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Okay, welcome everyone to Lab Talk Tuesday. Give everybody a chance to get
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in the meeting before we get going. Hope everybody's having a good uh good
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August. It's a back to school season in
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Colorado. I don't know if that's true. everybody else is uh calling from. I feel like when I was a kid, we always
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started after Labor Day. I don't know what this uh mid August stuff is all about, but
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okay. First day was yesterday. Rich says, "Actually, my kids, or at least one of
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them, the first day was supposed to be today, but the AC wasn't working, so they pushed it back two days." So,
1:02
you'd think they would have turned on the AC sometime this summer to make sure, but apparently not.
1:10
All right,
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we got almost everybody in the room now, so I'll just uh I'll jump in. So, um, for those of you who it's your first
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time, these are our monthly times to get your questions answered. We also take this time to go over new features,
1:31
upcoming features, and so on. So, it's a good way to keep um kind of your finger on the pulse of what's uh going on at
1:37
Income Lab. Um, if there's anything that I'm going over because I I do tend to
1:43
kind of assume especially if the questions are kind of complex. Um, back
1:48
to school's August 4th. Wow, that is really early. That's crazy. Um, if if
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the questions are complex, I might assume some some uh knowledge. So, please just bug me in the Q&A if I'm
2:01
doing that. I'm happy to, you know, go back and and and answer more basic questions, too. So, this is for
2:07
everybody. It's not only for experts. U if you want um to submit questions, please do it in the Q&A section rather
2:15
than the chat. It's just much harder to track the chat. Um, and in the Q&A there is a a way to upvote. Um, and if you do
2:22
click on the upvote, I'll try to hit those questions um, first because we typically don't get to all of the
2:28
questions. Um, so anyway, welcome. Also, it this is um, uh, a break week in our
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master class on social security. So, if anyone has not been attending those sessions, um, they're available. The
2:43
recordings are available. This started I think we're uh we're doing our fifth one next week. So, we've had four already.
2:48
We had one um four weeks ago on uh the underappreciated risks of of social
2:54
security claiming. That was a really um uh popular one. We had a lot of good feedback to that. And um then we did one
3:02
on taxation, one on kind of the more complex parts of social security. So, spousal benefits, survivor benefits,
3:08
divorce, uh and so on. Um that was also we got a lot of good uh response on that
3:15
just because it is one of the more complex areas if it's a really great refresher on how all that works. Last
3:21
week u I wasn't able to make it but we had a really great panel about um some of the psychological aspects that I
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think can sometimes be less uh focused on as well around social security
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claiming. And next week um we are doing um talking with clients about clients
3:38
and prospects about social security. So it's it's another panel uh where we've found some adviserss who really focus on
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social security in their prospecting and in their practice and um we'll be kind
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of asking them for some best practices and experiences around talking with uh
3:53
clients and prospects about social security. So kind of winding that uh winding that up. Um however the social
4:00
security uh topics are are not uh you know completely done. I think Derek who's on the webinar with us today has a
4:07
has a piece coming out uh sometime in the next I don't know month or two probably uh a longer kind of exploration
4:13
of some things around social security. So that'll be exciting. Um so with that
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we'll go to our usual um our usual agenda and start with new features. Uh
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so let me share my screen.
4:32
Okay. So, first feature which you would have seen announced um both in email and then in the app is that we now um
4:40
automatically handle earnings adjustments for social security. In the past, you had to enter those manually.
4:47
Um, and so it's possible if you have plans where someone did have earnings
4:53
and was claiming before full retirement age, which is typically 67, but for some people could be 66 and, you know, 8
5:01
months or 10 months, um, you would have had to put those um those reductions in
5:07
yourself, whereas now we'll do that for you automatically. So, here's an example. Um,
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let's see. Okay, I guess I got to go to the one that has uh has earnings. Um, if I add earnings to a plan that is
5:22
claiming social security before full retirement age, um, you might see
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something that looks like this. Um, if you've seen earnings adjustments in other software in the past, this may
5:34
look pretty confusing because most software is not like income lab. Uh, most software just gives you annual
5:41
totals. But one thing that is can be a little bit um surprising for people with
5:47
income lab is that by default we're treating everything monthly. U in fact a common best practice that we have to
5:53
teach people is um put cash flows in as monthly cash flows if they are monthly.
5:59
So if someone has wages that's typically monthly. I mean it might even be you know every week or every two weeks. Um
6:04
but you know put it in as a monthly cash flow because it's really happening that way. Um and sometimes the actual timing
6:11
of um cash flows, expenses and so on really do matter. In fact, we're going
6:17
to go through an example um today about uh qualified charitable distributions where you know doing a charitable um
6:26
distribution after 70 and a half is very different than doing at at you know 70
6:32
in one month. Um so we do treat things as monthly. Um, so because of that, uh,
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you'll see the way that Social Security actually handles reductions in benefits
6:44
when you have earnings before full retirement age. And it's in this kind of
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choppy way where Social Security will actually withhold full checks or partial checks um, starting with the January
6:58
check, which by the way is the check that's received in February. So there's a there's a one-mon lag. Um, so they
7:05
start there and then they keep withholding them until all of the required withholdings are done and then they start giving you full checks again.
7:12
And so that's what you're seeing here because in the cash flows graph, you're seeing monthly cash flows. Now, if you
7:19
look down at the table where these numbers are just summed up for the year,
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this is going to be more familiar to you where, okay, the first year partly because it's a partial year, but maybe
7:31
there's also some withholding in that year. Um and then you know it goes on goes on from there. This is this is also
7:37
viewed in uh future dollars or nominal dollars which is you know the dollars that actually exist in the world. But if
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I strip out inflation and just view it in today's dollars um that makes still see a pretty pretty complex situation
7:50
here. Um but you'll see it down in the in the table as well. Um, so again, you can review, we went
7:58
over some of this in the master class, but essentially the way that earnings affect preful retirement age. Um, so
8:07
security benefits, it's complicated, but essentially they're withholding a certain amount based on your earnings,
8:13
and your earnings have to be high enough for for there is actually a threshold where you can earn a little bit and not get uh any benefits withheld, but
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they'll withhold benefits. And then at full retirement age, you will get a
8:26
recalculation of your benefit to reflect the fact that they withheld some benefits in the past. Um, so if they
8:33
withheld, you know, five months worth of benefits, you would get a recalculation at full retirement age as if you had
8:40
really claimed five months later than you did. And that's sort of the actuarial adjustment that they make. So
8:46
you'll sometimes hear this talked about as benefits are not lost forever. um
8:51
that might be overstating it. No one knows when you'll die, right? So maybe they are lost forever, but it is sort of a way of paying you back. Um and the
8:58
reason that they're withheld before full retirement age is if you're making enough money through earnings, so that's
9:04
wages and so uh self-employment income. Um the Social Security
9:09
Administration is basically saying, well, this is a retirement benefit. Um and you're not really fully retired. And
9:16
so they they're withholding some of that. So, um you'll see that now. Um we
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have a bunch of information in our in our um knowledge base about social security and and and how all this works
9:28
if you do have questions. Um sticking with social security for the
9:33
moment. Um I'll just go back to a uh
9:38
more of a standard one. Um I wanted to go over a new
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feature that is in um decision lab. So over here many of you have probably
9:51
already played with this but if if you haven't please check it out. Decision lab is this sort of uh you know this
9:56
signpost you know am I going left? Am I going right? Um side note, you will see I believe in
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September um we're planning to have the saving for retirement and investment
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strategy u modules available in decision lab. Uh but for now and we'll be taking
10:13
the beta tag off of social security. It's um gotten some some good testing and uh we think we're in good shape. Um
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so a few new things here though. um one is that there is now a downloadable
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report um for social security and so for example there's a few there lots of
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places you could find this report but you can choose a strategy let's say I
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want you know age 64 and 63 and then go up to this um little you
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know download button and it says new in green on it um click it and then choose
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your options. Choose whether you want to have, you know, end material or um a cover page. And then hit download
10:59
report. And just to share with you one that I've already run,
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so it looks a lot like the reports that we already had. You see the the household name, the plan name, and then
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the report name, and the date that you ran it. Um, and it's it's basically the
11:19
information on the the the strategy that you just ran. Um, it'll give you a
11:24
little bit of, you know, the dates of birth, the full retirement age, and then the actual claim date. This is not the
11:30
one that I just clicked on. It's it's a slightly different one. Um, and life expectancy. That's from the plan, right?
11:36
Or from whatever the settings are. It gives you a little bit of a um here's the order of how things will happen. So,
11:43
you know, first John claims this is his monthly benefit, but some benefits are withheld, so his benefit goes up at full
11:49
retirement age. you know, Mary claims, Mary has a spousal benefit and so on. So, that will be, you know, specific to
11:56
the plan that to the strategy that you've chosen there. Um, and then these
12:01
views are the kind of views that you already see in the app. So, there's one that shows you the monthly um benefit.
12:08
You can see this one actually had just a little bit of uh of um earnings reductions. Um, gives you the break even
12:16
data. uh gives you you know total lifetime benefits, a break even graph and then table versions of of each of
12:24
those. Um so this is uh going to be a really useful tool for those of you who
12:30
are using the decision lab to talk with people about social security.
12:35
Um another new feature in decision lab in the
12:41
social security module is this stress test option. So, you've always had
12:46
explore scenarios, which is the heat map, or if there's only one person who has social security, it's a it's a bar
12:52
graph, but if it's two people, it's a heat map. Um, you've had scenario details, which is a lot of the things
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you just saw in the in the PDF, so in the report. Um, so it's a graph and
13:06
timeline showing when different things are happening. Um, in the plan, it's a
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table. and also a version where it's the break
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even uh graph. So you know and just like other parts of income lab these are
13:23
interactive graphs where you can turn on and off different things where you can you know see the values if you mouse
13:30
over you've got the break even and so on. Um so there's a new piece though
13:36
which is the stress test. So, I'll click on that. And what this is is it's an automatic way to access the
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retirement stress test that Income Lab already offers for plans, but to do it with different social security claiming
13:52
strategies really quickly. So, by default, it's going to load in as
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scenario one the scenario that you've already chosen. So, I was on 70 and 70, and you'll see here the projected
14:04
lifetime benefits. I didn't have any sort of discount rate or opportunity
14:09
cost in there. Um, so this is zero discount rate. Um, and then let's say I want to add a comparison.
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Now you can see here my the one that I already had up on the left. Um, and
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then, you know, the second one that I want to choose. And let's say I want to choose 62 and 62. I'll see, okay, that's
14:28
projected to have $400,000 less in lifetime benefits, but I want to compare the two. And this is a way that you can
14:35
um kind of widen the lens around social security claiming and say, "Well, I
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mean, it seems kind of obvious. Wouldn't you want 600, you know, $400,000 more in lifetime benefits?" Um, well, yes, but
14:48
you know, I'm also that assumes that I live quite a while and so on, right? We've talked a lot about these, you know, it's not so simple to choose when
14:55
to uh when to claim. And the stress test allows you to view the effects of the
15:01
claiming strategy on the rest of the plan. Um, and here I I only have um a
15:08
portfolio. So I don't have anything else going on other than the social security, but you know, your plans probably will
15:14
have other things going on too. And what we can see um right away is that you know if I if I claim
15:22
a little bit later 70 and 70 instead of 62 and 62 I my what I can spend my my
15:29
spending capacity my retirement paycheck will be a little bit higher. That's because of that anticipated higher um uh
15:36
benefit when I hit 70. However, um it also means that early on I'm going to
15:43
have to withdraw a lot more from my portfolio. And one way to view that is we we have this new feature where we
15:50
used to only show income here, but you can now look at withdrawal dollars
15:55
um or even withdrawal percents. Um the percentages are even though
16:00
they're monthly withdrawals, we we turn it into, you know, we annualize it. Um so let's focus on the withdrawal
16:06
dollars. Now, you can talk to somebody about, you know, what Dererick and I have called the retirement hatchet where
16:12
your withdrawals are going to be higher if you're delaying Social Security. So, this is where Social Security starts for
16:18
this particular plan. Uh, and so they're they're similar until, you know, we reach that point. Um, and then the the
16:25
gold plan has lower withdrawals because we have Social Security coming in. So, we don't have to make up that make up
16:31
that gap. Um and then when you know age 70 hits uh that difference flips um and
16:40
so first first one person hits 70 and then another person hit 70. That's what you can see here. Um and so then kind of
16:47
the advantage is in the waiting till 70 side of it, right? Um however you can
16:53
also look at the effects on the portfolio balance. Um and so you can see not surprisingly claiming earlier
17:00
results in a higher portfolio balance. So this is a really easy way to expand the discussion from just you know the
17:08
basics of social security into the broader the broader plan. And you can you know edit either of these uh and go
17:15
back and choose different ones right just you know 66 and 67 and it will you
17:20
know run things for you again. Um
17:26
the this option to view things in terms of income, withdrawal dollars or withdrawal
17:32
percents will you can also see that in the regular um retirement stress test.
17:41
So if I go to that part of the app, you'll see it again. Um, and
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this is one where I um might be a slightly different plan than what I was looking at this. No, this is 62 and 62.
17:56
So again, you see that and the withdrawal percentage will of course depend a lot on how much it's depending
18:02
on the balance down below, right? So it's a little less of a, you know, linear and easy to compare thing. Um,
18:08
but this is, yeah, this is a really useful kind of view. um you know, we
18:14
would expect as you get older for with the withdrawal percentages to be able to be higher, right? Because you're much older, maybe you're only having to fund
18:21
5 or 10 years worth of plan at this point, right? So, um you know, if if this were still at 4% or something, we'd
18:27
be kind of surprised by that. But it's a really nice uh nice new feature.
18:35
Let me check if there's any questions on this. Okay.
18:42
So question on the savings module. Yeah. So the um this savings module is that's
18:49
exactly what it's for. It's it's going to be really helpful with clients still in the accumulation stage. So it's going
18:54
to be about answering the question how much can I save or how much should I save and when can I retire? And those
19:00
two things are related to each other, right? If you save more, you can retire sooner. Um and so on. And so it'll be
19:06
very similar to social security in that you'll see heat maps about like oh when could I retire you know typically you'll
19:13
you'll end up seeing kind of you know saving more but retiring earlier and saving less but retiring later kind of
19:19
our there's sort of a band of the darker stuff that says yeah that's that's you know those are some of my options. It's
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it's going to be really great for um for those users. So um or for those clients.
19:31
So, we'll we'll be doing a, you know, a webinar on how to use that, but that's exactly what it's for. Um, and then, um,
19:41
okay. And then we have a question saying, I want to want to hear about Roth conversions. Um, so can do some of
19:46
that. Um, do we have any concerns that adding
19:52
accumulation features will dilute the amazing usefulness of income for retirees? No, I don't have any concerns
19:57
about that. In fact, those are still very much um retirement questions,
20:03
right? When can I retire? How much should I save for retirement? Those are very much in our wheelhouse. And basically, people have been asking us
20:09
for years at this point to um to uh to
20:14
give you more easy to use tools around this. In fact, one way to view decision
20:19
lab is income lab has always had really great scenario planning capabilities. So
20:25
you can run a hundred scenarios for a household. It's just pretty hard to actually digest all those scenarios. So
20:32
another way to view these decision lab tools is it's a way to view all of those
20:38
scenarios together and make decisions about them. So people have always created multiple scenarios where maybe
20:45
I'm retiring sooner, maybe I'm retiring later, maybe I'm taking social security earlier, maybe I'm taking social security later. It's just again hard to
20:52
those aren't served up to you on a platter the way that we're we're trying to do with Decision Lab. Um so we're
20:57
really trying to make it easy for you and make it easy for you to have a good conversation about each of these really
21:03
important questions for retirement. And that's why the first three you see here
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are are some of the absolute core questions people have about retirement. When should I claim social security? How
21:14
much should I save? When can I retire? How should I invest? Right? Those are some of the key things we're trying to serve up here. So
21:21
yeah, and Justin, if I might just add to that a little bit, I think the like for me using income lab with accumulators,
21:28
um, life hub has always been a really nice place to go and see kind of, you know, just a general visual
21:34
representation where everything's at. Uh, but you know, the very common question of how much should I be saving
21:39
for retirement? Like that's kind of a cumbersome thing in the current version.
21:44
You know, we could put in a plan, we could project out, we could see what their retirement paycheck could be. We could talk about that but you know a lot
21:52
of times the question is well what if I save more what if I save less what if I do you know that's how the discussion actually unfolds and so I think that's
21:58
the thought behind um you know having the u the ability to really dive into those
22:05
specific questions and give somebody I really like that kind of grid presentation of like okay well here's
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what you could spend if you're saving more here's what you could spend if you're saving less and for some of my
22:16
clients I actually think it's going to be you know what you don't need to save a whole lot more. You're actually in better shape than you think you are. So,
22:22
I'm I'm personally really excited about adding that as just one more way to be able to do that. In fact, a lot of those
22:29
calculations in the past I've done and even Excel or just something real quick like, okay, well, here's if I just
22:35
change the savings rate, here's kind of some projected numbers of where that could be. But this just makes it so much
22:40
easier to do that. Yeah. And I know it's easy for us to gush without showing you anything, which
22:46
is probably annoying, but it's the ability to do what Dererick just said and say like actually you could save
22:51
less or you could retire now or you could like that's going to happen with this tool because unlike social security
22:58
where it's pretty natural to just say well like how can I get the most over my lifetime. Um for when can I retire and
23:05
how much should I save? It's not just about what your retirement paycheck would be. If if it was about maximizing
23:12
that, it's really easy. Just save absolutely everything and retire at 90, you know, but that's not what people
23:18
want. They they also want to live a life um that, you know, is is fulfilling and
23:23
might maybe that includes working less and so on um and current consumption. And so it really is about this balance.
23:30
And if you discover that someone already could retire or that they could save less, um that's a really big deal. Um,
23:37
so I think actually with the these kind of pre-retirement accumulation tools, um, there's we hope this will open up a
23:45
lot of new discussions and discoveries for people.
23:50
Uh, but you'll have to wait till September to see it. So, um, all right, we had a few,
23:58
um, presubmitted questions, so I wanted to, um, to hit those before we take kind
24:04
of the general questions. Um, one was about uh qualified charitable distributions which I I mentioned
24:12
earlier that um those are um you know a place where the actual timing month by
24:17
month actually can matter. Um so maybe I should go over first how you um put
24:23
those in. Um I I've gone over that before, but um for those of you who are
24:28
new to income lab, um the way that an income lab plan works is it first you
24:35
focus on the resources that a household has that they can bring to bear on
24:41
retirement. So social security, investment portfolios, pensions, you
24:46
know, maybe they have rental income, anything, right? Anything that is available to live on. And that's the
24:51
core. And then you actually don't need to put in any expenses if you don't want to, which can be really confusing if
24:57
you've never dealt with income lab before because you may be used to uh having that be the first thing that you
25:02
do. The first thing you have to do in a in a lot of software is define how much you're going to spend. Um but in income
25:08
lab that's not true. The first thing you do is define your resources and then based on some other factors, the
25:14
software will figure out what you can spend or the range of things that you can spend. However,
25:21
you can do expense planning in income lab and and a full income lab plan typically will have expenses in it. Um,
25:28
so it's typically not the end of the line that you've figured out, oh, this family has $3 million, they've got, you
25:34
know, certain amount of social security, they've got some other things and all told, they can spend $11,000 a month.
25:40
Um, and so one reason that you might want to put in expenses is for things
25:45
like qualified charitable distributions. um other things that can result in um in
25:51
actual, you know, maybe itemized deductions or even um yeah, typically itemized deductions. And so the way that
25:57
you do that is um you put in an expense
26:03
and you call it uh you you give its category should be um charity. So I've
26:10
done that here and the type I guess is is actually what it is, right? So, a lot
26:15
of these are, you know, more for um just
26:21
tracking things, right? There aren't any particular, you know, tax consequences to clothing or food or things like that,
26:27
but there are for for some things, right? Medical, LTC, long-term care premiums, there are tax consequences to
26:32
each of those. So, as you put in these expenses, um, you know, state and local tax, maybe it's your property tax or
26:39
something, um, these will have a an effect on the plan typically on the tax
26:45
side. Um, and if you put it in as charity,
26:50
um, and you have to say it's taxdeductible, um, if it's possible
26:57
for the plan to have qualified charitable distributions to cover this, it will do so. uh e it will even
27:05
keep around IRA funds and not Roth convert them in order if if there are
27:11
future planned charitable expenses um after 70 and a half. So for those of you
27:17
not aware uh you know 70 and a half used to be RMD age so that's why it's that
27:23
that particular age. RMDH has been pushed out but qualified charitable distributions are still 70 and a half.
27:29
So, uh, just the the lovely complexity of of the tax code. Um, so that's how
27:35
the once you add that expense, that's all you have to do is add the expense and the plan will automatically adjust
27:42
to try to to do things in the most tax efficient way. In this case, it's to have qualified charitable distributions.
27:48
Um, and so you can see here, um, John is 69, so can't do it yet. Um, but at in
27:57
the year he turns 70, he's got two months where he can do it. And then the year after that, he's got four 12 months
28:03
he can do it. And so now he's covering his full charitable expense with $12,000 from his IRA. Um, so that just that just
28:12
happens automatically. Um, by the way, similar things happen with HSAs and medical expenses, um, 529s
28:21
and education expenses and so on. So there's not you don't have to do anything special um to get those things
28:29
happening. You can if you want you can do really you know specific custom things with distributions from plans but
28:35
you don't have to and most people wouldn't. Um so the question though is about well how do I look at this and
28:41
compare um compare strategies with and without how do I show that there's an effect of
28:48
the qualified charitable distributions essentially. Um, so the way that I would do it is create a plan with that
28:57
expense. Uh, here I'll, in fact, I'll show you. Um,
29:04
create a plan with that expense and one without it. And, and when I created the plan without it, oh, sorry, go back to LifeHub here. That was a roundabout way
29:10
to get there. Um, you can see here, and I actually made this a baseline expense. So, you can even categorize baseline
29:17
expenses for those of you who are new to income lab. baseline expenses are they're not going to really affect the
29:23
um the planned spending of the right. So this plan already said it was basically spending um
29:31
uh you know whatever that was $11,000 a month. I've just added one itemized thing which is this $1,000 a month
29:38
charity expense. Um if I made it a variable expense that's for things that are kind of lumpy or they come and go or
29:44
they'll go away at some point in the future like a mortgage. Um, I just created it as baseline expense to keep things really simple here. Um, and if I
29:53
go to the no charitable expenses version,
29:59
um, all I did is I changed the category from charity to other and I changed the name as well, but otherwise no changes
30:06
to the plan. Okay. So now let's go back to tax lab
30:11
and I'm going to go back to the charitable expense which will have QCDs.
30:17
And then what you want to do is compare um keep the tax distribution strategy the
30:25
same but change the plan. So I'm going to compare the plan that has charitable
30:32
expenses and QCDs to the one without. And here I'm just looking at no Roth
30:37
conversions. So taxable, tax deferred, tax-free. And I've isolated just that that the
30:44
only thing that's different in these two plans is that the one on the left has
30:49
charitable distributions and the one on the right doesn't. And it's looking like over the life of this plan, it's saving
30:55
um up about $96,000. Um and so this is a way to show the
31:00
effect of of the charitable distributions. Typically, if you're looking at Roth conversions,
31:06
you're going to have less of an effect because, you know, you're also getting, you know, the Roth conversions typically
31:12
have kind of a a big effect. And so, QCDs, other things, uh, they they still
31:18
have an incremental effect, but but not as much maybe. So, if I look at if we were to do Roth conversions to the 22%
31:24
bracket with or without qualified charitable distributions, now instead of 95,000, it's 54,000. But it's still
31:32
incremental, right? It still does add to the effect because QCDs are a more taxefficient way to get
31:40
money out of an IRA than than Roth conversions. With Roth conversion, you do pay the tax. U with QCDs, you don't.
31:47
So, that's what we have going on here. Clearly, if you had larger QCDs, um I
31:53
don't know where the I'd have to look up the current, they started um adjusting the the limit on QCDs for inflation um
32:01
recently. So, I think it used to be 150,000, might be a little little more. So, that would have a bigger effect, you
32:06
know, most likely if you were doing more of those. Um but uh hopefully that that
32:11
helps uh a little bit with uh with kind of demonstrating QCDs to a client and
32:16
and um how to show them the impact of that. Uh another question was how do I create
32:23
reports where I can see all taxable income and cash flow detail? Um so
32:31
depending on what you're really looking for here, there's a few options for you. Um, so one I just ran
32:39
is uh move this
32:46
um is from the tax lab. There's an income details
32:53
uh report and so this now it's not down to the account level. I'll show you how
32:59
you might be able to do that but it's more on the category level. So, you know, non-t taxable qualified
33:04
distributions you can see here, right? This is that same plan we're just looking at. So, these are QCDs. If I had
33:10
Roth convert or Roth distributions, they would be there as well. If I had um I
33:15
think HSA, you know, qualified HSA distributions, they would be there, right? I've got um you know, taxable
33:22
earned income, taxable social security. This plan doesn't have a lot in it, but you know, if you did have social security, you'd see that RMDs. Uh, by
33:28
the way, if if the RMDs are being covered by QCDs, you' they would be in the non-t taxable side. So, these are more like taxable RMDs, right? So, this
33:35
is one option for you and let me share with you how to create that. Um,
33:42
so as with in um the decision lab, you now
33:50
have this uh download reports um option. It used to be inside of this little
33:56
tools menu, but now it's on its own out here. Um, and you can again choose
34:01
whether you're having front material, end material, and then
34:06
uh choose which modules you want to use. And so here what I did is I chose income
34:12
details and I chose the table. Uh, you could have the chart instead. Um, so
34:17
that that's how I did that. Um, and what's nice about this is, uh, if I was doing one of the
34:23
comparison, even if I'm choosing one of the, uh, the explorer options, depending on what I've chosen here, like, oh, I
34:29
want to do a bracket 2 and I want to do it um, in future dollars nominal, you
34:35
know, I want to round. Once you do that, and then you click create report, it's going to use all those settings that you
34:41
already had. So, it's a really nice way to to get to it. Um, another place
34:47
where you can create a report with some of that detail is in LifeHub. Um, and here
34:54
it's actually also looking at how you actually have things, but it's a it's a year-by-year thing. So, if you wanted to
35:00
look at, you know, 2029 when RMDs start, what's the plan have in it? um and I
35:07
want it in future dollars. And even, you know, maybe I don't even want the uh
35:12
assets, income, or savings to be open. Um I could then go to create report and
35:18
I can choose which way I want to view it. If I choose comprehensive, it's just going to be a list of everything. And
35:24
maybe that's what you want. If I choose custom onepage report, then it'll be really a snapshot of what I have on the
35:30
screen. So, what's open, what's closed, and so on.
35:36
All right,
35:42
let's see here. Uh, we had another question about how to demonstrate the impact of annuitizing part of a
35:48
portfolio in retirement. Um, so great question.
35:54
Um, so as I said, when you're creating income lab plans, the first thing you're doing is providing um a a set of
36:03
resources to be used in the in in the plan. And so that's all I've done here. I I created really really simple plans.
36:10
Um I'm going to go to LifeHub again so you can see what's in them. And here all I have is a $2 million
36:18
taxable account. That's it. And this this plan has a 65year-old uh male,
36:24
nothing else in it. So going to be pretty rare that that this is the uh the full plan, but I wanted to do it in a
36:29
way that um would uh would be really easy to to demonstrate this. Um so
36:36
keeping everything the same, I just copied that plan, which you can do all over the place, but typically it's in
36:42
this three dot menu in the upper right. So, I copied it. Um, and I just moved
36:48
25% of that portfolio. So, now instead of 2 million, I have
36:54
1.5. Um, over to a SPIA. And I just
36:59
Googled SPIA rates. This I do not know if these rates are truly available. I didn't do any like, you know, real
37:06
pricing this out, but I said, you know, 65-y old male, single life. Uh, let's see how it goes, right? and I got about
37:12
39,000. Again, no guarantee that that's even uh accurate for the market. Um, and then
37:21
immediately I can compare those two plans. I can
37:26
say, okay, I kept everything identical. I didn't change anything. I didn't change the length of the plan. Um, I
37:33
didn't add expenses or anything. And we can see that here this particular SPIA would increase the
37:40
retirement paycheck not appreciably 60 bucks right but it's not a it's not a
37:45
loss right it's roughly it's like a wash I guess would be a better way to look at it um and so okay that's interesting um
37:53
but the the places where comparisons are probably best done in income lab are if
37:58
they're tax related do them in tax lab um if they're related to something else
38:03
um a really good place to go is um the retirement stress test. Like you just
38:09
saw, we've actually put this stress test inside of the social security module. Um but it's also available outside of it.
38:15
And it also has over here in the upper right, I've got one big square that's that's examining the plan itself,
38:23
the two columns is comparing comparing two plans. So I can grab that
38:30
second plan with uh you know some money that went to an annuity. Um and now I will see the
38:38
income experience and the uh and the balances for these two plans and we can
38:45
compare them. And you can you can see here, okay, 60 bucks more, right, with my my plan with the with the annuity.
38:53
And I can see how um the the income for these two plans
39:01
would have behaved over time with the guard rails here. So if you're new to income lab, you know, one of the really,
39:08
you know, noticeable features of an income lab plan is that it it doesn't assume that you will just follow the
39:13
plan forever and never make adjustments based on the facts on the ground. Right? If things get better, it assumes you'll spend more. If things get worse, it
39:19
assumes you'll spend less. And those are the guardrails. Uh, and you can see if I kick off each of these plans
39:26
in November of '07, they kind of just sort of keep track of each other. Yes, the the SPIA plan gets a gets a pay
39:33
raise um a little sooner. So, it gets a pay raise in 20 I'm going to switch over
39:38
the guardrails here to show the uh to show that one. So, the the one with
39:44
the SPIA gets a pay raise a little sooner and then uh the other one catches up and they just sort of chase each
39:50
other. So no, no major um differences here. But if I go to you know maybe the
39:55
dot bubble. Okay, here we see quite a difference because the one with the SPIA gets a pay
40:03
raise here in year the year 2000 and doesn't actually get a pay cut through here. So it's a quite a different effect
40:09
until we get about 2015. uh at which point, you know, finally the the one without the SPIA because it has a higher
40:16
portfolio balance and and so on, it gets a pay raise. Uh maybe I want to go look at stagflation. Um which by the way, I
40:24
entered this annuity and I'll show you how to do it as a nominal paycheck, right? So, because most I don't actually
40:31
know of any annuities that are actually, you know, like like uh social security and adjusted for inflation. Um and so
40:38
here we see yeah uh both of them they run into some trouble in uh the early 80s not surprising that's the point of
40:44
this uh example u but the one with the speed doesn't suffer quite as much however it also doesn't uh get the uh
40:52
you know the recovery that would have happened into the 80s quite as much. Um so this is a nice way to compare doesn't
40:59
have to be about annuities it could be about anything. It could be two different portfolios. Um, and really
41:06
understanding well what would this mean if you know we lived through something
41:11
like stagflation, if we lived through something like the dotcom bubble in the global financial crisis. Um it's really
41:16
a great place to understand those differences in a more you know fine-rained way and a way that is based
41:23
around kind of these these scenarios that people really um understand
41:29
um to create um the annuity. The question was just
41:34
about annuities so it didn't say what sort of annuity. So I I went with SPIA because it's super simple. Um, but if
41:40
you had other annuities that you were looking at, you could do that in the annuities tab under assets. So that's
41:46
for things like variable annuities and um, fixed index annuities. Um, for a
41:52
SPIA, I put it in other income and it's just a monthly expense because this one
41:57
is um is uh taxable. I put it as investment
42:03
income and I put the uh exclusion ratio here which I just made up by the way but
42:09
you would obviously want to know what the actual exclusion ratio is between ordinary income and um non-t taxable
42:15
income coming back. So that's that's how I did that.
42:21
All right, let me see what else we have in terms of presubmitted questions.
42:26
Uh any way to model a future tax rate increase? Um it's a good question. Uh
42:33
there actually there is not um there was until the uh um the OBBBA
42:42
uh which came into effect in July. Uh we do have those those um changes in in the
42:48
app. So now there's no more there's no no longer a way to either sunset or not
42:54
sunset um tax rates. Um and the question was saying well we don't really know tax rates in the future. Many people assume
43:00
they won't stay at this. Fair enough. Absolutely. Good point. But, uh, no, there's not currently a way to to do
43:06
that. You could simply add an expense. Um, and I what I would do is add a a
43:13
variable expense. Um, the way you do that is, um, click on the
43:19
little plus here. If you're in the stepper, if you're in LifeHub, you click the uh, you know, add add more, hit
43:26
expenses. Um, and you could just say, well, let's assume, you know, we have added taxes in, you know, starting in
43:32
2030 or something. Um, so that's that's certainly a way of kind of adding some further
43:38
um drag on the resources um later in a plan.
43:45
All right, so let's have a quick look at
43:52
any Q&A that we've had.
44:02
Is it better to add lumpy expenses as an expense or as a liability or both? Great
44:07
question. So, let's uh
44:13
let's go back to the um to the app here. So, let's talk a little bit about these
44:19
expense types again, just because it is again almost kind of like guardrails or
44:24
doing things monthly. This is another place where there's really a thing to get the hang of that you may not have
44:30
seen before if you haven't been using Income Lab. Um, which is the difference between baseline expenses and variable
44:35
expenses. So, um, baseline expenses, like I said, they're really just a way of saying how you're going to spend sort
44:42
of the normal monthly income that you have, right? this if you itemized those
44:49
it might be you know things like putting the gas gas in the car or you know going
44:54
to the grocery store and stuff and that's fine if you want to itemize them you can click on itemize and go to town
44:59
you can create this incredible layer cake of uh of baseline expenses or you can just give us well look it's just
45:06
going to be like $8,000 a month uh just enter totals variable expenses on the
45:12
other hand therefore kind of really notable um expenses that are really high
45:18
priority too. So these are these are expenses that if you put them in the plan is going to try its hardest to to
45:26
hit those expenses to fund them. So typical things might be like a mortgage.
45:32
However, a mortgage doesn't just have expenses to it. It also has you know balances and so on. So, typically if you
45:38
want to build a a plan with a really nice uh LifeHub,
45:45
you would probably enter it as a liability. Um, so maybe I've got I don't know,
45:50
$100,000. Um, if if I'm doing an interest rate, you
45:56
know, I don't know what that's probably pretty low for what things are, but maybe I already have it.
46:03
Um, and it will simply then um it it's going
46:09
to assume you already have this, right? If it's a future loan, you'd have to change the the balance date. You'd have
46:15
to say, "Hey, that's a loan origination date." Uh, and so on. Um, and by
46:21
default, it's going to treat these expenses related to um to liabilities a
46:26
as a variable expense. And that's you usually are going to want to leave that. um that that's typically the right way
46:32
to do it. And now I will get um in this plan I'll get an expense, a
46:39
variable expense, and I will get the uh the balance. Uh now I I made up those
46:44
numbers, so I have no idea whether that makes any real sense, but let's expand LifeHub. Now I've got this
46:51
$100,000 mortgage. It's a pretty hefty mortgage payment. Um but you can see that uh it's getting
46:58
paid off in 2034. um and uh and so on. So, that's one way
47:04
to do it. If you have all that information, the balance and uh the interest rate or the payment amount. If
47:11
it's the payment amount, um you're typically going to want to uh actually
47:16
know how much is the principal and interest as opposed to taxes and insurance because the the app is going
47:22
to try to figure out um interest rate and tax deductibility and all that kind
47:28
of stuff. If you don't have that, it's totally fine. Just enter it as a
47:34
variable expense. So, click add new expenses. I'm going to change it to variable.
47:40
Um, and then, you know, things like expenses, tax deductible, um, and so on.
47:46
And just enter it in there. The only thing you'll lose in this way is you won't have this balance, uh, a liability
47:53
balance being tracked, but that's, you know, that's okay. Um, so I'd say uh and
47:58
that's I think pretty common especially early when you're building a plan is that you maybe not don't know every
48:03
little thing about the mortgage. Um, so maybe you do that and then you replace it later with a with the full details.
48:13
All right,
48:19
Derek, I don't know if you've been monitoring some of these. if you see any that are particularly
48:25
uh jumping out at you as I was looking at the
48:32
the thumbs up here on the the likes on them. Mhm.
48:41
Looks like we've got the one um can the withdrawal strategy target a tax bracket instead of conventional wisdom of
48:47
taxable, tax deferred, taxfree. um a little bit more to the question, but I mean yes, you can you can pick whatever
48:53
strategy you want uh for your comparison. So that would be one tax
48:59
lab. Yeah, and you saw that in tax lab right when I was viewing those. You can also
49:05
just change that in the advanced plan settings. So this little three dot menu can be really useful for you. Um if you
49:12
don't want to kind of leave the area you're working on, like if you wanted to implement a particular strategy, go to
49:17
advanced plan settings here. and taxes. And then you can see portfolio
49:24
withdrawal order and order by tax treatment would be, you know, kind of what it sounds like, right? You can drag
49:30
these around, change them or bracket management, Roth conversions. Uh, and
49:36
that allows you to to say, you know, which ordinary bracket or Irma bracket
49:42
you want to target. um 0% there's no technically no 0%
49:47
bracket but that's basically saying hey at at least fill up my deductions right if I have deductions so yeah it's a good
49:54
place to do it although I guess reading the second half of that question sounds like they were possibly wanting to do something a
49:59
little more complex where it was like ordering up to a certain level then switching to another account and doing
50:05
that so that would be one that no unfortunately um you can't quite do that there um in the software
50:11
no yeah it wouldn't at least not automatically I mean, if you if you think about all of the possible custom
50:18
ways of doing it, like we couldn't offer you a drop down menu. It would be infinitely long. But if there are
50:24
particular distributions you want to do, um there's no way currently to define
50:29
the um the Roth conversions other than to say do Roth conversions up to a
50:35
certain amount. But there are ways to do um distributions
50:40
uh that are really, you know, more customized. Um and that happens a lot. Maybe you have like a I don't know,
50:47
there's a bank account you're going to distribute over the next two years or
50:54
something like that. Okay, fine. Um now, this plan, it wouldn't do anything because I only have one account. And if
50:59
you only have one account, it'll I mean, you know, distributing it doesn't really
51:04
do anything. But, um, if I had multiple accounts, I could say, um, specify a distribution plan for this account and
51:11
then define how to do it. You know, maybe it's in dollars. I'm going to distribute a certain amount out. So, depending on what you're trying to do,
51:19
this ability to customize could help you. But, yeah, as Dererick said, there's not ways to sort of first target
51:25
this and then target that and then target this. Um, so, um, but as I said, there's there's a
51:32
lot that you can do. Um, I think we did have a question about Roth conversions in annuities. Those you actually can
51:38
customize the Roth conversions themselves. Um, the reason is that often
51:43
times, you know, what you can do with an annuity depends a lot on the annuity company and what they allow. Um, and so
51:50
that's why inside of an annuity, you can actually tell us how to how to do Roth conversions.
51:57
Um see another question here kind of related to using it with clients in
52:02
terms of especially confirming details and um personally they they mentioned using LifeHub to do that and that is
52:09
where I do usually start the conversation like to go to LifeHub kind of show you pull up investment assets
52:16
look at those make sure we've got balances right there look at income sources do things like that to kind of
52:22
walk through. Um so personally that is where I go. Uh, I don't know. They were asking about like a report or some other
52:28
tool to walk through that. I don't I don't think there's really anything else that would be uh I mean other than pulling a report from
52:35
LifeHub, but as you said, I think it you're probably better off just clicking through LifeHub. And it's a really like
52:40
some of the common things people do would be like um you know putting in a
52:46
monthly expense but giving us the annual number. And you would see that right away here, right? If I had an income
52:51
here, right? this this SPIA for example as a good example um if I had put that in as oh yeah it's $39,000 a year and
52:59
but I put it in but left it as monthly you wouldn't see $39,000 here you'd see 12 times that right and you say oh I get
53:05
I entered that wrong so if you're looking to audit your your plan this is a really good good place to do that
53:12
yep the only other thing I would add to that is sometimes I will even kind of walk clients through the stepper a
53:17
little bit um you know if we're trying to look at like what's your social security assumptions or things like that
53:23
um that that can be another place that I sometimes do pull up because that's maybe a little bit easier than trying to find a cash flow that starts in the
53:29
future at a certain date. I more quickly just go to the other income and look at
53:34
that. Yeah, that's right. And this is more a little bit more like a spreadsheet almost, you know, just okay. Yeah, I got
53:40
all these accounts. Yep, those are the ones. Those are the balances. They look good. You know, social security. Again,
53:46
this was a simple plan, but you know, may maybe I put it in and I had, you know, better make sure my PIA was 3,000,
53:53
not 30,000. You know, things like that.
53:58
Good, good tip. Um, can you add back the cancellation
54:05
of TCJ but be able to set a year in the future expires? It's not a bad idea. Kind of like that. Yeah.
54:12
Believe we truly ripped it out of the code. So, uh, it probably wouldn't be hard to do. Yeah, it's a good idea.
54:21
Um, couple up votes on the question about the smile. Um,
54:27
expenses to represent the spending smile.
54:32
Um, so this is one you can actually do that automatically. I know my examples,
54:37
um, I have not been showing that. Um
54:43
got my So, um
54:49
you can if you like the spending smile, you can actually set that as your def your your default for all plans. Any new
54:56
plan you create, you could actually have it automatically apply that and it wouldn't you wouldn't have to put
55:02
expenses in that are higher earlier than the plan and then lower later on. It would just do it for you. Um, and you'll
55:10
find it here up in your settings, default values, income path is what we call it. And my default is flat. Um, I
55:17
actually really like the the spending smile, but I just use flat so that people don't get confused. Um, but we
55:22
call it age-based, meaning your spending depends on uh how old you are. Um, but
55:28
if I wanted to just change a single plan, um, I go back to that annuitization
55:35
option. Um, and
55:42
again, advanced plan settings, income path,
55:48
agebased, save it,
55:54
and now what you'll typically see is that the retirement paycheck goes up. um because you're kind of borrowing from
56:01
the future. Uh you're saying, "Hey, I'm not actually going to spend as much when I'm 90, so let me spend more today." Uh
56:06
and sure enough, that's what we see. And you can see the shape of that as well. Um if we go to cash flows,
56:14
and you'll see that um you know, in uh in today's dollars, my spending is
56:20
going down. If I switch it to future dollars, throwing inflation back in, and it's a little bit more flat. um that
56:27
does go up a little bit over time. Um so that's that's just automatic. And if you have any baseline expenses, which again
56:33
that's the stuff that go to town, but it's not going to change the plan itself. It's just it's just details of
56:39
how you're going to spend your retirement paycheck. If you have any baseline expenses, those will follow the
56:44
income path you have set. So it'll be the spending path will match the income path. Um whereas variable expenses will
56:50
just be whatever you you say they are. So it's not going to override anything.
56:57
Yep. Uh just to add to that, I I mean it's it's really nice to be able to have that ability to add that in when I want
57:03
to. Um I do often start a plan flat just because it might be easier to talk
57:08
through and explain and then sometimes the visualizations I want to show pull up. I think sometimes there's just too
57:14
much going on. Uh but if I kind of build on to it through a presentation with the client and through a meeting, then I
57:21
might put that on towards the end and say, "Okay, but you know, we actually know that spending is going to decrease." Um and and sometimes if it is
57:28
a plan where it's more when I need to put the spending smile in um and I might just talk conceptually to them about
57:34
that, like you know, we are assuming kind of a natural decay in your spending over time like we see among other
57:39
retirees. Um, but maybe I'll I'll even avoid pulling up some certain visuals just because it I think sometimes throws
57:46
people off. Um, especially thinking about real versus nominal and that's not how a lot of
57:53
people just think. Um, so I do like to caution with that. But yeah, it's great that the
57:58
capabilities in there. Yeah. Yeah. And this is following the um
58:04
the Morning Star research that where that word that name um retirement smile
58:09
originally came from. So somebody asked you know what's the math behind this? It's literally that math. So it's just
58:14
based on the age people are and changes over time and and and so on. So that's
58:19
where that comes from. Um maybe we can hit one more in the last
58:25
or maybe maybe we can hit a couple. Let's see. Um, okay. If you copy an implemented plan,
58:32
does it keep the plan's history? Um, yeah. So, again, if you're new to Income Lab, you may not even be aware of this, but um, you can have a plan tracked and
58:39
monitored automatically. Um, it would have to be the primary plan for the
58:44
household, um, which is up here. And by the way, you can change what the primary plan is just by promoting one to be
58:50
primary. Um, but if I tracked and monitored this plan or implemented it is what we used to call it. Um, and then
58:57
made a copy, the copy would show up down here in the plan scenarios and just leave the implemented plan in place. So,
59:03
yeah, it's not going to hurt anything to to copy that. Um,
59:09
let's see here. Uh, methodology for the growth in the
59:16
current balance in pre-retirement years. Um, so maybe we'll we'll wrap up on that
59:21
question. Um, there's a there's a couple different things that that are happening in income lab. One to to to
59:27
get you to this answer this main question of, you know, what can I spend if it's a pre-retirement plan? Um, one
59:35
thing that we have to consider is, hey, between now and when you retire, what might happen with your uh resources,
59:41
especially your balance? Uh, and so the savings you have in the plan, the um
59:47
asset allocation, all of that's going to matter a lot. But in figuring that out, we're going to look at, we're not just
59:52
going to say, oh, well, you're assuming you'll get 5%, so you definitely will. We're going to assume, okay, well,
59:57
there's scenarios where you do better than that. There's scenarios you do worse, and so on. And so there's all the complex kind of simulation stuff going
1:00:04
on behind the scenes to get you to that. What might I be able to spend in the future? Um however to show you things
1:00:11
like LifeHub where we're showing you actual dollar amounts for the portfolio for each account and so on there we do
1:00:20
just use average return assump whatever your return assumption is um based on your asset allocation and so you know
1:00:28
we've talked about this in the past but I mean essentially that's very unlikely to actually happen but um if we showed
1:00:35
you something else it's even it's even harder to explain right if we showed you I don't know an up year in 2025 but a
1:00:42
down year in 2026 that would look like we're saying oh that's really what's going to happen whereas if we say well
1:00:47
let's just apply the assumed average right which is the best guess you have about returns um then you can explain
1:00:54
that to a client oh well this is just giving you average returns we're not necessarily going to get that highly unlikely that we do but uh you know
1:01:01
that's where those numbers are coming from and that's the same in pre-retirement as in during the
1:01:06
retirement phase um however when you're looking for things like how much can I spend and you know when we release this
1:01:12
uh pre-retirement uh decision lab module it will very much take into account the
1:01:17
fact that returns vary you could have good experiences and bad experiences and and and so on but when you see something
1:01:23
that's a little more simple like lifehub where you're just trying to you know look all the way down you're going to
1:01:29
get more of a linear um type uh type projection because that's sort of you
1:01:35
know I joke it's it's the worst possible way to do things except for all the other ways Um, so it's what what you
1:01:40
have to do in um in those scenarios. So, sorry we didn't get to every
1:01:46
question, but we did pretty well. Um, so appreciate uh you being here, Derek, and for your insights, and thanks everybody
1:01:52
for joining us. And um hope to see you next week as we wrap up our master class. So, have a great week, everybody.