clients.

28:29

Yeah. Let me um highlight what just what Johnny just said about a small

28:34

portfolio. I'm sure many people if you if you've worked with people with smaller portfolios and really we're just talking six figure mid to low six figure

28:41

portfolios which is not you know a small amount of money to many people but uh you will see that in that case claiming

28:49

late is is often just not an option at all because of the amount of sequence of return risk that you'd be taking on. Um

28:55

that may be something that was has been commented on in in the press or in uh in

29:00

in blogs and things. Not sure, but I know I've talked with adviserss who've been using Income Lab for a while and

29:05

have noticed that um that if you take the guard rails off, and for those of you who don't know Income Lab, it's, you

29:12

know, a a plan will typically have a um yeah, okay, there's one where it runs out of money, right? Um a plan will have

29:20

a what can I spend, but it will also have a you know, when should I adjust my spending? I mean, those are we call

29:26

guardrails. In these examples, we've taken the guardrails out to just make things a little cleaner. um in the

29:31

visuals. Typically, people would leave those in in a in in a real plan. But as Johnny's showing you here, this is you

29:37

know, taking taking late um you know, is not a is not really an option for for

29:43

many people who have a you know, slightly lower um portfolio balance. Um but we do have some some questions down

29:49

here. I'd love to see if we can get to. So, if you want to let me share, I can

29:54

uh hit just a couple of the simple ones quick. Um,

29:59

so some people were asking about that green line and how you would use it in a

30:05

conversation. So one thing um that I like to do, your mileage may vary on

30:11

this. Many people will will come up with their own their own sequence of adding in these smart tools. But what you'll

30:17

see when you first go to the plan or when you first go to the optimizer is the uh life expectancy from the plan.

30:26

And by the way, this is based on plan length of joint life expectancy. So in

30:32

in other words, I've set this to be basically as long as it possibly can be. Um in income lab, you can set an earlier

30:39

life expectancy if you want to. So if you had set John's life expectancy at 83, you would see 83 here. Um and and so

30:46

on. So we do life expecties using actuarial tables. And if you do nothing else is trying to find a joint plan

30:53

length that u matches your desired longevity risk level. This is a pretty

30:59

conservative plan. That's why it's so long. But this is what you'll see. And often it'll be pegged in the upper right. Um somebody did ask what happens

31:06

if there's not two people. In that case you would see a bar graph instead of a heat map. So it's just one person's

31:12

claiming possibilities. Um, and then what you could do is say, "Hey, by the

31:18

way, you know, we don't really know when you're going to die. Let's face it, right? I mean, this is that that's

31:23

silly." And so you can say, instead of thinking about it as one optimal level, maybe we should think of it as a kind of

31:30

a zone, an optimal zone. And so that's when you go to add target highlighting.

31:36

And you can decide how how much you want to add, you know, if it's within 2% of

31:42

the best or, you know, I think it defaults to one and a half%. Um, and then I just leave it on if I can. Um,

31:50

and and then I I go around it and say, you know, okay, let's go down to maybe more of a more of a average life

31:57

expectancy, which is Johnny said, I believe it's around it's around 82 to 85 for for both. Um and then again we'll

32:06

see okay now our zone has actually got bigger as well right it's not just this tiny zone it's gotten bigger and it now

32:13

includes um these really much earlier

32:18

um claiming options and I think it's really important what people have said in the in the chat and so on is

32:25

people don't usually want to wait until 70 and often it can feel like you're

32:31

fighting you know oh let me let me show you the math. Let me show you why 70 is really the best. Another option is to

32:37

think, you know, maybe there's something they're thinking about. Maybe there's something they're worried about that's leading them to to not like the idea of

32:44

waiting till 70. And the goal of this tool is to help you have that conversation. The fact is, you know,

32:49

when when um when theory and practice don't agree, often it's the theory that's wrong, right? Like people are

32:55

pretty good. They have a good intuition about the world. Um and so if they are kind of resisting 70, maybe it's for a

33:02

good reason. you know, they they might be worried about their longevity, they might be worried about benefit cuts, and

33:08

they might be worried about opportunity cost. Um, which is a catch-all. I know people in the in the chat and some other

33:13

things have been have been talking about um what opportunity cost is. Um, but we we can we can talk more about that, but

33:20

let me hit some more of these. Um, oh, inflation, right? Okay. So, all the

33:26

numbers you see in this screen are in today's dollars. So inflation is already

33:32

stripped out. There's no way to view this um total

33:37

uh lifetime benefit number including inflation. I mean it would just it would

33:44

kind of misrepresent, you know, because if we're assuming 3% inflation for 30

33:49

years, right, your benefit in 30 years is going to be absolutely huge. Um and so we've stripped out the inflation. And

33:54

then if you add opportunity cost, it's essentially adding a a discount rate,

34:00

right? Um and so you'll notice that, you know, even if I went back to that other

34:06

one, the total lifetime benefits are now lower because it's a net present value,

34:11

right? You're you're bringing that future dollar which is worth less back into to today's dollars. So that's

34:16

that's what those are. Um, and as I said, you there's a lot of ways to think about opportunity costs here, but

34:23

inflation is already um already stripped out. Um, somebody was asking about

34:28

survivor benefits. That's all totally included in here. So, for example, here

34:33

I have John dying at 46 in 2046. So, we're going to have three years of

34:38

survivor benefits. So that's everything is completely included um in this.

34:47

Um by the way, if there are um questions

34:52

that you really want answered because we do have a lot of them, if you could hit the little thumbs up icon, you'll you'll

34:58

see more. Um so Johnny, this is probably one we could talk about for quite a while. um what is opportunity cost

35:06

really you know representing here?

35:12

Yeah I I I think there's different ways to look at it. um

35:17

when we talk about social security it's often times in a very linear fashion

35:22

right and that's an easy way to do the calculations so we discount back the values and and I think it's first and

35:30

foremost it's one of these topics that that are good to have conversations with

35:35

clients about because it makes sense I mean if you simply say a dollar today is worth more than a dollar eight years

35:41

from now I think most of your clients are going to nod and say yeah that makes sense Right? And so you're going to have

35:47

different opinions on what the opportunity cost should be. You know, should it be the expected rate of return

35:53

on your portfolio? Is it clearly inflation is already baked in. So this is above and beyond inflation. Could be

35:59

two 3%. I think the key piece here is it makes sense to clients, right? Like you can

36:06

have some strong opinions and and we can express those opinions and we can kind of play around with it. uh it's not

36:12

really the point of trying to be exactly right. It is having you know a directional feeling for where this is

36:18

going and that's really the intention about this whole tool. Now I I do think what's really if you want to get nerdy

36:25

it's interesting when you start thinking about see return risk because in my view that is what's missing in every single

36:31

social security tool in America today and I mean there's so much research done

36:36

on seeturn sequence of return risk and the importance for retirees and I think

36:42

it does a couple of things it sort of ties social security in with the rest of your financial plan um but but it's the

36:50

way the real world works. Right? I mean, we don't have the lease of just filing

36:55

in a vacuum, right? If if we choose not to file today, that means we got to take our income from somewhere else or you

37:01

can reinvest it and all of that. And so, for me, it's two different ways to look at it. Opportunity cost is sort of more

37:07

of a linear way of it. Seek return risk to me is actually more interesting because it shows you how it impacts your

37:14

total plan. Justin, you can add to that as Yeah. So for the people asking I one way to view it is okay this is the

37:22

investment return I could have earned if I had a dollar of social security instead of having to take a dollar from

37:28

my portfolio and that's like from a very you know finance point of view totally reasonable way to look at it there's

37:34

also I think some there's some like uh more psychological or emotional aspects

37:40

here right there's kind of a what's the value of having a dollar of social security versus a dollar my own money um

37:48

and being able to spend it. So, there is kind of a um hey, I'd like to receive it

37:53

sooner. Sometimes that's about, hey, I've been paying in for years. Sometimes it is actually a very rational

38:00

um okay, this would give me more permission to spend, right? If I if I had this other income source, I'm I'm

38:07

going to feel better about spending that dollar than spending a money in my IRA, for example. Um, so there is a

38:14

permission to spend part of it. And I think opportunity cost actually is part of that. Um, there's also that's there's

38:20

a very rational kind of, well, what could that dollar do for me, right? Maybe I'm young and healthy today, but

38:25

in eight or 10 years, I don't actually know, right? Maybe I won't be able to spend that dollar. Um, maybe that dollar

38:31

won't be able to produce as many memory dividends for me in the future. So, I actually think opportunity cost is a

38:37

catch-all. Of course, it is about foregone investment returns. that's that's a reasonable way to start. But

38:42

there is this other stuff that's a little, you know, squishier, a little more psychological, but I think that

38:48

doesn't mean it's not real. Um, and and so it's it's also representing kind of the the worries or the feelings about

38:55

how best to use retirement assets. Um, and I think that's all wrapped up in in

39:01

opportunity cost. Justin, let me just double down on that. I I think that is so important what Justin just said. This

39:07

is not just about finding the ideal time, you know, economically to file for

39:13

social security. It's also about how it impact people's lives, right? When we saw the stress test before, you know, if

39:19

your portfolio were to go down to $100,000, how would that make you as the advisor feel and how would make how

39:25

would it make your clients feel? I also think going back to the dividends right the memory dividends if you want to go

39:31

back to prove that sort of thing I mean there is a lot of research showing us that yeah there are there is a

39:37

retirement crisis in America uh but for your clients it's probably not what you

39:42

think it is it's typically they're under spending they're afraid and therefore they're underpinning and not taking the

39:47

opportunity to create these memory dividends matter of fact we hear from a lot of our adviserss that when they run

39:53

an income lab plan it's like wow that's more income than my clients would even feel comfortable spending. Now, what we

40:00

do see from research is if some of that spending is guaranteed, if it's a source

40:05

like social security, they tend to be more likely to spend it, having the opportunity to creating those memory

40:11

dividends, being more likely to take the grandkids to Disneyland and so on. So, I I actually think that is a pretty

40:17

significant opportunity cost. Yeah. Yeah. Um, and by the way, in a way,

40:24

opportunity cost already is sort of taken into account when you switch over to retirement paycheck because you're

40:30

actually viewing the entire plan, including the portfolio. So, somebody did ask about that. So, when you switch

40:36

to retirement paycheck, you can change or very shortly you'll see those smart tools in there as well where you can

40:42

mess around with uh um the uh the life expectancy. And by the way, somebody was

40:49

asking, can I can I just put in my plan that social security we're going to just

40:55

plan for a reduction? Yes, you can. So you here we're playing around with it. Like I said, think of this as like a

41:00

little video game, right? You're adding things, you're taking things away, you're moving things around. Nothing I do in here changes the plan. Um, but you

41:09

can have a plan that actually says, I want to assume social security will be cut in 2033 by 21%. If it doesn't end up

41:17

happening, great. I mean, you know, you'll just have kind of underpromised and overd delivered. But yes, you you you can do that. And of course, you can

41:24

change plan lengths, life expecties, all of that as well. It's just that anything you're doing here is kind of in the

41:30

sandbox on the playground, so to speak. You're not affecting the actual plan. You'd have to apply these things to the

41:37

plan to to make that happen. Just let me add to some of that. The other piece I

41:42

would take away from this is and and and you see this I mean go Google s social

41:47

security you'll see there's so many tools available for your clients and for yourself to use the reality is what we

41:55

seeing with sequence of return risk is you cannot give good social security advice without

42:01

knowing what people's overall financial situation look like. If you don't know what their portfolio looks like, their

42:07

asset allocation looks like, future cash flows potentially coming in, rental properties, their tax situation,

42:14

it is quite frankly terrible to get social security claimment advice without

42:20

the holistic view of somebody's situation. And I think that that is an important conversation to potentially

42:26

have with clients and prospects. If if you're looking at this in a vacuum, you're likely to make bad mistakes.

42:33

Yeah. Couple other quick questions. How does this handle situation where someone has already claimed benefits and the

42:39

other has not? In that situation, you would again only see a um a bar chart

42:46

instead of a you know a two-dimensional heat map because one person has already begun. That's not a variable anymore. We

42:52

just remove that variable and now we say okay when should the other person claim? Also, if any of these are in the past,

43:00

um, currently this isn't, but you'll you'll see it very soon that those will be kind of gray. So, they'll still show up, but they'll be gray and not, you

43:06

know, not live options, um, in a in a manner speaking. Um, there was a a

43:14

little bit of a question about plan length and I do I I I get why why we're

43:19

asking it because you know this the if I reset this you know you're kind of saying to yourself hang on 97 96 that's

43:26

that's really long. What's going on here? Um, income lab has an actuarial

43:32

model built um into this. Um, and

43:38

I have not set either of these people to, you know, have a have a particular

43:44

date of death. I could do that in much the same way you might see in other software. Instead, what we give you is

43:50

this. We're trying to find a plan length. So, for these folks, it's 33 years. But if I, you know, um, change

43:58

them down, you know, it could be 30 years, they could be much much higher and, you know, be 43 years. I mean,

44:05

that's a that's a really long and when one person is

44:11

uh, when they're both alive, you're doing joint plan length, which is, you know, life expectancy for two people,

44:16

joint life expectancy is longer than for one person. So you can always set, you know, um a uh a different plan length

44:24

for a particular person or for both of them. So that's that's what's going on there. We did have some questions about

44:30

kind of where that comes from and um and and that's where it comes from. So there

44:35

isn't any uh I know somebody was asking about, you know, is there like a five-year longer piece that that's not

44:41

really part of this. So um that has to do with more of the stress test situation.

44:47

Um let's see here. Uh so in case somebody missed it, we

44:54

there is a break even point. Um you can see it when you go to scenario details.

44:59

Um I'm going to go to something a little bit more interesting. Um

45:04

and the question that somebody had was is inflation taken is are we taking

45:09

account of that? Yes, in inflation is part of it. it's stripped out. But

45:14

that's because a you know if I I could add social security to or I could add

45:20

inflation to the um to the uh to to all of the benefits and

45:26

you'd still have the same break even point. Um so Johnny, I don't know if you see

45:32

any other questions in there that

45:37

we want to hit. A lot of them. Can you speak to Roth conversions? I

45:44

know there's some portions around we could Yeah. So, so currently the the goal of this tool

45:50

is to really just zoom in on social security um as a kind of total benefits

45:57

and break even and so on. We have had a lot of requests to put some tax pieces

46:03

in here. the um retirement stress test piece that Johnny went over is another

46:09

thing that we will will be making it easier to link to that. Um so you won't have to leave the social security

46:16

section here and you'll be able to just choose choose some ones to look at quickly. Not really a new feature, but just a a quick way to get there. So you

46:23

will see some some uh enhancements to this tool to get you there quicker. to

46:29

look at Roth conversions currently, you'd have to go to the um the tax lab,

46:35

which is a place where you already we have a built-in comparison tool where you could look at um you know uh two

46:43

different plans where social security claiming is different, but both of them have Roth convergence, for example. So,

46:49

you could see how that affects um your ability to do Roth conversions. Um there

46:54

there may be a way in the future where we could give you some little nuggets about tax, you know, taxability level

47:00

and so on from in here, but we want to avoid complicating this particular view too

47:06

much because the goal again is to have a conversation with a client that they will get. Um and then we of course I

47:14

want you to be able to talk about Roth conversions, but we don't want to kind of be distract them um too much uh with

47:20

that. So we'll be very judicious with uh you know adding features like that um because the goal is to put put social

47:26

security under the microscope and and let you have that that conversation. So just let me give you another question.

47:32

Does the program show the specific payout for each spouse for each filing

47:37

date and also can you apply from the sandbox into the actual play?

47:43

So yes it does. Um so and that's really you know even by change uh you know

47:50

we'll give it give it some some uh some spousal benefit here by having them

47:56

die in different years. And if I go to scenario details you're going to get you know per spouse

48:04

uh both their own benefit their spousal benefit the survivor benefit um and so

48:10

on. You'll see you'll see all of them. Um, currently there's no way to apply it

48:16

to the plan, but you will see that very soon. But basically, you'll be able to say, "Hey, apply this to the plan. Apply my smart tools to the plan." Um, the

48:22

plan is that you will be able to choose which things you want to apply to the plan. Uh, maybe you want to apply the stress test, but not the change in life

48:29

expectancy, for example. Um, because again, this is a sandbox, right? So it it it may be that by considering earlier

48:38

life expectancy, someone's more comfortable claiming earlier, but you don't necessarily, you know, maybe maybe the clincher is uh is,

48:47

you know, really early life expectancy, but you don't necessarily want to change the plan to assume that, you know, it

48:53

only goes through uh 2047, right? So that's why we're going to be a little bit careful with that and allow you to

48:59

to apply them directly to the plan. Like I said, you already can do these things. you can already change life expectancy

49:04

for a plan. You can already apply the stress test uh or the benefit reduction um to social security in a regular plan.

49:11

So, it's just a matter of us adding a little button to make that a little easier for you. Jez, let me make a quick

49:16

comment and then a question for you. This has a beta tag on it and if you've

49:21

been, you know, kind of going through this motion with income lab in the past, you'll see we always get something out

49:27

there. We get feedback from you, the advisors, we improve it. So there's quite a lot of improvements you're going

49:33

to see over the next few weeks here coming up as as we get feedback from advisers like yourself. So we welcome

49:39

that very much. Then there's a question here uh and I'm going to kind of shorten

49:45

it. Nobody has mentioned the approximate 8% bump you get for waiting on to 870 to

49:50

collect. Can you address that Justin? Yeah so that's a really good uh a really

49:55

good point. So, for those of you um you know, maybe a little less familiar with social security,

50:00

um there's basically the difference between your benefit at 62

50:06

um which here I'll I'll close this up so you can see it. Um your benefit at 62

50:12

and your benefit at 70 is, you know, quite quite large. Um about 77%. And

50:22

then there's a spot at 67 where it's um where it's uh you know what this what's

50:28

called full retirement age. So what that question is referring to is between full retirement age and 70 each year you wait

50:35

you get 8% more in benefit once you take the benefit. And so that's really what

50:41

the trade-offs are all about is if all you were interested in is how could I

50:46

see the largest benefit check someday, but I don't care about how many benefit checks I receive, wait till 70, right? I

50:53

mean, that's clearly that's going to be the highest dollar amount. The issue here is, well, yes, but I could have

50:59

been receiving as early as 62. And so for eight years, I would have been getting checks, smaller checks, but

51:05

checks. And so how long would it take for it to be worthwhile to have waited

51:10

till 70, right? That 8% increase is an increase in check size. It's not an

51:15

increase in a balance of a portfolio. It's not an increase. It's not an asset, right? And so it's it's very reasonable

51:22

to talk about this kind of break even point. So that is 100% um taken into

51:27

account in this heat map, in the break even calculations, all of that.

51:33

So let me add that it's make it very clear. So it is factored in the 8% is factored in right it's part of the check

51:40

size here and that is all factored in and we probably should have mentioned that

51:45

Justin there's another question here. How do we reflect the social security scenarios into the guard world

51:52

view? I am not seeing it in the stress test tool. So, the way that you would do

51:57

that now, and again, we're going to make it easier for you, but you would have two plans, uh, that vary only in when

52:04

they take social security. So, all I did is graded one that was, um, at 62

52:11

and one where I just change it to be at 70. Um, there's lots of ways to change when you're claiming. Um, if you go to

52:19

the edit button, income in social security here, I've got them

52:27

pegged to the left here, right? Um, by the way, here's here's another example, right? 21

52:33

up to 37 if I delay. Um, so just create one plan like this, copy it, create

52:40

another plan, and just drag these over. And uh, and that's all you need to do.

52:46

And then when you go to retirement stress test, you'll have those two plans available.

52:53

So just go to uh up here you have one box which is just look at one scenario. You have the

53:01

other box that says look at um two scenarios and you can choose to to view them. This

53:09

one has the guard rails. Um, and so you can kind of see,

53:14

you know, the hitting the guardrails if I actually also created some plans

53:20

without guardrails um so that you can view them. But that's that's how you would do it today. Like I

53:25

said, we'll give you a quick way to do that very soon um so that you can do it from within social security or within

53:31

the decision lab. Justin, there is another good one here. based on your

53:37

testing, what are some of the typical cases when delaying looks best?

53:43

So, if you're talking about the balance, the portfolio balance, um, where I've

53:49

seen it is when things are bad late in the plan, which again, it's it's really

53:55

just sequence of return risk. Again, uh, it's just that sequence of return risk, the worst returns being later in the

54:02

plan after you've already started social security, right? And so you're because social security is higher, you're taking

54:07

less from your portfolio. So it's the same story. Um where I've seen that before, I think I've seen it here

54:14

because uh in the post-war decade, late in the plan um and maybe I have to do it

54:21

after um late in the plan, you're going to hit stagflation. Um yeah. And so here you see them flip

54:29

uh because you're taking less out of the portfolio during stagflation. Um and and

54:35

so that that works, but it is it is actually rather hard to find, honestly. Um but but it's important to note, I

54:41

mean, it's not true that it's always better uh to have claimed social security earlier. I do think I mean,

54:47

maybe we can even wrap with this going back to how people are thinking about this about social security and risks. Um

54:55

I do think they're also saying to themselves, okay, maybe I take early and

55:00

there's all these reasons I'm going to feel good about that, right? I have I have permission to spend and and and what if I die early and and and all this

55:07

stuff, but also they're, you know, if they then

55:14

live to 95, I don't think that they're going to say to themselves, "Ah, I'm so angry that I didn't wait longer to take

55:21

Social Security at 70." I mean, it looking back, it probably will have been better, but you know, so we have to

55:27

think about this kind of what's going through someone's head. what what's regret really like? Um whereas they're

55:34

afraid that if they hit, you know, 69, they haven't taken social security yet and they get a, you know, terminal diagnosis, then they really are going to

55:39

say, "Oh, that was a bad decision." So, I think they're weighing those two scenarios in their heads and thinking

55:46

about risk in in a pretty sophisticated way, honestly. Um that we're trying to

55:51

help you have that conversation with them um using this tool. Let me add to that for a second, Justin. in terms of

55:57

when it can look better and worse. It it was quite surprising to me that even though I extended their life expectancy,

56:04

say I start planning into them living to 103 and 104,

56:10

you're still going to see that in most cases sequence of return risk is more significant than longevity risk. And

56:17

that was actually kind of a finding for us, right? Even if you were to live to 100 or 103, sequence of return risk

56:24

tends to be larger than the longevity risk. Now, if it gets it gets less significant, but it's still larger.

56:31

Clearly, if you plan for for a short life, you're going to see secrets of return risk is far more uh substantial

56:38

than than longevity risk. All right, I think that's probably a

56:43

good place to stop. We do have some other questions that we weren't able to hit um you know around some complexity

56:48

around you know uh continuing to work or how PIA changes and so on. There are ways to do that in income lab. There are

56:54

lots of ways to enter uh social security information in income lab. We didn't show those here because

57:00

it's you know it's just basic data entry but you know any you know lots of ways

57:06

to to get to these estimates. We kind of skipped right to the right to the meat of it. But um if you're interested in

57:13

this tool, it's part of of income lab which has lots of other things to it. So just um you know reach out to our team

57:20

and you can get more information about it, a demo and and so on. And thank you everyone for uh for joining us today and

57:27

and thank you Johnny. Have a wonderful day everyone. Thank you. Bye-bye.