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Episode #531 - Overcoming Frugality in Retirement with Dan Crosby

Roger: The show is a proud member of the Retirement Podcast Network. Someone said this in passing the other day, and I have not been able to let go of it. 

"How much better would the people around you be if you were better? "

Welcome to the show, Roger Whitney here. This is the show dedicated to helping you not just survive retirement but have the confidence to lean in because you're doing the work so you can rock retirement.

Now, by day, I am a practicing retirement planner with decades of experience walking this journey with individuals. By night, I hang out with you and noodle on not just retirement, but how you actually do this so you can get to the business of living a great life. This is a means to an end, not an end in itself, this retirement planning.

on a weekly the show, we're continuing to celebrate 10 years of doing this show on a weekly basis. We're going to have Dr. Daniel Crosby, a behavioral finance expert, author of a number of books. He has another book coming out this fall, which I'm sure we'll have him on for, to talk about overcoming frugality for those that have had the blessing through hard work and circumstance and luck and whatever to have choices. It can be difficult to actually spend money. So, we're going to talk through how to navigate that. In addition, we're going to answer your questions. 

On the show next week, we're going to have Michael Easter, author of the scarcity brain and the New York times bestseller, The Comfort Crisis, a fantastic book to talk about how we're wired. That'll be exciting. 

Now, before we get to Dan Crosby, I want to mention two things. Nichole told me to mention two things. 

Number one is. We have transcripts for the show. We haven't really talked about them. If you go to rogerwhitney.com and you go to an episode show notes, right there at the top is a button that says read transcripts. So, if you prefer reading transcripts, you can find them there.

Second is if you're not Signed up for 6-Shot Saturday. If you like the show, the 6-Shot Saturday email, our weekly email on Saturday morning is fantastic, where we do a summary of what we've talked about, and we have links to some of the resources, so you can sign up for that at sixshotsaturday.com.

With that, let's get Dr. Crosby on to talk about overcoming frugality.

PRACTICAL PLANNING SEGMENT WITH DAN CROSBY

We're here with Daniel Crosby, Chief Behavioral Officer at Orion Advisory Services. Daniel, how are you? 

Dan: Great. Great to be here, Roger. 

Roger: I appreciate you hanging out with me on this 10th anniversary month, which is sort of insane to think about. 10 years thinking about one subject has been one of the best things I've ever done. Not just professionally, but personally of focus.

Today, I wanted to explore with you one of the threads that I've found along the way that I've been pulling in trying to find frameworks to help people empower themselves. So, we think of the retirement crisis. as people not having enough for retirement, which is a huge crisis. That is the main crisis. Yeah, it really is. 

But there's also another crisis, which is sort of feels uncomfortable to talk about, but it's a crisis of people that have been successful either through, well, a combination of effort, effort and serendipity and luck and all that of accumulating enough wealth. When you become a really good accumulator, and you've done it for decades. It has, I would imagine, a self-fulfilling loop of affirmation and comfort, etc. I've discovered a lot of these people have a hard time harvesting and using, in this case, their financial wealth for themselves, for their family, and for the world, and end up dying with too much money.

I wanted to, from a behavioral aspect, talk about how we overcome frugality.

Dan: Overcoming frugality. I love it. So, I'll kick us off with a little research that I did with my colleagues at Orion. We interviewed hundreds of people. There were just over 400 couples, and this was couples, right? But some interesting stuff came out of it.

The question was. What do you argue about most when you argue about money? So, when you're with your significant other and you two are having a disagreement, what is it that you're fighting about? 

The number one answer was whether money is best used to enjoy today or to secure tomorrow. So, we found that people tended to be very bifurcated. They tended to be very decamped into the best use of money is nothing's promised. YOLO, like let's live it up today. Let's seize the day. Let's enjoy the moment sort of in the one camp, right? Then the other camp was let's be responsible. Let's be prudent. We don't know what's on the horizon. So, let's save, right? 

What we found is this is the number one point of disagreement because these are the most deeply held values. The people that you're talking about are the people in that second camp whose primary financial script and whose primary financial value has been for 40 years or whatever to squirrel it away, accumulate, accumulate. Then one day. It's time to flip the switch and to do things differently than you've done for four, you know, for four decades. 

It's not an easy thing to do, but you know, I share that just to say that this is no small problem. My research would suggest that maybe it is the problem and the number one place where people tend to disagree.

Roger: There's a lot of behavioral things that change when you leave full time work that can exacerbate that natural stewardship or accumulation, right? I lose my income, which feels like I always think of income. I ask people, what, Daniel, when you earned your first dollar, what did you spend it on?

Dan: My first dollar ever in my life?

Yeah. Do you remember when you earned your first dollar from work?

Roger: I don't actually, but if my first one as a high school student, probably shoes or something.

Dan: Mine was probably baseball cards. 

Roger: Yeah. I found my 10-year-old journal yesterday. I posted about this online. It said, it was like this fill in the blank journal and it said, what do you want to be when you're grown up? It was a millionaire with lots of baseball cards. That's what I wanted to be. 

Dan: Well, the reason I asked that question is because usually when we earn our first dollar, it is the first time we have some agency over. I have this dollar and I have choice.

Roger: Yeah. Other than parents giving us money. When we retire, we lose that agency. We can't fight ourselves out of financial mistakes. Not only can we not do that, which, you know, when you don't have agency, you feel at risk, you're not accumulating anymore so you don't get that natural satisfaction. And then we're supposed to suddenly actually spend it rather than save it like that. That's a lot to ask somebody. 

What you were talking about in terms of the accumulation and the YOLO, that's like a natural tension that always will be there and never actually gets resolved. It's just finding that golden mean, I would think somewhere in between. 

Dan: You're exactly right. I mean, if you think about that dichotomy and you say, which one is the right answer?

Well, for the financial advisors I work with, I can tell you which one they prefer in terms of living a happy life. The golden mean is the answer. It's finding that synthesis of spending money to enjoy today and setting aside some amount of it to secure tomorrow. The other thing we'll talk about, if you look at any sort of model of human flourishing, they're going to have a lot of things in common, right?

Like relationships are going to be part of any model of happiness and human flourishing. Meaning. Working for something larger than yourself. Advancement, being better today than you were yesterday, right? Engagement, doing deep work. These are sort of the hallmarks of human flourishing. Work ticks a lot of those boxes, and so when we leave work, we're left sometimes, if we haven't been thoughtful, we haven't been intentional, we're left with not a whole hell of a lot to hang on to. It can become easy to double down on what we do have or what we can control, which is the X's and O's in our bank account. In the absence of all this other meaning and sort of structure scaffolding falling away, it's easy to see wanting to fight for more control of money.

Roger: I would say it's like a sporting dog that doesn't have a job or a working dog that doesn't have a job. They're going to use that energy in some other direction, sometimes healthy, sometimes not. 

It's interesting that you pointed out that our industry from a financial planning perspective has all been geared for decades, especially the last 30 years in the industry, and rightly so. It sets up, you that the default usually is, well, life is so uncertain you might live to 100, inflation, bad markets, et cetera, better to be safe. That the answers unspoken are work longer, save more, spend less when you do spend. 

Which is sort of sucky choices. 

Dan: Well, you know, incentives drive behavior. I mean, look, I love the planning advice industry. That's where I do all my work, but it has to be said that most planners, most advisors get paid on the size of the assets they manage.

So, there's a stronger push for accumulation than sort of thoughtful decumulation, because that's how we get paid. Like we get paid more money in the bank. So, it's not surprising perhaps that there's more thought and more direction that goes into that piece of the puzzle.

Roger: The bulk of the clientele has been in accumulation mode.

I would say most advisors, even with that conflict, manage it well, but they, everybody's been accumulating. 

What I have found, and I'm curious, have you read the book Die with Zero by Bill Perkins? 

Dan: No. So, I talked to Tim Maurer about it at some point. some length, he kind of broke it down for me, but I have not read it yet. It's on my nightstand. 

Roger: People had suggested that I read it and I don't agree with everything he says, but a couple of the concepts I have seen in clients and in the podcast over the 10 years is when you're 60, let's use that as an example, you assume you live to 90. So, you have a 30-year time period. I think people are very aware that the first 10 years or five years are when they're going to be healthiest and most active. At least that's how they feel. So, there's this pressure to live, live. But there's also this worry of being destitute when you're 90, right? Or 85. And there's another tension that we're talking about and absent having some confidence that you're going to be okay.

The people with the most options generally are going to just defer. If they don't know it's okay to spend money this year, they're just naturally defer. So how does someone get confidence when there's so much uncertainty that you can never know the answer? 

Dan: Yes, so I think I'll draw on one of the models that I teach to our advisors, and I think it works for the listeners here as well.

It goes, empathize, normalize, purpose, proof, process. We'll break all those down. So, empathize and normalize, right? An advisor who's listening to his or her client breaks down this like, hey, I'm having a hard time flip this switch. We can empathize with how difficult that is because, yeah, like, I'm asking to do something that's diametrically opposed to what I've spent the last four decades asking you to do, and we can normalize that for them.

Like, yeah, it's, you're not weird for having these feelings. This is a very human, a very normal thing that many people go through, right? So those are sort of the first steps. Now, the purpose, this is one place I think we fall down. Like you remember the old commercials about what's your number and like people dragging around their number, right?

For so many people, there is this mountain to climb with respect to retirement. That's the purpose to accumulate X, to cross whatever finish line, to work until whatever age, to secure whatever pension. Then we get there and then in retirement, there can be an absence of milestones. There can be an absence of purpose, right? So, we need a new mountain to climb. Maybe the mountain we're climbing is die with zero. Maybe it's had the most fun possible. Maybe it's blessed the lives of the grandkids, whatever it is, but we need a new purpose. 

Stephen Covey, talked about the only way to say yes in spite of saying no to your fear was to have a bigger yes, burning inside of you, don't know that we always have that in retirement. So, okay, the work mountain has been successfully summited. Now what? I don't know that we always do a great job of that. So, you need that purpose, right? Next, you need the proof, right? This is the dollars and cents. This is financial planning.

Blackrock found that among people who had been in retirement for 20 years, more than 80 percent of them were within striking distance of where they started, and many of them, you know, a small 20-ish percent of them had more than they started. We know that great deal of people, people tend to do well in retirement. They tend to keep their spending in check, right? They need those numbers. They need that assurance.

Then finally they need a process, right? They can't just be turned loose. It feels too chaotic. We need some models. We need some numbers. We need a budget. So, once we've been listened to, right? Like take that out.

We've been listened to, we've been understood. We need that purpose. We need that new mountain to climb, right? We need proof. We need to understand the math around the retirement and we need a process by which it's realized. I think that once we get those things, then we're on our way. In the absence of those things, I think we don't have the rocket fuel to sort of pursue it the way we should, and we don't have the stability or the plan that gets us there.

Roger: I think the idea of having proof is a difficult one when it comes to retirement planning. I just had Rick Nason on, a professor who talks about the difference between a complicated problem and a complex problem.

In my opinion or observation, the planning profession tends to approach it as a complicated problem that can be solved. We just got to do the numbers. 

Dan: Yeah.

Roger: I would argue that it's not a complicated problem. It's a complex problem that is not solvable for a variety of reasons. So, it has to be managed. That proof is difficult because you can't prove that you will be okay, right? If I go and give a hundred thousand dollars to a charity, to my children at age 61, it's a bet that I won't need those hundred thousand dollars when I'm 80. At some point it's a faith with a structure of giving you confidence, but it's a leap of faith in a way.

That's the hard part, I think. 

Dan: It's definitely hard. This is not physics, right? I mean, we could die on the first day of retirement, or we could die on the 40th year of retirement.

I think there's a place for being conservative in those judgments, for sure, right, and I think you're never going to really die with zero, probably, right? I think you're never going to be able to spend that last dollar on that last day of life. But I do think that we can get into the ballpark. We know that the map is not the territory, right? When it comes to financial planning, there's acts of God. There is the human element that makes it more indeterminate than we would like. But I do think you can get in the ballpark close enough that it's, you can make meaningful life choices around it. 

Roger: The reason I had brought up that book, Daniel, is one of the exercises towards the end mirrored something I did with a client recently where we were discussing, they wanted to sell some rental properties and they wanted to take four years to do it because they're very methodical project managers.

I asked them, well, how long are you going to live? 

They said, 20 years. So, you want to take 20 percent of your life to sell these properties and manage this project. It's 20 percent of their life that is the front end when they're the youngest and healthiest. And some of it's having some of that perspective.

I thought of one of the exercises in Bill Perkins book, which I just finished literally yesterday was to write out the things that you want to do in life. Yeah, I want to hike, I want a mountain bike. I want to go to these places and then organize them by, timeline because certain things need to be front loaded just from an ability perspective as we age and I thought that was a good exercise to maybe help people see that holding on to the money or thinking that you're going to be able to do certain things later on is not the case because you're getting older and it gets even more front and center when you're 60 or 70.

Dan: Well, I mean, there's some behavioral science to creating these timelines. It sparks a sense of urgency in us, right? I see my parents, I call it twice a year, right? And my parents, if they live to an average age, will live another 15 years. I've got each visit with my parents is 3 percent of my total visits I'll ever have with my parents.

Like, oh my gosh, like thinking about it in those terms. Gives us a renewed sense of urgency. You know, I have a daughter who's a freshman in high school. We think about our summers with her and it's like every summer is 25 percent of our remaining summers with her. So how are we going to maximize those things?

I think what you did with your client is really brilliant to think about these. things and to put them on a timeline, which again is not perfect, right? Like my parents could die tomorrow or they could die when they're a hundred, but still running the numbers and giving it some urgency and doing some tentative math around it, I think gives us a kick that we need sometimes.

Roger: Yeah. That change of perspective really. With your children, I look back and I never had that perspective. I look back with my kids now in their 20s like, wow, there was a last time that I read to my kids. There was a last time I had summer with them, which leads to regret. That's part of the reason I think of doing this because.

If we don't have a model to give ourselves confidence, what will end up happening, and I have seen this, is like you said with the research, you're going to end up having more money than you expected when you were in your 80s or 90s, and you're going to look back and say, well, what could I have done? That will lead to Bronnie Ware's Regrets of the Dying that she pointed out. 

Dan: We're always looking for these behavioral hacks and regret aversion. I mean, people are wired to avoid regret in a pretty significant way, right? Thinking about or working with your advisor to talk about what I would regret is a powerful catalyst for living a fuller, richer life.

You know, maybe something that spending some of that money because we're less excited about getting something good than we are upset about missing out. We're two and a half times more upset about missing out than we are getting something good rather than framing it in terms of you know, hey, what could I do? It's actually weirdly powerful to say what might I miss out on if I don't just spend some of this money. 

Roger: Well, let's think of a couple basic things someone could do to overcome frugality if they're naturally good accumulators. Usually, the first one I go to is just make a one-year decision.

Don't make big decisions. Just experiment on one extra trip a year rather than three. planning out because that's just an experiment. One time probably isn't going to blow anything up. 

Dan: Yeah, I love it. That's great. 

Roger: What would be something else in your mind? 

Dan: I'm going to go with make those lists of regrets is one like really formalize that list of regrets. The Clonce's too a father son duo at behavioral researchers. They've done some research around how vividness actually helps people to make better decisions in retirement, right? So, you say, okay, I want to retire. Like I want to go live in a cabin in the woods. Okay. Well, which woods, right? Like, yeah. Okay. The woods of Vermont described the mountaintop to me. Like, what will it smell like? What will the maple syrup taste like on the pancakes on Saturday? Like really getting in that process of visualizing. 

You know, I wrote about this in my new book I have coming out that Michael Phelps, this is one of the things that he did when you see him prepping for the Olympics, all those gold medals he won, he's sitting there with his eyes closed, kind of visualizing going through all of it, deep visualization, talking with your partner, your advisor, whoever, about the nitty gritty, down to the very specific sensory details of what you want to do can be a powerful force for good.

Roger: I can think of an example of that, Daniel. That is, we have a number of clients that use their money to bring all of the family together on big vacations. I have one client who has like 18 grandchildren, but they pay for everybody. They rent the house or houses and they pay for everybody. People tend to die with experiences, not money, you know, as far as the people that remember you and that vividness of all of the people in the house and the things that are going to be done, the kind of conversations you have with those grandkids.

I essentially, what you're arguing is make that as vivid as possible because then it becomes real. Then you can go create it, and that will help give you permission to spend the money on something.

Dan: Great idea. Yeah, that's a really great example right there. 

This goes back, yeah, you triggered something in me. So long, like, for so many people, and I put myself in this camp. I'm a very aggressive saver. That's a point of pride for me. I feel like it says good things about me. I don't know if it actually does, but I get psychic utility out of that. Right. 

Roger: That's a great point. 

Dan: Yeah. Like I'm hardworking. I'm hardworking. I'm prudent. I'm thrifty. I'm taking care of my family. Okay, when I get to the top of the mountain, what does prudence and taking care of my family look like now? Because it no longer looks like this other thing. So, you can take that same value. 

In retirement, being prudent and thrifty and taking good care of your family might mean sending your 18 grandkids on a trip to Aspen, right? So, you can spend time with them. That's what it looks like to be a good family man, right? Whereas in my mid 40s with three young children, it looks like saving for their college.

Helping to take those core values and reframing them. It's a bit like a soldier, right? It's a bit like a soldier who goes to war and learns that every time you hear a loud noise, you hit the deck. Then they come back home to Pika and a car backfire and they hit the deck. Like, well, that's no longer appropriate, right? Like you're in Kansas now, you're safe, you're good. You learned a behavior that you're just misapplying in context. In light of your new context, how can you still be the person who you are and thread those values through? But maybe it requires a new behavior.

Roger: This is something that is a journey, not an aha moment. I'm different. 

Dan: Yeah. It's a journey, right? You're not going to undo 40 years of programming in 4 minutes. That's why I think you mentioned to just experiment, right? Like, small commitments. One year, take that extra vacation, do the family trip. How'd it go? What did you think? I think is a great one. We know that a behavior in motion tends to stay in motion, right? This is one of these, they call it foot in the door. Commitment theory in psychology is just experiment with behavior. See how it goes. We think you're going to like it. Spending money's quite nice. You think you're going to like it. Then you'll be back for more. 

Roger: The other, the other place I focus on is to decrease friction. 

I have had deep discussions with somebody about flying business class, if they're going overseas. It seems like such an extravagant behavior, but it totally changes the experience arriving fresh when you get to wherever your destination is, but it feels so extravagant or even mowing the yard right to send that off.

In the club in the Rock Retirement Club, I used to have office hours I've had hundreds of conversations with people that accumulated well, and one of the threads that I pulled in that is that they came into the meeting and said, usually they would present with some question about Roth conversions or some tax thing, but most of the time underneath, what I observed anyway was that they knew what they wanted to do, but they were trying to get permission to do it, which really was surprising to me.

I would argue that in retirement, this, for the people that have the ability and have the wealth, is not just a big opportunity to minimize regret and have an impact on your family. This is a huge untapped resource for the world, and because what will end up happening is people will just die with too much money. They'll have regrets. The family won't have the memories and the world won't have whatever gifts they might've been able to give along the way. 

I think as an advisor, we're perfectly positioned to help facilitate that and help give themselves permission. 

Dan: I think that's exactly right.

You know, another thing I see is that sometimes people have too tight conflation of their personal worth with their net worth. They think that the number they have in the bank is reflective of a life well lived, industry and thrift and commerce and all these positive things. But I think we have to help them think about what a life well lived in retirement looks like, one of the things that I've researched again for this new book. There is a term for shirt sleeves to shirt sleeves in three generations In every culture around the world, like, right, this idea that one generation sort of gets it started, the second generation builds on it, and the third generation squanders it, tends to be sort of a common human truism, and so if we're not thoughtful about the way that we distribute our wealth, it's likely that someone else down the line will be thoughtless about it, and I think we're not always setting people up the way that we think we are.

Roger: Now, remind me of the name of your book coming out this fall. 

Dan: So, the book out this fall is called The Soul of Wealth. 

Roger: The Soul of Wealth. We'll have a link to it in 6-Shot Saturday. Daniel, thanks for hanging out with me to noodle on overcoming frugality. 

Dan: You're a great dude, Roger. Here's to another 10 years.

LISTENER QUESTIONS

Roger: Now it's time to answer your questions. If you have a question for the show, Go to askroger.me. You can type in a question. You can leave an audio question. You can just type in something and say hi. We see them all, and we'll do our best to answer them on the show. 

HOW DO PEOPLE IN RETIREMENT SPEND LESS MONEY THAN MORE MONEY?

Our first question comes from Michael, and thinking about retirement spending, and this comes under what we call the vision pillar. There are four pillars to a fantastic retirement plan or a sound retirement plan. Vision, feasibility, resilience, and optimization, and this is definitely in the vision pillar. 

Michael says, 

"When I fill out a retirement plan, the advisor suggests that I use a value for my expenses that is less than my current expenses, but when I think about it, I don't see how my expenses in retirement are going to be less than my current expenses, except for paid off my house, which won't happen for a number of years from now.

With all the free time I have, it's likely that I'm going to join a gym, I'm going to go on more vacations and shows and concerts. So how do people in retirement spend less money than before retirement?"

That's a great question, Michael, and it sounds like your advisor is using a heuristic, which has been around for decades, which is you're going to spend roughly 80 percent of what you spend while you're working.

Where that came from, I don't know. I think the logic goes that you're not going to have commutes, you're not going to have all the work clothes, and so it's likely you're going to slow down a little bit. I think it's an outdated concept, so I wouldn't suggest you assume you're going to spend less in retirement.

I'm in your camp, Michael. That comes from a more of an outside in retirement planning process, meaning that we'll use these heuristics and fit you into that box. 

My suggestion, Michael, if you're really serious about building a retirement plan that you can have confidence in, is to build it from the inside out, which is going to take a little bit more work on the front end, but it's going to help set you up with a plan that is specific to what you want and is more dialed into your preferences. That's really important. That way, you can work with the advisor to see if it's feasible. 

So how would you build it from the inside out? So, you're going to have a few categories. Let's call it needs. I'm going to say this is a base great life. That's the phrase that I like to use, Michael, and the first number that you're going to want is just base spending. What is that base spending that you have to have every month to cover your groceries, your utilities, some basic eating out, some basic travel, just household stuff? Come to a monthly or annual number after taxes that is going to just help live the life of Michael or what that number is. 

The second part, once you have a base great life number, let's just assume that's 70, 000 a year. I don't know what the number is. We'll assume that's 70, 000 a year. We also want to add that you said you had a mortgage, you're going to want to add the mortgage in separately from that base great life number.

The reason that is, is if you have several years before that mortgage is paid off, that mortgage doesn't increase with inflation. Your base great life within the retirement plan is going to increase with inflation every single year. But if you have principal and interest payments, Let's say for 10 years and let's say your mortgage is 2, 000 a month. So that's 24, 000 a year. That number is not going to inflate every year. So, we want to account for that separate.

There we are now we're at 94, 000 with some of that not inflating. The other thing you're going to want in your needs category is your health care. The reason we separate this out is because it's such a big variable depending on whether you have retiree benefits, whether you're on Medicare, whether you're going into the Affordable Care Act. Whether you're getting subsidies or not, and even if you're in the ACA program, and once you turn 65, you switch to Medicare. It's better to have this separated. Most retirement planning software will have assumptions for all of those different seasons of healthcare expenditures. Plus, usually they will have a higher inflation rate.

At a minimum, Michael, rather than just use 80 percent of what you spend now, I would dial in, as best you can, what your base great life is. If we assume it's that 70, 000, then use that, and if you may have Quicken data on this, you may back out some extraordinary travel. I would suggest that you do just have some very basic travel in there.

If you don't know the number, I would just start with what you're spending now. I wouldn't decrease it. Then you add on top of that the healthcare. So now we're at 94, 000. Excuse me, the mortgage in this case, we're at 94, 000. Let's assume health care is 15, 000 a year. So now what are we at? We're at 109, 000.

So, we're at 109, 000 per year for a base great life. So, I would build it that way, Michael. Now you say, well, what about my gym membership, and vacations, and going to shows, and concerts? I would not include some of this spice in this needs or base great life category. I would call this wants. 

Here you might add things. You would maybe pull out the travel that you normally do, but you might say travel. I want to travel at a thousand dollars a month. So that's 12, 000. And then you could say that's going to happen for the next 15 years. You may say, I want to have another, I want to have a big trip. every three years, which is going to be an extra 15, 000 a year. I want to join this country club, or I want to go to these concerts. You can build your plan from the inside out and build out those cash flows, dividing them between what I have to have. That's that needs or base great life category. And then adding in the wants or that spice, which are the, I would sure like to have these, if not all the time, most of the time. Then you could even put in some aspirational things of, wow, if this all works out great, then I want all of this stuff. 

I think that's a much better way to do this. If you're really getting serious about this, Michael, because then that will create your vision, and then you can go to pillar two to see if it's feasible given the resources you have to pay for life over this 30, 40-year timeframe, whatever it is you're planning on.

If it's not feasible, Michael, then you can negotiate with yourself. Now that you have it all laid out and you have some of these things teased out and not just one heuristic number, you can say, well, what if I slow travel down like this? Or what if I added part time work? 

This is where I think, Michael, if you're working with an advisor, you want an advisor that really does retirement planning because just filling out a worksheet and assuming that you spend what you're spending now, or it's 80%, some of these simple heuristics, is going to have downstream consequences in terms of your decision making.

It actually gets, this is somewhat high stakes, because if you just use, let's say, 80 percent of what you're spending now, and that's what the retirement plan is built off of. That may handicap your confidence in doing some of this extra stuff later on. It's not going to help you and your advisor think very creatively about it. That's how I would suggest that you approach it, Michael, is not use these heuristics, but build it from the inside out and go through a logical process. 

DOES IT MAKE SENSE TO USE MONEY ALLOCATED FOR A 401K FOR A SECOND HOME?

Now let's go to your second question, which actually fits in with the feasibility question, and this is might be something that you put in that aspirational category, in the vision pillar.

Michael, you said, 

"I would like to move to a lake house when I retire, but it would be even better if we could have a lake house as a second home before retiring. I can't afford the mortgage on a second home and making it a short-term rental seems risky and a lot of work. Does it make sense at all to use money I am currently putting into my 401k to pay for the second home?"

Let's think about this for a second, Michael. 

So, let's assume that if you buy this lake house that you say you want to live in when you retire, and I don't have a time frame here. So that's an assumption of a dream. I want to live in a lake house when I retire, but hey, I would be sure nice to have use of it now rather than five years from now. Should I slow down paying my 401k in order to pay the mortgage on the lake house? 

Number one is, these ideas of what you want when you retire, Michael, will likely change a lot. So, we just need to acknowledge that. If Michael today wants to live in a lake house when he retires, that's like the guy in Shawshank Redemption dreaming about what he wants to do when, like, go to Mexico when he gets out.

He's institutionalized, he thinks that's what he wants, he idealizes it, but when he gets there, it may not be the thing that he wants. So, we just need to acknowledge that, Michael, to really dig deeper based on these financial decisions. But let's take that out of the equation for the moment, because you're going to change many times as you walk this journey.

Should you slow down your 401k contributions in order to pay for a lake house? That answer is going to be dependent upon, is your plan already feasible? If you have this vision, I suggest creating a vision without the lake house. See if it's feasible, have your needs, your base, great life, your wants, have that dialed in and know that it's feasible and make a feasible plan of record where you've looked at the analysis. You say, okay, this is a safe path. That feasible plan of record is going to have 401k savings contributions between now and retirement. factored into it, then you can create a what if scenario and say, well, what if I put this down payment on a lake house and I stopped saving my 401k so I could have that money go towards the mortgage of the lake house, factoring in the extra costs of the second utility bill and et cetera.

Then when I retire, I sell my current home, bring those assets back into the plan, and then off to the races at your lake house. Once you have a feasible plan of record without the lake house, then you can create this what if scenario to see if it's feasible. Maybe you need the savings for the 401k. Maybe that is part of making a feasible trajectory. And if you don't, it'll help you think out some of the extra costs of having this lake house and the down payment and the extra utility bill. 

Then once you have the what if scenario, you can poke around at how resilient that plan is. If I don't have these extra savings and the market goes down, what happens to my plan? That's why we want to think through this logically, Michael. So, in this feasibility stage, that's how I would suggest that you approach it, which means you need to have an advisor that's not just using heuristics, because this is very much a bespoke type of plan. Because every life is, well, bespoke.

A COMMENT ON THIS PAST RETIREMENT PLAN LIVE 

Our next question is really some constructive feedback related to Retirement Plan Live from Michael. I don't think this is the same Michael. 

Michael says, 

"Roger, you did it again. This year's profile is too easy. This couple has no financial issues. You have to start picking more challenging profiles of people.

Each of these couple have more than enough resources. It really doesn't make a difference how long they go about spending their money."

Michael sent this just this January, I'm assuming it is related to the couple that backed out number one on that retirement plan live of the late in life marriage.

Michael, with this couple, I didn't get to the part of what they had in finances. So, for the results to show, I just made all that up to be honest with you. I disclosed that I did that. Hopefully you enjoyed the retirement plan live series case study we did a year ago with Rosie related because that definitely was not too easy.

But I want to talk about this too easy point when it comes to the people that we're doing for Retirement Plan Live.

Everyone, it doesn't matter how much money you have, is dealing with particular issues around which pathway to go. Sometimes it's not will I run out of money? But how do I create a great life and or what pathway should I go on even if most of them won't run out of money are still issues to those people.

What's that old phrase of just because you are bleeding from the leg doesn't mean my sliver hurts any less. Everybody is dealing with their own issues.

What's interesting, Michael, is as we take volunteers for the show, one, it's the contingency of you and others that listen to the show. The majority of them have networks. I don't have the numbers in front of me. Between One in three, four million. There are maybe, I think it's maybe 20 percent or under a million. So, part of it is just who listens to the show. Those that are underfunded, many of them, one, aren't listening to the show or aren't interested in facing their situation in public. 

There haven’t been a lot of volunteers where it is drastically underfunded or facing very challenging financial situations, because facing that in public is very different than facing it on your own.

I understand what you're saying, but I would say that we all are facing our own issues regardless of how many zeros, and I know there are some studies, a number of studies have said it doesn't matter how much money you have, you don't feel like you're wealthy. Wealthy people don't feel wealthy. 

That's just human nature, but I get your feedback and we are sensitive to it, and we'll continue to try to find people that create good learning lessons for all of us.

HOW TO FUND MY HSA

Our next question is related to health savings accounts. This is going to be in the optimized pillar, which is what decisions can I make to enhance a plan that is already feasible and resilient? 

This comes from Denis with one N. Denis wants to fund his HSA account. 

"I am retiring on February 2nd, 2024."

Denis, you've already retired. I'm answering your question now, but huzzah! Good for you, buddy. I hope that your first couple months are going well."

Denis says,

" I've been enrolled in my employer sponsored family HSA for the past five years and been contributing to that. I've recently enrolled in the Affordable Care Act, in a bronze plan, the insurance website does say that is HSA compatible. I called the rep and they said, yes, it is a compatible plan.

My question is, how can I continue to fund my HSA after I retire? I've transferred my employer HSA to a Fidelity HSA. Can I use after tax cash to fund my Fidelity HSA in 2024?

My wife and I are both over 55. We've been maxing out our HSA. This year the limit is 9, 300. If I can do this, would it be considered tax deductible?"

So, Denis, it sounds like you've navigated a lot of this. An HSA account, a health savings account, which you qualify for as you know if you use a high deductible insurance plan. They're HSA compliant using that phrase. It doesn't matter whether you're employed or not, and your health savings account is not related or connected to your employer. Now they may have an HSA provider that they use to be able to process the contributions, but you're able to move that anywhere you want. It sounds like you move that to Fidelity, which is where I have my HSA and manage my HSA account. But as long as you and your wife. are covered by a high deductible health insurance plan for the entire year, you can contribute the maximum amount, the 9, 300 you said for 2024. 

If you're eligible, if you have an HSA plan, let's say you're employing, you retire, In the middle of the year at some point, and then you move to a health care plan that is not HSA compliant, then your contribution would be limited to the period of time that you were covered by an HSA compliant plan. So, you're totally fine there. 

Now, in terms of how that interacts with the premium tax credit related to ACA. I don't think it has any impact, but that's definitely something that you're going to want to research further. But I'm fairly confident that it is not, but these can be quirky on a state-by-state basis.

HOW TO LOOK FOR BLINDSPOTS ONCE YOU HAVE YOUR FEASIBLE PLAN OF RECORD

Our last question today is from George. He said, 

"Hey, I found your podcast in 2022. I've listened to all the episodes back to 2014."

yeah, George. Wow, I went back and listened to the first episode. This is the 10th year and I was checking it out. I'm like, oh man, wow, I was very self-conscious. I'm a lot less self-conscious now. I think that's better, but kudos to you.

He says,

"My status. My wife is 62 years old and retired for 18 months. I am 57. Plan to retire January 2026. Two sons, are in third year and first year of university."

Then he says, 

"Plan of record. Check. I have that done. Mortgage paid off. Check. I have that done. Investment assets."

He listed out a number of things with investment assets. 

"Our home is on a single floor. Good to retire in. Check. Monte Carlo analysis via Vanguard suggests 94 percent likelihood of success. Check."

So, his question is, 

"What are blind spots I should look out for?

What other financial preparation categories, actions are we not accounting for and need to apply some mindshare to?"

That's a great question, George, and I love the agile attitude of, okay, now that I got the basics set up, what risks and opportunities are out there? 

That is a question, George, that constantly is on my mind when I'm working with clients or thinking about this subject is, you got to poke around.

It's a process of poking around in an iterative fashion. One area that I see as a blind spot for many, and I would say for many advisors that do not specialize in retirement is not just simply having a feasible plan of record, which say your Monte Carlo analysis lets you know, hey, from a long-term trajectory, we're 94 plus percent. That sounds totally feasible.

Where you want to continue to go back there, George is quality check the data that you have entered because that's one thing that can trip us up. Oh, I didn't have inflation on this one, or I double counted this expense, or I double counted this income. Continue to quality check the entry of all the data and the data itself. That's where I see people trip themselves a lot. They entered something incorrectly. Garbage in, garbage out in terms of feasibility. 

Yeah, so that's number one. 

Number two is, is where people start to get a lot lower resolution in the retirement planning is creating a resilient plan of record. I see this not happening with generalist financial planners and individuals all the time, meaning that feasible is great, but feasible doesn't mean resilient.

It's feasible for you to accomplish it, but it could be very fragile plan that one bear market or one health care shock or bear market and health care shock could knock you off course and swamp your journey. Getting a resilient plan of record in place, I think, is where most people miss or they don't do it in depth enough. To me, the default of a resilient plan of record is having a contingency fund. Having five years of expected outflows from your financial accounts prefunded in bonds or fixed security maturities that mature when you're going to need the money and then have money allocated towards long term growth-oriented investments. That, to me, is the baseline of a resilient plan of record and that's something that a lot of people miss. They just, well, I'll just sell it when I need it, etc.

Now that you have this resilient plan of record, or feasible plan of record, in your case, George, stress test it. Stress test what happens if you have a bear market today.

As an example, let's assume your overall allocation is 60 percent stocks, 40 percent bonds. A simple way to stress test that is, From October 07 to March of 09, which was the peak to the bottom of the market back in 08, that type of portfolio, assuming you didn't bail or make big changes, would have gone down roughly 26%.

So, a simple way to stress test it is, if you have a million dollars, handicap that by 26 percent and rerun the Monte Carlo scenario to see how feasible your plan is if your assets go down by 26 percent and if you have a different allocation, you can test the sensitivity to going through that type of scenario.

Similarly, you can stress test a feasible plan of record by saying, okay, what happens at 85 or 80 if I have long term care event at 80, 000 a year? In today's dollars for four years or five years. What happens if I'm married and both of us have that happen? You can start to stress test to tease out where you might need to address some issues.

This will become a continual exercise for you. That's why you need to be agile. That's why this is never done. That doesn't mean, That's bad. It just means we can compartmentalize it so you can go about living your life but the goal is to continue to tweak this and poke at it. I think those are the areas that I would start with, George.

With that, let's move on to our Smart Sprint. 

TODAY’S SMART SPRINT SEGMENT

On your marks, get set,

Now it's time to set a Smart Sprint. Something you can do in the next seven days to not just Rock retirement, but rock life. 

All right. In the next seven days, I challenge you to examine your retirement plan and ask yourself, is there something else I should add that's important to my life? 

If you're like the listener who had a 94 percent feasibility rating, is there something else you could add in that maybe you self-edited when you were setting your goals or perhaps your spouse self-edited? Is there something else you can do to overcome some frugality? and bring more joy to your life or to your retirement. 

This doesn't have to be money related. It can be adding an expense for someone mowing the yard or for that trip that someone talked about that you never did. It can be that, but you can also do this in a non-financial way.

I want to have you examine some of your assumptions to see if you're being overly frugal just because that's how you were made. 

CONCLUSION

I always love hanging out with you on the show. I don't have it here in front of me, but I want to talk about one of our pledges to you related to this show. Had a lot of you filled out. Thank you so much for filling that out, by the way.

Over the last few weeks, I've been reading the answers to the listener survey that we had conducted, which we had about 2000 people respond, which is amazing. The two areas where there was the most gold. was where you filled out in your own words, comments back to me on one thing you would like to see that would make the podcast better. Just random, tell us anything you want to tell us. It reminded me of the pledge that we have for the show and that we're going to lean into a little bit more going forward. 

Number one is we are focused on you rocking retirement. We're focused on having a curious mind and having you question some assumptions that you may have of how to do that just like we question for ourselves and the process that we use. We're not going to bring people on just because they're famous or they have big platforms. We're going to bring people on because we think they have something interesting to say that we want to explore further. That's generally how I choose guests.

We're not trying to be bigger and fancier. We're just trying to be better for you and better for us. We're not going to talk about products for money. Yes, we talk about the Rock Retirement Club so there's some self-interest there, but we think it is the premier platform for someone to learn how to rock retirement without getting sales pitches and having to necessarily use an advisor. We're going to talk about that, but respectfully.

One big thread that I pulled from the show, and we're going to have some reformat adjustments going forward, is that we want to be focused on you. We want to be focused on you and actual things that you can do to take baby steps in the financial world and in the non-financial world.

We're going to try to close the aperture and get a lot more focused on that, because that is the point of this. That will help me get better, but hopefully it'll help you rock retirement. 

The opinions voiced in this podcast are for general information only and not intended to provide specific advice or recommendations for any individual. All performance references are historical and do not guarantee future results. All indices are unmanaged and cannot be invested in directly. Make sure you consult your legal, tax, or financial advisor before making any decisions.