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May 28, 2020
Episode 41 of the NewRetirement podcast is an interview with Glen Nakamoto — retired cyber security analyst and financial planning enthusiast. They discuss how Glen built his own lifetime retirement paycheck with a guaranteed income floor using immediate annuities. Glen outlines how he built his plan and paycheck.
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Steve: Welcome to The NewRetirement Podcast. Today we are going to be talking with Glen Nakamoto, a former cybersecurity analyst and self-professed, non-financial advisor with no background in financial planning, who likes to dig deep into topics of interest, including retirement planning, and has on his own created a super robust retirement income plan. So I met Glen through our Facebook group after noticing him, making some really insightful comments about other people’s questions. So I invited him to write a summary of his own plan for us and 6,000 words later — which is currently on our blog and you can link to it from here — he laid it all out for us. So we’re going to dive into how to build lifetime income with our retirement income floor from a lay person. And Glen is joining us from Merrimack, New Hampshire. Glen, welcome to our show. It’s great to have you join us.
Glen: Yeah, thank you. Thanks for this opportunity.
Steve: Yeah, I appreciate your time and it’s great to hear it. You know, kind of from a, you know, quote unquote lay person, but you know, you’ve obviously done some very deep thinking about this, which we’re going to, we’re going to go through and it’s going to be great for people to hear it in your own words. But before we get started, I just want to frame this up a little bit. So Glen built this kind of super robust, super safe plan around lifetime income. He’s leveraged social security, kind of optimize that used annuities thought through how to optimally use RMDs or required minimum distributions and how to manage his assets. I’m on the email group called retirement risk. That’s part of the society of actuaries. And that list has many of the top thinkers around lifetime income and lifecycle investing like the Bodhi Steve Vernon and a Rappaport.
Steve: And, and they go deep on these topics. So I kinda threw out this case study to them and they thought it was great, had lots of good questions and want to dive into some of their questions as well. But to some degree, it feels like Glen has done something like inventing fusion in his backyard because they all talk about this theoretically and he’s actually implemented it. That’s why we’re going to take a deep dive. So with that, Glen, would love to kind of get, you know, just a little bit about your background and kind of, you know, your career, you know, and, and how you kind of decided to take this on. You know, you can give us a little bit of that.
Glen: Yeah, sure. Well I my, my, I’ve actually only worked for two organizations the first right out of college. I I worked for the federal government for roughly about 13 years and while I was there, I, I thought, you know, I was going to live out my entire career, but you know, things happened and eventually I wound up going to work for a private company. So, but when I did it turned out that no, the concept of government pension just kind of went out the window at that point actually turned into a nine 11 Porsche for me. It’s probably not the best thing to do for retirement planning, but but you know, once I entered the so called private sector, I I was introduced into, you know, what a 401k was, which I had no clue what it was.
Glen: And I had start paying social security and to be honest, you know, prior to then I never paid attention to any of that. But since then, you know, I when I showed up at work, this is 1982, they say HR sat me down and said Oh, you want to pick a mutual fund or something because you would be, you’re going to be fully vested in your retirement. I didn’t know what vested mean at that time. So say, well, just, just pick a mutual fund. And and the company I worked for is going to go to match those funds and I knew nothing about matching funds. 401K so they get, they gave me this nice book throwing binder and I, it told me to pick one. So I opened the one page that was dog-eared. I scanned it and I said, okay, this one here has looked like it had the best, you know, year to date, you know, one year, five year tenure. And it w it turned out to be a fidelity Magellan. I said, put everything in there. And I didn’t look at that thing for almost 18 years, believe it or not. So no. So I had a lucky beginning of that regard and I stayed with that company until I retired, you know, seven years ago. So it’s been an interesting ride.
Steve: Wow. So when you left the federal government, did you like lump sum your pension out? Essentially?
Glen: Yeah, things I probably shouldn’t have done, but I did because I didn’t know whether I was gonna go back to them or what. So I said, Oh, you know, you’re, you’re younger. At the time I had a young family said needed a car, so it was probably one of the things I shouldn’t have done. But yeah,
Steve: It all worked out. Right. Bought it. You bought this fancy car, enjoyed it, but it was a depreciating asset. But you, you then like bought a great fondant. And wrote it for a long time, which is, you know, essentially the strategy that most people are supposed to do. You know, you, you went and kind of said, okay, I’m going to do this. Did you not kind of think about when did you start thinking about, okay, how am I going to generate income from these assets?
Glen: Well, my what happened was as my wife, my wife is three years older than me and she’d been wanting, she’d been talking about retiring, you know for awhile. And basically as we were looking at our portfolio, I was thinking, you know, she, she’s at the point where it might make sense for her to retire because we both worked at the same organization, but her work environment was a little bit, I think, stressful in some regards. So I told, you know, we don’t, we don’t really need that income. And so what we could do is in fact go ahead and have a retire. So that’s when I probably started to think about, you know, what, what’s gonna make me comfortable? Retirement. He goes up to that point, I still had a paycheck. And so, so, you know, so that’s that, that probably was about three years before I want to retire. And did, I started really thinking hard about it.
Steve: Okay. So up until that point, you kind of been saving past, you know, you’ve been in saving, investing and accumulating assets, but not really thinking about how am I going to turn this into, you know, income. And how did you F, you know, what were your goals? Like how did you, what were you trying to accomplish as you, you know, thought this through?
Glen: Well, to be honest, up to that point since I really didn’t have a target date retiring, to be honest, I was like 95% in equities. I figured, you know, that the idea of you know, working your way down to something more, I could see that if I knew exactly what that target date was, I was, I would start to shift. And I honestly thought maybe at first I might work till I’m 66 or something. So she retired. I was still only 60, so I forget. I, I myself continue to, you know, keep, keep, keep heavy weighted on, on equities and, and that was a great time, you know, in that, in that part of the century to, to stay in equities. So, but once you retire and I knew, you know, that clock was going to start ticking and that’s when I started thinking about, you know, what kind of income do I want? Having assets, one thing. But the idea of just taking money out of savings just wasn’t appealing to me. I was always comfortable with getting a paycheck. And so what I think drove me was how do I, how, how do I create that paycheck? And first of all, how much of a paycheck do I need? So that’s what kinda got me thinking about what kind of trying to come up with some kind of strategy.
Steve: Got it. Yeah. And I know in reading your posts, you know, you talk a lot about wanting the paycheck and wanting it to be reliable, you know, making sure that your kind of minimum income was guaranteed, you know? And then also having kind of a discretionary income and then also how to think about hedging inflation. So can you kind of you know, lay out how you at a high level kind of how you constructed it?
Glen: Yeah. I guess the first part of it was I was really trying to get a sense of how much money do we really need, you know, what, what, what were those essential expenses? Because to be honest, when, when my wife retired, I don’t think I really had a good handle on it at the time. I remember thinking all these rules of thumb where, you know, Fidelis say you need 10 times your last salary. Well that tells you, you know, your salary, but it doesn’t really, it doesn’t really tell you what you, what you need or you’re spending. So the first part of it was to get a good handle on our expenses because until then you know, we were fortunate enough that we didn’t have the budget, so we’ve kind of spent whenever we needed to spend so the idea of actually trying to analyze what we’re spending turned out be a lot harder than I thought because you had to click all these statements and all that.
Glen: And the first time I did it, it was so painful. I swore I’d never do it again. But what you spend prior to retirement is a little different than what you spend after because you no longer have to make retirement contribution. You don’t have to make mortgage payment, you know, assuming you pay off your mortgage. So I, I kinda had to figure out a way to get a handle on expenses. So over the course of the next two years, I kind of developed my own system of how to gather the information, Trent, and then basically converted over to a spreadsheet and then categorize it and then start to get a handle on it. And then as I’ve been doing that for like almost two or three years, by the time I retired at that point, I had a really good handle on what my quote, my essential expenses were.
Glen: And by definition, everything else was discretionary. That dental me in combination with my projected social security that if I wanted to have that social security and this essential, you know, all these essential expenses covered by steady income, it told me what my difference was, my gap, you might call it that. And that was the amount that I then saw. How do I get reliable income from that? And that’s where, you know, I started looking at annuities, but at first it seemed like only people that would talk to me about an annuity is, would try so many hybrid annuities, variable index annuities. And I only really learned about immediate annuities like literally about six months before I retired. So, but when I saw that, I said, wow, this is, this is, you know, it’s not a bad deal. It’s a way to generate a paycheck. And I said, but then I, then I needed to know how much did I need. So that’s where looking at social security, looking at the essential expenses, you know, calculating the difference that then gave me an actual target income that I felt I would be comfortable with. And then that in turn told me how much you know, assets, what I need to use. And the question was, is the percentage of my assets that I would use at that time to buy these annuities? Now, did I, what was I comfortable with that?
Steve: Right? And that turned out, and that turned out to be a pretty significant chunk of your
Glen: Right. And I, and I had no idea whether this was a, you know, was this too much? Was it, you know, so that’s when I started talking to advisors, financial advisors, and not a single person advocated. And then when he didn’t mean it, they always had, you know, we could do this with bonds, we can do this, you know, other ways. But to me, those things still had market volatility, know at times. So I, I was still looking for other options, but that’s kind of how I decided that I, you know, that the, these types of annuities, I actually did go down the path of almost buying some hybrid annuities. I know that I would have to wait, you know, like five years, seven years before income would start rolling in. What turned me against them though was I said, okay, I liked the upside. I don’t, I didn’t mind the cap. I liked not having a downside, but when they sent me the paperwork to sign on the dotted line with all the Brazilian writers that this thing came, when I counted it was in a three ring binder, first of all, there were 23 different tags where I had to sign her initial, and much as I tried to do read this document, I could never, I never felt comfortable signing any of it because I couldn’t understand it. So I finally gave up.
Steve: Right. Well, I think that you raise a great point, right? It’s like things need to be simple and understandable. And if they’re not, you know, why are they so complicated? I mean, that sounds amazing to say, Hey, cause I know you’re looking at taking 30% of your savings for retirement or potentially net worth, maybe whatever. It’s, it’s a big chunk of money and locking it up. Right? It’s like if you buy a house, I don’t know if you’re doing anything huge, you want it to be at least you kind of understand the math behind it, right? Or you understand what you’re getting into and, and it’s kind of interesting to hear that. Yeah. And, and a little bit more on, you know, the, as you sought advice. So, so you’re doing this yourself, you’re, and then you’re kind of going in this transition. You’re like, okay, I’m gonna, I’m gonna look for help. You talked to financial advisors, you talk to insurance folks, insurance brokers are typically salespeople and they’re not fiduciary, sorry. But with the advisors, did you feel like you were getting completely unbiased advice funded the financial advisors that were calling themselves out as fiduciaries?
Glen: Well, I mean they, I honestly thought that they were giving me what they believe to be, you know, good advice. However, I guess in the back of my mind, given that, you know, when they talked about the fact that they get paid by a percentage of assets under management and I was basically advocating, taken away a third of that. I always wondered whether that influence there what, what do you call it there? The fact that they didn’t seem to want to advocate immediate annuities. They didn’t have problems talking about variable annuities or some of these other instruments. But when I talked about just plain, simple, immediate annuities where, you know, there’s no cash or revisional investment, I pay it out. I get right away. I, to be honest, I didn’t have a single person during that initial period ever tell me that it was a, you know, a reasonable thing to do. And in fact though, there was one company that I thought it was the most stupidest thing that I should ever consider. So, yeah, so we weren’t mad, you know, we weren’t basically going to see eye on that.
Steve: Did you, did you ask them how they’re getting paid? I mean, were these hourly or, Hey, you went at center management?
Glen: Yeah, I mean the, the initial ones were all acid under management. I, I did not find a single advisor at the time that was charging Roe. I was having a very difficult time trying to find somebody like that.
Steve: Yep. Yeah. Cause it’s, it’s such a better, I mean it’s, if you’re a financial advisor and you can cobble together a hundred million dollars of assets and you charge 1%, you can make a million dollars a year babysitting other people’s money. I mean, I get the business model. It’s unbelievable, right? It’s a great lifestyle business. You know, and I think the question is, is, you know, look, some advisors earn their money, they do great things and there’s a huge amount of value. I mean, there’s definitely, there’s clearly a segment of society that like is delegated. I just want someone to take care of this for me. And they hopefully will have better outcomes with that. But the fee structure is high. You know, I think we talked to Rick Barry about this. It’s like, why do you pay financial advisors that way versus you pay a lawyer or your accountant per hour, right? You’re kind of seeking expert advice on, on money or whatever legal matters. It’s like you pay him, you get the expert advice and then that’s it. That’s the end of the the transaction. And then what was your sense about, you know, you know, back to the, the insurance folks, I mean, did you feel like you were getting clear guidance or did you feel like you’re just being sold to?
Glen: Well, my, my initial sense was that they were interested in, you know, managing investment more like I was in the accumulation phase that they were trying to maximize things. Well, well, I was trying to bring the focus of the discussion to how do I generate income and be reliable income. And all I got at that time was, you know, like things like the 4% rule use bonds you know, you use a asset allocation, you know, draw from this or that. But when I got, when I talked about my concerns about, you know, reliving the 2008, 2009 kind of, you know, downturn or the.com, you know, downturn, how do these things you know, impact that type of sr occasion and you know, or the income. And they said, well, you know, statistically if you continue to drew out this, you know, things will work out.
Glen: Oh, I saw the charts and the graphs about, yeah. You know, if you were to look at a Monte Carlo simulation over 30 year periods, statistically these things would look good. But I had also been reading more recent, you know, that because interest rates were starting to drop a little bit and all that, where those statistics still good. Started hearing reading articles or rumblings about the 4% rule is probably no longer 4%, something less. But it was really more about the, the day to day, not day to day, but the market volatility that uneased me as far as the essential Spanx pieces were concerned.
Steve: Well I think a lot of also a lot of the kind of variable annuities are and, and guaranteed withdrawal. You know, products are nominal dollars. And so there’s this giant inflation risk. In fact, in, in this, I’ll point to an article from Joe Tomlinson, he kind of compares SPI is like immediate annuities with ideally if they can get some kind of cost of living adjustment versus you know, variable products. And you know, if you start, if you look over 20 or 30 years and you’re not getting, you don’t have some kind of inflation hedge, you know, your purchasing power is going to get cut in half. So, you know, it’s a huge risk for folks. As you, as you kind of map this out, can you just take us through like how you, you know, you, you divided this in the article into three buckets and you did talk about, okay, you thought about how to define your essential income.
Steve: And then you had three buckets, you know, income, floor, discussionary and investment. Can you talk a little bit about, you know, kind of w why you did, and your, you’re thinking about buckets is a little bit different than the traditional bucket strategy, which is really a different risk assets. Yeah. Tiny, tiny segmentation and different risk assets in each bucket. Right? So super low risk and the first, you know, first bucket for the immediate future and then intermediate risk and the interim bucket for, you know, five to 10 years or whatever the period is and then high risk and the longterm bucket, but you did it a little bit differently. So I’d love to hear that.
Glen: Yeah. I mean, to be honest, you know what, as I was approaching retirement, that’s sort of the direction I was headed. I was looking more at the bucket strategy as being the best option if I was going to continue to just stay in, you know, in bonds and equity. I mean, yeah, equities and bonds, but the more I thought about that, the notion of how do I get steady income, reliable income the more I leaned away from just having that one or two years of bucket one. So as I transitioned that into the notion of a, you know, of a lifetime reliable income, realizing that there’s an inflation element to it all right. That at least helped you find what I wanted to do as far as the so-called bucket one part. Now bucket two became then at that point, discretionary. And I, at least in the initial shortly after I retired, it was sort of a art quote, discretionary fund.
Glen: But as I was approaching, you know, when I, I think when I hit about 64, 65, I want to, I was thinking about, you know, R and D pills. And at the time I wasn’t aware or hadn’t planned on doing like in kind transfers from, you know from the IRA to a tax efficient account on the outside. I thought I might have to sell for example. So I said, well, rather than forcing myself, so why don’t I have at least some assets set aside that if I have to take money out and either transfer to another account or to spend I’ve got something that I, that’s not tied to market volatility. So if the market goes down, I’ve got that. Also at the time I hadn’t done any Roth conversions, so I would base it on what my projection stated, you know, our, our, our balances would be, and I estimated, you know, based on those projections what our approximate RMDs would be.
Glen: So that’s when I built bucket two to be a five-year ladder, a rolling ladder. And as we were approaching age 70, I started to, to the, the, the, each rung of that ladder to match the R and D. Now in the meantime, I started doing a lot of Roth conversion. So now this ladder actually has quite a bit more in it than the RMD since I’ve been able to move a fair amount of assets into a Roth account. But then at least kind of my goal behind why I wanted the bucket to in the first place was that, you know, the first 10 years in our case may be up to 15 years. I, I feel I felt were very important in terms of wanting to enjoy retirement and I didn’t want to have to rely on a really good market outcome in order to be able to travel and do those things. But I thought by setting up this bucket to, to lock in, you know, 10 years worth of discretionary funds, that would be great. Then I wouldn’t have to worry about it. And then I could deal with, you know, things happening after that later. So by, by defining what bucket one, bucket two, well then by definition, everything else that I wanted to bucket three and I could now focus buckets three on addressing inflation for the most part.
Steve: Nice. So I’m one way to think about it. It’s like you funded a 10 year paid vacation, you know, it’s like know like if you were working you’d be like, Hey listen, I got paid vacation, I’m going to take it right. It’s my paycheck’s coming. I don’t have to worry about it at all.
Glen: Yeah. And that was sort of my mental attitude when I was thinking about, you know, what bucket one did was cover all my expenses. Bucket two was like you said, all the fun stuff and question was could I do that and still have a sizable amount and bucket three to address inflation. That’s the poverty is way to look at it.
Steve: Yeah, that sounds awesome. And just real quick, I have a question. When you, when you thought about your minimum versus desired spending, what did the percentage look like? So for example, if it was a hundred thousand, was your target income, what when you did this analysis post retirement what percentage was minimal? Like the essential expenses as part of your overall spending?
Glen: Oh, as part of my overall spending my overall. Okay. Let’s see. I’m trying to look at things, my sensual expenses probably covered about, I would say maybe between 70 and 75% of all the expenses. And then so the remaining 20 to 25 20 to 20, 25 to 30% would be what I would consider a discretionary. Now the essential expenses, I at least when I decided to, you know, buy two annuities, I had roughly about two years of data collected, but it was two years of data. I was still working. So one of the things I had to do was I had to eliminate the retirement contributions, social security payments and all those things. So I was fudging a lot of things in that to try to figure out what was I really spending. And then on top of that I said, well, I’m going to have more time for travel. So I, so it was a lot of guessing to some extent, but at least I had a good feel for what I considered essential, you know, how much did we spend for gas utilities, food,
Steve: Right? Yup. Awesome. So, so you’ve constructed this, you’ve been also doing the Roth conversions to kind of be more tax efficient. So how do you manage it now? Like how often do you have to look at this? You know, do you continue to build out your ladder every year? Like what does it look like when you’re kind of in retirement managing this income plan?
Glen: Well, I was building, I, yeah, I had sort of a, the first one thing that helped was that when I retired, I hadn’t planned on working part time, but I had an opportunity to work part time from home, you know, only like one day a week or a couple of days a month. And and it was really, it was a good opportunity to turn down. So one of the things that part time and employment did was it gave me this additional income where I didn’t have to worry as much about the discretionary fund. I actually used this money to cover our discretion. I, so my, my need for that bucket two really didn’t start until about five years later. So five years, what I did was, okay, I’m, you know, I’m like 66 or something like that. I was coming up to my fr, you know, full retirement age for social security.
Glen: My original plan was to start drawing social security at that point, but since I was still working part time and I now could get spousal benefit. So between the part time work, the spousal benefit the, the you know, the, the annuity income, I discovered that, you know, I don’t need a social security. So my bucket strategy at that point just con transition to starting a payout at age 70. So, so I did have a plan for all that, but like I said, this additional income kind of covered all our discretionary needs, you know, for the first five years. And then at that point I started into this bucket strategy. Now the current bucket is a five year CD ladder. And as I said those, the income from those five you know, R and D, so to speak, will actually give us enough discretionary funds for almost 10 years.
Glen: So my, my plan right now so far is not to continue to add to the rungs of that ladder, but I’m making kind of a year by year assessment as to, you know, is there something better, you know one of the things I’ve been looking at as a deferred annuity could buy into something now hold onto it for, you know, five years and then cash it out on, on that six year. And that’s one way I could continue the, the ladder. On the other hand I’ve also been looking at fact that because I waited to age, so we need to start social security. I’ve gotten a nice you know, 32% boost in that income so that monies can also cover covers more than our discretionary needs too. So, so right now I’m like, my plan hasn’t been to continue to ladder, but I have other income sources that are now available for discretionary spending.
Steve: Yep. Yeah. Well, it’s interesting is, are you seeing that your, do you think your income is going to continue rising in retirement? Or, I mean, how, how do you foresee, when you look at going forward, how do you see your own income and falling? And I asked this cause like my someone in our, in our extended family who’s similar age kind of like, you know, late sixties, seventies, like going into retirement was like, Hey, it looks like I’m going to have more income in retirement than I ever had working. And, and which was like confounding to her and she’s never made a lot of money but, or not huge money, but had been regularly saving and investing and you know, looking at different ways to kind of boost income. So,
Glen: Yeah, well certainly the dollar Mon I think is going to grow at least based on all of these projections. Like, you know, like your, your tool for example, in your retirement tool. I get, I also do Monte Carlo simulations with the fidelity retirement analysis tool. And they said, even if I use the pessimistic, you know, percentages, it will grow. But the question is, does that, does that growth just compensate for inflation? I mean, so that part, you know, it’s, it’s kinda hard to say, but the bottom line is that because I’ve, I was able to wait to age 70 for social security, that income boost, the amount of money that we’re getting in terms of a lifetime income is actually quite a bit more than what I need as what I, what I originally planned for that income floor. And because you know, if that money is in fact there, that means I don’t really have to draw out of my bucket to know at least for those possibly, maybe those 10 years. I don’t know. I mean I’m going to try.
Steve: Yeah. Right. And then for bucket three where you’re, you’re, I think pretty, you’re like 80 20, right? In terms of like equities to bonds have a, have you been, but you’ve been rolling some of that into Roths, but I guess to the Roth still, you still count them as bucket three,
Glen: Correct? Yeah. Yeah. The Roth IRA is still part of my bucket three and it’s pretty much a hundred percent the Roth portion of his a hundred percent equities. Right.
Steve: And the advantage there is, I know in your thing, in your, in your post you called out, it’s a good hedge for future tax increases obviously, but you know, emergency funds, college funds for grandchildren and estate planning because it can be passed on, you know, tax-free, right? Yup, yup. No, that’s awesome. Yes,
Glen: Especially with the you know, with the elimination of the stretch IRA if you can incent, you don’t have to have any RMDs and inherited IRA at least for the first nine years. If you can hold on to that Roth, the full 10 years and just use your tax deferred type a, you know, traditional IRA for inherited, it really does boost the amount after taxes that your beneficiaries can get.
Steve: Yep. That’s good. Alright, so, so we had some questions from the, you know, folks in the, in the SOA group. You know, just did, well, you, you’re now, one of the questions was did you ever consider a deferred annuity? But now it sounds like you are thinking about it. So that’s for, for longevity. I mean, one thing you could have done would be dry your assets earlier just instead of buying us the spear, the immediate annuity, just buy deferred annuity and fund the gap. Just like you funded the gap for social security, right? You’re just essentially pushing it back. Did you think about that strategy at all or
Glen: Oh, you mean as far as using diverted deferred annuities to fund the gap to age 70 or
Steve: No Jew to just instead of buying the SPE? What like what age did you buy the immediate annuity?
Glen: I was a 63, that’s when I retired. Right.
Steve: So, so at, at retirement, say fun 63 to 70 or some future timeframe, you know, with your assets, you know, with your savings and then buy a deferred annuity starting at 70. Do you think that
Glen: Consider doing year? Yeah. Yeah. I don’t know that I seriously considered that option. At least I don’t remember doing a tradeoff with it, with that particular analysis. I think at the time I was probably more interested in guaranteeing some income rather than just using assets like that. But that’s, you know, that’s probably, I mean, you know, if I were to do it over again, I probably would certainly consider that. I think there was more, from my viewpoint, I was looking more at the standpoint that, you know, if I really, if I’m really going to retire, I just want to have that steady income. That was kind of driving, driving factor. It may not have been, like you say optimal, but it’s one of those things where I just felt comfortable.
Steve: Yup, totally. Did you think about getting you know, using a cue, lack of qualified longevity annuity contract? So basically buying the annuity with a DC assets to find, you know, 401k assets.
Glen: Yeah, I did, but it seems like the only way you sort of benefit out of that if you, if you live much beyond AJU four or eight or somewhere in the mid to late eighties. And as I was looking at my, you know, the, the growth of bucket three, I didn’t feel that I needed that at, at the moment. But yeah, it was a consideration. It, the thing is, and I think if I did the Culex, it’s only like up to like 130,000 was it?
Steve: Yeah. I don’t, I don’t know the exact limits.
Glen: If the dollar amount was relatively small, I’d like to say it’s only about 130, 140,000. So I didn’t think that it would add that much value from, from my viewpoint at least.
Steve: So having gone through this whole process, can you think of ways that you would like to see this be better or simpler? It feels like what you did is great, but requires a huge amount of financial education and focus to like kind of think through the, you know, tap, you know, I mean you have to accumulate well, which you did, but then you have to think through social security, claiming inflation, whether you should annuitize, right. The risk in your portfolio. Do you, do you looking back now you’re like, wow, this could be made a lot better doing certain things?
Glen: Well, I mean, yeah. I, I’m not sure how it could have been made better. You know, possibly if, if, when I was talking with some of the financial advisors in the early phases of this and they were to lay down a plan like this that says, you know, here’s a way that you could generate income. Here’s how you, you know, this is the kind of asset you need to save. If they were to lay out kind of a storyline, pretty much the way I developed mine that say now I probably would have jumped on that bandwagon pretty quick. Now I can say that now, but to be honest, you know, back seven, eight, nine years ago when I started down this path, to be honest, I didn’t know what I wanted to be all I wanted to be honest.
Glen: The thing that drove me was I wanted to recreate that paycheck. You know, all the other things kind of evolved or time. But so, so for me no, no one seemed to, I don’t know, give me that comfort level that says, here’s how you generate that paycheck. And then the immediate annuities with the social security seemed to be the best option for somebody that, you know, that didn’t have a pension. And I never saw people talk about combining those two into in the way that I did. So I guess if there are, you know, a financial advisor that saw that and tried to put those two pieces together, I probably would have aligned myself closer to that kind of an advisor early on. Yeah.
Steve: Yeah. Well that’s part of what we’re doing as well as where we’re trying to take an income view for our retirement. I mean, there’s still work to be done, but you know, we talked, I don’t know if you’ve listened to the Bob Martin podcast you know, his whole, you know, stake in the ground is that the whole problem with retirement planning and advice is that it’s totally focused on assets versus income. You know, everyone’s like save more assets and the whole financial services industry has paid on those assets. So their incentive to encourage you to individuals to keep saving up more and more, cause they make more and more money versus what people want is what you’ve built, which is pensions. They want income, you know, lifetime income that is ideally inflation hedge and guarantees their quality of life, you know, and, and, and helps them create a consistent quality of life, you know, for their whole entire life. Which sounds like an easy idea but is obviously not dead simple to create. So we’re, we’re trying to make it easier for people to kind of get understanding what they have and then see ways to accomplish it, but have a, some, some degree of control themselves. OK. Awesome. So in terms of like tools that you’ve used, I know your, your use of our platform and you mentioned fidelity. I think you also mentioned you tried personal capital. Any other tools or resources that you found useful?
Glen: I mean those are probably the ones that I’ve sort of experimented with most. I, I have the longest history with the fidelity retirement analysis tool, but it’s strictly linked to, you know, fidelity funds. I, I think one of the reasons I was seeking other tools like the one at NewRetirement was the fact that I could merge other accounts together outside of fidelity. Personal capital if I remember correctly. While that, while I liked the tool, one of the nice features maybe you might want to consider it is the fact that when you enter in the the the was it called a cusp, the cus by P the cusp of the, of the it tracks the, it changes day to day. So if you do an update, you don’t have to manually enter in all your, you know, the values. But I don’t, I don’t see myself ever going to them as a financial advisor because of the way they, they want to control everything. They would require me to move all my money over to their broker dealer and they told me that I won’t even have access to it, which I thought was strange. If I wanted, I have to go through them to get things. So that would not go well with me.
Steve: Yeah. We think the future is a, I mean, they built some pretty cool technology but we, like our users are like, you, they have money in many places. They want to control it. They want to keep the fees low. And you know, there’s, you know, some people are like, Hey, great, I’ll pay 90 basis points or a hundred basis points, but you know, I had to use the other day, he’s like, well, I have $5 million and I have an advisor. You know, if they’re charging 1%, then he’s paying her 80 basis points and they’re paying 40 or $50,000 a year in fees. Right. He was like, maybe I can do this myself and then, yeah, maybe you can you know, so for six bucks a month or whatever that plus five fees, I mean, definitely we think the future is going to be a lot, much lower cost and a much more transparent, much more control for the end user if they want it. Okay, great. So for, you know, looking forward, you know, D w I mean are you, feels like you’re, you’ve taken the financial worries off, you know, what do you spend your time on?
Glen: Well, I mean, I, you know, I until this pandemic kit my wife and I love to travel. So we, we’ve been, you know hitting the road a lot. We slowed down a little bit since of course. But my, my hobbies keeping busy, we have a pretty sizable garden here. And and I also love to take photographs and stuff like that. Yeah. The hobbies are keeping me busy and I almost consider it. I also like to read a lot, so I continue to read about more about financial planning, stuff like that. I dunno, it’s, it’s, it’s at some point you’d like to say, yeah, I’m, I’m comfortable, but I’m also trying to see as I’m looking at my son and daughter for example, now what can I do to help them plan for their retirement too? Because I know when the stock market recently, you know, dropped like 30%, got phone calls from both of them saying they want to get out. I said, no, no, no, don’t sell. Write it, write it out. So but yeah, so it’s, I’m, I’m keeping pretty busy.
Steve: That’s good. How do you, when you travel, do you, do you have an RV or something like that or,
Glen: No? I mean, when I, when we traveled in the past you know, we, we we have some timeshares out in Hawaii that we use very regularly, so we go out there on, on even years and we go to an odd years.
Steve: That’s the way it turns out. So you’re snowbirds. Yeah.
Glen: But yeah, we, we love to do river cruises in Europe. Yeah. If, if another pandemic ever happens, at least we won’t get stuck out notion. Right?
Steve: Yeah. The cruise industry has gotten, gotten hit, but I did see that a reservations came storming back, so we’ll see. Yeah. I would say be thoughtful. I don’t, this, I don’t think this virus has gone anywhere. You know, and there’s, it’s definitely, there’s a risk.
Glen: Well, I this past fall we, we went we spent almost two weeks on the road during fall foliage because I can never pick the peak days, but we said, all right, let’s, let’s just kind of shotgun it. Yeah. And we just went riding around the New York finger lakes area until the peak.
Steve: Yeah. I grew up in Rochester, New York. So near Lake Canandaigua and yeah, it’s, it’s, it’s very nice out there. Alright, well this is good. Anything else you’d like to share about your process and experience doing this?
Glen: Well, you know, one thing that you got me thinking about what, you know, when you sent some comments out, some of the people that sort of looked at this article commented about inflation, you know, and so, and you know, even in the little in the writeup that I had, I did say that I thought, you know, trying to manage inflation was going to be a significant issue, a big challenge. But I went back and, you know, I looked at what I wrote and I, and I, I, one of the things I thought about was no, if people want to do something like this, for me at least, I tend to be a bit of a nerd when it comes to spreadsheets. I live and die by them and I probably have, you know, on any given for any given year, I, you know, I have a spreadsheet for my expenses.
Glen: I have a spreadsheet for my, my income. I’m constantly monitoring. If I take a a withdrawal from the IRA, I’m always worried about things like hitting the Medicare, you know yeah. Are there Irma penalties kind of thing. Because I came very close one time, one year I actually exceeded it because I didn’t take into account a state credit that I got, which turned out to increase my adjusted gross income, which then kicked me up into the next penalty level, which resulted in almost, if I remember correctly, about 2,400, almost $2,500 penalties. Well, $1 increase. So, but I was able to effectively negate it by doing, it was one of the years I was still working part time, so I was able to actually make a, a traditional IRA contribution before April, reduce my AGI, get kick it back down. But, you know, that’s the kind of stuff that it shouldn’t have.
Glen: You know, that’s what makes doing this stuff hard. Yeah. Kind of keep lists and stuff like that. But as I said, you know, I went back and I took a look at, took a hard look at the inflation and as you pointed out, you know, if you have a fixed amount of money coming in and 20 years later it’s, you know, to get the same purchasing power, it’s almost double, you know. So I actually did actually spend quite a lot of time analyzing debt and I created all these spreadsheets that say, Hey, if I had this, you know, 20 years from now, it’s going to need to grow to this. And so looking at a variety of mechanisms from a dividend income to, you know, deferred annuities, all those kinds of things. Those are all kind of built into that bucket three part to some extent.
Glen: But you’re writing in the sense that, you know, can, it’d be hard. I think I spent a lot of time studying all these things and I wish it could. I wish it could be easier. And maybe if some financial planners, you know, think along those lines where they’re looking at retirement income planning because I think that’s now getting to be a more common term that, that, that could go a long way in, in, in helping people like myself. And that’s also, I think one of the big value adds of having a financial plan. It’s not just investing the money, but helping you solve these kinds issues. So, and inflation is definitely one of them. Yep.
Steve: For sure. Yeah. No. I mean, I think there’s opportunities in using software and methods and education, but also, you know, products. Is there a way to package up, maybe this is a project for you, you know, could you package up and scale what you’re doing? Could you turn it into a like, you know, people have created target date funds, you know, could could. And, and the last podcast we just uploaded was there was a guy, Kevin Hanny who works at Raytheon technologies and they’ve built kind of a lifetime income platform for their employees. That is accumulation using target date funds. And then it does a kind of dollar cost average into variable annuities. They use variable to buy layers of income going out to try and deliver that synthetic pension. So they’re trying to package it up as a benefit for the employees, you know, but is there a way to kind of like put this together, low fees, transparent, simple hedge for inflation, gets you to income, you know, make it reliable.
Steve: I think, you know, I mean one easy way to do it is to delay social security like you did. Cause you basically get 75% more of a Cola indexed our cause, our inflation indexed income. So just figure out a way to bread yourself to delaying that. And that’s a way to start doing it. And just one last comment on this, one of the SOA folks that I think it’s only like 1% so super small percent of people that actually wait until 70 most people are, they were at 62 and now they’re older. Now they’re more, people are waiting to their full retirement age but not their maximum retirement age.
Glen: Yeah, I agree. I mean, I remember, you know, when I retired at 63 there was a certain amount of temptation to start social security then as well, because as part of that desire to get that paycheck going, but the more I looked at it in terms of that this is inflation protected and you get that 8% per year growth, at least from, from the FRA point, that makes so much more attractive because if you actually calculate how much you have spent, if you will, by not collecting it, the amount of money that you, you delayed the, you know, that you, that you quote spent wouldn’t buy that much inflation protected annuities,
Steve: Right. In the retail environment. Yeah. It’s much cheaper to get it.
Glen: So the big question is, you know, can you, can you afford to wait to them? So you know, is it the question is what, what can you do to get to that point? But at the same time, at least in our case, I didn’t want to do too much belt tightening because that’s also the time period where you want to, you know, enjoy, enjoy your retirement. So there’s that tug of war, right?
Steve: Totally. And it’s a balance, right? I mean and the reality is people also spend less money as time goes by. So for every year in, typically your rate of expenses drops 1%. So over a decade it’s a 10% drop. So if you were spending a hundred thousand 10 years later, spending 90,000, you know, 10 years later we’re spending $81,000 of real money. So that’s another hedge to people. Definitely they slow down. They don’t.
Glen: Yeah. You know, it’s funny you mentioned that because I’ve got nine years of expense data collected and I’ve definitely noticed that trend as well. I know that, yeah, it was up here and then it is definitely dropping. But at the same time, my my discretionary spending is bouncing all over the place. Depends, you know, it sort of depends on what trip you take that year. But no, but overall it’s, it’s still outs. It’s, it’s money that we know we can spend, so I’m comfortable spending it. That’s the other part of this whole plan was that, you know, if you’re, if you don’t really know how much you need or how much you, you know, you get a little bit conservative with spending. And there’s, I read an article where there’s as much danger underspending for some people then we’re spending too. So
Steve: People that have money as they head into retirement, have more money. When they pass away. People that don’t have quite enough money, they tend to fly into the ground and then they run out of money and then it’s like social security only or whatever it is. So,
Glen: You know, and I, and I, I noticed that, you know, when, when you, when you run these Monte Carlo simulations I could see that, you know, if I added one more expense, like I think that I think that I did, I thought was fun, was I said, all right, what if I put that 1% AUM fee and as a, as an essential expense, you know, what would the curve go up like you said, or does it start to flatten? And I was surprised what 1% did.
Steve: Oh, it makes a huge, yeah, well this was, there’s a lot of writing on this and you know, talk to Rick ferry about this. But if your real rate of return on your investments as like four or 5% you know, not nominal, but right, and you’re giving 1% of that up, you’re getting 20 to 25% of your returns up every year. Right. So people are like, Oh, it’s 1% well, it’s not a lot of money. Well, if it’s, if it’s a quarter of your returns, it is a lot. And then you lose the compound growth. So if you project that over a lifetime, you’re giving up 30 to 40% of your potential gains to your advice, well, to fees, whatever it is. And that’s why mutual funds were, Hey, mutual funds loved it when they could charge 1% Dan Gahr changed that. Now it’s like, you know, whatever, 10 to 15 or 20 basis plans.
Steve: Right, but the advisor, yeah, of course they love it. But you know, when people really take a look at this and they’re looking at longevity, they’re gonna be like, ah, that’s, you know, if I could be giving another half a million dollars to, you know, my kids, is that worth it? I don’t know. That’s it. We just want to shine a light on that so people can, can, can see what’s up. Alright. Well Glen, I know you’ve got other things going on, so you know, I really appreciate you being on our show and it kind of explaining what you did here. 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 anyone plan and manage their retirement so they can make the most of their money and time.
Steve: And if you made it this far, I encourage you to one, join our private Facebook group and or follow us on Twitter. And also check out our site and planning firstname.lastname@example.org where you can build your own plan for free or take advantage of our premium advanced tools. And personal support for a low cost. And then finally, we are trying to build the audience for this podcast. So if you could leave us a review on iTunes or stitch or anywhere, we’d appreciate it. We’ll re we read the comments and try to incorporate the feedback into our show. So that’s it. Thanks again and have a great day.
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