Exploring Income Lab with Sample Households - August 2022

good morning everyone thanks for joining we will get uh everyone in the webinar and then kick off in a few minutes

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let's see we've still got some folks joining in and see if i can find

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give it a few more minutes see some more people hopping in here

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and then

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okay all right justin can we hear you yep i'm here okay

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all righty well good morning everyone thanks for joining our webinar today uh we are excited to uh bring one of our

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more requested topics um to you this morning before we get started in the

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presentation just want to run through some housekeeping items you will see in the zoom toolbar here

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that we have a q a section so first we'll have the presentation and then we'll open it up for q a please drop all

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your questions in the q a um you can also view other folks questions and upvote um questions that you like as

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well and then at the end of the presentation we will run through uh the queue for the q a if you have any um

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specific questions for us you can also shoot that in the chat directly to me as well

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and then after this at the end of the webinar you'll also get a survey so for our new uh first time visitors you'll be

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able to not only share your feedback but also let us know next steps as far as having a team member reach out or

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getting you started on the software other than that justin that's all i got i will uh kick it over to you all right

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great thank you michael and thanks everybody for for coming um yeah so today um we're

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gonna go through i i guess a little bit more of a of a um

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you know kind of fine-tuned you know deeper dive into the income lab software

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um but i'll try to make it interesting and applicable to the kinds of planning that you're doing

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so today is really all about kind of how to create plans how to

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present them how to evaluate them based on the outputs how to um explore

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different options that you might be considering um for the advice for for a particular

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set of clients so make sure this is working

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we're going to start out by building kind of a base plan i've tried to make it

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relatively realistic and include some things that you know although maybe you wouldn't run into them

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precisely these things hopefully they're kind of uh like a model for other things

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you might want to do in your plans then we'll talk about presenting a plan

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and today we're mostly going to focus on um kind of the the core part of

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a of an income lab plan the retirement income plan the adjustment plan and so on

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and then we'll dive into some interesting kind of plan scenarios okay what if um you know what if we change

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retirement date what if we um you know do do all sorts of different things um so should be should be fun and hopefully

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um it'll uh elicit fair number of of uh comments and questions so um the

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kind of the persona um that we're dealing with here are um some folks in their early 60s um planning to retire

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relatively soon so three years out but as you'll see we'll explore some

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other options maybe they can retire right now and so on they've built up a portfolio of a little over two million

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dollars split into a taxable account a 403 b and a 401k

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they are saving aggressively so they're they're each saving 18 000 a year into

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retirement accounts plus an employee match they do have a rental property

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and we've got some social security projections as well their main liability is they still have

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a mortgage to be paid off in about nine years so

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with that let's jump in

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okay so the first thing that you would do to kind of get this get these folks going is from the households tab right

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you're going to create create a new household now i've already created them there are the smiths here

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and what you would see you know is just some basic demographic information so i already have their uh

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their birth dates in there and their retirement date now um the way that the software works is

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the first retirement date is really when you're telling the software hey here's the point at which i want to know

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how much i could spend and you know where i should source that from and so on so that's kind of the point at which

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the software is going to switch from assuming that you're spending everything you're making except for

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the explicit savings plans you made to saying okay this is how much you can spend we're actually working on some some

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features to allow you to kind of fine-tune those things a bit more but that's important to know

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i also already have their assets in here and for employer-based retirement plans

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it's really important to get you know the account type right and

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to know what's going on you know with this plan are they still working if they're not still working um did they

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leave that employer at or after age 55 right these are important things for

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premature withdrawal penalties and and so on um so in this case

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i've got john retiring and leaving this employer you know right before right before he retires for example

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um so those are those are crucial things to getting um getting the plan right

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um i do have a few other things in here maybe worth highlighting so you know

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they've got some term life insurance um as much as possible we try to um

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to make it possible to build a base plan with what kind of is the minimum that you have available so that you can use

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this with prospects and so on but the more i add the you know the closer i get to

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um to reality really the better and you know down to the point where i can even pull in this

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this insurance premium into the budget into the expense list automatically uh right here

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so i've chosen to call this an other slash variable expense we'll talk about that in a second that that difference

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between a baseline and variable expense because that's another important one

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in fact we'll do it right here so this is where i've put that main liability right they still have a mortgage on one

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two three main street um and you know i'm going to put the balance in

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as of when i know it and the end date and again i can pull in that this is a

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this is a major and important expense for them right um and i can include the principal and interest payment

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automatically either by specifying the interest rate or if i know that the principal and interest payment just

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specify that here you know if it were a balloon mortgage or um you know an

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interest-only mortgage uh i could i could also make that uh that setting here

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uh in the in the structure um but i've called it an other variable expense what that means is this is an

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expense we definitely have to pay it but when it drops off i'm not going to replace it with something else right so the the core

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kind of as i build this baseline plan what i'm trying to do is figure out um

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kind of what income level what paycheck replacement can the smiths have in

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retirement assuming that they're retiring in 2025. so i'm trying to make an estimate of sort of their lifestyle

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the lifestyle that they can support so this this uh mortgage payment is really important but

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it's i want to kind of set it to the side and say okay well we need to pay off our mortgage but tell me what else

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they can spend on top of it because i'm not going to replace this this mortgage in this plan once they're

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done paying it off so that's what an other variable expense is if it were baseline expense that's more of the hey

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just ongoing life costs right your groceries your gas your insurance

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and so on um so that's the main difference

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you can see i have the account contributions in here as i said they're they're saving aggressively i've put the contributions and the match

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together you can split those out you can do you know that plus uh uh you know maybe there's also a profit

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sharing there's all you can do as many different types of contributions as possible and for

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a pre-retirement plan really the savings plan is a place where you can do some some a b testing as well

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right what kind of savings plan can get us to our goals but for these folks they're already

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doing some pretty healthy savings

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and i can just set it to end at john's retirement as i as i change retirement dates that'll

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that'll automatically change

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now this couple uh they both have paid into social security uh but mary a lot

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less you know maybe she works for a public

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enterprise or something didn't pay in as long but so i have their their estimated

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uh pia their primary insurance amount um already put in here

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and you can see hers is quite a bit less lower than than his and i did that on purpose

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because i want to show how you can evaluate these kind of situations where a spousal

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benefit might come into play so i i have him starting social security right on the retirement date

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here um and we'll see that for her you know based on those primary insurance amounts

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we'd expect her to to take his spousal benefit at some point right because half of his primary insurance amount is

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greater than her primary insurance amount and you'll see down here this slider allows me to

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see uh how much she would get at the beginning as soon as she files for

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retirement right so we can see um before her full retirement age it's

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it's reduced as we would expect right um so i think 800 was the primary insurance amount but um you know i've got to get

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all the way um all the way to full retirement to see that but by then

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um john has claimed and so in fact she'd be getting her spousal benefit so you'll

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you'll only see the spousal benefit shown here as social security income um

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if that's the amount she would get when she starts but if

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i have her start at age 62 you'll see i'll show you another place where you'll

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see she'll start at this 560 and then it'll bump up when when john starts

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social security you'll also see here that in this case even waiting one month

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is not going to be worth it for her you see break even not possible that's because you know she's going to start

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her spousal benefit when john starts and so there's no point at which she would be able to make up for um that lost uh

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that lost income so it really looks like here it's going to make sense if that's when he's starting that she should start as

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soon as she can all right um we've talked a lot about

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this before you know it's it's if you look at kind of retirement research there's a

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lot about portfolio withdrawal rates and so on and that's really important um

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but we need to view that within the the full context of a household's other income

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flows um and so typically in in kind of more realistic plans we see phases of portfolio

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withdrawals um and that are based on kind of filling up

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spots where there's less other income so a typical case we've talked about as the retirement hatchet is if you're delaying

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social security um that you would have withdrawals filling that space before social security starts

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we'll look at an example here of that but that this section is one of the most important other places of a plan this is

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where you put all the other income pre-retirement or in retirement for this

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couple pre-retirement you're going to want to specify that if you're interested in the tax

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part of of the plan which we are in this case we're going to explore for example roth conversions we're going to explore

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whether those make sense to do even before retirement um and so i have mary and john's salaries here

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mary is also planning on doing some consulting for a few years at the beginning of retirement so not kind of fully retiring so i have that um

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in here i have it set as self-employment that's so that we she has to pay double fica

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um so that's important thing versus you know her salary right now is wages where

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there's only one level of fica mary also has a pension

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and i mentioned that that rental income so these kind of like i was saying for your account types you really want to

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you know specify as much as possible um what those account types are you know if they're related to an employer are we

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still working did we leave that employer after 55 and so on same thing here the tax treatment of

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these um of these cash flows really matters so pension is ordinary income we already

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saw self-employment and wages the rental income we're estimating over time that 75 of

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that will be taxable and maybe they'll spend 25 percent of it on um on expenses

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that they'll be able to write off for that rental property um so again very important

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also important is if you have any cash flows that change if one spouse

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passes away now that's not true in the case of the rental income but in terms of the pension um you know i've already said that it's

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say ends at mary's death you'll see that means when mary dies it goes down to zero but if john died it would stay the

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same you can also fine-tune those you know if you had a for example 50 survivorship

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pension or annuity this would be where you would set that the reason that's important is

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if we make a plan for a household where we assumed all of this income was going to last

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till the end of the plan no matter what we would be giving them credit for

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kind of non-portfolio income right income from other sources that is probably higher than they'll actually

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experience and so we would be assuming that their investments will will be less

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used that they won't need as much in withdrawals over the time as they actually might so behind the scenes

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within income lab there's a sophisticated uh actuarial model that's adjusting these

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cash flows to make sure we're not kind of overstating or painting too rosy a

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picture of the kind of income that they can sustain the kind of lifestyle they can sustain because again

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in building this base plan which is kind of the first step of the of the workflow what we're trying

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to do is figure out kind of what can they afford what can they have right so the default way to answer to to approach

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a retirement income plan on income lab is to answer that question of what can i have rather than um

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first asking the client you know what you need

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in expenses you can of course build a full baseline expense list you know line items and so on i've just for the sake

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of uh you know simplicity just grouped these into a couple of uh

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of of main sections and for the moment i don't have any other variable expenses

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other than of course we already have that that pension or not that pension that uh that mortgage which

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will automatically be pulled in here but i don't need to double up here um so that's a relatively new feature uh about

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a month ago where we'll just pull that in automatically for you so if you have older plans where you've double double

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entered things um you may want to go back and uh and um and change that

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okay and then finally uh on the retirement step you know i've pulled in the desired income which is you know

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kind of my full budgeted income and essential income so each of those budget items those baseline items we can

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specify okay this is what i want but this is what i need so i've pulled that in from from the

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expense list you know let's say that john and mary have you know five grandkids they'd love

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to leave them fifty thousand dollars each so we're setting a legacy goal here

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um i'm also choosing what is the default of an age-based income path this is a path

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that follows the retirement smile so it assumes that the um this household will spend more early

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in retirement when they're young healthy active and then as they slow down they'll spend less on an

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inflation-adjusted basis and then that will come up again toward the end of the plan

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for some potential increases in in health care costs and so on we'll we'll look at a long-term care example

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um soon and then finally in power planning i i just left this at the default which is

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moderate um so this is a key part of this what can i afford well what you can

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afford to spend depends a lot on your risk tolerance right so you know are you the kind of

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uh client who really never wants a call from their advisor saying it's time to pull back

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well that's fine we can do that by spending less now right taking less risk now are you the kind of client who says

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i'm happy with that call as long as it means i can live a little first okay we can be more aggressive i've shot down

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the middle here uh in a moderate setting and you know these are folks in the early 60s um

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the actuarial model has us uh kind of at about a 32-year

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joint life expectancy um and that's what we're that's what we're planning for here

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so this is the first step is okay let's let's kind of paint the picture as

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as reasonably as we can for these folks and get a baseline

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starting point okay it looks like you know gross of taxes they're around

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13.75 net of taxes they're under 12 000 and that is the way to look at that

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is that's a projected amount that they can spend at that retirement date so that you know

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depends on you know a certain amount of growth that depends on them

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actually doing the savings that they're planning to do and so on but crucially you'll see that this is

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split up between that baseline part right this kind of their baseline gross spending

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and those other expenses which are their their um their mortgage the reason that's split

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out is so that you can help them understand that okay we've got your mortgage taken care of

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now can we build a lifestyle for you that's where it's about 13-7 a month

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right that that's why that split out so the first part of um answering that kind of what can i have question is right

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here okay well assuming that we have your inputs right assuming that we have your risk tolerance right um we're projecting that

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that this is about the lifestyle you could sustain um you'll see it all of this is in the

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first month of retirement in today's dollars right so they're actually going to be funding this with some social security some portfolio withdrawals and

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some other income so recall there was consulting income there was rental income there was a pension and so on

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so how could that change um potentially um right we we know that

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retirement is not black and white because you don't succeed or fail you don't either um you know run off a cliff

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wiley coyote style um and run out of money and uh

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on the other side you don't really let your you know portfolio they want to leave 250 000 behind

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if this got up to you know 10 20 million dollars it probably would be reasonable to have

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a discussion with them about either spending more changing their legacy goals and so on so you have this income

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adjustment plan which is the next place to focus on in the in the base plan and if i'm

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talking with you know prospects or this is kind of the first time i'm i'm going through this kind of thing this is the next

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place i would go so okay we project about 13-7 and we'll be paying taxes on that right but we'd

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be having to build um spending a kind of a lifestyle that'll that'll fit within

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that but things could get better or they could get worse so what would cause us what do

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we project would cause us to recommend a change and you could see projected three years

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out if this portfolio went from 2.46 to 2.58

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it would call for a a bump in spending um now in practice they they may or may

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not take that bump but this is a time when you can say look risk has gone down enough for you

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that it would be very reasonable for you to spend more in fact in this case all that does is

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take them back to the risk level that they started with right so if they were comfortable with it to start they'd be

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comfortable with increasing their spending on the downside it's going to take a much larger

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decrease for this plan to call for an income decrease so in this case about 32 percent

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reduction would lead to a reduction in income the reason that's such a large buffer

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is there's nothing magical about that that's by design so most plans that people build on income lab

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are um they recognize that people tend to be risk averse so they would rather have a

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large safety buffer you can take a smaller buffer right that's by getting more aggressive

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early on that's the kind of family that says i want to spend now fine you tell me if i need to pull back but i want to spend now

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this is a more of a moderate plan and it's saying okay you're going to have to sustain a fairly large reduction

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in order to take a pay cut now in practice that's that's just the next adjustment right so

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if things are really bad if this is 2008 2009 there may be a series of of reductions in

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income but this crucially is this shows clients that it's not

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about success and failure it's not about getting that number exactly right um of how much

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you can spend right it's getting a very reasonable hey will this work for you and then what would cause

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us to make an adjustment okay so that's um this is kind of

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the core uh the core plan um next i want to

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go through some get back to our

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presentation

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some planning questions and planning scenarios right so this we've kind of built this baseline plan we have a feel

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for what they can afford um we have a feel for what that might look like um

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in terms of short-term income adjustments so what kinds of questions

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might we now want to explore well an obvious one would be this is planning for three years out

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is it possible for these folks to retire right now within income lab you have this income

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scenario section which is really built for scenario planning

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and so i've already built some scenarios including retire in october of this year

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so in order to do that all i had to do was from income scenarios i can either copy

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this main household plan right that baseline plan the source of truth essentially or i can just hit create a

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new scenario which does the same thing it copies the baseline plan

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so i've done that and then i want to make some changes in this case minimal changes right i just set the

26:39

retirement dates and i think in this case i may have made a

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couple other changes for example in the portfolio i made sure that john had access to his 401k

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at that same point but you'll see

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you know now the salaries are ending sooner the consulting is starting sooner

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the pension is is uh i guess i left that one um

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and uh yeah the rental income is the same so just some some very minor changes

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you know the plan is still the same length right it's just that now we're going to have more retirement um in that plan

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and uh actually probably the best place to view this is right here so we were at

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13 7. almost 13-8 uh retiring early

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not having those contributions and having to fund a longer period

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reduces our gross income you know a fair amount about 24

27:51

2400 and if indeed our desired income right which

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we'd expensed out is nine thousand so net of taxes we want nine thousand this is actually telling us well

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with these settings at least that's not that we're not quite there now the shortfall is not huge

28:09

right so if this was something that these clients were really interested in we could start

28:14

um we could start moving a few other levers right maybe we want to change the legacy

28:20

um i'm not sure that's going to get us uh get us out of the way but i can change

28:26

okay well whatever the legacy is let's uh it'll be what it is but we're going to shoot for for nothing

28:33

yeah it does doesn't doesn't quite get us there but it gets us pretty it gets us a lot closer right so you can

28:39

start kind of fine-tuning some of these uh some of these what-if scenarios to

28:45

see if this is possible all right you can also see that um in this case it wouldn't be quite as big of

28:52

a of a buffer although it's still still fairly large right so if they're if

28:57

they're comfortable with kind of spending a little closer to their their ex their budget

29:03

um it looks like they're they're kind of within shouting distance of of retiring soon

29:09

right you could put maybe push this out a few more months put it push it until next summer right obviously there are things in between retiring now and

29:15

retiring in three years right and kind of fine tune fine tune that

29:27

okay on the other side what what about some expenses right so we we kind of had a

29:32

very basic um plan where the only thing we were really highlighting

29:38

was the mortgage and it's crucial to pay off that that mortgage right um

29:43

what other kinds of things might we might we consider doing okay what if we buy a lake house

29:52

the way to do that is simply add an expense and these what-if expenses these kind of

29:59

lumpy expenses or one-time expenses you always want to put in other

30:04

variable expenses because again what that's going to do is you'll then see how the baseline

30:10

income changes you'll kind of see what's the cost of planning for this expense right maybe it was my baseline income

30:16

was 16 000. i do another thing and it goes down okay well that's kind of the cost of that

30:22

extra thing so we have a one-time 200 000 um you know we're buying this lake house

30:29

i know not every lake has houses like that available but uh

30:36

i grew up in michigan you can definitely get a lake house there for that um and again the place where you can see

30:41

and compare these is and by the way i'm back to retiring in 2025 here so we're at 13 7

30:49

without the lake house with the lake house um i'm at

30:54

12 9 almost 13 right so you're essentially just having to back out your spending by call it 800

30:59

um so this is again the kind of thing that you can put that choice in front of a client all

31:05

right it looks to me like you you're you're kind of sustainable baseline spending gross of taxes would have to go

31:11

down by you know call it uh 800

31:16

in order for this to be possible which may look quite good right

31:22

now there are less fun expenses that you might want to consider um and these include things like

31:28

long-term care so we get this question a lot how can i kind of plan for long-term care in this

31:33

case for self-insured long-term care so kind of setting aside enough

31:38

that that we can pay for long-term care if we need it and in this case

31:46

we put four years of long-term care at four thousand dollars a month in today's

31:52

dollars so adjusted for inflation if you thought that long-term care might

31:58

might go at higher than inflation level you can put in your custom inflation there

32:03

um and i just kind of put it in for four years that's a little longer than than average um uh

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i believe for man it's maybe three years or a little less for women a little more and i also didn't quite i didn't put it

32:15

at the very end of the plan i put it a little bit before the end of the plan because again you know just the reality

32:21

of this kind of thing is you might um you might actually see you know one

32:26

spouse going into long-term care while the other one is not

32:36

and so where we would see that is we see it in the spending here so the income sourcing says how am i going to

32:42

fund all these planned expenses you kind of see this lump in your portfolio withdrawals

32:49

but if you want to see it as a line item it's under the expenses so you know you can see your mortgage

32:54

payment coming dropping off and you see your long-term care

33:00

payment here so now you know if i moved this closer right if i put it in 2038 or something it might

33:07

have more of an effect on my baseline spending but you see here the baseline spending is only affected

33:14

by about 350 by planning for that expense far in the future but just time value of money

33:20

right if i put it closer i'm going to see a larger effect

33:27

another place that you can do this kind of thing is in life hub so i've been showing all

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the inputs in kind of the most boring place

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but if i go into life hub [Music]

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let it load here

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um now i've already built this but all i would have to do is

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create that copy of an account and hit add new i'll show you the one with long-term

34:08

care already in it so if i just hit add new

34:15

expense variable

34:22

long term care right same exact settings here

34:27

but we already have it in lifehub

34:37

zoom is very greedy on uh cpu cycles here

34:44

discard that um so yeah in 2022 the long-term care is not there yet um i do have my mortgage

34:51

payments and my um my term insurance um by the time i get to

34:58

um you know 2031 you can see my

35:04

my mortgage is almost paid off right only eight thousand dollars left

35:11

and now it's gone and then i think we had that uh

35:18

oh yeah there we go long term care is right here right you can see it highlighted on the timeline so i can see that it's

35:25

it's starting now this isn't in nominal dollars so future dollars so that's the uh

35:30

that's the inflated uh amount of my that long-term care uh that i'm planning for

35:39

justin we did uh get a few questions in here wondering if maybe we should take a

35:44

pause and address some of them because i know one of them was around long-term care um

35:50

and uh let me just see yeah so question here is you know will

35:56

we be making it possible to include primary home as part of the legacy goal um and you also kind of how would you

36:03

recommend reflecting long-term care expenses uh which you just walk through um and you know the advisor pointed you

36:09

know normally they think of this as something that lasts two years of life but they haven't really figured out how

36:15

best to reflect it so i'm not sure if maybe you have any additional thoughts yeah

36:20

with future expenses and really even future income flows that are a little less certain

36:26

um there is a judgment call to be made here right so i i admit this is a little bit of an aggressive long-term care

36:32

expense um you know 4 000 i think is maybe a little higher than than standard

36:38

although you'd want to you'd want to look for your area and four years is longer than average at least

36:44

but um you know being a little more conservative i think can make sense um and then also the timing of these things

36:50

right so i've put it a little bit toward the later part of the plan but if you want to be more conservative you can

36:56

move it a little bit earlier uh the same goes for things like inheritances right

37:01

those are really important um for plans but since they can be uncertain um you

37:06

know probably a a little bit of uh of uh conservatism

37:12

for for these kinds of things uh makes a lot of sense um on the asset side lifehub is a great place to kind of

37:19

step back from the portfolio legacy goal so the setting for the plan where it's your legacy goal

37:25

that's that's importfolio dollars so do i want to leave financial assets to people

37:31

clearly you might decide you know what we won't have any financial legacy goal

37:36

because we have the the primary residence or the lake house and you know we think those are going to be worth

37:41

plenty once sold to provide the legacy that we like right so that's that's the way to handle that and that's a little

37:46

more visible in life hub there are actually some features that um

37:52

our team is working on right now to allow a little bit more fine-tuning of you know purchasing and selling

37:59

properties and getting those into into the plan and into life hub a little bit you know easier in terms of data entry

38:06

so so you'll see that and also potential growth and so on and that'll be coming soon

38:12

awesome and then uh our next question that uh has the most up votes is um what do you

38:17

do when you have a spouse that retires early and you don't want to start withdrawals from your investments until

38:22

the later retirement i.e spouse retires in 2026 and the second spouse retires in

38:28

2040 for example yeah so currently you would want to set the

38:33

first spouse retiring at the same time as the second spouse that's a little bit of a hack right because that's not

38:39

really what's happening but that will trigger the software to wait until that point to

38:45

start taking withdrawals as i said we do have some features that will allow you to kind of more explicitly you can say

38:51

spouse one at this point spouse two at this point and when do i wanna start taking withdrawals kind of which of

38:57

these is is really when i'm starting the the plan so you'll be able to do that soon but for now just put

39:02

put both at the second date awesome and then um

39:08

next one with some votes is are state income taxes for example california taken into account

39:15

they are yeah so um i think in this example these folks were in colorado um

39:20

colorado has a basically a flat tax although there are lots of deductions and exemptions and things but

39:27

if it were california you have all the um the uh all the rates in there we update

39:33

those in the first quarter um as soon and they would be for last

39:39

year's established tax rates the reason for that is that's that's the only that's typically the only um tax regime

39:46

that where there's firm black letter uh regulation available so you may see

39:52

you know mid-year maybe a legislature make some changes but you won't see that reflected until the regulations are

39:58

actually you know firm and printed and then you'll see them in income lab but yeah and you know

40:05

uh what we've tried to do with in order to give 50 state and british columbia coverage

40:11

is we cover everything that is most important for retirees so those would be things like um exemptions deductions

40:19

credits that are related to retirement income or to age and so on so you know

40:24

the our tax system is not uh probably going to cover i don't know

40:30

exemptions on uh capital gains for cattle in idaho right things like that that are a little

40:35

that are very specific or not you know you're not going to find those here

40:41

perfect and then maybe one more while we're on uh talking about taxes and rocks um

40:48

question here on roth optimization uh question is uh the analysis appear

40:53

appears to not take into consideration the time value of money i.e taxes saved in 25 years are weighed the same as

40:59

taxes paid today is this true and are there plans to consider this in the future

41:05

yeah so um you do see uh at least the the application of

41:13

of inflation but it's true that there and with social security i think that

41:20

it would be very reasonable to apply a time value of money um calculation

41:25

perhaps your average expected rate on your on your on your investments and so on and that's

41:32

definitely something we're considering there are different uh

41:38

opinions on how exactly to do that um but yeah i certainly think that's a

41:44

that's a reasonable way to go

41:49

okay and then um we did have a few but i know they're interrupted here so maybe i'll let you know actually roths were the

41:55

next place i was going to go um if there are other questions on that we can

42:02

i i did um let's see i guess the only other thing i

42:08

the only other what if i have in here other than ross was delaying social security um which is uh again very easy

42:15

we just copy the plan move the slider right so in here we'll see the sliders for social security

42:22

um now i've delayed

42:27

john's until 70 here which is going to mean

42:33

mary is at her own for a much longer period of time and again to to view the difference

42:40

the best place to do that is on the income scenarios and we see we go from 13 758 keeping all else equal

42:49

okay we go up by about 200 bucks now you may decide um that's not worth it right i mean that

42:55

that is that's meaningful but um there's always a trade-off right and so now we're more in the retirement hatchet

43:01

world where we're gonna have to have a longer period of higher withdrawals you might say well i'd rather not tax the

43:06

portfolio as much um and and and so on um or you know there

43:12

could be other considerations right maybe maybe john is of poor health then you know there's a chance that mary will

43:18

be um taking a survivor benefit uh even sooner so maybe it makes sense not to to delay

43:25

as long so that she can um get that higher benefit so lots of things when when the difference is that close other

43:31

things can come in right if this were a thousand two thousand dollars then then it would probably um we would probably

43:37

take a much uh much different view of it um the last thing i wanted to do though

43:43

is on roth conversion so again thinking about the the workflow here is we've we've made a

43:49

base plan we've gotten a feeling for what they can spend we've explored different options in terms of behavior

43:54

buying and selling things planning for future expenses the next thing is to explore

44:03

how to fund the withdrawals and that's about roth convergence

44:08

no the place to start that is the tax center um which

44:13

i'll just show very very quickly here um

44:20

and this would this would be a whole other webinar which we'll probably do at some point um but the first place we we

44:26

go is if we take the base plan we put it in the tax center and we can now see a range of possible withdrawal strategies

44:34

um now for these folks um aggressive well roth conversions look um

44:42

to be kind of the top ranked although you'll see less aggressive are not very different right so some a lot of times

44:49

clients are not really comfortable with huge roth conversions so you know bumping it down to 24 or even 22 might

44:56

make sense for them what i've done actually is already done quite a bit of exploring and built a

45:04

plan with roth conversions um

45:09

since their pre-pre-retirement i i ended up exploring doing roth

45:17

conversions before retirement which you can now do by going into the advanced settings clicking specify years when roth

45:23

conversions are allowed because if you don't do that it's only going to allow roth conversions in retirement it's

45:29

going to wait until the retirement year i customized the years now i i just said

45:34

okay for the first um 10 years of the plan we're going to allow them you can be quite

45:41

specific here i've seen i've talked with people who do you know aca planning where they want to avoid roth

45:46

conversions in particular years where maybe couples are getting some some tax credits right so i've

45:53

already done i've already allowed that and so if i go

45:59

to the tax center

46:06

now for these folks i'm i've found a way for them to kind of

46:11

stick to the 22 bracket

46:17

which is usually much more palatable

46:23

and now i can see and share with them what that looks like over the first 10 years of their plan

46:29

including they're doing about 39 000 of roth conversions this year right so this

46:35

is again just thinking about the workflow base plan um

46:40

scenario planning tax center to try to figure out the withdrawal strategy that can be a an interesting process and then

46:47

finally sharing with them kind of how we're going to do this either in the tax center so this is a nice a nice place to

46:53

kind of show how things stack up or we go back to life hub

47:01

and i was gonna say justin while that's pulling this is one of the questions is you know how do you see which funds the plan is pulling from and in what order

47:08

and as you mentioned life hub would be the place to do it yeah this is a place to do it um

47:15

so uh in this case i i think i actually forgot to change uh john's 401k to be

47:21

available uh in oh no this is because mary's 43b is already available but john's still working right so he's he

47:28

can't take from his 401k right they're not retiring he's not retiring until 2025 and that plan doesn't allow

47:34

in-service withdrawals so initially those roth conversions are all coming

47:40

from mary's 403 b here right and we see that that's a roth conversion they also have

47:46

those aggressive planned savings going on still um now mary is starting social

47:53

security even though they're not retired um she's taking social security because uh she's gonna end up with a special

47:59

benefit so she might as well and then once we get to the retirement year

48:04

now we'll see okay we're doing roth conversions from john's 401k as well um

48:10

even if you don't have a roth the system will just put a a dummy roth in here for each

48:17

for each client right because it has to have a place to put it if you have a roth it'll just put it

48:23

into those um so that's i know that's been a lot of information i tried to kind of cover

48:29

things that can be examples you can use um you know just just change them for whatever the

48:35

situation is for clients but yeah in the last 12 minutes here uh it looks like we've got a lot in the q a so see what

48:40

we can get through awesome okay all righty we have quite the list of questions so if you do have

48:46

questions please drop them in now otherwise justin we will work through these um and then i will just start

48:52

based on the questions that other folks have uh voted for so um

48:58

next question is um is there a way to quickly see which variable or variables are driving the plan which ones are key

49:06

and the advisor and client should revisit those

49:11

hmm

49:17

i think um probably not what we've noticed is like

49:23

certain things you know for example if the if the portfolio is really driving the

49:29

plan you'll tend to see that the um that the uh

49:37

that the income plan uh the the income adjustment plan guard rails are a little closer

49:43

um whereas if we have a lot of non-portfolio income this will be farther away which kind of makes sense

49:49

right so if if 80 of your income is from social security and pensions and rental incomes and so on and you're just taking

49:56

small withdrawals from your portfolio well the portfolio has to change quite a bit for for your whole plan to be

50:02

affected right so so that's one place that i've seen it um

50:07

i'm trying to think if there are other other things that can drive plans would

50:12

be like inflation so we've certainly seen um you know plans that are heavily affected

50:18

by inflation inflation for example with very large pensions that are not adjusted for inflation over time so nominal pensions

50:25

that's typically seen in the in the plan test so you'll end up with kind of worst

50:30

plan worse plan test results than you might have expected because the scenarios that it's testing the ones

50:36

with high inflation did really poorly but yeah there's not a single place that'll sort of list the factors that

50:41

are most important we've certainly had that um that request though and i think it would be a really cool feature so um

50:48

we'll look at that awesome uh next question is did you input cost basis on a taxable

50:54

account i did yeah i did i don't remember what i made it but um yeah so there are i think

51:00

i'm not in this kind of account but if in your firm admin account you can set

51:05

tax assumptions that roughly include uh

51:11

turnover right so um you know you can say how much of long-term capital gains are realized

51:18

each year and then the system will will treat

51:23

withdrawals we'll treat sales um within the taxable account as proportional gains and and basis um in practice of

51:31

course you may have a different way of approaching that um and but that's the that's the assumption built in

51:37

awesome uh next question is uh does income lab have a way to estimate health costs such as insurance premiums medical

51:44

supplements plus medicare out-of-pocket costs etc um similar to kind of how maybe an advisor doing like money guide

51:50

pro we don't um i do want to show though where medicare

51:57

is covered um so part b we have updated every year for the

52:03

actual part b premiums and then we have irma covered as well part d we just have kind of a you know

52:11

sort of an average part d premium but you'll want to change this if your clients are covered by part d um this

52:17

would also be if you want every part of medicare to be in here you could add part c premiums if you did

52:23

like a supplement plan to here because you won't actually see these split out in the plan itself it will just group b

52:28

and d together um and then kind of like with the um the principal and interest

52:34

payments on the on the mortgage you can also just automatically include medicare premiums in the plan

52:40

um here as well uh but no there's no kind of you know specialized uh health insurance um

52:47

pricing module um again that would be that would be great or you know fine i know there are some

52:53

specialized software that deal with medicare and and so on so maybe an integration someday would make more

52:58

sense and then here's one on taxes uh does the tax calculations include the extra 3.8

53:05

tax on higher salary incomes um plus also the 3.8 tax on investment

53:11

income over 250k it does so that the the salary income is

53:16

just gonna be added into fica so i mean you'll the amounts will be different so i think it's point an extra point nine

53:22

or point eight um so i don't know if they make it here um

53:28

but the net investment income tax is this light blue um it looks like

53:34

in this plan now this is the delay so security but otherwise the base plan so we didn't do anything fancy here with

53:39

roth conversions or anything um and they never pay net investment income tax um

53:45

but yeah all those are handled including the fact that the thresholds for net investment income tax are not adjusted

53:50

for inflation so actually in a longer plan you'll often see net investment income tax come later in the plan um

53:57

maybe even if you didn't expect it because by then those thresholds have actually come down

54:02

quite a bit in today's dollars awesome okay and then um next question

54:09

here is um

54:15

got a few coming in let's see which

54:24

oh okay um so when would you not you want to use the age-based spending path for example

54:33

i think it's uh you know anytime if if the clients kind of don't buy the idea that they'll

54:38

spend less in today's dollars um i think that's a reasonable

54:45

thing to do if you just want to say well okay let me take this plan and stress test it by not

54:51

changing spending over time you can choose flat which is just inflation adjusted

54:56

you could do a custom path where you know i'm maybe i don't apply any

55:03

reductions you know for the first you know x number of years and then you

55:09

know the it varies that the um retirement smile varies but i think you

55:15

know about one percent a year is is reasonable uh maybe you do a lower um

55:21

a lower reduction rate for example so there there's a lot you can do here i mean i i think i agree with the

55:27

the basis of the question which is um you know for most people this is probably how they'll behave just introspection about people we know you

55:34

know my grandma is still with us and in her very late 80s

55:40

um she does gardening she she cut her own grass until recently but she spends a lot less than she used to because

55:46

she's just much closer to home you know so um i think that is a very reasonable

55:51

place to start and then um question here uh can you see the annual

55:58

portfolio withdrawal rate in the software you know there's not a place where that

56:04

is explicitly um that's definitely not a not a bad idea uh

56:09

so what we would have to do is instead well let's go to go to the retirement year um we've got

56:17

portfolio withdrawals here investment accounts here um and so we'd have to just take this and

56:23

divide it by that but yeah that's a that's an interesting idea and then uh

56:28

to this question what i'm going to put two together so when presenting a plan to a client uh

56:34

do you tend to uh do reports or just show them income lab and then um for the reports you know what reports or pdf

56:41

outputs are available to provide to a client that's a great question so

56:47

you know depending on how you present with clients i mean certainly uh a pdf can never be as pretty and

56:53

dynamic as uh you know an actual computer screen i mean life hub for example uh probably doesn't uh shine as

57:00

much on a pdf since you can't dive in and out um so if if that's part

57:06

of your practice where you can you know you have a big screen in your office or you know doing it over over a virtual meeting like this

57:14

that's definitely a place to go but reports are available for a lot of these views

57:22

and so for example you know maybe i want to

57:28

include kind of the that short-term income plan so what can i spend and what are my

57:35

guard rails this is something that you can put together um you know you can you could

57:40

add the long term outlook which is okay but over the longer term you know how often i would might i expect to be above

57:46

plan or or below plan um you can [Music]

57:52

choose you know maybe i want to do an attacks chart right i want to compare two

57:59

strategies here or you know show those explorations right of um you know how

58:04

i'm going to fund that lifestyle so that's a lot of these views we've turned into

58:11

they're typically one-page pdfs if it's a long plan and it has a table it will typically go on to two or three

58:18

pages but so you can you can find a lot of these uh

58:24

a lot of these views to turn into pdf so that you can send them to clients awesome and then the next question is um

58:31

so life up shows which account to make a rock conversion from but does it indicate where the additional tax is

58:38

paid from um so

58:44

in a sense yes although you know you you'll see it grouped together with

58:51

other um with other spending right so for example if i go to

58:57

life hub and take this um the roth conversion strategy that i have

59:04

here and by the way this is this is really important um if you're doing roth conversions

59:11

typically unless they're small you will want to have chosen solve for

59:16

this income and the reason for that is that flips the calculations around from going gross to net to instead starting

59:22

with net and grossing things up to cover the taxes so um that it's a very common um issue we run

59:30

into where you know maybe hey i had ten thousand dollars a month of income but then i changed it to roth conversions it

59:35

looks like now i'm netting two thousand i can't live on that well that's because we need to say okay i want you know

59:41

eight can you gross me up and just so just making sure your desired income is is appropriate and then hitting solve for

59:47

that income is going to get you there so now in pre-retirement they're assuming

59:53

that they're spending it for they're paying it out of their um salaries so let's get into retirement

59:58

um so here they are doing these roth conversions

1:00:04

about 150 000 um and they're taking extra from their from the joint brokerage account

1:00:10

um to pay for that but it's essentially it's the brokerage account plus social security plus their other income it's

1:00:16

all this other stuff you know the taxes are coming from there so it's not kind of highlighted which

1:00:22

you know which amount from the brokerages is paying the taxes um next question here is uh in

1:00:30

this uh kind of retired 2020 scenario could the advisor add a reverse mortgage to bump up the cash flow

1:00:37

absolutely yeah that's yeah so that's all of those um

1:00:44

all of those other income sources you know when i talk about the retirement hatchet and so on you know it

1:00:51

um you would just add it as an other income flow um right here

1:00:57

or again from life hub you can also just hit add new perfect and i know we still have about

1:01:04

some questions in the queue we can maybe just to get through a few i know for those advisors who do have to hop off um

1:01:10

we will send the recording so if maybe we didn't get to your question maybe you could still um watch the recording for the end here um

1:01:17

justin let me just look and see which one's here maybe we can do two more which ones have the most

1:01:23

votes

1:01:32

oh this one's interesting um so would you recommend running a scenario where things go badly so for example the client retires and six months later has

1:01:39

a stroke in there for a lot more expenses yeah i think that's uh that's

1:01:46

an idea for sure for stress testing these income scenarios are our good place to to do that

1:01:53

um you will see there's one uh

1:01:59

one statistic now the plan i've built this doesn't show uh much of a difference but one thing we do

1:02:06

is we also we take the plan and we essentially

1:02:12

kill off each um spouse individually and say well if this spouse were to pass

1:02:17

away um and any income that's tied to them

1:02:23

um goes away what would be left for the surviving spouse now the other thing that happens

1:02:29

in that calculation is uh there's a shorter plan because an individual has a shorter life expectancy than a joint

1:02:36

life expectancy in every case just mathematically that's how it works so now in this case they both could still

1:02:41

spend the same amount so this is not a very interesting plan but we certainly see plans where um

1:02:47

you know maybe a lot of the non-portfolio income is tied to one spouse and so that in a sense is a

1:02:53

you're sort of seeing an automatic stress test it's essentially taking the plane you've already built gotten rid of

1:02:58

one spouse and said hey how much of this could they could they still fund um so that that's something that's

1:03:04

automatically done for you but yeah these other ideas of hey let me um you know have a particular scenario that's a

1:03:11

great idea and then uh next question here is uh is there a way to offset long-term care

1:03:17

expenses with long-term care insurance until the long-term care insurance is exhausted

1:03:23

yeah definitely so um what i didn't show here was okay this was sort of a self-insured long-term care

1:03:29

but you could you know one thing you can do is just compare the cost quote unquote of planning to self-insure

1:03:38

um which you can see as the difference in this baseline spending level so 13 7 compared to 13 4.

1:03:46

um compare that to the cost of you know the in this case the monthly cost of long-term care insurance and sort of see

1:03:51

if it's worth it now there is a difference there because long-term care insurance would cover

1:03:57

you know essentially whenever long-term care comes whereas this self-insured i sort of put it in one part of the plan

1:04:03

so you might want to be fairly conservative maybe push it earlier in the plan and so on um another thing to to be

1:04:09

careful about though is um is insurance inflation adjustments for long-term care

1:04:14

insurance and make sure you know that uh you're kind of comparing apples to apples um because in self-insuring i did

1:04:21

you know adjusting for inflation okay and then um

1:04:27

and then uh we do have more coming in i know justin i think maybe we should do a part two because it seems like there's

1:04:34

uh i just really thought this was interesting and we're getting a ton of questions too um but you know we we can

1:04:40

kind of close this one so does net legacy just add up all of the assets the example shows a net loss to legacy but

1:04:47

you know this advisor assumes that after taxes it's actually an increase in that legacy

1:04:52

so yeah i think he might be referring to i think this one had a negative um so

1:04:57

you know i think we were using 22 percent so it keeps wanting me to go to 32 but

1:05:04

no i won't oh yeah well 22 is a positive so let's go back to the one i had a negative

1:05:09

um yeah so this is this is just saying okay if

1:05:15

um if somebody uh i think it's a couple um inherited all

1:05:23

of the financial assets and sold them immediately um what would

1:05:29

what would the the net legacy be so their taxes are applied here now this is far 31 years from now that's a

1:05:35

relatively small difference so this is not the kind of difference that um

1:05:40

you know probably would would tip the scales one way or the other but yeah we are applying taxes

1:05:46

you know adjusted for inflation into the future as if the heirs simply you know sell everything

1:05:54

awesome okay i know we've gotten over here probably no this was great i i think

1:06:00

it's a good idea maybe we'll do another one i'll keep the presentation a little shorter and we can do more questions awesome yeah and we will um we'll have

1:06:07

this recording so you know we can save some of these questions and then uh you know maybe even ask the team uh to reach

1:06:12

out to the advisors who didn't have those questions answered we could probably shoot them some quick messages

1:06:17

here um to help with these last questions otherwise please yes please stay in touch um so

1:06:23

keep our eyes off our next webinar next month which will be a cfpce webinar but

1:06:29

now that we have got this response we'll probably look at the following month maybe doing part two follow-up for this

1:06:34

topic as well at the end the survey you will uh this webinar you will get a survey where you can let us know your

1:06:40

feedback as well as future topics you'd like to hear as well and then for our new first time visitors you'll also be

1:06:46

able to let us know next steps of how you'd like our team to engage with you justin thank you so much for a good one

1:06:52

today uh thanks everyone for joining and we will send out the recording um tomorrow as well

1:07:00

everyone take care