Steve Vernon: How To Avoid Going Broke in Retirement

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welcome to fun with annuities with your

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host me stan the annuity man america's

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annuity agent can annuities be fun can

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contractual guarantees be fun

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absolutely they can find out the brutal

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facts about annuities with no sales

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pitches or high pressure nonsense just

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the brutal and factual annuity truth

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which is all you need to hear

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let's have some fun with annuities and

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let's have that fun start right now

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[Music]

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welcome to fun with annuities i'm your

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host stan the annuity man america's

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annuity age i want to welcome everybody

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on the major podcast platforms on the

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fun with annuities youtube channel

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today's guest is you know him you've

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read his stuff if you've been on on

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forbes

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uh for the last 12 years you've read it

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you read his stuff and is fantastic

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we're really honored to have him with us

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i'm going to tell you a little bit about

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him his name is steve vernon he's the

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president

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of rest of life communications

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where he speaks and writes and conducts

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research on pretty much everything about

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retirement finance health lifestyle he

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previously served for nine years as a

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consulting research scholar

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at the stanford center on longevity

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he's a retired vice president for watson

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wyatt worldwide after a 30 plus year

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career there helping the fortune 100

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companies design manage and communicate

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well with their retirement plans

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um i know him from just his writing he

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writes for uh probably a lot of places

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but primarily for cbs moneywatch and

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forbes.com you've probably seen him

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there he's written over a thousand

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online columns columns in a 12-year time

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period which is pretty prolific

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his latest book which was released in

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2020 is called don't go broken broken

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retirement

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it's a simple plan to build lifetime

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income and lifetime retirement income

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and we'll have that link to buy that

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book

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on our site i can keep going he's got a

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long list of stuff he's done a lot of

2:07
things

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but i'd like to just get down and dirty

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and start talking to steve vernon steve

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thank you so much for joining us on fun

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with annuities

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stan thanks for having me and thanks for

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letting me help your listeners and your

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viewers absolutely i mean my listeners

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and viewers are in all 50 states they're

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they're consumers there are people that

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want to understand retirement

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um from the top experts in the country

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and that's the reason you're on the

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program

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um we were discussing before we went

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live about

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uh you have this thing called

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decumulation in 35 words let's just jump

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off the cliff there and why don't you

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give us that

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well you know the word itself

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decumulation sounds pretty scary yeah

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and uh really what i'm referring to

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that's the technical term for how do you

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know

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how to make your ira or your 401k

2:55
balance last for the rest of your life

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that's the biggest problem right now in

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personal finance

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and you mentioned my role it's the

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stanford center longevity i've had the

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pleasure to get to know bill sharp

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who your listeners may recognize as uh

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someone who helped develop modern

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portfolio theory and won a nobel prize

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for that and he's called decumulation

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the nastiest

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problem in personal finance nowadays

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so if a nobel prize winner in economics

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is having trouble with the accumulation

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you know what's your average mary or joe

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going to

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do about that

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and so my research has focused on

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strategies that you can't express in 35

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words or less

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that the average person can understand

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uh now they're implementation details

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but that's my mission

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is to try and

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help that that person who may have had a

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pension in an earlier generation but now

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they've got a 401k balance uh

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my heart goes out to those folks and

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that's how i want to help

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yeah and i think it's very hard for

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people that have scrimped and saved and

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grew up either lower middle class or

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middle class and then find themselves

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you know in the upper echelon of of

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either wage earners or people with

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retirement assets and it's always tough

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to see that money go down

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in value which is the the southern

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version of decumulation

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um how do you approach people with

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telling them that's okay and that's part

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of the plan

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you know you've hit the nail on the head

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with one of the many challenges

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and the challenge is actually

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psychological is that if you've been

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accumulating money for so long

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you've got to turn the switch and start

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spending it down and some people

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actually have trouble doing that

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research is showing actually a lot of

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people have trouble even if they knew

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how from a technical perspective

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they just feel better seeing that

4:47
account

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there i call it the scrooge mcduck

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syndrome you know if they have some

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money a pile of money that just makes

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them feel better and i think we need to

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acknowledge that

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well i also think it goes back to the

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jimmy carter era where there were

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interest rates that

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there were bad things going along with

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those interest rates as well but people

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would love to be able to peel off

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interest and never touch the principal

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and live live their life

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but i don't think that's ever going to

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happen i think these rates are possibly

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new normals at this point in time and

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it's just very hard for the saver and

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the principal protector as i call them

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to make it happen without decumulation

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should we name it something different

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than decumulation

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i'd love it uh actually and this is a

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debate we have in my circle of friends

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uh i just like calling it let's generate

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retirement paychecks or retirement

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here's another one is called a

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retirement income portfolio

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because we're always used to an asset

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portfolio while we're accumulating money

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and now we want to have a portfolio of

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retirement income and so these are words

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that are a little more familiar with

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people and i usually get to those words

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quicker than

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just talking about decumulation

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i was doing my research on you and and

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um

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something just kind of popped out at me

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that i found a consistency with a lot of

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your writings

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about retirement income about retirement

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about retirement planning about that

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transition

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the word health kept popping up in your

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titles

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healthy

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you know and i think it's you're looking

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are you looking at the word healthy

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in in the two ways healthy meaning

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literally being healthy or healthy

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having a a robust plan in place are you

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are you looking at both of those

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well actually uh all of the possible

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uses of the word healthy i advocate

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people think about so

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there is literally your physical health

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which is an important part of your

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retirement plan

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um

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but also having a healthy financial

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strategy you know so there are different

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nuances here

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uh and i can talk at length on all of

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those

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nuances um so

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the one of the catch words i like to say

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is that

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the decisions that people face as they

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transition into retirement

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are more complex and they have higher

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stakes

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than just being a little facetious but

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just saving and investing along the way

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that's relatively simple but you get

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into your 60s and you need to

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make your money last as long as you live

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no matter how long it is and thinking

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about health care and long-term care

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there's just a whole bunch of things you

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need to think about and

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so i i encourage people it's going to

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take some time you're not going to do

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this in an afternoon

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encourage people to learn their options

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and

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hire professional help

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and i actually call it your new job

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you know your new job doesn't have to be

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full-time but your new job is devoting

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some time to planning for your

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retirement security

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i totally agree with that i think at a

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minimum it's a part-time job for people

7:55
in retirement to at least get their arms

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around everything understand what

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they're doing put the plan together and

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then

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you know put together that

8:03
group of experts you know lower your

8:05
cpas advisors however you want to frame

8:08
that

8:09
to help you live the lifestyle that

8:11
you've worked so hard to live you know

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one of the things that that

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troubles me with all of my clients

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that call me and say hey stan you know

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um here's our here's the money we have

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and here's here's the plan is in place

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and always tell them are you living for

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the day in the south we say there's no

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u-hauls behind hearses how do you

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encourage people to

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get out of that kind of middle-class

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mindset i call it the scars of the

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middle class where we all grew up and

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went out to eat and when you ordered

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something your dad looked at you

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crossways going you know because you

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ordered the coke right and so he was mad

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how do you convince people that it's

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okay to spend down on their money

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that's an excellent uh

8:54
challenge and it combines psychology

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with actual technical

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uh

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economic and investment issues and let

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me say the general

9:04
strategy and then we can dig down

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is that

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the strategy is to

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develop lifetime paychecks that'll last

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the rest your life no matter how long

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they live

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and

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once you know what your paychecks are

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and that could be plural because you can

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have social security you could have

9:25
money you bought an annuity with you

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could have money you're investing in

9:28
drawing down you could have

9:30
work income

9:32
but when you've got that regular

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paycheck that you know is gonna last the

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rest your life

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then spend the paycheck

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don't worry about um saving more out of

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that now if you can't save of course i'm

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not gonna admonish people

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but if you know that oh i've got the

9:46
social security i've got this annuity

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i've got

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this money i'm investing and drawing it

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down i can spend that money

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that to me is combining the

9:57
actuarial and investment issues with the

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psychology the people know it's okay to

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spend this amount of money

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now that gets to

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what i call the magic formula for

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retirement security

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and it's i greater than e you know your

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income greater than your living expense

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and so once you know that this is all

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your paychecks

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then you figure all right i've got to

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look at my living expenses and are they

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below

10:24
those paychecks and if they're not

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you've got a long-term problem but now

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you've got a target you know if you're

10:29
if your paychecks are short of your

10:31
living expenses

10:32
now you know you either have to reduce

10:34
your living expenses or figure out some

10:36
way to make those paychecks bigger

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and so this process triggers

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i think a very healthy and now i'm using

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the word psychologically healthy

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process where you're really facing your

10:47
reality and saying this is my reality

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and the only way to make it work is to

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balance my income and my living expenses

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easier said than done of course but now

10:57
you're on a path to a realistic way of

11:00
managing your money for the rest your

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life

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i think one of the things that you

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mentioned

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there that jumped out to me

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was the word

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psychological and when we talk about

11:12
retirement planning i've been doing this

11:14
a long time just like you

11:16
it seems like it's a static conversation

11:18
about money and allocation and

11:20
proportion and

11:21
and those type of things

11:23
but for whatever reason um in the

11:26
industry and i've been with all the

11:28
major firms and you've been speaking and

11:29
writing forever i think there's a gap

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missing on the psychological aspect

11:35
of retirement it just seems like it's

11:36
turnkey and it's going to be great and

11:38
you've reached you've crossed the finish

11:40
line as an industry from the financial

11:43
industry standpoint how do we get better

11:46
or is there there an idea that you have

11:47
about addressing the psychological

11:49
aspect have you

11:52
do i'm assuming you talk about that when

11:54
you give speeches you're talking about

11:56
the mental aspect of this as well

11:57
correct well right and there are at

12:00
least

12:01
two or three phases to retirement but

12:04
the most important one is as you

12:06
transition in the retirement because

12:07
some of the decisions you make there are

12:09
irreversible

12:11
and you just have to live with them but

12:13
then there are other decisions that you

12:14
could constantly

12:16
tweak it's almost like you're sailing a

12:17
boat you've got your hand on the rudder

12:20
particularly if you're using invested

12:22
assets

12:23
and so it's not you're right it's not a

12:25
one-and-done process you make some

12:28
decisions as you launch on your journey

12:30
but then you've got to constantly be

12:32
you know seeing where you are and making

12:34
adjustments as you go along

12:38
we're talking to steve vernon and he's a

12:40
prolific writer speaker thinker thought

12:42
leader in this space you know he's

12:44
written a bunch of books i'll just read

12:45
some of them off to you

12:47
he's published a book called live long

12:49
and prosper another book called the

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quest which is for life for long life

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health and prosperity

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you wrote a book called recession proof

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your retirement years

12:58
also a book called money for life and

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then retirement game changers

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if you buy any of them you've done a

13:04
good job but there's one that's out now

13:05
called don't go broke in retirement

13:07
which is his latest

13:10
offering which is fantastic

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what was the motivation for that book

13:15
that was different than the previous

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five

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okay a good question and actually uh all

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my books uh are affected by research as

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i do them you know so

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as you mentioned researching at the

13:27
stanford center longevity for nine years

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and as i do more research it's like aha

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i've got new

13:32
insights so it just reflects my

13:34
evolution and my thinking

13:37
the other thing is that some of my books

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are holistic meaning i look at health

13:42
finances and your lifestyle that was

13:45
like retirement game changers for

13:46
example and then others are just focused

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just on

13:49
generating monthly income

13:51
and so this latest book don't go broke

13:53
in retirement was just narrowly focusing

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in on that important task of how do you

13:58
develop a retirement income portfolio

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and what

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uh motivated me for that is that i

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completed a project at the stanford

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center longevity on retirement income

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strategies

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and we looked at 292 different

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retirement income strategies

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of course we use computers with that and

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we use sophisticated techniques that i

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use during my consulting years

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i was a consulting actuary that helped

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large companies run their retirement

14:26
programs and

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we developed a very sophisticated

14:29
software to help people

14:31
help companies do funding strategies and

14:34
investment strategies and though that

14:35
same

14:36
the same software can help with

14:38
individuals now so we use that that

14:40
sophisticated software

14:42
to look and compare 290 different

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strategies

14:46
and one of them fell out

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when i say fallout emerged that's a

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better way

14:51
as being pretty straightforward and

14:53
simple and very effective compared to

14:56
more complex strategies

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and so we ended up calling it the spend

15:00
safely and retirement strategy

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and that's actually

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the strategy that's in

15:06
the book don't go broke in retirement

15:09
and actually i condense it down to 33

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words in that post i said you know

15:13
decumulation 33 words sure

15:16
and so that was really the motivation

15:18
was um seeing this strategy come out of

15:21
this research

15:22
and there was a research team uh wade

15:24
fowl was on the uh team i know he's

15:27
appeared on your show sure before and uh

15:30
joe tomlinson and we kind of looked

15:31
around the table

15:32
virtually of course

15:34
wow you know this is powerful this is

15:36
going to help people

15:37
uh middle-income people people with

15:40
under a million dollars in savings

15:41
that's our target audience and they have

15:43
a straightforward strategy that they can

15:46
do

15:47
uh we thought was pretty powerful so

15:48
that was the motivation for writing that

15:50
book

15:52
interesting let me we'll get back to the

15:54
book i did want to mention to the the

15:56
listeners and the viewers that of course

15:58
we're going to have steve's site on on

16:00
um

16:01
on his page on my site the

16:03
annuityman.com

16:04
but he has a newsletter you can sign up

16:06
for and it's a great newsletter and you

16:08
need to sign up for that newsletter he

16:10
also has

16:11
some worksheets he has links to the

16:13
stanford center on longevity where he

16:15
was a part of and i'm assuming you're

16:16
still a part of

16:18
so that his site that we you know we

16:21
certainly want you to go to

16:23
there's nothing salesy about it it's

16:25
educational

16:26
and it's based on research and i think

16:29
that if you're pre-retirement in

16:31
retirement

16:32
been in retirement for a long long time

16:35
you should always be learning you should

16:37
always be seeking

16:38
and i think what what steve has done is

16:41
is put together a very very informative

16:44
site

16:44
that you can go to read

16:48
obviously it's free you can get whatever

16:49
you need there

16:51
when

16:52
when you get questions from people

16:54
recently like say in the last year or so

16:56
we've been through some really

16:57
interesting black swan events as you

16:59
know

17:00
what are some of the questions that

17:01
continually pop up what are what are

17:03
people asking you

17:05
that's bothering them or they're trying

17:07
to solve for

17:11
yeah that's a good question and it's you

17:13
know it's uh what you might expect you

17:15
know the stock market volatility is

17:17
concerning them

17:19
um inflation now in the last couple

17:21
months isn't concerning people

17:24
uh

17:25
always health care has been an issue

17:28
you know there's two aspects to that

17:29
staying healthy as healthy as you can

17:31
and then paying for care when you need

17:34
it

17:34
so really um

17:37
nothing really has popped out as real

17:39
different from prior years other than

17:41
just kind of the intensity and the worry

17:43
just because of the times we're in

17:47
when you were at watson wyatt and you

17:49
were helping did you helping companies

17:52
in the fortune 100s

17:54
was there something in the back of your

17:56
mind that knew that this what you're

17:58
doing now would be the chapter two of

18:01
your life how did you arrive here as

18:03
kind of the

18:05
one of the go-to resources for

18:07
intellectual thought on retirement

18:09
retirement planning retirement planning

18:11
retirement income planning you know i

18:13
asked wade fowle the same thing had

18:15
interesting answers from him i'm always

18:17
wondering

18:18
what got you here there's always a story

18:20
and i think my listeners and viewers

18:22
want to know who you are

18:24
um and how you got here can you give us

18:26
a little brief background on on the

18:27
journey

18:28
sure appreciate that um

18:31
i have worked as a consulting actuary

18:34
and we started

18:35
my career

18:37
helping companies run their traditional

18:39
pension plans you know technically

18:41
called a defined benefit plan

18:43
and so we were helping companies

18:46
invest the money make sure they invested

18:48
enough you know how much should they

18:50
invest

18:51
complying with the law i mean that was

18:53
my primary career

18:55
and

18:57
i served very large corporations and in

19:00
the 1990s a lot of companies started

19:03
either freezing or phasing out their

19:05
traditional pension plans and replacing

19:07
them with 401k plans

19:09
i was on the front lines of that

19:10
conversion i was helping my clients do

19:12
that transition

19:14
and i understood the reasons why the

19:17
companies wanted to do that

19:20
but i all along i thought this is

19:22
putting a lot of burden on the average

19:24
mary and joe

19:26
to

19:27
figure out how much to save and then

19:29
once they get to retirement figure out

19:30
what to do

19:32
and so actually i did write a book in

19:34
1995 don't work forever

19:37
and um that was the start of that

19:40
process and that was saying how much it

19:42
was actually there was like simple steps

19:43
baby boomers must take to every retire

19:45
so in 1995 baby boomers you know we're

19:48
younger than we are now

19:50
and so

19:51
that focused on saving enough money

19:54
and fast forward to

19:57
2006

19:58
when i published um

20:00
live long and prosper now starting to

20:02
shift my thinking towards

20:04
how do you actually spend the money in

20:06
retirement

20:07
so

20:08
it was really an outgrowth of my career

20:11
at watson wyatt and

20:14
i reached a phase in my life where i

20:16
just wanted to help people more

20:18
and watson y was a great career but i

20:21
was helping companies manage their

20:23
programs

20:24
and i would start even then they would

20:26
hire me to give workshops for their

20:28
employees and i'd get face-to-face with

20:30
people and i'd see how worried they are

20:32
and how stressed they are and how

20:34
appreciative they were of me coming and

20:37
speaking with them and helping them

20:39
and it just made me think okay i want to

20:42
go do more of that

20:44
and so i retired from watson wyatt in

20:46
2006 and when i say retire it wasn't

20:48
retired to go take cruises and play golf

20:50
it was just i called it honorable

20:52
discharge you know they waved goodbye we

20:54
were friends

20:57
and i transitioned in this work focusing

20:59
in on

21:00
doing research writing uh

21:03
seminars now webinars you know yeah um

21:08
and really my focus is just on half

21:10
helping that like i said that person

21:12
that a prior generation maybe had a

21:14
pension plan now they've got some money

21:16
in a 401k plan they don't know if it's

21:18
enough

21:19
they don't know what to do with it

21:20
they're worried about inflation you know

21:23
so it's it really comes down to me about

21:25
helping people that this feels good to

21:27
me

21:29
for the people out there

21:31
obviously he graduated with honors from

21:34
university california irvine

21:36
with a with a double major in

21:38
mathematics and social science which i

21:40
find interesting because that

21:41
combination

21:42
then dovetails into retirement thinking

21:47
so you are a math guy but

21:49
there's this there's is there obviously

21:51
from you there's an interest in the

21:53
social science nature of it which i

21:55
think is a very interesting combination

21:57
you know i worked on wall street for a

21:58
long long time and now i'm in the

21:59
annuity space

22:01
um

22:02
you didn't find that you either found

22:03
the math guys or you know the only

22:06
social science person was the person

22:08
that's running the hr department we

22:10
hoped so do you think that has separated

22:13
you because your writings reflect that i

22:16
didn't know your your double major was

22:18
that but it do you think that separates

22:20
how you go about looking and researching

22:22
things

22:23
well it certainly does and

22:26
because i think that the

22:29
psychological issues are just as

22:31
important as the technical investment in

22:33
actuarial issues and you really have to

22:35
consider both

22:37
and

22:38
back when i

22:39
was at college i didn't realize where i

22:42
would go with this other than i was

22:43
always interested in math and i was

22:45
always interested in psychology and

22:46
economics and

22:48
i just took courses that were

22:49
interesting to me at the time and it's

22:51
kind of interesting they look back and

22:52
say oh this is how that interest has

22:55
evolved to

22:57
at stanford actually we've done a lot of

22:59
research on decision making and that's

23:01
my current project i'm doing there wow

23:04
tell us more about that

23:06
well it's

23:09
the idea is that

23:11
a number of people

23:12
uh the people who've appeared on your

23:14
shows

23:16
have developed good strategies mm-hmm

23:20
sometimes

23:21
something's dinging there in the

23:22
background if you could shut that off is

23:24
there if there's an email

23:26
um

23:27
you know i thought i had turned that off

23:29
so don't worry about it don't worry

23:30
about it there's people that that's just

23:32
his brain popping that's what that

23:34
so go ahead and tell us about the

23:36
decision making that's very interesting

23:38
yeah that's the project we're currently

23:39
in uh and should wrap it up in a month

23:42
or two

23:43
uh the idea is that

23:46
a lot of people transfer transitioning

23:48
into retirement don't really plan ahead

23:51
that much

23:52
they should but they don't

23:54
why do you think that is it just because

23:56
life is so hard and coming at you so

23:58
fast and

23:59
people just don't segment that time what

24:01
do what do you think the reason is or

24:02
they haven't been taught to do that

24:05
actually all of the above

24:07
okay but um because that was part of the

24:09
research was to have interviews with

24:12
pre-retirees and retirees and do a

24:14
survey digging down on those very issues

24:17
and it's there's a whole range of of

24:19
issues but some people are

24:22
just not making enough income they're

24:24
they're living day to day and thinking

24:26
longer term

24:27
they just don't have the bandwidth to do

24:29
that because they're just struggling day

24:30
to day so that's that's one

24:32
reason um

24:34
other people

24:36
uh they just think well live for today

24:38
i'm not gonna worry too much about

24:39
tomorrow or they say life's too

24:41
uncertain

24:42
you've got all kinds of reasons but a

24:44
lot of it is they just haven't focused

24:46
on it they're still focused on

24:48
accumulating money and that's a common

24:50
theme we saw

24:52
is that retirement planning for them is

24:54
still saving and investing

24:57
and they haven't really turned their

24:59
attention to how to really spend it

25:02
and so some of it is just bringing this

25:05
to their attention

25:06
in a way and what really came out of it

25:09
was giving people a step-by-step guide

25:12
to the decisions they need to

25:14
make

25:15
because it's just it's overwhelming to a

25:17
lot of people

25:18
so those are kind of the things that are

25:21
coming out of that research

25:23
and our intent is to help

25:25
financial institutions or financial

25:27
advisors you know how do you message

25:30
your strategies in a way that will

25:33
help people

25:34
get it and

25:36
follow through with decisions

25:38
i want to go back to what you were

25:40
talking about when you were working with

25:42
um

25:43
watson wyatt and for people that don't

25:45
know what a defined benefit plan is it's

25:47
a pension it's a pension offered by

25:49
companies

25:50
and you know depending on what study you

25:52
look at less than let's just

25:54
we can easily say that less than 10

25:57
of private companies do not offer the

25:59
pension the lifetime income stream they

26:01
offer the accumulation what's called a

26:03
defined contribution plan

26:05
but what i want to talk to you about

26:08
and maybe maybe you can pinpoint the

26:10
time but you you were talking about

26:12
the realization of the of the

26:15
pivot companies made from defined

26:17
benefit plans and that

26:19
shouldering that risk for lifetime

26:20
income for their employees to then

26:22
pivoting to a defined contribution plan

26:24
and truly transferring that risk

26:27
for the employee to make their decision

26:30
was that a

26:31
was that a depressing moment can you

26:34
remember like when it really hit you how

26:36
how horrible that was

26:39
you understood why they were doing it as

26:40
a company but you also knew the

26:42
repercussions from that decision can you

26:45
expound upon that a little bit more

26:48
well i don't remember the moment the

26:50
light bulb came on but it was early on

26:52
um in the transition

26:55
and of course i was working at a big

26:57
company with colleagues and we were all

26:58
concerned about this so all of us

27:01
were saying wow you know our company our

27:03
client has asked us to terminate or

27:05
freeze or whatever the

27:06
technique is

27:07
they wanted to basically get out of

27:09
sponsoring a pension plan

27:12
so

27:12
you know we were trained on how do you

27:15
fund retirement and you know we're

27:17
highly

27:18
trained

27:19
uh mathematicians and we instantly got

27:22
that this is going to be a problem

27:24
in houston we have a problem here

27:26
um and

27:28
so i i can't tell you the exact moment

27:30
but it was really early on when we

27:31
started seeing that this was a trend you

27:34
know a first couple companies that

27:36
terminated their plans

27:37
might have been companies that were

27:39
distressed

27:40
and so we kind of all right they're on

27:42
the verge of bankruptcy we get it

27:44
but as it started snowballing and we saw

27:46
oh this is more than just distressed

27:48
companies

27:49
that are terminating their plans it was

27:51
somewhere in the early to mid 1990s

27:54
where i just thought we have a problem

27:57
and it's not and it's not going away for

27:59
sure um

28:01
the trend for that happening

28:03
was that wall street driving that from a

28:05
profit standpoint

28:07
what's your guesstimate on why that

28:09
happened and then everybody followed was

28:11
it just pure profit pure bottom line

28:15
it's not so simple is that like anything

28:17
there's a

28:18
number of answers um

28:20
it did actually start like i was saying

28:22
companies that were distressed

28:24
and just couldn't afford their pension

28:26
plan anymore

28:28
um

28:29
it was driven a lot by the

28:31
cfos in the companies because they

28:33
didn't want

28:35
the risk

28:36
of their pension plan becoming

28:39
underfunded and them having to fund it

28:41
and actually i can't blame them because

28:43
really they are in effect running an

28:46
insurance company

28:48
and they're not

28:50
insurers they're car makers and airplane

28:52
makers and so

28:54
it really was a very

28:56
complex uh operation that was out of

28:59
their area of expertise and there were

29:01
companies

29:03
whose assets and liabilities in the

29:05
pension plan were greater than the

29:06
capitalization of their

29:08
company wow so the liabilities were huge

29:11
relative to the value of their company

29:13
and so the cfos were saying

29:16
you know we can't have a hit to our

29:17
bottom line if the stock market goes

29:19
down

29:20
uh

29:21
and so i can't blame them um that that

29:24
that was very compelling to them

29:28
then

29:29
uh

29:30
add that to in the 1980s and 90s the

29:34
baby boomers are coming into the

29:35
workforce in droves

29:38
and it's a classic pattern you know if

29:40
you're 30

29:42
years old 35 years old someone promising

29:44
a pension at 65 it's like ah what's that

29:47
right and

29:49
oh but i've got an account with money

29:51
you know

29:52
and so it was the entrance of the

29:54
boomers into the workforce

29:56
and making a bigger bigger part of the

29:58
workforce and they

29:59
either claimed they wanted that or the

30:01
hr folks thought they wanted it and so

30:04
that became the hr reason why they would

30:06
make that conversion as well and then

30:08
pretty soon it became a snowball where

30:10
companies were doing it just because

30:12
other companies were doing it

30:14
um so anyway that's a way of that's the

30:16
kind of the what was happening in the

30:18
1990s there

30:20
do you think that if companies were

30:22
contrarian at this point and went the

30:24
opposite direction and provided pensions

30:28
is that even a feasible thought for some

30:30
of these companies i mean obviously in a

30:31
company like apple pick one that's big

30:34
amazon they could do that i mean and i

30:37
believe that in a competitive world it

30:40
would separate them but maybe i'm just a

30:44
optimistic

30:46
unrealistic

30:48
person

30:49
do you ever see it coming back to where

30:50
we're at we do define benefit plans with

30:53
companies that want to be competitive

30:54
and recruit

30:57
well uh we're just now in speculation so

30:59
i understand that's okay my own personal

31:02
view is not going back

31:05
and it's because those financial reasons

31:08
are still there

31:10
and the financial reasons why the

31:11
companies don't want to take on that

31:14
liability and actually

31:15
the current environment exacerbates

31:17
their concerns

31:19
because with low interest rates you know

31:22
x-rays have to measure the value of

31:24
their promises they've made

31:26
and the lower the interest rate the

31:28
higher

31:30
your liability is and so these

31:32
liabilities are being valued at a very

31:34
low interest rate creating big

31:35
liabilities

31:37
so i just don't think it's going to

31:38
happen

31:39
what i'm trying to do is encourage

31:41
companies to say

31:43
have your 401k plan but turn your 401k

31:46
plan into a true retirement plan

31:48
and you need to have a retirement income

31:50
menu

31:52
that complements the investment menu and

31:54
now you've got ways for your retiring

31:57
employees to take their account balance

32:00
and maybe

32:01
use your plan to convert it into a

32:03
stream of income

32:05
and that's my current mission is to help

32:07
companies do that persuade them to do

32:09
that and show them how

32:12
this is probably the only thing i'm

32:13
going to say about annuities on this

32:15
conversation but

32:17
the annuity industry as a whole has done

32:20
a horrific

32:21
job educating people in the value

32:23
proposition

32:24
of a transfer of risk lifetime income

32:26
stream annuity which is the only

32:27
category that can provide that lifetime

32:30
income stream and i always tell people

32:31
you have you already owned the best

32:33
annuity on the planet called social

32:34
security and you actually have another

32:36
one called a forced annuity which is

32:38
your requirement of distributions yes i

32:40
call it a forced annuity um but i i

32:43
think obviously that's what i'm trying

32:44
to do out here is is educate people

32:47
on on the proper usage allocation and

32:50
proportion

32:51
of annuities but i think it's it's right

32:53
in front of the industry they're just

32:55
not they haven't got their messaging

32:57
together

32:58
um to address the 10 000 baby boomers

33:01
that are hitting age 65 i think it it'll

33:03
be studied in business schools as one of

33:05
the more colossal marketing mistakes of

33:08
all time from an industry i mean just

33:11
it's and it's the passion i have to come

33:13
out here and say okay here's the truth

33:15
about it there's no sales pitches so

33:17
enough about that i was i was looking at

33:19
your site and again we're gonna have

33:20
steve's site and the link to that on my

33:23
site at theannuityman.com

33:25
under his resources tab i mean there's a

33:27
ton of stuff to do obviously you need to

33:28
sign up for his newsletter he's got

33:30
videos and stuff like that

33:31
but he also has a couple lists the top

33:33
10 retirement planning mistakes which i

33:35
thought was interesting

33:37
and the 10 most important questions that

33:38
you face

33:39
let's just cherry pick a couple on the

33:41
top 10 retirement planning

33:44
mistakes

33:46
i found one jumped out at me people

33:49
starting social security benefits too

33:51
early and i've had social security

33:52
experts on the program

33:54
but half of all americans are starting

33:57
to take the benefits

33:59
at i believe you said age 62

34:02
really

34:04
that was back then when i uh

34:06
put together that list and it's creeped

34:08
up a little bit but not nearly the way

34:10
it should be

34:12
and so let me just talk about that for a

34:14
second because i still think that is

34:16
the second biggest mistake people can

34:18
make is starting social security too

34:20
early

34:21
for the vast majority of americans

34:24
social security is going to be

34:26
two-thirds

34:28
maybe three-quarters of their total

34:29
retirement income

34:32
and when you think about it it is the

34:35
perfect retirement income source

34:37
because it's paid for the rest of your

34:38
life no matter how long you live

34:40
it's increased for inflation and it

34:43
won't go down if the stock market goes

34:44
down

34:45
and it has tax advantages for many

34:47
people i mean it is perfect it's the

34:49
best annuity ever period yes and so

34:53
what i say to people is that you want to

34:56
make that social security benefit as big

34:58
as you can

35:00
that's your first task

35:03
and

35:05
when we can get into the reasons or how

35:07
to do that but it's generally the short

35:09
answer is you need to delay taking

35:10
benefits and i can give you nuances on

35:12
that

35:14
but then once you do that

35:18
think to yourself do i have enough

35:20
guaranteed income would i feel more

35:21
comfortable

35:23
if i had another stream of guaranteed

35:25
lifetime income ah now's the time to

35:27
think about buying an annuity

35:30
and so the council i usually give is

35:34
maximize your social security and don't

35:36
buy an annuity until you've taken steps

35:38
to maximize that social security because

35:40
that's the best priced annuity you'll

35:42
ever get i 100 agree with you period

35:46
yeah

35:47
and

35:48
and one of the strategies actually i

35:50
call a social security bridge strategy

35:52
and i'll just

35:53
display talk about that suppose you

35:55
retired 65 but you determined 70 is when

35:57
you should

35:58
the best time to start with social

35:59
security

36:00
well from your savings pay yourself

36:03
that social security benefit that you

36:04
would have had had you started at 65

36:07
to enable you to delay social security

36:09
until 70 and you pay yourself from your

36:11
savings and i've actually done you know

36:13
what's the effect of annuity purchase

36:15
rate with that strategy and it beats by

36:18
a long shot actual annuity purchase

36:20
rates

36:21
and so that's why i'm saying is that use

36:24
your savings if that's what you need to

36:25
do to

36:26
delay your social security benefit

36:29
that's the best annuity purchase you'll

36:30
ever make

36:32
then once you've maxed out on that which

36:34
you will if you do it all the way

36:37
now is the time to start looking for an

36:39
annuity if you want more guaranteed

36:41
income right and so really the solution

36:43
that i advocate is really more of a

36:45
decision process

36:47
where and there's a series of decisions

36:49
you can make and i try and make it as

36:51
simple as possible

36:55
question what's the number one if that's

36:57
number two what's number one

36:59
retiring too early period

37:01
uh

37:02
and it's very closely related to taking

37:04
social security too early

37:06
but i've got some charts if you can

37:08
imagine a bar graph where it shows a

37:10
typical pre-retiree and it shows bars

37:13
when they

37:15
what was the their income be if they

37:16
retired and started everything at age 62

37:19
and 65 and 6 and 70.

37:22
and your total retirement income almost

37:24
doubles

37:26
between retiring at age 62 and retiring

37:28
at 70.

37:30
and it goes up you know proportionally

37:31
along the way

37:33
and so

37:34
i call age 62 to 70 the retirement

37:37
opportunity zone

37:39
because the decisions you make during

37:41
that period really are going to affect

37:43
your quality of life or your financial

37:45
security for the rest of your life

37:47
and so just make those decisions

37:49
carefully and it doesn't mean you work

37:51
all the way to age 70 because not many

37:53
people either want to do or they can do

37:55
it

37:56
um but at least it means don't retire at

37:58
62 not knowing what you've done i mean a

38:01
lot of people that's what our study is

38:03
showing uh they retire

38:06
just because they feel like it or they

38:08
got mad at their boss

38:10
and actually having social security

38:12
actually enables them it wasn't even

38:14
possible if they got mad at their boss

38:15
at age 60 they couldn't retire but now

38:18
at age 62 they get mad at their boss oh

38:20
okay well i can just

38:22
you know take this job and shove it and

38:24
retire

38:26
um

38:27
not a good idea

38:29
if you haven't done the math and so i'm

38:30
really an advocate of doing the analysis

38:33
what is your retirement income if you

38:35
retire at these ages

38:36
does it exceed your expenses if it does

38:39
well then fine retired 62. but for the

38:41
vast majority the numbers don't work out

38:43
that way

38:44
i know you've spoken with wade fowle

38:46
about

38:48
his book on

38:49
um reverse mortgages and tapping into

38:51
home equity and those type of things i

38:53
find that fascinating because it just he

38:55
just destroys the

38:57
four percent rule that's been in place

38:59
in the in the

39:00
brokerage world

39:01
and for people to know what that is is

39:03
the the advisor will say well you know

39:05
don't buy anything that's guaranteed

39:07
because we can just peel off four

39:08
percent and you'll be fine and he you

39:11
know wade's destroyed that

39:13
you have one of your top 10 retirement

39:16
planning mistakes is tapping home equity

39:18
too early

39:21
what's too early

39:22
or is that custom

39:24
well

39:25
let me first talk about the whole idea

39:27
of tapping your home equity because

39:30
if you look at the statistics some are

39:33
like 50 or more

39:35
pre-retirees have more wealth in their

39:37
home equity than they do in their 401k

39:39
and their iras

39:41
wow that's a big number

39:43
right and then

39:45
another statistic and these are reports

39:47
coming from what i did at stanford

39:49
center in longevity

39:51
i can say with confidence the vast

39:53
majority of

39:55
current pre-retirees have not saved

39:57
enough money in their iras and 401ks to

40:00
retire full-time

40:01
at age 65

40:03
and spend the same amount of money they

40:05
spent

40:06
before retirement

40:08
they're going to have to spend less

40:09
money in retirement so they're facing

40:11
two tr two tough choices

40:13
work longer than age 65

40:15
or reduce your spending

40:17
or some combination

40:19
the vast majority of you know three

40:21
quarters of americans i've seen how much

40:24
that age group has saved and i can do

40:26
the math and

40:27
so

40:29
that says to me

40:31
if you just want to rely on your irs and

40:33
401ks and you can make do with that

40:35
reduced level of

40:37
income

40:38
that's okay

40:40
but if you've got this wealth over here

40:41
in your home and you really either need

40:44
to retire or want to retire

40:46
you ought to take that into

40:47
consideration that's an asset that you

40:49
have

40:50
and i actually advocate looking at other

40:51
assets too because some people might

40:52
have paid up

40:54
life insurance you know whole life

40:56
insurance so it's really like looking at

40:58
all of your financial assets

41:01
um

41:02
and that analysis that i was describing

41:04
earlier where you look at your income

41:05
from social security and your

41:08
your income that you can generate with

41:10
your irs and your 401k and if that

41:12
doesn't cover your living expenses now

41:13
what

41:15
well one of the now what's is looking

41:16
using home equity

41:18
uh cash valuable life insurance if you

41:20
have those you know you gotta look

41:22
around and see what you've got to do to

41:24
address that so i'm just an advocate of

41:26
using all

41:27
your financial resources

41:29
and i can get into detail about reverse

41:31
mortgages and home equity but that's for

41:32
the moment that's the general idea right

41:35
and i i just think people forget that

41:37
they're sitting in

41:39
the house that could provide

41:42
um liquidity if liquidity is needing

41:45
needed without upsetting a portfolio or

41:48
disrupting a portfolio and i think if

41:50
just people put that in the back of

41:52
their heads

41:53
you know

41:54
read what you said read what wade said

41:56
and just realize that's an asset class

41:59
as well

42:00
that can be used doesn't have to be used

42:02
but it should be

42:03
in the batter's box as i say as a

42:05
baseball analogy i want to ask you a

42:06
question about

42:08
you know you have the 10 most important

42:10
questions that you face and by the way

42:12
these list of tins on steve's site once

42:14
again we'll have that link for you

42:17
the one that jumped out with me and i

42:18
want to hear this answer

42:19
and the question is how can i work most

42:22
effectively with financial advisors

42:24
brokers and sales people the dreaded

42:26
salesperson

42:28
what's your what's your answer to that

42:29
steve

42:30
well and that's a tough one too um

42:32
because now

42:34
uh first of all let me start and say

42:36
that this research project i was talking

42:38
about the survey shows that about

42:40
two-thirds of pre-retirees

42:42
and retirees don't work with a financial

42:44
advisor i agree i would i would say yeah

42:46
at least that

42:47
now i think they should

42:49
um because this some of these decisions

42:51
are like like i said

42:53
uh rocket science or brain surgery to

42:55
them

42:57
but you got to find the right person

42:59
yeah

43:00
and so that's part of your

43:02
job i talked about your retirement job

43:04
is actually doing your shopping for the

43:06
right professional

43:08
and there are two things to look for at

43:10
least one is what are their professional

43:14
training and qualifications

43:16
[Music]

43:18
because on that one

43:20
a lot of

43:21
people have had training on accumulating

43:23
money but spending money retirement is a

43:26
specialty

43:27
and there are actually credentials you

43:29
can get that focus on that and i list

43:31
them so you know look for those

43:33
credentials to at least see that they've

43:34
got training on how to generate

43:37
income

43:38
so your expertise and your training is

43:40
one thing to look for then the other one

43:42
to look for is how are they paid

43:44
yep

43:45
because

43:46
it's possible to be paid in a way that

43:49
gives you a conflict of interest

43:51
i agree recommending one approach makes

43:53
the advisor more money than another

43:55
approach you can kind of guess where

43:56
they're going to go

43:57
well and that's that's the problem the

43:59
annuity industry obviously i'm a

44:00
commission

44:02
based salesperson in all 50 states

44:05
but been to been to the rodeo before

44:07
obviously you have to

44:09
to line people up if an annuity is

44:11
appropriate with the right annuity

44:13
regardless of type regardless of

44:16
commission i really wish a couple years

44:18
back the annuity industry was being

44:20
pushed to have commissions um

44:23
told to the to the client and they're

44:25
built in

44:27
i was all for that and we do that if you

44:28
want to ask us what we make we'll do

44:30
that but i think i steve i we could

44:32
solve this very easily in the annuity

44:34
industry but it'll never happen if all

44:36
commissions were low and the same for

44:38
every product type it would solve itself

44:41
it really would yeah because i think

44:43
that

44:44
if you are making your money by

44:46
selling an annuity

44:48
earn it

44:50
totally and

44:51
instead of viewing that

44:54
as a transaction where you get a percent

44:56
you just now say well i'm the advisor to

44:59
this retiree and i happen to be paid by

45:02
a

45:03
commission sure

45:04
but um

45:06
you know this whole thing about

45:08
optimizing your social security first

45:10
before you buy an annuity sure look i

45:12
can imagine some insurance agents really

45:14
not liking that strategy

45:16
well

45:16
if they're honest they'll say yes that's

45:18
a good strategy if they have left the

45:21
morals at the door

45:23
um i mean it's a math you always tell

45:25
people annuities are math and these type

45:26
of strategies are math and if

45:29
the math doesn't lie the numbers don't

45:31
lie you know so you can't you can't

45:33
sales pitch it at all i want to ask you

45:35
a couple more questions we got a few

45:37
more minutes

45:38
um i wanted your take just because

45:40
you've seen it all

45:42
been there done that

45:44
forgotten more than most poor people

45:45
ever know about retirement but i always

45:47
want to get people's insight that's been

45:49
around for a while on the whole uh

45:52
cryptocurrency

45:55
tulip bulb mania going on

45:59
what do you think i mean what's your

46:00
take not that any of us know where it's

46:03
going to end up but what's your take on

46:04
it

46:06
how about you want me to be colorful

46:08
yes i do actually how's this one crypto

46:11
con currency is kryptonite

46:15
[Music]

46:18
i see i see too many retirees going

46:21
there

46:22
i think it's sad because uh

46:25
i don't think it's settled yet you mean

46:27
you have been around through the dot com

46:28
errors and we saw all of that stuff

46:30
where companies went public at

46:33
10 and you know sold the same day at 75

46:36
and there was nothing there

46:37
and it just worries me that do you worry

46:39
that retirees are you know they're

46:41
always trying to

46:42
pitch to get quick get rich quick does

46:45
that concern you that

46:47
people are

46:48
looking at that at retirement and they

46:50
might be right we might be wrong but

46:52
what do you think well it's

46:56
yeah i'm really concerned that people

46:58
would go in the

47:00
uh

47:00
crypto currencies

47:03
and first of all it's

47:06
it's not generating income there's not a

47:08
dividend or an interest payment the only

47:10
way you're going to make money is by

47:12
selling it later

47:14
when and hopefully earn a profit

47:17
and so now you're in the buy and sell

47:19
decisions

47:20
which are really the same as with the

47:21
stock market if you're going to buy and

47:23
sell stocks on your own and most people

47:26
are not paying attention

47:27
enough they don't know enough when to

47:29
buy and when to sell

47:31
and so as a retirement

47:33
investment

47:35
i just think it's kryptonite

47:37
now if you want to just play with it you

47:39
know fun money

47:41
but i'm just talking about your core

47:42
portfolio

47:44
yeah

47:45
you know you're looking at stocks bonds

47:47
real estate investment trusts these are

47:49
tried and true

47:51
investments

47:53
they've stood the test of time they've

47:55
got volatility of course but

47:57
uh their strategies to deal with that

47:59
volatility

48:01
and maybe 50 years from now we'll have

48:03
enough history

48:04
on crypto concurrencies to

48:07
better understand them but that's not

48:09
going to work for people in their 60s

48:11
right now to wait till 50 years to see

48:13
how that works

48:14
i just think people need to realize they

48:16
might miss it it might it might pass

48:17
them

48:18
it might already have passed them by and

48:20
um you know the movement but when you're

48:23
at the finish line i always tell people

48:24
if you've won the game stop playing it

48:26
right

48:28
i mean that's an old sports adage you

48:30
know if you wanted stop stop playing it

48:32
i wanted to ask you something about

48:35
at the time of this taping and obviously

48:36
this is

48:37
going to be viewed years and years and

48:39
years from now but at the time of this

48:40
taping

48:42
inflation is

48:44
an ugly albatross that's rearing its

48:46
head especially with gas prices and food

48:48
prices my heart breaks for people

48:50
that are on the edge

48:52
and and month to month i think 65 or 60

48:56
of adults have 400 in their savings

48:59
account right the people that are

49:02
listening to this podcast and watching

49:03
this podcast that's that's not who's

49:04
listening okay we have people that are

49:06
trying to put it together

49:09
what's your what's your take on this

49:12
this

49:13
this form of inflation that we're going

49:15
through right now

49:17
well obviously it's a source of concern

49:19
and you know i see

49:21
where we are in southern california gas

49:23
is six bucks a gallon

49:25
um

49:27
and so

49:28
i can't imagine how people who were

49:30
living on the edge

49:32
are when it was four bucks a gallon

49:33
which wasn't very long ago

49:36
so yeah

49:37
a horrible problem

49:39
um

49:40
having said that it gets back to what i

49:42
was saying earlier is that well social

49:45
security is index for inflation

49:47
and we're probably going to get a pretty

49:48
big jump after this year

49:51
and so it comes back to the strategies

49:52
that i've been talking about agree

49:55
maximize your social security be very

49:57
mindful of your spending

49:59
um invest in the stock market sure

50:01
because uh if you've been invested in

50:03
the market if you're a pre-retiree and

50:05
you've been in the market for quite a

50:06
while

50:08
you know even if the market goes down

50:10
twenty percent you just lost one year's

50:11
worth of earnings you know that that's

50:13
we've got a

50:14
terrific run

50:15
and so over the long run um there's a

50:17
lot of research that suggests

50:19
investing in the stock market as long as

50:21
you can understand the volatility

50:23
so it really comes back to tried and

50:26
true investments and then you know

50:28
within the last

50:29
10 15 years real estate investment

50:31
trusts have come out and now they're in

50:33
mutual funds

50:34
or etfs and so that's also i think a

50:36
more realistic strategy that can also

50:38
help

50:40
you know have some of that your

50:41
retirement money and those that can help

50:43
fight inflation so

50:45
not a magic bullet it's the same really

50:47
the same things we've been talking about

50:48
for a while

50:49
i think what's refreshing because i mean

50:51
with your background and your math

50:53
background just your background in

50:54
general

50:56
you can make this as complicated as you

50:57
want to make it but what i like about

50:59
what you do and how you write is is your

51:01
solutions are simple

51:03
and they're easy to understand and

51:04
they're translatable to people at all

51:06
levels which i think is a gift that you

51:09
bring

51:10
that a lot of people don't a lot of

51:12
people at your level of iq can't bring

51:14
it down

51:15
and i think that's the reason that

51:16
forbes keeps letting you write and cvs

51:18
money gets

51:19
they let you write because you you have

51:21
a

51:22
you have a good instinct for what's out

51:24
there and what the consumers are doing

51:26
we're kind of out of time but what i do

51:28
steve at the end of every one of my

51:30
podcasts and i don't tell you up front

51:32
is you get a mic drop moment of the last

51:36
word

51:37
the walk away and you could just you

51:39
don't have to do one but i always want

51:41
to see what's on the top of your head so

51:42
mic drop moment for steve vernon go

51:46
oh okay

51:48
well for your listeners and viewers

51:51
i would say

51:53
i'll go back to something i was saying

51:55
earlier think of your retirement

51:57
planning as your new job

51:59
not a full-time job maybe not even a

52:01
half-time job

52:02
but i've done some estimates and i've

52:05
estimated that you're actually paying

52:07
yourself 500 to a thousand dollars per

52:10
hour

52:12
by making smart decisions and so i asked

52:14
anybody do you want a job that could pay

52:16
500 to a thousand bucks an hour

52:18
not many people are going to say no

52:21
so i just want to encourage you it's

52:24
well worth your effort

52:25
and time to learn your options

52:28
if you need a financial advisor you're

52:30
still going to have a better discussion

52:32
with them if you're informed

52:35
so

52:37
do your job take your job that's one of

52:40
the best mic drop moments we've had on

52:42
fun with annuities and i want to thank

52:44
everybody that's listening to us on all

52:45
the major podcast platforms we hope to

52:47
have steve vernon back

52:50
in the in the very near future i want to

52:52
thank everyone for watching us on the

52:53
fun with annuities youtube channel

52:55
and i will see you next week

53:02
thanks for listening to fun with

53:04
annuities please hit the subscribe

53:06
button and make sure to go to my site at

53:09
the annuityman.com where you can run

53:11
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53:14
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53:16
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53:22
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53:24
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53:26
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53:30
encourage you to schedule a one-on-one

53:32
call with me stan the annuity man so we

53:34
can have a full discussion of your

53:36
specific situation it will be the best

53:39
brutally factual and truthful advice

53:42
you will ever get and that's one

53:44
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53:46
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53:48
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53:50
planet

53:51
fun

53:52
with annuities

53:56
[Music]

54:07
you