Wade Pfau: Retirement Income Style Awareness (From the Vault)

November 4, 2025
•
55 min
Wade Pfau: Retirement Income Style Awareness (From the Vault)
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In this classic episode, Stan The Annuity Man revisits a powerful conversation with Wade Pfau, one of the most respected voices in retirement planning.

They explore:

- What true retirement success really means

- The role of RISA (Retirement Income Style Awareness)

- Strategies for funding long-term care

- How reverse mortgages and risk pooling fit into the picture

Highlights:

- Retirement isn’t about quitting—it’s about creating the freedom to live on your own terms.

- Three main paths to income: total return investing, time-segmented or bucket strategies, and the guaranteed income of annuities and Social Security.

- Your approach depends on where you fall on the spectrum between probability-based and safety-first, and how much optionality vs. commitment you want.

- “There’s no ROI until you die”—up to that point, it’s all about transferring risk.

- Always retire to something, not from something.

CONNECT WITH WADE PFAU:
Website: www.retirementresearcher.com | http://wpfau.blogspot.com/
LinkedIn: https://www.linkedin.com/in/wpfau/
Twitter: https://twitter.com/WadePfau

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FUN WITH ANNUITIES (r)

0:04
Welcome to Fun with Annuities, where

0:06
every single week I welcome a celebrity

0:08
guest expert that can help you maximize

0:10
[music]

0:11
chapter 2 of your life. Listen, learn,

0:14
laugh, and love every minute of the most

0:17
unique financial podcast on the planet.

0:21
Let's get to it.

0:29
Welcome to Fun with Annuities. I'm your

0:31
host Stan the Annuity Man, America's

0:32
annuity agent, licensed in all 50

0:34
states. I want to welcome everyone on

0:36
all the major podcast platforms and also

0:38
on the Fun with Annuities YouTube

0:40
channel where you can see me and the

0:41
guest interact and facial expressions.

0:43
And you can check out how just utterly

0:46
fant fantastically good-looking we both

0:48
are, which is great. Um, laugh laugh,

0:51
right? [laughter]

0:53
Today's guest is a I'm so happy he's

0:57
here. Um just because for the consumers

0:59
that are listening to this um this

1:01
person is the real deal. He's the true

1:04
retirement expert. His name is Wade

1:05
Foul. A P F AU is the spelling of his

1:09
last name. Um he's the Miles Davis and

1:12
the Jimmyi Hendris of retirement

1:13
research and expertise. Obviously, I'm a

1:15
music guy, but that's who I I qua equate

1:18
him to. He's in rarified air. If there

1:20
was a um a mythical annuity at Mount

1:23
Rushmore, his face would be on it. He is

1:26
a professor of retirement income at the

1:27
American College of Financial Services

1:29
in King of Prussia, Pennsylvania. He

1:31
also hosts the retirement researcher

1:34
website and I would encourage you to go

1:36
there, retirementresearcher.com. We're

1:38
going to have all of his links on the

1:40
site so you can access those, etc. He's

1:43
the he's a principal and director for

1:45
MLAN Asset Management. He holds a

1:47
doctorate of economics from Princeton

1:49
University. He's written so much stuff

1:52
you can't even start to count it.

1:53
Hundreds of articles, hundreds of white

1:55
papers and research work. He has four

1:57
books that I own all four. Um the first

2:01
one that he put out was called uh safety

2:04
first retirement planning which is an

2:05
integrated approach for worry-free

2:07
retirement. Then he did one that was

2:09
fascinating called reverse mortgages.

2:11
How to use reverse mortgages to secure

2:13
your retirement. Third book was how much

2:15
can I spend in retirement a guide to

2:17
investment based retirement income

2:18
strategies. And the fourth one that I

2:20
just got retirement planning guide book

2:23
navigating the important decisions for

2:25
your retirement success. Once again

2:27
we'll have links to all of those where

2:28
you can buy them on Amazon. I would

2:30
encourage you if you're doing any type

2:31
of research on retirement. He has to be

2:34
on your bookshelf. With that being said,

2:37
welcome to Fund with Annuities, Wade

2:40
Fowl.

2:41
Well, thank you. It's a pleasure to be

2:43
here and thanks for that very nice

2:44
introduction.

2:45
You've earned it. You've absolutely I

2:47
don't know if you've ever been um

2:48
compared to Jimmyi Hendricks and Miles

2:50
Davis, but to me that's who you are.

2:53
[laughter]

2:55
Thanks so much.

2:56
Well, let's let's um I want to kind of

2:58
break this interview up into kind of

3:00
three parts. And the first part I've

3:02
never really seen done with you, but

3:04
it's something that that I selfishly

3:06
want to know, which is who is the

3:08
mythical Wade Fowl? Um who are you?

3:11
Where are you from? What what what makes

3:13
you tick? Who is Wade Foul the person?

3:17
Sure. Sure. So, well, born in Michigan,

3:20
raised mostly in Iowa. Uh just I became

3:23
interested in economics and that really

3:25
became my focus in grad school. I I I

3:27
moved to Japan and I worked as an

3:29
economics professor in Japan mostly on

3:32
pension systems in developing market

3:34
countries. But I wanted to move back to

3:36
the US and I started trying to find a

3:38
way to be marketable and just sort of

3:39
stumbled into financial and retirement

3:41
planning. Uh my background in that

3:43
regard I'm more like from the

3:45
investments world just I I was studying

3:48
for the CFA designation as a part of

3:50
wanting to move back to the US and just

3:51
really steeped in you know building a

3:53
lowcost indexed investment strategy.

3:56
Mhm.

3:57
But then as I looked at the retirement

3:58
planning, the first article I did kind

4:00
of from with that overseas experience,

4:02
I'd heard about this 4% rule of thumb.

4:05
It's it's from the investment world.

4:06
It's kind of the baseline of building a

4:08
retirement strategy. You build a

4:10
portfolio of 50 to 75% stocks. You start

4:13
taking distributions at 4% of the

4:15
account balance at retirement and just

4:17
keep doing that with inflation

4:18
adjustments. That that amount that you

4:19
take out and your money should last. And

4:22
I I had data on 20 different countries

4:24
and I was curious because that that rule

4:26
of thumb is based on US data and I found

4:28
that it did work historically in the US

4:30
and Canada but in the other 18 countries

4:33
it did not work and the mileage varied

4:35
in terms of the international experience

4:38
it really when we people think it it

4:40
worked 100% of the time in the US it was

4:42
really it worked about twothirds of the

4:44
time when we look at that in aggregate

4:46
across the world. So that really led me

4:48
down a path of thinking maybe

4:51
investments aren't always the right

4:53
solution in every circumstance for

4:54
building a retirement strategy. And I

4:57
didn't have any background in insurance

4:58
or annuities, but people started saying,

5:00
well, hey, if you Yeah, you know that

5:02
there there can be issues with

5:03
investments. Why don't you have a look

5:04
at annuities? And that's what then led

5:07
me down that path of looking into more

5:08
depth and and starting to then recognize

5:11
too that we really have completely

5:13
different viewpoints out there of in

5:15
terms of people can ask basic questions

5:18
about retirement and give completely

5:20
opposite answers. And either approach

5:23
can be valid. it really what works for

5:25
you as an individual. But certainly I

5:28
came to see through the kind of doing

5:29
simulations and so forth that annuities

5:32
definitely have a strong case that can

5:33
be made for them in terms of providing a

5:36
tool to help sustain retirement spending

5:38
over a potentially very long retirement.

5:40
And that's kind of just being agnostic

5:43
and and considering all the different

5:45
approaches to retirement income and

5:47
certainly then seeing the value of

5:48
annuities and insurance as part of that.

5:50
So the fork in the road was the 4%. Did

5:53
that just trigger something in you to

5:55
say, "Wait a minute. Why is this such a

5:56
known and accepted

5:59
um statement?" Because my background, I

6:00
worked for Dean Whit, Morgan, Stanley,

6:02
Payne Weber, and UBS on the stock

6:03
investment side become before I became

6:05
the mythical Stan the Annuity Man. Is

6:08
that what really said you just kind of

6:10
head slap moment and go, "Wait a minute,

6:11
that that didn't make sense. Let me look

6:13
into that." Was that the time? Was that

6:14
really the when you just kind of started

6:17
digging in?

6:18
Yeah, because I didn't really have a

6:20
clear I didn't know a lot about

6:22
financial planning in academics. It's a

6:24
new field. The first PhD program in

6:26
financial planning that began at Texas

6:28
Tech University in the year 2000. It's

6:30
not so when I was in well I was in grad

6:33
school around that time but I it wasn't

6:35
even on my horizon. So that's yeah

6:37
starting to look at how this sort of

6:39
practitionerbased approach to retirement

6:41
work works and then seeing you know the

6:44
the 4% rule going down that path with

6:46
just looking at it with the

6:47
international data that led me down this

6:50
path of more generally seeing issues

6:52
because some people will challenge that

6:54
international data and say well we we

6:56
live in the US I mean assuming that's

6:58
true and we invest in the US it doesn't

7:00
really matter like if Bill Ben the

7:02
creator of the 4% rule had been Italian

7:04
and he was looking at Italian stocks and

7:06
Italian bonds. The 4% rule only worked

7:09
about 25% of the time historically, not

7:11
100% of the time. But who the argument

7:14
would be, who cares about that? We live

7:15
in the US. We have US data. And this can

7:18
start getting philosophical. But I think

7:20
because there's so much uncertainty in

7:22
financial markets, there's value at

7:23
looking at a broader international

7:25
experience. But then that just opens so

7:27
many other doors, too. Like now interest

7:29
rates are lower than they ever were in

7:31
that historical data that gave us the 4%

7:33
rule.

7:34
And that's huge. and a mathematical

7:37
certainty. If interest rates are low,

7:39
bond yields or bond returns will be low

7:41
and you can't spend as much from a a

7:43
bond portfolio. We see the same issue

7:45
with the stock market and so forth. So,

7:47
I just developed all these concerns that

7:50
just having everyone go into retirement

7:52
with 50 to 75% stocks and having the

7:55
viewpoint that it will be fine because

7:56
US historical data showed that it

7:58
worked. I I didn't think that was going

8:00
to be for everyone. And yeah, that that

8:02
was really the the starting point for

8:03
all that. That's fascinating because

8:05
when you bring that up, I'm now

8:06
thinking, well, in a in a balanced

8:08
portfolio where you have international

8:09
exposure in the global marketplace where

8:11
everything's interconnected and we're

8:12
on, you know, we're on a a real-time

8:15
basis with everyone. Yeah. The 4% rule

8:17
based upon the research that you have uh

8:19
have laid out. That doesn't work. And I

8:21
applaud you for not just, you know,

8:23
that's that's your background is not to

8:25
take everything at face value is to dig

8:27
in and make sure it's true. But I think

8:28
you've done the public a a good service

8:30
because you have given validity uh from

8:34
a math and research and um just a an

8:38
educated standpoint on annuities because

8:40
the annuity industry as you know has

8:42
earned its bad reputation on some of the

8:44
sales practices and all sales

8:46
environments have good and bad people in

8:48
it. But I think you've you've definitely

8:50
added the foundation that when you're

8:51
talking about it there's no sales pitch.

8:54
It's it's math and for you it's math.

8:56
Um, couple other questions before we get

8:59
dig in. Um, non-retirement plan guru

9:02
hobbies. What what is what is Wade Foul

9:05
do when he says I don't want to talk

9:07
about annuities and retirement? What do

9:09
you do?

9:10
I have three young children now, so that

9:12
definitely takes a lot of time, but I

9:15
mean watching some during the pandemic

9:18
watching shows with them. We just we'd

9:19
gone through Adventure Time. I thought

9:20
that was really good cartoon for kids

9:22
and for adults. And [laughter]

9:24
uh with hobbies beyond that, I've always

9:26
had an interest in things like amateur

9:28
radio and shortwave radio. So that's

9:30
really the internet has to some extent

9:32
killed out that entire hobby as an

9:35
option for people. But yeah, I mean that

9:37
that's spending time with kids.

9:39
That's neat. Do you consider yourself a

9:41
um a lifer in this retirement guru space

9:44
that you that you dominate? Is this a

9:47
passion? Do you wake up and does it keep

9:49
you going?

9:51
Because it really does come from really

9:53
to some extent what started me in all

9:54
this was just curiosity about my own

9:57
saving. I've always been a saver and so

9:59
always been interested and then

10:00
understanding how to invest that and I'm

10:03
not yet at the retirement phase myself

10:05
but that naturally extends and if you're

10:07
thinking about saving and planning for

10:08
the future how do you then build a

10:10
retirement strategy around that. So that

10:12
that really did motivate me with the

10:14
early research and as I've dug more and

10:16
more into it. Yeah. All the different

10:18
aspects of retirement income planning

10:20
like even now things like how you

10:22
Medicare decisions and everything else.

10:24
I find it all very interesting because

10:25
it all interconnects and fits together

10:28
when you're thinking about how do I

10:29
build a complete retirement plan. And

10:31
your last book really dives into

10:33
long-term care, Medicare, Medicaid, and

10:35
and those type of planning, which a lot

10:37
of um a lot of people don't go into and

10:40
and work you're working that into the

10:42
whole retirement plan thought and

10:43
process. One last personal question

10:44
before we dig into the meat of the

10:46
matter. Um

10:49
how how is CO at the time of this

10:51
taping, we're still dealing with CO and

10:53
the and the Delta variant. How has that

10:55
affected your work, your outlook?

10:58
um or has it it might not have has it or

11:02
has it not affected you not from a

11:04
personal basis but just kind of how

11:06
you're viewing retirement um and how

11:09
you're speaking with people as you go

11:11
out and and you're speaking in front of

11:13
either agents and adviserss or

11:15
consumers. Has it affected you at all

11:17
from that standpoint?

11:19
It has on a few different levels and and

11:22
one is just along with COVID we just

11:24
interest rates they were already low and

11:27
they've dropped even lower and it's like

11:29
just shocking you can't get inflation

11:32
protection anymore without taking on

11:33
market risk and so that's been a huge

11:37
issue of just how do retirees transition

11:39
their wealth into income because

11:41
interest rates are just simply so low.

11:44
Uh yeah, I'm at a professional level. I

11:46
I moved to I live 10 minutes from Dallas

11:49
Fort Worth airport now because I did so

11:50
much business travel and now [laughter]

11:52
that's not helpful for me anymore

11:53
because I have not been on a business

11:55
trip at this point since the end of

11:57
February 2020. But [laughter]

12:00
so so there's that aspect, but doing a

12:01
lot more on the internet and and yeah, I

12:04
mean just yesterday I was doing a

12:06
workshop about budgeting for retirement

12:08
and

12:09
someone was asking me about well I don't

12:11
I haven't been doing this. is it okay to

12:12
just use the recent expenses and was

12:15
just trying to emphasize I think a lot

12:16
of people did spend less in 2020. It was

12:19
not a normal year for them.

12:21
So they have to be careful if if they

12:23
are thinking about well how much did I

12:25
spend in 2020 that might not truly

12:27
reflect their retirement budget excuse

12:29
[clears throat] me because they might

12:30
want to do a lot more travel or a lot

12:32
more like restaurants and things and so

12:34
the amount they spent in 2020 might give

12:36
them a misguided view about what a good

12:38
retirement can be. And I do worry about

12:41
uh like people who are at retirement

12:43
right now and maybe at their peak years

12:44
for doing all those things they wanted

12:46
to do the international travel and so

12:48
forth and and yeah I mean that's that's

12:50
a concern that people aren't getting

12:52
that opportunity to take full advantage

12:54
of their retirements if they're right

12:56
that's where they are right in their

12:57
life cycle when all this is happening.

13:00
Got it. I mean interesting take on that.

13:03
As I said before and we we were talking

13:05
previously before the recording, um the

13:07
people that are listening to this

13:09
primarily are consumers. Yes, there are

13:10
some agents and adviserss that listen

13:12
because I'm standing nuity man. They

13:13
want to see what I'm doing. But 99% of

13:16
consumers and they are either retired,

13:18
getting ready to retire, thinking about

13:19
retirement, trying to spell retirement,

13:21
planning for retirement. And as you

13:23
know, there's a demographic title wave

13:24
happening right now of 10,000 baby

13:26
boomers reaching age 65

13:29
um every single day. So it's it's you

13:31
know the annuity industry is in front of

13:34
um you know that demographic title wave

13:37
and they have products that can transfer

13:39
risk and guarantee income and and

13:41
address long-term care and principal

13:43
protection those type of things. You

13:44
know from a broad definition standpoint

13:48
of say retirement success and I know

13:51
we're kind of getting to the end of the

13:52
of the book and missing the start but

13:55
we'll get there. What's your definition

13:56
of a person's retirement success?

14:00
to be able I think you know partly like

14:03
what does retirement mean and it doesn't

14:05
have to mean just not working. It's

14:07
really like having the financial

14:08
independence to do what you want and and

14:11
to be who you want to be. And you know

14:13
if that involves working that's fine.

14:15
You you can still be retired but you're

14:17
you're not driven by the need for income

14:19
necessarily from work. You have other

14:22
assets that can can do that for you. So,

14:24
it's really about finding your your

14:26
passion and your purpose and feeling

14:28
comfortable that you have a plan that

14:31
will last for you. A lot of people are

14:33
worried about market volatility. They're

14:35
worried what if I live to 95 or 100. So,

14:38
having a plan in place that gives you

14:40
the comfort that you you will be

14:41
protected in that type of circumstance.

14:44
and having then the comfort to really

14:46
take advantage of your retirement,

14:47
fulfill your purpose and your passion

14:49
and do what really motivates you and

14:52
makes you happy and gets you up in the

14:54
morning. I think that's that's a big

14:55
part of it.

14:57
One of the things I applaud you on that

14:59
you've done well is to amongst tons of

15:02
things, but the one that jumps out to me

15:04
is is understanding

15:07
a person's retirement income style and

15:09
why that's important. Um, in fact, uh,

15:11
it's RISA is kind of the acronym you you

15:14
use, which is retirement income style

15:16
awareness.

15:18
Um, and it really is that's helping in

15:20
essence that the English version of that

15:22
is helping pe people to position

15:24
annuities if they fit and are suitable

15:26
and appropriate in retirement planning.

15:28
Can you give us that 30,000 foot view

15:31
and and help the the the listeners and

15:33
viewers understand why having a person

15:37
personal retirement income style is

15:38
important and what those are.

15:41
Yeah. Yeah. Absolutely. And we we call

15:43
it Rhysa, the retirement income style

15:44
awareness. It it means smile in Spanish.

15:47
And it's really been something kind of

15:50
percolating for a long time. I think in

15:52
general we've known for a long time

15:54
there are different well we've already

15:56
been talking about it like for some

15:57
people a retirement strategy is this

15:59
kind of let's invest a total return

16:01
investing strategy 50 to 75% stocks take

16:04
distributions that's one kind of

16:06
strategy another one is it's called

16:09
either time segmentation or bucketing

16:11
which is where we think about let's

16:13
build bonds and use bonds to cover our

16:15
short-term expenses and then that gives

16:17
us a window where we can invest the rest

16:19
in the stock market and if the market

16:21
goes down we have this time to to wait

16:23
for the recovery and to hopefully have

16:25
our stocks recover before we have to

16:27
have to sell them. And so that's another

16:28
kind of retirement strategy. Then we

16:30
have the different kinds of essential

16:33
versus discretionary. It goes by

16:34
different names like flooring, but it's

16:36
thinking about for my core retirement

16:38
expenses, I may not be comfortable

16:40
taking a lot of market risks. So that's

16:42
where an annuity can play a role. you

16:44
have social security and then if you

16:46
still like to have some additional

16:47
protected income, different types of

16:49
annuities can fill that role. And and

16:52
that's well, as you know, of course,

16:53
like simple kinds of income annuities

16:55
and then possibly the different types of

16:57
deferred annuities with the the living

16:59
benefits that give you the protected

17:00
income also with some upside potential

17:03
and and some well having liquidity for

17:06
so you can still get access to those

17:07
funds. you're not signing away that

17:09
money forever necessarily.

17:11
And though so the styles are that it's

17:13
do I want to take that total return

17:15
investing strategy? Do I want a

17:16
bucketing strategy? Or do I want a

17:18
strategy where I build a floor of

17:20
reliable income through an annuity? And

17:23
in the past, we've never really had a

17:25
way to help guide people towards one of

17:27
those strategies or to understand what's

17:28
best for them. It's so many different

17:31
like speakers whether it's the consumer

17:33
media financial adviserss who may have

17:36
websites or radio shows personal finance

17:38
bloggers they have a particular style in

17:41
mind that they tend to think works best

17:43
for everyone and that can lead to a lot

17:45
of mismatching or or failed plans or

17:47
people doing something and then later

17:49
doing something different. And so with

17:51
Alex Margia as a part of a retirement

17:54
researcher, we did this study of could

17:56
we figure out how to ask people

17:59
questions in a way that will help guide

18:02
them towards a style that that they

18:04
resonates with them that works with

18:05
them. Because at the end of the day, an

18:07
annuity is not right for everyone, but

18:09
it's going to be right for some people.

18:10
And also a total return investment

18:13
strategy is not going to be right for

18:14
everyone, but it's going to be right for

18:16
some people. And we need to figure out

18:18
what works for who. And in in the

18:20
process of doing that study, we were

18:22
able to identify really there's six

18:24
factors that help to explain a style.

18:27
Now, two of them are the most important.

18:30
The other for helping to tell the story,

18:32
but but the most important ideas are we

18:35
call it probability based or safety

18:37
first. Am I comfortable relying on the

18:39
stock market to fund my retirement or

18:41
would I prefer some sort of contractual

18:43
protection to help support my

18:45
retirement? And then the other big

18:47
factor is optionality versus commitment.

18:50
Do I want to keep my options open as

18:52
much as possible to make any sort of

18:54
change that I want to or am I more

18:56
comfortable committing to a strategy

18:57
that I know will work that I can kind of

18:59
check it off my list. Don't have to be

19:01
as worried about it at that point and

19:03
and just enjoy my retirement not I I can

19:06
give up some of the the potential

19:08
flexibility because I know I have a

19:09
strategy that will work. And then when

19:11
you look at those combinations, it's

19:13
what really shocked us when we were

19:15
doing that was how well they fit into

19:18
our existing retirement strategies and

19:20
how well even the stories behind those

19:21
strategies make sense. So people who are

19:25
probability based relying on market

19:27
growth also there's a correlation with

19:29
they also tend to be more optionality

19:31
focused. They want to keep their options

19:33
open

19:34
and that's that's a total return

19:35
investing strategy. Rely on market

19:37
growth, keep your options open. And then

19:39
the other big one though would be the

19:41
the opposite of that. Someone who's more

19:43
safety first, wanting contractual

19:45
protections and is more comfortable

19:47
committing to a strategy. And we call

19:49
that the income protection style. And

19:52
that's the world of really looking at

19:53
like simple income annuities, building a

19:56
lifetime income floor, having that

19:57
reliable income, and then using the

20:00
investments on top of that for

20:02
discretion for more like discretionary

20:03
types of expenses, but having that

20:06
secured lifetime protected income floor

20:08
to cover your basics. And those are the

20:10
two core strategies. And this is where

20:12
it's like really interesting. So

20:13
something like prime segmentation, it's

20:16
more of a behavioral strategy in that

20:19
it's not really rational, but it was

20:21
designed to help provide for certain

20:24
concerns that don't necessarily

20:26
correlate with each other. And those

20:27
were somebody who wants contractual

20:29
protections, but also wants a lot of

20:31
optionality. You don't uh if you're

20:34
going to sign a contract, you don't

20:35
really think you're going to get a lot

20:36
of optionality. But that's what that

20:39
bucketing strategy does. It's I use

20:41
individual bonds to get contractual

20:43
protections for the short term. It's not

20:45
giving me any lifetime income, but then

20:47
I have that growth portfolio to cover me

20:49
over the long term. And I keep all that

20:51
optionality for that growth portfolio.

20:54
And then the other one is, as you know,

20:56
since the 1990s, we've developed this

20:58
entire universe of deferred annuities

21:00
with the living benefits.

21:02
And we call that risk wrap. It's people

21:04
who are more comfortable with market

21:06
growth but also want to have some more

21:09
commitment to a strategy and and to

21:11
really flesh that out too with some of

21:12
the secondary factors. They also they're

21:15
they're more worried about outliving

21:16
their wealth. So they want to more

21:18
backload or protect their future

21:19
spending. They're thinking in terms of

21:22
the technical liquidity that the asset

21:25
just an important aspect of retirement

21:28
is you have to match assets to their

21:29
expenses. And even though like a

21:31
brokerage account is liquid, it may not

21:33
be truly liquid if you've earmarked it

21:35
to cover your future spending. And that

21:37
kind of mindset. It's the same with an

21:38
annuity where technically it's liquid,

21:40
but you've earmarking that asset to

21:42
cover the future spending. And and that

21:44
but all these characteristics that's

21:46
describing a deferred annuity with a

21:48
living benefit. And and so now we can

21:51
really understand based on how someone

21:52
ranks with these two primary factors.

21:56
Now we have a starting point for a

21:57
discussion. is are you going to resonate

22:00
better with a total return investing

22:02
strategy? Are you going to resonate

22:03
better with an income protection

22:05
strategy that builds that lifetime

22:06
protected income floor with an annuity?

22:09
Are you someone who might think more in

22:10
terms of the the deferred annuity so you

22:12
can combine the the protection with the

22:14
upside potential and the same annuity

22:16
product? Are you someone who likes that

22:19
bucketing approach that that resonates

22:20
with you? That you feel comfortable with

22:22
the idea that if I can just hold on to

22:24
my stocks for long enough, they should

22:26
go up before I actually have to tap into

22:29
them. And that becomes a starting point

22:30
for the conversation that now we know

22:33
which strategy resonates with you and

22:35
how can we then best serve that strategy

22:38
and get you a strategy that will work

22:39
for what you want.

22:41
Makes total sense. and you and Mosha

22:43
Malefki have been a very um you've been

22:45
a motivator for how I've built my

22:47
business in sight, which is trying to

22:49
match people with the correct

22:50
contractual guarantee. I've kind of

22:52
narrowed it down to two questions. I ask

22:53
people, what do you want the money to

22:54
contractually do and when do you want

22:56
those contractual guarantees to start?

22:58
Then from there, I can either determine

23:00
whether they either need an annuity and

23:02
if so, what type will provide the

23:04
highest contractual guarantee, which

23:06
comes back to what you're talking about,

23:07
which is how can people find the right

23:09
plan for their specific situation? It

23:12
comes down to, and I think you're

23:13
correct, figuring out who you are as the

23:16
consumer because annuities are not

23:17
one-sizefits-all, even though people

23:19
think they are. Correct.

23:21
Right. Right. And there's so much like

23:23
variation with annuities. And I know

23:24
from reading your work that you're very

23:26
focused on look at just what is the

23:28
minimum downside guarantee. The the

23:30
upside potential may or may not happen.

23:33
Don't definitely don't count on it.

23:34
Right.

23:34
And certainly that's a very valid view.

23:36
But I I I think then of course those

23:39
annuities with that upside potential are

23:41
still popular and it's it's more

23:43
the how I view that with the retirement

23:45
income style awareness. The more you

23:47
lean towards the safety first side and

23:49
this is all you're on the commitment

23:50
side already but then the more you lean

23:52
towards safety first the more you

23:54
emphasize the downside protections this

23:57
the single premium immediate annuities

23:58
the deferred income annuities the uh

24:00
sure

24:01
the fixed index annuities that that sort

24:03
of thing. Sure. And then as you shift,

24:05
you're still in the commitment part, but

24:06
as you shift to the uh probability based

24:09
side, that's where you may be open to

24:11
like the variable annuity that might

24:13
have less downside guaranteed

24:15
protection, but as a trade-off gives you

24:18
more upside potential that of course may

24:20
or may not happen.

24:21
Agreed.

24:21
But you're more comfortable kind of then

24:23
rolling the dice thinking you will get

24:25
some of that upside potential

24:27
and that because you're more comfortable

24:29
relying on market growth. I mean, we on

24:32
average, we certainly think the stock

24:33
market will outperform the bond market.

24:35
It's just we never know [laughter] for

24:37
anyone's retirement if that's actually

24:39
going to happen for them the way they're

24:40
they're hoping. And so that's how we

24:42
have to decide what are we going to do

24:44
with in that regard.

24:45
I always ask people, do you need

24:46
lifetime income insurance? Some people

24:48
need life insurance, some people don't.

24:50
Some people need lifetime income

24:51
insurance, some people don't. But that's

24:53
the monopoly that the annuity category

24:55
has, which is that transfer of risk

24:57
pension-like payment. Um, I really wish

24:59
the annuity industry would would lean a

25:01
little bit more heavily from the

25:02
standpoint of promotion to tell people,

25:05
you know, you already own an annuity

25:06
type, which is social security, because

25:08
it's a lifetime income stream. So, you

25:10
just can't cavalerely say you hate all

25:11
annuities, which makes me laugh. Um,

25:14
let's talk a little bit about the

25:16
long-term care, Medicare, Medicaid

25:19
portion of that because most um most

25:22
advisors either don't talk about that,

25:26
shy away from that. I was so happy to

25:27
see that you addressed that in detail in

25:30
your latest book. Um, can you dig into

25:33
that for us?

25:34
Sure. Sure. When it comes to long-term

25:36
care, there's really four ways you can

25:39
think about funding long-term care. uh

25:41
you can build up additional reserves to

25:44
try to self-fund that I just say okay

25:46
I'm gonna earmark or say I want this

25:48
much additional money as part of my

25:51
retirement assets before I'm comfortable

25:52
retiring

25:54
just in case I experience some long-term

25:56
care event in the future. So that would

25:58
be self-unding. Uh, a lot of Americans

26:01
don't really have enough financial

26:02
assets to self-fund their um, long-term

26:06
care should they experience a need to

26:08
spend like several years living in a

26:10
nursing home or other institutional

26:12
setting. So, that's where Medicaid can

26:14
step in. And that's not not Medicare

26:16
because Medicare does not cover

26:18
long-term care.

26:19
Sure. But Medicaid is once I've spent

26:21
down all my well there's a whole lot of

26:24
rules around it but sure effectively

26:26
once I spent down my assets and income

26:29
then Medicaid will help to pick up bills

26:30
for long-term care expenses

26:33
and if I am somewhere in the middle

26:35
where or even if I could potentially

26:37
self-fund but I can see the value of you

26:40
know with thinking ahead about the

26:42
inheritance I'm going to leave not

26:44
wanting to be worried about whether I

26:46
get care because I'm worried I'm

26:48
spending the child's inheritance or

26:49
something. Long-term care uh insurance

26:52
can step into the picture. And there's

26:54
the traditional long-term care

26:56
insurance, which has made a lot of

26:58
people uncomfortable because there's a

26:59
lot of aspects of it that are um

27:02
challenging in terms of rising premiums

27:04
and and lapsing with the policies where

27:06
it's you're no longer holding it when

27:08
you actually need it and so forth. But

27:10
then now we're seeing more and more

27:11
growth with the like they're called

27:13
hybrid or it doesn't have a clear name,

27:15
but different types of hybrid products,

27:17
right? either with an annuity and and I

27:19
don't know a lot about the different

27:21
hybrid annuity products, but more so on

27:23
the life insurance side.

27:24
Sure.

27:24
That you can have permanent life

27:26
insurance that either allows you to

27:28
spend down the death benefit of the

27:30
insurance for a long-term care need or

27:33
may even go above and beyond that and

27:35
provide some sort of well first you

27:36
would spend down the the death benefit

27:38
portion, but then you might have an

27:40
additional continuation of benefit

27:41
writer to support additional long-term

27:44
care. And those are the four basic

27:46
options. self-fund Medicaid traditional

27:48
insurance and hybrid life insurance

27:51
long-term care or annuity long-term

27:54
care.

27:54
And the hybrid that Wade's talking

27:56
about, what we call that assetbased

27:58
long-term care, a lot of people are

27:59
under the assumption that, you know,

28:01
they pay, they pay, they pay, and if

28:02
they don't use it, money goes poof. Um,

28:04
with the assetbased coverage for

28:06
long-term care, which I applaud the

28:08
industry for pivoting and listening to

28:09
the consumer, um, you're not going to

28:12
you're not going to lose that asset. you

28:13
you're going to have the coverage and

28:14
somebody in your family is going to get

28:15
it, which I think is fantastic. Your

28:18
second book kind of blew me away when it

28:20
came out because I thought it was brave

28:23
and I thought it was so outside the box

28:26
because at the time you wrote it um

28:29
reverse mortgages was the wild wild west

28:32
and it might still be. We don't see as

28:34
many ads for it. we sees the Joe Namos

28:36
of the world, you know, or some

28:38
celebrity that's no longer a big

28:41
celebrity is pushing uh that the that

28:44
the the 65 year olds understand and

28:46
recognize pushing reverse mortgages or

28:48
at least looking at it like a Tom

28:49
Celich. Yeah, he's I think Joe Nameoth

28:52
is Medicare Advantage. [laughter]

28:53
Okay, I'm getting them all mixed. I'm

28:55
getting all mixed up. Okay. Uh you know,

28:58
20 years from now, it'll be Wade and I

29:00
sitting on the couch going, "You ever

29:01
thought about an annuity?" Um,

29:03
[laughter]

29:04
but the reverse mortgage thing is

29:06
interesting. I want you to kind of dig

29:07
into that because a lot of the, you

29:09
know, the people listening to this,

29:10
they're sitting on a big asset, which is

29:13
their home. And I thought you were just

29:16
brave as heck to just say, "Okay, let's

29:18
talk about this from a mass standpoint,

29:20
from an asset standpoint, from a

29:22
retirement planning standpoint." Wade,

29:25
let's talk about let's get your take on

29:26
reverse mortgages.

29:27
Sure. Sure. And it's really the same

29:29
story as annuities in terms of the the

29:32
consumer perception isn't always

29:33
incredibly positive. So I do get a lot

29:36
of tomatoes thrown at me. But it's

29:38
[laughter] it's the same story though.

29:40
It's it's about retirement planning.

29:42
Risk changes in retirement. People now

29:45
have to support their lifestyle over an

29:47
unknown period. They don't know whether

29:49
they'll live five more years or 45 more

29:51
years. I mean, I guess depends on their

29:53
retirement age, but they don't know how

29:54
long they're going to live. And then the

29:56
the market volatility and the way they

29:58
thought about investing changes when

30:00
they start to spend from their assets.

30:02
There's this idea called sequence of

30:04
returns risk that if

30:05
if you're spending from your investments

30:07
and the market goes down, you have to

30:10
sell a bigger percentage of what's left

30:11
to meet your spending need.

30:13
And that digs a hole for the portfolio

30:15
that can be very difficult to to dig

30:17
yourself back out of. And so the way

30:19
people think about investing when

30:20
they're saving for retirement that that

30:22
that volatility we experience with

30:25
investing really gets amplified in

30:26
retirement. And and so that's where it

30:29
just opened the door about okay let's

30:32
look at this in terms of annuities first

30:35
and then I reverse mortgages later. It

30:38
was a very interesting tool for me to

30:39
look at because it has so many.

30:40
How did you land there? How did that I

30:41
mean was it just natural and you or you

30:44
saw you saw um Tom Celich or whoever

30:47
that was on I mean did you go wait why

30:48
why is Tom Celich talking to me? Why is

30:50
why is Magnum PI talking to me? How did

30:51
this happen?

30:52
Uh it was something I'd already I had

30:55
always been meaning to look at and then

30:57
uh okay

30:57
well the there's a research team at

30:59
Texas Tech University John Salter Hinsky

31:02
Sean Feifer.

31:03
Um John

31:05
Dena Cats don't forget Dena.

31:07
Yeah she she's part Absolutely. uh he

31:09
sent me a stack of articles about

31:11
reverse mortgages and invited me to a

31:13
meeting where they were going to be

31:14
talking about it. And as I was on the

31:15
flight to that meeting, just reading

31:17
through that stack of articles, it's the

31:19
the first time I'd really paid much

31:21
attention at all to reverse mortgages.

31:23
But I thought it was just really

31:24
fascinating. And then I started writing

31:26
programs to test the the results of the

31:28
past research studies in that area.

31:31
Found that all that played out. I mean,

31:32
there was there was truth to the idea.

31:34
It can help manage sequence of returns

31:36
risk. And and it's you see as a parallel

31:39
conversation sometimes in the time

31:40
segmentation world as well where when

31:43
the markets are down if I can spend from

31:46
my reverse mortgage line of credit that

31:49
will kind of give me a bridge or a

31:50
buffer to allow more time for my

31:52
portfolio to recover. And I found that

31:54
that really does help manage sequence of

31:56
returns risk. So reverse mortgages can

31:58
be expensive to set up. It's true. But

32:01
in the long run, what I find is you can

32:04
increase the the the chances that your

32:06
financial plan will work and it doesn't

32:08
really eat into your legacy in the long

32:10
term. That like the kind of these two

32:12
metrics are will I meet my spending

32:14
goals in retirement and then how much

32:16
money will I have at the end. So the

32:18
reverse mortgage, you're borrowing from

32:20
your home equity, but you're better

32:23
protecting your other assets. So that at

32:25
the end, your other assets plus your

32:27
home equity minus your loan or plus your

32:30
home value minus the loan that is due on

32:33
the reverse mortgage can be higher than

32:36
if you just simply didn't do anything or

32:38
waited. The the last resort option is if

32:40
you just simply wait until everything

32:41
else has failed and then open reverse

32:43
mortgage. That doesn't work as well as

32:45
setting it up earlier. you become

32:47
eligible at age 62. And so setting it up

32:50
earlier once you're in a home that you

32:52
think you'll stay in and and continue to

32:54
live in. The the secret sauce is this

32:57
idea of a growing line of credit that

33:00
it's a it's an extra special advantage

33:02
of reverse mortgages that really help to

33:04
explain why setting it up early and

33:07
letting that line of credit start to

33:08
grow. And it's it's a non-reourse loan.

33:11
This is where doing the research about

33:12
it is interesting. Mhm.

33:14
Even if the loan balance grows to be

33:16
higher than the value of the home,

33:18
you're not forced to pay back more than

33:20
95% of the appraised value of the home

33:22
at the time the loan becomes due. And

33:25
you're paying the the reason why we talk

33:27
about reverse mortgages being expensive.

33:29
It's primarily the mortgage insurance

33:31
premiums that you're paying as a part of

33:33
that.

33:33
But that provides one of the the

33:35
benefits it provides you is the

33:37
protection of this that it's a

33:38
non-reourse loan. You don't have to pay

33:40
back more than the home is worth. And so

33:43
when you build that into the simulations

33:45
about retirement too, it's a really

33:47
powerful strategy ju just like an

33:49
annuity. Just it's a way to help manage

33:51
these retirement risks that people

33:53
aren't always thinking about because

33:54
they're they're used to the accumulation

33:57
pre-retirement

33:58
investing and not to what happens

34:00
postretirement.

34:02
And it speaks to why a reverse mortgage

34:03
could help or why an annuity can help

34:05
and and why you really have to think

34:07
more holistically about all the

34:08
household assets and not just get too

34:11
focused on on some sort of investing

34:13
strategy alone.

34:15
Fascinating. And and I think it's

34:17
interesting that

34:19
both annuities and reverse reverse

34:22
mortgages I mean the the misconceptions

34:24
misperceptions out there are just

34:26
horrific in a lot of cases. So, you're

34:29
saying at age 62, you should at least be

34:33
thinking about or visiting or looking

34:35
under that rock to see if that makes

34:37
sense and at least establishing that. Am

34:39
I right?

34:41
Yeah, it's definitely worth having a

34:42
look at it. And if you are planning to

34:44
move in the next couple of years, it's

34:46
probably worth waiting until you're in a

34:48
home that you anticipate staying in

34:49
because of the there's a large upfront

34:51
cost to set it up. So, it works better

34:54
if you're planning to stay in the home a

34:55
long time. And then also for couples, if

34:58
you're close to the same age, you have

35:00
to be at least 62 to be a borrower on

35:02
the loan.

35:03
So there could be value to waiting until

35:05
both member both individuals reach age

35:08
62 first. But then yes, absolutely even

35:13
as a part of a responsible retirement

35:15
income plan. So even if you have a

35:16
sufficient amount of assets that you're

35:18
unlikely to run out of money, the

35:20
reverse mortgage can still help to

35:22
improve your outcome so that you can

35:24
meet your spending goals, but also then

35:27
at in the end leave a larger legacy

35:29
behind as well by being more strategic

35:31
in how you approach the retirement

35:33
planning process.

35:34
It's an unknown retirement insurance

35:37
lever

35:38
that you can access that most people

35:40
don't feel like accessing and I think or

35:42
don't even know. Um, if you were going

35:44
to explain setting up a reverse mortgage

35:47
to a nine-year-old, no offense to

35:48
nine-year-olds, of course, how would you

35:50
explain that? Because I know a lot of

35:51
people on here on this have heard of it,

35:54
not thought of it, and now Wade Fowl and

35:57
they found out you wrote a book on it is

35:59
saying, "Hey, you might want to look

36:00
into this." Explain 30,000 foot view

36:02
just what you're doing with the home.

36:05
So when you set it up and if you set it

36:07
up around age 62 based on where like

36:10
interest rates are right now you you'll

36:12
you get access to about 40 to 50% of the

36:16
home value that then becomes a line of

36:18
credit that will grow over time

36:21
throughout your retirement and you can

36:23
just spend from it as you wish and it's

36:25
it's proceeds from a loan so it's not

36:27
taxable income. That also that can help

36:29
with some tax management strategies too

36:31
where if you're going to go into a

36:32
higher tax bracket, you might tap into

36:35
the reverse mortgage as a spending

36:36
source that won't push you into the

36:38
higher tax bracket and so forth. But

36:40
it's a way to just create liquidity for

36:42
your home equity so that you can also

36:44
spend just like you spend from your

36:46
investment portfolio,

36:48
you can also spend from your reverse

36:49
mortgage and and balance those or

36:52
coordinate them in a way that like when

36:54
the stock market's doing well, go ahead

36:55
and spend from your investment

36:56
portfolio. But if the stock market has a

36:58
downturn, maybe tap into the reverse

37:00
mortgage that year. And and by being

37:02
able to better manage that, it's just

37:04
helping you better manage the overall

37:06
retirement situation and better manage

37:09
the the sequence of returns risk. This

37:11
idea that a market downturn can impact

37:13
you more in retirement if you're forced

37:15
to continue spending from the the

37:17
declining investment portfolio in those

37:20
circumstances. And when you say grow for

37:22
the listeners and viewers, they're

37:23
yelling. I'm sure they're yelling at the

37:25
the speaker going grow. What does that

37:27
mean? Wayade, tell me what grow means.

37:29
Right. So, probably everyone can

37:31
understand that if I borrow money, the

37:33
the loan balance will grow.

37:36
The cool planning aspect of the reverse

37:38
mortgage and I think it was an

37:41
unintended consequence. The assumption

37:42
was if you open a reverse mortgage, you

37:44
were probably borrowing from it and so

37:46
then this growth would just be the

37:48
growth of your loan balance. The cool

37:50
planning aspect of the reverse mortgage

37:52
is you can open it up, but you don't

37:54
well you have to keep like a $50 balance

37:56
at least or maybe $100 with some

37:58
company. You have to have some minimal

37:59
balance,

38:00
but otherwise you don't have to borrow

38:02
from it. And so you have this principal

38:05
limit which is what you've borrowed plus

38:07
what's left over in the line of credit.

38:09
And that's the thing that's really

38:10
growing at at some rate over time. Mhm.

38:13
So if it if you open it and you don't

38:15
borrow from it, your line of credit is

38:18
growing like the loan balance would have

38:19
been growing and that that's what grows.

38:23
And so then later you have more line of

38:25
credit that you can tap into. And and at

38:28
some point that there was a big it so

38:31
something happened with social security

38:33
that then happened with reverse

38:34
mortgages. In the early 2010s, people

38:37
figured out all these cool planning

38:38
strategies where you could get extra

38:40
spousal benefits out of social security.

38:42
M

38:42
and then the government shut that down

38:44
in 20 or started phasing it out in 2015.

38:47
Well, this line of credit growth was

38:49
amazing. I I'd written an article

38:52
probably in 2015 about how there's like

38:54
a 50% chance that the line of credit

38:57
could be worth more than the value of

38:58
the home in about 20 years. And then in

39:00
2017, the the government caught up and

39:03
and changed some of the parameters

39:04
around that. So everything I'm talking

39:06
about is still true. It's just not not

39:08
as shockingly amazing as it was pre207.

39:12
I had to there's a second edition of my

39:14
reverse mortgage book because I had to

39:16
entirely rewrite it after that 2017 rule

39:18
change.

39:19
But everything I'm talking about right

39:20
now is thinking more in terms of the

39:21
current rules, which is still

39:23
it it's not as likely that that line of

39:25
credit will grow to be worth more than

39:26
the home. But it does grow and and it

39:29
does speak to the the value of opening

39:32
it sooner and letting that line of

39:33
credit grow rather than waiting till

39:35
later and opening it. and and missing

39:38
the line of credit growth during that

39:39
period.

39:40
What a great strategy. I think that um a

39:43
lot of a lot of the the baby boomers out

39:45
there grew up in a world where they were

39:47
told you it's good to have no debt and a

39:50
lot of the clients that that certainly

39:52
work with me, a lot of people I talk to,

39:53
they have no debt and they're proud of

39:55
that. And I think maybe one hesitation

39:57
for everyone would be, you know, why

39:59
would we do that? We don't want more

40:00
debt. But you're this isn't in you're

40:02
not incurring the debt. You're setting

40:04
it up as part of the plan as a oh just

40:08
in case. Oh by the way I might need this

40:11
and why wouldn't you? Because you know

40:13
the house is I don't know what the

40:14
status I'm sure you do which is the the

40:17
primary asset for most people if they

40:21
just look at it at what it's worth. Am I

40:23
correct about that?

40:24
Yeah. at the like the average for the

40:26
average American reaching their 60s the

40:29
home equity plus it's like twice as much

40:32
as the investment portfolio or when you

40:33
like look at their investments in their

40:35
home the home is worth about twothirds

40:37
of that total. So it's a bigger asset

40:39
than the investments for most people

40:41
approaching retirement age and and you

40:43
know the the default advice is ignore

40:46
the home. It's not really part of the

40:48
retirement plan. And that's where like

40:50
the the push with the reverse mortgage

40:52
concept is no, this actually provides a

40:54
way to incorporate the home into the

40:56
retirement plan. And definitely there is

40:58
a psychological hurdle to the reverse

41:00
mortgage as you're saying like people it

41:02
is it's a it's a mortgage. So you

41:05
if you borrow from it, it is a loan. It

41:08
it works a little bit differently than

41:10
most loans people are used to because

41:11
there's no fixed payment obligation. you

41:14
can wait until the end like that the

41:16
reverse mortgage terminates when you've

41:17
e either passed away uh moved out of the

41:20
home for at least a year and or don't

41:23
make uh do your basic homeowner

41:24
obligations like ba very basic home

41:26
maintenance uh paying home owners

41:28
insurance and property taxes but as long

41:30
as you're meeting the requirements you

41:32
don't have to make any sort of payment

41:34
until one of those things happens and so

41:38
while it is a loan it because it doesn't

41:41
have that fixed repayment

41:43
It works different than how people are

41:44
mostly thinking about the way loans

41:46
work.

41:47
Definitely when I turn age 62, I'm going

41:49
in that direction just because it makes

41:51
total sense. Have advisors, masters of

41:53
the universe, however they want, wealth

41:56
architects and the people that you talk

41:57
to about this, has there been good

41:59
reception to that or is there an initial

42:02
reflex from people about reverse

42:04
mortgages based upon just the bad

42:06
information that a lot lot of people

42:08
have gotten about reverse mortgages?

42:10
What has been the reception? Well, well,

42:11
more people are becoming open to it, but

42:13
yeah, I think there's still this it's

42:15
almost like a universal misconception

42:17
that you somehow hand over the home to

42:19
the bank when you initiate the reverse

42:21
mortgage. And we're talking about like

42:22
more than 90% of reverse mortgages are

42:24
the the home equity conversion mortgage

42:26
program. It's administered through the

42:28
government. There's a whole set of rules

42:29
and you no one ever handed over the

42:32
title to their home. So I think everyone

42:34
just starts from that misconception

42:36
and that that makes it a struggle from

42:38
the very beginning because it does

42:40
require taking some time to understand

42:42
how it actually works. So it's a it's a

42:45
slow process and then I have seen a lot

42:49
of financial advisors become more open

42:51
to it

42:52
but then the problem they have is their

42:54
clients may not be open to it and so got

42:56
it

42:56
and the client might think hey what's

42:58
going on why are you talking about a

42:59
reverse mortgage are you trying to scam

43:01
me so it's a very sensitive conversation

43:03
but you're doing you're doing a good job

43:05
of giving it validity which is what

43:07
you've always done but it's eerily

43:08
similar to when people call me up and

43:10
say I'll never buy an annuity because

43:12
when I die the evil annuity company

43:14
keeps the money and that and a lot of

43:16
people think that that's true and me and

43:18
you both know that's just one of 40

43:20
different ways to maybe structure an

43:22
immediate annuity or deferred income

43:23
annuity but it doesn't apply in most

43:25
cases but that's what people believe and

43:27
if that's what people believe and that's

43:28
what they heard and then they hear you

43:30
know I hate annuities or I hate reverse

43:32
mortgages they're not open to it I'm

43:34
hoping that people will hear you because

43:37
the next topic I kind of want you to

43:39
speak about um and I know it's basic for

43:42
you but once and our listeners and um

43:45
and viewers need to understand risk

43:48
pooling and what that means from the

43:50
standpoint of life insurance and

43:52
annuities when we're talking about

43:54
implementing these strategies if they

43:56
are suitable and appropriate for them.

43:58
So can you kind of give us a basic uh

44:00
view of risk pooling?

44:02
Sure. Yeah. and risk pooling the so we

44:06
we had traditional company pensions

44:08
especially in the post-war era in the

44:10
United States the you work for 30 years

44:12
and then 60% of your I mean however it

44:15
worked but like 60% of your salary gets

44:17
replaced and it lasts for the rest of

44:18
your lifetime that traditional company

44:20
pension pools both market risk and

44:24
longevity risk and what that just means

44:26
is I'm not taking any risk about what

44:28
the financial markets are going to do or

44:30
how long I'm going to live the my

44:32
employer is taking that risk over time.

44:36
They're going to be investing to pay

44:37
these payments to me, but they can

44:41
because different workers are starting

44:43
their careers and ending their careers

44:44
at different times. The employer can

44:46
focus more on providing a pension that

44:48
matches the average market return over

44:50
time. And then also, they know as well

44:52
some people will not live very long in

44:54
retirement. Other people will live

44:55
longer. So if if I'm trying to manage

44:58
that risk on my own, I I have to be

44:59
worried. Well, what if I retire when

45:01
markets go down and what if I retire and

45:03
then it's good that I live a long time,

45:04
but it's just then it's a lot more

45:06
expensive for me to fund my retirement.

45:08
Well, the the employer could pull that

45:10
risk because they they can pay everyone

45:12
the pension based on an average

45:14
lifetime. It's like your pension's based

45:16
on you'll get an average market return

45:17
and live an average length of time. And

45:19
it doesn't really matter what happens in

45:21
your individual circumstance. you're

45:23
protected. Even if you're like if you

45:25
had been investing that money on your

45:27
own, you would have got really poor

45:28
returns and you end up living a really

45:30
long time and can't afford to to pay for

45:32
the retirement. The employer took on all

45:34
that risk. But that traditional company

45:36
pension for most people, I mean, they

45:38
they still exist, but they're much rarer

45:40
these days. And an annuity is a way to

45:43
build that pension on your own through

45:45
an insurance company where the insurance

45:47
company will pull that risk. And

45:50
especially the it's the longevity risk

45:53
the I if I'm 65 years old I might live

45:56
to 68. I might live to 98. I don't know.

45:59
I have to worry if well if I am worried

46:02
about this that plan more what if I do

46:04
live to 98 and then I have to spend less

46:06
to stretch that money out for longer.

46:09
The insurance company though has the

46:11
actuaries who are figuring out, well, if

46:13
the average person lives to 86, then I

46:16
can pay everyone who buys that annuity a

46:18
higher level payment

46:20
because I can pay everyone like they're

46:21
going to live to 86. And then for those

46:23
who end up not living as long, that

46:25
money doesn't go to the insurance

46:27
company. It goes to the other members of

46:29
that risk pool who do live longer.

46:31
There you go.

46:31
And so if you live a long time, it's

46:32
great from the perspective of you got

46:34
your money's worth out of the annuity.

46:36
But given that people don't know in

46:38
advance which group they're going to

46:39
fall in, it helps to raise the standard

46:41
of living for everyone in the risk pool

46:43
because everyone can now spend like

46:44
they're going to live to 86 or just

46:46
however that the life expectancy rather

46:49
than being worried well what if I am the

46:50
one who makes it to 95 or beyond.

46:53
I I can enjoy a much higher standard of

46:55
living because I pull that risk through

46:56
the insurance rather than accepting and

46:58
taking on that risk on my own and being

47:00
forced to spend less as the only method

47:02
I have to manage that type of risk. And

47:05
I I am always breaking things down uh to

47:08
a very simplistic level because people

47:09
always say, "What's my return on

47:11
investment on something like that?" I'm

47:12
like, "There's no ROI until you die." Up

47:14
until that point, it's a transfer of

47:15
risk. Um last part of this segment, uh I

47:19
want to transition, you know, and I

47:20
appreciate you going into the details of

47:22
that. And once again, for everyone

47:23
listening and viewing, we're going to

47:24
have all of WDE's his website,

47:27
retirementresarcher.com, you know,

47:29
access to his books where you can buy

47:30
them on Amazon. I would encourage you to

47:32
do that. Um, I want to close with a few

47:35
questions about just some some other

47:37
things when it comes to retirement, the

47:41
non-financial aspects that are that you

47:43
would deem important in retirement as

47:46
you're also looking at these other um

47:48
mathematical views into retirement. What

47:51
are the the non-financial

47:53
items you would like people to focus on?

47:55
Yeah, and I I do focus mostly on the

47:57
finances. So, I had to do some a lot of

48:00
background reading on that when I was

48:01
writing the chapter and the the guide

48:03
book about the non-financial aspects,

48:05
but they're as important as the

48:07
financial aspects and maybe even more

48:09
important because at the end of the day,

48:10
people can adjust to their finances and

48:13
even if it's just a social security

48:14
benefit in the end, people can adapt,

48:17
but the the non-financial aspects are a

48:19
lot harder to adapt to. And kind of a

48:22
rule of thumb is you want to have

48:24
something that you're retiring to rather

48:25
than something that you're retiring

48:27
from. Like you don't want to retire

48:28
because you hate your job. You want to

48:30
retire because you have something else

48:32
you'd rather be doing that will give you

48:34
purpose and passion.

48:35
Wait, repeat that again.

48:36
Yeah. It's not that you want you want to

48:38
retire to something, not retire from

48:40
something.

48:41
There you go.

48:42
And and that we can think about. So work

48:46
of course provides us income, but but it

48:48
does a lot more than that. Other aspects

48:50
or other like positive life experiences

48:52
we get through work. It's a source of

48:54
social engagement, f friendship, com

48:57
camaraderie.

48:58
Uh it's a a structure for the day like I

49:02
know I have these hours of the day I'm

49:04
I'm going to work. A routine and

49:06
structure that can be important to some

49:08
people.

49:09
It's a sense of identity for some people

49:11
that like when someone asks who you are

49:13
if your response is your career like I

49:15
am an accountant or I am a lawyer that

49:18
can be a big part of your identity and

49:20
so retirement can take away that that

49:22
identity. And also people can feel like

49:24
they're valuable contributors to society

49:26
through their work. And if they don't

49:28
have a replacement for that, they might

49:30
also then have less of a sense of

49:32
self-worth when when they don't have

49:34
that career as part of who they are. So

49:37
working provides all these positive

49:39
attributes that need to be replaced as

49:42
part of retirement. And that's a big

49:44
aspect of the non-financial side of how

49:47
are you going to spend your days? How

49:48
are you going to continue to m social

49:50
engagement? And like it's if you don't

49:52
have anything that forces you to get out

49:54
of the house, it can become a hurdle for

49:56
you. And uh you're going to be spending

49:58
more time potentially with a partner or

50:00
spouse. And how are you going to manage

50:02
that and to make sure that gray divorce

50:03
is on the rise and

50:05
and spouses or partners need to

50:07
communicate with one another to make

50:09
sure there's an understanding about what

50:10
are you going to do together as a

50:11
couple? What will you do separately and

50:13
how will you manage the extra eight

50:16
hours of the day that you're spending

50:17
together that you weren't necessarily

50:19
used to doing? And especially now that

50:20
the children have grown, you don't have

50:23
that child rearing as the source of what

50:26
you're talking about or what you're

50:27
doing together as well. So that that's

50:30
kind of a nutshell of the non-financial

50:31
aspects. the the things that are really

50:34
important to be thinking about and also

50:35
I mean health taking care of your health

50:37
and mental health

50:39
and and just the risk of people becoming

50:42
depressed when they leave work because

50:44
they're just losing all these benefits

50:46
of work above and beyond the income that

50:50
can can lead to negative feedback loops

50:52
and and it's just important to really be

50:54
thinking about and to prepare for what's

50:57
going to give you purpose and passion

50:59
and make you have that retirement that

51:01
you really want to have and not just

51:03
fall into the inertia of the days just

51:06
wasting away. And a lot of people will

51:08
have a honeymoon period at the start of

51:09
retirement that could last a month or a

51:11
year even. But at some point,

51:14
sitting on the couch all day or going

51:16
golfing every day, there's got to be

51:18
something else to really sustain a

51:20
successful, happy retirement experience.

51:22
Definitely. Um Wayne Gretzky, hockey

51:25
player, always said, "I don't skate

51:27
after the puck. I skate to where the

51:29
puck is going to be." for Wade Fowl.

51:32
Where's the puck

51:34
going, Wade? Where are you, where are

51:36
you trying to get to? Um, from a, you

51:39
know, the annuity industry, from a a

51:41
life insurance industry, from a product

51:43
standpoint, and you where do you see the

51:45
future for the industry products and

51:47
where's that puck going to be?

51:50
Well, I've been really excited at a

51:51
personal level about one of the topics

51:53
we we discussed was that retirement

51:54
income style awareness idea. And like my

51:58
dream is I I think there's so much

52:00
potential value there. Like if every one

52:02
of those 10,000 baby boomers reaching

52:04
age 65 every day, like if everyone just

52:06
started by taking the the RISA, the

52:09
retirement income style awareness,

52:10
understanding their RISA profile, which

52:13
is just the starting point of what

52:14
retirement strategy resonates with them.

52:17
I think that could provide so much value

52:19
and service as a starting point for

52:21
people to then think about how to build

52:23
their retirement strategies. So kind of

52:25
what's driving me right now is getting

52:27
that message out there and and trying to

52:29
build that momentum that the the RISA

52:33
really is the starting point. We've had

52:35
we have risk tolerance questionnaires

52:36
and maybe a lot of the listeners have

52:38
taken one even which is

52:40
you know for your investment portfolio

52:42
what stock allocation should you use?

52:44
Uh that's not really all that relevant

52:46
for retirement or it's still important

52:48
but it's only for the investing piece.

52:50
It doesn't speak to and this is what we

52:52
showed in the research like a

52:54
traditional risk tolerance questionnaire

52:55
doesn't have anything to say about are

52:58
you concerned about meeting your core

52:59
expenses over a long retirement like are

53:01
you concerned about outliving your money

53:03
[snorts]

53:03
it doesn't speak to liquidity concerns

53:06
which is do I have reserves what if I

53:08
like have a big long-term care bill do I

53:10
have sufficient funds to help cover that

53:12
risk tolerance questionnaire doesn't

53:14
help with that it can kind of describe

53:16
lifestyle concerns which is the overall

53:18
kind of the accumulation

53:19
investing process of just how can we

53:22
maximize our lifestyles as much as

53:24
possible. But it's not a good starting

53:26
point for the retirement conversation.

53:28
First, people need to understand their

53:30
style, then they can take a risk

53:32
tolerance questionnaire. And I'm just

53:34
trying to help build the momentum to to

53:36
get this idea out there that understand

53:38
your style. It simplifies the

53:40
conversation. It provides a vocabulary.

53:42
And my website gets so many questions

53:44
from people. And now the vocabulary is

53:46
changing. Instead of somebody asking me

53:48
should I do this or that they say I'm

53:51
time segmentation should I do this or

53:53
that

53:53
nice

53:54
and then it's easier to to answer the

53:56
question of course they the question

53:58
still always it depends but now one of

54:00
the big it depends is less I mean

54:02
there's there's less uncertainty now we

54:04
can have that conversation is building a

54:06
bond ladder right for somebody who has

54:08
time segmentation

54:09
it's much more likely to be correct for

54:11
that type of person than for for someone

54:13
who has a different style

54:15
great answer. Wade Foul, a true thought

54:17
leader in the industry, an icon um as

54:19
you can tell by just listening to him.

54:21
He's a good person and he's trying to

54:23
help and he's trying to um create a

54:27
foundation of facts um and insight that

54:30
will help the retirees, pre-retirees,

54:32
post-retirees, whatever you want to call

54:34
yourself, baby boomers. And um it has

54:37
been an absolute pleasure for you to be

54:39
on the Fund with Annuities podcast. Hope

54:40
you're going to join us in the future. I

54:42
wish you the best on this new book.

54:43
Yeah, it's fantastic. I do recommend all

54:46
four of his books. But um wait, any last

54:48
thoughts before we close this thing out?

54:50
No, I've admired your work for a long

54:52
time and so it's a pleasure to to talk

54:54
with you about it. Thank you.

54:55
Well, great. Hopefully we can uh meet

54:57
one of these days. I'll buy you dinner

54:58
in a postcoid world, I hope. Um but I

55:01
want to thank everybody on all the PL

55:02
podcast platforms and the Fund with

55:04
Annuities YouTube channel. Don't forget

55:06
I also have a Stand the Annuity Man

55:07
YouTube channel that has over 400 videos

55:09
at the time of this taping that are

55:11
informative and non-salesy. So with

55:13
that, I will see you next week on Fun

55:16
with Annuities.

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