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The purpose of retire with Style

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is to help you discover the

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retirement income plan that is right

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for you. The first step is

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to discover your retirement income

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personality. Start by going

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industry's first financial personality tool

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for retirement planning. The

0:41

holidays may be over, but

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retirement planning is

0:45

just getting started. We're

0:47

back with Wade and

0:49

Alex tackling more of

0:51

your retirement questions to

0:53

help you make 2025 your

0:56

best financial year yet. Hey

0:58

everyone, welcome to retire with

1:00

Stiah. I'm Alex and I'm

1:03

with my co-host and trusted,

1:05

very trusted friend. Wade Fau,

1:08

how are you doing? I'm

1:10

doing good. How are you, Alex?

1:12

Good, good. Are we ready? And

1:14

it's like you were in slow

1:17

motion, just in case anyone was

1:19

speeding up their podcast speeds. They

1:21

probably, you sounded normal for a

1:24

moment there. What are you trying

1:26

to say, wait? No. I have

1:28

to shift to three times speed.

1:31

All right, all right, all right.

1:33

What is it going to say

1:35

here? Okay, are we ready to

1:38

dispense some A knowledge for the

1:40

cues that are coming up? Yeah,

1:42

absolutely. So we last few episodes are

1:44

from the live edition of our

1:46

Q&A session and we were not

1:48

able to get through all the

1:50

questions at that time. So we're

1:52

going to pick up where we left

1:55

off and continue with the questions

1:57

that came in for try to

1:59

stump Alex. wait on retire

2:01

with style perfect perfect and the

2:03

first the first question I'd like

2:05

to begin go on sorry did

2:08

I jump the one I'm supposed

2:10

to ask you so I wanted

2:12

to I wanted to we don't

2:14

do script here wait I wanted

2:16

to ask you a question anything

2:19

new way since we've had small

2:21

talk we haven't had small talk

2:23

in a while we've gone off

2:25

the grid we've gone off the

2:27

grid We've got off the grid.

2:29

Anything nuevo into either. Nothing in

2:32

particular? Nothing. There we go. Just

2:34

getting ready for the holiday spirit?

2:36

Yeah, that's right by the time

2:38

this episode airs. We'll be getting

2:40

close to the holidays. Yeah, yeah,

2:43

yeah. All right. All right, well,

2:45

thank you for that insight. Wade,

2:47

I think everyone listening in now

2:49

feels like they know you a

2:51

lot more. You're like an open

2:54

book, my friend. You're like an

2:56

open book. You have something you're

2:58

dying to share and that's your

3:00

hoping I'd, and how about you?

3:02

Oh, no. Oh, wow. Thank you

3:05

for asking, Wade. No, no. I'm

3:07

just messing with you, man. And

3:09

trust me, no one wants to

3:11

know. You're up here recording a

3:13

podcast instead of helping them clean

3:16

up after? No, my parenting style

3:18

is, two words, define my parenting

3:20

style weight, natural selection. Revival of

3:22

the fittest. Yes, so, so hey,

3:24

it's in God's hands now. So

3:27

let's see what happens. Okay. I've

3:29

done what I can. So let's

3:31

get to let's see how many

3:33

of these we can knock out

3:35

in this episode. It's it's full

3:38

of nuggets and wait why don't

3:40

you start unerthing them? Yeah well

3:42

there were two separate questions but

3:44

I think they fit together pretty

3:46

well because otherwise there may be

3:49

a lot of over So let

3:51

me start with you, Alex. Is

3:53

holding a read, a real estate

3:55

investment trust, ETF, or a mutual

3:57

fund, I guess. I don't think

4:00

the ETF's specifically important, but is

4:02

holding a read in an HSA,

4:04

a Roth IRA, either smart or

4:06

stupid, why or why not, and

4:08

at the same time, just kind

4:11

of extending beyond that question. Would

4:13

the way that you invest in

4:15

an HSA be the same as

4:17

a Roth IRA? Okay. Real quick,

4:19

my first comment is I love

4:22

the question. The way we are

4:24

at retirement researcher is to the

4:26

point. Then there's no half-stepping here.

4:28

Smart is stupid. I like that.

4:30

Just lay it on the line

4:32

and let me know. Just let

4:35

me know. Just let me know.

4:37

Just let me know. Just let

4:39

me have it. But before I

4:41

get to that one, the specificity

4:43

with the read, I'd like to

4:46

begin just with a broader one,

4:48

which I think is actually a

4:50

great question. Would you invest an

4:52

HSA the same as a Roth?

4:54

Once there's two parts of this

4:57

question, Wade, and I want you

4:59

to chime in here, and that

5:01

an HSA, the money goes in,

5:03

pre-tax and comes out tax free.

5:05

So that's a huge benefit more

5:08

so than the Roth because you're

5:10

getting, you need to get tax

5:12

first on the Roth and then

5:14

you put it in the Roth

5:16

and then that's tax free forever

5:19

and ever kind of thing. So

5:21

yeah, the HSA has the triple

5:23

whammy of tax deductible contributions, tax

5:25

deferred growth and tax exempt distributions

5:27

are tax free as long as

5:30

they're for qualified medical expenses. Yeah,

5:32

exactly. And so to some extent.

5:34

And Wade, Wade and I have

5:36

talked about it, and Wade even

5:38

in his, he's in his early

5:41

40s, and he's keeping receipts already.

5:43

He's convinced me to start doing

5:45

that. I thought, oh, I'm going

5:47

to get plenty sick when I'm

5:49

older, so I'll have plenty of

5:52

ammunition. But Wade makes a good

5:54

point. Well, and that's because if

5:56

the beneficiary is not a spouse,

5:58

then they have one year to

6:00

distribute everything, just like an inherited

6:03

IRAs, but with a one-year window,

6:05

although you can apply receipts against

6:07

that to reduce the taxable amount.

6:09

So, you know, Wade, you know,

6:11

stumped the trump on my hand.

6:14

My kids are than $10,000 of

6:16

taxes by collecting those receipts. Okay,

6:18

anything else, Wade. Can you turn

6:20

them in for Starbucks credits and

6:22

stuff like that too or no?

6:25

All right. And then you can

6:27

multiply those points to get Platinum

6:29

status at Marriott, whenever you... By

6:31

the way, Wade is like a

6:33

big elitist when it comes to

6:35

Miles and credits and Platinum and

6:38

all that stuff on Bon Boy

6:40

and American Airlines. But that's another

6:42

topic. We can do a whole

6:44

episode. I'm just like... Point credit

6:46

points and stuff like that. Yeah,

6:49

yeah, this do a lot of

6:51

business travel so it pays to

6:53

be strategic about that Okay, and

6:55

yes, Brianna you are going to

6:57

have to edit this Q&A if

7:00

we repose the YouTube Because we're

7:02

going all over the place, but

7:04

that being the case an HSA

7:06

has has the advantage over a

7:08

Roth simply because the pre-tax component

7:11

to it. You can like really

7:13

put it in pre-tax and it

7:15

gets the same tax deferred and

7:17

post, you know, and income and

7:19

all that kind of stuff, a

7:22

tax-free after you take distributions. You

7:24

know, so it has three added,

7:26

you know, the Roth has two

7:28

great points. The HSA has three,

7:30

you want to take advantage of

7:33

that. So from an order of

7:35

operations, I'd. probably fill that tank

7:37

up first. Now that being the

7:39

case, the actual question is the

7:41

investments inside of it, would they

7:44

be the same? high deductible health

7:46

care plan to be eligible to

7:48

contribute. Okay, yes, yes, yes. Good

7:50

point. I was assuming that was

7:52

already a yes, but yes, wait,

7:55

you got me. And you need

7:57

to be alive. So let's just

7:59

be clear, you need to be

8:01

alive. So the actual holdings, yeah,

8:03

theoretically, they would be similar in

8:06

nature. Like philosophically, you would want

8:08

that. Now the question is, and

8:10

this is a great example, tips

8:12

is usually another good one that's

8:14

brought up, but reads. Should reads

8:17

be in that. Now reads, 90%

8:19

of the payouts in reads, I

8:21

mean, 90% of the income that

8:23

reads get from their business has

8:25

to be paid out to shareholders.

8:28

Because they have like kind of

8:30

a pass-throughish kind of component, so

8:32

they don't get taxed on the

8:34

income. So they're going to be

8:36

very, very distribution heavy. tax debt,

8:38

you know, talk to your CPA,

8:41

etc. but usually marginal tax rate

8:43

kind of thing. So you want

8:45

to make sure that you have

8:47

them in these types of accounts

8:49

as much as possible. They're good

8:52

to have regardless, but you would

8:54

want them to be there. Why?

8:56

Theoretically, let's say the payout is

8:58

10% and that's why that makes

9:00

up a majority of the returns,

9:03

by the way. They just get

9:05

reinvested, but you know, it adds

9:07

to your accumulation. So let's just

9:09

go with the example. Let's say

9:11

the reads return 10% that year,

9:14

but because you're taxed at X

9:16

amount and you're at the 22%

9:18

rate, you know, subtract that from

9:20

the 10% you only keep, let's

9:22

just make the math easy, 8%

9:25

of that return. Right? And so

9:27

if it's in a tax deferred

9:29

account, you keep the full 10%

9:31

of that reach. You keep the

9:33

100% of the 10% return. And

9:36

so you want to make sure

9:38

that you're maximizing that as much

9:40

as possible. So in that main,

9:42

yes, if you find reads an

9:44

appropriate diversifier within your portfolio, which

9:47

we believe... so then it would

9:49

be appropriate within more appropriate within

9:51

these tax tax free tax deferred

9:53

and at this point even pre-tax

9:55

accounts such as an HSA and

9:58

an IRA now an Roth IRA

10:00

wait yeah just the kind of

10:02

the ideas reets are not tax

10:04

efficient so Ideally with asset location,

10:06

you don't want them in a

10:09

taxable account. So that means IRA,

10:11

Roth IRA, HSA. Generally, then we

10:13

talk about if it has higher

10:15

expected returns, that's more of a

10:17

Roth IRA, and equivalently HSA consideration.

10:20

And Reats do seem to have

10:22

some of that historically speaking potential

10:24

that they're going to potentially earn

10:26

more than bonds. So if you're

10:28

thinking about bonds for your IRA,

10:31

Reats for your HSA Roth IRA.

10:33

that money also tends to be

10:35

more for the long term. So

10:37

the only real difference would be

10:39

if you're now at the stage

10:41

where you're spending from your HSA,

10:44

you want to not necessarily have

10:46

super volatile asset classes that you're

10:48

drawing from. But other than that,

10:50

yeah, I think reets are entirely

10:52

appropriate as a consideration for that

10:55

tax exempt account space. The other

10:57

comment, because you brought up a

10:59

good point, and this is the

11:01

other, this is kind of an

11:03

assumption that I'm just a. you

11:06

know, I'm just taking it for

11:08

granted, but let me not take

11:10

it for granted. I'm always assuming

11:12

you have a diversified portfolio and

11:14

the question doesn't mean only reach

11:17

in an IRA or only like

11:19

tons or something like that. And

11:21

you know, let's say they have

11:23

a $100,000 portfolio. 90,000 of it

11:25

is in an IRA. I don't

11:28

expect a 90% allocation to reads.

11:30

I expect a fully diversified portfolio

11:32

and whatever the reed allocation would

11:34

have been within that portfolio is

11:36

in that particular account. Yeah, that

11:39

allocation comes first and then to

11:41

the extent you have the capacity.

11:43

the asset location is the secondary

11:45

consideration. And there it is, anything

11:47

to add weight? No, I think

11:50

we've figured out, so it's potentially

11:52

smart rather than stupid. Because, I

11:54

mean, look, at the end of

11:56

it, you get an S, you

11:58

get an S. You get a

12:01

smart, rated smart by retirement. No,

12:03

I know, but that's a good

12:05

question. I mean, yeah, I get

12:07

it. Smart, stupid, it's stupid, only

12:09

stupid people that ask questions, right?

12:12

Smart people that, no, I mean,

12:14

look, at the end of the

12:16

day, that's how we do it

12:18

here, so that's fine. No, I

12:20

think it's smart to do so.

12:23

All right, next question. I'll hit

12:25

this up for Wade. I have

12:27

greatly enjoyed episodes for tax planning

12:29

in retirement. Regarding the three track,

12:31

sorry, regarding the three tax traps

12:34

in retirement, many of us appear

12:36

to be individual. Example, the Irma.

12:38

What, but what if you are

12:40

married filing jointly? How does that

12:42

work? So what they're getting at

12:44

is, and I'm sorry, I'm kind

12:47

of reading it slow, so I

12:49

missed the. the proper cadence. Effectively,

12:51

in our episodes, we did it

12:53

on tax planning and retirement. Many

12:55

of the things we talked about,

12:58

we happened to point out individual

13:00

cases. And we didn't, I mean,

13:02

I don't know, maybe we did

13:04

and we didn't, we didn't point

13:06

out, oh, but married filing jointly,

13:09

this would be the issue. Wade,

13:11

take it away. Yeah, I'm going

13:13

to take umbrage with the question

13:15

or at least. Maybe we didn't

13:17

explain it right, but no, it's

13:20

individual and married filing jointly, same

13:22

considerations. The three tax traps, I

13:24

think, refers to, we talked about

13:26

the Social Security tax torpedo, where

13:28

as you draw an income, if

13:31

that uniquely causes more of your

13:33

Social Security to be taxed, it

13:35

increases your effective margin. tax rate.

13:37

Medicare Irma, the one mentioned, where

13:39

as your income exceeds certain thresholds,

13:42

that can uniquely create big jumps

13:44

in your Medicare premiums for Part

13:46

B and Part D. And then

13:48

the third tax trap, I'm assuming,

13:50

would be a reference to the

13:53

preferential income stacking issue, where as

13:55

I draw ordinary income, if that

13:57

starts to push my long-term gains

13:59

or qualified dividends from 0% rate

14:01

into the 15% rate. that increases

14:04

the effect of marginal tax rate.

14:06

And all three of those, there's

14:08

no distinction between single filing and

14:10

married filing jointly. They apply equally

14:12

to both. So I'm, if we

14:15

somehow didn't explain that well, let's

14:17

just clarify. It's really the same

14:19

impact for both single filers and

14:21

married filing jointly. The thresholds where

14:23

things happen will differ because in

14:26

the lower income ranges. the usually

14:28

the married filing jointly thresholds are

14:30

double, the single filer thresholds, although

14:32

that's not fully the case with

14:34

social security. But otherwise, it does

14:37

apply equally in both scenarios. And

14:39

I'm not entirely sure like what

14:41

motivated the question in terms of

14:43

with Medicare, it's per person. So

14:45

if you're married filing jointly, if

14:47

only one of you is on

14:50

Medicare, you only have the premium

14:52

jump for one person, but if

14:54

both of you are in Medicare,

14:56

you have the premium jump for

14:58

both people. With Social Security, maybe

15:01

only one person is claimed, but

15:03

if you're filing jointly, the filing

15:05

jointly thresholds would apply to that

15:07

one person's benefit. So it impacts

15:09

couples in the same manner as

15:12

it impacts single people. There's not

15:14

any unique difference between the two

15:16

cases. Yeah, I think yeah, the

15:18

threshold when they're combined, the thresholds

15:20

are just, it's the same rules

15:23

apply, it's just the thresholds are

15:25

higher kind of thing for a

15:27

majority of the things. I would

15:29

say this way. I'm sure you

15:31

did a fantastic job, a star

15:34

work job of this. I wouldn't

15:36

beat yourself up for it. Hold

15:38

your head up high. You're good.

15:40

Don't worry about it. Whenever you're

15:42

feeling bad about yourself, just read

15:45

some of the reviews of the

15:47

podcast that have my name on

15:49

it. And I think you'll start

15:51

feeling much better. So don't worry

15:53

about it. Okay, buddy. You're good.

15:56

No, but I do empathize with

15:58

this person. Simply because when you're

16:00

learning this stuff. The reality is

16:02

it gets really confusing, individual, join,

16:04

and then you get all these

16:07

beneficiary designations. And so I can

16:09

see people just being like, you

16:11

know, they're trying to get the

16:13

orientation and calibration right. So I

16:15

don't, yeah. It's fine. And these

16:18

questions help because it does help

16:20

us then. Maybe there's some new

16:22

ones that are we good. No,

16:24

no, no, no, no, no. You're

16:26

not allowed to backtrack at all.

16:29

You stick with what you say.

16:31

Don't now rewind and say, oh,

16:33

but that's a great question. No,

16:35

no, no, no. Wait, you spoke

16:37

your piece. Just let us explain

16:40

things better in the future, because

16:42

we know where something we just

16:44

maybe assumed or didn't think about.

16:46

It helps to know how that

16:48

could be interpreted differently and so

16:50

now we can improve our explanations

16:53

about it. So you went from

16:55

taking umbrage to what now? I

16:57

was not offended by the question.

16:59

There's no difference. It applies to

17:01

saying single and married family jointly.

17:04

So it's not an issue just

17:06

for single people by any means.

17:08

If you're looking for more personal

17:10

advice, take a look at this

17:12

episode's sponsor. McLean Asset Management. You

17:15

can learn more of McLean AM.com.

17:17

That's M-C-L-E-A-N-A-M.com. McLean Asset Management is

17:19

there to help you on your

17:21

path to the retirement that you

17:23

deserve. And don't forget to check

17:26

the show notes to get your

17:28

free e-book on retirement income planning.

17:30

Okay. Okay. All right. Next question.

17:32

Next question. You're next. All right.

17:34

We're going to ask you whether

17:37

you're smarter than Warren Buffett. So

17:39

Warren Buffett. That's a quick answer.

17:41

So Alex, Warren Buffett has said

17:43

to invest 90% of your assets

17:45

in the S&P 500 and 10%

17:48

in cash and bonds. Would you

17:50

say that this is a good

17:52

general guideline for anyone to follow?

17:54

Yeah, I would answer this in

17:56

a couple ways. The first one,

17:59

I don't think this person's meaning

18:01

it this way, but sometimes when

18:03

people begin a sentence with Warren

18:05

Buffett says, you know, it's kind

18:07

of like they're trying to set

18:10

up like this person, you're not

18:12

more credible than this person, and

18:14

if this person says this, then

18:16

you should be doing that, and

18:18

if you're an idiot, you know,

18:21

kind of thing. It sounds like

18:23

you're taking Umbridge for the question.

18:25

Say it again? Sounds like you're

18:27

taking Umbridge with the question. No,

18:29

I said I don't think this

18:32

person is doing that. Although I

18:34

don't know, technically. It's hard to

18:36

re-tenor in these things. But that's,

18:38

but when you're in meetings with

18:40

people or you're just talking with

18:43

somebody, they kind of love to

18:45

pull that one out, right? Warren

18:47

Buffett said, blah, blah, blah, blah,

18:49

blah, blah, blah, blah, blah, blah,

18:51

blah, blah, blah, blah. You know.

18:53

You know. And you know. And

18:56

you know. what he says or

18:58

not, not because of warm above

19:00

it, but ultimately I'm not so

19:02

sure he's in the weeds with

19:04

regards to retirement income planning, financial

19:07

planning, wealth management. That's different than

19:09

an investor. And the other thing

19:11

too, I don't know the exact

19:13

context. I thought he said that's

19:15

how he invests for like his

19:18

wife. if he were not. Yeah,

19:20

but he's dramatically over $100 billion.

19:22

Yeah, and his one has like,

19:24

I don't know, $20 billion. I

19:26

mean, yeah, she's not at risk

19:29

of defeating her portfolio in retirement.

19:31

You know, I mean, come on.

19:33

So, I would just begin it

19:35

like that. Like, who cares what

19:37

Warren Buffett says? Honestly, this is

19:40

not about Warren Buffett says when

19:42

you look at a balance sheet,

19:44

this is XYZ or Warren Buffett

19:46

said when analyzing a company, XYZ.

19:48

Other than that, I don't really

19:51

care. It's like Michael Jordan says

19:53

this about retirement income planning. I

19:55

don't care. You know, that's kind

19:57

of my initial response when that

19:59

begins. Why? Because I'm a human

20:02

being and you kind of see

20:04

that and you're like, yeah, whatever,

20:06

right? That being the case, he's

20:08

not an, he's not an advisor

20:10

in the sense of helping people.

20:13

So he's looking at it from

20:15

the standpoint of investment only, right?

20:17

And when it comes to investment

20:19

only, I would say there's a

20:21

lot of truth to this. From

20:24

the standpoint of... So he's just

20:26

basically saying put 90% in the

20:28

S&P 10% in cash bonds and

20:30

cash bonds could be very different

20:32

because you can have bonds that

20:35

are as risky as stocks You

20:37

know when you go into the

20:39

corporate junk world, but I don't

20:41

you know I don't know exactly

20:43

How that's man? So let's just

20:46

take the 90% in the S&P

20:48

500 and 10% just cash safety

20:50

money, right? So 90% in the

20:52

S&P 500 to call it a

20:54

day now if you look at

20:56

the overall stock market When it

20:59

comes to investing and outperformance, you're

21:01

significantly better off in an S&P

21:03

500 than picking a couple of

21:05

stocks because you're going to outperform

21:07

the index. If you outperform the

21:10

index, look at the arc that

21:12

we did on what not to

21:14

do from an investing standpoint. I

21:16

would say you're going to have

21:18

trouble pointing out to me or

21:21

to anyone how that's beyond... chance

21:23

outcome beyond how that's beyond the

21:25

chance outcome because you consistently see

21:27

underperformance if after 10 years you

21:29

book you you benchmark yourself against

21:32

the S&P 500 I'm going to

21:34

say at least 85% of active

21:36

managers will have underperform Right? And

21:38

the 15% that outperformed, if you

21:40

put them in the, if you

21:43

look at them the next 10

21:45

years or whatever, they go back

21:47

to the mean. Right? And so

21:49

when it comes to an investment,

21:51

when it comes to investment advice,

21:54

yeah, absolutely. Put it in the

21:56

SMP 500. But could we do

21:58

better than that from an investment

22:00

standpoint? Absolutely. And what I mean

22:02

by that is, I think individuals,

22:05

I'm doing this from memory way

22:07

to correct me, but if you

22:09

look at individual stocks. investing in

22:11

individual stock versus the S&P 500

22:13

and you want to see how

22:16

much of the market you're capturing.

22:18

Individual stock will probably explain like

22:20

an R square of 20 to

22:22

30 like it'll explain 20 to

22:24

30% of the variance of all

22:27

stock market movements. That means that

22:29

sometimes when you buy a stock

22:31

it could be a great stock

22:33

but the market tanks by 30%

22:35

that year your stock is most

22:38

likely going to be down as

22:40

well because it's just a stock.

22:42

you know, in the market as

22:44

opposed to its prospects as a

22:46

business. It's going to be subject

22:49

to the same macro environment as

22:51

the others, right? And if the

22:53

market drops by 30% you can

22:55

assume something happened. So you're not

22:57

getting diversification and hence this variance

23:00

can kill you on the downside.

23:02

Hence the 90% of the S&P.

23:04

You know, an allocation to the

23:06

S&P 500 is better than individual

23:08

stocks because you're missing out on

23:10

expected returns. systemic expected returns. Now

23:13

that being the case, the S&P

23:15

500, which is the index of

23:17

large companies within the overall stock

23:19

market, will explain a lot of

23:21

the variants of the overall stock

23:24

market, but probably still something closer

23:26

to like, let's just say in

23:28

the 70s, you know, the R

23:30

squared and that would go on,

23:32

a single factor model will explain

23:35

maybe 70%, right? Are you going

23:37

off from the angle of S&P

23:39

versus like a... globally diversified portfolio

23:41

because I was just thinking it's

23:43

more forget the S&P 500 part.

23:46

just 90% stock allocation. Is that

23:48

appropriate? Is it general? Okay. No,

23:50

I was going in the choice.

23:52

No, I was going in the

23:54

S&P 500. Yeah, you're putting that

23:57

completely differently. All right. Well, then

23:59

you could finish it off like

24:01

you do it. And they get,

24:03

you know, it's two for one,

24:05

right? Yeah. And so now I'm

24:08

looking at the S&P 500, and

24:10

you could do better than that,

24:12

because that's a single factor model

24:14

that you get. compensated for investing

24:16

in systematically capturing within the stock

24:19

market, right? The S&P is large

24:21

cap, right? So there's value, there's

24:23

momentum, there's size, there's things you

24:25

can also expose your portfolio to

24:27

to capture more of the returns

24:30

that are available. And then you

24:32

go to internationally, this was asked

24:34

last time. Why internationally? Internationally, the

24:36

expected returns are going to be

24:38

the same as domestically. But they

24:41

increase the opportunity set of the

24:43

different stocks that you can capture.

24:45

So it just helps you because

24:47

there's such a concentration, even the

24:49

S&P 500, there's such a concentration

24:52

within the top 10 stocks. And

24:54

it happens all the time, it's

24:56

not just happening right now, that

24:58

by having other large caps that

25:00

also help explain barriers within overall

25:03

stock market returns, it's actually a

25:05

good thing, not a bad thing,

25:07

because as much as it can

25:09

help you on the upside, you

25:11

want to kind of just protect

25:13

yourself. And so to me a

25:16

good general guideline is allocate to

25:18

the different areas of the market

25:20

in which you have systematic expected

25:22

returns, right? Not just the S&P

25:24

500, although the S&P 500 is

25:27

superior to just picking a stock

25:29

and letting it run. So to

25:31

that extent Warren Buffett is correct,

25:33

but when you get to diversifying

25:35

a portfolio, especially when you're trying

25:38

to determine retirement income strategy and

25:40

the like, I think it falls

25:42

short of the mark, right? The

25:44

fact that that person brings... up

25:46

Warren Buffett, who cares? Now, Wade's

25:49

point about 90% equity, 10% cash

25:51

bonds. I'm not, I'm not, I

25:53

wasn't here to judge that. I

25:55

just assumed Warren Buffett would, that's

25:57

just a random number that was

26:00

just arbitrarily thrown up 90-10. I

26:02

think that's an aggressive one, but

26:04

I think there's a question that

26:06

we're asking later on that maybe

26:08

helps answer that a little bit,

26:11

but wait, what's your take on

26:13

the second part? Yeah, I'm not

26:15

a Warren Buffett historian, but so

26:17

I don't know the full context,

26:19

but I thought I've seen at

26:22

some point he was talking about

26:24

how he allocates like for his

26:26

spouse and That's kind of she's

26:28

if you gave her a funded

26:30

ratio She's probably dramatically overfunded in

26:33

fact the 10% in cash is

26:35

probably 10 times more than she'll

26:37

ever spend in her lifetime to

26:39

begin with and so that allocation

26:41

can make perfect sense because once

26:44

you've got your lifestyle protected and

26:46

covered, then you can be more

26:48

aggressive with the discretionary wealth above

26:50

that. And so he's really for

26:52

the most part investing that for

26:55

the next generation or I think

26:57

in his case more for like

26:59

charitable type. Like this is a

27:01

permanent foundation to support charities over

27:03

the long term. So 90% stocks

27:06

for that can make perfect sense.

27:08

Going beyond that though, of course

27:10

you have to consider your risk

27:12

tolerance and you have to consider.

27:14

your retirement style and how well

27:16

funded you are with respect to

27:19

having reliable income in place. If

27:21

you have a floor of protected

27:23

reliable income that covers your basics

27:25

and you have the risk tolerance

27:27

to handle it, the math is

27:30

in favor over the long term

27:32

of getting greater long-term growth, especially

27:34

with a flexible spending strategy for

27:36

the discretionary expenses, off a higher

27:38

stock allocation. So yeah, you can't

27:41

argue with just on a mathematical

27:43

basis. that sort of allocation being

27:45

fine if you're comfortable sticking to

27:47

it and you can sleep at

27:49

night with it and you've got

27:52

your basics covered. If those things

27:54

don't apply to you though, then

27:56

that's definitely a lot more aggressive

27:58

than we usually hear for retirees

28:00

and maybe too aggressive for many

28:03

people. So you got to. But

28:05

wait, now I'm going to ask

28:07

the general guideline, maybe not. Now

28:09

I'm going to ask you a

28:11

question and it wasn't asked, but

28:14

I think it dovetails with this

28:16

one. And I think we can

28:18

also address the last question we're

28:20

going to do today since we're

28:22

kind of on this topic a

28:25

little bit. It makes sense just

28:27

to continue it just to continue

28:29

it. But, okay, you had said,

28:31

you know, the math makes sense,

28:33

but I want people to understand

28:36

the following. Why not put 100%

28:38

equity in a portfolio for retirement

28:40

if you know that it has

28:42

a 30-year time horizon? And if

28:44

you look at any 10-year rolling

28:47

historical return, Stock markets have a

28:49

it's up there. Let's let me

28:51

just say 90% chance of outperforming

28:53

on a rolling return basis The

28:55

risk free rate, so why not

28:58

just put it in that if

29:00

that's my horizon in retirement because

29:02

if I retire at 60 I'm

29:04

got let's just say 20 years,

29:06

right? I retire at 65, you

29:09

know, I got 20 years on

29:11

this portfolio at 85 if not

29:13

more So why don't I just

29:15

put it in 100% equities? Well,

29:17

you've got the sequence of returns

29:19

risk issue that when you're spending

29:22

from the portfolio, you're more vulnerable

29:24

to short temporary type downturns that

29:26

don't recover quick enough. But even

29:28

beyond that, going back to Bill

29:30

Bingen's original study on the 4%

29:33

rule, he called for retirees to

29:35

have 75% stocks in retirement, never

29:37

less than 50% stocks. You see

29:39

that come up in many subsequent

29:41

studies that Even in spite of

29:44

sequence of returns risk, higher stock

29:46

allocations usually give you a much

29:48

better average performance without much worse

29:50

outcomes in terms of the downside

29:52

potential risk if things go really

29:55

poorly in retirement. The 4% rule

29:57

didn't apply to 100% stocks because

29:59

there were a few historical cases

30:01

where you could have gotten into

30:03

trouble. Not that much more trouble.

30:06

It still did better than like

30:08

20% stocks. Yeah, but I, oh,

30:10

sorry. Finish your answer. Oh, but

30:12

I mean, but that being said.

30:14

This assumes you're comfortable with a

30:17

fairly aggressive stock allocation and that

30:19

you will stick with it and

30:21

not panic and sell off your

30:23

stocks after a downturn, which can

30:25

then really dig a hole for

30:28

you. Because if markets go down

30:30

and come back up, but you

30:32

panicked and sold after they went

30:34

down, you missed a subsequent recovery

30:36

and you're really disrupted. What did

30:39

the creator of the 4% rule

30:41

do about... 18 months ago or

30:43

something weird like that when. Oh

30:45

yeah, there was something. It was

30:47

during the spring of 2020. Oh

30:50

that late? Okay, four years ago.

30:52

I thought it was like two

30:54

years ago. What happened a few

30:56

years back to the creator of

30:58

the 4% rule Bingen when he

31:01

was interviewed in one of the

31:03

financial advisor publications, I think advisor

31:05

financial planning or something. And he

31:07

did, I don't remember the exact

31:09

details, so I don't want to

31:12

guess, but he did dramatically lower

31:14

his stock allocation, despite all of

31:16

his research showing you should not

31:18

do that. And I don't remember

31:20

the specifics off the top of

31:22

my head about what exactly happened

31:25

there. I think there was an

31:27

article in the New York Times

31:29

that mentioned. I think so. And

31:31

everyone was like, what? Like, the

31:33

big takeaway was, oh my God,

31:36

you lowered his, like, what the

31:38

how's he doing? That being the

31:40

case, the other part that I

31:42

think goes unnoticed all the time

31:44

is it doesn't really affect the

31:47

success rates all that much. If

31:49

you're like at a 40% allocation

31:51

to equities versus 70% allocation to

31:53

equities in terms of sustainable withdrawal

31:55

rates. you may know that better

31:58

off the top of your head

32:00

but directionally it's not a it's

32:02

not a move the needle kind

32:04

of number it's like you know

32:06

what you're gonna be fine in

32:09

a 40-60 portfolio versus a 60-40

32:11

portfolio so why do you need

32:13

that aggravation unless the goal is

32:15

legacy maximize legacy as much as

32:17

humanly possible but I don't we

32:20

don't really see that that much

32:22

usually when we're talking to clients

32:24

there are cases right where somebody

32:26

has a significant amount of money

32:28

and becomes about being impactful for

32:31

the next generation. But let's just

32:33

say for the folks between, you

32:35

know, zero to five million even,

32:37

a lot of the conversations are

32:39

about, hey, I want to make

32:42

sure I can maintain this standard

32:44

of living and whatever's left over,

32:46

fine, but that's gravy. Hence, what

32:48

is this race to die with

32:50

the most amount of money for?

32:53

But I don't understand it. And

32:55

so... There

32:57

is a range from about 30

32:59

to 80% stocks where it doesn't

33:02

really impact what the safe withdrawal

33:04

rate is in terms of a

33:06

spending rate, but the higher the

33:08

stock allocation on average, the better

33:11

the outcomes in terms of remaining

33:13

wealth balance at the end of

33:15

that retirement horizon. Okay. The other

33:18

thing is, yeah, I know, but

33:20

when income is the outcome, at

33:22

least as a theme, You know,

33:24

I got to pick your battles

33:27

a little bit. The other thing,

33:29

because I think this is similar,

33:31

because it was talking about allocations

33:34

in retirement, why not 100% etc.

33:36

There's also a human capital piece

33:38

that you don't have anymore. You're

33:41

not working, so you're a little

33:43

more susceptible to liquidity events and

33:45

things like that. I don't necessarily

33:47

buy the argument of why not

33:50

100% in stocks. I think that's

33:52

a... That's an Excel answer and

33:54

it's not grounded in like real

33:57

life events is the best answer.

33:59

I can give you with regards

34:01

to that. Also, it goes to

34:03

notice, but the magnitude of

34:05

drops, once you're retired, as

34:08

a percent of your net worth, is

34:10

greater. And what I mean by that

34:12

is, when you're in your 30s, a

34:14

20% drop, you know, and you're building

34:16

assets, doesn't hit you as

34:18

hard as when you're in your 60s.

34:20

And you have this 20% drop

34:22

in terms of nominal wealth. So

34:24

you want to make sure you're

34:27

always like unguard for stuff like

34:29

that. markets go down 30% I don't know

34:31

how much solace you're going to find into the

34:33

but don't worry this is a 30 year

34:35

horizon I'm going to be fine I

34:37

think you turn you put your Began hat

34:40

hat on you get a little nervous and

34:42

you start making decisions because you're going to

34:44

say to yourself this time it's different that

34:46

kind of thing it's just like if

34:48

you're probability based you're more likely to

34:51

be able to weather those downturns but

34:53

if you got put into a probability

34:55

based strategy that wasn't right for you

34:57

You may not weather those downturns as well.

34:59

Yeah, and we've seen that plenty. All

35:01

right? I mean, there's, there's, look, we're

35:04

coming off of an election. We have clients.

35:06

We have clients that are conservative.

35:08

We have clients that are liberals.

35:10

And you can imagine as with

35:12

any election, the losing folks get

35:14

a little nervous with regards to who's

35:17

coming into office and the like. And

35:19

so this is not a political

35:21

statement, but it's, but everyone I think

35:23

can right now relate to it. If the

35:25

person is an office and it's not someone

35:28

that you voted for, you may be thinking,

35:30

my goodness, what do I do with my

35:32

investments now? Because the next four years

35:34

is going to be different. And I'm bringing

35:36

this up to point out all the things

35:39

that are going to happen over the next

35:41

30 years. That you're going to have some

35:43

serious consternation about. And you're

35:45

going to be like, my goodness, I have

35:47

to do something with my portfolio. So

35:49

as disciplined as you think you think

35:52

you think you think you think you

35:54

are. You're probably not when

35:56

it comes to maintaining this hunter

35:58

is very very aggressive portfolio

36:01

in retirement. That being

36:03

said, Wade, I'm going to ask you

36:06

the next question, which is,

36:08

when would one start allocating

36:10

money towards more

36:12

fixed income cash-like

36:14

investments? Ten years out from

36:17

retirement? Five years out?

36:19

Never. And I think

36:21

first determine your style, right? And then

36:23

go from there, but I'll let you

36:25

take it away, man. I was supposed

36:27

to be the question I ask you,

36:29

but now that you... Oh, really? Oh,

36:31

yeah, okay, wait, let me ask myself

36:34

this question. Well, we were kind of

36:36

like tag-teaming this answer, and I started,

36:38

truthfully, all right, let me do this again,

36:40

because we're going to record this

36:42

and set this up separately on

36:44

YouTube. You want to ask me the

36:46

same question, and I'll ask you. So, Alex,

36:48

when would one, when would

36:50

you or one? Take it

36:53

from the top. And listeners

36:55

on the podcast, I appreciate

36:57

your patience. We just need

36:59

a clean edit. And we

37:01

don't edit the podcast. Fire,

37:03

wait. Okay, Alex, when

37:05

would one start allocating

37:07

money towards more fixed

37:09

income or cash-like

37:12

investments? Ten years out

37:14

from retirement? Five years? Never?

37:16

Right off the bat I would imagine

37:19

there's this is this question

37:21

is asking as you're getting

37:24

close to retirement when do

37:26

you start shifting when you

37:28

start down shifting from an

37:31

allocation if at all. Our view

37:33

is that effectively as the

37:35

five years before retirement and

37:38

the five years after retirement

37:40

we referenced them as

37:42

the fragile decade. wait I believe

37:44

is the one that coined that

37:46

term and that people think that

37:49

I don't think it's true but

37:51

it's not you people have said

37:53

that about me but I don't

37:55

think I did that you know

37:57

what wait it was me it was

37:59

me I don't know. A fragile decade,

38:02

right? Let's just say the fragile

38:04

decade. And that, and what that

38:06

means is that you have to

38:08

be fortunate as you retire to

38:10

be in a good economic cycle.

38:12

And what I mean by that

38:14

is the market returns you experience

38:16

five years before and five years

38:18

after you retire are going to

38:20

have a disproportionate effect on the

38:22

income that you're able to take,

38:24

specifically if you're in a total

38:26

return strategy. Right and so from

38:28

that manner If you I'm gonna

38:30

assume now you are a total

38:33

return investor asking me this question

38:35

That assumption is is a good

38:37

one because not a good one

38:39

in that in the sense that

38:41

it's good. You should be it's

38:43

good one in the sense that

38:45

first we're going to determine what

38:47

strategy you are in the answer

38:49

would be very different from somebody

38:51

whose time segmentation somebody who's risk

38:53

wrap and somebody who's income protection

38:55

I that's important for us because

38:57

By default, I think we've done

38:59

the industry a disservice, we as

39:01

an advisor, presenting like the total

39:03

return as your main strategy and

39:06

then there's everything else. And total

39:08

return is just one of four.

39:10

So assuming that you fall into

39:12

the total return bucket, I think

39:14

you should ready your portfolio for

39:16

a retirement income, let's say two

39:18

years before you retire, as you're

39:20

onboarding into this fragile decade. Right?

39:22

And you can do many things.

39:24

You can go straight to fixed

39:26

income. And how much it's relative

39:28

to the financial plan, relative to

39:30

how much there's two things. Risk

39:32

is two things, a preference. And

39:34

sometimes it's a it's a it's

39:36

a necessary thing if you want

39:39

to accomplish certain goals, right? Sometimes

39:41

you may need to capture returns.

39:43

for something 20 years out and

39:45

there's no thing there's nothing that's

39:47

really going to get you that

39:49

unless it's a market-driven return that

39:51

you're invested in over 20 years

39:53

so you can count on time

39:55

diversification etc. Absent of that though

39:57

kind of have to figure things

39:59

out. And so assuming though that

40:01

that's the case, you want to

40:03

begin to start prepping your portfolio

40:05

beforehand from a capacity and need

40:07

standpoint. Now there's that. You have

40:09

to reconcile that with your personal

40:12

risk tolerance. Not resa profile, retirement

40:14

income style comes first, but once

40:16

you've determined that and let's assume

40:18

you're in a total return, then

40:20

you can work on the allocation.

40:22

And so that's a balance between

40:24

your risk tolerance. you know your

40:26

preference of how much risk you

40:28

can take sleep at night that

40:30

kind of thing versus how much

40:32

do you need from a resource

40:34

standpoint because you may need to

40:36

take on more risk than necessary

40:38

or you can take on less

40:40

that will you'll find some baseline

40:42

allocation from there and then as

40:45

you retire you you you work

40:47

the portfolio to a more greater

40:49

and greater fixed income allocation so

40:51

by the time you retired you're

40:53

at you're at that sweet spot

40:55

whatever that movement is it depending

40:57

on an idiosyncratic variable, which is

40:59

yourself. Now that being the case,

41:01

there's one strategy that Wade's written

41:03

about, that gets talked about quite

41:05

a lot. I see it as

41:07

more of a time segmentation strategy,

41:09

but it's the rising glide path

41:11

in which you take a, you

41:13

front load the allocation to fixed

41:15

income. Let's, this is a puree

41:18

mind thought example, but let's say

41:20

your 80-20 portfolio right now in

41:22

your five years from retirement, and

41:24

you're like, you know it fits

41:26

my risk profile but you know

41:28

what I got to get ready

41:30

for this fragile decade and I'm

41:32

a total return person so I

41:34

know probability-based thinking well I believe

41:36

that is going to work out

41:38

over 20 plus years but I

41:40

got to do something for the

41:42

first 10 and I don't want

41:44

to buy anything that structured a

41:46

structured investment contract I don't want

41:49

to do a bond ladder I

41:51

don't want to whatever put it

41:53

in Bitcoin or whatever happy right

41:55

and so what I want to

41:57

do is start at a higher

41:59

than normal bond allocation and that's

42:01

gonna be my quote-unquote buffer from

42:03

a portfolio standpoint and I'm gonna

42:05

start that let's say I think

42:07

I'm gonna end at 50-50 when

42:09

all is said and done so

42:11

I'm gonna go 30 30 70

42:13

right now 30% stock 70% fixed

42:15

income which is artificially high but

42:17

by the time I retire I

42:19

shall be I'll reduce that bond

42:22

allocation every year a certain percent

42:24

so by the time I'm retired

42:26

I'm at 50-50. You know what

42:28

I mean? And then maybe five

42:30

years into it, I can be

42:32

55-45. And that will be my

42:34

settling. And what that has allowed

42:36

me to do it, it's reduced

42:38

the variability of my portfolio. And

42:40

so once it gives me the

42:42

best chance to have the steadiest

42:44

value while I'm taking distributions during

42:46

the important fragile decade. That's how

42:48

I would be thinking about it.

42:50

What that number is, I think

42:52

you need to get that baseline

42:55

with a financial plan. and determine

42:57

the context of what you're doing,

42:59

and then back into the allocation

43:01

that gets you there, and hopefully

43:03

that reconciles with your risk tolerance.

43:05

If it doesn't, then you have

43:07

a little bit more work to

43:09

do. Wade? Yeah, I guess I

43:11

just maybe answer it a little

43:13

more simply in terms of, I

43:15

think, five to 10 years before

43:17

retiring, that's a good time to

43:19

start thinking about the transition to

43:21

your retirement income plan, which implies

43:23

a shift from stocks to... Fixed

43:25

income broadly defined. That's where you

43:28

look at your retirement income style.

43:30

If your total returns, you'll just

43:32

lower your stock allocation in that

43:34

lead up to retirement to help

43:36

manage that sequence of returns risk.

43:38

And you could use that rising

43:40

equity glide path post retirement. If

43:42

your time segmentation, you start switching

43:44

from bond funds to individual bonds

43:46

to build that ladder so that

43:48

you get to retirement with five

43:50

to 10 years of. fixed income

43:52

maturing bonds for the next five

43:54

to 10 years to cover those

43:56

early years. If your income protection,

43:58

start thinking about shifting some of

44:01

those. bonds and to deferred income

44:03

annuities or some sort of fixed

44:05

annuity with a living benefit probably

44:07

and if you risk wrap you

44:09

might look more at shifting over

44:11

into some sort of variable annuity

44:13

with a living benefit and with

44:15

a deferral period of five to

44:17

ten years before you turn on

44:19

income and there you go that

44:21

covers all four retirement styles five

44:23

to ten years before retirement ideally

44:25

you start making that transition. All

44:27

right, wait. I think we're good

44:29

on time. Do you want to

44:31

call that one for today's session

44:34

and we'll fire up another round

44:36

of questions for the next one?

44:38

That sounds good. Yeah, we still

44:40

have more questions. So probably at

44:42

least another episode. But yeah, let's

44:44

go ahead and hit the stop

44:46

button for today. So thanks everyone

44:48

for joining. Retire with Style and

44:50

we'll catch you next time with

44:52

more of your questions answered by

44:54

Wade and Alex. All right, everyone.

44:56

Take care. Wade

44:59

and Alex are both principles of

45:01

McLean Asset Management and Retirement Researcher.

45:04

Both are SEC-registered Investment Advisers

45:06

located in Tyson's Virginia. The

45:08

opinions expressed in this program

45:10

are for general informational and

45:12

educational purposes only, and are

45:15

not intended to provide specific

45:17

advice or recommendations for any

45:19

individual or on any specific

45:21

securities. To determine which investments

45:23

may be appropriate for you,

45:26

consult your financial advisor. All

45:28

investing comes with risk, including

45:30

risk of loss. Past performance

45:32

does not guarantee future results.

46:11

You