Masterclass 2.0 - Class 3: Best Practices in Presenting Retirement Income Plans

it is my pleasure um I'm really looking forward to it today and just a little

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background for me I'm in the business about it's going on six years now I was a nuclear engineer and a nuclear power

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plant supervisor for almost 20 years prior um just wanted to do something different had a passion for personal

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finance so I started a firm six years ago and haven't looked back since and uh I just want to show like the past two

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webinars have been great um i' I've really enjoyed showing everybody just things that I do at the firm when with

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regards to tax planning and you know how to talk to especially retirees when it comes to down markets bare markets you

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know things like that and um you know maybe help them through those those really stressful times today but you so

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the difference is today is going to be much more of me just kind of driving through the software and um less of like you know

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here's a PowerPoint here's a concept of this and that it's going to be more practical so I'm really excited about that I really like this uh this graphic

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here and just kind of shows like the difference between your accumulation and decumulation phase what that looks like

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you know you're building your growing you're planting the seeds you're doing the work and then on the second part of

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that life you're you know kind of living off the fruit and the the hard work that you did right so I really like the you

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know how this this visual I use it with clients uh of the difference and really

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this master class should be called best practices in constructing and presenting retirement income plans because we're

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definitely going to go through the constructing phase of it for sure so um

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just you know I always start with this slide three promises I did the graphics in here um so they they're like they're

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not good I'll just be honest with you but that's I'm not ashamed to that I think it's a lot more about the content

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of it and um I am very much being an an engineer and things like that by trade originally and a math person not an

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English or spelling person so you'll definitely see something spelled wrong probably some grammatical mistakes don't judge me off of that just let's just go

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with the content um but one thing I want to say like Justin and the people at income

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they're the experts of the software so this is just me showing you the way that I use it and the way that you know that

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maybe some of the tricks of the trade that I've picked up and some things to make it efficient or you know things I've AB tested with clients and and you

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know shown one set of clients one thing one the other way and got feedback on it on which one was better so doesn't mean

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that it's necessarily the way that the software is designed to be used or that it's the ideal way it's just the way I do it uh I am going to go pretty fast uh

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there was some feedback you know on a I think a previous session where I was going through the software kind of fast

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but that's by Design right this isn't like necessarily meant to be a tutorial of it it's meant to be a demo of the

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capability and part of the the capability is the speed at which you can create things in here and the efficiency

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so I think that's important to show uh reach out to Justin and income lab and the team are there like when you sign up

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you can get demos there's a ton of videos things like that that you can watch and I am going to highlight when

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or at least try to as I'm going through this presentation I've read over all the questions that you have submitted and

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I'm going to try to touch on those a lot of them were compiled and kind of compressed and okay these are very similar so but I will go over that and

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I'll try to let you know when I'm answering a previous question so I want you to know your questions are important please put them in there if you're from

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a past webinar and your question didn't get answered hopefully it does today um and we'll get there right so let's go to

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the softare I think that's the best way to jump in please stop me if you don't see the Justin if you don't see the

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income lab software but if you see the income lab software uh this is great and I just kind of want to show you you know

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I could have I debated whether or not to just make a full plan in front of you um

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for time purposes I'm not going to do that but I am going to go through it in probably the same speed that you could

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make it right so I made a this is just a hypothetical um hypothetical family the

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retirees right that's their last name we've got Dave and Diane retiree they want to retire right now they're like okay I'm

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just I've had enough I'm done working you know work is not as fun as it used to be the you know it just things are

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changing the new policies I'm not agree so tell me you know if they walk in my office say tell me what it looks like if

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I retire and I my first month of retirement is January 2025 so you can

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see this is kind of where you start off your plan and you can name it whatever you want you can put descriptions the

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descriptions are for use you can add more details um the clients that you have the state right this is and I'll kind of give you

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a little one of these when I'm answering a previous question yes the state in here does matter because it does incorporate some state tax info so

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that's answered a previous webinar question and then when you want to retire right and that's kind of the basics right now of course you would

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have already put in if you're qu you know creating a household you would see

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the um up you would see the name the birthday and male female and the male

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female OB use for like longevity purposes and things like that right so then moving over to assets we've got

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their investment accounts uh I just kept it very simple these numbers like not realistic being round numbers at all but

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uh just to keep it easy so in here you know you can select what type of account it is which is important you name the

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account and then over here the little gear you can change some settings right you can change kind of How It's invested

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from an aggression standpoint aggressive moderate conservative and some places in between see that slide scale these are

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just the risk-based defaults they come with income lab you can go custom or you can build your own and use your own

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right and then you can look at the distribution settings as well you can kind of you know answer some questions

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as to whether you can use the rule of 55 and somebody could take directly from their 401k if they leave it in their

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employer plan um do we want to exclude anything from Roth conversion so on and so forth so he got some great settings

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in here that you can change right uh if we go to next we go to

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annuities I don't have an annuity in here for this but we are going to touch on that a little later in the presentation I didn't put bank accounts

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or anything like that just for Simplicity and a lot of what you're doing right now is you may just be building like some retirement plan

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options for a perspective client or a client who's just now onboarding so you're like TR of just getting started

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so I like to think of and I use this reference as cheesy as it is with my clients is a retirement plan is a nice

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sculpture right now we're using the chainsaw eventually we're going to get to the Chisel and eventually we're going to get to some other more detailed tools

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uh but we are chainsawing the ice right now uh to get an idea and we will improve it as time goes on it takes a

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couple meetings in my process to get through and get a workable plan for a retiree because I think it deserves that

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and it's that important as far as income you've got uh

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your Social Security you can enter it in here in a couple different ways you can estimate you can use I just like to put

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in at full retirement age and then you can extrapolate really easy down here uh using these sliding tool these sliding

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scales and then if also if somebody's actually drawing Social Security you just can actually just select this manual right here put that in and just

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for Social Security here's how I like to say is we're gonna you know unless they had strong fearings one way or another

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say you know this client's retiring at 59 you're a couple years away from even being able to draw Social Security we're

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going to have an entire meeting just to talk about that and in fact I kind of developed this nerdy formula that comes

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up with like what's our best guess our best estimate best probability for your Social Security filing there's no way to

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tell what the best decision is unless you look at it in hindsight but let's look at this formula you've got life

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expectancy current health marital status do you have a pension what's your risk tolerance all these things matter so I

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use this formula when I'm kind of determining that but that's just a value ad for clients saying hey we're going to look at this very in- depth when you

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turn 61 and a half and then maybe we'll make the decision to follow early maybe later maybe we'll make a decision to

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defer but reevaluate it every six months which is typically where I end up with clients let's look at it every six

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months to see if anything has changed in your life that where we should follow earlier so just a little tidbit on

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Social Security uh Dave retiree does have a small pension from a previous job you do

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kind of want to go over here and select and just make sure you know most pensions don't have an inflation adjustment so make sure you turn that

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off uh you can start it at whatever date you want whether it be they have to take it a certain age you can start it at

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retirement all the above right you can make it exempt from state tax things like that different states have different and then the survivorship down

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here you can change right I am buzzing through all these kind of fast like I said not a tutorial I just want to tell you kind of what I'm looking at when I'm

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building a plan right and then they do have a mortgage

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uh so they have a mortgage of about $1,800 a month that's going to end in 2034 they are currently saving in their

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raw firas and 401ks and things like that we've got that monthly amount here and of course you can change at whether

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that's going to go up with inflation when that's going to stop things like that but in all in all this doesn't

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matter too much for this plan because they're retiring like really soon at least they want to they want to know where they're at right so if we go

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ahead and we run that plan it's going to come back and it's going to show us some

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things right what it's looking at that it's using you know income Labs magic formula which just Justin can talked

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about in much more intelligently than I can to come up with okay what's a

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reasonable spending capacity meaning a reasonable amount we can spend and start

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off where there's a chance that we'll have to make pay cuts because if there's no chance you have to take a pay cut then you're probably starting way too

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low um but not an overwhelming chance that we're going to you know overspend where you'd have to take a bunch of pay

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cuts also not an overwhelming chance you're going to underspend where you're going to end up with a whole lot of money at the end of life so that's

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really important that's really the philosophy of income lab and the importance of what I like to show people

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is here's your standard inflation adjusted spending path 4% rule type of spending you start spending a particular

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amount you adjust it for inflation every year from the day you retire to the day you die unfortunately no one spends

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money like that nor do they want to this makes a lot more sense spend a little more early flatten out in the middle

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spend less at the end except for a tail up usually when you know somebody has a health SL long-term care issue we're

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going to talk about that and that way you don't end up in the regret Zone where you're in your mid 70s 80s you

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look back and say man I really wish I would have took those trips wish I would have you know took the grandkids to Disney World or wherever I say that I

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just got back last week so not grandkids though so if you see what this does is

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it gives you an allowable income of $8,900 a month after taxes right so you

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can see projected income other expenses that's the mortgage gross income estimated taxes

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and then net income right there this also shows on the main screen but you do have to be cognizant of there are many

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settings over here that you'll want to be aware of because this number doesn't match the one I just showed you you're like why doesn't it match well number

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one is it in real or nominal nominal dollars and that's going to change more drastically the further away the

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retirement is is it an annual or monthly is it pre- tax or net of tax and

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do you have variable expenses on their not which would be their mortgage right if you want to show someone hey if this

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is what your after tax is going to be after your mortgage is paid that's a great way to show them if you want to

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show them here's your after tax before your mortgage isn't paid so like this is the amount that's actually going to be deposited into the plan then or into the

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the bank account then that's going to be this number so it's a really good tool to move around and find out what type of

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communication works for that client do they they like to think of it after tax I think most people do it's Apples to

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Apples from them when they were working do they like to think of it if my mortgage is gone uh I think all those

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things are really important right so uh when I'm presenting the plan you know

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I'm going through a very important concept I think to cover is that income lab and I think rightfully so is

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planning for level income and I don't need level income forever like to get the same income forever but a lot of

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clients feel like they're going to get a raise when they file for Social Security and my my counter to that is why would

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you want to wait till 67 or 70 or whenever you might file to get a couple

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thousand or multiple thousand do a month raise when you're already seven years

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eight years nine years who knows how long in the retirement why not spread that out and then anticipation of that

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inflation adjusted income Source coming later then why not spend more early that's the whole point right also it's

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not like when the mortgage is paid off that you get a raise either right you're Main maintaining the same net of

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mortgage income you can see right here this drop off right drops off when the mortgage goes away and they still have

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the same lifestyle because they dropped in income but they also dropped in expenses right so that's a really you

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have to sometimes I I do notice I have to go over this with clients a couple times so they become comfortable with the idea of level income they still kind

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of come back to the fact well well that's not even counting Social Security well yes it is right because we're planning that you do not get a raise

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when you get Social Security you just kind of seamlessly move into there you're taking less from your Investments more from Social Security but your

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income kind of stays the same right you can dig in a little deeper into expenses and taxes and things like that I'm not

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going to do that for this webinar and then I think something really important is the settings that

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you get over here and we we're definitely going to touch on these a little more but I just

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kind of want to show you like as you're presenting these plans this is for me if I'm showing the retirees plan is the

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base case we'll call it like this is the most simple most likely very appropriate

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for somebody who just walked in the door or perspective client definitely not detailed enough for an actual retiree

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though but we're going to get there right we this is the literally the first chainsaw on the ice so then where do we

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go from here like what can we adjust and you can see there's ways to adjust the income setting there's ways to adjust

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longevity there's ways to adjust all kind of things in here and there's a whether you want to assess those traits

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um via a conversation via a some type of assessment things like that I personally

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use an assessment called the Rea I think it's great I think it aligns with income lab great uh it's got all kind of

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questions on front loading versus back loading uh accumulation versus distribution how much how important is

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legacy to you uh lifestyle liquidity longevity all those things but you could literally just ask those questions uh

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really for me this is data Gathering upon which I will confirm in a meeting right so that's where it starts to get a

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little interesting in that when you can start to change these things right and this is

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where the customization comes in so you'll start with a base plan like this and as you get to know the prospective client or somebody becomes a client

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they're like okay let's really start to dig into this retirement thing um what can you change it here so you can change

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longevity a lot of that's based on things that we can't predict but we can make some reasonable assumptions I'll

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call it with you can ask them about their family history health issues that they're comfortable talking about and things

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like that or you can have them take there's a lot of different calculators here's one that's interesting it's called The Living to 100 calculator you

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put in all kinds of things about your history and your health and stuff like that and it gives you a number now we all know that that number is probably

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not going to be the number but at least it gives an idea another part of the conversation is clients may say I don't

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know how long I'm going to live but I'm comfortable planning to this age which I think is really important right if a

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client has a really high social security they were higher income earner they have a a large pension might be a government

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pension that has an inflation adjustment they might not care if they're down to only fixed income sources at a

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particular age 92 95 who knows right so this is are some settings that you can change in here to be able to customize

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that for the uh for the client so the interesting thing is here once I make a

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base plan this is where I start right and then next I'm going to say okay let's talk about adding some features on

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here I never want to compare making a a retirement plan to like buying a car but

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cars have base models and then they have varying levels of options and different trims and things like that right so

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let's add some features to the plan that may make the plan a little more realistic one of them is a concept that

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I love to use with retirees it's called the discretionary

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asset fund aka the slush fund so you have Choice a on the left

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that means all available funds that this client has go into the calculation for

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income lab and show you a monthly value that is going to yield the highest allowable income but it's going to yield

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the less the least amount of flexibility so what I say to clients what if we take a particular amount of

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of assets whatever that number is 50,000 100,000 it really depends on the client

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their spending habits and we remove that and we take out of the calculation that

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income lab does and that is a pile of money that you can spend at any time at

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your discretion either incrementally or all at once over the course of whatever time period you want that is not going

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to impact the monthly income lab plan so that is your your that's your flexibility that's your I hey we want to

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take a big trip and take all of our family and pay for it and everything like that that's what the slush fund's for I'd like to to buy and a 1967 Camaro

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or something like that that's what the slush fund's for right so what this does is it mentally lets client like feel because

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they do as if they have some flexibility in their spending the caveat to this is

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the slush fund is most likely a use or lose right unless the market is just astronomically good to us which we all

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hope and we might be able to replenish a slush fund if we're above what I'll call the critical path in retirement where

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your assets are way higher than where you thought they'd be 34 5 10 years in then this may be a use or lose right but

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at least that client knows okay I have 100 Grand in my slush fund I'm going to take 10 grand out but I know I have 90 I'm going to take right so um I think

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this is a great tool so next what I do is I typically just take and copy the

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plan so then I say retire 2025 and I keep it real simple with slush fund you

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can type out SL fun whatever the client is going to see the title so might make more sense uh to type it out and then

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there's a couple different ways to achieve like the slush fund right is one of them is you could just deduct the

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pre-tax amount of the slush fund from a particular asset they have that can be

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good it could it can be bad the reason why that would be bad is that if you end up linking these accounts so you can

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actually link accounts from Schwab and you know custodians and all kind of other software and track the actual

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values that's actually the beauty of income lab is that when you link the accounts and implement the plan it

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automatically tracks all this for you including your guard rails everything like that right so another way to do it

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is to go in add an expense right just make it a variable

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expense call it slush or whatever you want to call it just a regular old other

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expense and let's do 50,000 for the just the sake of this right make it a onetime

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expense and then we want to have it we're not going to put in the year

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retirement because that's going to mess up the calculation so it's kind of something I throw in a year later after and then if they're using or not using

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it you can kind of Kick the Can down the road right if they don't use any in 25 you move it to 27 and then you decide

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whether it's adjusted for inflation or not things like that right so we throw that one time in there we've got our

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slush fund in there now all right and then now let's go ahead and rerun the

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numbers so this is saying okay if you want the flexibility to be able to have $50,000 that doesn't count towards the

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the income calculation income lab that you can spend at your discretion whenever you want that would take you

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from 8900 down to 8720 right so what I'm doing here is creating options for the

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client I don't like the idea of prescribing a retirement I like the idea of creating options educating on them

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showing the pros and cons and letting their personality and their desires and their goals and things like that choose

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the plan that they think is appropriate right so this is one variation of the plan I make and I'll say okay for you to

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have this slush fund you're giving up monthly income but you're also creating this very flexible source of income you

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can spend any time the next variation is say okay well

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we don't have anything in here to plan for long-term care right and there's a lot of ways I don't say a lot of ways

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there's a finite amount of for sure but there's multiple ways to plan for long-term care um so I just kind of

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threw five options up here um that I think are probably the most popular five

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um one is do nothing don't plan for it uh that's probably not the best idea but some clients end up doing it and my

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thoughts are as long as you educate them tell them that's a bad idea show them all the other options they have things

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like that and they decide hey we're just going to take that risk then as long as they're educated that's fine although

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you know it's not ideal but it's fine right yeah buying long-term care insurance not going to talk much about

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that here I'm personally not the biggest fan of it um I think it does have potentially have of some benefits but

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it's for a smaller subset of clients you could buy an annuity that has some long-term care protection I just want to

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show you an example of that so here's an annuity that has a health activated

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multiplier you can see that they get x amount of dollars here but if they have a health issue where they can't do two

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of their six daily living activities you've got um this activate a multiplier that kind of doubles the income for a

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finite period of time I would say that in my experience that alone is not a

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reason to buy an annuity but if you're buying one and you're already concerned about long-term care it might be a good idea to look for one that has that

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Health activated multiplier there is also the option of

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using your home equity um some people open up a line of credit or do something

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called a heum a home equity conversion mortgage where they say okay I have the AA ailable equity in my home to pay for

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long-term care issues if they arise but if I don't need it I won't use it and I won't open anything on there and there's

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actually a really interesting study if you ever want to check it out incorporating home equity into a

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retirement income strategy and it's got all kind of cool info about different ways that it was tested of not using

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home equity using it sometime planning on using it using it in emergencies only really cool study I love to read this

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stuff even if it ends up at the end of it I say I'm not doing of that at least I ended a little bit smarter and then we

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have the self-insure and plan for it in income lab uh option so that brings us

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up to adding another option to income lab right so let's say we want to keep this slush fund and then now on top of

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that we want to add some long-term care planning in here

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so I'll just rename this retire 2025 with slush fund and long-term care now in these

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description down here I could put some more details like $50,000 slush fund you

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know x amount of dollars for x amount of years for long-term care thing you can do that for the sake of time I won't uh

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but it's just kind of showing you that you know I like to layer these like

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start with a basic plan and then make it more complex as we go on and it doesn't mean the clients's going to end up choosing the most complex because they

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may choose the version with no slush fund but with long-term care or with you know one and not the other right it's

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really depends on them but what I would do here is I would add another

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expense and I would go in to the variable expense and I would just call

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this LTC and we'll just pick one person we'll

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call it medical and let's say we want to do $80,000 a year in today's dollars for

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three years from the end of the plan all right just a place to start you can put whatever value you want in there I

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personally if it's a monthly thing or something that's going to continue it's not a onetime expense like to

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put it in in a monthly value because I think it Smooths it out a little better you don't have like these big spikes on

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an annual value that's just a personal preference so I picked $80,000 that's about 6667 a month for three years so

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let's go ahead and we'll say that's recurring it starts from the end of the plan it goes for 36

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months and we do want to adjust it for inflation because we want it to be $80,000 a year in today's dollars because no doubt those long-term care

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costs are going to go up right so let's go ahead and add that in and let's

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run this scenario and let's see what's happening

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basically what we're doing is we're adding more options we're adding more flexibility we're adding more protection but we're also lowering the monthly

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amount that they can receive and clients will look at those and then you know we can look at that in aggregate as we're

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moving through with their retirement planning or if you think about this from a perspective client like you're clearly

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showing that you're adding value by showing these different variations and these different things that maybe the client may or may not be thinking about

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um so I think this is a huge you know not only a great thing for clients it's an amazing prospecting tool as well but

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you can see adding in those expenses took us down to 8630 a month after taxes

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relatively small changes because these events right like in a long-term care event we hope right is going to be many

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many years away so where it's kind of like when you think about saving you're making a small change which compounded

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over the next 20 30 years is going to make a big difference and then it's really easy to

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show the client visually what this looks like right you've got your slush fund right here

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which doesn't necessarily mean it's used in 2026 that's just kind of where we placed it and then you got your

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long-term care cost right here and that goes on for three years at

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the end of the plan right so you can show the client okay this is visually what this looks like and this is a really powerful way you can also show

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this table down here which shows all of the spending the income

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sources Social Security things like that and then you can see at the end we've got the you know some higher spending

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because of those long-term care expenses all right so now we're think about where we're at we did a basic plan

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plan with a slush fund plan with a slush fund and long-term care expenses and then now let's add one more thing to it

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let's talk about Legacy um I will tell you this is probably one of the least used features that I have but some

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people do want it so it is important uh most clients that I have don't have a particular Legacy goal they say what's

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left is left I raised the kids I got them through college I did this I did that let me just um leave them whatever

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is happens to be left over and we're pretty sure something's going to be left over right uh kids will end up getting

27:54

the house most likely so they get to step up in basis it's from a tax perspective a decent thing to inherit

28:00

also if we're doing our job in here and if you watch the last master class which I highly recommend you do we talk really

28:07

in depth about taxes if you're doing systematic Roth conversions from year to year you're automatically most likely

28:13

building them a taxfree legacy anyway right and if they do want to plan for it of course you can do that right so let's

28:20

go ahead let's make another copy of the plan I know this seems like okay well we're making multiple copies how of that

28:26

but that's I think that that is for me me the feedback I've gotten from my clients is they love seeing the

28:31

different options they love being able to weigh a reduction in monthly income for added Legacy protection slush fund

28:39

long-term care whatever that might be so let's go ahead and we'll call this

28:45

and we'll add Legacy on here and then to do that we go ahead and

28:51

hit finish we'll let that think for a minute and then we're going to come over here and add that Legacy in here

28:58

and the the the easiest way I found to like to have this conversation with clients is you know the ones that are

29:04

very adamant about leaving a particular amount of money to someone is that how much would that be in today's dollars

29:10

because don't try to think of what it would be in the future that's almost impossible but uh let's go ahead and say okay we want to do

29:18

$500,000 adjusted for inflation for a legacy so let's go ahead and let's put

29:25

that in so we've now got multiple versions of the plan that

29:30

are progressing and adding different features which the client may or may not want and they may say nope Legacy is not

29:36

for me they may say I'd like to use the uh home equity option or I'd like to buy

29:42

long-term care insurance or whatever instead of planning for it in here they may say I don't like the idea of a slush fund because um just knowing my

29:48

personality type I may blow it really quick that happens right but this took down to 8270 a month after taxes so you

29:56

can see income progressively getting lower as we add more features I'll call it to the retirement

30:04

plan now next is really interesting because this

30:09

is very much a personality thing is how much you can

30:16

change the income setting on in the software right remember this is not the

30:22

aggression or conservatism whatever of the portfolio that's different that's act that's in a place that you can

30:27

change an in lab as well but this is the how aggressive do I want to start with

30:32

my spending and if you look as this moves further to the right the most the more aggressive you get you start at a

30:38

higher value but you're also very much more likely to hit a guard rail and

30:43

experience a pay cut and in my experience this is better for clients that have a lot of room between their

30:49

allowable income and their Baseline expenses so let's say I have a client that has no mortgage no debt they just

30:55

basically pay their taxes and their electric bills and things like that they their allowable income is like 12 Grand

31:01

a month but their Baseline expenses are like three well they can really start at

31:06

an aggressive income because them making pay cuts is not going to be detrimental at all to their their necessary expenses

31:14

right we're trying to frontload their plan of course so they can spend you know more money but they're open and

31:21

willing to making adjustments as they need to to ensure that they don't run out right or at least give them the best probability there's also the further you

31:28

move it to the left the less likely it will be that you hit a downside guard row but you're starting at a lower

31:33

income right and this is better for your more conservative Spenders people that fear change they don't like the idea

31:39

this that the hitting a guardrail sounds terrifying or they just flat out don't

31:45

have that much room between their necessary income and their discretionary right like there's not much built into

31:51

the budget uh that they can kind of um you know that they can kind of move around with so for me I like to do it I

32:00

don't make a new plan for this one right I do this live and just kind of show here's what I like to do right so after

32:07

going through with the client I'm going to talk to them about their after tax income right I'm gonna say this is the

32:12

amount that's deposited in your bank account every month we're going to go through the cash flows and how you don't

32:17

get a raise on Social Security and how it works when your mortgage ends and things like that right and we're going

32:23

to go through all kinds of other things in here in a little more detail but the really important part of this is

32:28

discussing okay how do we protect this plan and what is a guard rail right

32:33

guard rails are predetermined and we went through this a lot in master class one so if you please revisit that almost

32:41

the entire thing is about guard rails and protecting plans right so the upside

32:46

guard rail is where the program is basically saying you're not spending enough at least not for your legacy

32:52

goals right you're probably going to end up with a little too much at the end uh you should probably spend more and the downside guard rail which as you can see

32:58

is further away is where you say okay for where you're at right now we need to

33:05

take at least a small most of the time temporary pay cut to be able to sustain

33:11

our plan and try to make this money last and a question uh answering a previous

33:17

question is why such a small change in guard rails well that's because you know Justin probably answer is way better but

33:24

there if you think about it when young people start saving they save small but you tell them to start early because

33:29

time's on their side well a pay cut works very similarly especially in the early years of retirement where if you

33:35

take a small one and you're not also not taking a compounded raise on that and you're leaving that down for a couple

33:41

years that has an exponential effect when you multiply it over 30 a 30 40 year retirement so small changes and

33:48

especially like not taking a big change all at once and getting a accustomed to it so also answer another previous

33:54

question is what happens if you hit a downside guard rail you know if you were in this plan and

34:00

your portfolio fell from the 1.37 million down to this 1.07 one million

34:07

the program would recommend you take a $370 a month pay cut pretty reasonable pay cut compared to the overall income

34:15

right so what that does is it would then reestablish new guard rails and another

34:20

drop of whatever you know magnitude would be necessary for you to possibly take another pay cut so it's trying to

34:26

prevent big changes in their life give time to get used to it time for the market to maybe recover or things to

34:33

change right so to answer that previous question is small changes make a big difference and yes it will recalculate

34:39

new guard rails if you do hit one right but the important thing about this is you can show clients livetime what

34:47

changing their their spending aggression I'll call it right income you know

34:52

income front loading if you will so if we take this and we front load more so we're moving more to the

34:59

right you can see what happens right the income goes up I'm going to go back just one more time look right here at the

35:06

income and then look at the guard rails the income goes up the upside guard rail goes up so it

35:15

would take more to get a raise from there and the downside guard rail comes up meaning that you're closer to a

35:22

potential pay cut you're starting at a higher income but you're closer to a pay cut an interesting thing is a lot of

35:27

clients do if they if they do share concerns about medical and long-term

35:32

care cost and things like that is they tend to be either moderate or like further to the left of the scale where

35:39

if you plan for those long-term care costs in the plan you can actually get them to move that scale to the right because then they know that they've got

35:45

it in the plan right so let's move this more aggressively over and you can kind of see how it

35:51

responds in that you're starting now at the highest income you could start at but your downside guard ra

35:58

is you know it's 18% away that's not like right around the corner but it's definitely closer than this 22% guard

36:06

rail or if you took this all the way down to the lower end this 28% guard rail right so that's really I'd say a

36:13

personality thing right that that's going to be client to client what they're comfortable with um you know I

36:19

can always give recommendations I'm like well let's build in a slush fund let's build in long-term care costs let's

36:26

build in all these things but then let's slide that sliding scale a little further to the right because we have all that stuff built in that's how I like to

36:32

do it right um but you can see it dynamically changes so you can go over this with clients and you can make a

36:38

either a lifetime decision or at least give them something to think about as to whether or not um they should be front

36:45

loading more keeping it more moderate or I'll call back loading a little bit more our goal in my opinion is to try to get

36:51

them to at least stay moderate or preferably to front load as much as they're comfortable with just going back

36:58

to the concept of spending more early you don't get your time back right like those things are very important and

37:03

every overwhelmingly if you look at retirees that are surveyed in their 70s and 80s their overwhelming response is I

37:10

wish I would have done more it's not I wish I would have spent less there are some of that all right so if we're looking at

37:18

that now it's like okay so this is answered a previous question too is how do you present this like now that you've

37:24

made these plans and to be honest with you I don't present via a plan or anything like that you can see I've got

37:29

all these variations and I'm just going to tell them I'll show you real quick like this

37:35

is where I present um it's a very conversational type of room I found that

37:40

in my opinion it's more effective for me at least and my clients than a sitting across the dep desk you know

37:47

authoritative type of turn your monitor to the right right we got a big TV of course being a nuke I've got to have the

37:53

lamp that looks like an atom how can you not have that and then I've got client sitting here I've got my laptop out I'm

37:59

just showing them on the screen and walking through the income lab plan all

38:05

right um not making any type of PowerPoint anything like that of course when they walk in I'll have a customized

38:11

picture and their name so welcome I just keep a PowerPoint on the desktop and

38:17

this is Peach Bottom this is the nuclear power plant I worked at for a very long time but if they're just from around you

38:22

know local I'll just keep like a picture of Belair which is where my office is or whatever you can customize that however

38:28

you want but you see you now have multiple plans and I like to go through and I

38:35

like to present I'll present the basic plan in detail right and I think we've got time so I can kind of go through

38:41

that right I'll start out with the client and just going through and verifying all of these numbers like we

38:48

you know there's this much in your 401k things like that you'd be surprised or maybe not at things that clients may

38:54

forget or didn't tell you hey I've also got this taxable account I've also got this I've also got that right so just

38:59

kind of going through each thing validating it's a double triple check

39:04

with the client to make sure that everything that in is in here is accurate right and then I'll say as this

39:12

is calculating what it's doing is it's looking through historical data and it's doing Justin's magic formulas and things

39:17

like that it's going to determine what a reasonable starting income would

39:23

be and then I always speak in after taxes in today's dollar I think that's the most relatable because I don't what

39:30

I'm not really like don't enjoy like microman trying to micromanage anybody's budget or finances or anything I'd like

39:37

to say if you made x amount of dollars bring home from your job and you could bring home x amount of dollars in

39:43

retirement and those two numbers are the same do you think you'd be happy and

39:48

most of the time it's an overwhelming yes right so we'll go through that we'll

39:53

go through the cash flow chart of course because I want them to see the visual of this

39:58

right we'll definitely test the plan right and testing the plan as I say like

40:04

this is not just doing where it's going to say x probability of you know success or anything like that we talked about

40:10

that a lot in master class one but it's going to be more of what's the probability you may have to make an

40:16

income change at some time throughout your retirement based on some historical

40:22

data all right so this takes a little long so at this point I'm I'm talking to them I'm saying so what this is doing is

40:28

it's running your retirement through X number of different variations and things like that you can see that based

40:33

on your experience there's an 88% chance that you're going to experience these events right nothing but raises

40:40

throughout time and there is a 12% chance of potentially hitting a guard rail and I say most importantly 12% is

40:48

not a insignificant number that means that you know 12 out of 100 people will experience this so if I have 100 clients

40:55

12 may experience it right it doesn't really work like that you can you can you can at least you know kind of present in that manner but the most

41:01

important thing to say is if you had a take-home income of $8,900 a

41:08

month right and you had to take a pay cut of

41:14

this you know let's just call it $400 a month with that $ 8,900 minus 400 taking

41:20

you down to 8500 would that materially change your quality of life or could you still be very comfortable with life that

41:27

you're living most people overwhelming like I wouldn't even notice the difference and say okay well that you're

41:33

probably a good candidate to continue with retirement planning if they say that $500 a month uh pay cut would put

41:39

me really close to my budget or my bills i' say maybe we should reevaluate working a little longer or working

41:46

part-time or doing something else right so it's also a good gauge of how the client feels about their finances how

41:51

much room they have in their discretionary versus their Baseline spending things like that right always

41:57

want to show them this this is you know historical analysis um you know does it make sense

42:04

or I'm sorry does it um you know if if you're going through and you had started your retirement through in different

42:09

time periods above the blue line is nothing but raises and this is what you could have spent below the Blue Line

42:15

means you probably would have hit a guardrail and it's not too much of a surprise when that happened before the Great Depression and the great inflation

42:23

right not a surprise but again you can go back to the guard rail and say if that happen and you had to take this pay cut would

42:29

that be detrimental right so then after like a indepth presentation of the first

42:34

plan then I'll say okay this is and I do kind of preface this with saying this is going to be the highest plan so don't

42:40

get too excited yet we're going to go through some different options that are going to lower the amount but also add some flexibility and some protection and

42:48

then I'll go through and I don't recap the entire plan I just go to the next one and say okay what if we add a slush

42:54

fund I show them how we do it and then I show them the change income and then I move on to the next

43:00

one so on and so forth right um another thing I wanted to touch on is you know annuities right there is

43:08

an annuity feature in here we got a question in one of the previous about like how does that work I'm not pro

43:13

annuity I'm not anti- annuity I would say a very small percentage of my clients have annuities because it made

43:18

sense for them and here's kind of where I think it made sense um they're very risk of burst but

43:23

don't realize the amount of risk they have in bonds right 2022 showed us that uh they want a guaranteed income for

43:29

them or their surviving spouse uh or if you can get them guaranteed income could

43:35

you get them to invest the remaining more aggressively like so if they would otherwise have cash in the mattress or

43:42

under the mattress and getting some guaranteed income or some stability in there could allow them to invest well I

43:47

think at that point you're giving them a better opportunity to work against inflation right so I did kind of throw

43:54

two things together I'm going to show these real quick just for the sake of time uh but this is plan one where you

44:00

had a client that was all in cash and bonds I know that I I have run across

44:05

this it's not um it's it does happen uh and you can see the allowable

44:11

income and then you can see much lower probability of you know as far as or

44:18

higher probability of taking pay cuts a lower probability of going through retirement without mostly because of the risk of of inflation and cash just not

44:25

keeping up the cost of living right so then you can model and say okay what if

44:31

we put a portion of that in an annuity maybe you could do some portion in a fixed or a Rya or some portion in a spia

44:38

and some portion in a variable or something still maintain relatively conservative compared to the general

44:44

population but what if we could get a little more income but then a higher probability or

44:51

a lower probability of taking a pay cut so this is not a plug for annuities an income lab by far is not like like an

44:58

annuity um an annuity software it's really just like if a client if it's

45:03

right for them let's say they would otherwise be in all cash or otherwise be in very conservative Investments it may

45:09

be something to check out and you can run the side by side and show them and if our goal or if if we're able to get

45:15

them invested more aggressively uh than they otherwise would have been but still kind of sleep okay at night I think we

45:21

did our job there's an interesting study about that um it's about

45:27

the combination of stocks and bonds versus stocks and

45:33

Asia this is pretty cool stuff uh highly recommend checking it out there's the

45:39

title good stuff um but let's go ahead and I think

45:45

it's probably time to open up for Q&A and stuff like that I went through a lot

45:51

I know it went very fast like I said the good people at income lab will show you everything in I think maybe one more

45:58

thing I'd like to show you just one more in this is what I send either

46:03

prospective clients or clients after our our first meeting where we go and that's not necessarily the first meeting but

46:09

the first meeting in which we go through all of those variations of the plan I do send them a pretty templated recap email

46:17

it defines those features so it defines the slush fund again defines the long-term care defines the Legacy that's

46:24

just boilerplate we may change the amounts and stuff in there and then it Recaps very simply the retirement income

46:31

with each of those things in there and you see I didn't put the rest of them in I just kind of started with one and then

46:37

you can fill those in as you see fit but that's a great way to like send them the overview I think most of the time

46:42

clients or prospective clients are a little overwhelmed after that big presentation but it definitely shows your value and expertise so this is a

46:49

good way to recap I'm not sharing plans at this point with them because I think it's too early I would like them to

46:55

choose and we reduce and put some features in there that we talked about and also start to add things like you

47:02

know every five years buy a car every you know do this you annual gifting to kids the details I was talking about

47:08

that's when you start to get the Chisel on the ice sculpture so uh enough of me Grand standing I'm gonna turn it over to

47:14

Q&A Justin go ahead that was awesome Ryan I got tons

47:20

of questions um kind of sticking to that last thing you were talking about um the

47:25

the meeting you just went through theil and so on is that like where does that sit in like imagine this were a prospect

47:32

um is that something you do for them are they first kind of signing on as a client how does that whole flow work

47:38

that's a great question and it's very dependent on where I think the relationship's going to go um because I

47:46

have a very warm referral system there's a high probability of somebody if they

47:52

come in and I show them all these things that they're most likely going to become a client I'm not not afraid to do all

47:58

this upfront before any agreements or fees or anything like that in

48:03

anticipation that what I show them is going to be kind of like a wow factor and that they are going to want to

48:10

become a client because giving a like showing them these things what their retirement income things like that are not giving away the keys to the kingdom

48:16

it's really just showing them what you're going to do but somebody has to monitor this somebody has to implement

48:21

the do the guard rails somebody has to do establish the slush fund do the right so it's really just kind of previewing

48:27

especially when you get into the taxes and if you haven't watched Master Class 2 please do it because that by far when

48:33

you present that part of it during the prospect meeting and I'm going to do that next master class for sure that is

48:40

probably raises your probability of acquiring that client by 100% at that point like not to 100% but by 100% um if

48:48

that math Works um so I do this relatively early for a lot of prospective clients and anticipation

48:54

that they'll become a client the the risk of that is that you put some time in that otherwise maybe you um wouldn't

49:00

have but it also shows a ton of value and as you saw I created Five of these plans live in front of you it doesn't

49:07

take all that long yeah yeah that makes sense um I don't know if you run into this but if

49:12

you ever have clients who aren't particularly confident about retiring or

49:18

you know feeling a little nervous about it reluctant to spend and so on what are

49:23

what do you dive into there to help them kind of feel confident go for it the biggest thing I think that gets

49:30

people comfortable with spending is showing them the guard rails because I

49:35

think the uncertainty of probability success maybe um does create some a lot of that fear like if I tell a client

49:42

they've got an 80% chance and they're an engineer they're automatically thinking what happens the other 20% that's like

49:48

instantly where if I'm saying well you could spend this much and if something

49:53

happens then we're going to take this pay cut and then let's by the way let's go and stress test your plan now this is

49:58

the annuity plan so it's not going to look great um let's stress test your plan and see if you had gone through

50:04

some of these different events in history how would it have actually held up that histo that actual like here's

50:10

what it is here's your predefined pay cut here is like all these things instead of the uncertainty of 80% versus

50:18

76 versus that inherently I think does allow people to spend a little bit more

50:23

you know I hadn't thought about that but you know the Monte Carlo probably of success my understanding is that was

50:29

heavily used in nuclear in nucle for the bomb right and

50:35

and that's just a totally different use than for retirement income planning and so yeah you're right that you definitely

50:41

wouldn't want to bring that up I mean I don't think you should bring it up with with most people but um that actually

50:47

brings up we've had a bunch of questions about the whole like well actually how do you get to that number we talked

50:52

about that a ton in master class one there I think our other web uh webinars um that we've done and there's also a an

50:59

article on kits.com that I wrote about how it's all about making sure people are living within their means that's

51:06

really what it's about so you don't want to live well below your means unless that just happens to be how you live your life right you don't want to be

51:12

unnecessarily being Frugal if you don't want to and you also don't want to live above your means and so that's what it's all about we're trying to find a a a

51:19

spending level that is neither overspending nor under spending right

51:25

it's it's a balance the guardrails are there that there's an overspending guard rail and an UND spending guardrail I mean that's really what those are the

51:32

green one is an under spending guardrail you're spending too little how about you live a little and the red one says uh

51:37

things are starting to look a little little overheated here so that's I think that's the importance of one is have

51:44

them compare their take-home income while they're working to their take-home income in retirement because that will

51:49

tell you if someone is struggling if a family's struggling um paying you know kind of paycheck to paycheck while

51:55

they're working and their income is going to be the same in retirement most likely they're going to struggle in retirement also so that's a little bit

52:01

of a warning flag uh if you show them the the predicted possible pay cut from

52:06

the guard rails and they kind of give you a o that would hurt um which would is would be a little concerning right

52:12

because the pay cuts are relatively small I mean they're about 5% ballpark right that's a that could be a trigger

52:18

that maybe they shouldn't be retiring or that we should work parttime or do something um so I think doing those

52:25

exercises and then ALS also building in the slush fund right if they blow through their slush fund in the first

52:31

year or two you haven't impacted their plan at all because it was already out of that but you can have a conversation

52:36

with them saying hey you know that slush fun was supposed to be like for probably like for the first 10 years of your retirement when you're really mobile

52:42

you've already gone through it we can't spend anymore so that does it give you a little more protection while giving them

52:48

flexibility and giving them protection as well yeah I think you handled that the question about the size of that

52:53

reduction really well I think all those things are are to play an important role and like you said this is an annuity

52:59

plan so maybe you're not going to see one with lots of downward adjustments but you can even find in the retirement

53:05

stress test sometimes usually the worst scenarios are like uh Great Depression or stagflation is what I find maybe

53:12

you'll see one with a couple of red lines right and so you could show somebody well look there things could

53:18

potentially some there you go there's be bad enough that you'd have to take two pay cuts you know maybe relatively

53:23

closely to each other we just don't want to overreact right you don't want to get whipsaw by taking a 20% pay cut when it

53:30

actually turns out all you needed was five right so that's that's so much of what that's based on so here's where you

53:35

can show a p a perspective or a client and you say you just retired imagine

53:41

you're retired January 2025 2008 starts in February of 2025

53:47

worst timing you could ever have to be a retiree you can't control that timing it just is what it is right you can't

53:52

control what happens after you retire if that happened and and you had to take these two pay cuts back to back and you

53:59

had to go from $8,900 a month down to $7,900 a month which you've already expressed that your bare minimum bills

54:04

are 3500 or 4,000 a month so we know that you can at least definitely pay the ascensions and still maintain and you

54:11

had to do that for a finite period of time see how these greens allow you to get your money back would that be

54:17

detrimental to your quality of life and would that keep you from retiring and typically if you phrase it like that the answer is no

54:23

yeah we did have a question I I I actually one I haven't gotten a lot which is do you ever run into people who

54:30

well I mean the question was how are you getting to this spending level but but they mentioned is there some sort of

54:35

like don't dip into principal kind of thing going on here and the answer is no I mean if you didn't want to dip into

54:41

principle you'd have to set that nice big Legacy goal saying hey no I want to leave all this behind by the way that

54:47

doesn't mean you'll never dip into principle it just means you'll you'll behave in a way that'll give you a

54:52

really good chance of not dipping into principle um but do you run into that with people ever say I only want to spend you know the growth on this

54:58

account and how do you talk them into more of a you know use all your resources um

55:04

approach it's really like I show them the numbers that it

55:10

would look like if they only lived off their interests yeah and typically that's it's not enough to sustain their

55:16

it's not what they want right if they look at that actual interest and they're like o that's not really what I thought

55:22

I said well yeah well you know that is you're being extremely conservative just by trying to maintain your principle and

55:27

usually we try to dig into why why do you want to do that why do you want to leave this big Ira to your to your child

55:34

or children what's the reason for that and they may have a very good reason for that or the reason may just be like uh

55:39

well it's a safety thing I'd like to maintain that I'm like well let's build some other features in here for safety

55:45

let's put the long-term care costs in let's put the slush fun let's put some type of Legacy not the full principle

55:50

let's put something let's do systematic Roth conversion so we're leaving them a Roth IRA and a half house versus a big

55:57

Ira which is going to be taxed like crazy right so those things do help a ton but usually if you show them the

56:04

amount of income they actually would be living off of if they're just trying to maintain the principle they're not happy with that and then we're able to come to

56:09

some type of uh medium most people don't even think about the fact that they're leaving their kids their house and it's

56:15

going to be most of the time relatively tax-free or that if they're doing Roth conversions that that's going to be taxfree right that so if you show them

56:22

that it typically does um allow them get a little more comfortable spending but some people are just at the end of the

56:28

day are just going to say I'm not touching my principle um and there's not I say there's usually just not much you

56:34

can do with that except for the fact of just show them like here's how much

56:39

you're giving up in your life for that and if there's not like this great reason to leave the kids this massive

56:45

pile of money I I will try to to show them everything I can to try to get them to spend yeah and we're pretty much in

56:53

the last minute here we had a couple questions on asset allocation investment performance things like that do you um

57:02

you know build your own models in income lab do you use the the preset defaults how much do you talk about that I know

57:08

you had an example there with uh you know using all bonds so you did already cover that a bit but but maybe address

57:14

that just just briefly yeah I'd like to build um my own models but I keep it

57:19

pretty simple um our investment philosophy is you know relatively passive um we do put some things in the

57:26

you know that we think are good Hedges and stuff like that not to get too much in Investments but um I don't get too

57:31

crazy with the Investments so therefore I also don't have to get too crazy with the custom allocations like I'm building

57:37

inside of income lab and then along with that we do use income lab because it's great and I'm going to show you this in

57:43

master class 4 uh to build what's called a liability driven or a Time segmentation also known as a bucket

57:49

strategy type of portfolio which is another great way to get people to invest more aggressively than they otherwise would have because you're

57:55

speaking in number years you can cover in retirement income rather than 6040 um so we're going to we're cover that in a

58:01

lot more detail in episode four um but I don't get too crazy with the Investments because we also don't invest very um

58:09

it's it's relatively straightforward and passive from a a firm perspective awesome well this is another

58:16

great uh session Ryan thank you so much I'm sorry for those of you who where we didn't get to your questions we'll try

58:22

to um take a look through them kind of like Ryan did this time and make sure we address them where we can um in the

58:28

session two weeks from now um but uh thank you so much Ryan and thank you

58:34

everyone for joining us we'll see you all again in two weeks thank you everybody take care bye have a good one

58:40

thanks Justin