Podcast: Mark Miller — Key Considerations as You Approach Retirement

Mark MillerEpisode 25 of the NewRetirement podcast is an interview with Mark Miller, a long time journalist, editor and founder of Retirement Revised. Mark is the former editor of the Sunday edition of the Chicago Sun Times and he’s a nationally-recognized expert on trends in retirement and aging. We cover some of the key considerations people approaching retirement need to think hard about, mostly related to Social Security and Medicare, and also how these programs may change in the future.

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Full Transcript of Steve Chen’s Interview with Mark Miller

Steve: Welcome to the New Retirement podcast. Today we’re going to be talking with Mark Miller, who was a longtime journalist and editor and founder of Retirement Revised. Mark lives in Chicago, Illinois. And is a former editor of the Sunday edition of the Chicago Sun-Times. He’s a nationally recognized expert on trends and retirement and aging. His writing covers retirement security including healthcare and Medicare, social security, retirement investing, work, and housing. He also writes about retirement-related public policy issues including reform of social security and Medicare, which we’ll touch on. We’re going to cover some of the key considerations people approaching retirement need to think a part about, mostly related to social security and Medicare and also on how these programs may change in the future. So with that, Mark, welcome to our show. It’s great to have you join us.

Mark: Steve. It’s really good to be with you.

Steve: Yeah, thanks for making the time. So I thought, I want to divide this into two big pieces. One is a little bit about your background with journalism and writing, and how your career has unfolded. And the second big part is these considerations are on social security and Medicare and how those programs are changing. But opening with you, our audience is always interested in how people got to where they are today. And what I read through your CV, I was really struck. You’ve had this 40-year career across journalism, writing, and editing, both in large and smaller publications. You’ve also done Internet marketing, midway through your career. And now you’re a business owner and freelancer. When you look back at your career, do you have any big takeaways about how news content and journalism has evolved over that time period?

Mark: Yeah, I think, boy 40 years is when you put it that way, you make me feel old. I don’t normally think about it that way. But you are correct. I would say that it’s things have changed both for better and for worse. I’d say that the Internet has made things better in the sense that we have far more diverse voices that can be expressed themselves and publish. But on the other hand, the consumer is left to determine quality. And there’s a lot of bad quality out there. So it’s caveat emptor and that’s given rise to I think a lot of problems. I think the other thing that’s changed that is a real mixed bag is this era that we’re in now of mass customization. It’s generally great for the consumer and it’s generally been terrible for producers.

Mark: It’s a little bit like what happened in music, atomization of the business models, where with newspapers, it used to be that you subscribed to the entire newspaper. That was an important revenue stream. Although advertising was the most important one. And in most big cities you had a, either a monopoly or duopoly a marketplace. One or two papers splitting up the market. And before the Internet you had newspapers, radio, TV, that was it. And the Internet just blew that apart. So this exclusive hold on information markets opened up to the competition that just seems almost limitless. It decimated a lot of key advertising markets, classifieds being the big one. I don’t know, a lot of people may not even realize it, but classifieds we’re the mother’s milk of newspapers’ publishing, the biggest and most profitable source of advertising. And it’s just a shadow of what it was.

Mark: But even other things that we don’t even think about anymore. Like remember, it used to be movie listings, there were advertisements in the newspapers. Now you just go online and do a search for your zip code and the outcome, the list things. And then lots more competition for different types of news coverage too. Local news, sports, dining, culture, all that, it used to be the exclusive domain of the newspaper. Now they face a lot of competition. And the user can customize to their heart’s content, which is great for the user. You can put it together just about any way you want, a feed of news that can include lots of different sources. But it’s been extremely difficult for the business models of publishers.

Mark: And I would say my biggest worry really is local newspapers. It seems like national and global brands like the New York Times, or the Guardian, are finding their way in the new digital landscape because they have the advantage of being national or being global brands, so they can leverage that, whereas the local papers don’t really have that opportunity yet. There’s nothing particularly about the internet that wants to be local. There’s the opportunity to draw an audience from anywhere.

Steve: Right. Yeah. It’s definitely interesting to get your firsthand look at this as you’ve, as you’ve watched unfold.

Mark: Yeah. You see, my biggest concern is where’s the money gonna come from to fund good work in terms of journalism. That’s my big worry. And is that not like fixated on the printed newspaper or even necessarily a subscription model. But whatever models work, that’s great. But the question is, doing the real journalism is not an inexpensive enterprise. It requires hiring and staff, and people who can go out and really dig for stories. And to do it right, it does require money. And I really worry about the future of journalism for that reason.

Steve: Alright. It feels like it’s definitely going through this big transition. It’s been going through this, and I’ve watched it. I remember visiting Jonathan Clements earlier when he was working for the Wall Street Journal. And we went into their offices and you could see the hollowing out. Like he was like, “Hey, this is where all the editors and writers used to sit.” And it was empty. And then you see places like Forbes, I mean, I write for Forbes, right? And these different publications and what they’re doing is they’re outsourcing it to experts. Now, they are being selective about who they pick. But there’s this evolution where, and I think blurring of the lines, between completely unbiased journalism, and when they outsource it and ask other people to contribute, right? They’re going to bring their biases to the table, and then their own agenda to the table.

Steve: And back to your music analogy, yeah. The power has shifted from where when it was print distribution, the [inaudible 00:06:35] brands mattered a lot more and you got your paper and delivered to your house and stuff like that. That’s all gone. Now it’s gone. There is power for individuals, like in music where they can have these hit based folks that go and then go directly to their audiences, and they can make a lot of money. But there are, I think a lot of them, in the middle, is gone. And what does that look like in the future? We’ll see.

Steve: And good, by the way, just one quick side story on your classifieds thing, which personally, I was listening to a podcast that actually featured Daymond John, the founder of FUBU and how he created his business. And, he was basically building this in his own house and funding and himself. And he needed some money and he went to his mom and his mom said, “Well, listen, well I’m going to put an ad in the classifieds to get funding.” Right? And it sounds like a total ridiculous thing. And they got like 30 responses. Most of which was like loan sharks. And one was Samsung, who said, “Hey, okay, we’re going to actually fund you to create your clothes.” And he went from like $300,000 to $5 million or something, to $350 million in revenue in a couple of years based on that. And it brings you back.

Mark: That is a great story. And the internet can be that way too. People come at times, say to me, “Well, what do you think of this idea of where the Internet?” I said, “Well, look sounds nuts to me, but give it a shot, because you never know.”

Steve: Totally. And also to your point about paying for it, we pay for like the New York Times, because we’re like, “Okay we want to support that.” Even though it’s 10 bucks a month. And I now see Apple coming out with $9 a month, they’re going to aggregate across tons of sources, which I guess in one way it’s good because they have a lot of scale. But will there be enough money to fund quality journalism, independent journalism out there, which is such a key part of our society?

Mark: I doubt it. And I have some experience with building aggregation engines. And it’s micro pennies back to publishers. And it’s interesting to watch big publishers make the decision whether to go into the Apple thing or not. Like I believe the Wall Street Journal did. The New York Times is not, and I think their reason is they want to try to retain that primary relationship with subscribers. To me that’s the smarter move. We’ll see. But I’m not rooting for that model because I think it’s just further atomization. It’ll do to publishers even more what iTunes did to musicians. And I don’t think it’s a good thing, but we’ll see.

Steve: Yeah. Yeah, we’ll see how it goes. Alright, so just before I move on, I’m just curious. And when you first started writing, what were you writing your stories on? Was it on typewriters, or was it on computers?

Mark: I guess it was on typewriters. Let me think. Yeah, I guess it was. I started out in what would have been mid to late ’70s in Chicago, just as a string or a freelancer for local community newspapers. They used to send me out to do stories like interviewing the Santa Claus and the department store, before and that during the holiday season. And I moved on from there to full-time work in first, trade publications. A lot of my background’s in business and financial news. And I cut my teeth first and a couple of different trade pubs. There used to be one that I wrote for that was for the beverage industries. That was like beer and soft drinks and stuff like that. And then I worked for an advertising trade publication. And then I worked for Crane Chicago Business for 11 years during the seminal years of local or regional business journalism. And that was a really important experience for me.

Mark: But yeah, back then, that was the first time I saw computers used to do Word processing for their print publications. That would have been in the early 80s and it moved on from there.

Steve: Yeah. It’s amazing how much it’s changed. Probably members of our audience will remember this, or older members, will remember this, but for younger folks, they can’t even imagine that before Word processing, right?

Mark: Yeah. And one of these fellows who strike me, who was at the Sun-Times, it should have been in the early 90s. And by that point, there was a fair amount of computer horsepower being brought to bear on creating the paper. Everything was written on computers, layout was done on computers, et Cetera. Photography was digitized by that point. But the process would begin cutting down trees in Canada somewhere, milling the trees, putting the paper rolls on big railroad cars, shipping those down to Chicago. Then we would do our thing with the computers and put the information on to paper and then the papers would go on trucks. So everything about it was the analog, except for the central information processing. I always thought, it must be a better way to do this.

Steve: Right. It was only a whatever, 20 or 30 years ago that we’re all getting news thrown at our front houses by the paper.

Mark: For the record, I still do. I get the paper, printed New York Times, every morning. And the Sunday Chicago Tribune. But I read a lot, consume of course, a tremendous of information online.

Steve: Yeah, it’s cool. So back to the news side of this. Do you think that, and in your career, as we transition, how long you think you’ll keep working yourself? And just a quick side note. Mark is 64 years old. And when I reconnect with them last week, we were catching up, I was just shocked. He presents 10 years younger, at least.

Mark: Well, that was me Photoshopping a different on to Mike-

Steve: Well, we were live on videos. So that was impressive CGI for that. But-

Mark: [crosstalk 00:12:28] I’ll keep working. I’m not sure to be honest. One of the nice things about the work I do because I freelanced for a number of different news outlets. So there’s different building blocks or components to my work into my income. And one of the Nice things about that is I don’t need to make a complete on-off decision. It could be that over time certain things fall away and other things stay. And I envision, I also written a couple of books and then starting to work on a third. And I envisioned probably gradually shifting a little bit away from the grind of have weekly deadlines, to maybe a little bit more long-form stuff. So I think it will be a gradual transition for me. That’ll frankly also depends in part on what my wife decides to do. She works full-time. She’s a professor at a law school. So I dunno.

Mark: I don’t feel any immediate urge to retire. I’m at the point now where I’ve been covering this beat now for 11, 12 years. I feel like I know it pretty well. And so I’m enjoying that ability to, I think, do some of my … I would say, if I can say so, I think I’m doing something like best work now, because I know these topics inside out. And then I think I have better exercise, better judgment now than I did 10 years ago, is to what’s the story and what’s not and so on. So we’ll see.

Mark: I think this idea that you have to have this rigid set plan for retirement, that you’re going to do X at this year and Y at that year is silliness. I think as long as you have a general idea of what you’re trying to achieve, the idea of evaluating as you go is just fine.

Steve: Totally agree. And that’s what we’re seeing out with our communities, is that I think you’d want to get control of this, and they want to have some insight into how it could unfold. And then they make decisions as they go.

Mark: Yeah. And I could add to that, that when I did my first book, The Hard Times Guide to Retirement Security, which is published in 2010, the editor I was working with at the time said, “Well, you got to include a chapter in here on how to hire a financial planner.” And it wasn’t a topic I knew very well back then, but I agreed to do it. And I was really glad I did it. And subsequent to writing the chapter, we decided ourselves to hire a planner. After writing the chapter I said, “I think we need one of these.” So that was the time that we hired a registered investment advisor to oversee our stuff. And I bring that up now, because I really appreciate the decision-making tools that come with that relationship. I can always say to her, “Hey, tell me what it looks like if we retire at this age or that age? Or what if I push this way or that way?” And she can just with a couple of keystrokes on the software side, show me a revision of the projection.

Mark: So obviously these are projections. They’re not … You can’t take him to the bank. But they’re not set in stone. But they give you a framework for thinking about things that otherwise you don’t really have. You’re just messing around in the dark.

Steve: Totally. And not to promote our stuff too much, but that’s exactly what we’re trying to deliver to our audience, which is to give them that control themselves and then wrap support around it, if they want it.

Mark: Yeah. And that ability to do what if, I think is really critical.

Steve: Totally. That’s cool. And just real quick, two stories from … We’re out, engaging with our audience and also investors for our business. And a couple of stories from this last week. I met with one guy, and he’s telling me how he had reached financial independence. His kids had moved out of the house. He no longer needs to work. And he’s like, “Okay great, I’m financially independent.” But it was actually spinning up and creating other issues. Like he got insomnia because he didn’t have the same schedule, he didn’t have to have the same schedule. And he was feeling disengaged and has decided to really try to reengage on the professional side, because he wants to be stimulated. And there was a social part of it as well, and that sense of contributing back.

Mark: I think that happens a lot.

Steve: Yeah. I do think it happens a lot. The same thing with the other guy. He tried retirement for three weeks, drove a sports car around and there was like, “Okay, I got bored.” Okay. So just on the retirement side, why’d you choose this topic to-

Mark: Well, I got into it out of a personal observation. Back around the time that I was turning 50, at the time I was working for the company that publishes the Chicago Tribune, the Tribune company. And I was in a division that did a lot of work and new product launches. And I was an editorial director there. And we were thinking about launching soon. I was looking for new ideas. And I was noticing just in my own life, that a lot of my friends around the same age, are coming up on 50, the buzz was, “Well, what am I going to do when I get to retirement age? I don’t really want to do a traditional retirement, but I don’t have a clue what I want to do.” And it just seemed to be coming under the radar for people. It was on my radar.

Mark: And it just hit me that maybe there was something to do with that information product, because one of the things that was a tried and true formula, at least in traditional media, and I think it still obtains in the digital era, is that whenever you’re dealing with life transitions of one type or another, there’s an opportunity to fill that niche with an information product. Meaning things like … Anything is a first in life. Going to college, having a kid, getting married, buying your first house, launching a career and retirement. These are all things that people are coming up on to in their lives, that they haven’t done before. Therefore they need information on how to do it. Pretty straightforward.

Mark: So I started doing some research on this and then it hit me over the head that this was from the baby boom generation standpoint, just this enormous opportunity because of the demographics of the market. Again, being a boomer and sitting in the middle of that, I’d never had really quite hit me. But then I started to understand just the enormous size of the group, the affluence of it at least in certain end. And that this was going to be a 20 year age wave because the boomer generation stretches out over that. And that there was to be this enormous market of people needing information about this. So, we launched a Tribune, a magazine, a website focused in this market, playing off the rolling stones, classic, satisfaction. The name of the magazine was Satisfaction. And it only lasted a few years. I won’t bore your listeners with the ins and outs of why it didn’t make it in the end. But I was hooked. And I then decided at that point they’d rather than try to figure out something else to do, a tribute I would take off and continue pursuing this. So that’s how I launched into being an independent journalist in this space.

Mark: And from there, pretty quickly branched out, not just to this coverage of the life’s transitions stuff, but a much broader array of the topics that I covered today. And initially I did a syndicated column through the Tribune Syndicate on this. And then a couple of years after that started writing for Reuters, and that’s where things really took off for me. So that was how I got into it. It was started with a personal observation that maybe there was an information need out there.

Steve: Yeah, that makes sense. Another funny side about the Stones, I saw that, the Alliance for lifetime income, which is essentially, I think annuity insurance companies, are sponsoring the latest tours, The Stones are everlasting.

Mark: That gave me a good giggle.

Steve: It’s so funny.

Mark: That’s pretty funny.

Steve: Alright, so let’s move on.

Mark: I can’t get no annuity income.

Steve: That’s right. I don’t even know how old Mick Jagger is. I’m going to try and get him on the podcast. I do want to try. Sammy Hagar lives here in my town. And he has a kid that goes my son’s high school. And I was like, “I should try and get him on the podcast.” So, let’s move on to key considerations for people, 62 to 65, when you can start claiming social security when you claim Medicare. So what are some of the key considerations that you see for [Felix 00:20:36] at this age that they have to think about it might be tripping them up.

Mark: I think a couple of large ones would be employment risk and health risks. A lot of people are making assumptions about this question of how long they’ll work. And a lot more people, I think, are saying to themselves that they’ll work longer than traditional retirement age, which can be a very good thing to do. The problem is in about 40% of cases, people don’t make it to their goal, to their expected retirement age. Something happens. They lose a job, they burn out on the job. They have a health problem. And so that’s a big one. You’re close to the goal line here. You’re probably in your peak earnings years. It’s really important time from a retirement plan standpoint. But it’s fraught with risk. That’s one big area. And then the second is Medicare transition planning. I’d say those are the big ones. I basically just clarified that the social security claiming decision is wrapped up in all that too. That first set of decision.

Steve: Yeah. Oh yeah, no. I was going to say on the retirement age, a lot of people are planning to work until they’re 65 or mid-60s. And then I think the average retirement age is actually late fifties, in the 57, 58. So people like you’re saying, they definitely, for various reasons often find themselves out of their, at least their main career, and have to think creatively about how to make income.

Mark: Yeah. I think the data suggests that the single biggest clusters are around age 62, which is the first year you can claim social security, and 65, the Medicare age. Those are the two biggest clusters.

Steve: Yeah. And another thing that we’re thinking about doing just on our software side, is to try and show people this. That, “Hey, you’re planning to work till this. But what are the odds that you’re actually going to make it to this age?” And the same thing for how long you’re expected mortality date, if you will. A lot of people are like, “Oh, I’m going to live to 100. Well, the odds are that you have a 7% chance of making it to 98 or whatever the odds are. So I think that will make it too morbid, but just show people here’s what-

Mark: Yeah. None of this is to say that it’s a bad idea. I’m not saying it’s a bad idea to work longer. It’s just the opposite. I think it’s a good idea. But I think people need to have a backup plan.

Steve: Right. What do you think people are getting right? It seems like more people are being thoughtful about social security.

Mark: Yeah, I think that a couple of things that people are getting right more often. I’d like to say there is a bit of a trend towards nudging up the retirement age, is not so security. Not as much as I’d like to see, but some. And I should just clarify that, I don’t think there’s any one right answer on claiming. I think for most people, especially married couples, a delayed filing of some sort is in order. And we can get into that more detail if you like, but it doesn’t mean that it’s always the right decision, for people for example, who are in bad health or just really need the money. I think going ahead and filing is okay. But that’s been one moving in the right direction.

Mark: I think another huge development in the right direction is a greater understanding of the role that fees and costs play in a mutual fund investments. And then this ginormous move towards low-cost passive-investing that was really sparked by that did the Jack Bogle Vanguard revolution. I think it’s just been enormously positive. And then I think I’m a third one I could mention, that I think on a whole is positive, but with some caveats, is a greater understanding of the importance of unbiased financial advice. The whole fight over the fiduciary standard has just raised the profile of that issue. And I think more people now get it and understand that not all advisors come without conflicts.

Mark: The problem is, that I think, labeling still remains an issue because of the way the regulatory battle is playing out. So we may wind up, in fact, when all is said and done, I worry that we’ll wind up with a worst of all worlds, which is that conflicted advisors get to call themselves advisors, and pose as being un-conflicted when in fact they aren’t. And all they have to do is issue a disclosure statement that nobody can read the fine print on. And so that concerns me is that more people will understand the importance of getting unconflicted advice but won’t necessarily be able to sort it out.

Steve: Yeah, it’s definitely a risk. But hopefully I do think that the trends are in the favor of the consumer, like you said, with a lower fees. Right? And Kudos to Jack Bogle who unfortunately passed away this past January, but he did completely change the financial services entire market.

Mark: Couldn’t agree with you more. It’s amazing what he accomplished. Quite incredible. Vanguard measures the amount of money that is put back into their own customers’ pockets every year at about 25 billion. But they had to understate the overall effect. Right? Because everybody else, so many other players in the market have tried to match them, or try to match them. So yeah. I think that the tools are out there for anybody to go, if they take the time to get educated in and put the energy and time into getting their hands around the tools, they’re there. But the problem is getting more people to do it.

Steve: Right. Yeah. It is all about education and incentives, understanding those two things. And on the incentive side, I think what Vanguard does in terms of like, “Hey, we’re essentially aligned with our customers, our owners”, because they’re a mutual company, is what drove them to be successful and is driving that change. And then on the education side, there is an increasing movement to educate kids and in high schools. And financial education is not required in high schools right now. But there’s a movement to make it required. We support a group called Next Generation Financial Planning. And they’re pushing for that across high schools in the US.

Mark: I hope that works. I think that what I called just in time financial literacy, it strikes me as also a reasonable idea that, get information at people’s hands when they are at the point of needing to make a decision. I think it’s a tougher challenge to get high school kids interested in stuff like retirement saving. But maybe so. Let’s say it’s hard to be against it. It can’t hurt, let’s put it that way. I do worry. One thing about financial literacy that concerns me as a movement is, I think sometimes it comes off as a little bit of blame the victim. There are a lot of people that are not doing well with respect to their financial plan, not so much because of literacy, but just because of what’s been going on in the economy with income inequality, rising cost of housing, and healthcare and the like, and college costs, and the like.

Steve: Totally. Yup. Oh, by the way, I had that name wrong. It’s a Next Generation Personal Finance.

Mark: Okay.

Steve: Anyway, it’s a sign. It’s a nonprofit. So a little bit more on social security and before I move on to Medicare. Can you just talk about your own thinking. You mentioned you’re thinking dynamically about your own work plan, and thoughtful about how that affects your social security benefit. Any more detail you want to add there?

Mark: Well, just delay is good. I’ll try to delay as long as I can. And as a freelance writer you need to see how things develop from an income standpoint. I do not necessarily want to waiting to 70, but that would be a good thing if I could do it.

Steve: Alright. I think one of the rules of thumb is, if you’re married, the higher income earner, if possible, should wait until 70 just because it affects a survivor benefits so much, especially if you have younger spouse. It can make a huge difference.

Mark: Totally agree with that.

Steve: And one of the huge questions we get is about that social security work penalty, which, just for our listeners, it’s if you make more than about 16,000 a year before your full retirement age, and you’re claiming social security, then you’re going to forego a dollar of benefits for every $2 you earn above that limit. You do actually get it back later. But, when you’re working and taking social security, there’s a penalty that’s happening.

Mark: Right? I mean this year the exempt amounts are like 17,600. And then in the actual year of your full retirement age, it’s a higher exempt amount. It’s just shy of 47,000. But basically a simple way to think about it as the way you just put it. And Yeah, that retirement earnings test has been liberalized over time. It used to be more of a complete ban. But with effort to try to encourage more people to work longer, it’s been liberalized. Some would like to see it completely eliminated. That hasn’t happened yet obviously. People are confused about it sometimes. The money does come back to you as you, as you noted.

Steve: Yup. And right before we go into Medicare, any other trends you’re seeing around other ways of generating income? I mean, we see some of our users exploring annuities and just as an aside, our opinion on annuities is, fine if it’s like fixed income annuities that are very simple and vanilla. We don’t really love the variable annuities because you’re combining two products, and they tend to have high fees.

Mark: I agree with you on that. I understand that fixed annuities, we’re doing a little reporting on this lately for a story I want to do. If the fixed market has been growing pretty dramatically the last year, the higher interest rates over the last year or so, have made annuity outs a little more attractive. The cost and payout ratios are better than they were. So annuities overall though remain are really a very small market compared to the broader, retirement market. You compare it to dollars held in mutual funds in 401Ks and IRAs and it’s almost a spec. I think annuities are a product that a lot of people have trouble getting their heads around. I think people are worried about sinking a large amount of money into something with an uncertain lifetime payout.

Mark: On the other hand, I think there’s a lot of research suggesting that it can be a really valuable way to insure against longevity risk. Because like social security, the problem you have with retirement saving is, nobody can tell you how much you need really. You can look at averages, mortality averages, but it’s just the guess. So something that is in the mix that is a guaranteed lifetime income source. But I would always start with trying to maximize social security because that’s the most efficient annuity product around. But beyond that I think some of these products like deferred income annuities or fixed could be interesting ways to spice things up. I would never urge anybody to throw all their eggs into that basket. But as part of a broader portfolio, I think sometimes they make sense.

Steve: Yeah. One of the strategies I think about sometimes is, having people consider buying a deferred annuity that kicks in, in mid 80s, when you … We’re under-expecting mortality because at that point the product’s cheap. Essentially, you’re not expected to be around. So the cost of buying it is low. But it does give you essentially, an endpoint to plan to. So you can say, “Okay, hey, if I make it to 85 and I lived to a 100, then great. I’ve got income or another big slice of income coming in so I have to plan for that.” Versus if you’re trying to take your core portfolio and make it last from, “Hey, I might end at 80 or I might need to go to 100.” That’s a very different risk profile for you.

Mark: Yup. Yup. If you think about it as an insurance policy that can make some sense. And I also agree with you that there’s value in being able to think about how do I stretch out my 401k distributions to age 85, let’s say. Instead of saying, “Well, I don’t know how long I need them to last.”

Steve: Right? Yeah. And one other side on this, we had a great discussion with Bob Merton, the Nobel Prize winner, about how the whole framework for thinking about retirement needs to be shifted and the whole industry is been focused on asset accumulation, and just building this pile of assets, which is not really the way you want to think about it. You want to think about in terms of income, right? So, yeah. Okay. You might need to save 2 million, or a million or who knows? Nobody knows exactly what the right number is because no one knows how long they will live, with the market returns are going to be like, et Cetera, et cetera. Versus, if you can think about it constructing your retirement in terms of income that is guaranteed for ideally life, or what is most probable, it changes how you think about it. And that’s how pension administrators think about it. How are they going to make sure they have enough income to provide for their pension benefit receivers?

Mark: But if we’re talking about just withdrawal strategies, from the say, an IRA or a 401k, the tricky part comes in, is it a straight line planning? Or is it variable? Do I adjust as I go? Do I not? Et Cetera, et cetera.

Steve: Right. It is tricky. I mean, de-cumulation is a much more complex problem than accumulation. And that’s the stuff that we are thinking about with us, with our product. And also trying to just expose people to thinking about, “Okay, how do you put together social security, annuities, equity where you’re going to live?”

Mark: Right. I think that a lot of the complexity lies in this age bracket we’ve been discussing starting at age 50. The accumulation phase done right can be fairly straight forward, right? Say, keep the portfolio balanced, that can be done with software if you like, or an advisor. Keep your costs down, contribute regularly, watch it grow, compounding. Pretty straight up. And all these other things tire everybody out. Tax considerations, health insurance, social security, draw-down. It gets much more interesting at that point.

Steve: Alright. Let’s move on to health care and Medicare, because this is a huge risk and actually a huge concern for many folks. Many people, they think about retirement, they think about money first. But then once they start thinking more deeply, they start thinking about health care and in a huge way. Before we dive into the details, we’d love to just get your take and how you thought about it for yourself because you’re coming up on it right? You’re you’re a way from getting into Medicare.

Mark: Yeah. And I actually was … One of the interesting questions … So when you get to age 65, generally speaking, you need to enroll in medicare to avoid late enrollment penalties. The late enrollment penalties are stiff. It’s 10% and your part B premium for every 12 months that you’re late. And those continue for life. So it’s stiff. And for people who want a little more detail on this, I did a very detailed look at it for the New York Times, six, seven weeks ago. Perhaps we can provide a link to that. The transition to medicare from different types of insurance is really the way to look at it. So it’s either employer insurance or it’s the Affordable Care Act, or it might be some other form of insurance that you’re coming in from.

Mark: But really the only exception to the rule that I just stated about enrolling at 65, is if you are still actively employed, and have insurance from your employer, or if your spouse is actively employed, and you have coverage to that spouse. And the word active is critical. So one big mistake sometimes people make is, let’s say they’re no longer actively employed, but they’re on Cobra insurance. And they think, “Well, I’ll just stick with my Cobra.” No, you can’t do that. You have to be actively employed. So this is a big thing to watch out for, is making sure that you enroll on time.

Mark: And a simple way of thinking about it is, default towards enrolling unless you really are darn sure that you have this active employment exemption. Once you’ve made that decision, decision one is whether you’re going to go into traditional fee for service Medicare, or Medicare Advantage, which is the privatized a managed care version of … It’s all in one managed care variation on traditional Medicare. Those are the decisions one and two. And everything else proceeds from that. One of the things that I was looking at, because I’m in that group that has coverage through a spouse. So I was just doing some comparisons, and it looks to me like for me it makes sense to stay on my wife’s coverage for now, even when I turn 65 it’s a little less expensive. But I don’t think that’s always the case. I think it depends on how much your employer insurance costs, and also what type of Medicare or you want to enroll, and whether it’s traditional, or Medicare Advantage. So a lot of the details can make the difference. So it’s worth doing a little analysis and deciding whether you, if you’re in a situation like I’m in, whether you want to stick with employer or move to Medicare at 65.

Steve: It’s great to hear. I had no idea that you had a 10% penalty for the life if you are late-

Mark: Per year. Per 12 months. So like one of the people I profiled in the story, wound up essentially being two years late. Ouch.

Steve: Yeah, right. Per year. Right. So if you wait five years, you’re incrementing it. Wow, that’s amazing.

Mark: And there’s been some proposals to do a better job of warning and informing and educating people about this than we do now through the Medicare program. And I hope some of those pass, because right now it’s left to folks like me and you, to just warn people about it.

Steve: Yeah. So, what is the average out-of-pocket retirement healthcare costs for a couple?

Mark: Per year?

Steve: No. In aggregate.I’ve seen different numbers like 300,000 or something like that-

Mark: [crosstalk 00:38:57] up for lifetime? Yeah. I’ve seen those numbers too. I haven’t looked at it lately. I think the EPRI has a number that approaches that. There’s a lot of different methodologies for calculating it. Some people have lately been saying that they think the lifetime numbers are really not the right way to think about it, as of the, obviously, the variability on longevity, and uncertainty about healthcare costs. What we do know is that healthcare costs in general are inflating at maybe double the rate of consumer inflation. And we know that the cost of prescription drugs is a big problem even for people who have part D prescription drug coverage. There are not out-of-pocket limits in Part D. And so anybody who gets involved, anybody who gets a serious illness that requires a very expensive, say a biologic for cancer, can be looking at really large expenses.

Mark: So Medicare is a great program from my perspective, but it’s not perfect. It has some flaws that probably should be addressed. And that’s one. And some of this can be addressed through supplemental insurance and some parts cannot. So, one way to look at this whole thing is how much are you going to be out of pocket every year for health insurance? And you can figure that out without too much trouble. And then thinking about it from a longer range standpoint is an exercise of, how do you protect against a faster rate of inflation? I would say. Then you get into interesting discussions about how much of your portfolio should be in equities or not, that thing.

Steve: So mark, I would love to get your take on what you are seeing for your own plan, how you’ve looked at this and how you see the cost shaping up for yourself.

Mark: Yeah, I took a look at it from the standpoint of whether it’d be best to stay on the employer plan through my wife’s job, which he has either an individual or a family premium rate, or to shift to Medicare. And it came out slightly in favor of staying on the employer plan. But I’m somebody who probably will enroll in traditional Medicare, not Medicare Advantage. So I ran the numbers up, just using this year’s numbers, for part B, Part D and a Medigap plan and figure that that would maybe cost me $5,000 a year just on premiums. And this is before copays and the like. But that’s this much smaller part of it. So that’s, I think, a starting point.

Mark: One thing worth mentioning about this choice we were discussing about traditional medicare versus advantages, if you want to go on traditional Medicare, the time to it is when you’re 65. Because if you want to add Medigap, which I think is a good idea to do, that’s the supplemental coverage that capture out of pocket, there’s a guaranteed issue period before and after your 65th. Before and after the six months when you first sign up for part B, where the insurers have to accept you no matter, without respect to preexisting condition, and have to give you their Morris most favorable starting rate. So that by far the best time to get a Medigap plan is during that six month window when you first enroll in Medicare part B.

Mark: But that’s the approach I probably will take. There’s a lot of back and forth about whether Advantage is better than traditional. And Medicare Advantage has been growing pretty quickly. I liked the flexibility of being able to see physicians and providers without respect to so-called narrow networks. I think Advantage is probably a pretty decent option for younger, healthier Medicare enrollees. The problem, I think, can come up if you have a serious illness to deal with, and you want to see these specialists in your town on whatever the problem is, and perhaps that person is in your network and perhaps that person is not. You can always go out of that and back into traditional Medicare the next year. But that may or may not be good timing for you. And then there’s the Medigap issue.

Mark: So a long winded answer, but I think traditional Medicare is in my mind, still the gold standard of coverage. It’s a little more expensive. But I think if you can swing it, it’s worth doing.

Steve: That’s great to get that color. It’s actually not what I would have thought when I think of private insurance. I was thinking it would be more expensive. But in this case it sounds like it’s, it’s narrower, and you have less support for that.

Mark: Because it’s managed care. Typically, plans wrap in, the part D coverage as well, without an additional premium. And importantly, you do not add a Medigap plan when you’re in Medicare Advantage, because Advantage does have caps built in to withhold a lot of pocket costs, which is a plus, which is a big plus. So those are the savings in Medigap, in return for accepting the narrow network, you get these benefits. And then some plants also build in some extra goodies like gym memberships. Some have dental coverage, vision coverage, some of hearing coverage. And so those are good things to have. Traditional Medicare doesn’t really cover dental, unless it’s something related to say a surgical procedure. It’s a big issue out there. I’m very concerned about that, actually.

Steve: Does it cover vision as well or not?

Mark: No.

Steve: It doesn’t? Okay.

Mark: And all these are important, vision, hearing and dental.

Steve: Yeah. And I also think it doesn’t cover long term care, right? If you need long term care that’s on your own as well.

Mark: Right. And so all four of those things interestingly, are proposed in the flagship version of Medicare for all and the House of Representatives. They proposed to wrap all four of those things in under Medicare for all. And we’ll see where all that goes. But I think one positive thing about the way that legislation is shaping up is it’s addressing some of those gaps that exist in the current Medicare program.

Steve: Alright. Just as an aside here, I use Kaiser. And I’ve been pretty impressed with what they’re doing. It is managed care, but because they’ve made everything digital, it’s super efficient. So I can do, request prescriptions, I can schedule appointments when I meet with care providers, everything is digital. Nothing’s written down, it’s all written directly into computers and it’s all shared immediately. Recently, I went in to have a quick assessment, a heart thing checked out. And I basically saw a primary person. I had an echocardiogram. I had a stress test, and I was in and out of there and less than an hour. It was shocking to me. I was like, okay [crosstalk 00:45:45]. Yeah. So my hope for the future around healthcare in general, is that we bring so much more efficiency to this cause I’ve also seen those side of it with more traditional doctors, where there’s just reams and reams of paper. The care is great, but the systems are antiquated. And that’s a huge lift that’s available to our healthcare system.

Steve: So yeah, just to recap, I will say that many of our users feel overwhelmed by healthcare. And it’s something we’re working on, but it’s complicated. Like you’re all super well educated, and thought a lot about it. So it’s great to hear your story. But just to recap, there’s two paths for Medicare. There’s the traditional Medicare, which includes part A, hospital insurance, which you get automatically when you’re enrolled to social security office. There’s part B, outpatient services. So doctors, there’s a lab test, and you still enrolled social security office, but you have to pay a premium for this. And then there’s part D, prescription drug benefit, and you also have to opt in and you enroll through insurance care.

Steve: So that’s traditional Medicare. Plus you might buy a Medigap, like you said, to cap your costs in that. And then the other big route is part C, which is Medicare Advantage, private medicare insurance, which wraps up all this stuff together into one package. But it sounds a little bit cheaper, but you may not be able to get the same level of support that you want.

Mark: That’s a pretty good summary. The other thing I’d add to that is that the enrollment can also be done online or on the phone with social security.

Steve: Great.

Mark: As opposed to just the offices. There’s also places to go to get guidance on this. There’s the State Health Information programs. There are some companies out there that specialize in helping people sort through insurance options for a fee. I’ve written about a bunch of this, and if you like, I can provide links to it, along with the podcast. But there are different places to go for that help now as well.

Steve: Yeah. Any that jump to mind that you think are doing a great job?

Mark: Well I think the State Health Information programs are always a good place to start. Those are free, and they have trained volunteers who are expert in helping people sort things through.

Steve: Great. We’ll definitely point to your New York Times article, and we’ll point to some of these programs that you suggest after the fact we do, but we do call outs at the top of the podcast transcripts that we have on. Alright, well look, as we look to wrap this up, I would love to get your perspective on what you think the future holds for this demographic, and also big programs like social security, Medicare, that affect them, since you look at that from a public policy perspective.

Mark: Well, I think social security reform is going to be an issue. Social security is facing what I call a financial cliff in 2034, which is, that’s the year when the social security trust funds will be exhausted, as the boomer age wave accelerates and more benefits are drawn. Exhaustion is a term of art that it’s often misunderstood and confused or muddled up with something like bankruptcy. And it’s not. That’s not what it is at all. But it would mean at that point, that benefits can be paid out only from incoming revenue. And it would mean a cutting of benefits across the board of more than 20%, which would be a disaster. So I certainly expect and hope that won’t happen, but it means that there’s an issue of making a fix to social security somewhere between now and then.

Mark: And I think wrapped up in with that is the possibility of doing some smart expansion of social security, which I’m in favor of. There’s legislation proposing to do that in the house right now. I don’t think it has a prospect to becoming law right now, but it’s got across the board, support of the democratic caucus in the House. So I think social security reform is something to watch.

Mark: Medicare has some financial issues as well, but it’s more complicated because Medicare draws revenue from variety of sources. It draws revenue from a … There’s a trust fund and supports part A. But the other parts of Medicare are supported through a mix of premiums in general, revenue. So it those programs don’t face exhaustion in the sense that social security does, or perhaps the part A program. But Medicare is the more complicated bundle to sort out, and there’s a lot of worry about growth of cost and Medicare. Also a topic well worth watching, I think.

Mark: I don’t think people should be scared about these things though. I think that the politics of this will dictate solutions because these are programs that are hugely popular among Americans. And I have trouble imagining any congress person wanting to go back to his or her district to explain why they didn’t take steps to avoid a 20% plus, cut in constituents’ social security benefits. I just don’t think it’s going to happen.

Steve: Right. Especially since this demographic, the senior mature demographic votes at a much higher rate than historically, younger voters.

Mark: And it’s not just a boomer thing. It gets discussed that way. But this is important for younger cohorts coming along as well, it really is.

Steve: Right. While many younger people don’t believe that social security’s going to be around for them and they’re not planning for it. I think it won’t be around, but-

Mark: I don’t blame them because they’ve been subjected to a lot of propaganda and spin about social security over the years.

Steve: But 2034, it’s only 15 years away.

Mark: I know. It’s getting into the horizon. So, it felt like a long time away for a long time. But you go now, “Well, it’s not that far.”

Steve: Right. And when you look at … There’s been some big numbers thrown around, but Medicare is a huge program. It’s a huge percentage of the budget. So it’ll be interesting to see how that evolves and how it changes. And there’s also a lot more uncertainty about it, in terms of, longevity is increasing, health care costs have been increasing. Can we make that more efficient? So –

Mark: Yeah, this is more complicated. Social security is kind of, everything’s inside one framework. And if you pull this lever, the actuaries can tell you exactly what’s going to happen. If you pulled that lever, they can tell you.

Steve: Great. Alright. Well I think we’ve covered a ton of stuff here. Anything else you want to mention about Conference or as communities, or resources that you love and think would be really useful for our audience? And that’s obviously your audience as well.

Mark: Well there’s a number of conferences that I’ve found really helpful over the years that, that I like. And if you want me to go into that, I can. In terms of online resources, I’ve very much like a Michael Kits’ is a weekly newsletter, which she calls Weekend Reading for Financial Planners. But it’s useful reading for anybody interested in retirement. There’s a bunch of other journalists who I’m close with who I’ve followed their work pretty closely. People like Kerry Hannon, and Chris Farrell, Rich Eisenberg at a Nextaveue.org. I could mention others, but those are some of the things that I pay close attention to, as well as lots of … I have shared my Twitter feeds that are honed to follow literally dozens of different writers and research groups on different topics. So I’m consuming quite a bit of online information about retirement and aging all the time.

Steve: Nice. Well we’ll give call outs to those folks as well. Alright. Well, I think that pretty much wraps it up. Any questions for me?

Mark: One thing we’ve talked about that I’m interested to know about is how you think about this issue of scale for financial planning. This issue of how we get planning out to a much wider group of people. I know that’s a central focus for your organization. How do you plan to get there?

Steve: Yeah, it’s a great question. Well, I think it starts by being digital first. So the whole reason we started this company was that we were solving this problem for my mom and we couldn’t find great resources. And I think that that problem exists. You can get great financial advice out there. There are great providers, planners, RIAs, that can be completely aligned with you. The issue is that most of it’s delivered person-to-person, and it’s expensive. That time is expensive. And there are 75 million baby boomers out there, 120 million people in this country alone, over age 45. And most people could do better.

Steve: So I think it starts with being digital. It starts with education. We’re trying to build a lot of this intelligence into our interactive planning tool. And I also think through the community itself, we had Rick Ferry on here before. He’s part of the Bogleheads forum. There are communities out there, of people that are super well educated that will just give their time and education for free to other people. But it’s hard for folks to tap into that. So I try to bring these super-educated people together with the less educated folks in new ways to share information more quickly in a way that’s aligned, where there’s no bad stuff happening, because you have to be wary of that as well. Like selling of products that are not good.

Steve: But, yeah, I think that we feel like there’s definitely an opportunity to just like in many other areas where things have been digitized, and made available to many more people. And I like to travel as an example. You talk to travel agents to plan our trips, and now we use Kayak and all these different sites, Google maps to figure our way forward ourselves and do a lot of lifting ourselves. That, I think, same idea can happen in financial planning, in education and put the power in the hands of the people, and it’ll help. The outcomes are so bad right now for many people, that there’s just a massive opportunity for people to do better. And right now, it’s folks I think, like you and I, that are out there trying to get the word out and just see what’s possible going directly.

Mark: Yeah, that makes a lot of sense to me. I think as you say, there’s a lot of room for improvement.

Steve: Totally. Well okay, this has been great. Thanks, Mark for being on our show. Thanks, Davorin Robison for being our sound engineer. Anyone listening, thanks for listening. Hopefully you found this useful. Our goal at NewRetirement is to help you help anyone plan to manage their retirement so they can make the most of their money and time. And if you’ve made it this far, I encourage you to check out Retirement Revised, and Mark’s podcast, which he has going. And on our side as well, you can find education and planning tools where you can build your own plan for free, or take advantage of our premium advanced tools and personal support. We also have a private Facebook group, or you can follow us on Twitter. And the last thing is, we are trying to build the audience of this podcast. So if you could leave us a review on iTunes or Stitcher or anywhere, we’d appreciate it. We read them and try to improve our show based on your feedback. Thanks again and have a great day.

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