Christine Benz: Avoiding Blind Spots in Your Retirement Portfolio Planning (TAM Classic)

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welcome to fund with annuities where

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[Music]

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it welcome to fun with annuities the

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number one annuity podcast on the planet

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I'm your host Stan the annuity man

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America's annuity agent I want to

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welcome everyone listening to us on the

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go and and view the guest and myself

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interacting and the facial expressions

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and all that good stuff but I don't want

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to waste any time because today's guest

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is a true Superstar her name is

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Christine BS and let me tell you a

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little bit about her she is the director

1:08
of personal finance for Morningstar you

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know what who Morning Star is and a

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senior columnist for morningstar.com as

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well her primary focus is on retirement

1:18
and portfolio planning for individual

1:19
investors which is the reason that

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you're listening uh she's she also

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co-host a podcast for Morning Star it's

1:26
called The Long View I encourage you to

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listen to that because they they bring

1:30
in people and interview them you know

1:32
thought leaders and in the investing and

1:34
personal finance space couple things

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about Christine that you need to know in

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2020 baren named her to its inaugural

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list of the 100 most influential women

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in finance and she also appeared on that

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list in 20121 as well and and she's G to

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be on that list for

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Infinity in 2021 Baron's also named her

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as one of the the the 10 most

1:55
influential women in wealth management

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you can just probably remove the women

1:59
she's proba probably the one of the most

2:00
10 influential people in wealth

2:03
management she's Al also the author of a

2:05
book called the 30 minute money

2:08
Solutions a step-by-step guide to

2:10
managing your finances which I encourage

2:12
you to read she also co-authored a book

2:14
called morning Stars guide to mutual

2:16
funds which is the five star strategies

2:18
for success that's kind of the

2:20
underlying title which you know it's

2:22
been a bestseller since 2003 and she put

2:24
out the second edition and helped do

2:25
that in 2005 pretty interesting

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background from an educational

2:29
standpoint Christine holds a b a

2:30
Bachelor's of Education uh a bachelor's

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degree in political science in Russian

2:35
and East European studies from the

2:36
University of Illinois I think that's

2:38
that's really fascinating she's also a

2:40
board member of the John C Bogel Center

2:42
for financial literacy and is also a

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member of What's called the alpha Group

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which consists of the top thought

2:47
leaders in wealth management uh across

2:50
the country now when she has free time

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which it sounds like she doesn't have a

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ton but when she does she works with

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underprivileged women to improve their

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understanding of personal finance

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Concepts which is fantastic now on my

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site at the annuity man.com we are going

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to have links to her archives that are

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on morning star.com where you can read I

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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 replays as well I

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could keep going I mean that I

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synopsized the bio believe me but I want

3:20
to welcome Christine Ben to fun with

3:22
annuities welcome Christine Stan thank

3:25
you so much gosh that was such a nice

3:27
introduction I really appreciate it and

3:28
I'm happy to be here today well you've

3:30
earned it obviously so let's just jump

3:33
right in um you know you're very very

3:35
passionate about um retirement portfolio

3:39
planning what are some of the reasons

3:41
that you're so passionate about that I

3:43
know that you have told me that I I

3:44
wrote them all down but I want you to

3:46
tell the people why you know why this is

3:48
such a driving force for you on a daily

3:50
basis sure well I would start with

3:53
saying that it's personal for me because

3:55
I have helped older adults in my life

3:58
through this process my parents my

4:01
in-laws um both my husbands and my dads

4:04
have since passed away and and my mom

4:06
has passed away as well we still have my

4:07
mother-in-law but I've helped them

4:09
through this process and through that

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really began to

4:13
recognize that retirement decumulation

4:16
is so much more complicated than it was

4:19
a couple of decades ago certainly 30 or

4:22
40 years ago where you have more and

4:24
more people like myself who are retiring

4:27
without the benefit of Pensions more and

4:30
more uh folks will be coming into

4:32
retirement without a pension but then

4:34
you also have this very low yield

4:36
environment and that has driven some

4:39
retirees especially I would to

4:42
generalize a little bit some of the

4:43
older

4:44
retirees tend to gravitate to very

4:47
income Centric portfolios they quite

4:50
reasonably want to try to subsist on

4:52
whatever yield their portfolio kicks off

4:56
the odd thing about that today is that

4:58
if you are we to structure a portfolio

5:00
strictly for yield you end up with a

5:02
pretty risky portfolio so there are the

5:04
challenges of the current environment

5:07
another reason I'm attracted to this

5:08
space is that I am involved in financial

5:12
education generally and one thing I know

5:15
from having worked with various groups

5:17
is that people are receptive to learn at

5:20
point of purchase sort of when they have

5:22
to make a decision about something so

5:25
you know if it's a 401k investor if you

5:27
give them a little bit of information

5:29
about how to make a sane allocation

5:31
within a 401k plan they'll be good to go

5:34
and they'll listen to you same goes for

5:36
retirees they need to figure this out if

5:39
they are getting to retirement they need

5:42
to figure out how to extract cash flows

5:44
from their portfolios they need to

5:46
figure out how much they can safely take

5:48
out without overspending so they're

5:50
incredibly receptive I speak to these

5:52
groups of retirees and they are so

5:55
engaged there are no sleepers in the

5:57
audience when I talk about retirement

6:00
planning because they really have a need

6:02
to know this information um and then I

6:05
guess another reason why I like kind of

6:07
being in the um public space to talk

6:11
about these issues is that I think that

6:14
unfortunately there's a little bit of a

6:15
tendency in the financial services

6:17
industry to make things more complicated

6:20
than they need to be and so I like being

6:23
a voice of uh reason in terms of saying

6:27
it doesn't have to be really complicated

6:29
you can do this in a slightly simpler

6:31
way so those are some of the highlights

6:34
of why I like um being in this space and

6:37
I guess just on another personal note um

6:40
the I know that um cognitive decline is

6:43
a major issue among older adults we had

6:46
we experienced that with with my dad

6:48
later in life and I was so happy that I

6:50
was um his investment buddy during his

6:54
later years and I was it was really

6:56
pretty seamless for us where I was able

6:58
to take over my parents investment plans

7:00
I know a lot of older adults don't

7:02
necessarily have that trusted adult

7:05
child who understands Investments so I

7:08
like to do education about this and I

7:10
like to help people create a a plan that

7:14
could effectively manage itself if need

7:17
be for a time or you know for the rest

7:19
of their lives so those are just just

7:21
some of the highlights of why I like to

7:24
talk about this area so

7:25
much when you say the word decumulation

7:28
you know we live in world where we've

7:30
been taught accumulation So when you say

7:32
the word decumulation I think a lot of

7:35
people instinctively reflex because in

7:37
essence what they're what they that says

7:39
to them is my money is going to

7:42
decrease do me a favor and do the do the

7:45
the listeners and viewers of favor and

7:47
tell them that decumulation is okay and

7:50
why it is and um you know I I do think

7:54
that many retirees do have that

7:55
reflexive desire to not touch their

7:58
principle to try to live off of yield um

8:03
but I guess that my point is and the

8:05
philosophy that I bring to this is that

8:07
if you create the best possible

8:11
portfolio that you can with a sane mix

8:13
of risk and reward characteristics that

8:16
portfolio doesn't know whether your

8:18
withdrawals are coming from income or

8:20
they're coming from selling appreciated

8:23
Securities what matters is that you are

8:26
not taking out too much and that you're

8:29
also maintaining that portfolio's risk

8:31
reward characteristics as the years go

8:34
by that's really the name of the game

8:36
and I wouldn't get overly hung up on

8:39
never touching principle because

8:41
sometimes touching principle is actually

8:43
the right thing to do so right now for

8:45
example we've had this tremendous run in

8:48
the equity Market my view has been that

8:51
if you're retired and you're looking at

8:53
what are still very low yields today

8:56
your cash flows for at least the next

8:58
couple of years are hiding in plain

9:00
sight in terms of harvesting some of

9:02
those appreciated Equity Securities

9:05
putting that money into safe Investments

9:08
probably cash short-term bonds but

9:10
essentially setting aside your cash

9:12
flows for the next couple of years and

9:14
simultanously you are reducing risk in

9:17
your Investment Portfolio so my view is

9:20
that it's perfectly okay to pull from

9:23
those appreciated positions in fact that

9:26
very much should be part of your

9:28
decumulation plan and you shouldn't

9:30
worry too much about doing so if in the

9:33
end you're able to maintain your

9:36
portfolio and and maintain a sustainable

9:39
withdrawal rate and make sure that your

9:40
money lasts throughout your retirement

9:42
years that's a that's a great expl

9:44
explanation of decumulation because I

9:46
think that's almost a curse work with a

9:47
lot of people because they they they

9:49
they were they remember Jimmy Carter

9:51
yields you know and I always tell people

9:53
you know Jimmy Carter's building houses

9:54
in Georgia hopefully hopefully he's

9:55
still alive um at the time of this

9:57
taping but um you're not going to

9:59
probably see those yields anymore those

10:01
those 12% CDs so that's tough for people

10:04
um even though if you look at the the

10:06
10e treasury equivalents across the

10:08
globe we're still pretty high um but

10:10
high high right now feels low right from

10:13
a yield standpoint one of the I was

10:15
doing some research on your writings and

10:17
it was fascinating um you had a you had

10:20
an article and and I've seen you speak

10:22
on this on some of the blind spots that

10:24
people um run into and people miss when

10:27
it comes to retirement and I think this

10:29
so important because you know with with

10:31
over 10,000 Baby Boomers hitting the age

10:33
of 65 every single day I mean it's a

10:35
demographic tidal wave that's what I

10:37
call it right um what are some of these

10:39
blind spots that people need to be aware

10:42
of um and again you don't have to write

10:44
it down everybody especially if you're

10:45
driving or on that treadmill I mean

10:47
you're gonna we'll have these replays up

10:49
but but kind of go through the blind

10:50
spots I think I was writing them down I

10:52
think you had around six you might have

10:54
more can you cover those sure sure so um

10:57
I have a presentation that's kind of

10:59
structured along these lines and um one

11:02
of them that I start out the

11:04
presentation with is retirement date

11:07
risk and I think that that's often times

11:09
not discussed very much but the bottom

11:11
line is that even though we might have

11:14
this very what we think is a very

11:16
well-conceived plan of when we might

11:18
expect to retire um in reality when we

11:22
look at the data and my colleague David

11:24
Blanchett who I think is kind of one of

11:26
the leading lights in Retirement

11:27
Research has looked at people's stated

11:30
anticipated retirement dates and when

11:32
they actually retired and what his

11:35
research shows is that we're not very

11:37
good at this we tend to overestimate our

11:40
ability to continue working or our

11:42
desire to continue working we we might

11:45
say oh I plan to you know retire when

11:47
I'm 69 or something like that when we

11:49
look at the data we see that there's a

11:51
gap that people oftentimes are retiring

11:54
earlier than they expected to and there

11:56
are variety of reasons why this might be

11:58
we know that ageism is a thing in the

12:01
workplace yes we know that older adults

12:04
sometimes encounter health issues or

12:06
their spouse encounters health issues

12:08
that makes it difficult for them to

12:10
continue or their parents or their

12:12
parents um so a lot of different forces

12:15
can work against your desire to work

12:19
longer specifically so we see that

12:21
there's typically a gap where people are

12:23
often retiring earlier than expected so

12:27
that's kind of a risk factor for the

12:29
size of the portf it depends on the size

12:32
of the portfolio but if you are over

12:35
withdrawing over a longer time period

12:37
that is a risk factor so that's one of

12:41
the key blind spots that I would point

12:44
to and and to me that really argues for

12:48
thinking through well if I'm not able to

12:50
continue working until that anticipated

12:54
retirement date what's my backup plan

12:56
what's my plan B and I think it's

12:59
worthwhile for all of us really through

13:01
throughout our careers to be thinking

13:03
about well if this thing if whatever I'm

13:05
doing doesn't work for me uh due to

13:08
workplace issues or lifestyle issues or

13:11
health issues could I continue to earn

13:14
some sort of income in the meantime and

13:17
so I I that is sort of a piece of

13:20
counsel that I would bring to this and

13:22
also just be aware that you don't have

13:23
as much control over that retirement

13:25
date as you might wish to believe you

13:27
have so is there there strategy or

13:30
strategies that you would tell people to

13:32
do specifically if um and you covered it

13:35
a little bit about hey I'm going to

13:36
retire at 69 or 65 it's tough you know

13:40
especially because you don't know where

13:41
markets are going to go or interest

13:42
rates are going to go how do you advise

13:44
people to be flexible with that

13:46
retirement date risk

13:48
planning well so I think thinking about

13:50
what your backup plan is certainly

13:52
nurturing your human capital and making

13:55
sure that you are continuing to prove

13:57
yourself valuable to your organization

14:00
throughout your career I think we've all

14:03
especially those of us who are home

14:04
office workers we've all sort of had a

14:07
very uh quick ramp up into being Savvy

14:11
about all different matters of

14:12
technology that we we've all had to be

14:14
our own IT staff I think that's been

14:17
great so continuing to nurture your

14:19
human capital also thinking hard about

14:22
insurance planning a real wild card is

14:24
in this is if you are Prem Medicare and

14:27
somehow separated from your employer

14:30
provided Health Care earlier than you

14:32
anticipated right thinking through your

14:34
plan for that is absolutely essential so

14:38
those are some of the key things from

14:39
sort of a plan uh aspect uh to to help

14:43
protect

14:45
yourself one of the one of the uh risk

14:48
and and blind spots was sequence of

14:50
return risk that you that you mentioned

14:52
and when people typically hear that

14:55
they've heard it before but can you dumb

14:58
it down

14:59
always tell people you know if you can't

15:00
explain it to a nine-year-old no offense

15:02
to nine-year-old you either shouldn't

15:04
buy it or you you it's not simplified

15:06
enough simplify it down sequence of

15:08
return risk for the people out there

15:09
that aren't really sure what that is

15:12
right it's a a concept that retirement

15:15
researchers call talk about and

15:17
basically the risk is that you may

15:20
retire into a not so great Market

15:23
environment so when we think about the

15:26
market environment today what do we know

15:28
well we know that yields are pretty low

15:30
we've talked about that a little bit we

15:32
also know that Equity valuations because

15:34
we have had this long running bull

15:36
market Equity valuations stock prices

15:39
aren't what they once were and so it's

15:42
risky if you come into retirement and

15:45
you do encounter a weak Market

15:47
environment for whatever reason

15:48
inflation I think is potentially a

15:51
consideration today as well the risk is

15:54
that if you over withdraw during that

15:57
period that the market is down whether

15:59
that's you know 6 months or whether it's

16:01
two and a half years whatever if you're

16:04
taking too much from your portfolio

16:06
during that time and that time occurs in

16:09
the early years of your retirement well

16:11
that leaves less of your portfolio in

16:14
place to recover and to rebound when

16:17
stocks eventually do so it's a big risk

16:20
factor for new retirees if you're an

16:23
older retiree if you're someone who is

16:25
80 and you've been retired 15 years well

16:28
guess what You've Won you have retired

16:30
into a pretty good Market environment

16:32
it's the new retirees who I think need

16:34
to be cautious and need to be thinking

16:36
about well what's my plan in that

16:38
instance how do I structure my plan so

16:42
that I can protect myself against that

16:44
possibility of retiring into a weak

16:47
market and it sequence of return risk is

16:49
something you obviously can't control

16:51
similar to dovetailing into one of the

16:53
other blind spots which is the the low

16:55
yield environment that we're in that um

16:58
a lot of the Savers and the CD buyers

17:00
are scratching their heads because the

17:02
the yield isn't there the coupons aren't

17:04
there you know no one knows where

17:06
interest rates are going to go including

17:08
Christine Ben she'll be the first one to

17:09
tell you that she'll pound the table and

17:11
tell you that but what's your advice for

17:13
people in in a environment that's low

17:16
and it doesn't seem like you know the

17:18
government's painted themselves into a

17:19
little bit of a corner printing all this

17:21
money so raising interest rates they're

17:22
going to raise those payments on

17:23
themselves so it'd be like me and you

17:25
raising our mortgage rate right what's

17:27
your advice to people here other than

17:31
grin and Barrett right what is it what

17:33
do you tell people well I think it it's

17:35
worthwhile to rethink why you hold safer

17:38
Assets in your portfolio and why you

17:41
just sort of decide to accept lower

17:44
yields the the key reason is that yes

17:48
cash and bond high quality Bonds are

17:52
there to provide you with yield but

17:53
they're also there to be the ballast for

17:56
your Equity portfolio they are there to

17:58
be the assets that you could spend

18:01
through if you come come into retirement

18:04
and you encounter a weak Equity Market

18:07
you have set yourself up with safe

18:09
assets that you could spend through

18:12
before you need to touch the equity

18:14
assets so I think sort of rethinking the

18:17
role of safe assets that income

18:20
production is less of their value today

18:23
that may change in the future right now

18:26
their key value is safety

18:29
at and providing that cushion of some of

18:32
some sort of an equity Market shock so

18:35
that would be my advice my advice

18:36
absolutely would be not to gravitate to

18:39
very highrisk high yield Securities as a

18:43
big portion of your portfolio you might

18:45
have them around the margins like five

18:47
or 10% in high yield bonds or Emerging

18:49
Markets bonds but definitely not the

18:52
main course because what when we look at

18:55
assets like that whether junk bonds or

18:57
or emerging market markets bonds what we

18:59
see is very equity-like performance we

19:02
see them behave in sympathy with the

19:04
equity Market that's not what you're

19:05
going for for this portion of your

19:07
portfolio you're going for safety and

19:09
you have to contend with and accept very

19:12
low yields on offer

19:14
today which leads us to the gorill in

19:16
the room and your blind spot that you

19:17
list sometimes in your presentations is

19:19
number four which is inflation yes um

19:22
which people are very tuned into because

19:25
even though you hear government

19:27
officials times say that there really

19:29
isn't inflation if you're buying Lumber

19:31
and if you're buying food and if you're

19:32
buying gas and you know you're saying

19:34
wait a minute I think there might

19:36
be obviously in the annuity world as you

19:38
know um annuity companies don't give

19:40
inflation increases away they just

19:42
ratchet down the payments if you're

19:43
buying lifetime income that didn't mean

19:44
it's good or bad but that that also

19:46
means that there's no perfect solution

19:48
to inflation just really bad sales

19:50
pitches as I say um what's your what's

19:54
your thought and advice for people to

19:57
think about about address and and

20:00
strategize around inflation yeah it's a

20:03
huge question today Stan and a year ago

20:05
I wouldn't have been so concerned with

20:07
it but we are beginning to see inflation

20:09
tick up and I think you know the big

20:11
question is whether this is just sort of

20:13
a natural part of this emergence from

20:17
the lockdown that we've been in for the

20:19
better part of a year for more than a

20:21
year um but I think from a retirement

20:23
standpoint you think about protecting

20:25
against inflation in a few different

20:27
ways first you think about your own

20:29
spending patterns and do a little bit of

20:32
um research a little bit of

20:34
reconnaissance on what your spending has

20:37
looked like what categories you tend to

20:39
spend on one thing we know about older

20:41
adults is that they spend more on health

20:44
care than the general population we we

20:47
have historically seen healthc care

20:49
inflation rise at a faster clip than the

20:52
general inflation rate so take a just

20:54
take a close look at your spending

20:56
habits in some areas you may be a loser

20:59
like healthc care uh in other areas like

21:02
energy costs you may be a winner because

21:05
you're not commuting you're not driving

21:06
as much as you were when you were

21:08
working so kind of just think about your

21:10
spending categories and then think about

21:13
your income sources in retirement so if

21:16
you are you know on the really positive

21:19
end of the spectrum from the standpoint

21:21
of inflation and you have sort of a a a

21:25
pension that provides You full inflation

21:27
protection

21:28
and that pension is supplying you with

21:30
all the income that you need well you're

21:32
in great shape and then at the other end

21:34
of the spectrum would be the retie who

21:36
doesn't have any of those in inflation

21:39
protected income sources and has a

21:41
really safe portfolio that he or she is

21:44
pulling from for all of the income well

21:46
that's someone who's really vulnerable

21:48
because their purchasing power is just

21:50
going to be gobbled up by inflation most

21:52
of us in retirement fall somewhere in

21:54
between those two polls where that we

21:56
have some inflation insulation if we're

21:59
getting social security for example we

22:02
might not agree that the little increase

22:05
that we get on our social security

22:06
benefit is sufficient but that portion

22:08
of our income is inflation protected

22:11
it's really the portfolio that we need

22:14
to concern ourselves with to make sure

22:16
that that portion of our withdrawals is

22:19
in some fashion insulated against

22:21
inflation so when we think about

22:23
protecting a portfolio against inflation

22:25
we think about a couple of key

22:27
categories

22:28
one would be to make sure that you

22:30
have stocks in your portfolio because

22:33
even though stocks aren't any sort of

22:35
direct hedge against inflation when we

22:37
look at the asset classes with the

22:39
ability to out earn inflation over time

22:42
stocks very much fit the bill whether

22:44
they will do so over the next couple of

22:46
years or the next five years open

22:48
question but over longer time periods we

22:50
see a pretty good ability for stocks to

22:53
beat inflation so you want to make sure

22:55
you have stocks but on the fixed income

22:57
side I think it's also worth looking at

23:00
a category called treasury inflation

23:02
protected securities or sometimes called

23:04
tips right and tips are issued by the

23:07
treasury but they have a little bit of

23:09
spin on the ball in terms of offering an

23:12
inflation adjustment to your principal

23:14
value which in turns turn affects your

23:17
yield when inflation Trends up so my

23:22
colleagues at Morning Star Investment

23:23
Management put together asset allocation

23:26
programs with within a a person's fixed

23:30
income allocation they typically

23:31
recommend a retired person's fixed

23:33
income allocation they typically

23:35
recommend like a 20 to 30% allocation to

23:39
treasury inflation protected securities

23:42
the idea is that you are protecting the

23:45
purchasing power on on that portion of

23:47
your portfolio some retirees might say

23:50
well why not just have my whole fixed

23:51
income allocation and tips well the risk

23:54
is that that's not very Diversified so

23:57
even though treasury bonds and treasury

23:59
inflation protected securities are the

24:01
most credit worthy bonds that you can

24:04
find um they tend to be somewhat

24:07
interest rate sensitive so you'd

24:09
probably want to diversify to include

24:11
some corporate bonds some agency backed

24:14
bonds some other Securities to ensure

24:16
that your portfolio uh your fixed income

24:19
portfolio is a little bit better

24:21
Diversified but those are some of the

24:22
key asset classes I would think about

24:25
some of the other asset classes that

24:26
people might add would would include

24:29
things like Commodities or Commodities

24:31
tracking exchange traded funds precious

24:34
metals either um uh a an ETF like GLD or

24:40
perhaps some of the precious metals

24:42
mining companies and here I would

24:44
recommend owning some type of a mutual

24:46
fund or an ETF exchange traded fund that

24:48
does this and finally real estate I

24:51
think is another asset class that

24:53
historically has shown some ability to

24:56
protect against inflation and the reason

24:58
is pretty intuitive that when rates are

25:01
increasing and as a Reet owner you're

25:04
able to participate and benefit from

25:06
that well that's also the time when

25:08
inflation is typically running up

25:10
broadly so those are some sort of

25:12
non-core assets that I might think about

25:15
but again keeping them to very small

25:17
positions because they're quite volatile

25:19
as Standalone Holdings you definitely

25:22
don't want to have giant positions in a

25:25
category like Commodities or precious

25:27
medals it's all about allocation and

25:30
proportion and and you you preach that

25:32
with your your writings and what you've

25:33
done uh for for decades at at morning

25:36
start one of the kind of the new

25:37
gorillas in the room and I read a couple

25:39
of recent articles that you have have

25:42
written on this topic is health care and

25:45
long-term care and obviously again the

25:47
demographic title W of people hitting

25:49
age 65 and and we're living longer

25:52
Etc tell tell people why this is

25:55
important why long-term care coverage

25:57
and that trans transfer of risk type

25:59
coverage they should be looking at why

26:01
why should they do that such an

26:03
important topic Stan and um I'll just

26:06
start with talking about healthc care

26:08
expenses in retirement more broadly

26:10
Fidelity annually puts out these um

26:13
estimates of what a 65-year-old couple

26:17
who is retiring will spend over I I

26:21
believe it's like a 25 or 30e period and

26:24
the most recent information that I saw

26:26
was roughly 300 $1,000 so these are

26:30
various premiums that they're paying

26:32
these are outof pocket expenses and so

26:35
forth so even after you're covered by

26:37
Medicare you still have some health care

26:39
costs and what we see when we look at

26:41
those health care costs is that're

26:42
they're not linear they're not the same

26:43
year by year they tend to Trend up later

26:47
in retirement so Fidelity's $300,000

26:50
estimate does not include long-term care

26:52
costs that's just all the other stuff

26:54
that um people pay so I think it's worth

26:57
staying stay mindful about those costs

26:59
and certainly making sure that you are

27:01
incorporating them into your budget and

27:03
into your spending plan but also

27:06
recognize that there's tremendous

27:07
variability in those costs so giving

27:10
some hard thought to what your health

27:13
situation is what your spouse's Health

27:15
situation is where you live is a big

27:18
determinant of your out-of-pocket health

27:20
care outlays so if you live in a

27:22
high-cost part of the country if you

27:24
live in Chicago or LA or some other City

27:27
where High where costs are high at large

27:30
you'll pay more for health care if you

27:32
live in a less urban area you'll tend to

27:34
pay less so give some thought to that

27:37
make sure you're factoring it into your

27:38
budget also long-term care is uh the

27:42
real wild card in my view for many

27:45
retirement plans in fact when I'm out

27:47
speaking if there is a topic that will

27:49
send the room up for grabs because it

27:51
gives people so much angst is this

27:54
people wonder how to contend with

27:56
long-term care care costs so these are

27:58
costs that are not covered by Medicare

28:01
they are costs that many older adults

28:03
incur if they encounter cognitive

28:06
decline or even if they just simply

28:08
start needing help around the home to

28:11
make meals or whatever it might be um to

28:15
you know to help them shower a lot of um

28:18
situations can occur the idea is that

28:21
these costs are not going to be covered

28:24
by Medicare nor will they be covered by

28:26
your supplemental policy policy that you

28:28
may have purchased you need to create a

28:31
plan for what these long-term care costs

28:33
might be and also how you might contend

28:35
with them and so it's super tricky

28:38
because I often speak to retirees who

28:41
thought they were doing exactly the

28:43
right thing by purchasing long-term care

28:46
insurance and what we've seen is that

28:48
the marketplace is pretty troubled that

28:50
unfortunately these policies that were

28:52
priced 20 years ago did not adequately

28:55
incorporate long-term care care usage um

28:59
and they didn't incorporate this very

29:01
low yield environment that we find

29:03
ourselves in which has Afflicted

29:05
insurance companies as well because they

29:07
can't really earn much on the premiums

29:09
that they've been able to take in if

29:11
they want to be able to make uh make

29:14
their policy payments so um that's the

29:19
the troubling part of this the easy

29:21
answer 20 years ago might have been to

29:25
purchase some sort of a long-term care

29:26
policy people have seen their premiums

29:28
really increase to account for the fact

29:31
that it's a pretty troubled Marketplace

29:33
so I would really um when thinking about

29:36
this When approaching this risk I would

29:39
kind of think about my own situation and

29:41
sort myself into one of three groupings

29:44
so for people who don't have a lot in re

29:46
in retirement assets they will probably

29:50
to the extent that they have long-term

29:51
care needs they will be covered by

29:54
Medicaid and and Medicaid is the largest

29:56
payer of long-term care expenses in the

29:59
US many people end up needing Medicaid

30:02
provided care so for people without a

30:05
lot of uh wealth that will be their um

30:09
be their strategy that they probably

30:11
shouldn't overly worry about it now it's

30:14
worth mentioning that you need to

30:17
essentially deplete most of your assets

30:20
which could leave your spouse um needing

30:23
some sort of U financial assistance in

30:25
the meantime but that's sort of that

30:27
group and then at the other ex extreme

30:29
would be very wealthy people who you

30:31
know when they look at their portfolios

30:33
they have more than enough to last

30:35
during their lifetimes and they can also

30:38
cover an extended long-term care need

30:41
comfortably out of their assets I'm

30:44
sometimes asked well how much asked how

30:46
much would I need to have in assets to

30:49
put me in this other area where I'm

30:51
self-funding long-term care expenses and

30:54
my point is I can't tell you that I

30:56
can't tell s you a dollar amount because

30:58
I don't know what you're spending from

30:59
your portfolio right if you have you

31:02
know a $2 million portfolio but you are

31:05
spending too heavily from it well you

31:08
probably should have long-term care

31:10
insurance so um get some guidance on

31:14
that if you're a higher net worth person

31:16
with a sizable portfolio make sure that

31:19
you do have adequate assets to self fund

31:22
long-term care and then my view is if if

31:25
you have determined that you have enough

31:27
go ahead and segregate those assets from

31:29
your spendable assets to ensure that

31:31
you're not considering them part of your

31:34
spending plan if you're a young retiree

31:36
and that's your plan to self-fund

31:38
long-term care segregate those assets

31:41
you'd probably want to invest them

31:42
pretty aggressively because the chance

31:44
of having a long-term care need earlier

31:47
in in your life is pretty low um and

31:50
then that middle group is the the group

31:53
who I think is the best uh candidate for

31:56
some sort of of insurance product to

31:59
help Ure against this risk you can still

32:01
buy long-term care policies but

32:04
increasingly what have come on strong

32:06
are these hybrid type asset based yeah

32:09
they call them asset based coverage yes

32:11
yes which Stan you know more about these

32:13
types of products than I do but it's

32:15
typically either a life insurance policy

32:18
or an annuity with a long-term care

32:20
writer bolted on and those can be

32:24
attractive options especially in my

32:26
opinion for people who had life

32:29
insurance and they had that need to

32:31
protect their dependents when their

32:33
dependents were younger but if they're

32:35
older and they've accumulated sufficient

32:37
assets life insurance May no longer be a

32:41
a big concern for them um but they can

32:44
switch into one of these asset-based

32:47
policies to to help protect themselves

32:50
and they can do what's called a 1035

32:52
Exchange get some tax guidance on this

32:54
before embarking on this but um these

32:57
policies these products can be pretty

32:59
interesting in some situations maybe not

33:02
perfect but um something to consider and

33:06
something to get some unbiased advice

33:08
about um you would definitely want to

33:11
engage the services of some sort of a a

33:14
financial planner or adviser who is not

33:17
selling these products to help assist

33:19
you in in doing your due diligence

33:21
because the products can be a little

33:22
complicated in my experience the hyri

33:25
they certainly can we had a I had a

33:27
guest on recently his name is Jack

33:29
linenberg he's arguably the top

33:30
long-term care expert in the country

33:32
he's also a lawyer as a background um

33:34
but he talked about these asset based um

33:37
Long-Term Care Solutions which covers

33:39
the biggest fear for most people which

33:41
is what if I don't use the M what if I

33:43
don't use the coverage these asset-based

33:45
policies protect the principle which

33:48
would go to your beneficiaries if you

33:49
didn't use it which is the biggest fear

33:51
of traditional long-term care which is I

33:53
pay in I pay in I pay in and it's you

33:55
know it goes poof when I die with these

33:57
newer policies um you know that that

34:01
circumvents and gets rid of that fear

34:03
even though you have the coverage so you

34:05
know uh I would encourage people if you

34:07
can go to my site at the annuity man.com

34:08
and re and relisten to that podcast with

34:10
Jack linenberg because he's going to

34:12
dovetail what Christine's talking about

34:14
but go into detail about those specific

34:16
products which leads me to the the sixth

34:18
blind spot which which is where

34:20
annuities can fit in because they're the

34:22
only product on the planet that can

34:24
provide lifetime income and it's it's a

34:26
blind spot that you talk about it's

34:27
called Longevity risk can you go into

34:29
that yeah you know this is a good news

34:32
story in so many ways um that we see

34:36
life expectancy gains especially among

34:38
higher income adults right um where you

34:42
know the the probability of if you're

34:45
part of a married couple the probability

34:47
of one of you making it to age

34:49
95 is uh is quite High I don't know off

34:52
the top of my head specifically what it

34:54
is but it's I think it's one and three

34:56
um um and when you further sort of

34:59
subdivide that group by higher income

35:02
adults we unfortunately in my opinion we

35:05
see um longevity very much correlated

35:07
with level of wealth and so we do know

35:10
that higher income higher net worth

35:12
people tend to live longer so you need

35:15
to protect yourself against that

35:18
possibility um and there are a few

35:20
different ways to do that I would say

35:22
that right out of the box if you're

35:23
thinking about doing that you want to

35:25
make sure that your money lasts Well you

35:28
certainly want to make sure that you are

35:30
looking at non-portfolio income sources

35:33
with an eye to maximizing those lifetime

35:36
payouts so at the top of the list would

35:38
be to make sure that you're making smart

35:41
decisions about social security claiming

35:43
and Stan I don't know if you agree with

35:44
this assertion but I believe that that

35:47
should really be job one before you look

35:49
at an annuity just to make sure that you

35:51
are getting I agree I agree with that

35:54
and the reason I agree with that just to

35:55
interject real quick is people always

35:57
say well I hate all annuities and I say

35:58
well you already own one and it's the

36:00
best inflation annuity on the planet and

36:03
they go no I'll never own annuity and

36:04
Social Security so I totally agree that

36:07
that's the foundational annuity um that

36:10
you need to make the best decision on um

36:13
and seek someone out not an agent or

36:15
adviser but someone who really

36:16
specializes in Social Security type

36:19
planning so that you can make that

36:20
decision for your situation because

36:22
there's no perfect answer across the

36:23
board it's customizable to what you're

36:25
trying to do and achieve I would think

36:27
absolutely and if you're part of a

36:29
married couple I think that decision

36:31
making is even more important um one

36:34
free tool I would not stand is um from

36:36
my friend Mike Piper who has a website

36:39
called open Social Security it's a free

36:41
website they there's been kind of a

36:43
cottage industry in these Social

36:45
Security calculators Mike's is all uh

36:48
free and it's very rigorous Mike is a um

36:51
a CPA and a social security expert so I

36:55
would urge your listeners to give that

36:57
tool a trial run because it's an

36:59
absolutely terrific tool and it helps

37:01
you include different variables that you

37:03
don't necessarily see everywhere so you

37:05
can haircut your potential benefits if

37:08
you're a younger person for example and

37:10
you're worried well there might be

37:11
changes to Social Security down the line

37:14
you can factor that in you can also use

37:17
different um different Actuarial tables

37:21
that factor in different Health

37:23
situations so if you think that you will

37:25
be an especially long lived retirees you

37:28
can take a look at that so I would urge

37:29
people to check that out what's that

37:31
site again it's called open Social

37:33
Security so open open social SEC open

37:36
social security.com I guess yes I

37:39
believe so okay good um we'll we'll list

37:42
that on our on our site as well but

37:43
getting back to longevity and that

37:45
longevity risk you know Social Security

37:47
big one you got to plan for and and what

37:49
I call this is the income floor what is

37:51
your income floor what is the money

37:53
that's coming into your account that's

37:55
going to hit every single month to that

37:56
will take care of you in what I call

37:58
chapter two of your life um you know

38:00
chapter chapter one is accumulation

38:01
chapter two is decumulation and going

38:03
and living your lifestyle um where do

38:07
you see annuities get a really bad rap

38:09
but um they are the only product that

38:12
can um provide income as long as you're

38:14
breathing and I've seen you speak upon

38:17
about immediate annuities and the sister

38:18
product deferred income annuities and

38:20
also cacs which are deferred Inc commes

38:23
for IAS do you encourage people to look

38:26
at those and it's okay if you say you

38:28
don't because annuities aren't for

38:29
everybody I'm the first one to say that

38:32
how does that how does TH those those

38:34
transfer of risk lifetime income

38:35
products fit into your um portfolio

38:39
planning yeah I I do think that uh an

38:42
annuity can be a good fit for someone

38:45
who has taken the steps to look at what

38:47
Social Security will pay them and to the

38:50
extent that there's a gap in terms of

38:52
fulfilling their basic living expenses I

38:55
think that an annuity can be perfectly

38:58
appropriate unfortunately as as you know

39:01
better than anyone Stan annuities um are

39:04
incredibly complicated it's h we were

39:07
doing our podcast with Carrie petor who

39:09
is uh had a the retirement income

39:11
Journal sure and car said yeah he made

39:14
the point that you know that the word

39:16
annuity is almost useless because the

39:19
products under the annuity umbrella are

39:22
so incredibly varied there's many of

39:24
them yeah you can't say you hate all an

39:26
unless you want to say I hate all

39:28
restaurants um because it just um

39:30
there's so many types uh the annuity

39:32
industry is done a very poor job of um

39:35
of explaining what they are and what

39:37
they can do and what they solve for

39:39
primarily it's either principal

39:41
protection or or income for life one of

39:43
those two I can solve for for legacy and

39:46
long-term care my acronym I use is pill

39:48
you know principal protection income for

39:50
Life Legacy and long-term care and if

39:52
you don't if you if you don't want to

39:53
Sofer any of those four then you don't

39:55
need an annuity so that's kind of my

39:57
Mantra I do want to talk about you were

39:59
mentioning recent we on the phone and

40:00
you were mentioning there's a um there's

40:03
a research team you're part of there's

40:04
four of you um and it's primarily

40:07
revolving around portfolio structuring

40:10
tell us about that that uh that locked

40:12
room that you guys are sitting in and

40:14
what you guys are working on because

40:16
that sounds fascinating that for the

40:18
brightest people on the planet in this

40:20
in this space are talking about

40:22
portfolio structuring what are you

40:23
working on yeah it's really fun we just

40:27
started this team at the beginning of

40:28
January and um it's several of my

40:31
longtime Morning Star colleagues and the

40:34
idea is that at Morning Star we have

40:36
these deep teams that are associated

40:39
with doing individual security research

40:41
so we've got a team of mutual fund

40:43
researchers ETF researchers we've got a

40:46
big stock research team we have fewer

40:49
people working on financial planning

40:52
matters retirement planning portfolio

40:55
planning matters and a very rich

40:57
territory and we also find that the

41:00
community the community of financial

41:02
advisers and individual investors and to

41:05
some extent the institutional Community

41:07
really needs the help in some of these

41:09
areas I think that we have a lot of

41:12
financial advisers who came of age in an

41:14
environment where their secret sauce was

41:17
how do I put together an Investment

41:19
Portfolio and you know what are the

41:22
specific Investments I choose for my

41:24
clients many advisers are recognizing

41:27
that yes perhaps I can add value there

41:29
but there are all these other areas

41:31
where I might add add value as well so

41:35
internally we've kind of called them

41:36
gamma factors so there's Alpha Beta And

41:38
there's gamma where those are the all

41:41
the other levers that you have to

41:44
improve your plan's outcome so those

41:47
would be things like smart Social

41:50
Security decision making uh how to asset

41:54
allocate for retirement what's a safe

41:56
withdrawal rate and retirement so we

41:58
feel like we have a very broad toolkit

42:01
which is a little overwhelming but also

42:03
super fun and um an example of the some

42:06
of the research we've been working on in

42:08
the first quarter we put out a research

42:10
paper that examined the correlations

42:13
among various asset classes and what we

42:16
concluded was that asset correlations

42:19
have trended up over the past couple of

42:21
decades that we're

42:23
seeing assets that historically had be

42:26
differently come closer together so an

42:28
example would be real estate equities

42:31
REITs we've noted that when we look at

42:34
correlations with the broad Equity

42:35
Market they've come more closely aligned

42:39
and so um the paper concluded that there

42:42
are a few asset classes that still do

42:45
provide really good ballast for equities

42:47
it comes down to treasury bonds really

42:50
across the interest rate spectrum and

42:52
cash those two assets generally if

42:55
you're looking for something that will

42:56
zig when your stocks zag you probably

42:59
want to ensure that your portfolio

43:02
includes cash and treasury bonds so th

43:06
those are the kinds of projects that

43:07
we're we're working on we have um also

43:10
been toiling in the retirement income

43:12
space and you'll see some research from

43:14
us uh forthcoming on that topic as well

43:17
last topic that I want to cover with you

43:19
it's been fantastic for I mean my

43:22
listeners are just I'm going to get all

43:23
the love emails and I'll just forward

43:25
them to you but so I mean I mean it's

43:28
been great and I hope to have you on

43:29
again but I wanted to talk to you about

43:32
your bucket approach and bucket approach

43:34
um investing and portfolio um uh the way

43:38
you put together portfolio this is

43:39
nothing new okay the bucket approach

43:42
it's been used excuse my French it's

43:44
been bastardized it's been it's it's

43:47
been improperly shown can you explain to

43:49
people the bucket approach and how it

43:51
might help them with their planning yeah

43:55
thanks for that question understand I

43:57
always say I did not invent the bucket

43:58
approach the strategy um really came on

44:01
my radar I was talking to Harold ensy

44:04
who is a retirement um person and

44:08
Professor was and his wife Dana Catz

44:10
right exactly yeah they fant's he's out

44:13
of Texas Tech University that's where he

44:14
bases his program um but Harold vinsky

44:18
is is a thought leader not to interject

44:20
too much on just retirement planning as

44:22
a whole he's kind of The Godfather a

44:24
little bit yes and um you know but but

44:26
Christine's sitting pretty close toward

44:28
him on all this yeah but go go ahead

44:31
with that yeah so I I was talking to

44:34
Herald um gosh it must have been close

44:36
to I don't know 12 years ago or so and I

44:39
was asking him I was thinking very much

44:40
about this yield issue the fact that

44:42
yields then were pretty low too so just

44:45
talking to him about all the dimensions

44:47
of how he crafts his clients portfolios

44:50
and I asked him that question about well

44:53
like how how do you do it and how do you

44:55
keep your your clients comfortable with

44:58
portfolios today that or back then that

45:01
should include healthy allocations to

45:03
equities and his comment was that well I

45:06
use this kind of bucket system and I

45:07
know Harold has evolved a little bit on

45:09
this view over the years but basically

45:11
he said he took one to two years of his

45:15
client's cash flow needs and held it in

45:17
cash alongside the total return balanced

45:21
portfolio that he was running for them

45:23
and what he said was that he found that

45:26
it gave his clients an incredible amount

45:28
of Peace of Mind to sit tight with a

45:31
long-term portfolio knowing that they

45:33
knew that their cash flows for the next

45:36
couple of years were were pretty much

45:38
secured um and he said sometimes he

45:40
would call his clients on the Market's

45:42
down days and ask well how are you

45:45
feeling about this big Market shock and

45:47
basically his clients would say no I'm

45:49
okay because I've got this cash buffer

45:52
this bucket and so a light bulb went off

45:55
in my head because I you know I'm so

45:57
attuned to the behavioral aspects of all

45:59
of this you know if we optimize a

46:01
retirement plan but people can't live

46:04
with it and and it makes them

46:05
uncomfortable well that's not worth

46:07
anything we want the plan that people

46:09
will be able to live with and be

46:10
comfortable with and so Harold made the

46:13
point that doing this gives the clients

46:16
peace of mind so that's really um led me

46:19
to provide guidance on how you might

46:22
sort of incorporate this bucket system

46:23
into your own plan and the way I think

46:26
about it is that you're using maybe two

46:29
years worth of anticipated portfolio

46:31
withdrawals and you're holding that

46:33
money in cash Investments and then from

46:37
there you're stepping out on the risk

46:39
Spectrum so you're holding high quality

46:41
fixed income Investments with the next

46:44
bucket so your cash buckets bucket one

46:47
bucket two would be sort of your high

46:48
quality Bond bucket and that's holding

46:51
maybe another five to eight years worth

46:53
of portfolio withdrawals and with with

46:56
those two buckets you've effectively

46:58
built yourself a bull workk that you

47:01
could spend through if you we're talking

47:04
about sequence of return risk if you're

47:06
one of those retirees who walks headlong

47:09
into a really bad Equity Market yeah

47:11
well with your buckets one and two

47:13
you've given yourself a set of assets

47:15
that you could spend through and maybe

47:17
not have to touch your Equity Holdings

47:21
for another 10 years which should give

47:23
them the opportunity to recover

47:26
so that's kind of the basic structure I

47:28
know that there are a lot of different

47:30
variations but that's how I approach it

47:32
and I think it's kind of an intuitive

47:34
way to visualize what a sane asset

47:38
allocation for retirement might look

47:40
like and it's also just a way to build

47:43
yourself a portfolio that you could live

47:45
with and that would give you peace of

47:48
mind to stick with it to stick with the

47:50
long-term Investments through um various

47:54
forms of volatility that might

47:57
materialize I'm going to tell you this

47:59
has been this has been a great

48:01
conversation I know my listeners and

48:03
viewers have enjoyed it as well remember

48:04
who this is if you don't already know

48:06
Christine Ben she's the director of

48:08
personal finance for morning star and a

48:10
senior columnist at morningstar.com

48:12
we're going to have her links to her

48:15
archives on my site we're goingon to

48:16
have the links to her podcast recordings

48:18
on my site and I encourage you to start

48:20
following her following her if you don't

48:22
already um Christine thank you so much

48:25
for being here any any final thoughts

48:27
for the the retirees pre-retirees or

48:31
post retirees that are tuning in well

48:34
one thing I always like to say Stan is

48:37
as much as I like to help counsel the

48:40
DIY type investors people who have done

48:43
you know their own portfolio plans I

48:45
would say this is an area where it

48:47
really helps to get some help get at

48:50
least a second set of eyes on your plan

48:53
to make sure you're just thinking

48:54
through your own situation and it may

48:58
not be that you are you know engaging

49:01
with an adviser where you have to pay

49:03
him or her forever but at least get a

49:05
second set of eyes on that plan to make

49:08
sure that you're thinking things through

49:10
and the other nice thing about engaging

49:11
some sort of a professional either on a

49:13
shortterm or long-term basis is that you

49:16
are building in kind of a backup plan

49:20
that if something should happen to you

49:22
there is someone somewhere who knows

49:25
kind of the broad Contours of whatever

49:27
plan you were using I'm a big evangelist

49:30
for this idea of getting a a little bit

49:32
of help with your plan even though

49:34
you're very engaged and you know might

49:37
consider yourself very Savvy about these

49:38
matters do just get another set of eyes

49:40
on the plan Sage advice from an absolute

49:44
Financial advice Superstar and

49:46
recognized Financial advice Superstar

49:49
Miss Christine Benin thanks for joining

49:50
us I really appreciate it's been it's

49:52
been an honor and a privilege and hope

49:54
you can join us again soon

49:56
uh on the number one annuity podcast on

49:58
the planet and we will see all of you

50:00
next week on all major podcast platforms

50:03
and on the fun with anu's YouTube

50:04
channel thanks again Christine

50:10
vins