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The purpose of retire with Style

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is to help you discover the

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for retirement planning. We're

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back. Now you didn't think we'd leave

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you hanging in the middle of

0:45

a Monte Carlo simulation, did you? The

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boys are diving right back in.

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This time we're tackling the 4%

0:52

rule, just testing financial models, and

0:54

making sure that your retirement plan

0:56

can actually handle real life. Let's pick

0:58

up right where we left off. Wait, and

1:00

Brian, I want you guys to talk a

1:03

little bit about this. This is a whole

1:05

podcast episode in and of In and of

1:07

itself, so bear that. This is not the

1:09

purpose of the question. It's more just

1:12

a kind of a little teaser, if you

1:14

will, for folks to think about. But

1:16

when you're creating return assumptions, as

1:18

opposed to telling everyone, okay, these

1:20

are our return assumptions,

1:22

etc., etc., etc. There's

1:25

there's two schools of thought,

1:27

historical returns or expected

1:29

return. Before I lead the witness on

1:31

anything, I like weighed to talk about

1:33

that, what his thoughts are around that,

1:35

and then Brian for you to talk

1:37

about that, but The Klein example angle

1:39

if you will as opposed to

1:41

you know, hey look this is

1:43

what the master way Yeah, that's

1:46

so today. It's less of a

1:48

kind of upfront topic because

1:50

bond bond returns are bond

1:52

yields are more in line

1:54

with their historical numbers, but

1:57

we've in the past 10

1:59

years we've points where, well,

2:01

at the extreme, the 10-year treasury

2:03

was down to 0.6%. But some

2:05

software just plugs in average historical

2:08

returns for their assumptions. So they

2:10

may be telling you, your bond

2:12

returns are going to be bouncing

2:14

around 5 or 6% on average,

2:16

which is really mathematically impossible if

2:19

interest rates are at 1 to

2:21

2 to 3%. And that's kind

2:23

of a source of this huge

2:25

discrepancy. Like if you're testing the

2:27

4% rule, in the US historical

2:30

data, a 4% distribution rate from

2:32

an investment portfolio with a, say,

2:34

50% stock allocation, always worked historically.

2:36

If you then, instead of using

2:38

the actual historical data, but you

2:41

run a Monte Carlo where you

2:43

plug in the, use the historical

2:45

data to calculate average returns and

2:47

volatilities and so forth, that might

2:49

lower it to a 95% success

2:52

rate, but still pretty good with

2:54

those historical numbers. If you decide

2:56

to take a haircut off of

2:58

the returns to account for in

3:00

the past how bond yields were

3:03

so much lower than the historical

3:05

average bond, the returns would suggest,

3:07

that could lower the success rate.

3:09

Again, with historical data, maybe you

3:11

got 95% success. You could get

3:14

65% success if you just take

3:16

a haircut off the returns to

3:18

account for the lower interest rate

3:20

environment. And that's another example of

3:22

this kind of situation where... what

3:25

you put in has a huge

3:27

impact. And so you do have

3:29

to just try to be careful

3:31

and thoughtful about the assumptions used

3:34

don't blindly enter historical average returns,

3:36

especially on the bond side if

3:38

interest rates make it almost impossible

3:40

to get historical average returns. And

3:42

we had to go through 2022

3:45

to get to a more normalized

3:47

world when bond returns had double

3:49

digit losses in 2022. as interest

3:51

rates came up, because as interest

3:53

rates go up, you have losses,

3:56

capital losses on existing bonds that

3:58

you own, that got us. through

4:00

the storm, now interest rates are

4:02

more normalized. So looking forward from

4:04

today, maybe you can make more

4:07

of an argument that historical returns

4:09

are okay, but they weren't okay when

4:11

you were starting from a much lower

4:13

interest rate base. And to get to

4:15

a more normalized base, you had to

4:17

endure some pretty heavy losses with your

4:19

bones. Thank you, Wade. What I would say

4:21

to that, and Brian, this could be, you

4:23

know, when you get to your, your, your,

4:25

your segue right now, is the plan

4:27

is a living document. Okay, this is

4:29

the return right now, and this is

4:31

what's going to be 30 years. Expect

4:34

to rinse repeat on these exercises. To

4:36

me, the plan is your personal

4:38

benchmark, ultimately, and that's what the focus

4:40

should be. But going through a way just

4:42

discussed right now about historical

4:44

return versus expected return, and sometimes

4:47

it's just these major inflection points

4:49

that you need to slap yourself

4:52

into reality in terms of what's true

4:54

or not. How does this discussion happen

4:56

with clients? You may not

4:58

talk about the different asset

5:00

class returns and correlations, but ultimately

5:03

a return assumption is presented

5:05

and discussed. And what are

5:07

some pushbacks? What are some

5:09

aha moments that clients have?

5:11

Or what are some questions

5:13

that they don't ask that they

5:16

kind of should be asking? I

5:18

think what's been really interesting over

5:20

time to see is the methodology

5:22

by by which firms are building

5:24

these CMA's out, the capital

5:26

market assumptions. I've seen the

5:28

duration changed on their backwards

5:30

looking math and so I've

5:32

seen. No, no, no, I'm saying like how

5:34

far backwards they're looking for

5:37

historic restaurants. No, I didn't

5:39

know. So I've seen I've seen firms

5:41

cherry pick how far backwards they

5:43

look when they're building it out.

5:45

Right. If we're it in 2025,

5:47

we're looking backwards. If we're using

5:49

the last 10 years of returns.

5:51

those four lucky returns are going to be really

5:54

really high. So I've seen five years and I've

5:56

seen 10 years, I've seen some that you know

5:58

use all the way back to the beginning of

6:00

market assumptions which is more appropriate right

6:02

but it's really really important to understand

6:04

looking backwards it's easy to build amazing

6:06

portfolios that you know I can beat

6:09

the market looking in the river mirror

6:11

it's very easy to do so I

6:13

just go back and pick funds or

6:15

pick you know specific asset classes or

6:17

indices that were the highest performing I

6:19

build you out a cool portfolio and

6:21

I spit that out and show you

6:23

look our four-looking returns are you know

6:26

four percent higher than this firm but

6:28

guess what? That's not real. It's not

6:30

realistic. It's not appropriate to do that,

6:32

really. And ultimately, what those shops are

6:34

doing is painting this, you know, rose

6:36

colored, rose colored view of the world,

6:38

when in reality, they probably, they probably,

6:40

they probably know that's not going to

6:42

happen. So the important part of what

6:45

we do is is really, you know,

6:47

showing our methodology and walking through kind

6:49

of how we build out our capital

6:51

market assumptions, you know, the way we

6:53

think about the world, the way we

6:55

look at things, and then we stress

6:57

test it just to just to just

6:59

to show, this is going to be

7:02

our baseline, but if we do better,

7:04

this is what your plan looks like,

7:06

and if we do worse, this is

7:08

what your plan could look like. That

7:10

gives you kind of a range of

7:12

outcomes that is a little bit more

7:14

tangible and a little bit more palatable

7:16

to say, I need to make a

7:18

decision on how I'm going to spend

7:21

for the next 10 years. Does it

7:23

make sense to use, you know, ridiculously

7:25

high return, just because maybe that would

7:27

happen again, or do I want to

7:29

maybe throw out all back my back

7:31

my lifestyle back my lifestyle, That's fair.

7:33

And what's the response usually for that

7:35

when you present that in that matter?

7:38

A lot of people are reasonable. A

7:40

lot of people don't want to go

7:42

to that maximum spend type plan where

7:44

we're looking to get every single dollar

7:46

out of it. It's kind of, you

7:48

know, it goes into that balancing act

7:50

of saving for tomorrow while also making

7:52

sure we kind of optimize our lifestyle

7:54

today. And there are all kinds of

7:57

levers and models that we can use

7:59

to kind of. help to de-risk around

8:01

some of those decisions in those conversations

8:03

too. It's not just pay we throw

8:05

this in and this is going to

8:07

be your spend going forward. You know

8:09

it really goes into a lot of

8:11

the modeling of our our cash flows

8:14

and how we want to look at

8:16

our life and what stage of life

8:18

we're in. There's a lot of different

8:20

ways to approach the financial plan more

8:22

so than the math, but it is

8:24

really really important to understand how the

8:26

math works because that's what you're ultimately

8:28

going to be basing your decisions around

8:30

today. What do you think here? Because

8:33

when I was hot and heavy and

8:35

seeing a lot of clients, The question

8:37

that came up a lot was not,

8:39

we're not necessarily the return assumptions and

8:41

the like, if we're better for worse,

8:43

a lot of folks give us the

8:45

benefit of the debt, you know, which,

8:47

you know, buyer beware, I would call

8:50

every consumer. But what was interesting to

8:52

me was the extremes of the scenarios

8:54

that people wanted to run, where it

8:56

was like, Listen, if my plan, if

8:58

I have an 80% chance of success

9:00

right now and I don't like that,

9:02

you know, I put a 12% return,

9:04

put a 12% return and let's get

9:06

that plan up to work. You know,

9:09

these overly optimistic kind of things, right?

9:11

But then the flip side of it,

9:13

which I think is just as bad

9:15

from the person because at the end

9:17

of the day, you're saving up money

9:19

to be able to live a certain

9:21

lifestyle in retirement, and I get that

9:23

we're creatures of habit. It's hard to

9:26

just break yourself from that. But where

9:28

I find my, where I would find

9:30

myself trying to be a little more

9:32

persuasive, sometimes it was getting people to

9:34

spend more money. Simply because they were

9:36

putting in these scenarios that were nuclear

9:38

Holocaust scenarios. And at the end of

9:40

the day, you don't want to live

9:42

the last 25, 30 years of your

9:45

life in the basement drinking soup cans,

9:47

if you will. And so what is

9:49

that? What do you find there? How

9:51

do you sort of... The danger of

9:53

this overconfidence or unnecessary fear that people

9:55

have how do you go about trying

9:57

to? Provide just prudent advice Yeah, and

9:59

Arguably both are really bad outcomes to

10:02

your point about living in the basement

10:04

eating soup when you have a $10

10:06

million portfolio because you're so terrified that

10:08

it's going to run out. It is.

10:10

It's a hard conversation. It's not something

10:12

that we typically push someone to make,

10:14

you know, knee jerk reactions are huge

10:16

deviations from their norm to do, but

10:18

ultimately it's, hey, you know, we modeled

10:21

out your current scenario and it's at

10:23

100% and there's not one single scenario

10:25

where this runs out of money at

10:27

the end, why don't we talk about...

10:29

Why don't we run you kind of

10:31

a worst case scenario plan where we

10:33

can show you the maximum spend and

10:35

what you're doing now and somewhere between

10:38

those two is the Delta. Happy place,

10:40

right? It's maybe it's another extra thousand

10:42

bucks a month or maybe it's an

10:44

extra $1,500 or $5,000 depending how much

10:46

money and how big the portfolio is.

10:48

But just to have an idea of

10:50

this is the range that you should

10:52

could be living in and let's start

10:54

making some decisions around that having some

10:57

conversations. Does it make sense to increase

10:59

and or decrease the spend? We can

11:01

model it differently. We can model it

11:03

differently. We can model it differently. you

11:05

know, you can put a framework around

11:07

those decisions where it's not just I'm

11:09

pushing you to go spend some money

11:11

because that ultimately is uncomfortable. If you

11:14

frame it just a little differently and...

11:16

100% I was viewing it not necessarily

11:18

that we know better than them and

11:20

you will enjoy life a lot more

11:22

doing that. I'm not getting into it

11:24

from the standpoint of that existential dilemma

11:26

and trying to help that because... I

11:28

think that's beyond the purview of what

11:30

we can do. We can nudge, but

11:33

at the end of the day, I'm

11:35

not so sure that's our role, but

11:37

I do view it from a pure

11:39

number standpoint of an efficiency of resource,

11:41

and it's almost a disallocation of capital,

11:43

because if everyone all of a sudden

11:45

was able to more efficiently spend accordingly,

11:47

you know, in a realistic way in

11:50

retirement, I think resources would be put

11:52

to better use in society. I know

11:54

it sounds weird the way I'm saying

11:56

it, but. I'm thinking of it like

11:58

that. I don't know. Wait. What's your

12:00

take? Sounds like you're the benevolent

12:03

dictator from economics. There you go. Allocating.

12:05

Am I ten year? Am I ten

12:07

year? Am I ten year? Am I

12:09

ten year? Am I ten year? Am

12:12

I ten year? Am I ten year?

12:14

Am I ten year? Am I ten

12:16

year? Do I get the pension? Hopefully

12:18

you're a benevolent dictator. No, but you

12:21

know, it's one of those things that,

12:23

you know, it's a bad use of

12:25

resources if it's all stockpiled in

12:27

the basement. There's no additional dollar

12:30

that's going to provide any more happiness

12:32

to them than what they're already currently

12:34

doing, which is perfectly fine. So it's,

12:36

you know, it's really, it's understanding both

12:38

sides of the table where we are

12:40

and mathematically, why are you sitting on this

12:42

much money, you should go spend more, or

12:44

hey, you're wildly overspending we need to rain

12:46

this in, versus their side of the table

12:48

is, you know, I'm perfectly happy

12:50

where I am, a fat and

12:52

happy, maybe I like to sit

12:55

in the basement and drink soup.

12:57

Yeah, no, no, it's not maladaptive.

12:59

It's not maladaptive to your everyday

13:01

living. Who am I to say,

13:03

right? It's just one of the

13:05

things. If you're stressing that out

13:07

in miserable, then yeah. I

13:09

just want to make sure they're

13:12

maximizing. You could spend more, but

13:14

if you don't really enjoy spending

13:16

more than it. Right. It's your,

13:19

you're an aunt, the ants and

13:21

grasshoppers. Okay. If you've been an

13:23

aunt your whole life, you don't

13:26

switch and become a grasshopper when

13:28

you retire. So it's no problem with

13:30

it. But yeah, if you're no adaptive,

13:32

you could spend more and you

13:34

really would benefit from spending more,

13:36

but you're afraid to. That's kind

13:38

of the rub for me, but I

13:40

get it. Brian, another question for

13:43

you and I'd love to hear your take

13:45

weight is because some folks would say. Well,

13:47

the 4% rule is based on Monte

13:49

Carlo, and so, you know, I see

13:51

the Monte Carlo, I think, pick up

13:53

a copy of Wade's book, newly released.

13:55

Did you talk about it in your, in,

13:58

in, in the, the guidebook, or no? just

14:00

spending strategy. Oh yeah I talk about the

14:02

4% rule and of course you do. Something

14:04

that interests everyone it's not a practical spending.

14:07

Yeah yeah yeah that's what I'm getting at

14:09

here. People love talking about it. Everyone talks

14:11

about it but since we're talking about Monte

14:13

Carlo and the Monte Carlo is used to

14:16

assess the success rates of the 4% rule

14:18

and I'm amazed by how many individuals write

14:20

to us you know I'm requiring a researcher

14:22

and just in general about the spending rule

14:25

strategies and the like. What's your take on

14:27

the 4% rule, Brian? Leave it at that.

14:29

It's not something I've ever discussed in practice.

14:31

It's more so you'll have questions coming in

14:33

from clients about, hey, 4% where we at,

14:36

what's my actual spend rate? You know, it's

14:38

kind of one of those things that's turned

14:40

into kind of a guidepost of, hey, you're

14:42

spending this, what's 4% of your portfolio value,

14:45

does this make sense? Great. Ultimately, that's kind

14:47

of not even where we start our conversation.

14:49

It's just kind of one of those things

14:51

that's floating around out there that people have

14:54

heard about and they've read about and they

14:56

think is, you know, it's a lot less

14:58

concrete than it used to be. You know,

15:00

10 years ago, that was really, really important

15:03

to people now. So as research has come

15:05

out and you know, his work has come

15:07

out and people have started to read his

15:09

book more and more, they realize that there

15:12

are so many better ways to do better

15:14

ways to do this. And to your point

15:16

about, you know, utility and maximizing your lifetime

15:18

savings and all those things, it's there's so

15:21

much better stuff, so many better ways to

15:23

address this than just a, you know, slap

15:25

on 4% of my portfolio and move on.

15:27

Yeah, and pull it every year. Like, I

15:30

don't think anyone does that. I don't know.

15:32

You guys chime in. I personally don't know

15:34

of any advisory firm or advisor that actually

15:36

runs the 4% rule for other client. And

15:39

I say that because I think there are

15:41

a lot of individuals that based on the

15:43

questions and the popularity on this topic, I

15:45

think there's a bunch of self-directed individuals that...

15:48

That they're actually following it religiously it seems

15:50

to me. If you're looking for more personal

15:52

advice, take a look at this episode sponsor,

15:54

McLean Asset Management. You can learn more of

15:57

McLeanam.com that's MCLAN Asset Management is there to

15:59

help you on your path to the retirement

16:01

that you deserve. And don't forget to check

16:03

the show notes to get your free e-book

16:06

on retirement income planning. I don't know if

16:08

any, I mean, as soon as you're using

16:10

any kind of software that includes cash flows,

16:12

that you're inputting your financial goals, you're immediately

16:15

moving away. Like, underlying, the only relevance of

16:17

the 4% rule is just in general, what's

16:19

a sustainable level of spending? on a pre-tax

16:21

basis, it's like impossible that your portfolio distribution

16:24

is going to grow with inflation perfectly every

16:26

year. You just have bumpy cash flows, whether

16:28

it's I'm delaying Social Security and so I'm

16:30

going to spend more now but then spend

16:33

less after I start Social Security or any

16:35

other kind of income sources that vary over

16:37

time. Maybe I have a pension that doesn't

16:39

increase for inflation. Plus my spending goals are

16:42

not fixed. I may cut back spending as

16:44

I age. Taxes, even if I'm trying to

16:46

have constant inflation adjusted spending every year, I'm

16:48

not going to have my taxes be constant

16:51

inflation adjusted every year. There's just different income

16:53

sources are taxed differently and that's going to

16:55

vary over time. So as soon as you're

16:57

using software that has you introduce so that

17:00

the whole calculating and probability of success, you've

17:02

moved away from. the 4% rule having relevance.

17:04

Like you can recreate the 4% rule in

17:06

the software, but it's a very simplified. Okay,

17:09

I've got a Roth IRA with a million

17:11

dollars. I'm 65, I'll build a plan through

17:13

95, and I want to take out $40,000

17:15

plus inflation every year, and I run that

17:18

financial plan. That's how I would see this.

17:20

on the 4% rule, but nobody has that

17:22

simple plan. Any plan is gonna have more

17:24

complications as part of it. Yep. Right? Does

17:26

it even, it's a non-issue relative to the

17:29

actual practice is what I'm getting at. Okay.

17:31

Yeah, and ultimate too, I've had exactly zero

17:33

people come to me on January 1st, the

17:35

following year to say, hey, my spend is

17:38

gonna be 2.5% higher than it was last

17:40

year, please adjust my cash flows to. to

17:42

recreate that. It's just not how life works.

17:44

You know, typically people spend and they see

17:47

what they spend and if they need to

17:49

make an adjustment, they make an adjustment. It's

17:51

not, you know, the price of every single

17:53

one of my goods and services went up

17:56

by two and a half percent. I need

17:58

two and a half percent more money this

18:00

year. It's just not the way it works

18:02

in the real world. For most people, some

18:05

people really get into the weeds of their

18:07

stuff and that's, you know, you know, Let's

18:09

wrap it up with what folks can do.

18:11

So we discussed, you know, the pros and

18:14

cons of Monaco. And again, we're not by

18:16

no means we're dismissing it. We think it's

18:18

a very valuable tool. We think of planning

18:20

as a directional exercise where you rinse repeat.

18:23

It is a living document, if you will.

18:25

You know, that being the case, folks listening

18:27

in, what are some recommendations that they can

18:29

do for just... questioning what's going on around,

18:32

what's going on around their plans. And I

18:34

think you've touched on some of those, but

18:36

you know, as we wrap up, so people

18:38

can just, you know, get a quick bullet

18:41

point list of, okay, these are things that

18:43

I should be looking at. I think for

18:45

us, I mean, one of the benchmarking tools

18:47

we use is we go back to that

18:50

initial portfolio value, and these are, you know,

18:52

clients 10, 20 years, 30 years in. and

18:54

we make sure that our performance of the

18:56

investment side of things is matching up to

18:59

what we had in the plan. And that's

19:01

something we do kind of... on

19:03

an annual basis simply

19:05

because we don't know

19:08

the standard deviation drives

19:10

wild returns throughout any

19:12

given year of a

19:14

portfolio, right? But it's

19:17

just kind of paying

19:19

attention, did we get

19:21

kind of close to

19:23

that mean return that's

19:26

driving the initial assumptions

19:28

of that plan? Yes,

19:30

no. If we're significantly

19:32

away from that, we

19:35

got to kind of

19:37

go back to the

19:39

drawing board and figure

19:41

out, A, what went

19:44

wrong and B, what

19:46

do we do about

19:48

it? But ultimately, the

19:50

returns are one piece

19:53

of it and kind

19:55

of important, but the

19:57

more important stuff is

19:59

really the goals or

20:02

our goals still in

20:04

line. Are my cash

20:06

flows that we have

20:08

modeled out still relevant

20:11

to me as we

20:13

move down through time?

20:15

Because if things have

20:17

changed one year to

20:20

another year, then if

20:22

we don't change the

20:24

model to reflect that,

20:26

then it's kind of

20:28

a wasted exercise. Yeah,

20:31

and another thing I

20:33

would say is I'm

20:35

going to put words

20:37

in your mouth just

20:40

to need you a

20:42

little bit, but I

20:44

think as well, the

20:46

importance of stress testing

20:49

and using a range

20:51

of assumption. You want

20:53

to speak about that

20:55

a little bit? Wade,

20:58

Brian? No,

21:00

I would just say the stress testing

21:02

is huge because it shows you, hey,

21:04

we're modeling this, and if this doesn't

21:06

happen, how comfortable are you with this

21:08

outcome versus that outcome? Because it'll show

21:11

you on the stress test what your

21:13

new percentage success rate is. Let's say

21:15

inflation's, you model it at two and

21:17

a half and we run it at

21:19

three and a half and your success

21:21

rate goes from 90 to 75 or

21:23

80 or whatever. Are you comfortable with

21:26

that outcome and then no, if it's

21:28

no, you have to discuss ways to

21:30

kind of fix that problem. There's leverage

21:32

to pull to address the each individual

21:34

pieces of that stress test, whether it's

21:36

returns, whether it's longevity, whether it's inflation,

21:38

whatever the case may be. And then

21:40

you have those conversations. Does it make

21:43

sense to try to address this risk?

21:45

And then how do we go about

21:47

that? Wade?

21:51

Yeah, I guess just the other

21:53

thing is it is naturally you

21:55

want to gravitate towards whatever is

21:57

reporting the highest success rate, but

21:59

you got to just keep reminding

22:01

your yourself. This is just a number. Just because plan A

22:03

has a higher success rate than plan

22:05

B, that doesn't really tell me anything

22:08

until I've done a deeper dive

22:10

and I've looked at the assumptions

22:12

and I've done that stress testing.

22:14

Really I'm comfortable with the assumptions

22:17

being made and I may not

22:19

necessarily pick the advisor offering the

22:21

highest success rate at the end of

22:23

the day because there's a lot more

22:26

that goes into it than just the

22:28

final number. that can be gained

22:30

as we've talked about throughout the

22:32

episode. No, I agree. I think stress testing

22:34

is where it's at because no one

22:36

is not even us, no one is

22:38

going to figure out what happens,

22:41

right, next. You come up with

22:43

what we feel are prudent assumptions,

22:45

not meant to convert prospects

22:47

because that's ultimately the wrong way

22:50

of going about your life, if

22:52

you will. It's just meant to

22:54

provide a realistic sense of things,

22:56

but within the stress testing.

22:58

It's perfectly fine to do here's

23:00

best case, here's worst case, here's

23:03

a case without this primary

23:05

goal, here's a case without

23:07

this secondary goal, you know, that kind

23:09

of thing. And to me, that's where

23:11

the planning is done. It's understanding

23:13

the balance of the risk

23:16

reward that you need to take

23:18

to identify what goals are optional

23:20

and what goals are essential

23:22

to what you need. Because to me,

23:24

risk is a preference, right? And

23:26

so... The stress testing helps

23:29

you maybe localize that

23:31

a little bit better. Yeah.

23:33

Okay. There we go. Well said.

23:35

That was good for those

23:37

problems. There you go. Well,

23:39

you know, it's for practice

23:41

for being that benevolent dictator wait.

23:44

Oh, huh, huh. Okay, person how

23:46

to allocate their resources most sufficiently.

23:48

Yes, yes, thank you, wait. Thank

23:51

you. You see that brought in?

23:53

I think it's a shot at

23:56

me. I mean, the silent aside.

23:58

You walked to here. We do

24:00

want to finish with our listener

24:02

question, of course. Oh, yeah, wait,

24:05

fire away. Want to stop you

24:07

from closing up the show before.

24:09

Yeah, yeah. So we are trying

24:11

to do a question that comes

24:13

in each week. And this question

24:16

is from Jennifer, who asked at

24:18

the Retirement Researcher Base Camp, which

24:20

is a site we have on

24:22

Facebook. Here's what Jennifer asks. I

24:24

love your podcast and listen to

24:26

everyone. I suppose she means she.

24:29

She loves you too, Alex. Maybe.

24:31

That's an assumption we're making. I

24:33

think we need to stress that.

24:35

Stress that, for sure. I think

24:37

with me included, it's still a

24:40

net positive. But that's as far

24:42

as I'm willing to go. But

24:44

Jennifer's question, in your recent podcast

24:46

on the updates to Wade's book,

24:48

Wade and Alex discussed that an

24:51

increase to the discount rate. will

24:53

make your funded ratio improve. I

24:55

think you mentioned that the current

24:57

discount rate is twice what it

24:59

was the last time you updated

25:02

the fund ratio calculation. And yeah,

25:04

just to that point, the discount

25:06

rate you're able to use in

25:08

the funded ratio has grown dramatically

25:10

in the past few years. Now

25:12

continuing, is there a simple rule

25:15

that can be used about how

25:17

the discount rate relates to funded

25:19

ratio increases? Is it as simple

25:21

as if your discount rate doubles,

25:23

then your funded ratio doubles as

25:26

well? That does seem too good

25:28

to be true. That's the question.

25:30

And yes, that would be too

25:32

good to be true. Now we

25:34

can't really provide a comprehensive answer,

25:37

but yeah, like a simple rule

25:39

around that in the retirement planning

25:41

guidebook, I do have a table

25:43

in there that shows how the

25:45

funded ratio changes. It's a sensitivity

25:47

table, just like what we were

25:50

discussing about. As you change the

25:52

discount rate, how much does the

25:54

funded ratio change? And so to

25:56

just give you a sense of

25:58

what this might look like. The

26:01

baseline discount rate used in the

26:03

retirement planning guidebook was 4.8%. And

26:05

in the case study there, the

26:07

funded ratio of the simple plan

26:09

we're looking at there, it was

26:12

113 percent. If you increase that

26:14

discount rate by one percentage point,

26:16

so from 4.8 percent up to

26:18

5.8 percent, that increases the funded

26:20

ratio from 113 percent to a

26:22

1 percentage point increase in the

26:25

discount rate, increased your funded ratio

26:27

by 6 percent. Hopefully that can

26:29

give you some idea about what

26:31

these relationships can look like. A

26:33

different set of assumptions would lead

26:36

to a different relationship there. But

26:38

approximately speaking, you definitely are not

26:40

doubling your funded ratio with a

26:42

higher discount rate. But you know,

26:44

it can be a dramatic improvement,

26:47

especially if we talk about a

26:49

few years back, the discount rate

26:51

might have been closer to 2%.

26:53

We could be talking 10, 20,

26:55

even 25 percentage points increases. So

26:57

your funded ratio before if it

27:00

was 90%. If you run it

27:02

now, it might be in the

27:04

ballpark of 115%. And this podcast

27:06

episode is airing the week of

27:08

our retirement income challenge. It's too

27:11

late at this point to join

27:13

that one, but if you want

27:15

to get on our mailing list

27:17

for the next one, it does

27:19

include a week-long access to an

27:22

explanation about using our funded ratio

27:24

tool. and running your plans in.

27:26

Yeah, the discount rate is going

27:28

up over time because interest rates

27:30

are higher now. So thank you

27:32

Jennifer for that question. Yes, thank

27:35

you Jennifer. The other thing I'd

27:37

like to add since we're doing

27:39

our call to action portion of

27:41

the podcast is if anyone's interested

27:43

in the financial plan or just

27:46

discussing issues around that, we'll put

27:48

a link that we can provide

27:50

a free 50-minute call with Jason.

27:52

who leads our financial planning department

27:54

over at McLean. He's been, he's

27:57

been on the podcast various times.

27:59

And so we'll put that as

28:01

well. Do you have questions around

28:03

what we spoke about or just

28:05

generalities? Yep, feel free to give

28:07

us a holler. We're more than

28:10

happy to discuss. All righty, anything

28:12

else Brian to take us away?

28:14

No, that was great. Thanks for

28:16

having me on. That was a

28:18

pleasure. Thanks, Brian. All good, Matt.

28:21

All right, everyone. Thank you for

28:23

listening and we'll catch you next

28:25

week on. Retire with style. Here

28:27

we go, there we go. Look

28:29

at that. We're well-owned machine, Brian.

28:32

Wade and Alex are both principles

28:34

in McLean Asset Management and Retirement

28:36

Researcher. Both are SEC registered investment

28:38

advisors located in Tyson's Virginia. The

28:40

opinions expressed in this program are

28:42

for general informational and educational purposes

28:45

only, and are not intended to

28:47

provide specific advice or recommendations for

28:49

any individual or on any specific

28:51

securities. To determine which investments may

28:53

be appropriate for you, consult your

28:56

financial advisor. All investing comes with

28:58

risk, including risk of loss. Past

29:00

performance does not guarantee future results.