How Real Retirement Income Stress Testing Changes the Client Experience

well I'll do I'll do one of my famous Icebreaker questions so it's not just dead silence but uh you know for for

0:33

Justin and Bonnie uh what's the coldest you've ever been you know where have you been like freezing cold as soon as I say

0:39

that usually a memory pops up but Bonnie or Justin as soon as you said that a memory popped

0:45

up but uh Justin I don't know if you want to go first I I'm I'm still trying to think of like the actual coldest I've

0:52

ever been you so you might need to go give me a second um for me I did a run fairly recently

0:59

where uh it was 31 degrees uh and so that's actually not that's kind of nice

1:06

for running conditions but the standing outside for like the hour and a half plus before the run I remember the first

1:13

three miles of the run I literally could not feel my feet so I kept looking down to think like are my feet still there

1:19

yeah they're still there oh yep they're still there um so again it was nice once I got going after about mile three but the first

1:26

three miles I literally felt like I had no feet foreign yeah

1:34

I do remember Johnny was telling this story the other day a few years ago it might have been 2020 a friend of mine

1:41

hosts an event uh riding up Mount Evans which is a 14er in Colorado

1:47

and it was beautiful day it was Fourth of July it's a beautiful day until we got to the top and turned around and there was a

1:55

huge black cloud that dumped inches of hail on us there was lightning below us

2:03

yeah descending in that just hoping your hands actually know how to break uh and I think I was shaking and cramping for a

2:10

couple hours after that and it was pretty bad we definitely had hypothermia I mean we came around a corner and that

2:17

was this what's hail in the road and now tires was about this sick there was no really right there's no

2:24

guard rails to talk income laptop right

2:29

so I think I just learned something new that was a good Icebreaker are you guys both uh Road Riders

2:37

I'll write anything Bonnie good to meet you by the way all right the big thing I'm into right

2:44

now is gravel really like that I I do less than I used to I do a lot

2:50

more mountain biking now uh I got hit by a car a couple years ago and that uh that definitely put me off it a bit but

2:56

you know so it looks like we still got a few people kind of

3:03

wild fish my sources it feels like I'm in therapy here so

3:09

what is the cold we had a couple minutes to let people come in so I did one of my I like

3:15

different icebreakers the oldest you've ever been is always a fun one because you know we learned about biking we

3:21

learned about Bonnie running mine when I was actually traveling to Chicago and I had to I had the first time I've ever

3:27

been to Chicago I didn't have a winter coat I didn't have gloves I had to carry these boxes of books for the American

3:32

college so we would travel and the American college does not make a lot of money it's a non-profit so you would

3:38

carry the binders with you on the plane sometime and so I would have like this 50 you know 50 binders in a box and was

3:45

carrying it through Chicago after I got off the train and I have to kept going in different stores because my hands

3:52

were getting so old and like hurting and so I'd like Stand Inside something and

3:57

then go three more blocks and stand inside and that's the you know coldest

4:02

I've ever been and uh was on that trip to Chicago would have to be in my military time in

4:10

Denmark I just remember something really not knowing if my feeds were still attacks like just in the winter sleeping

4:15

outside for weeks and like I can't feel my feet I don't know if I can walk like that sort of thing

4:22

but uh the hail thing was quite the experience all right

4:28

we'll get going thank you everybody for joining us um Jamie I'm definitely going to take

4:34

the Icebreaker idea for the Future For That Awkward period where everyone's coming in yeah

4:41

so uh yeah thanks everybody for joining us and definitely want a big thank you to uh our panelists for today

4:48

um Jamie Hopkins from uh Carson group Bonnie tricel from

4:54

um or did I pronounce your last name wrong there probably did retirement did I get it right awesome

5:00

and Johnny Paulson from um income lab um unlike

5:05

some other product launch webinars we've done in the past we decided to do this one a little bit differently so

5:11

um thus the panel so I will set it up with kind of a quick uh review kind of

5:19

thirty thousand foot view of what we're what we're up to here and then I'll do a quick and a demo of the new

5:25

um of the new feature the retirement stress test and then we'll have a discussion um especially focused on kind of client

5:32

experience advisor experience um uh psychology around uh retirement

5:39

planning and to try to weave in some of the some of the themes uh that relate to

5:44

the uh to the new retirement stress test and really talk about stress testing in kind of practical

5:50

terms what it means to people um in in their lives so

5:55

I'm going to start by um sharing my screen and I before getting

6:03

into the stress test itself I actually want to back up for those who who maybe aren't as familiar with with income lab

6:08

or with adjustment based planning or retirement income management in general and just kind of set the

6:15

stage so um income lab is is retirement income

6:21

management software and you know those words are carefully chosen it's for

6:27

people kind of at and in retirement for advisors to provide them with guidance

6:33

so I think probably one of the the best um analogies that I've heard for this is

6:40

you know imagine you're driving down the road and uh your GPS instead of giving

6:45

you turn-by-turn directions just says uh you have a 70 chance of reaching your

6:51

destination in time well that might be true but it's not very helpful it's uh what you need at

6:57

that point is directions um and so income lab is all about helping advisors give directions what

7:03

can I spend um what would cause me to change that and what would the size of those changes

7:08

be so that's what you see here this is kind of this main dashboard for a plan

7:14

this you know the plan already knows all about the the households Financial Resources whether those are investments

7:21

Social Security pensions anything that can fund their lifestyle and it's answering the question what can I spend

7:27

per month um and then you know they have about two and a quarter million dollars in a

7:33

portfolio and it's saying you know we're not gonna drive this thing off a cliff Wiley Coyote Style

7:39

we're going to adjust if things get better than expected we'll be able to spend more if things get you know worse

7:45

than expected we will we will have to spend less um answering that question of what can I

7:52

spend given my resources you know there's not really one answer to that it there's a range of answers

7:59

that could work for people and it really depends on their preferences so this is showing you okay given these folks

8:06

um resources kind of a range and you can see down here basically bookends reasonable bookends on how much they can

8:13

spend so way down here on the very the more conservative Side Lower spending lower chance of adjustment thirteen six

8:21

a month up here on the higher end 15 to a month so you know pretty pretty

8:27

good range especially if you if you annualize that and you can see I can spend more

8:33

but it takes less of a loss in my portfolio to have an adjustment so I've got to be more willing to take

8:39

adjustments if I'm spending more if I'm spending less I have a bigger a bigger buffer here right and that's

8:46

that trade-off is something that clients tend to really understand right they

8:51

they get it um that yeah I can spend more as long as you know I'm willing to tighten my belt if I have to

8:59

um so the the stress test that we're launching

9:04

is really meant to address the next the next level of this and I would say

9:11

it it kind of rhymes with the the effect that even just seeing these basic guardrails

9:18

have so when you show a client that they're not going to fail in retirement

9:24

um generally we see the stress level come way down um when you say Hey you know people

9:30

people don't fail in retirement they adjust that's a big deal but showing them actual dollar amounts for what

9:35

those adjustments would be is maybe an even bigger deal because if you just say hey we're going to adjust

9:40

like kind of let people's imagination go wild and they might imagine it's a you know 40 or 50 adjustment if the global

9:47

financial crisis happens again so people will often say all right this looks good like I can live with this plan but

9:55

what does a longer term experience look like and when they ask that they don't mean if things go really well I mean

10:02

that you know if things go well well things are going to be good what they mean is what if we get hit with some bad

10:07

times right so that's what this stress test is about

10:13

um so the new retirement stress test

10:19

is a way to hit your plan with a bunch of actual historical

10:26

experiences um hopefully memorable ones in certain cases and see how that adjustment plan

10:34

how that retirement GPS would have guided you through these periods

10:40

um to see you know is this the kind of plan you can handle as a client or even

10:46

as an advisor or you know does it need to be more conservative or if maybe it's too

10:52

conservative maybe there's not enough kind of uh flexibility uh built into the

10:57

plan because because they're being so um so conservative so along the top here

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you'll see five historical periods you have the global financial crisis the.com

11:07

bubble the stagflation era the post-war decade and the Great Depression and what

11:13

we do is we'll launch the plan um either before during or after each of

11:18

these kind of big events and see how it would have just adjusted over time see

11:25

um now the guard rails and things would have worked out so an example is this is

11:33

a very simple plan this is uh we don't even have the retirement smile built in here

11:38

um just two Social Securities and portfolio withdrawals but you can see as time goes on from

11:45

2008 to 2009 February of 2009 this plan it's a pay cut

11:52

they were hoping to be able to spend 12 700 but starting in February of 09 they

11:58

had to pull back in this case by 400 a month that belt tightening

12:05

lasted until December of 2014. when they got to pop up in fact in this

12:11

case their their pay raise took them above their planned level and they've never looked back

12:16

um if you're interested in why this was going on well down here you can see the

12:21

portfolio balance moving toward that lower guard rail so keep in mind those

12:26

this green and red uh uh lines we saw earlier and then we're

12:33

in the no change range in the in the clear here until December 14 right so you can kind of see if you were a client

12:40

living through this period and you were checking your your plan you're getting an update from your advisor

12:47

um you would have been seeing in this case your your portfolio balance approaching the lower guardrail

12:52

then it would have stuck toward the top and then 2022 came along and it is now

12:58

bouncing around really close to getting a pay cut right not not there yet but we're we are darn close

13:05

okay so a couple things that you can uh use this for as an advisor one is

13:10

what I just said which is um providing Clarity and specifics on

13:16

how adjustment based planning really works so not allowing people to just imagine you know the worst possible

13:23

things in the world really saying okay how does this methodology of of giving

13:29

you adjustment advice really work in in real situations um and allowing people to say you know

13:35

can I live with that another is you can really subject it to different stresses so we all remember the global financial

13:41

crisis and certainly um returns were not good but there

13:46

wasn't a lot of inflation actually I think inflation maybe had five percent um but

13:51

it it was actually deflation that in some months thereafter but you could say well let's look at let's look at

13:57

stagflation now we have a lot of inflation from 1968 through 19 you know

14:03

through the 80s certainly um and you can see okay this plant actually suffered more from inflation

14:10

that it did from the global financial crisis so here these folks were

14:15

um you know having to having to pull back uh a lot more substantially for a shorter amount of time but but more

14:21

substantially in their spending um you might be interested in you know kind of a deep economic contraction uh I

14:29

mean far more than we saw in the global financial crisis and and to see how a plan would have reacted to that often

14:35

people are actually a little surprised by the Great Depression um I think the reason is that uh kind of

14:42

balanced portfolios and things did better than you might think mostly because there was a lot of deflation so

14:48

uh your your purchasing power actually held up okay even though you saw you

14:53

know portfolio balance is really suffering another way that you can use this as an

15:00

advisor other than painting this picture for clients and I don't want to minimize the value of that that's a that is

15:06

probably the number one value but it's you can use it to evaluate plans yourself and say you know is this the

15:13

kind of plan I think that that these clients really could live with is it are

15:19

these the types of adjustments they can handle um so for example

15:24

um if uh let's go to stagflation again all right so this is a this is a pretty

15:31

decent you know amount of belt tightening for for uh several years

15:37

I might have clients who really don't want bad news and and

15:43

they're they're willing to spend less now in order to kind of protect themselves more from from downturns so

15:49

they're basically they'll tighten their belt today in order not to have bad news and so I just pulled back remember those

15:55

bookends I just pulled that slider over to the more conservative side and now I

16:01

don't have any pickups during the during stagflation now there's a there's a cost to that I have to spend less but maybe

16:07

they uh live fairly Frugal lives another thing you can do is is test

16:13

um how different allocations um work during different periods so for example in the global financial crisis

16:19

if I add a lot more Equity I go to a 90 Equity portfolio now I now I actually

16:24

have a pay cut back in November and then a couple more

16:30

and now I'm down quite a bit less when before it was you know four hundred dollars

16:35

um now I'm you know this is these are these are quite um meaningful meaningful cuts

16:41

on the other hand go to the other side a very low Equity allocation

16:47

and again maybe not surprising but wouldn't have needed a pay cut at all during the financial crisis

16:54

um would have also been been right you can see what the experience

16:59

would have been here much much smoother much smoother ride they would have also

17:04

had to spend less though because an all Bond portfolio supports a lot less a lot less income in general

17:10

so those are a couple different ways to use this primarily for really helping people

17:16

understand long-term experiences realistic experiences when you kind of have the GPS turned on

17:23

um and then to to uh to kind of test different plan options and maybe even

17:28

run those by the client um you know something like um you know which would you prefer to

17:34

spend more but have to take this kind of pay cut or you know be more conservative and and

17:41

reduce the chances that you get a that you get a call from from me uh your advisor uh telling you uh that it's time

17:48

to kind of trying to find a place to to trim back

17:54

um so with that and we can definitely refer to back to uh the stress test

18:00

again I think um I'll kind of set up our panel I think

18:05

it's important to note that this is not the first retirement stress test it's

18:10

certainly not the first uh you know stress test of any sort in the world we've given you know bank failures and

18:16

things I think we hear about stress tests a lot um you certainly have seen portfolio

18:21

stress tests that I think are really um helpful in the market um but you've even seen retirement

18:28

stress tests before what's different here is we're not just kind of hitting a

18:35

portfolio with a downturn and then saying how did my probability of success

18:40

change um the answer to that question is always well it gets worse right I mean that's

18:47

of course that's just what it does but I think if we think about

18:52

client experiences when they see that kind of a stress test that just says you know hey if the global financial crisis

18:59

happened your 90 probability of success would go to 55. um if we think about the effect that has

19:05

on people it can't help but raise anxiety right that just seems to be the the main goal of a stress test like that

19:12

but um I would say I'm not sure that should be our goal as uh as as um advisors as

19:20

Financial professionals um certainly clients probably don't have that goal so that what we've tried to do

19:25

here is provide something that actually can um you know tell the tell the truth

19:31

about how these experiences work in a way that can raise client confidence

19:37

um so it's sort of a little bit of a different approach to um to retirement stress testing

19:44

um and I think from from that I'd like to to start uh asking our panel

19:52

um about plant stress client anxiety or really

19:58

just retiree um Stress and Anxiety and ask kind of What In your experience what things in

20:07

the retirement planning process tend to lead to Stress and Anxiety you know what

20:13

what role do emotions play in people's ability to make you know financial

20:19

decisions like whether to retire how much to spend and and so on

20:24

um Bonnie maybe we'll start with you I know you work in the in the retirement plan

20:30

world so I think your your um point of view on this is really interesting I'm sure you've uh you've there are

20:35

thousands and thousands of uh of plan participants who have been through this kind of um you know emotional uh

20:43

situation so um what would you say in your experience leads to Stress and Anxiety

20:49

yeah well Justin thanks so much for having me on and really love to see what you're doing here I think as you

20:55

mentioned I might approach this a little bit differently than the other panelists on the call because I approach it from

21:01

the perspective of the plan side so I work mostly with plan sponsors or

21:06

employers uh with retirement plan advisors and then with the participant side of things but I think to your

21:12

question of kind of what causes stress or anxiety um it's interesting to me that it's it's

21:17

all about the uncertainty and it's in kind of two respects right it's looking at how we have

21:23

participants who they don't retire or they don't leave work because they don't

21:29

realize that they can so just by not having the tools and resources to realize hey I actually can retire

21:35

um that has the negative impact on their employer of having to you know incur additional costs from folks who don't

21:41

retire when they should and then likewise we end up with some some folks who actually do go ahead and retire

21:46

because maybe they have to for health reasons or otherwise but again and they retire and then they have that fear of

21:52

outliving their savings or they end up outliving their savings because of the longevity issues and I think it's pretty

21:58

interesting I'll just maybe throw out the to see a Retirement Research Center recently um published some research

22:04

about the fact that participants have a preference for safety and steady income

22:09

over having a high return and so I think sometimes we see at least in the plan

22:15

side just by not having the tools or or resources or being able to work with an

22:20

advisor outside of the plan because we know many participants will never have that opportunity by not knowing we have

22:26

people who make sometimes poor choices because they just don't have that plan in place and so in in lieu of that

22:33

they're willing to go for the safe router the the steady income route or what they perceive as safe and give up

22:39

higher return just because they they don't know and so I think that's what leads to that fear and anxiety is just

22:45

not knowing so I'm sure others will approach that question a little bit differently but that's how the the plan

22:51

side translates that question that's that's really interesting yeah I

22:57

think I've thought about this before this sort of trade-off hey I could spend less now and have less variability in my income

23:05

and and from you know someone like me I sort of say well why not live a little you know deal with it if you have to but

23:10

that's that really is just a choice it's just a preference some people might just prefer to have less variability even if

23:16

that means living on less I don't know Jamie what are your thoughts yeah it's uh you know the whole question

23:22

about like what do people want and what do they say versus how they behave is such an interesting Dynamic too so I'm

23:29

out at the FPA Retreat and I was talking about some of these pieces earlier today uh on stage which is you know we all

23:36

know this adage of the you know people want sustainable income through their life right that lifetime income Source

23:42

but as soon as you mention annuity the behaviors change just based off the word people say they want to age in place and

23:48

you're like hey here's a reverse mortgage and like oh I don't want that like well you said you wanted to age in place and have lifetime income we've got

23:54

two things that do those two things but it but like there's this immediate reaction and when you start diving into

24:00

a lot of it in my view it's because kind of what we've taught people is like the

24:06

opposite of how we then want them to behave in retirement and that's this like you know when I first thought about

24:12

this I was at the American college and we built a little bit into ricp and I wrote my book requirement and came up

24:19

with that term around it uh but like I'm still super early into that and like every week when I spend time on it I

24:26

kind of understand more and more about the behavioral side so I'll start with like two concepts here that I think are

24:31

really interesting which is the whole like saving for retirement so I call it SNS saving not spending and like Dave

24:38

Ramsey says save your money everybody listens to them they save their money and then you get to retirement and we're

24:44

just like just kidding you need to spend it and we're like you just told me for 35 years the only thing I need to do is

24:50

save more than I spend and I'll be okay we're like yeah but that was then like like you don't work here anymore you've

24:55

got to spend your money and we don't really teach people from a behavioral from an emotional from a systems

25:02

perspective anything on that side and I got to meet uh Richard thaler and had him on my show this summer and like we

25:08

talked about that a lot that like the nudge system that we created is mostly

25:13

around the savings side like that's at least effectively right we haven't really created like a spending or DQ

25:20

relation as many parameters you know guard rails right any of that in the

25:26

system so we just have like we kind of lead people down a path and they get there and all the variable outcomes like

25:32

you can spend all of your money day one or none of it and we just don't have guidance for that super well

25:38

and then another part that's really interesting is that spending for people then becomes painful because we've told

25:44

them that saving is good spending is bad and you do that for 30 years without any

25:50

other change in their life like a lot of people you look at the JP Morgan spending data what you see is a lot of

25:57

people with wealth like understand what they could for retirement that we haven't given them permission to spend

26:03

and so a big part of what advisors do I I believe for clients especially with truck tire and income planning is giving

26:10

them enough confidence that they're not going to run out of money so they can actually spend and have a decent life

26:15

that we don't self-insure every risk and every concern and hold on to everything so that's why being able to show right

26:21

guard rails and volatility and variability over time to somebody so they can visualize it it's super healthy

26:29

I think to giving somebody the that piece and I also use this term return on

26:34

sleep Ros that like they can actually sleep knowing that they're not going to run out of money based off what they're

26:39

spending today so you start putting all those things together and it's really fascinating and um I'll end with this one then maybe

26:46

pass over to Johnny or something too which is uh the visualization of everything is really important

26:52

you know I remember a speaker one time that said anything you can explain to somebody in words you can show in a

26:59

picture and I thought that was super powerful and we learned better via seeing things but most of like our

27:05

industry is you know it still spreadsheets and charts and stuff like that so I love that you guys have built in the timeline and you know brought in

27:11

like visuals Great Depression and things like that to help people kind of actually visualize what might be

27:16

occurring during that time period versus just us talking through things I think we're going to get better and better at

27:22

that as an industry right but like we're paying attention to that photo right like yeah like every time I'm like okay

27:29

we know the experiences and the stories that start coming out of these photos so I think that's a great way to layer that

27:35

in here but yeah I'll pass off I think uh the Johnny maybe I'm sure you have a little bit you would like to add there

27:42

sure as you know Johnson this is this is deeply personal to me so I was very

27:49

little story with you guys I left a long career in Corporate America in 2018 in

27:54

January and at the time my wife and I sat down and we seriously thought about retirement and we thought about the

28:02

possibility of taking our children back and had the expense of living in in Europe where I grew up and so we had a

28:08

finance plan built and he came back and it had a really nice probability of success I remember to this day it was 89

28:15

and I've actually put some nice nice sort of balance in there so I was

28:21

projecting that we're going to spend far beyond what probably in reality reflected but then we got a stress test

28:27

and the stress test said that if we would see a period like the global financial crisis from 2007 to 2009 our

28:36

probability of success would have gone to 51. and I remember my wife and I look at each other in the face saying that

28:41

there's no way we can retire I mean that that it feels like we're one bad Market away from being in deep trouble and so I

28:48

guess the irony is income lab sort of was see that kind of my experience around that right how it it really made

28:55

us set to our stomach to look at at the probability of success that felony we're a kind Taurus a very convenient deep

29:02

travel so I think it more than being good analytics it's really about the experience here how does our clients

29:09

actually experience the data the visualizations to Jamie's point that we put in front of that and is that helping

29:16

them getting more comfortable with the plan that you're developing for them or is it it's scaring them but I don't

29:22

think any of us intend to have clients leave our office being more concerned when when they came into our office

29:30

Justin I'll pass it on to you I have done that before though Johnny where where I've used scare tactics on people

29:37

so it's uh in my estate planning world when I first started I would tell terrible stories of families fighting

29:43

over money because you know sometimes you know the fear is an action item too right and it's like hey you don't want

29:48

that uh but usually probably with our money we don't want them leaving more fearful

29:55

yeah and just a note on the on the visual I believe that this is literally uh Al Capone's uh soup kitchen there so

30:05

um yeah Johnny I mean I think that's there there is a thing about this which is

30:11

just that it it tells the other half of the story

30:18

um which is you know you can run a plan from uh you know 07 to the beginning of

30:25

09 and things are gonna look they're gonna look really bad um

30:31

but in a way you know if you see a stress test that says oh well it will hit it with uh you

30:36

know the global financial crisis and then we'll run another Monte Carlo I was like well hang on we actually know what

30:42

happened after um so it is helpful to show yeah I mean

30:47

there was pain right but then a very very long recovery after so we don't

30:52

have to guess what what people would have done now could the future be worse in the past sure but the past is really

30:58

it's the only real data we have so it's it's really helpful to um to actually show people what real

31:04

experiences would have looked like and honestly if the if the future is worse than the past we'll you'll still want to

31:09

adjust right I mean the adjustment is really still the right way to approach

31:14

um to approach uncertainty um yeah I think um

31:22

I don't know if uh if Jamie or Bonnie if you kind of have um looked at tools that involved stress

31:29

testing before or you know given what you've seen of this kind of thoughts on

31:34

um where you could imagine this being um you know most useful to actually use

31:40

stress testing uh maybe even if you've seen other types of stress tests be effective maybe it's a portfolio stress

31:46

test or things like that I think a lot of people on this uh webinar are we're

31:51

always looking for very practical um you know experiences and and ways to

31:56

use tools so maybe we'll flip it around and start with Jamie this time

32:01

yeah I'll add uh two thoughts here uh one is being clear I think whenever

32:07

you're communicating with people about like what you're actually stress testing because you know Justin you you kind of

32:13

hinted at that there are actually stress tests for lots of different things out there in the world and you know it's

32:19

kind of one of the sales tactics that's been used in this industry for a long time which you know I'm not putting any

32:26

shame on it it's totally fine but you'll you'll see somebody hey we stress tested your portfolio and it failed in our

32:32

thing it's like well what were you testing it for what was it tested for before uh so you know way Wade foul who

32:38

I imagine most people here know and he was at American college with me we did like eight different stress tests on

32:44

retirement income portfolios but they were all for different things so it's like what was the volatility of your

32:50

spending what was your average ending value what was the like you know uh you

32:55

know average returns like and you could test all these different things and what you would find out though is that the same portfolio might do really well in

33:03

one stress test and really pour in another stress test right like so ultimately if the client's goal is to

33:09

maximize total ending value it's a different test that you're trying to maximize right if their goal is to keep

33:16

income between some spending level for retirement you know that's the stress test then you want to run and so to me

33:23

it's what are you trying to show what are you trying to elicit in that client conversation and not just use it as a

33:29

be-all for everything but being super clear in your communication that you know we're testing where your income

33:34

might fall during these time periods versus total returns total ending value total Estate Value some of those things

33:41

you'll you actually would test in a different way but what does the client's main outcome what's their main objective

33:47

what are they worried about and then if it's on this side where it's around the income that's why this is super useful

33:52

which I do think right anecdotally from from my world we have 46 000 households

33:58

now this is the number one concern right ultimately Middle America is concerned

34:03

about the retirement income now some of our high net worth clients it might be a concern but you know like I was me

34:10

prepping an advisor for a meeting that they're having today with the CEO of a public company

34:15

his concern is not his retirement income right his concern is Legacy risk stock

34:21

options taxes stuff like that so you'd want to test it in a different manner but yeah I think that's kind of where I

34:27

see Bonnie I would just Echo Jamie some of your points around you know who is this

34:33

concern really targeting and I think again approaching it from my perspective which is really in the retirement plan

34:39

side if we look at it today you know we have you know around 9 trillion in DC

34:45

plan assets around what you know around 11 trillion in IRAs and so we think about in the plant side so much money

34:52

has been put into these qualified plans and when we think about it we have you

34:58

know for for a lot of Americans and kind of that Middle America segment this you know the retirement plan is where

35:04

they've built up all these assets and for many of these folks they don't have typically access uh during their working

35:11

years to a wealth management advisor and so it's how can we start to use some of

35:16

these um you know these tests or these stress tests and I think as Jamie said

35:21

how can we really be clear about what we are communicating to show them you know here is where you've done a really good

35:28

job of saving or you started save but here's where you can actually be in the

35:33

decumulation side and what does that start to look like in the deacumulation side that's where the in-plan solutions

35:39

or like the record keeping tools and resources that are available to most of the Savers they're woefully inadequate

35:47

and so it is you know there's not a lot of opportunity to help folks really understand what that looks like in the

35:52

decumulation side and I think there's a really good opportunity to Target kind of those middle middle income households

35:58

with these types of resources in a really efficient and cost-effective way

36:04

Bonnie I know um probably to kind of to Jamie's point about like how we've taught people to

36:10

think in the saving years um in the plan world it's it's really

36:15

hard not to pay attention to your your portfolio balance as like the the core

36:21

measure and I just want that number to be high you know that's why so often if you ask somebody what their legacy goal

36:26

is it'll just be whatever their balance is today um what has happened in the plan world I

36:32

know there was some talk about kind of trying to give people a better feel for okay but what kind of Life can you

36:37

actually live because one thing we've done here to Jamie's point about what are we stress testing we're stress testing standard of living really I mean

36:44

that's that's what you're talking about here so like can you adjust your your your stand and what does that have a big

36:51

effect on your standard of living or not maybe you're you know you've got a lot of cushion already and you could just I don't know go to the group Hub instead

36:57

of the steakhouse is there has there been motion on that side and the plan side to help people

37:03

understand how much they can spend yeah great question I think it's such a um

37:08

terrible debate on the plan side with really inadequate resources uh not not

37:13

to sound like the pessimists but again I think um what what people are looking at is this like number that they're trying

37:20

to achieve and what is that right number that they're seeking and I think you know Justin to your point it's the what

37:25

is this big this big number that we're trying to achieve in for a long time it's like well if I've got a million bucks I'm set because if I just reached

37:32

that number and one of the things that we've seen and if we go from kind of the the pendulum swing from the deep b side

37:39

to the DC side and now it's starting to swing back to the middle mostly because of I think regulators and legislators

37:45

who are recognizing we've got to do something to help participants right and what I mean by that is you know with DB

37:51

plans going away and then we really put participants on their own in the DC side where we said hey we're going to help

37:58

you accumulate all these assets we're going to do that with things like you know Richard thaler and the nudge Theory

38:03

it will help you accumulate through Auto enroll and auto escalate but then you're just going to get to that big number and

38:09

we're not going to help you with what to do with that at all now we're starting to swing back a little bit more to the

38:15

Middle where we've got regulators and legislators with certain regulations and secure one and secure 2.0 where we've

38:22

got this push towards things like putting disclosures on participant statements that came out of a 2013

38:29

proposed reg and now a final reg that came from secure one but it's this idea

38:34

of how do we start to show participants what this account balance is going to

38:40

look like as it actually translates into your retirement now I think again it's

38:45

somewhat inadequate to just put that on a participant statement as here's what this actually translates to in your

38:51

retirement but that's kind of one of the nudges coming from the government I think much better are certain tools like

38:58

what you're producing you know in in this sort of resource and I think that can be a much better way of helping

39:04

participants to see the different stress tests and and that sort of things but

39:09

the government's trying to make that push in plan for those who don't have that available out of plan to them

39:17

yeah that makes sense and you're right I mean when you're talking about standard of living I mean balances matter

39:23

um but you know depending on who you are what resources you have is it Social

39:28

Security is a loan do you have a pension maybe um you know people might have rental

39:33

properties the timing of things how you spend it there's so much that goes into it and really if I can live my life I I'm not really

39:41

sure I cared who's writing me the check so um yeah that's that's pretty interesting

39:46

um Johnny I know um we kind of started out this conversation with this sort of

39:53

giving people permission Bonnie you mentioned kind of giving people permission to retire which from a sponsor standpoint is huge giving people

40:00

permission to live you know their their life in retirement and spend some money

40:07

um I think I'd like to talk a little bit about that I know we've had some feedback from advisors who've already

40:13

had a chance to use the um retirement stress test and some you know anecdotes about that being an

40:20

effective way to to help people kind of shift their thinking

40:25

um should we want to share some of those yeah I guess I'll start out with sharing

40:31

with everyone that we take feedback and and stores good and bad with your clients very serious love to get more of

40:38

them so please share them with us um but one story that is very reasoning

40:43

comes to mind we did receive an email from an advisor sharing with us that

40:48

he's been working with a couple for the better part of three years and this particular Cabo wanted to

40:55

retire but every single time they were about to pull the trigger they would freak out they just couldn't get

41:00

themselves at that point mentally and even though their financial situation

41:06

clearly did call for every time if they wanted to it just it was too scary for

41:11

them and it was so powerful that when we used or this particular advice or used

41:16

retirement stress test it was one of the beta users said that this little ages he

41:22

could see the stress in the room just came down and it's like oh it's not a past failed conversation it's a

41:29

conversation about Minor Adjustments and so we've had many stores like that to

41:35

that point I also saw some research that I highly recommend people look into so David Blanchette just did some research

41:41

buying I think more sort of into your part of the business into retirement plan participants I think he surveyed

41:47

1500 of them between the ages of 50 and 70 and what he found was Peter must more

41:53

willing to adjust we tend to believe he actually found that 85 of the participants found that an adjustment up

42:01

to 20 was really unnot event and what we see in the vast majority of these stress

42:07

test is you you never get close to 20 right so I think we can provide a lot of

42:14

confidence to our clients by understanding that it should never be a pass fail sort of conversation and again

42:20

the more stories we see like that please share that with us I mean we enjoy it

42:25

but I think it's good to share with the community yeah I think that's uh that's another

42:32

key point is um I know uh Derek Tharp who could not

42:38

join us today uh here's a little new baby at home and wasn't able to to pull

42:44

it off but um I know he did some research with Michael kitsis on uh framing of retirement income plans

42:51

and I think sometimes I've heard from advisors who say I'm not sure my clients want to adjust so is showing them

42:58

adjustments is that going to scare them you know it will it kind of mean oh you

43:03

know I gave you bad advice to begin with and what Derek and Michael found was it's quite the opposite setting things

43:08

up to to be an adjustment conversation from the beginning um a it's actually it's very intuitive

43:16

because people have already lived that way through their working years so when they've gotten raises or you know lost a

43:22

job or something they've adjusted spending so it's really not a a foreign concept to them but what Derek and

43:28

Michael found was that the advisor credibility was much higher having set the stage that hey there will

43:35

you know we we plan with adjustments um and then if they came to them with another you know a year later things had

43:42

gotten worse and it was time for an adjustment it was a much different conversation if they had already set it up where adjustments would be part of

43:48

the plan versus coming and saying well you know you're 90 your score of 90 went to went to 60.

43:55

um you know I think of it as uh you know you gave somebody an A minus on their final exam and the next year you come

44:00

back and say hey I graded it again and it's a it's a d now right that doesn't make any sense to people so I think the

44:07

framing um and the the evidence is that actually clients clients are willing to think in

44:15

terms of adjustments and like Johnny said to a surprising level retirees or people

44:21

in their later career feel that they actually could adjust on the downside

44:26

um maybe more than we would think um the other thing we sometimes see I know I've focused almost exclusively on the

44:32

downside because that is what stress testing is primarily for but it can also help you you know if you switch to you

44:39

know during well then you're you're watching a recovery right um so

44:45

you know you could maybe you're during the Great Depression so you've already experienced so in the future if there

44:51

are positions where you know you want to say hey we just took a huge hit there are ways to kind of show people reality

44:58

of how markets kind of go up up and down um that you know it's not always uh it's not always as as Grim

45:07

as uh as we might think um

45:12

okay so I think I want to uh we'll just take a couple of uh questions

45:19

before we uh you do have two good questions in there right now Justin all right so

45:27

Brian thank you for your question um so during the financial crisis when

45:33

income decreases how do they know when they can start taking out more income again do guard Wheels reset or stay the

45:41

same and the portfolio balance has to go over the bottom guard rail again that is a really really good way to ask that

45:47

question so I think what's important to understand is guardrails always have to be

45:53

specific and unique to to the planet itself and so one way like

45:58

the guardrails in a way should not stay the same uh you know probably the best

46:04

way to view this would be imagine you you set off on your on your journey and these are your guard rails and 10 years

46:11

later um if they were the same there would that would be strange because now we're

46:16

we're 10 years older our plan should be shorter and so on so the guardrails are always adjusting to whatever whatever

46:23

has happened um including any change in your income so um the guard rails now here you don't

46:30

see it maybe as here the the upward is maybe a little bit more obvious here so once they've gotten a pay raise

46:37

um in the future you see that the the green line jumps up right because it's giving you you want you want some time

46:43

for momentum to to build up you don't you don't want to be telling your client every month uh yeah I'm going to send

46:48

you five dollars more this month so the guardrails change so in this example

46:54

they hit their lower guard rail they got a pay cut we can see above it was four hundred dollars

47:00

um and then we are just waiting for the Blue Line the portfolio balance to hit that upper guard rail you can see again

47:06

in the 2010s it actually got got pretty close again and it just it bounced around it took a

47:12

really long time but we're always just waiting for it to get to the upper guard rail again so

47:17

um another way to say this would be your your balance is never going to be below your lower guard rail it's uh you know

47:24

the lower guard rail will readjust and say hey um you know if things get bad again I

47:29

can I can take it I'll get another pay cut I think I can probably find you one in stagflation

47:35

um so here we go where it just bounces along

47:40

and does hit again so this is another also also a great place to show people

47:46

um that yeah I mean things could be bad enough that there would be multiple pay

47:52

cuts right so it's not sort of a a one one chain one change in income is uh is

47:58

the only thing we'll ever have to do um any thoughts on that from the from the panel as well

48:05

no it's a good point and I think you you hit the bottom end one but it's the same on the top right like you're you will

48:12

always bounce between the guard rails anytime you hit the top or bottom it will reset right and that you'll get the

48:18

pay increases or pay decreases kind of based in this modeling that's exactly right you can actually in the software

48:25

you can set an income ceiling so we've sometimes had people say hang on a

48:30

second and here said collection is also good if I if I start during or or maybe even after

48:38

okay so yeah if I start in 1982 um I mean it's just like the best time

48:43

you could possibly have retired in in history it would have felt terrible at the time you didn't know it was going to be great but it was

48:50

just [Laughter]

48:56

so these folks were planning to spend 12 700 a month and if they had followed this plan they would have been spending

49:02

forty six thousand three hundred now that's in original dollars right so it actually would have been much more given

49:07

inflation so the the question is just well is that is that reasonable would they really have increased their

49:13

Lifestyle by so much probably not so you can put a a ceiling that says hey yeah

49:20

I'll increase my income that would be great I'll increase my spending but maybe no more than 50 or no more than

49:25

double or you know decide and in that case you would actually see this blue line go into the green and then you

49:32

could almost imagine like the difference between the green and the blue that's just like your slush fund you know you can just spend that anytime you want and

49:40

you'd still be between the guardrails um

49:45

um okay his income lab planning to release the raw data Behind These scenarios

49:50

[Music] um more normal less bad so we are um there

49:56

are some you know we as software developers we can't help always learning

50:01

to make things better so we've taken input from from people and there definitely are some

50:07

some additions to the stress test that we do plan uh including you being able

50:12

to choose the start date so we have 15 right now but maybe you know you want to start it when I don't know in your birth

50:19

month or something uh just see how it went um you can you'll be able to do that the other is to be able to compare directly

50:26

these scenarios so you know I was saying um if you

50:34

if you compare you know uh something with lower income to something

50:40

with higher income or a high Equity to the low Equity you'll see differences so we're working on some ways to really

50:45

allow you to directly compare that to compare those

50:53

um will income lab ever start analyzing Investments inside the portfolio as

50:59

opposed to assigning a portfolio allocation yeah this is a I mean I think uh Bunny

51:05

and Jamie you might have some thoughts on this as well for really any financial planning software that deals with

51:10

Investments this is a um place where I think there are always

51:16

challenges there for two reasons one is you're making um

51:21

generally you're doing some kind of simulation of the of the future right so you need a way to to do that to you know

51:28

make assumptions and the easiest way to do that and the cleanest is to use asset

51:33

allocation rather than you know bigger symbols or or things like that

51:38

the other is we do a lot of history and it's going to be really hard for me to show you what Tesla did in 1970

51:45

um and so I think those two restrictions um generally have have met kind of

51:51

longer term planning has had to focus on um assets asset um classes instead of

51:58

particular assets um and I I mean personally I'm comfortable with that I don't know if Jamie if you have some thoughts there

52:05

yeah so this is something that people actually bounce around a lot with uh so

52:12

I'll use like uh you know your e-money and money guy Pro too right you can put in your own investment assumptions

52:19

running forward or use like historical ones and you know I have you know at

52:25

Carson we have bounce between those for a long period of time because it's like it's just a very challenging even when

52:33

you have your own data you have your own models like we do we can input our models then with our Capital Market

52:38

assumptions or do you just use like default historical ones I don't know if

52:43

there's a great answer one way or another there but to your point like it's actually just a really challenging

52:49

piece of kind of the data set world to deal with and then interestingly enough

52:54

if you really there's kind of this other balance of like are you like are you

53:00

still just being a different way of inaccurate like they're both going to be inaccurate right is it just a different

53:05

way to be inaccurate and is it worth like the squeeze is it worth all the work that it takes to do that I'll use

53:11

this example it's like we run into firms all the time when we're acquiring places or partnering and they say hey we have

53:17

this model but we don't always necessarily know like do they have trading fees associated with it because

53:22

they're not super large with the custodian do they have XYZ cost built into it and so something that might look

53:28

like a very similar you know fund or ETF actually could have varying share classes varying trading fees and end up

53:35

with like decently different performance even though you're looking at the same thing so that's often a lot of the

53:40

arguments like just go back to a general asset class view versus the underlying

53:46

portfolios in each account now when you can get an individual and start working with them you can get a little deeper

53:52

into that but from like global company Tech offerings that's been a challenge for like any player really in this

53:58

planning space yeah and I think typically you know even if you have a user experience where

54:06

you're putting in Holdings what they're really doing is mapping those to asset classes right so it's not that they have

54:12

that they're matching it necessarily to again I'll keep using Tesla it's not like they're saying oh well our

54:17

projection on Tesla growth and and uh standard deviation is this now it's just mapping it to a particular asset class

54:23

so I mean I I think I I agree with Jamie it's it's not it's just a it's just a

54:31

challenge um that there will probably always exist and there are trade-offs

54:37

yeah and I think just the other point I made is I don't know that anyone's shown that that's any more accurate

54:42

performative lies long term right and I think if anybody ever proves that out

54:48

then maybe but that's almost more saying that we've been able to predict how things will occur in the future better

54:55

than historical which did basically we haven't been able to prove out in the investment world right

55:01

like we just we're not predictive of the future yet so it's a but it's a great question but I think it's a little bit

55:07

of where you start going down that route on yeah yeah actually maybe I'll I'll close on

55:12

this since we're kind of coming to the end of our time um I think that's a that's a kind of a really good point this kind of long-term

55:19

planning it really it requires that you make some assumptions um and I think sometimes people will ask

55:26

with historical stress testing like this well as you know is this is this all that useful

55:31

um I think like Jamie said that the evidence is really that um

55:36

histories sort of the when you compare it to some other options it tends to perform better

55:43

that doesn't mean it performs really really well it just means it performs better than the others so I think one

55:50

thing that like Derek and I just put out an article about producing Capital Market assumptions and what's you know a

55:56

good way to do that and we did find like using history is better regime based uh

56:02

so having multiple periods in your Capital Market assumptions so that you can allow things to be bad and then good

56:07

and things like that those are better um but I think the key finding was

56:12

there they all have errors and so the adjustments like being keeping up and

56:18

learning from what's happened between when you started the plan and now and um making

56:23

you know sort of I'll take 1982 as a good example you would have thought things were really terrible But as time

56:29

went on you learned that you were gonna that you were living through a good period where returns were really good

56:34

inflation was coming down Bonds were going up and so as you learned that you were in a good period you would have been able to make adjustments so yeah

56:40

you wouldn't have started spending you know huge amounts because you would have been concerned but you would have

56:46

learned over time and so I think the adjustment piece of this it's kind of the superpower of of retirement planning

56:53

because these plans play out over decades um that as an advisor like it's it's okay you no one is going to pick exactly

57:00

the right number this is what I know you'll be able to spend so having guardrails in place and allowing people

57:05

to adjust is kind of the the key to getting as much out of or you know letting people live their best

57:11

retirement um like we're not going to get it right from the very beginning but if you keep up and make adjustments you can at least

57:17

you know hope to adjust in in the right direction so with that I think um we'll we'll

57:24

close up uh if anybody's interested has questions on the stress test a couple of

57:29

great ones that we got already um please let us know um and yeah Jamie Bonnie are there

57:36

places that you know people if they're interested in hearing more about your work

57:41

um Jamie you mentioned to show that you had uh Richard Taylor on uh yeah so we

57:47

could um I'll try to give soda you probably have everybody's email after this so we did a 10-part retirement

57:53

income Series this summer which was super fun so that's where Richard thaler Bonnie's on that Ed slot Wade foul uh so

58:01

a lot of the the known researchers in this space came on that one that one was really fun to do so we can actually

58:07

share that out but that's on uh you know pretty much every podcast area that's called framework

58:12

I don't always do retirement income planning on that and then carsongroup.com is our company's one and

58:19

uh Bonnie over to you yeah and thanks again for having me um I do a variety of things including

58:26

talking about uh in-plan retirement income Solutions and you can learn more at endeavor.retirement.com so uh looking

58:33

forward to seeing more of your work um Justin and team in the the plan space

58:39

thank you so much um Jimmy Hopkins playing track of thank you so much for being here and thank you

58:45

to everyone for joining us take care