Why Your Retirement Math Might Be All Wrong — If You Follow the 4% Rule
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Imagine that you spent thirty years talking to people who were experts in personal finance and retirement planning. What would you learn from doing that? And what distillation of knowledge would you then want to pass on? We're going to learn that today from Christine bends, the director of personal finance and retirement planning at morning star.

Welcome to the afford anything podcast, the show that understands you can afford anything, but not everything. Every choice Carries a trade off, and that applies not just your money, but to your time, your focus, your energy, to any limited resource. So what matters most? This show helps you find that answer.

We focus on five pillars, financial psychology, increasing your income, investing real state and entrepreneur ship. It's double ee fire. I'm your host, pola pant.

I trained in economic reporting at columbia. I help you prioritize, and i'm here with Christine bans. Welcome.

Christine Paula, such an honor, you know, a person of years. So i'm very excited to be here.

Thank you. Over the last thirty one years, you have spoken to this wide range of experts, a cross fields that are as brought as personal finance, as more tailor as retirement planning or as granular as social security experts. What are some of the biggest lessons that you ve learned from that?

One is that retirement declared is just wholly different from accumulating assets of saving preretirement. That you have to figure out how much you can safely spend in retirement, which is no mean feat when you think about the fact it's an unnoted time horizon.

And and then also, the completion of the investment portfolio needs to change because you are potentially drawing down from net portfolio, which is during a period that might not be great for stocks. So you need to build a portfolio that will be durable to make sure that you're not pulling from assets when they are in decline. So those are a couple of the key financial lessons, which make me really want to focus on this area.

And then I just feel like there are a whole realm of considerations that fall into the non financial basket. I think people often come into retirement without a vision for their retirement. They might have pent up demand for the leisure, relaxation or sleep, but they may not have given enough thought to what will be kind of my animating force or forces through my life.

That will be a towner point to that leasure that I hope to pursue. I think too many people have that bucket list of leasure, which is great. You should, but you also need a vision for how you will spend your days, and you need to put in place healthy habits to support your ability to pursue both the purpose piece as well as the leisure pursuits. right?

So what I heard in your answer was a big focus on with job. Yes, IT. Seems what i'm hearing is when you are saving for retirement, the path is relatively straight forward.

You make money, you've save IT, you invest IT. And a story you're try to access, allocate the west, you can right? Try to asset locate the best u can, right? But for the most part, it's barely straight forward. But what i'm hearing you say is that IT gets a lot more complicated when you're trying to withdraw because now that bucket of money really is fixed and this is what you have to work with and you'd Better not screw IT up exactly.

IT may grow over the retirement time horizon, but it's not guaranteed to do so. So the chAllenge is arguably the hardest one in all of financial planning because you don't know the time horizon. So you might have some rough idea of how long you want to continue to work in.

Most people health will support them through that period. But in retirement, you're planning to draw down over and unspecified on noble time period. You might have some sort of sign posts into what your health looks like you, how long your parents lived in things like that.

But for most of us, IT is a real wild card. And that's one reason why the retirement spending problem is such a complicated one. If someone's retirement will be just ten years, of course, they'd wanted try to maximize their spending.

Spend more. They should spend more if someone's retirement time horizon is more in the realm m of twenty five or thirty years, which is kind of the standard that we use when we think about retirement planning. We need to be more conservative and then a lot more things can go on with the market over that longer time period.

Two, you could have crazy levels of inflation or no inflation. You could have a great equity market or poor equity market. So just a lot of variable swirling around there that makes IT very difficult to get your arms around.

And it's actually, Frankly, Paula, one reason why i've become an evAngelist for people even add D I Y investors at this junction. Just get a second set of eyes on your plan on what you're thinking about with a some sort of professional and IT doesn't have to mean that you're signing on for some ongoing portfolio management they might not need. But I just to start that other check on how you are thinking about things. My guesses that for many of us, that trained professional will point out of blinds, but or two that we might have missed even if we'd been very, very engaged with this stuff.

right? Yes, a set of checks to be exactly. There's a lot that we could go into hear in terms of portfolio construction and withdraw strategies. Let's start with the question for people who are currently near retirement. We know that sequence of returns risk is one of the biggest risks that are retirement can face. And for those of you who are new to the community, stikeen to return risk is the risk that the market goes down shortly after you retire, which means you're drawing down from depressed assets and that has a permanent rip effect. If you are worried that we might go into a recession in the next year or so, should you delay your retirement?

Well, that's a really personal question. I would say for most people, they would want to let lifestyle considerations dictated choice like that. But I would say that you have two main things in your ticket to help protect you against sequence of return risks.

So if you happen to retire and a lousy market environment shows up just as you retire, you can do two things. One, you can try to shrinking your plant withdrawls from your portfolio to help force stall withdrawls from investment assets that have fAllen. But the other big thing you have is the opportunity to acid allocate and build yourself a bull work of safer assets that you could pull from in that environment.

So some combination of cash and high quality bonds, I think, would be the main things. And my thought is, for most people, something like five to eight years worth of portfolio withdrawls and investments like that can sustain you through many types of even big bad equity market downturns. You'll get through OK if you have roughly that much set aside in cash on bonds.

So think about those two things. I think I can be empowering rather than fearful and thinking about what i'm going to completely change up this plan that I had. Think about the things that you have in your tall cat to help mitigate those risks, and those would be the main ones.

Don't you typically advocate that people have what ten percent of their portfolio in cash?

Well, that depends on whatever withdraw rate you're using. So you would use that as kind of the yard stick for determining. So say someone's using a four percent guideline, right? I would typically advocate for two years, or of those four percent, portfolio withdraws. So eight percent there. And then roughly five day, eight years of hyper ality fixed income from there.

Who whose are the funny thing with that, which is kind of a bucket system that I often talk about, is that you end up, in many cases, with kind of a sixty forty portfolio at the end of the day where if you've got, say, eight years and high quality bonds bust to two years kashin, you're using a four percent withdraw, that's forty percent of your portfolio. So it's a fairly standard acid allocation. Where I think IT gets really interesting is if someone is, say, a tenured college professor and their investment portfolio is mainly there to provide maybe a very discretionary spending, big trips or something like that, but the pension is supplying most of their cash flow needs.

In that case, cash and fixed income portfolio could be that much smaller because that person's really taking quite limited portfolio with draws. But I like that general thought pattern as a means of informing what is a sensible acid allocation, given what I have going on here, because I think acid allocation can often seem just really black, boxy to people they are like, well, I guess I should be fifty, fifty or seventy, thirty. But backing into IT by actually looking at your anticipated portfolio with roles and even starting before that, where you're looking at your actual spending in a very granular way, we oversee a ten year period where you're saying, okay, I think I want to buy a car in year three and take this big trip in year for whatever really mapping out that spending can help inform you're spending.

right? You mention a bucketing strategy. Are you then A A proportion of the bucketing strategy in will save five year increments as you planned through at a thirty year timetable?

Me the way I think about IT is just sort of maintaining met ten year runway. You throw out you're thirty year retirement so your equity portfolio might shrink over time. But you would want to try to give yourself that ten year bull work because we know stacks are extraordinary reliable.

If you have a time horizon of at least ten years s like ninety percent of the time, maybe eighty eight percent of the time, depending unrolling ten year periods, stacks will be in positive territory. But when you shrink that rolling time period to three years or five years, your probability of six starts to get lower. And so that's why anger on sort of ten years as a good framework to protect yourself against another lost decade of stocks.

So we had one from two thousand through two thousand ten, where U. S. Stocks basically just to fly out mind for a good decade. So I think ten years is kind of a good sort of back at the unbeloved way to think about how much of that bull work you'd want to maintain. And I would certainly maintain IT throughout retirement even though the equity portion might shrink.

Now you talked about having a high quality bonds, high quality fixed income portion of your portfolio. How do you deal with the reality that we all learned in twenty twenty two, which is that stocks and bonds are not necessarily inversely correlated, as many of us previously irony ously assumed.

yeah IT. IT was a really, I think, a great teaching moment for many. But but IT was very contrary sort of experience.

And that we had had many, many different market environments where bonds were terrific ballasts for stocks, where when stocks went down. Bonds, high quality bonds especially, did very well twenty, twenty two. The same thing that was bugging the stack market was bugging the bond markets.

So rising interest rates were hurting market participants in both markets. And that's why cash, I think, comes in in handy. In fact, I felt like prior to twenty twenty two, I had been a bucket of Angela st.

For a long time, but I felt like I was always fending off criticism like a the cash bucket such a drag on the portfolio. I felt like twenty, twenty to shut everyone up. It's not as simple as stacks and bonds.

I do think that you need liquid reserves to protect yourself in such environments, which admittedly are pretty rare. But the idea is that you aren't having to pull from bonds when they're depressed. So hanging from I thought IT was a great illustration of why you would want to maintain some liquid reserves on an ongoing basis. And the same goes for people in accumulation mode as well. It's sort of the intuition behind having that emergency fund, not in bonds but just in something really like with that, you can tap in a punch, right?

If you're in the accumulation pace, but in particularly if you're in early or made accumulation, if you're still many decades from retirement, would a barbell strategy make sense? Equities and cash, but no bonds .

potentially. And I will say, paul, that is something that my husband and I have mainly done of them throughout our lives. And IT was also probably a big mistake actually in hind sight, in that cash had a major, major opportunity costs for the Better part of the past couple of decades, right? Bonds, even though interest strates were really low, enjoys some very nice Price appreciation during that period.

So when interest strates went down, bond places went up as a cash invest. You don't enjoy any of that action at all, right? You just have to settle for whatever lower and lower yields are on offer your not putting yourself in line for any of that appreciation potential here.

So I think I can make sense. But there is a potentially an opportunity cost, especially in a declining rate environment and also over time, even though bonds due court some volatility, the return potential is Better than you will have in in cash investments over longer periods of time. Which I think if I had IT to do over and I probably would have made more room for bonds and certainly i'm getting close to retirement, all of my new contributions are actually going in the bones, which that feels a little weird. But trying to kind of rectify my point, folios asset allocation.

How far are you for retirement?

Good question. I'm very much thinking kind of a faced retirement morning star has been so lovely for me in terms of letting me very much work on what I want to work on through. So the job that I do today is so educational and kind of has A I community service field, which is exactly where I want to to be.

So I feel like if I can continue doing some version of that work for a while dat'll give me that sense of purpose. Was talking to Scott burns, whose a retirement expert about his own retirement, he's in his eighties now and tried to retire. And he made such a clarifying point to me where he said I was stacking food pantry shelves one day, and he said, I really enjoyed that work.

I enjoyed feeling like I was making a contribution in my community and getting out there. But he said, I realized that my highest, best use in the world was probably not doing that at that. I probably should do some version of my life's work longer. So he continues to write, he continues to educate.

And so that was such a clarifying moment for me, like, why would I completely step away from work and try to reinvent myself in some sort of volunteer capacity, or just being on board or whatever probably could continue to do something like this? So it's kind of an open question. And the other thing I keep in mind is that we don't know what the future holds. I think people sometimes are forced to stop working for reasons that they didn't foresee. So I want to create a plan that is kind of supple enough to flex if our plans change, if my husband's and my plants change.

Yeah, you used the phrase phased retirement. And I want to dig into that a little bit because IT, that's not something that we often hear about, but IT gets an approach that could benefit a lot of people because we offer IT in dialogue. Think of retirement as this binary, exactly zero one.

You're either working forty to fifty hours a week or your working zero hours a week. Uh, that seems rather extreme versus of a more face retirement. Can you talk about some of the different models?

Yeah, i've come to be A A huge believer in this idea of transitioning gradually that on off so which doesn't work co out of people for a couple of reasons. Wine, is that a loss of identity can accompany true retirement where you're really hanging IT up. And I think that's especially true with people in sort of high status professions, attorneys, doctors. But IT to be true for a lot of us.

I think I might struggle with that when I eventually retired, like walking around, like, hey, do you know who I once was that you'll have a little bit of that sense that you've lost something, right? So the issue was face retirement is sometimes people interpret IT too literally that they think it's like, okay, now I go from forty hours to thirty hours or twenty and maybe that's what you do or maybe it's just that you have some aspects of your job that you really liked, but you do not wish to continue on with that employer, but maybe you just wanna Carry forward those one or two or three things that you really love doing in your job in some other fashion. Maybe it's something that's completely different from your day job, but the idea is that in those years leading up to retirement, you just start taking some mental notes of lake.

That was a great day. And one example for me was I was planning this bogle heads conference and reaching out to connections that i've made people I really love in the financial planning investment space, asking them to be part of a conference. So there was kind of a networking aspect to the day.

And I was also working on a book project and I was a friday and I had lunch with my husband was like, this is what I wanted do so just kind of a take some mental notes of good days like that, whatever that is for you yeah also the bad wants or are the thing you see on your calendar where you're like uh, a day full of meetings or may be you love meetings for all I know but take note of those things that give you that sense of dread on sunday night when you're looking at your calendar for the week. I had cast off those things through. I was talking to carl Richards, the behavioral guy, the sketch guy, such as, just like, make a stop doing list.

And I think you got this from someone else. But I always attributed IT to carl because I was just like, what an amazing idea to start taking those mental notes of things that you really enjoy about work. Maybe you hate at all, in which case the first step is the right thing for you.

But many of us do have some things we like about our jobs. Relationships, for many of us, is a big thing, right? See, you want to make sure that if you are doing that hard, stop, you're fighting a way to supplant those work relationships later in life.

I think starting to make those mental list can help you figure out with that faced retirement might look, look like for you. Someone made the point to me that the way we were is all, all wrong. Working is good for us, and the way we work in this country is all wrong.

We just hit IT too hard. We burn ourselves out. We probably should give ourselves breaks more often, really throughout our careers and not comment to retirement just completely wiped .

out like mini retirement. Take take sb ticals once every few .

years if you yeah, morning star offers a sabbatical program, which is just such been such a fabulous opportunity.

The program like tell me so we've had .

IT we we had of our time, we've had IT for really the whole life for the company as i've known IT, where if you have four years of service, you get six weeks just sort of on, but just untethered from the workplace, the ideas that you are very much unplugging. We've had people doing really cool things like translating text from, let things like that are climbing mounds, but also just people who wanted to spend six great weeks with their kids.

So people have had a lot of great experiences in spatial. I've had my share and it's bend some of my favorite times to just really think about what I want to do in my career and in my life. So I recommend a spatial if people can possibly .

take them. I call that, uh, retiring early .

and often exactly. I've called them my photo review, my but IT has been a great opportunity to reflect on some of these things. One thing I will say though, is that a lot of this is very much in the domain of highly educated knowledge workers, the ability to write your own ticket on a lot of these things.

Unfortunately, it's pretty bifricated in our society where people have jobs to do not give anything like that sort of way. So it's a luxury good for sure. And I wanted acknowledge that yeah.

I do know people who sometimes, if they are between jobs, if they have sufficient savings, they will treat the time in between jobs as a mini retirement. So if the employer is an unwilling to give that, then that transition between jobs becomes their way of creating that for themselves.

Yeah exactly. And I think that's one of the reasons that people doing contract type work has become more popular, that people have the flexibility to pick and shoes to take advantage of those breaks between contracts. So I love that idea, right?

You mentioned the bogle head conference, and I realized I didn't actually introduce where we currently are. So for those of you who are watching on youtube, B, C, sitting in the same room together, we're in mini apps, in mini apple. Yes, and we are at the bogle heads conference. I'll let you explain IT. The bogo heads .

is a group of individuals who are committed to the principles of jack bogle, who founded the vanguard group. And there mostly committed a low cost index based investing. But we just have this fabulous community of individuals who share information, this conferences about education.

But it's also about community getting together with like minded people. There's sort of an ethos of thrift that I think infuses this community. They're really smart, thoughtful, lovely group.

And i'm thrilled that you are part of the conference polis. Terrific to have you here. The calibre of speakers who we have brought to this conference, I think, is second to none.

And the best part is that everyone is volunteering their time. We don't have any paid speakers for this conference. There is no booth snow paid to play. So it's just purely educational and feels really altruistic and good. So I appreciate you being willing to be here and and lending .

your expertise. Thank you. It's incredible to be in a place where you've got five hundred people who are index and these are like .

people don't like my to yeah I remember meeting jack bogle. I was uh an investment analyst at morning star for many years and I remember meeting jack hide early into my tenure is an analyst in sitting in a roman thinking that guy I want to be on his side of whatever we're doing here. And we just been kind of an evAngelist for this way of thinking about very minimalist, very low cost investment products. And IT is a way to free yourself up, to focus on a other things that you love to do and then be maybe other aspects of your financial life that are more impact for, like things like tax planning.

right? And one of the many, many things that I love about low cast index investing is that among its many benefits is that when you take obsessing about what you're investing in off of the table, you free yourself up to focus on your contributions. And how can you increase your contributions? And that is truly the biggest determining that of your investing success.

one hundred percent.

yeah. You want bigger returns.

make bigger contribution. Exactly, exactly. You get to see how the various move together. And then one other thing I love about indexing is that IT actually freeze up your mental band with just a whole category of news flow that you're like. I don't care that much about the interest rate changes or what the election might mean in my portfolio. I'm putting all of that in my in the two hard pile and i'm going to read a book that I find interesting or whatever and might be that IT does let you set aside a whole category of information that you're just not going to monkey with, right? For me, that's just incredibly fringing.

absolutely. So you wrote this book has called how how to retire, which what I saw the title I was like how do you retire? That is a big question. What's interesting to me is that you've taken this very, very big topic.

And in some areas, you've broken IT down to very granular levels like social security, right? But there's a little big component where you talk about figuring out what's next. Part of the chAllenge of retirement planning is that what you want to spend .

money island in your first five years .

of retirement, which are probably going to be a lot more travel heavy, years one to five are probably going to have a lot more travel than years five to twenty. Years twenty to thirty might have more medical expenses. So there's a nepalese part of figuring out.

You can't just assume that your current expenses, the standard what are my current expenses or what are my ideal expenses, I need to twenty five x that that's the mml t that I need. But that doesn't really make sense in the context of dynamic spending. And so much of retirement planning is forecasting that idea of extending. And there's a lot there's a lot that you do on pack there. But one of the things that you talk about is having parts of money yeah rather than ongoing budgets yeah.

Giant garden talks about that. He's a financial planner and he's also a researcher who did some great work on dynamic spending strategies and retirement, where you are looking at what's going on in your portfolio and what your withdraw rate would look like relative to that portfolio, and you're kind of doing real libration along the way. So he's worked a lot with clients on spending.

And his point, I thought, was such a good one in the book, which is that you are spending early on in retirement and several people made this point is, as you said, paul APP to be the high spending part of your retirement with his clients. I think he gives them like a travel pot. His advice, I hope you delete this within the next ten years if they're retiring at sixty five or something like that.

Because the data would suggest that we do tendency a decline in spending as people move through retirement and averages out to be roughly a percentage point less than the inflation rate. We see this decline, and David Blanche's research points to this decline kind of continuing through the early eighties period. And then we see spending, in many cases, taking up in the very latest years of retirement.

That's often the uninsured health care experts, especially long term care expenses. So spending throughout retirement is by no means this static inflation adJusting right thing that is the same year after year, which is why, you know, when we think about add spending rules like the four percent guideline, they are kind of a strong man really, when approaching this problem, because people do not actually spend this way. And then invariable, we all just have lumpy outlays, whether we are working or not work.

And you have things that where you have a lot of the home repairs that hit at once or you've got buy a new car, maybe you have a lot of travel planner, whatever. It's not all gonna equal throughout your retirement years. So I think this idea of a travel pot or a discretionary pot can be really empowering. So you maybe you've got your static spending mapped out the things that probably won't change a, but then you're giving yourself this direction ary bucket.

So is that the approach then that someone should take? Because so often when people are first introduced this, particularly in the fire moved, what we learn is twenty five x. Your annual spending is the amount that you need. And once you get that, then you just four percent with drawing and live happily ever after. That's the introduction.

Tory, right? Which always makes me nervous. So yes.

exactly. But then of course, the reality is, as we've just talked about, that your spending is dynamic. If you graph your life and each year you're spending in any given year is a different data point, then the year in which you form your fire goal is just one raise data point.

exactly. So to tether everything to a randi ze data point that never made any sense to me, right? So would the approach then be do that with regard to your the more static aspects of your spending? Broadly speaking, groceries are just a transportion. And assuming that your family size doesn't change.

trying to even think of all taxes, yeah would be more or less predictable. Health care, at least certainly utilities.

even health care, rises at rates that are higher than inflation.

So yeah, IT has moderated little bit recent years.

There's a handful of of expenses that you could put into those static categories, but that seems like a lot of your spending would be that in IT.

Yeah, it's important, I think, to map out actually what your spending looks like. Don't just do a point time analysis at whether you have a traditional time horizon for retirement. You know if twenty five or thirty years or it's longer, at least spend some time looking at the first ten years, you probably have some clarity around the things you want to do.

Get a spread sheet where you are looking at each of those categories. You're anticipating some of those lumpy outlet, whether happy or less happy, but you are looking at spending on quite a granular level. I think that's a very valuable exercise that probably should recede how you structure your portfolio, how you determine how much to withdraw for that exercise of actually looking at your budget and how that might change in the first ten .

years at least. Though someone who interviewed who had three different ways of assessing your spending, i'd never heard of these three ways. I thought I was a very interesting approach.

That was the john guide chapter where yeah, he talks about how you really should try to be quite specific about IT. I love his point that this is not back at the envelope time, right?

okay. He says, first, number one, you could use software to track what you spend and categorize IT does a great second, you could use a good, odd, simple budgeting spread sheet divided into categories. But then third, and this is the one that I thought was interesting, get a hold of your last sixty, twelve months worth of checking account statements.

Note the baLance at the beginning, add up all of the monkey with draws, then note the baLance at the end. The difference is exactly what you spent. What struck me when I read that IT seems to me like to arrive at the best answer.

You do all three, yes, right? And then with all three of those answers, you can see how closely the answers a line with one another. Let's say that two out of those three answers are quite similar, but one of those three methods gives you an outlier answer. All right, now we've got some further on packing the deal. But by contrast, if you do all three and all three give you a very similar answer, okay ay, now we can have A A high level of confidence in that spending rate that we use moving forward.

Yeah, exactly. I talked to john guide about this just recently in the context of his clients and their inflationary experience. And his point was because we did this work so carefully heading in the retirement, what we saw was actually the change in their spending over the past couple of years as inflation might hire almost exactly matched ed, the inflation rate, which he viewed as a Victory, because they had been so careful in terms of forecasting spending.

Speaking of spending, a lot of people, again back to the fire movement, have a hard time. Spending is very hard to move from the accumulation phase to the you. You formed a life along habit of being frugal and investing and accumulating. It's hard to fit the switch totally.

I feel like this is span under disgust. And maybe IT feels a little bad to talk about IT because we have a whole segment of our population whose way to saved to a retirement, who will come in the retirement. Exclusively rely on on social security.

So but IT feels like such a high class problem to even address. I can't tell you, paul, how many times i've been out speaking to a group of older adults. And some mean, apparently in his eighties, will come up and say, I span just three percent of my portfolio a year regardless of what the baLance is.

This is how I do IT. And I think, well, I hope that you have a good quality of life. I hope that's enough for you.

But to me, they're just all these illustrations of people spending less than what they could do. And I think it's for exactly that reason. You put your finger on IT.

You build your identity as a saver, as an investor. You see that baLance grow. IT feels bad to see the fans go the other way.

I wrote about this on morning started calm not so long ago, where I hit, sold some stock, some morning star stack that I had, and poured the money into our texture brokerage account. And IT hadn't yet been taxed. And so then we had this enormous tax bill due to the gains in the stack.

But i'm like, but it's it's over there in the proper age account. I did not want to tap IT for this tax bill. We are so used to just there being this one way direction paycheck into savings and investments that the thought of the funds coming out of that account, the debt baLance, whatever go lower, was very uncomfortable to me.

So I think I mean, to be one of these people grappling with this issue of giving myself permission to spend what is a reasonable amount. And my husband, I work with a financial planner who we love. She's an early financial plan and she's like, you are not going to be able to spend what I think you can spend in retirement.

She's like, I know you, it's going to be a struggle. So how do we give people to permission to spend what they actually could spend? I think it's a work in progress, but I think it's something we need to be talking about.

right, right? Because I can IT brings up so much anxiety to see your account to window.

right? And part of IT is this term spending. I think it's a lot of us are a judge about IT. Like I think people assume that if we're saying you should spend more at means that you should go out to dinner every night or buy a new car every year, something stupid that I wouldn't suggest most people do.

But I could mean that maybe you're giving a little bit more during your lifetime that, that would count spending but is not spending on you. It's spending on senior money work for you during your lifetime versus leaving your kid's money when they are in their fifties and sixties. So I feel like we need to we need to come up with a different and then spending because I think some people think spending equals privity and IT doesn't.

One of the things that you talk about, what IT comes to thinking about retirement, are what murray bruno refers to as the three hours, have you had IT off? Do you have IT off? And will you have a there? Can you elaborate on that?

I love that piece of wisdom, which I think he heard from someone else, but repeated for the book. So they have you had enough sort of means like, how are you feeling about work and if you're feeling like I am done, I am out of here, that sort of what she's relating there. For some of us, maybe the answer is no.

I haven't had enough. I still like some of this stuff that i'm doing. So that sort of thinking about work in its role in your life for the lack of role you wanted to play in your life, whatever the case might be.

And then the will you have enough relates to the financial piece that we so often talk about, looking at your investment portfolio, looking at ways rates in a position to sustain you over whatever your retirement time for ison might be. And then the will you have enough pertains to quality of life considerations. Will your post life or be enough to replace whatever you like you had while you are working? So they are you're thinking about relationships, purpose, all those things that may have animate your days while you are working. You want to make sure that you have some of those things in your later years post retirement.

right? Because so often people are like, oh, man, when I retire, I just i'd like to read books and sleep you're like, great that will occupy you for a week. Then what exactly?

Yeah, there's this bucket list of relaxation. And IT gets back to what we are tanking about earlier or people where people just burn themselves out, they work too hard. They don't have time to really think about anything, sides just getting through the day or the week.

And so they comment to retirement with this bucket list of relaxation, which you absolutely showed. Think about all the things that you want to do to take advantage of your new front free time. But IT is helpful to think about those other things, the things that will give you purpose.

Jordan grammer in the book talks about what he calls big p purpose and small pipers. So big pipers, is that really aspirational things that you might want to achieve? So maybe writing a book, or doing your whole family trees geneology, or climbing a mountain, or whenever the case, hitting all of the kind, what, whatever that might be, one sort of of big people per best, and are started starting a foundation.

And then he said that we all have these small pee purposes that are equally important. So I might be just being a great partner to my spouse or pursuing baseball, because I haven't had time to really watch baseball in the way that I did when I was a kid, or are being in the birds or whatever. Many of us have these small pea purposes and Jordans points that those are just as important as those big p purposes that sometimes give people purpose. Anxiety, just go with those small pee purposes and you'll be good and maybe inspiration will strike for the big pee purpose so I love that concept of thinking about both sets of purposes as people embark on retirement.

I've never heard the face purposing xiety revenues ah told when you're told you're supposed to have a purpose, it's like fun SHE can I have a lunch per exactly if kind of like when people say follow your passion, right? Well, that's a little overwhelmed. yes. How do even note that is versus or just follow your curiosity? Okay.

stable exactly. Jordan said. Try to plug into some of the things that as a kid you were really engaged with and that you just kind of let go, by the way, side that maybe that's a starting point for some of these things. If you're feeling little bit, it's time need about what your purpose might be. Start there is this point yeah.

I want to go back actually to something that we talked about towards to be getting of this interview because you were talking about based retirement and how in some workplaces that might look like reducing the number of hours spent at your job from, let's save, forty down to thirty and then from thirty down to twenty eeta.

But an alternative version of that would not face based on hours, but rather face based on tasks such that the tasks that you eliminate are the ones you don't want to do, and the tasks that you keep are the ones that you like the most. And of course, this is very highly dependent on what industry you are, what job you have, whether yourself employed or you work for an employer at sea like this, going to be highly individual. I'm connecting that to big p purpose, right? Because IT strikes me that some of the in a face retirement, some of the tasks that you hold onto could be part of that retirement purpose.

absolutely. And I love that idea for thinking about your retirement. And of course, that negotiates that you're in goods if you want to stick with the same employer that you're in good standing with them to be able to to call the shots on sort of the completion of the work that you do.

I do think there is an increasing awareness of older workers being really good workers that employers want to hang on to. So that's definitely something go with that older workers have going for them. One thing that I think is a real world issue in all of this is that invariably, we get good at things that we don't love.

And sometimes those are the things that are employers are like what you can stop doing that you're the only one who does blob up blow. So there is something that people I have found have to contend with that that thing that is on their calendar where they're like, though those are often the things that are are employers wanted to keep doing because we've gotten good at them even though we don't love them. So that may be a real world impediment to putting some of this into action.

But in general, I love that idea of trying to Carry the kernels of the things that you really do love further end of the future, keep doing them longer and maybe you're stepping away from that workplace. Maybe you're just doing them in some other a context. I have a close friend who is retired executive and has Frankly kind of struggled with retirement.

I think he needs to do leadership in some other capacity, even though he is not in her workplace anymore. I would love to see her take on a leadership role, maybe at some none for profit, something like that. She's a born leader. SHE should continue to lead people. So I think people need to think about the things they're good at and that they d like and try to Carry them forward and do some monger.

You mentioned that for employees, often you get good at the thing that you don't like as a new employer want to do that. IT strikes me that even if you're self employed, that can still happen because your clients start recognizing you as being good at x. And so the repeat client business that you get might be for a this particular thing that you're good at, but it's not the thing that you .

want to be known for exactly or some a specialized area of expertise for you. Like, yeah, I know all that, but that is not the thing that really lights me up. Maybe no more about that than anyone else in this organization. But at the end of the day, it's not the thing I love, right?

Whether you're conventionally employed or are self employed, I could see that being a problem in both fronts because essentially, that is letting the market brand you rather than you taking charge of your own branding. And and sometimes taking charge of your own branding means swing up stream, and that can take a lot of effort.

They can take years to do those pivot. absolutely. But I think you're spot on that. IT applies whether you are self employed, forging your own work identity, or your employed by someone else.

If you were to do a paste retirement, one sticking point that I could see a lot of people graphing with is, do I physical have to come into the office every day, or do I have the attitude to work .

remotely?

And perhaps that means live elsewhere because IT seems like a lot of people associate retirement with moving.

absolutely. And I love the chapter in the book that looks in the housing. Frankly, I think it's such an undertaking st aspect of retirement planning, the issue about whether you need to be in the workplace IT feels like this is kind of a moving target that were hearing different things about different workplaces. Many, I think, are still on sort of the two or three days in the office, two or three days at home.

hybrid, hybrid exit.

But I would say that if you want to continue working, but going into the office is a big sticking point for you, explore that with your employer, explore the possibility of living somewhere else and potentially continuing to do that job longer. People should definitely give due consideration to where they live, the type of housing that they have later in life and also the role that homework woody could potentially play.

In terms of the retirement plan, IT doesn't make a lot of sense that a lot of older adults die with a lot of housing wealth. It's an asset that arguably many, many retire households have underutilized. And of course, reverse mortgages are not perfect by any stretch, but I think they are the right answer in some situations. And I think they should be part of the retirement planning discussion, especially for households where the finances are tighter.

One of the mist that you bust is the idea that most tire es move. Some do, but many retirees decide that they're going to stay in place and they are going to maintain the same home that theyve had. There are also retirees that will move somewhere for a while. But what you think you will not when you're sixty or sixty five, when your kids are living wherever is not the same thing that you want, when you're seventy or seventy five and those kids are living somewhere else and maybe you've got grandkids now, and right, like you're once when IT comes to housing, I know when IT comes to where you live are going to change quite drastically. They're mean over any twenty to thirty years time span, that's going be true.

absolutely. I think demographic would say actually, if you want to know where older adults will live, find out where the adult daughter lives, the oldest daughter, the data very much point to that being the main city where those older adults will tend end up IT might be a moving target. And I loved mark meller point in the book about how I was like, can I just stay in my house, which is what a lot of people want.

That's their community. That's their social network. And his point was said, that might not be the most practical place for you to live us S U. age. So don't fall under the trap of thinking your self today is how we will be going forward that you may have things that will keep you from me, not something we want to ponder, but like you may not be able to run up the stairs like you use to and try to get ahead of some of those changes that will inevitably accompany aging and make those decisions proactively forces leaving your kids in the situation of having to make those decisions on your behalf. And maybe they're kind of making decisions that you don't really want at that point in time. If you can kind of try to get ahead of the decision making, that's good for your kids and for your family, but that also means to you more likely to land in a living situation that is satisfactory for you.

right? right? As mobility decreases. S V A, definitely. But most of us don't live in single story homes that have no steps at the entrance and that have doorways wide enough for a wheelchair.

exactly. And the fact is most of us don't want to ponder that sort of infirmity, right? Especially when more Young retirees, it's not something you want to think about. But certainly most homes are not at all set up for aging.

right? One thing that surprised me is that people who live in single family homes, the data shows, tend to be happier up until the age of around, but was at seventy, seventy five. And then after that, people who live apartments tend to be happier because of the .

increased social interaction. Social interaction is so important. Michael, think I made that point in his discussion with me. And IT is something that really helps our brains to make sure that we're interacting with other people.

I mean, just think about this conversation that we're having were looking at each other where i'm putting into my memory the things that are saying and thinking about how I want to respond to them. They're so much about that. That is good for us emotionally, but it's also good for our brains.

And being in that community setting is so valuable. In example I gave from Michael and in the book was that I was at this lunch and one of my friends dads had died, and i'm sitting next to these people, talking to them, that they had been all over the world. They were beautiful.

They were older adults. I was like, you're uncle are so amazing. And he said, do you know what? They're both in their nineties. And I was like, no way. Those people were seventy two.

And they had told my husband and me that they had proactively moved into this independent living facility when they were still quite Young, when they Moore in their seventies. But they liked the community, but mainly they wanted to shut their door and travel and not worry about having a whole house to worry about. And they didn't wanna burden their kids with that stuff.

And so IT was just a beautiful illustration of how staying active had worked for this couple and I had been made possible by this choice that they had made in terms of their living situation. Not saying that's right for everyone. I'm not sure that bad is something I would proactively choose, but IT definitely at least stand totally seems to work for people and .

IT makes sense that particularly as you age, relationships become I mean, they are always meaningful. But I think you haven't increased awareness of that as you age. And so being surrounded by people with whom your your clothes there .

been so many studies that have looked at the connection between human happiness and satisfaction and relationships and IT all comes down to relationships. And this is throughout our lives, including into our later years. Laura carston of stanford made the point in the book that our social networks naturally win out down a little bit as we age.

And some of that is for sad reasons that people might move away or get sick and die. But some of IT is actually self selected. Are social networks actually get a little bit smaller as we age because we are opting out of some of these relationships that were sort of like good enough. And the example SHE gives us, like your kids, friends, parents, maybe they were great people to hang out with after the soccer games while your kids were in high school or whatever, but at some point, maybe they're not your best friends.

Maybe they are your best friends, I don't know, but yeah, he said he calls him preferred others that you have this very large social network moving through your forties and fifties, but then you begin to shed some of those people because you want to spend more time with those people, where when you leave that engagement, you just kind of walking on air because you feel like so well understood. You feel like you understand that friend so thorough you know each other other's families, you're asking questions about one other siblings, just that deep understanding of each other. That's the thing that we are self selecting into more of.

And I think that's beautiful. The point is to diversify that social network though, as we age that we will lose some people. So make sure that we're out there meeting people, new people and keeping that social network growing a little bit even as perhaps recasting people off right?

Yeah and so that trobe of the lonely older person is fortunately often not true because it's just more diverting older person exactly.

But I do think there are lonely older people yeah so you want to make sure that you're not one of them when you embark on retirement. Your plan is to catch up on netflix shows. You've must get something else because the data do suggest that being at home watching T, V, which is how a lot of older adults spend time, does not add to happiness. That if you could put yourself in a situation where you can build your social networks, get out with people, whether it's playing pickle ball or having lunch or breakfast or whatever, IT is just putting those habits into place where you're getting in the contact with other people is just so, so valuable as we age.

The data is not is obviously quite nicer when IT comes to virtual relationship. What do we know or what do we have yet to learn when IT comes to the value of virtual relationships in that context? Yeah, I carston .

about this. I was curious A A little bit of mr. Chair, because my two best friends were in california, right? I like chicago in, so we text all day lot me and these two women and about everything. But we do make a point of seeing each other at least once, maybe twice a year.

And that her point is that they're so that we don't know about virtual relationships are people we might know in loney communities, are people who we did know in person at one point, but who are mainly text friends with at this point. He thinks IT is important to have those face to face engagement, or at least a phone call, like a quarterly or monthly phone call, SHE believes is enough to keep that relationship alive. If it's just strictly virtual, inevitably you'll lose something.

So I would big believer in this face to face engagement. If you can, if you're really close friends, just make that commitment to getting together. You come here once a year. I go there however you choose to do IT. I think that read downs to the benefit of that friendship.

There's just something about being with another human being, sharing a meal or whatever the case might be, that that is just so so much more valuable than nose text to sort of virtual relationships that we have. right? Thank you for .

spending this time with us. Where can people find you?

They d like, learn more. Thank you so much. Po, but my, well, people can find the book anywhere they buy book.

It's called how to retire, which I think is a clear title. I'm on morning started at calm all the time where I do video and right articles. I've got a bunch of model portfolios for retirement and preretirement, and they're free.

They're part of our. Free site. They're just there for educational purposes. And I do a podcast of my own with a couple of my colleagues. It's called the long view.

And so that is on any podcast platform that someone might use, and it's an excEllent run. You've bent on IT. You are one of our favorite guests. Thank you so much.

Pooh, thank you. Thank you, Christine. What are three key takeaway that we got from this conversation? Key takeaway number one, retirement spending is dynamic, not static. The traditional four percent withdraw rule oversimplifies retirement planning. The reality is spending patterns change significantly throughout your life and throughout retirement. In your early retirement years, you're likely going to have higher directionally spending on travel, where, as in the later years, you might have added health care costs. Planning should accompany these varying phases and include separate pots of money for different purposes.

With his clients, I think he gives them like a travel pot is advices. I hope you delete this within the next ten years of their retiring at sixty five or something like that because the data would suggest that we do tendency a decline in spending as people move through retirement and averages out to be roughly a percentage point less than the inflation rate.

We see this decline, and David Blanchet research points to this decline kind of continuing through the early eighties period. And then we see spending, in many cases, taking up in the very latest years of retirement. That's often the uninsured health care expenses, especially long term care expenses.

That is key going. Number one, key take go. Number two, use a cash or bond buffer to protect against downturns. One of your biggest risks in retirement is called sequence of returns risk. And in order to to protect against that, you'll need to maintain between five, eight years worth of planned withdrawls in cash and high quality bonds. This provides a safety net during market downturns and IT prevents you from having the cell stocks when their down.

Some combination of cash, high quality bonds, that would be the main things. And my thought is for most people, something like five to eight years worse of portfolio withdrawls and investments like that can sustain you through many types of even big bad equity market downturns. You'll get through OK if you have roughly that much set aside in cash bars.

Finally, can you take number three, consider a face retirement instead of a hard stop rather than viewing retirement as binary, meaning you're either working full time or you're working zero. You know how there forty hours or zero hours, right? A very binary black or White zero or one type of a thing. Rather than doing that, consider a gradual transition. Christine refers to this as a phased retirement.

The issue was face retirement is sometimes people interpret IT too literally that they think it's like, okay, now I go from forty hours to thirty hours or twenty, and maybe that's what you do or maybe it's just that you have some aspects of your job that you really liked, but you do not wish to continue on with that employer. But maybe you just want to Carry forward those one or two or three things that you really love doing in your job in some other fashion. Maybe it's something that's completely different from your day job, but the idea is that in those years leading up to retirement, you just start taking some mental notes of like, that was a great day.

Those are three key teacher. S from this conversation with Christian bands. Thank you so much for being part of the afford anything community.

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