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Episode #591 - Process Over Panic - Building a Great Life with Dr. Meir Statman

This podcast is dedicated to helping you survive retirement with confidence.

Roger: About 10 years ago, I started doing something daily that has literally changed my life. Every morning before I get out of bed, I smile and I say, I'm going to have a great day. There will be challenges, but it's still going to be great, and you know what? It works.

Welcome to the show dedicated to helping you not just survive retirement, but to have the confidence to lean in and rock it because you're focused on the right things. Seriously, man, it works.

Today on the show we are going to focus on the non-financial realm. As we continue this focus on process and distinguishing between the things we can control and the things we can't control. I'm going to go through the four non-financial pillars that we focus on.

In addition to that, we're going to have a legend in the behavioral finance space, Dr. Meir Statman, author of A Wealth of Wellbeing. This is a guy that you should listen to if you want to rock retirement. He's going to share his thoughts on what they've identified as the things that help people have a great life.

Now, last week we didn't get to any of your questions, so we're going to answer some of your questions today as well. We'll answer one on using the 72-T strategy. That's the substantially equal periodic payments technique for getting money out of IRAs prior to 59 and a half. In addition to answering the question today, I'm going to share a video walking through the basics so you understand the concept in the case that it might be applicable to you. We'll share that video in our weekly Noodle m email. You can sign up for The Noodle email, which is a recap of the show as well as links to special resources. You can sign up for that at thenoodle.me. So that's what we're going to do today.

Just to forecast, we're going to have another legend on next week when we focus on investing and we're going to have Charles Ellis, author of Winning the Losers Game. Man, he is amazing, and that book is pivotal in my investment career. So, I'm excited for that as well.

ROCKIN’ RETIREMENT IN THE WILD

All right, so let's get going by talking about somebody that is rocking retirement in the wild. one thing that's nice about sending out the noodle on a weekly basis is that when someone hits reply, it goes directly to me. Now we get a lot of questions and we log those questions to try to answer on the show. But every now and then I get constructive feedback. Sometimes nice, sometimes not, but that's okay. But I also get you and people like you sharing their journey to creating a great retirement, which is always awesome. I'm going to share it anonymously and I'm just going to read what they wrote.

“I wanted to sincerely thank you for sharing your expertise with us non experts. My husband just announced his retirement last week and thanks to your processes, we no longer fear our ability to fund the rest of our lives. We have at least five years of stable funds and honestly, neither of us has checked our investments yet. With these volatile markets this year, we know we'll soon need to look, but we're confident that this money we don't plan on touching for at least five years. I'm so glad my husband discovered your podcast a few years ago when we were just beginning to think about this stage in life. I know that sometimes people can be quick to criticize, so I want to make sure you hear how truly grateful we are.”

That is what this is all about. It's about you having confidence to make decisions and confidence that you can navigate as all the craziness of the world in life unfolds. We're always going to focus on that. Congratulations on his retirement. I don't know if you're retiring or not, but I hope you have a wonderful journey. I'm sure it will be.

PRACTICAL PLANNING SEGMENT

All right, well, let's move on to talking about the controllables and uncontrollables in the non-financial realm. so, at this point in time, you've likely been working, saving and investing for decades and building a life along the way. If you're approaching retirement or newly in retirement, it's very easy and logical to focus on the financial aspects of funding your life. When you don't have a paycheck, this is pretty important because you don't have a paycheck and you need to be able to fund your life. What can happen though is we can overemphasize the financial end of things and focus on markets and the economy and outlook and not focus on the things that really are drivers of creating a great life or rocking retirement. Money is important, don't get me wrong, it's a serious business planning from a money aspect of it. But over the years, and this is 35 years in my case of working with people moving into retirement, rarely do I equate having money with people that I see as the happiest and the most fulfilled in retirement. It definitely helps. But I've seen very miserable people that have tens of millions of dollars. I've seen extremely happy, fulfilled people with much more modest means. I think Wes Moss, who wrote the book What the Happiest Retirees Know, did a lot of research on what makes somebody happy in retirement. His research said it's around 500 to 800,000. I don't know how that number came up, how he came up with that number. But the point is money is important to fuel life, but it's not as important as we think. Oftentimes in retirement planning, we're so focused on the money that we forget to focus on the rest of our lives.

Let's identify some things that are controllable and not controllable that we have to manage within the four pillars of the non-financial life in retirement.

So, pillar number one is mindset. I have observed that the healthiest people, the most satisfied people in retirement have an optimistic, can do mindset in retirement. Now there's a lot of things that can derail our mindset. I had a really bad day yesterday. I got derailed and was not my best self. What are the things that aren't controllable when it comes to mindset? Well, one thing that's not controllable is what others do or expect or want from us. We can't control that.

Another thing that we can't control is how the world is. We can't control outcomes. We can control our actions, but the outcomes are independent of that. That's something that I learned in Thinking in Bets, by Annie Duke, a great book. So, there's a lot of stuff out there in the world that we can't control. What can we control? Well, one of the things that we can control is how we talk to ourselves. That's an interesting one to think about. We generally are much kinder to everyone else than we are to ourselves. We're our own harshest critic in our head, but we can control that narrative. We can control accepting the things that we can't control. So, we have more peace. We can control how we judge how things happen and how we ah, react to those we can control. Beginning the day with a smile, acknowledging that things won't go all of our way, but affirming that we're still going to have a great day. We can control what happens when challenges pop Up. We can ask questions like, what does this make possible? My car broke down. What makes this possible? Or when we're dealing with a difficult situation, ask ourselves, do we want to pour gasoline on the situation by our reaction, or do we want to pour water on it? We can ask the question, okay, this just happened. Yeah, it sort of sucks, but what do I do now? These are things within the mindset category that we can actually control and that we should foster good habits with.

What about energy? Energy is an important one. That's the second non-financial pillar and essentially, we have to be a participant in having the energy to show up for our life. There's a lot of things we can't control here, right? We can't control aging. We're going to get older, we're going to get stiffer, we're going to get less flexible. We can't control accidents, and we can’t control genetics. We can't control when cancer or another disease pops up. We can't control the healthcare system. It's easy to get frustrated about those things and feel like we're a victim of those things. But there are things where we can have some control and agency. We can control our healthy habits, right? We can floss, we can eat healthy, we can have good sleep rituals to try to improve our sleep, even if it's imperfect. We can exercise, which is cardio strength, stretching. We can control doing breathing exercises. Even in the health care domain of interacting with our doctors, even though we can't control the system, we can make sure we're having regular checkups and following the protocols to try to identify things early. we can engage with our health care professionals, as imperfect as the system might be, to be proactive and be an advocate for ourselves and push our doctors and nurses to be advocates for us when sometimes they're overwhelmed. We have areas we can control even here.

Now the third pillar in the non-financial realm that we need to take action on is our passions. Work usually fills a lot of this. Essentially, happy people have projects. What are we passionate about now? What can't we control in this realm? Well, I've seen we can't control our capabilities in some ways due to wear and tear on the body and aging. We could have sports or interests like basketball or running or something like that that we're very passionate about, but because of injuries or wear and tear, these are not healthy things for us to do anymore. We can't control that. We can't control the loss of our titles, head of marketing or head of a team that you're leading. We can't control the loss of those titles as we transition or the labels we defined ourselves by for a long time. We can't control those things. But what we can control is our passions, the things that we pursue. We can cultivate curiosity and cultivate creativity. We can continually try things to find a purpose. We can work to serve others, to discover new activities that we can do. If you can't run, maybe you can become a passionate cyclist. If you led a team that really brought you joy and you retired, well, maybe you can volunteer or mentor to lead teams. There are things we can find in control here to find interests and pursuits and passions to fulfill our life because we're always going to want to have goals and to achieve something.

The last pillar, which is probably the most important, at least in a lot of happiness studies, is our relationships. Most people's lives are a direct reflection of their peer groups. You are like the people you hang out with now. What is uncontrollable here? Well, what's uncontrollable is the natural ending of things. We have people that move away and move out of our lives. We have people that pass away. We have change when we leave careers and we don't interact near as much with some people, we can't control a lot of that. The other thing that we can’t control, this is a big one, the foe, family of origin. We have parents and siblings and nieces and nephews and aunts and uncles. We can't control it. We didn't select them, we were born into them. Many times, those people dominate our life. But where do we have control? We could be victims of that, we could focus on where we have control.

We can set boundaries, now it doesn't mean it's easy. Remember Thomas Sowell's quote, “There are no solutions, only tradeoffs”. We can set boundaries on what we're willing to do for others, who we allow to speak into our lives. We can set those boundaries. We can focus on fostering and building better relationships. The number one task there, by the way, is not meeting more people. It's becoming worthy of being a friend. If you want to build friendships, you need to cultivate curiosity. You need to be interesting and be creative because that will be attractive to other people. You need to focus on finding your people. Who is your peer group when you leave work? What kind of people do you want to be around? Do you want to be around people that complain about their health or the country or things? Or do you want to be around people that are trying new things and reading interesting books and involved in conversation? You need to find your people and then you need to put yourself at risk and kiss a lot of frogs, as they say. Right? You have control over that.

We went on a friend date recently with some new friends, people that we met here in town in Colorado, and we had a great dinner. It looks like, hey, this might be the spark of a friendship, but you can go on other friend dates like that and realize, oh, yeah, we don't have much in common, even though they're really nice. There is always something you can control in your mindset, in your energy, in your passions and interests, and in your relationships. That's the key to building a great life, is finding where you have control. It is always helpful to show some exemplars of this and we all can probably think of a number of them in the public realm. I just did a little bit of basic research to find a few.

One of the OGs of this in the modern world is Viktor Frankl, who was a holocaust survivor. He lost his pregnant wife, his parents, and his brother in the concentration camps and then went on to develop a whole psychological foundation by writing Man's Search for Meaning, a wonderful book that has sold millions of copies. He did not let all of that tragedy define him. He found areas where he had control.

Think of Nelson Mandela who was imprisoned for 27 years. He had a lot of reasons to feel like a victim and feel a lot of hate towards others, but he found the things he could control and became a leader of his fellow people.

Maya Angelou. After experiencing trauma and sexual abuse as a child that left her mute for nearly five years, she transformed her pain into powerful literature and went on to write I know why the Caged Bird Sings.

Another one, and I'm going to mispronounce his last name. Nick Vujicic. Google him and watch a video of him. Inspiring guy. He was born without arms and legs due to some rare disorder and he overcame depression and suicidal thoughts to become a world renowned motivational speaker.

But let's close the aperture to quote unquote, normal people like you and me. This is where I have found the Rock Retirement Club a source of inspiration for me and for many other members. I mean, just off the top of my head, I can think of Elaine and I can think of Susan and I can think of Mark Trotman who has a podcast, Mark’s Money Mind. Great podcast. All of them widowed right at retirement, married long time, lost their spouses right when they were ready to go on a grand adventure with them. Each of them, because I know them from the Rock Retirement Club, have created great lives, and are in the process of creating great lives. Elaine, whom I saw the other day, is traveling the country in an RV, mountain biking, and she's in her mid-60s. I think of Rick in our club, and this is seven years ago, was diagnosed with ALS and didn't become victim. He went and traveled the world with his family and his wife. Once Rick passed, I was able to be part of his wife’s journey in the first few years of reimagining her life, and she is rocking retirement now.

There are countless examples in the club and in your life of people that have had things that happen to them that would give them every right to say, my life is not great. My life isn't going to be great, and I thought it would. But they found a place to find agency to create a great life from that tragedy. That is the work of being human and we can always choose to focus on the things that we can control rather than the things that we can’t.

All right, with that said, let's have a chat with a legend in this area and a wonderful man, Meir Statman. If you're not familiar with Meir, he is the Glenn Klimick professor of Finance at Santa Clara University. His research focuses on behavioral finance, and he attempts to understand how investors and managers make financial decisions in his most recent book, and we'll have a link to this in the Noodle, A Wealth of Wellbeing: A Holistic Approach for Behavioral Finance moves beyond just simply financial decisions. We'll have a link to his bio. This guy has spent his life working to improve behavior within the financial realm, and now within creating a great life outside of the financial realm.

So, let's go have a wonderful chat.

I'm here with Dr. Meir Statman. How are you, sir?

Dr. Meir: I'm, okay. Good to speak with you, Roger.

Roger: I'm excited to speak with you. Your book came to me, and I got so excited. I was blessed to have Amazon get it to me in a day because I like physical books. Your book, A Wealth of Wellbeing: A Holistic Approach to Behavioral Finance. My first question is what motivated you to write this book as a behavioral Finance researcher and professor.

Dr. Meir: Well, I've always been interested in human behavior. Everyone is, yeah. but I do it professionally, in the area of economics and finance. At the beginning, when I was a student in the late 60s, we talked about rational people just maximizing their wealth. Then I discovered the links to psychology that enabled me to answer questions that were not answered before. like why is it that, that people like dividends? Why is it that they are reluctant to realize losses?

We describe people as irrational. I never really like that. I think that people, people are normal. and so, we moved from this notion of rational to irrational. And then I think that normal is describing who we are. I wanted to expand that domain, that circle of, of finance to include, ah, life. To include life, wellbeing, you know, because, because finance is more than about the numbers. Yes, I teach the numbers, but it is really about, about life. I try to bring this in reading a lot by psychologists and sociologists and people in the law and people in politics and so on. As you could see in the book, I combine a lot of literature that is not known by people in finance, a lot of literature about wellbeing, with stories that bring those usually dry studies to life.

Roger: When I think about modern portfolio theory and one of the assumptions in it is rational players.

Dr. Meir: Yeah.

Roger: I think that proves, you know, in practice that's not true, especially individual investors. Irrational does seem like the next place to go, but it's really normal. So, this is a way of bringing it off of the spreadsheet in a way in real life it is normal.

Dr. Meir: That is right. There is more to life than figuring out whether you can spend 4% or 3 and a half percent in retirement and all of that. Now let me say something that, that might be surprising to you. I knew Harry Markowitz and we wrote some papers together. and Harry Markowitz, despite the fact that he knew his mathematics and he did his, his mean variance, portfolio theory, he understood people and he knew that this is not how people actually behave. and so, we wrote a paper together about how people in fact create their portfolios. The idea is that people do not treat their portfolios as kind of one blob, but rather there is money for retirement and there is money for educating the kids and there is money for living, for the kids or community and so on. and so that really is something that not everyone knows about how broad and thoughtful and wise Harry Markowitz was.

Roger: You sort of get pigeonholed when something takes hold like that. Right. Essentially different pots of money have different time horizons and purposes.

Dr. Meir: He understood it very well. you know, I, I would, I would sometimes tease him about, about his behavioral kind of, of scar. and he would say, well, mayor, you, walk on your side of the river and I will walk on mine. Still, he still took pride in mean variance portfolio theory because that is what won him the Nobel prize. But he did it with a smile, knowing what, what people really are. He was just a delightful, delightful, man. I'm really fortunate to have been his friend and collaborator.

Roger: When I think about that, what I think about is, and I imagine that in your profession you have to have this, you're just naturally curious and hold things lightly because you're searching all the time. You're not rigid in an opinion versus searching for uncovering truth in different ways.

Dr. Meir: That is right. That is right. Yeah. And I think that if you are a professor, and I make decent money, I'm not complaining at all. In fact, I'm accidentally a wealthy man. But really what drew me to academia is really this ability to explore ideas and to expand and to see connections where people don't see them. I'm amazed at many of my colleagues in academic finance who are able to separate their personal lives from their scholarship. They behave in ways that you would describe as normal or sometimes funny and absurd. but somehow when they come to their papers, you know, there are those rational people who don't ask themselves why is it that a supermarket places the bread, and the milk in the back, and the chewing gum and chocolate in the front.

You talk about moving from financial wellbeing to life well being

Roger: Well, let's talk about behavioral finance and my impression of it as a practitioner for 30 plus years. So, I can have a difference, you know, come from a different perspective. I think they both are really important is the, the framing of the problem of personal finance or financial planning is money. And it came from the money industry. So that makes sense. Personal or behavioral finance started that way and focusing on why investors make mistakes or do make certain decisions within the money domain and all the different, you know, endpoint bias and all those types of things. It always felt like there was so much more to explore beyond simply investor decisions and behavioral finance. I think that's where you outline this really well in your book in terms of the generational evolution of that. Can you talk about that a little bit?

Dr. Meir: Yeah. So, you know, actually when you read the work of, say, people even in economics or sociology, sometimes they will list finances kind of last. And in fact, if I ask you what is most important in life, you are probably not beginning with money. You're probably going to save family and friends and community and so on, but you need money for all of that. It is important not to denigrate financial wellbeing and not overemphasize it. Now we moved, as you said, in that first generation, and most people, when they think about behavioral finance, still think about this first generation. It is about things like overconfidence and regret and so on. How funny people are, you know, that they try to beat the market, that they trade too much, they are reluctant to realize losses, and so on. I think that that is important. You know, it is really important to get people to make smart decisions, rational or not smart decisions. But again, there is more than that. You know, for one thing, in the first generation, the focus was on kind of the mistakes of stupid people, irrational people. In the second generation that I describe is one where we think about financial products, stocks, bonds and so on as the equivalence of cars and restaurant meals and so on, that people derive utilitarian benefits, but also expressive and emotional benefits. Just think about choosing, choosing a Toyota versus choosing a Lexus.

Roger: You know what it says about yourself and all that. Yeah.

Dr. Meir: When I say that to people in marketing, they say die. You know, we know that. But somehow for people in finance, it kind of strikes them as being just a bit, a bit outside the field. But then beyond that, in that third generation that I describe in this book, it is really to say you need money to have life wellbeing, but it is life wellbeing that we seek. Life wellbeing is about family and it is about friends and it is about work and health and religion and society. All of those elements matter in determining whether you have the life wellbeing that we are that, that you are searching for.

Roger: Can I restate that? In that it's moving from how we behaviorally manage ourselves to optimize return and evolving to how do we manage ourselves to optimize wellbeing. Finance is part of that.

Dr. Meir: Yeah, we talk about financial wellbeing and financial wellbeing is about managing your saving and spending, such that, you take care of today and you take care of tomorrow. Retirement, how do you sustain yourself in face of shocks. Losing a job, for example, and so on. These are all important, but you really have to move from that to life wellbeing. and life wellbeing, as I said, includes financial wellbeing, but it goes beyond that.

Roger: That is the like in my domain of retirement planning, which is where my mastery journey lies and curiosity lies, that becomes financial wellbeing is a part of a bigger whole. I you like, we all have good examples, we could probably come up with the people that are excellent in their financial wellbeing but are very inadequate in their personal capital or their social capital or other areas. So, it's really about building a non-flat tire, so to speak. Right. So, let's go ahead.

Dr. Meir: Yeah, that's a good way of describing it. I think that there's a U curve, as you know, in life wellbeing. So young people wellbeing tends to go down from early adulthood to middle age. and then it begins to go up. You ask yourself why is it that people in their 70s enjoying higher life wellbeing than people in their 40s? The answer is that if you are smart, as an older man, what you do is you tamp down your ambition. Ambition is a wonderful thing. You know, if I were not ambitious, I would not go into a PhD program, I would not strive to move from being an assistant professor to associate and full professor and so on. Ambition. But ambition is frustrating because it means that you are not where you want to be. The nice thing about being in my 70s is that I let things slide. I'm not the wealthiest, I'm not the most successful academic, but I say to myself, you've done very well, Meir. Okay, calm down. Whenever I feel like there is somebody who is outracing me, and as I say, knowing the meaning of enough, that is what I know. The people who have a ton of money and still have low wellbeing are people who just forget to stop racing, you know.

Roger: It's scary to go to other places where you are atrophied, muscle wise and behavior wise. Right. It's intimidating.

Let me ask you a question about the U curve. You say the 70s. When do you have any data or do you have some intuition of when it starts to move up age wise?

Dr. Meir: Well, I think, you know, the studies were not done by me, but the studies show that kind of midlife, think about it as mid-50s, it's beyond the 40s. Your kids are no longer teenagers. Maybe they've left the house. You have reached a peak, in terms of earning ability and so on. You kind of think about the rest of your life and what is happening really is that you begin to give up on that striving ambition for moving up in the management ladder or income, and so on. You say I've arrived at that. What do I do now, with my life? If you are retired, you know that now you have the time, and you don't have the pressures of work but what you do with that time and what you do with that attention, you can do volunteer work for example. The money is adequate at this point, but you can really feel good doing good for other people.

Roger: This reminds me a little bit of David Brooks, the second mountain. Once you hit the financial peak, you start thinking about this can't be all it. And then you discover the meaning, the community, the service. I've had these internal coaching with myself mirror related to this of at some point I was trying to tease out why am I'm always discontent. I'm 58 and I'm like, is this just my natural state? Am I ever going to be content? I think that's a little bit of what you're just discussing.

Dr. Meir: Yes, I have very good news for you. You are now at the beginning of the upswing. You are at the bottom now that you are going up. and that really involves kind of changing perspective, really saying I am where I should be. I have accomplished what I can accomplish, financially, professionally. Now it is a matter of finding things that are of interest, things that are fulfilling, things that enhance my life.

Roger: Life, wellbeing and they don't necessarily need to be separate I would imagine.

Dr. Meir: Oh no, no. I still teach full time, I hold a full time position, and I get paid and I care whether I get a small raise in salary or a large one. You know, these still are important to me but they're not as important as they were in the past. I'm not really driven, as I was in the past to really earn enough to be able to support myself and my family now and in the future. I don't teach in the summer where I did when I was a young man. I do enjoy teaching but I was teaching in the summer because I needed the money.

Roger: Now you teach because, well, when you've built boundaries so you can Gather more time, freedom, and still do what you love.

Dr. Meir: I do. It really is different. I mean, I used to be the chair of the department for many years. It was an extra burden, but it had its benefits. I don't do this now.

Roger: Now you can just say no. Now you can just say no.

Dr. Meir: I leave this to the young people. Yeah, they treat me like, like an older person, which I am.

Roger: So, I want to go into the different aspects of wellbeing. But I want one thing I want. I wrote down a note on the U curve when I was reading when you brought it up in your book. It sounds like there's a mismatch. We always need to have tension to improve. Happy people have projects is usually how I phrase it. But just like exercise, we moderate a little bit and. Well, anyway, I wrote down that it sounds like the key to flattening the U curve is accepting who you are.

Dr. Meir: Yeah, yeah. It's not flattening it, it's actually moving up.

Roger: Yeah. Oh, yeah. Okay. Yeah. Is it just accepting who you are? Not worrying so much about stuff.

Dr. Meir: Really knowing that financially you're fine. Now it is a matter of. They call it giving back. At Santa Clara University, we talk about helping students to grow into people for others, people who of course take care of themselves and family, but also of community, also of others. My wife, for example, works a lot as a volunteer for the National Alliance on Mental Illness, and she has done a lot of good, for so many people and families, who are living, with mental illness. She gets paid nothing, of course. Not only that, but we also contribute good amounts of money to that organization, so we help other people and, in the process, we enhance our own life wellbeing, knowing that we are doing good for others.

Roger: So, we defined financial capital as one of the components of wellbeing. What are the others?

Dr. Meir: Social capital is about your circle of family and friends, close and farther away. and so you can see that among people, of say, the working class, they might have a narrower set of friends, but closer together. Among people who have higher education and higher income, they have perhaps fewer close friends, but they have what are called weak ties, that is somebody who went to college with you and if you are in need of a job, you know that Joe is now the CEO of a company and so you can call him. You have not spoken in years, but he'll recognize who you are and likely if there is an opening at his place or he knows of something else or through LinkedIn, people have those weak ties. You can find a job or you can get advice about how to get your kids into the college of their choice and so on. So social capital really matters and social capital beyond that circle of friends. It also is about trust. That is, are you saying that generally you can trust people or you should always have to make sure that you don't hand over the money before you get, get the good, because you're afraid that you're going to be cheated.

Roger: It's like going to lunch with somebody who never pays their share. I forgot my wallet.

Dr. Meir: Yeah, I think that it is really the sense of people on the whole who are good, yes, sometimes you get cheated. But as they say, you cheat me once, you cheat me twice. I figure it out. But generally, you go by trust. So, this is social capital.

Social capital is important when you retire because you shed some built in social capital

Roger: So, on social capital I have observed in all the journeys that I've walked with people is that this can be an issue as you retire because you shed a lot of that built in social capital and if you hadn't created it. I think as you're getting older you have to be even more intentional about renewing it because you have people moving and passing away, etc.

What are your thoughts on social capital and the importance as you get older?

Dr. Meir: I think that you're absolutely right. When we leave employment, we leave a lot of social capital behind. You know, these are people you work with, you gossip with, you invite them over for dinner and so on. These tend to fade away and it is important to create situations where you can create new friendships that you didn't go to kindergarten together, but you can still reach out.

There are a lot of volunteer activities, for example, where there are people just like you, as old as you are and you can go together for coffee and tell the story of your lives and you know, and ah, you get to be really close to them by disclosing some things about your life that are kind of private, and they do the same. You move from being just kind of colleagues or casual friends into being close friends. and people are generally willing, not all, but people are willing to engage. Take a course and speak with your classmates before and after class, join toastmasters where you get to speak with others, give feedback, and along the way you kind of create friendships. It is really important.

I know that it's difficult because I can see Nava, my wife, she can strike conversations with people in the supermarket. She's going to see somebody put in their cart some vegetable she does not know, and she's going to ask them, how do you prepare this? Do you cook it? Do you eat it raw? I never do that. I just collect my groceries and go to the checkout.

Roger: Yeah. So, we all have different capabilities and natural tendencies that we need to manage.

Dr. Meir: It is a skill, you know, it is a skill. I'm shy by nature, but I've learned, of course, to speak to my students. I've learned to speak in forums of hundreds of financial advisors and so on.

Roger: In some ways, that's more comfort than one on one.

Dr. Meir: It is, but you have to really learn both kinds. Just yesterday I had a visitor at my home, somebody. I was not his teacher, but he graduated from my university a year ago. Now he is kind of a beginning financial advisor. We had a chat. He told me about his life, I told him about mine. He's going to read my book, and so on. So, in this way I kind of create friendship that can be deeper or not depending on the circumstances. But I surely am expanding my social capital and I learned a lot in the process.

Roger: Outside of the curiosity on your research, is that why you teach?

Dr. Meir: I suppose so. I really like to explore ideas and I like to help people. That is in teaching, generally in teaching in medicine where you work with people. This is why I describe good financial advisors as, as well, being advisors, because just as in medicine, you want to have a physician, who is on the frontier of knowledge of medicine, but also has good bedside manner, who can read between the line, who can guide you to disclose things that are kind of embarrassing. The same thing applies to good financial advisors who don't just talk about what the president is doing, tariffs, the Fed, but say, tell me something about your family. Is everything going, okay? are your kids, okay?

Roger: It's very helpful to discover the thing behind the thing when they express something.

Dr. Meir: Yeah. It's important to identify and disclose the points of pain. Everyone has those points pain. If you disclose yours, I, for example, am very open and quick to tell people about the fact that our older daughter lives with mental illness and when I do that, kind of make myself vulnerable. But people's response is not, gee, too bad for you. Things are perfect for me. They will tell you something about their life. It might not be a disabled child. It might be a divorce. It might be a serious illness. There might be all kinds of things. But you can see that this really is the way you move from being colleagues and acquaintances to being friends. friends know some things about you that are not public. It's not where you live, it is not what your profession is and so on. It is something that is more intimate, and you need that kind of intimacy to create true friendship.

Roger: I want to call out, well, one, call out that vulnerability part. But there's something you said a little bit early that I want to make sure I call out that you said. People want it. They're waiting. Most of us are waiting for someone to hold out the hand of conversation or vulnerability. You have people that aren't, which is fine, but the vast majority of people crave that.

Dr. Meir: Yes. This ability to speak with other people. There was a time when, you know, people would say I was sitting next to somebody on the airplane, and we talked about this. Well, this does not seem to happen anymore. Right now. People have stuff in their ears, and they barely look at each other. So, starting a conversation is really important. When I teach my students, I teach them about finance, of course, all the numbers and all of that, But I also teach them about life, and I ask them about risks. So, you have financial risk, you, have career risk, you have social risk. Many of them will say, like me, I'm shy by nature. But I've learned that if it is kind of a social gathering, I can go to somebody and say, hi, my name is Meir, and I live here, and I'm a professor, tell me a bit about yourself. You begin, perhaps, with the formalities of what kind of work do you do, and so on but then you go to other things. You know, are you married or not? Do you have kids or not? All kinds of other things. Breaking this ice is important. Some of my students say I've learned to do it. and some say it really is hard for me, and I'm not very good at it. I know I should do that, but it really is difficult.

Roger: So, what I heard is an old dog is learning new tricks.

Dr. Meir: You have to learn new tricks. You cannot really say, I am an introvert by nature, so I'm going to stand by the wall and speak only if spoken to. You really have to kind of go out of your way. As a woman said, you know, I'm a loan officer in a bank, I may be shy or not, it doesn't matter if I don't speak with people, I'm not going to successful at my job.

Roger: My daughter has been engaging in that concept lately.

Dr. Meir: Learning from jobs that are really rewarding and the jobs that pay well are ones that require this ability to communicate with others, the ability to reach out.

Roger: Social capital is critical. I'm just finishing Robert Putnam's Bowling Alone, which talks about the research around how isolated we're becoming.

The next one is not one that I've heard. I want to understand it better as cultural capital. What is that and how is that different from social capitol.

Dr. Meir: Well, cultural capital is really knowing the common knowledge of a society that is knowing, for example, when you go to a dinner party, what do you wear? Or if I'm going to give a talk and ah, I'm asking, is it going to be formal? That is, I should have a tie on, is it going to be one that is less formal? You know, maybe a jacket, but an open collar. What color of suit do I have to wear? Is it okay to wear a brown one or not? You know, so I really encountered it, as my accent reveals, I grew up in Israel and so I was familiar with Israeli culture. American culture is different. You know, they say that Israelis have two modes of conversations, speaking or waiting to speak. I was speaking with a colleague of mine early on who is originally from Canada, so they are even more reserved than typical Americans. Sometimes he would pause, speaking well to me as an Israeli. If he's pausing, he's done, it’s my turn to speak. No, I've learned that if he pauses it is because he's still gathering his thoughts. and I've learned to wait until I get a clear signal that he is done saying what he wanted to say.

Roger: What I heard is that you have social capital, that human connection, cultural capital is common understanding. Well, I imagine you want to find your particular culture where you belong. So, you think of a child in high school, trying to figure out where they belong.

Dr. Meir: Well, it's not so much. It really is to find out the cultural norms, what is considered okay. When somebody says, how do you do it? They don't expect you to tell them about your illnesses, you know, it is simply, simply a hello when somebody says, you know, we should have lunch someday, this is not when you take out your calendar and say, how about next Tuesday? You know, it is simply saying, hey, it was nice to speak with you. it would be nice to meet again, but don't rush. So just to know the meaning of words.

Roger: Why is this so important in wellbeing?

Dr. Meir: Well, it is important because when you break those norms, you really antagonize people. You make them feel awkward, and that lessens the chance that you're going to be able to form relations with them. you know, you have to know the language, you have to know the idioms. When I came, my English was such, that I thought that queer, is simply a synonym for strange. so, I told my classmates, if you hear me mangle a sentence or mispronounce the word or use it incorrectly, you get the point. You know I probably meant strange rather than gay. But correct me, tell me, just disclose to me that cultural capital.

Roger: Great, great example, great example of a mismatch that you have to understand. Okay, I get it. Now. I think about our club and we have some norms that have been beautiful to see, where we never talk about politics, we're always solution oriented and everybody knows how to act that way. I've rarely, if ever had to ping somebody about not or violating those because, I guess these values are naturally embedded. We know how we act.

Dr. Meir: Yeah. If you're going to break a norm, be aware that you're going to be breaking a norm. You know that you can expect, if you begin to say something about the president in a setting where this is not part of the norm, you should expect that somebody is going to say, well, thank you, Meir, but I think that this is not a setting to speak about politics or religion or whatever. My aunt, my late aunt used to say that when she beats her old girlfriends, they have a norm that says one grandchild and one melody. Don't go on telling me.

Roger: I like those rules.

Dr. Meir: Yeah, exactly. So, you have to know that and to be able to really adapt to different cultures if you are in different cultures. I go to speak about that culture, to a group of financial advisors in Canada, and they really found it fascinating because many times we behave in our norms and we think that they are universal. We are not even aware. It's kind of like a fish that swims in water and is flabbergasted when it is asked what water is. It just comes naturally. You think that everybody knows that and of course, they don't. So, you have to be aware of it.

Roger: So as primarily where we focus our attention on this show and in the club are people that are transitioning from full time work.

Does developing these other four components of social, cultural and personal capital get harder as you age?

Dr. Meir: It is a bit hard. Having a classmate correct your pronunciation, saying I made a mistake. I made a mistake. It feels uncomfortable, you have to open yourself. This is why I told my classmates, don't spare my feelings by telling me that this is mangled syntax that I'm using, because I am eager to learn more than I am eager not to be embarrassed. That really means both on the social side and the cultural side, that you have to be open. I don't follow sports. I have no interest in baseball and football and so on. But I've learned to kind of react, at least in a socially acceptable way when people tell me about a football player whose name is not known to me at all. That person thinks that that person must be known to me, as well as whatever senator or something like that. So, I've learned the polite way of using it.

Roger: Saying that as you get older, I'm not a scientist, so I don't know any data on this, but it seems that views get more cemented in our psyche in terms of our political views, our views on the economy. We become less curious or willing to be wrong in order to learn because that's essentially what we need to have as a foundation in order to do what you do. Hey, I'm not going to be embarrassed. I need to know if I'm making a mistake. I'm interested in something I don't understand. We don't go to politics very often. I'm not going to go to politics. But rather than say I'm right or you're wrong, I wonder what I need to explore that more before I share my opinion. Is that the prerequisite for maintaining our social and cultural capital?

Dr. Meir: Yes, it is. People vary along those lines. There are people who by nature are curious and willing to learn, and some people who are really set in their way but think about marriage, you have different tastes, different views, and you've learned to kind of dance. You learn to adapt and expect your mate to adapt as well. The same applies to any social relationship. You just cannot expect somebody to react when you say something about, you know, about a subject that is sensitive, to just assume that that person shares your view. If not, that person must be ignorant or stupid. You can just say, let me listen and it might be something where you have to say, you know, I see that we have differences in views, but it is something that is too sensitive for me to actually discuss. We get to be old dogs, but we should be able to learn new tricks.

Roger: Now, the last component, and I said we were going to talk for like 20 minutes, it's been 44. There's so much to explore here because this is so important to well, being, which is how you create a great life.

The last one is personal capital. I want to be respectful of your time, Briefly describe what you mean by personal capital.

Dr. Meir: Well, you know, so think about being tall or short. Okay. I’m on the short side. I always say when I'm born again, I would like to be 6 foot tall. It has advantages with the girls. It has advantages at work. People who are taller are more likely to get promoted. It helps to be handsome. I wish I were. Some people are lucky enough to be born handsome. Some people are not. Gender, you know, or sexual orientation, race. You know that all of these are part of a personality.

Roger: All of those you can't control, those are set right. Is that so? Is that the only aspect of personal capital?

Dr. Meir: Yes, but some of them, personality, for example, so we talked about extroverts and introverts, these are things that you can change. You can change conscientiousness if you know that you are one who acts on impulse. It is something you can learn. Count till 10 before you open your mouth when you are angry. Openness, you can kind of get yourself to know if you are not one that is open to other views, that it is something that you have to work on, be polite at least, as you listen.

Roger: What this reminds me of is, I always pronounce her name wrong. Sonja Lyubomirsky, The How of Happiness, which talks about we have hardwired things that we can't change, but then we have to identify the things that we can improve our skill of.

Dr. Meir: Absolutely, absolutely.

Roger: Yeah, awesome Meir, this has been fantastic. I think this is a critical component that is often overlooked in retirement planning. We talk about this a lot. we didn't even get into eudaimonia. What's the name of the ladder concept? We can do that maybe another time. Thank you so much for your time. A Wealth of Wellbeing: A Holistic Approach to Behavioral Finance. This is critical for what we call rocking retirement and I appreciate you sharing all the research and wisdom you have.

Dr. Meir: Thank you so much Roger. It is wonderful to speak with you and I hope that listeners would enjoy our conversation.

LISTENER QUESTIONS

Roger: Now it's time to answer some of your questions. If you have a question for the show, you can go to askroger.me and you can type in your question. Leave an audio question and we'll do our best to help you on the show. We didn't answer questions last week. We'll try to make sure we do this every week.

BRIAN IS RETIRING EARLY AND HAS A QUESTION ABOUT GENERATING HIS RETIREMENT PAYCHECK

Our first question comes from Brian who is retiring early. Congratulations Brian. But he's wondering how he's going to create his paycheck.

He says

“For someone six plus years away from 59 and a half, is there a default strategy, delineating withdrawal order from his assets? You know, 401 IRA, Roth, non-retirement, et cetera.”

He wants to know what's the optimized order for taxes and fees. That's his first question. His second question is where he should direct savings before he retires. Should he add more to his Roth 401 or save in after tax assets given that his after tax assets might not be enough to fund the gap before he's 59 and a half?

These are good questions. All right Brian let's take this in order.

Number one is there is no optimized strategy. I'm going to assume you're 52 for this discussion Brian. So, we got a 40 year timeline. Let's assume a lot can happen. This is very complex in terms of inflation and returns in your life etc. So, you just got to think through this in an organized way to get to a good decision for you. I think that's the important thing.

How do you approach this? Well, I think the default order is the best place to start, which is hardwired into most software programs, which is you first go to your after tax assets, your savings and investments that you've already paid taxes on. Then you go to your pretax assets and you'll have some quirks because you're under 59 and a half that we'll talk about. Then you go to your Roth assets. I think that is a good default to start with. Now, you said your after tax assets might not be enough to fill the gap and that's an important thing because you're under 59 and a half, so you're constricted or restricted on how you access the other fund. So, we're going to have to figure out how to deal with that. I would say on the savings end of it, I would look seriously at contributing more to your after tax assets, thinking that you're building up your reserves to make your paycheck when you ultimately retire, because otherwise you might have to take it out of an IRA or a Roth account. I would likely lean towards contributing to your after tax assets rather than to a Roth 401k simply because it sounds like you have some immediate needs for these monies coming up. So, the more you can build up there the better because that will help you in managing where you pull assets later on. That's my initial thought on where you should be saving.

Now you said that you're part of the RRC, which is awesome. That means you have access to the MoneyGuide Elite software to build out your feasible plan and you also have access to the Excel Planner spreadsheet where you can map this out in a little bit more detail. I would first build out your five and maybe even make it all the way up to 59 and a half but map out the next five years of your income and expected spending. That's important. So do that tab in the spreadsheet first.

For those of you that aren't in the club, you can just build a spreadsheet and show your first five years of cash flow. Then go to the next tab and identify all the different accounts that you have and the money that you need to fund that isn't covered by income. Map out exactly where you're going to get the money over that time period. In this case, five years. So, start with your after tax assets, Brian. Map out taking money from your after tax assets and see how long those after tax assets would last. You can include in the additional savings that you're going to make between now and when you say you're going to retire. It may drain all of those assets or you may not have enough. That can be problematic in the future self for Brian, because as soon as you run out of all your after tax assets now, you're just stuck with pay taxes by an IRA distribution or take from your Roth. I think it's important to leave some buffer in your after tax assets.

So, then the next question is, do you take from your Roth 401k?

Well, one, you got to be careful if you're going to do a withdrawal from your Roth 401. One is you have to have the rule of 55 and it sounds like you're going to be under 55 when you do this, but if you take a withdrawal from a Roth 401k, they're not like Roth IRAs. If you take a withdrawal from a Roth IRA, you get your contributions first. If it's from a Roth 401K, it's pro rata, it's a portion of your contributions and the earnings. You could have some penalty there and some taxes because of your age. So be careful about that and research those rules. If you don't have IRAs established yet, Brian, because you only mentioned a Roth 401k, get a Roth IRA established and fund it. Even if you do have to do some kind of Roth conversion with a dollar or two just to get that clock started because ultimately, you're going to have more flexibility in a Roth IRA than a Roth 401k.

Okay, now where are you going to fill the gap? How can you access your pretax assets in your 401k or in your pretax IRA? Because there may be an opportunity there if you're willing to walk this journey and, in your question, you mentioned a couple strategies.

One strategy to get money out of a 401k prior to 59 and a half without paying penalties because there's a 10% penalty if you take an early withdrawal before 59 and a half is the rule of 55 within a 401k. So, if you separate service when you're 55 or older, you have the potential to take distributions from your 401k without paying a 10% penalty. Now if you retire prior to 55, that may not be an option. If you are retiring after 55, you want to make sure you check your 401k plan because the 401k plan doesn't need to offer that feature, number one, so you got to know whether it offers that feature.

Then number two, you need to understand the restrictions on how you take your distributions because they're all different. So, if you're thinking about a rule of 55 strategy prior to 59 and a half, one, you have got to make sure that your employer plan offers it. Two, you need to understand the restrictions on whether you can just do this whenever you want in any amount that you want, because some may have restrictions on that, but it sounds like you're retiring prior to 55, Brian. Another strategy to access pretax assets in an IRA or a 401k is something called substantially equal periodic payments, also referred to as the 72T strategy, which is the IRS code that it comes from. I created a basics explainer video on this that we're going to share in the Noodle Email. So, for those of you that get our weekly email, I'll have a video that walks through this visually and gives you the basics. and if you're not, you can sign up for that email at thenoodle.me.

But let's just talk through your situation here for a second, Brian, because I have a calculator that we use when calculating a substantially equal payment.

So, the way that a 72T works is you can choose an account. So, let's say you have three IRA accounts. Each account is considered separate when it comes to these substantially equal periodic payments. Let's say you have a million dollar account IRA, you have a half million dollar IRA and then you have a half million 401k all pretax. Let's do it that way you can choose which account you apply the 72T plan for. And what it does is the IRS says you can calculate based on your life expectancy, substantially equal payments that you can take from that account. And if you follow the rules then you won't pay the 10% early withdrawal penalty. I went to a calculator, Brian, and I said let's assume that you wanted to use your million dollar IRA to calculate these substantially equal payments.

There are three different methods for calculating the payments. For simplification purposes, we're just going to focus on the simplest one which is single life expectancy. On that million dollar IRA we have to apply what's called the reasonable interest rate, which is 120% of a Fed rate. Then we take your age and I'm assuming you're 52 and ask what the maximum payment is you could take from the IRA each year under this provision and not pay an early withdrawal penalty. The calculator that I used as this example would be $69,970. Well, that's not bad. So, if you retire at age 52 and you apply this to a million dollar IRA, you should be able to take out roughly $70,000 a year without paying an early withdrawal penalty. That just sounds like a deal. Why would they do that? Well, they want to provide you with the opportunity to do what you're doing and retire early. But there are going to be some catches with this, Brian. and those catches are that you have to follow the plan.

Specifically, if you sign up for this and you do your $70,000 as an example, you have to do it for at least five years or until you're 59 and a half, whichever is later. So, in this example you're 52. You would have to do this every single year until the year that you reach 59 and a half, you'd be signing up for a seven, eight year journey of making sure you took out the exact same amount each year, $69,970. If you fail to do that, you could subject all of your withdrawals up to that date to the 10% early withdrawal penalty. It's five years or when you reach 59 and a half, whichever is longer.

Let's use another example, Brian. Let's assume that you are 58 and you decide to do this. The number would be higher because it's based off of your life expectancy. It would be about just over $74,000. But when you're 58 and you do this, you're only what, a year and a half away from 59 and a half, but in this case, you would have to do it up until age 62 because it's whichever is longer, the five years or until you reach 59 and a half. This is a strategy, Brian, that may allow you to draw money from an IRA or a 401k without early withdrawal penalty. Now it's going to be taxable income and this could impact ACA subsidies, et cetera. But if you have zero income and you're not worried about ACA subsidies, you know, $74,000 is within the 12% tax bracket. If you're married, you can see how this strategy can work. But it's got some rules that you have to follow.

Another quirk in doing this. Let's assume you did this million dollar IRA, Brian. You don't want to add money to the account or take money out of the account because it's locked, that that might affect the calculation and cause you to have an unintended consequence in terms of early withdrawal penalty. If you do this, you want to segregate one IRA that is doing this strategy. Think of it like a lockbox. You're not taking any more out and you're not putting any more in in that specific account. Now, your other accounts, you can do whatever you want with withdrawal wise, moving around wise. But you have to think of this as a lockbox until the strategy is complete to help you avoid unforced errors.

We'll have an explainer video, on the basics of this, so you can see some visuals of this and the calculator that we use. Then we'll also have links to resources, but these, this would be the order that I would approach this.

ANOTHER BRIAN HAS A QUESTION ABOUT ANNUITY INVESTMENTS

Let's get to at least one more question. The show's running a little long. Let's go to a different Brian.

Brian says,

“I love the podcast. I've been listening for a few years. My Fidelity Advisor is recommending I put $100,000 of my IRA into a SPDA single premium deferred annuity for three years to get a slightly better rate. They're offering 5% than what I can get in a Treasury, which is 4.3% or even less than a CD.”

I am generally not a fan of annuities. Our one source made it sound like when the three years are up, I would be forced to take the principal and earnings out of my IRA. This would be a bad tax planning. Assuming that is true, these are not FDIC insured. What are the pros and cons of such an investment? Are these new things? I assume it is a Twinkie I love you're using the term as you describe on your podcast. Should I invest in this?”

So, we just recently did an episode where we talked about fixed annuities or multiyear guaranteed annuities. That sounds like what this is, Brian. You can talk with your Fidelity advisor around that. I would say these are the least Twinkie-ish of annuities. Very much going to act like a CD or a Treasury in that you get a guaranteed payment or interest for a specific period of time. They have some quirks around the paperwork and the ability to get out of it before the term is done. That can be pretty onerous from a back end sales charge. I have used these in my practice. Assuming we're talking about a fixed annuity or multiyear guaranteed annuity, it sounds like the same thing.

Let's assume that it is the same thing. Brian. Then the question is I can get 5% in this three year fixed annuity or I can get 4.3% in a treasury. So, 5% on $100,000 over three years is an end value of about $115,762. If you do the treasury 4.3%, it's $113,462. About a $2,300 difference or more you're going to get in the annuity than you would in the Treasury. What we're talking about here is a difference of $2,300. Is it worth the effort? What are you giving up to get that extra $2,300?

Number one, you're giving up FDIC insurance. I don't think that's a huge issue as long as you're not using a sketchy insurance company. They have credit ratings.

Number two, you're adding a little bit more complexity because a fixed annuity doesn't show on your statement exactly like a Treasury does.

Number three, you're giving up optionality. A treasury, if you buy it for three years, you can sell in the market if you needed your money early and assuming flat interest rates, basically get most of your money back or all of it, because it's one of the most liquid markets in the world. Whereas if you buy a fixed annuity and you try to get out of it prior to the three years, you're likely going to have a high back end sales charge. This is something you would want to ask the Fidelity Advisor. So, you may give up some optionality in terms of getting money out. And it's just going to be a little bit more complex in how it shows. Is it worth the $2,300 extra that you're going to be getting? Get to your last question there, Brian. If you're purchasing something like this within an IRA at the end of the three years, if you take your money back, it should come back into the IRA and be a nontaxable event. I wouldn't worry about that unless there's some quirk that I'm not familiar with.

Hopefully that helps you. We'll get to more of you guys questions next week, but for now, let's get to our, smart sprint.

TODAY’S SMART SPRINT SEGMENT

On your marks, get set, now it's time to set a smart sprint we can take in the next seven days to not just rock retirement, but rock life.

All right, I'm going to challenge you for the next seven days before you get out of bed, smile, give yourself a big smile and say this is going to be a great day. I'm going to have challenges, but it's going to be a great day and see how it goes.

BONUS

Now it's time for the next installment in my grandfather's journal. We are getting close to the end because he had about 40 or 50 missions, 51 if I recall. Today we are on mission 45, so just a few left.

“September 8th. Ship number 339, sortie 30th broad, Yugoslavia and marshalling yards was the target today. Darn good bombing today. We set a record of going over the target three times before dropping our bombs. Gave the flak installations a chance to really track us and give us some exciting moments.”

I guess he's getting used to it. I don't know how you do that.

“Carried 12500 pound bombs. Mission 6 hours 10 minutes. Altitude 23,500ft.”

The opinions voiced in this podcast are for general information only and not intended to provide specific evidence or recommendations for any individual. All, performance reference is historical and does 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.