064 Christine Benz: Avoiding Blind Spots in Your Retirement Portfolio Planning

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welcome to

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fun with annuities with your host me

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stan

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the annuity man america's annuity agent

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absolutely they can

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find out the brutal facts about

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start right now

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[Music]

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welcome to fun with annuities the number

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one annuity podcast on the planet i'm

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your host stan the annuity man america's

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annuity agent i want to welcome

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everyone listening to us on the on all

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the podcast platforms and also remember

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i have two youtube channels one stan the

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annuity man

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youtube channel which has up to 400

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product videos that are very short and

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informative and non-salesy about

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annuity products and then this podcast

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fund with annuities has its own youtube

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channel which where

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you can go and and view the guest and

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myself interacting and the facial

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expressions and all that good stuff

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but i don't want to waste any time

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because today's guest

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is a true superstar her name is

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christine benz and let me tell you a

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little bit about her she is the director

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of personal finance for morningstar you

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know what morningstar is

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and a senior columnist for

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morningstar.com as well

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her primary focus is on retirement and

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portfolio planning for individual

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investors which is the reason that

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you're listening

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she's she also co-hosts a podcast for

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morningstar it's called the long view i

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encourage you to listen to that because

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they

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they bring in people and interview them

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you know thought leaders and

1:46
in the investing in personal finance

1:48
space a couple things about christine

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that you need to know in 2020 baron's

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named her

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to its inaugural list of the 100 most

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influential women in finance and she

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also appeared on that list in 2021 as

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well

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and and she's going to be on that list

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for infinity

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in 2021 barons also named her as one of

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the

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the 10 most influential women in wealth

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management you can just probably

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remove the women she's probably the one

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of the most ten influential people

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in wealth management she's also the

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author of a book

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called the 30 minute money solutions a

2:23
step-by-step guide to managing your

2:25
finances which i encourage you to read

2:27
she also co-authored a book called

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morningstar's guide to mutual funds

2:31
which is the five star strategies for

2:33
success

2:34
that's kind of the underlying title

2:36
which you know it's been a bestseller

2:38
since 2003 and she put out the second

2:40
edition and helped do that in 2005.

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pretty interesting background from an

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educational standpoint christine holds a

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bachelor's of education uh a bachelor's

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degree

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in political science and russian and

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east european studies from the

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university of illinois i think that's

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that's really fascinating she's also a

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board member of the john c

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bogle center for financial literacy and

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is also a member of what's called the

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alpha group which consists of the top

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thought leaders

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in wealth management across the country

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now when she has free time which it

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sounds like she doesn't have a ton but

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when she does

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she works with underprivileged women to

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improve their understanding of personal

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finance

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concepts which is fantastic now on my

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site at the annuityman.com we are going

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to have links

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to her archives that are on

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morningstar.com where you can read

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i mean she's a great writer you can read

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her stuff and we're also going to have a

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link to her podcast

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replays as well i could keep going i

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mean that i synopsized the bio

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believe me but i want to welcome

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christine benz to

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fun with annuities welcome christine

3:42
stan thank you so much gosh that was

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such a nice introduction i really

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appreciate

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it and i'm happy to be here today well

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you've earned it

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obviously so let's just jump right in um

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you know you're very very passionate

3:54
about

3:55
retirement portfolio planning what are

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some of the reasons that you're

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so passionate about that i know that you

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have told me that i

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i wrote them all down but i want you to

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tell the people why you know why this is

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such a driving force for you

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on a daily basis sure well i would start

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with saying that it's personal for me

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because

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i have helped older adults in my life

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through this process

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my parents my in-laws both

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my husbands and my dads have since

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passed away and my mom has passed away

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as well we still have my mother-in-law

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but i've helped them through this

4:29
process and through that

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really began to recognize

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that retirement decumulation is so much

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more complicated than it was

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a couple of decades ago certainly 30 or

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40 years ago where you have

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more and more people like myself who are

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retiring without the benefit of pensions

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more and more folks will be coming into

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retirement without a pension

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but then you also have this very low

4:56
yield environment

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and that has driven some retirees

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especially i would

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to generalize a little bit some of the

5:04
older retirees

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tend to gravitate to very income-centric

5:10
portfolios they quite reasonably want to

5:12
try to subsist

5:13
on whatever yield their portfolio kicks

5:16
off

5:17
the odd thing about that today is that

5:19
if you

5:20
or were to structure a portfolio

5:22
strictly for yield you end up with a

5:24
pretty risky

5:25
portfolio so there are the challenges of

5:27
the current environment

5:28
another reason i'm attracted to this

5:30
space is that i

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am involved in financial education

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generally and one thing i know

5:37
from having worked with various groups

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is that people

5:40
are receptive to learn at point of

5:43
purchase sort of when they have to make

5:45
a decision about something so

5:47
you know if it's a 401k investor if you

5:50
give them a little bit of information

5:52
about how to make a sane allocation

5:54
within a 401k plan they'll be good to go

5:57
and they'll listen

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to you same goes for retirees they need

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to figure this out

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if they are getting to retirement they

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need to figure out how to extract

6:07
cash flows from their portfolios they

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need to figure out how much they can

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safely

6:12
take out without overspending so they're

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incredibly receptive i speak to these

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groups

6:17
of retirees and they are so engaged

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there are no sleepers in the audience

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when i

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talk about retirement planning because

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they really have a need to know this

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information

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um and then i guess another reason why i

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like kind of being in the

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public space to talk about these issues

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is that i think that

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unfortunately there's a little bit of a

6:40
tendency in the financial services

6:41
industry to

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make things more complicated than they

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need to be

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and so i like being a voice

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of uh reason in terms of saying it

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doesn't have to be

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really complicated you can do this in a

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slightly

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simpler way so those are some of the

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highlights

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of why i like um being in this space and

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i guess just on another personal note

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um the i know that um

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cognitive decline is a major issue among

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older adults we had we experienced that

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with

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with my dad later in life and i was so

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happy that i was

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um his investment buddy during his

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later years and i was it was really

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pretty seamless for us where i was able

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to take over

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my parents investment plans i know a lot

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of older adults don't necessarily

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have that trusted adult child who

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understands investments

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so i like to do education about this

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and i like to help people create a plan

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that could effectively manage itself if

7:44
need be for a time or

7:46
you know for the rest of their lives so

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those are just just some of the

7:49
highlights of why i like to talk about

7:52
this area so much

7:54
when you say the word decumulation you

7:56
know we live in a world where we've been

7:58
taught

7:58
accumulation so when you say the word

8:00
decumulation

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i think a lot of people instinctively

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reflex because in essence what they're

8:06
what they

8:06
that says to them is my money is going

8:09
to decrease

8:11
do me a favor and do the do the the

8:14
listeners and viewers a favor

8:16
and tell them that decumulation is okay

8:18
and why

8:20
it is and um you know i i do think that

8:22
many retirees do have that reflexive

8:25
desire to

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not touch their principle to try to

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live off of yield but i guess that my

8:33
point is and

8:34
the philosophy that i bring to this is

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that if

8:37
you create the best possible portfolio

8:41
that you can with a sane mix of risk and

8:44
reward

8:44
characteristics that portfolio doesn't

8:47
know whether your withdrawals are coming

8:49
from

8:49
income or they're coming from selling

8:52
appreciated securities

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what matters is that you are not

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taking out too much and that you're also

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maintaining that portfolio's risk reward

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characteristics as the years go by

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that's really the name of the game and i

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wouldn't get overly hung up on

9:10
never touching principle because

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sometimes touching principle is actually

9:14
the right thing to do

9:15
so right now for example we've had this

9:18
tremendous

9:19
run in the equity market my view has

9:22
been

9:22
that if you're retired and you're

9:24
looking at what are still very low

9:26
yields today

9:27
your cash flows for at least the next

9:29
couple of years

9:31
are hiding in plain sight in terms of

9:33
harvesting some of those appreciated

9:35
equity

9:36
securities putting that money into safe

9:38
investments

9:40
probably cash short-term bonds but

9:42
essentially setting aside your cash

9:44
flows for the next couple of years

9:46
and simultaneously you are reducing risk

9:49
in your investment portfolio so my view

9:52
is

9:53
that it's perfectly okay to pull from

9:56
those appreciated positions in fact that

9:58
very much should be part of your

10:00
decumulation plan and you shouldn't

10:03
worry too much about doing so

10:05
if in the end you're able to

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maintain your portfolio and maintain a

10:11
sustainable withdrawal rate and make

10:13
sure that your money lasts

10:14
throughout your retirement years that's

10:16
a that's a great explanation

10:18
of de-accumulation because i think

10:19
that's almost a curse word with a lot of

10:21
people because they

10:22
they're they they were they remember

10:24
jimmy carter yields

10:25
you know and i always tell people you

10:27
know jimmy carter's building houses in

10:28
georgia hopefully hopefully he's still

10:29
alive

10:30
um at the time of this taping but um

10:33
you're not going to probably see those

10:34
yields anymore those those 12

10:36
cds so that's tough for people um even

10:39
though if you look at the

10:40
the 10-year treasury equivalent across

10:43
the globe we're still pretty high

10:45
but high high right now feels low right

10:47
from a yield standpoint

10:49
one of the i was doing some research on

10:51
your writings and it was fascinating

10:53
um you had a you had an article and i've

10:56
seen you speak on this on some of the

10:57
blind spots

10:59
that people um run into and people miss

11:02
when it comes to retirement

11:03
and i think this is so important because

11:05
you know with with over 10

11:07
000 baby boomers hitting the age of 65

11:09
every single day i mean it's a

11:11
demographic tidal wave that's what i

11:12
call it

11:13
right um what are some of these blind

11:15
spots that people

11:17
need to be aware of um and again you

11:19
don't have to write it down everybody

11:21
especially if you're driving or on that

11:22
treadmill i mean you're gonna we'll have

11:24
these replays up but but kind of go

11:26
through the blind spots i think

11:28
i was writing them down i think you had

11:29
around six you might have more can you

11:31
cover those

11:32
sure sure so um i have a presentation

11:35
that's kind of structured along these

11:36
lines and

11:37
um one of them that i start out the

11:40
presentation with

11:42
is retirement date risk and

11:45
i think that that's oftentimes not

11:47
discussed very much but the bottom line

11:49
is that

11:50
even though we might have this very what

11:52
we think is a very well conceived plan

11:54
of when we might

11:56
expect to retire

11:59
in reality when we look at the data and

12:01
my colleague david blanchett who i think

12:03
is kind of one of the leading lights in

12:04
retirement research has looked at

12:07
people's stated anticipated retirement

12:10
dates and when they actually retired

12:12
and what his research shows is that

12:14
we're not very good at this

12:16
we tend to overestimate our ability to

12:19
continue working or our desire

12:21
to continue working we we might say well

12:24
i plan to

12:24
you know retire when i'm 69 or something

12:26
like that when we look at the data we

12:29
see that there's a gap

12:30
that people often times are retiring

12:32
earlier

12:33
than they expected to and there are a

12:35
variety of reasons why this might be we

12:38
know that ageism

12:39
is a thing in the workplace you know

12:41
that older adults

12:43
sometimes encounter health issues or

12:45
their spouse encounters health issues

12:47
that makes it difficult for them to

12:49
continue

12:50
with their parents or their parents um

12:53
so a lot of different forces can work

12:56
against

12:57
your desire to work longer specifically

13:01
so we see that there's typically a gap

13:02
where people are often retiring

13:05
earlier than expected so that's kind of

13:08
a risk factor

13:09
for the size of the portfolio it depends

13:12
on the size of the portfolio but if you

13:14
are over withdrawing over a longer time

13:17
period

13:18
that is a risk factor so that's

13:21
one of the key blind spots that i would

13:25
point to and and to me that really

13:28
argues for thinking through well if i'm

13:30
not able to

13:32
continue working until that anticipated

13:35
retirement date what's my backup plan

13:38
what's my plan b

13:39
and i think it's worth while for all of

13:42
us

13:42
really through throughout our careers to

13:44
be thinking about well if this thing

13:47
if whatever i'm doing doesn't work for

13:48
me uh due to workplace issues or

13:51
lifestyle issues

13:52
or health issues could i continue

13:56
to earn some sort of income in the

13:59
meantime

14:00
and so i that is sort of a piece of

14:02
counsel that i would bring to this and

14:04
also just be aware that you don't have

14:06
as much control over that retirement

14:08
date as you might wish to believe you

14:10
have

14:10
so is there there are strategy or

14:13
strategies that

14:14
you would tell people to do specifically

14:16
if

14:17
and you covered it a little bit about

14:19
hey i'm going to retire at 69 or 65.

14:22
it's tough you know especially because

14:23
you don't know where markets are going

14:25
to go or interest rates are going to go

14:27
how do you advise people to be flexible

14:29
with that retirement date risk

14:31
planning well so i think thinking about

14:34
what your backup plan is certainly

14:36
nurturing

14:37
your human capital and making sure that

14:40
you are continuing to prove yourself

14:42
valuable to your organization

14:44
throughout your career i think we've all

14:47
especially those of us who are home

14:48
office workers

14:50
we've all sort of had a very quick ramp

14:53
up

14:54
into being savvy about all different

14:56
matters of technology that we

14:58
we've all had to be our own i.t staff i

15:00
think that's been great

15:02
so continuing to nurture your human

15:04
capital

15:05
also thinking hard about insurance

15:07
planning a real wild card is

15:10
in this is if you are pre-medicare and

15:13
somehow

15:14
separated from your employer-provided

15:16
healthcare earlier than you anticipated

15:18
right thinking through your plan for

15:20
that is

15:22
absolutely essential so those are some

15:24
of the key things from sort of a plan

15:27
aspect to to help protect yourself

15:32
one of the one of the risks and blind

15:34
spots was sequence of return

15:37
risk that you that you mentioned and

15:38
when people typically hear that

15:41
they've heard it before but can you

15:44
dumb it down always tell people you know

15:46
if you can't explain it to a

15:47
nine-year-old

15:48
no offense to nine-year-olds you either

15:50
shouldn't buy it or you know it's not

15:52
simplified enough simplified down

15:54
sequence of return risk for the people

15:56
out there that aren't really sure what

15:58
that

15:58
is right it's a concept that retirement

16:02
researchers call

16:03
talk about and basically the risk is

16:06
that you

16:07
may retire into a not so great market

16:11
environment

16:12
so when we think about the market

16:14
environment today what do we know well

16:16
we know that

16:16
yields are pretty low we've talked about

16:18
that a little bit we also know that

16:20
equity valuations because

16:22
we have had this long running bull

16:24
market equity

16:26
valuation stock prices aren't what they

16:28
once were

16:29
and so it's risky if you come into

16:32
retirement

16:33
and you do encounter a weak market

16:35
environment for whatever reason

16:37
inflation i think is

16:38
potentially a consideration today as

16:41
well

16:41
the risk is that if you over withdraw

16:45
during that period that the market is

16:47
down whether that's

16:49
you know six months or whether it's two

16:51
and a half years whatever

16:52
if you're taking too much from your

16:54
portfolio during that time

16:57
and that time occurs in the early years

16:59
of your retirement

17:00
well that leaves less of your portfolio

17:03
in place

17:04
to recover and to rebound when

17:07
stocks eventually do so it's a big risk

17:10
factor for new retirees

17:12
if you're an older retiree if you're

17:14
someone who is

17:15
80 and you've been retired 15 years well

17:18
guess what you've won

17:19
you have retired into a good market

17:21
environment it's the new retirees who i

17:24
think need to be cautious

17:26
and need to be thinking about well

17:27
what's my plan in that instance how do i

17:31
structure my plan so that i can protect

17:34
myself

17:34
against that possibility of retiring

17:37
into a weak market

17:39
and its sequence a return risk is

17:40
something you obviously can't control

17:42
similar to dovetailing into one of the

17:44
other blind spots which is

17:46
the the low yield environment that we're

17:48
in

17:49
that um a lot of the savers and the cd

17:51
buyers are

17:52
scratching their heads because the the

17:54
yield isn't there the coupons aren't

17:55
there

17:57
no one knows where interest rates are

17:59
going to go including christine ben

18:00
she'll be the first one to tell you that

18:02
she'll pound the table and tell you that

18:04
but what's your advice for people

18:06
in in a environment that's low and it

18:08
doesn't seem like

18:10
you know the government's painted

18:11
themselves into a little bit of a corner

18:12
printing all this money so raising

18:14
interest rates are going to raise

18:15
those payments on themselves so it'd be

18:17
like me and you raising our mortgage

18:18
rate right

18:19
what's your advice to people here

18:22
other than grin and barrett right what

18:25
is it

18:26
what do you tell people well i think it

18:28
it's worthwhile to rethink

18:30
why you hold safer assets in your

18:32
portfolio and why

18:34
you just sort of decide to

18:37
accept lower yields the the key reason

18:40
is that

18:41
yes cash and bon high quality bonds

18:45
are there to provide you with yield but

18:47
they're also there to be the ballast for

18:50
your equity portfolio they are there to

18:52
be the assets

18:54
that you could spend through if you come

18:57
come into retirement and you encounter a

18:59
weak equity market

19:01
you have set yourself up with safe

19:04
assets that you could spend through

19:06
before you need to touch the equity

19:09
assets

19:10
so i think we're sort of rethinking the

19:12
role

19:13
of safe assets that income production

19:16
is less of their value today that may

19:19
change in the future

19:20
right now their key value is safety

19:24
at and providing that cushion of some

19:27
of some sort of an equity market shock

19:30
so that would be my advice my advice

19:32
absolutely would be not to gravitate to

19:35
very high risk a high yield securities

19:39
as a big portion of your portfolio you

19:40
might have them around the margins

19:42
like five or ten percent in high yield

19:44
bonds or emerging markets bonds

19:46
but definitely not the main course

19:49
because what when we look at assets like

19:52
that whether junk bonds or

19:53
or emerging markets bonds what we see is

19:56
very equity like

19:57
performance we see them behave in

19:59
sympathy

20:00
with the equity market that's not what

20:02
you're going for for this portion of

20:03
your portfolio you're going for safety

20:05
and you have to

20:07
contend with and accept very low yields

20:10
on offer today

20:12
which leads us to the grill in the room

20:13
and your blind spot that you list

20:15
sometimes in your presentations as

20:16
number four which is inflation

20:18
yes um which people are very tuned into

20:22
because even though you hear government

20:25
officials sometimes say that there

20:26
really isn't inflation

20:28
if you're buying lumber and if you're

20:29
buying food and if you're buying gas and

20:31
you know you're saying wait a minute i

20:32
think there might be

20:35
obviously in the annuity world as you

20:37
know annuity companies don't give

20:38
inflation increases away they just

20:40
ratchet down the payments if you're

20:41
buying lifetime income

20:42
that doesn't mean it's good or bad but

20:44
that also means that

20:45
there's no perfect solution to inflation

20:48
just really bad sales pitches as i say

20:51
um what's your what's your thought and

20:54
advice for people to

20:56
think about address and and strategize

20:59
around inflation

21:01
yeah it's a huge question today stan and

21:04
a year ago i wouldn't have been

21:06
so concerned with it but we are

21:08
beginning to see inflation tick up and i

21:10
think

21:10
you know the big question is whether

21:12
this is just sort of a natural part of

21:14
this

21:14
emergence from the lockdown that we've

21:18
been in for the better part of a year

21:20
for more than a year but i think from a

21:23
retirement standpoint you think about

21:25
protecting against inflation in a few

21:27
different ways

21:28
first you think about your own spending

21:30
patterns and do a little bit of

21:33
research a little bit of reconnaissance

21:35
on what your spending

21:37
has looked like what categories you tend

21:40
to spend on

21:40
one thing we know about older adults is

21:42
that they spend

21:44
more on health care than the general

21:46
population

21:47
we have historically seen health care

21:50
inflation

21:51
rise at a faster clip than the general

21:54
inflation rate so take a

21:55
just take a close look at your spending

21:58
habits

21:59
in some areas you may be a loser like

22:01
healthcare

22:02
uh in other areas like energy

22:05
costs you may be a winner because you're

22:07
not commuting you're not driving as much

22:09
as you were

22:09
when you were working so kind of just

22:11
think about your spending

22:12
categories and then think about your

22:15
income

22:16
sources in retirement so if you are

22:20
you know on the really positive end of

22:22
the spectrum from the standpoint of

22:23
inflation and you have

22:25
sort of a pension that provides you

22:29
full inflation protection and that

22:32
pension is supplying you with all the

22:33
income

22:34
that you need well you're in great shape

22:36
and then at the other end of this

22:37
spectrum would be the retiree who

22:39
doesn't have any of those

22:41
inflation protected income sources and

22:44
has a really safe portfolio

22:46
that he or she is pulling from for all

22:48
of the income well that's someone who's

22:50
really vulnerable

22:52
because their purchasing power is just

22:53
going to be gobbled up by inflation

22:55
most of us in retirement fall somewhere

22:58
in between

22:59
those two polls where they we have some

23:02
inflation insulation if we're getting

23:04
social security for example

23:06
we might not agree that the little

23:08
increase that we get on our social

23:10
security benefit is sufficient but that

23:12
portion

23:13
of our income is inflation protected

23:16
it's really the portfolio that we need

23:19
to concern ourselves with to make sure

23:21
that that

23:22
portion of our withdrawals is in some

23:25
fashion insulated against

23:26
inflation so when we think about

23:28
protecting a portfolio against inflation

23:31
we think about a couple of key

23:32
categories

23:33
one would be to make sure that you have

23:37
stocks in your portfolio because even

23:39
though stocks aren't any sort of direct

23:41
hedge against inflation when we look at

23:43
the asset classes with the ability to

23:45
out earn

23:46
inflation over time stocks very much fit

23:49
the bill

23:50
whether they will do so over the next

23:52
couple of years or the next five years

23:54
open question but over longer time

23:56
periods we see a pretty good ability for

23:59
stocks to beat

24:00
inflation so you want to make sure you

24:01
have stocks but on the fixed income side

24:04
i think it's also worth looking at

24:06
a category called treasury inflation

24:09
protected securities or

24:10
sometimes called tips and tips are

24:13
issued by the treasury

24:15
but they have a little bit of spin on

24:17
the ball in terms of

24:18
offering an inflation adjustment to your

24:21
principal value

24:22
which in terms of turn affects your

24:24
yield when

24:26
inflation trends up so

24:29
my colleagues at morningstar investment

24:31
management put together

24:33
asset allocation programs within a

24:37
person's fixed income allocation they

24:39
typically recommend

24:40
a retired person's fixed income

24:42
allocation they typically recommend

24:44
like a 20 to 30 percent allocation to

24:47
treasury inflation protected securities

24:50
the idea is that you are

24:52
protecting the purchasing power on on

24:55
that portion of your portfolio

24:57
some retirees might say well why not

24:59
just have my whole fixed income

25:00
allocation and tips

25:02
well the risk is that that's not very

25:04
diversified

25:06
so even though treasury bonds and

25:08
treasury inflation-protected securities

25:10
are the most credit-worthy

25:12
bonds that you can find they

25:15
tend to be somewhat interest rate

25:17
sensitive so

25:18
you'd probably want to diversify to

25:20
include some

25:21
corporate bonds some agency-backed bonds

25:24
some other

25:25
securities to ensure that your portfolio

25:28
your fixed income portfolio is a little

25:30
bit better diversified but those are

25:32
some of the key asset classes i would

25:34
think about

25:35
some of the other asset classes that

25:37
people might add would

25:38
would include things like commodities or

25:40
commodities

25:42
tracking exchange traded funds precious

25:45
metals

25:45
either an etf like gld

25:50
or perhaps some of the precious metals

25:53
mining

25:54
companies and here i would recommend

25:55
owning some type of a mutual fund or an

25:57
etf exchange traded fund that does this

26:00
and finally real estate

26:02
i think is another asset class that

26:04
historically

26:05
has shown some ability to protect

26:08
against inflation and the reason is

26:09
pretty intuitive

26:11
that when rates are increasing

26:14
and as a reit owner you're able to

26:16
participate and benefit from that

26:18
well that's also the time when inflation

26:21
is typically

26:22
running up broadly so those are some

26:24
sort of non-core

26:25
assets that i might think about but

26:28
again keeping them to very small

26:29
positions because they're quite

26:31
volatile as standalone holdings you

26:34
definitely don't want to have

26:36
giant positions in a category like

26:39
commodities or precious metals

26:41
it's all about allocation and proportion

26:43
and then you you preach that with your

26:45
your writings and what you've done for

26:48
for decades

26:49
at morningstar one of the kind of the

26:50
new gorillas in the room and i read a

26:52
couple of recent articles that you

26:54
have have written on this topic is

26:57
health care and long-term care and

26:59
obviously

27:00
again the demographic tidal wave of

27:01
people hitting age 65 and

27:03
and we're living longer etc

27:07
tell tell people why this is important

27:09
why long-term care coverage and that

27:11
transfer of

27:12
risk type coverage they should be

27:14
looking at

27:15
why why should they do that such an

27:17
important topic stan and

27:20
i'll just start with talking about

27:21
health care expenses in retirement more

27:24
broadly

27:24
fidelity annually puts out these

27:28
estimates of what a 65 year old couple

27:32
who is retiring will spend over

27:35
i i believe it's like a 25 or 30 year

27:38
period

27:39
and the most recent information that i

27:41
saw was roughly 300

27:43
000 so these are various premiums that

27:47
they're paying these are out of pocket

27:49
expenses and so forth so even after

27:52
you're covered by medicare you still

27:53
have some health care costs

27:55
and what we see when we look at those

27:57
health care costs is that they're not

27:58
linear they're not the same year by year

28:00
they tend to trend up later in

28:03
retirement so fidelity's three hundred

28:05
thousand dollar estimate does not

28:07
include

28:07
long-term care costs that's just all the

28:09
other stuff that

28:11
um people pay so i think it's worth

28:13
staying mindful about

28:15
those costs and certainly making sure

28:17
that you are incorporating them

28:19
into your budget and into your spending

28:21
plan but also recognize that there's

28:23
tremendous variability

28:25
in those costs so giving some hard

28:28
thought to

28:29
what your health situation is what your

28:31
spouse's health situation is

28:34
where you live is a big determinant of

28:36
your out-of-pocket health care outlays

28:38
so

28:39
if you live in a high-cost part of the

28:41
country if you live in

28:42
chicago or la or some other city where

28:45
height where

28:46
costs are high at large you'll pay more

28:48
for health care

28:50
if you live in a less urban area you'll

28:52
tend to pay

28:53
less so give some thought to that make

28:55
sure you're factoring it into your

28:56
budget

28:57
also long-term care is

29:00
the real wild card in my view for many

29:03
retirement plans in fact when i'm out

29:05
speaking

29:06
if there is a topic that will send the

29:08
room up for grabs because it gives

29:10
people so much angst

29:12
it's this people wonder how to contend

29:15
with long-term care costs so these are

29:17
costs that are not covered by

29:19
medicare they are costs that many older

29:22
adults incur

29:24
if they encounter cognitive decline or

29:26
even if they just simply start needing

29:28
help around the home

29:30
to make meals or whatever it might be

29:34
um to you know to help them shower a lot

29:37
of um

29:38
situations can occur the idea is that

29:41
these costs are not

29:43
going to be covered by medicare nor will

29:45
they be covered by your supplemental

29:47
policy that you may have purchased

29:49
right you need to create a plan for what

29:52
these long-term care costs might be and

29:54
also how you might contend with them

29:57
and so it's super tricky because

30:00
i often speak to retirees who thought

30:02
they were doing exactly the right thing

30:05
by purchasing long-term care insurance

30:07
and what we've seen is that the

30:09
marketplace is pretty troubled

30:11
that unfortunately these policies that

30:13
were priced 20 years ago

30:15
did not adequately incorporate long-term

30:18
care usage

30:20
and they didn't incorporate this very

30:23
low yield environment that we find

30:25
ourselves in which has afflicted

30:27
insurance companies as well because they

30:29
can't really earn much on the premiums

30:31
that they've been able to take in

30:33
if they want to be able to make

30:36
make their policy payments so

30:41
that's the the troubling part of this

30:43
the easy answer

30:44
20 years ago might have been to

30:47
purchase some sort of a long-term care

30:49
policy people have seen their premiums

30:51
really increase to account for the fact

30:54
that it's a pretty troubled marketplace

30:56
so i would really um when thinking about

30:59
this when approaching this risk

31:01
i would kind of think about my own

31:03
situation and sort myself

31:05
into one of three groupings so for

31:08
people who don't have a lot in

31:10
retirement assets they will probably

31:13
to the extent that they have long-term

31:15
care needs they will be

31:17
covered by medicaid and medicaid is the

31:20
largest payer

31:21
of long-term care expenses in the us

31:24
many people end up

31:25
needing medicaid provided care so for

31:29
people without a lot of wealth that will

31:32
be there

31:34
be their strategy that they probably

31:36
shouldn't

31:37
overly worry about it now it's worth

31:39
mentioning that you need to

31:41
essentially deplete most of your assets

31:45
which could leave

31:46
your spouse needing some sort of

31:49
financial assistance in the meantime but

31:51
that's sort of that group

31:53
and then at the other extreme would be

31:55
very wealthy people who

31:57
you know when they look at their

31:58
portfolios they have more than enough

32:00
to last during their lifetimes and they

32:02
can also

32:03
cover an extended long-term care need

32:06
comfortably

32:07
out of their assets i'm sometimes asked

32:10
well

32:10
how much asked how much would i need to

32:13
have

32:14
in assets to put me in this other area

32:16
where i'm self-funding

32:18
long-term care expenses and my point is

32:21
i can't tell you that i can't tell you a

32:23
dollar amount because i don't know what

32:25
you're spending from your portfolio

32:26
right

32:27
if you have you know a two million

32:29
dollar portfolio but you are spending

32:33
too heavily from it well you probably

32:35
should have

32:36
long-term care insurance so um

32:40
get some guidance on that if you're a

32:41
higher net worth

32:43
person with a sizable portfolio make

32:46
sure that you

32:47
do have adequate assets to self-fund

32:50
long-term care and then

32:51
my view is if you have determined that

32:54
you have enough

32:55
go ahead and segregate those assets from

32:57
your spendable assets to ensure that

32:59
you're not considering them part of your

33:02
spending plan if you're a young retiree

33:04
and that's your plan to self-fund

33:06
long-term care

33:07
segregate those assets you'd probably

33:10
want to invest them pretty aggressively

33:12
because the chance of having a long-term

33:14
care need earlier in in your life is

33:17
pretty low

33:19
and then that middle group is the the

33:22
group who i think is the best

33:24
uh candidate for some sort of insurance

33:27
product to help insure against this risk

33:30
you can still buy

33:31
long-term care policies but increasingly

33:34
what have come on strong are these

33:36
hybrid asset based yeah they call them

33:39
asset based coverage yes

33:41
yes which stan you know more about these

33:43
types of products than i do but

33:45
it's typically either a life insurance

33:47
policy or an annuity with a long-term

33:50
care rider

33:51
bolted on and those can be attractive

33:55
options

33:55
especially in my opinion for people who

33:58
had

33:58
life insurance and they had that need to

34:01
protect their dependents

34:03
when their dependents were younger but

34:05
if they're older and they've accumulated

34:07
sufficient assets

34:09
life insurance may no longer be a big

34:12
concern for them

34:14
um but they can switch into one of these

34:17
asset based

34:18
policies to to help protect themselves

34:21
and they can do what's called a 1035

34:23
exchange get some tax guidance on this

34:26
before embarking on this but

34:28
um these policies these products can be

34:31
pretty interesting

34:32
in some situations maybe not perfect but

34:36
something to consider and something to

34:38
get some unbiased

34:39
advice about um you would definitely

34:43
want to engage the services

34:45
of some sort of a financial planner or

34:48
advisor who is not

34:49
selling these products to help assist

34:52
you in in doing your due diligence

34:54
because the products can be a little

34:55
complicated in my experience they

34:58
certainly can we had a um

35:00
i had a guest on recently his name is

35:01
jack lonenberg he's arguably the top

35:03
long-term care expert in the country

35:05
he's also a lawyer as a background

35:07
but he talked about these asset based

35:10
long-term care solutions

35:11
which covers the biggest fear for most

35:14
people which is

35:15
what if i don't use the money what if i

35:16
don't use the coverage these asset-based

35:18
policies

35:20
protect the principal which would go to

35:22
your beneficiaries if you didn't use it

35:24
which is the biggest fear of traditional

35:26
long-term care which is i pay and i pay

35:27
in a pan

35:29
and it's you know it goes poof when i

35:30
die with these newer policies

35:33
um you know that that circumvents and

35:36
gets rid of that fear

35:37
even though you have the coverage so you

35:39
know uh i would encourage people if

35:41
you can go to my site at the

35:42
annuityman.com and re and re-listen to

35:44
that podcast with jack lennenberg

35:46
because he's going to dovetail what

35:47
christine's talking about but go into

35:49
detail about

35:50
those specific products which leads me

35:52
to the the sixth blind spot which

35:55
which is where annuities can fit in

35:56
because they're the only product

35:58
on the planet that can provide lifetime

36:00
income and it's a it's a blind spot that

36:02
you talk about it's called longevity

36:03
risk can you go into that

36:06
yeah you know this is a good news story

36:08
in so many ways

36:10
that we see life expectancy gains

36:13
especially among

36:14
higher income adults right um

36:17
where you know the the probability of

36:20
if you're part of a married couple the

36:22
probability of one of you making it to

36:24
age 95

36:26
is uh is quite high i don't know off the

36:28
top of my head specifically what it is

36:31
i think it's one in three um and when

36:34
you

36:34
further sort of subdivide that group by

36:38
higher income adults we unfortunately in

36:40
my opinion we see

36:42
longevity very much correlated with

36:44
level of wealth

36:46
and so we do know that higher income

36:48
higher net worth

36:49
people tend to live longer so you need

36:52
to protect yourself

36:54
against that possibility um and there

36:57
are a few different

36:58
ways to do that i would say that right

37:00
out of the box if you're thinking about

37:01
doing that

37:03
you want to make sure that your money

37:04
lasts well you certainly want to make

37:06
sure that you are

37:08
looking at non-portfolio income sources

37:11
with an eye to maximizing those lifetime

37:14
payouts so at the top of the list would

37:16
be to

37:18
make sure that you're making smart

37:19
decisions about social security claiming

37:21
and stan i don't know if you agree with

37:22
this assertion but

37:24
i believe that that should really be job

37:26
one before you look at an annuity just

37:28
to make sure that you are

37:30
getting i agree i agree and the reason i

37:33
agree with that just to interject real

37:34
quick is people always say well i hate

37:36
all annuities and i say well you already

37:38
own one

37:39
right and it's the best inflation

37:40
annuity on the planet

37:42
and they go no i'll never own an annuity

37:43
and social security so i

37:45
totally agree that that's the

37:47
foundational annuity

37:49
that you need to make the best decision

37:51
on

37:52
and seek someone out not an agent or

37:54
advisor but someone who really

37:55
specializes

37:56
in social security type planning so that

38:00
you can make that decision for your

38:01
situation because there's no perfect

38:02
answer across the board

38:04
it's customizable to what you're trying

38:06
to do and achieve i would think

38:07
absolutely and if you're part of a

38:09
married couple i think that decision

38:11
making is even more

38:12
important one free tool i would note

38:15
stan

38:16
is from my friend mike piper who has a

38:19
website called

38:20
open social security it's a free website

38:23
there

38:23
there's been kind of a cottage industry

38:25
in these social security calculators

38:27
mike's is all uh free and it's very

38:30
rigorous mike is

38:32
a um a cpa and a social security expert

38:36
so i would urge your listeners to give

38:38
that tool a trial run

38:40
because it's an absolutely terrific tool

38:42
and it helps you

38:43
include different variables that you

38:45
don't necessarily see everywhere so you

38:47
can haircut your potential benefits

38:50
if you're a younger person for example

38:52
and you're worried while there might be

38:53
changes

38:54
to social security down the line you can

38:56
factor that in

38:58
you can also use different um

39:01
different actuarial tables that factor

39:04
in

39:04
different health situations so if you

39:07
think that you will be an especially

39:09
long-lived

39:10
retirees you can take a look at that so

39:12
i would urge people to check that out

39:13
what's that site again

39:15
it's called open social security

39:18
security open social security.com i

39:21
guess

39:22
yes i believe so okay good um we'll list

39:25
that on our on our site as well

39:27
but getting back to longevity and that

39:29
longevity risk you know social security

39:30
big one you gotta

39:31
plan for and and what i call this is the

39:34
income floor what is your income for

39:36
what is the money that's coming into

39:37
your account

39:38
that's gonna hit every single month to

39:40
that will take care of you in what i

39:41
call

39:42
chapter two of your life um you know

39:44
chapter chapter one is accumulation

39:46
chapter two is

39:46
decumulation and going and living your

39:48
lifestyle um

39:51
where do you see annuities get a really

39:53
bad rap but

39:55
they are the only product that can um

39:58
provide income as long as you're

39:59
breathing

40:00
and i've seen you speak upon about

40:02
immediate annuities and the sister

40:03
product deferred income annuities and

40:05
also q lacks which are deferred income

40:07
annuities for iras

40:09
do you encourage people to look at those

40:12
and it's okay if you say you don't

40:14
because annuities aren't for everybody

40:15
i'm the first one to say that

40:17
how does that how does those those

40:20
transfer of risk lifetime income

40:21
products

40:22
fit into your um portfolio planning

40:25
yeah i i do think that an annuity can be

40:29
a good

40:29
fit for someone who has taken the steps

40:32
to

40:33
look at what social security will pay

40:34
them and

40:36
to the extent that there's a gap in

40:38
terms of fulfilling their basic living

40:40
expenses

40:42
i think that an annuity can be perfectly

40:44
appropriate

40:46
unfortunately as as you know better than

40:48
anyone stan annuities

40:50
are incredibly complicated it's uh we

40:53
were doing our podcast with carrie

40:55
pector

40:56
who uh had a retirement income journal

40:58
sure and kerry said

41:00
yeah he made the point that you know

41:02
that the word annuity is almost

41:05
useless because the products under the

41:07
annuity umbrella

41:09
are so incredibly varied there's many of

41:12
them

41:12
yeah you can't say you hate all

41:13
annuities unless you want to say i hate

41:15
all restaurants

41:16
because it just um there's so many types

41:20
uh the annuity industry has done a very

41:21
poor job of um

41:23
of explaining what they are and what

41:25
they can do and what they solve for

41:27
primarily it's either principal

41:29
protection or or

41:30
income for life one of those two i can

41:33
solve for

41:34
for legacy and long-term care my acronym

41:36
i use is pill

41:37
you know principal protection income for

41:38
life legacy and long-term care

41:40
and if you don't if you if you don't

41:42
want to solve for any of those four then

41:43
you don't need an annuity so that's

41:45
kind of my mantra i do want to talk

41:47
about you were mentioning

41:48
recent we're on the phone and you were

41:50
mentioning there's a um

41:52
there's a research team you're a part of

41:53
there's four of you um and it's

41:55
primarily

41:56
revolving around portfolio structuring

42:00
tell us about that that uh that locked

42:02
room that you guys are sitting in and

42:04
what you guys are working on because

42:05
that sounds fascinating that

42:07
for the brightest people on the planet

42:09
in this in this space

42:11
are talking about portfolio structure

42:13
and what are you working on

42:15
yeah it's really fun we just started

42:17
this team at the beginning of january

42:19
and um it's several of my long time

42:22
morning star colleagues

42:24
and the idea is that in morningstar we

42:26
have these deep teams that are

42:28
associated with doing individual

42:31
security research

42:32
so we've got a team of mutual fund

42:34
researchers etf

42:35
researchers we've got a big stock

42:37
research team

42:39
we have fewer people working on

42:42
financial planning matters

42:44
retirement planning portfolio planning

42:46
matters

42:47
and it's a very rich territory and we

42:49
also find that the

42:52
community the community of financial

42:54
advisors and individual investors and to

42:56
some extent the institutional community

42:59
really needs the help in some of these

43:01
areas i think that we have

43:03
a lot of financial advisors who came of

43:06
age in an environment where

43:08
their secret sauce was how do i put

43:10
together an

43:11
investment portfolio and you know what

43:14
are the specific investments i choose

43:16
for my clients

43:17
many advisors are recognizing that yes

43:20
perhaps i can add value there

43:22
but there are all these other areas

43:24
where

43:25
i might add add value as well so

43:28
internally we've kind of called them

43:29
gamma factors so there's alpha beta and

43:32
there's

43:32
gamma where those are the all the other

43:35
levers that you have

43:37
to improve your plan's outcome

43:40
so those would be things like smart

43:43
social security decision making

43:45
uh how to asset allocate for

43:49
retirement what's a safe withdrawal rate

43:51
in retirement so we feel like we have

43:54
a very broad tool kit which is a little

43:56
overwhelming but also super fun

43:58
and um an example of the some of the

44:01
research we've been working on

44:03
in the first quarter we put out a

44:04
research paper that examined the

44:06
correlations among various

44:09
asset classes and what we concluded was

44:11
that asset

44:13
correlations have trended up over the

44:15
past couple of decades that we're seeing

44:19
assets that historically had behaved

44:21
differently come

44:22
closer together so an example would be

44:25
real estate equities reits we've noted

44:28
that

44:29
when we look at correlations with the

44:30
broad equity market they've come

44:32
more closely aligned and so um

44:36
the paper concluded that there are a few

44:39
asset classes that still

44:40
do provide really good balance for

44:42
equities it comes down to treasury

44:45
bonds really across the interest rate

44:47
spectrum and cash

44:49
those two assets generally if you're

44:51
looking for something that will zig when

44:53
your

44:53
stocks zag you probably want to

44:57
ensure that your portfolio includes cash

45:00
and treasury bonds so those are the

45:03
kinds of projects

45:04
that we're we're working on we have um

45:07
also been toiling in the retirement

45:08
income space and you'll see some

45:10
research from us

45:11
uh forthcoming on that topic as well

45:15
last topic that i want to cover with you

45:17
it's been fantastic

45:18
for i mean my listeners are just i'm

45:20
going to get all the love emails and

45:22
i'll just forward them to you

45:23
but uh i mean i mean it's been great i

45:26
hope to have you on again but i wanted

45:28
to talk

45:28
to you about your bucket approach and

45:31
bucket approach

45:32
um investing and portfolio um uh

45:35
the way you put together a portfolio

45:37
this is nothing new okay but the bucket

45:39
approach

45:40
it's been used excuse my french it's

45:43
been bastardized it's been

45:45
it's it's been improperly shown can you

45:47
explain to people the bucket approach

45:49
and how it might

45:50
help them with their planning yeah

45:53
thanks for that question stan

45:55
i always say i did not invent the bucket

45:57
approach the strategy

45:59
um really came on my radar i was talking

46:02
to harold avensky

46:03
who is a retirement um person

46:06
and uh professed and his wife dana katz

46:10
exactly yeah they're fantastic he's out

46:12
of texas tech university that's where he

46:14
faces

46:15
his program um but harold avinsky is is

46:18
a

46:18
thought leader not to interject too much

46:20
on just retirement planning as a whole

46:22
he's kind of the godfather a little bit

46:24
yes

46:25
and um you know but but christine's

46:27
sitting pretty close toward him

46:29
i don't know but yeah but but go go

46:31
ahead with that

46:32
yeah so i i was talking to harold um

46:35
gosh it must have been close to

46:37
12 years ago or so and i was asking him

46:40
i was thinking very much about

46:42
this yield issue the fact that yields

46:44
then were pretty low too

46:45
so just talking to him about all the

46:48
dimensions of how he crafts his clients

46:50
portfolios

46:51
and i asked him that question about well

46:54
like

46:54
how how do you do it and how do you keep

46:57
your clients

46:58
comfortable with portfolios today that

47:01
or back then that should include healthy

47:04
allocations to equities

47:06
and his comment was that well i use this

47:08
kind of bucket system and i know

47:10
harold has evolved a little bit on this

47:11
view over the years but

47:13
basically he said he took one to two

47:16
years

47:16
of his clients cash flow needs and held

47:19
it in cash

47:20
alongside the total return balanced

47:23
portfolio

47:24
that he was running for them and what he

47:26
said was that

47:27
he found that it gave his clients an

47:30
incredible amount of peace of mind

47:32
to sit tight with a long-term portfolio

47:35
knowing that they knew

47:37
that their cash flows for the next

47:39
couple of years were pretty much

47:41
secured and he said sometimes he would

47:44
call his clients on the markets down

47:46
days and ask

47:47
well how are you feeling about this big

47:50
market shock

47:50
and basically his clients would say no

47:52
i'm okay because i've got this

47:55
cash buffer this bucket and so a light

47:58
bulb went off in my head because i you

48:00
know i'm

48:01
so attuned to the behavioral aspects of

48:03
all of this you know if we

48:05
optimize a retirement plan but people

48:07
can't live with it and it makes them

48:09
uncomfortable well that's not worth

48:11
anything

48:12
we want the plan that people will be

48:13
able to live with and be comfortable

48:15
with

48:16
and so harold made the point that doing

48:18
this

48:19
gives the clients peace of mind so

48:22
that's really um

48:23
led me to provide guidance on how you

48:26
might

48:27
sort of incorporate this bucket system

48:29
into your own plan

48:30
and the way i think about it is that

48:32
you're using

48:33
maybe two years worth of anticipated

48:36
portfolio withdrawals and you're holding

48:38
that money

48:39
in cash investments and then from there

48:43
you're stepping out on the risk spectrum

48:45
so you're holding high quality fixed

48:48
income

48:48
investments with the next bucket so your

48:51
cash buckets bucket one

48:53
bucket two would be sort of your high

48:54
quality bond bucket

48:56
and that's holding maybe another five to

48:58
eight years worth of portfolio

49:00
withdrawals and with those two buckets

49:04
you've effectively built yourself a

49:06
bulwark

49:07
that you could spend through if

49:10
you were talking about sequence of

49:12
return risk if you're one of those

49:14
retirees who walks headlong into a

49:16
really bad equity market

49:18
yeah well with your buckets one and two

49:20
you've given yourself

49:21
a set of assets that you could spend

49:23
through and maybe not have

49:26
to touch your equity holdings for

49:28
another 10 years which should give them

49:31
the opportunity to recover so that's

49:34
kind of the basic structure i know that

49:36
there are a lot of different

49:37
variations but that's how i approach it

49:40
and i think it's kind of an intuitive

49:42
way

49:43
to visualize what a sane asset

49:46
allocation for retirement might look

49:48
like

49:49
and it's also just a way to build

49:51
yourself a portfolio that

49:53
you could live with and that would give

49:56
you peace of mind to

49:58
stick with it to stick with the

49:59
long-term investments

50:01
through various forms of volatility that

50:04
might materialize

50:07
i'm going to tell you this has been this

50:09
has been a great conversation i know my

50:11
listeners and viewers have enjoyed it as

50:13
well remember who this is if you don't

50:14
already know christine ben

50:16
she's the director of personal finance

50:18
for morningstar and a senior columnist

50:21
at morningstar.com we're going to have

50:23
her

50:24
links to her archives on my site we're

50:26
going to have the links to her podcast

50:27
recordings on my site

50:29
and i encourage you to start following

50:30
her following her if you don't already

50:33
um christine thank you so much for being

50:36
here any any final thoughts for the

50:38
the retirees pre-retirees or post

50:41
retirees that are tuning in

50:44
well one thing i always like to say stan

50:47
is as much as i like to help counsel the

50:50
diy

50:51
type investors people who have done you

50:54
know their own portfolio plans

50:56
i would say this is an area where it

50:58
really helps to get some help

51:00
get at least a second set of eyes

51:03
on your plan to make sure you're just

51:05
thinking through

51:07
your own situation and it may not be

51:10
that you are

51:11
you know engaging with an advisor where

51:14
you have to pay him or her forever but

51:16
at least

51:17
get a second set of eyes on that plan to

51:19
make sure that you're thinking

51:21
things through and the other nice thing

51:23
about engaging some sort of a

51:24
professional either on a short term or a

51:26
long term basis

51:27
is that you are building in kind of a

51:31
backup plan

51:32
that if something should happen to you

51:34
there is someone

51:36
somewhere who knows kind of the broad

51:38
contours

51:39
of whatever plan you were using i'm a

51:42
big evangelist for this idea of

51:44
getting a little bit of help with your

51:47
plan even though you're very engaged and

51:49
you know might consider yourself very

51:51
savvy about these matters do

51:52
just get another set of eyes on the plan

51:55
sage advice from an

51:56
absolute financial advice superstar

52:00
and recognize financial advice superstar

52:02
miss christine vince thanks for

52:04
joining us i really appreciate it it's

52:05
been it's been an honor and a privilege

52:07
and

52:07
hope you can join us again soon uh on

52:10
the number one annuity podcast on the

52:12
planet and we will see all of you next

52:14
week on all major podcast platforms

52:17
and on the fun with annuities youtube

52:18
channel thanks again christine benz

52:25
thanks for listening to fun with

52:27
annuities please hit the subscribe

52:29
button and make sure to go to my site

52:31
at the annuityman.com where you can run

52:34
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52:34
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52:50
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52:50
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52:53
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52:55
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52:57
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52:59
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53:01
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53:02
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53:05
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53:07
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53:09
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53:12
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53:30
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