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Yahoo
10 hours ago
- Business
- Yahoo
Will Social Security run out of money sooner than you think?
Prospective retirees hoping to cash in their Social Security after 2033 may be in for a rude awakening. The 2025 Trustees Report confirmed that the program will only be able to pay 77% of the expected disbursements after 2033, and with the expected tax cuts from the new Republican budget bill, that number could shrink even faster. On this episode of Decoding Retirement, host Robert "Bob" Powell speaks with certified retirement management advisor Marcia Mantell about these findings and more, delving into the serious implications for your retirement. Marcia discusses what you can do to make up for the shortfall, how US birth rates may be affecting financial projections, and the potential effects of up to 8 million people losing their healthcare coverage through the Affordable Care Act. Yahoo Finance's Decoding Retirement is hosted by Robert Powell. Find more episodes of Decoding Retirement at Between the Medicaid cuts at about 8 million people coming off of Medicaid and the 8 million dropped by the ACA, uh, it is just catastrophic in my book. Social Security's retirement fund could run out of money in just 8 years, and if that happens, the program would have to cut benefits by about 23%.This is not so good for you and me. So what did the trustee's report say and what should you do to make sure you are prepared for the worst case scenario? Well, that's what we're going to discuss in this episode of Decoding Retirement. We're going to talk to my good friend Marsha Mantel, she's the president of Mantel Retirement Consulting. Marsha, welcome. Thank you so much, Bob. I'm thrilled to be here to decode retirement with you. It's a pleasure to have you here. Um, let's start with the trustee's report and maybe give us an overview of what it said, and maybe what it didn't say. Oh, I think that's a great way to phrase that, Bob. So what I want to first say is, I actually was really impressed that the report came out in mid June. I was thinking it was gonna be pushed off with all of the cuts in staff and all of, you know, really the angst in the administration. I was not expecting this report to even come out yet, so kudos to the team who got that what I would say is my initial impression reading through, OK, truthfully I did not read all 286 pages, but I did read the big summary. Um, it wasn't terrible, and the results were I mean, the expected depletion date of the old age and survivors fund stayed at 2033, so that was the same as last year. Um, so, I mean, there was nothing in the economy that would have suggested it would improve. So, I was not surprised at that. I was surprised though on the Medicare the Part A, this is the HI or the hospitalization Insurance Trust fund, that one is projected to be depleted, the reserve account to be depleted three years earlier, also in 2033. So that was a little, well, both expected and unexpected, unexpected because it was a big departure from last year's if we think about how fast and how high hospitalization costs rise, we know, you know, largely with health insurance and health care and everything in the healthcare sector, it usually it's about twice the rate of inflation is what we use as projections. So, I mean, things are really moving quickly in the cost side of healthcare, so it was bound to catch up at some point. So those are the big, you know, important changes, I think. So not terrible, but8 years is seems like it's a lot shorter than almost 10years. Right, so I mean, my read of the summary, I didn't read the whole thing either, but my read of the summary too is that a couple of things. One is, at least on the uh OA side that it does move forward by about 6 months or so, and that's partly due to the Social Security Fairness Act, which um now provides benefits to folks who were previously subject to uh the windfall elimination provision or the government pension offset. There was also notes about why the change had to do something with uh lower fertility rates and also the worker to retiree ratio as affecting these, um, this now shorter than shorter than last year's, uh, thoughts, it' I always find it interesting and when you listen to the actuaries talk, I think they're just brilliant, by the way, um, they're looking for very long term, meaning like 75 year future projections. Well, I mean, we don't know what's gonna happen at 4 o'clock this afternoon, let alone 75 years from now, it's amazing how they think through these projections. So in this year's report, they did take a new look at, you know, our our our fertility rates in the United States. We're not producing enough well, maybe you and your wife did, but Dan and I were, we fell short on that front. Um, you know, we're just not as a nation producing enough new new workers to keep the payroll taxes rolling in at the same rates. And what they're saying and what they're thinking is women largely areMoving out by as much as maybe 10 years when they'll have children. So instead of having kids, you know, at the 25 or to 30 year marker and in the 30, 35, they're pushing closer to 40. So that moves, you know, future workers out further. So, yeah, they stretch the fertility then that impacts the ratio of workers to retirees. I think we're in about 2.5 workers for every retiree, um, and they also, they put things in terms of GDP, you know, how much, you know, payroll to GDP and and that sort of thing. So it gets pretty technical in their thinking, but the net result, you're right, the Fairness Act, moved the depletion date for the OASI by 6 months and these other two factors by about another 3. So I'm looking at it really simply. Instead of the end of 2033 depleting the reserve account, it's now the beginning of 2033. So it's, it's a problem. Yeah. So, so, um, I'm fond of planning for the worst case scenario. The Center for Responsible Federal Budget estimated that the impact of a cut for a couple retiring in the year of insolvency would face a $16,500 reduction in their annual benefits. And assuming for sake of argument, the average benefit is now $2000 whatever it will be in eight years, that's a big cut. It's a big cut. I'm glad you brought this topic up because separately I've been running some scenarios also for, well, an article to write for you, Bob, um, and I looked at, you know, a single person, but what at the higher end rather than the averages, I'm looking at if you had a um a benefit amount at your full retirement age, so it's called the PIA primary insurance amount. If you're at $3500 as a single claim it 70, that's your best, biggest number you can get at age 70, that would deliver $52,000 a 2030, in my example, then you get a cut, starting in, well, 2033, 2034, it drops down to $40,000. That's, you know, $12,000 for an individual. And the couples, again, I've put scenarios together where one spouse is at $3500 the other's at $2500. Well, they each waited till 70 to claim, that's $89,000 a then it would be cut. So and you're starting with your maximum amount, right? This is a good thing, but then they take a 23%, it's not even a haircut, you know, a haircut is a little trim. This is a sledgehammer, right? I think that's what Jason Victor would say, um, $68,000 you drop $20,000. So it's bad enough that your guaranteed benefit from Social Security would be cut. But my bigger issue is where you get it from?Even if you have a fairly healthy retirement account, do you want to spend an extra $20,000 a year when you're, these are pretty young people. We're not talking about 95 year olds, well, them too, but my scenarios, they're younger people, you know, you're gonna be way exceeding the sustainable withdrawal rate from your assets. And so I'm really concerned about this dual effect of less Social Security at such a big then much higher withdrawal rates. Yeah, so I, I ran similar projections, but for a 20 year old that was now earning $100,000 and projected what the effect would be, and I came up with a NPV loss of, uh, I think it was $800,000 if they retired at age 70, you know, 40 years from now. But here's the important thing, right? What's the actual advice? What's, how did someone plan for this worst case scenario? Do they save more now? Do they cut expenses, a mix of both, something else? Well, yes, um, it's a mix of both, uh save or I, I believe you can never save enough. So, but that's my, I've been like that since I was like 9 years old. Um, so saving more is super important. It gives you lots of flexibility, but not everyone can do that. So then how do you plan?And I think it's doing planning much earlier, you know, starting retirement income planning by age 50, you know, getting those 20 year olds, your scenario with your 20-year-old. Like that's your best decade to save for saving kids, I mean, you really got to own this, but I also feel that we are not being nearly creative enough when we only offer like two choices or things like, well, we're gonna have to cut benefits or raise the retirement age. Well, no, we don't. So let's be way more it's all kinds of proposals have been out proposed by both Congress and then others who support Social Security, these um bipartisan policy um groups and think tanks, and there's all kinds of things like, yes, increase the payroll taxes gradually, but maybe we standardize cola. I don't know, let's let's run some numbers on that. Um, do we change the PIA formula?You know, we don't have to have only one. Do we have one for either those in physical work who are gonna have to retire early and one with white collar jobs, or do we have one PIA formula for the or high income people and a different one for lower income do everything the same. So I looked this very small window of maybe 8 years, I think it's not that long, really rethink everything and be more creative and do bits of everything so that nobody is, I'll use the phrase overly taxed, but I don't mean it like an IRS tax. Like no one is shouldering the burden in an unequal or unbearable way. So let's put on a freaking creative hats, Bob. It's not one or the other. Right, so it, it isn't one or the other, and uh it's interesting if you go to the um to the uh the Center for Responsible Federal Budget, they have on their website, um a tool where you can actually input different things like increasing revenue or decreasing expenses or a mix of both and doing this and that and coming your own solution to figure out how to solve the crises. There was, um, uh, we're recording a day after there was a webinar where some the chief actuary of the Social Security Administration talked and said that the two straightforward solutions that are needed would be the raise schedule benefits schedule revenue by about 1/3 by do schedule benefits by about 14th by 2034 or a combination of both. Both of those seem draconian to me, that that's uh raising revenue taxes by 1/3 seems like quite a bit. You'd go from what, 6 and some odd change to like almost 10%. Absolutely, and I literally wrote down because you'd sent me, you know, we maybe we're gonna talk about these two options. I just wrote draconian disaster, working in the same camp. These are not tenable for us regular normal people. Um, we're contributing to this fund. We deserve a secure retirement. We just don't deserve a super rich retirement unless we've done it on our own. So we kind of need to get back to the basics and need to be much more creative in our thinking. All right, Marshall, we have to take a short break. Don't go back to Decoding Retirement. I'm talking to Marsha Mantel. She's the president of Mantel Retirement Consulting, and, uh, right before we took a break, I promised that we were going to talk about a recent headline that I came across that read that some Social Security beneficiaries are now going to collect upwards of $5000 per month, and maybe that was clickbait, Marsha, maybe? Well, you know, it came from a really reputable news source, Bob, so I clicked and, you know, I just put my head on my desk. It's like, oh please, the59 people in America who are gonna get that kind of money were born in 1955, and they've been working, and they just turned 70 at some point this year. So they and they've been earning at the taxable wage base for their entire so those 59 people get $5000 a month. And it's just, it's so deceiving because this topic is so important. You know, if you read that and you're an average wage worker, so you're more on track to get $2000 or $2500 a month, and even if you wait until 70, you will never get $5000 a month. You know you can't feel like you're getting screwed, right?So it seems like it's unfair and it feeds this frenzy about and especially in this particular era with, you know, the various people in Social around with it. Um, it's just not a reasonable headline in my opinion. Um, I'm not the editor, so, you know, I, I'll note that. But we also have to understand like this year's max this year, 2025's maximum calculated benefit for the person who reaches FRA this year full retirement age, and they also were a high income earner for their whole careers, like $4000 a month. So if you claim this you're at full retirement age, you're getting $11,000. Like, am I a $1000 less? Am I being cheated?you know, so it just sets up aFeel good about this benefit, this entitled earned benefit. So anyway, I was mad when I saw that headline. Yeah, I, I do want to make mention though of, of the notion that for people who do want to maybe increase their benefit and people who might have zeros in their earning history, that maybe they consider continuing working to eliminate some of the zeros so that maybe their PI getsUh, adjusted upwards perhaps. Fair to say. I love,yes, I, I'm in total agreement with you, but you have to understand how your calculated benefit will work before you can make that leap from, oh, I'm gonna have $5000. 0, what do you mean I'm getting $2500. So it justYou know, it, oh, we clicked, right? I mean, I guess we got the desired click rate up. All right, let's go, uh, you mentioned earlier Medicare. I want to talk for the remaining time about Medicare and some of the changes that people can expect as we approach 2026, my goodness. Yeah. Well, where to begin? Well, let's start with this. So we met I mentioned earlier that the HI trust fund, the hospitalization insurance trust fund, you know, is on a projected path to have the reserve account, the, the savings account, uh, run dry by and so one would conclude that maybe we have to pay more for our hospital stays and skilled nursing stays in hospice. But I also want to say that for most people in Medicare, in Part A, so the, the government pays the lion's share of the expenses when you're in the hospital or in skilled nursing, we pay a deductible if we don't already have a medi gap policy. So,Prices will, will rise, but there's also this really cool thing at CMS, the Centers for Medicare and Medicaid Services, called the Innovation Center, and they continually look for innovative ways to help with both quality of care and I would like to think they're gonna be really busy for the next 5 to 8 years, you know, trying to look at new ways to sort of skin this cat, you know, how can we give seniors and retirees really good quality care when they need it, but not break the bank. So that's one path. Then there's Part B, that's the um they call it SMI trust fund, the supplementary medical insurance, we call it Medicare Part B and Part trust fund is fine, because the whole trust fund, the checking account side and the savings account side, because we all fund it along with general revenue from our premiums will continue to go up, and this year it's $185 per person per month for Part B when you are enrolled in Part B, or higher, all the way up to a grand total of about $600 per month, a little more than $600 if you make $750,000 or more married filing it can get quite pricey, but we're sharing some of us get a higher subsidy, lower income people, higher income people, lower subsidies. Part B, we can expect those premiums will continue to rise, the cost of care for doctors and will continue to rise. I use a 6% increase year over year for Part B premiums to project out. So you're at 6%, sometimes it's less, sometimes it could be more, but for a general, where do you go? I use 6%.Part D is a different animal. Part D helps all of us cover our prescription some really crazy things going on with Part D. Part D plans are offered by private insurance most of the Medicare sales happen for for people getting into Medicare A and B happens through the federal government, but your Part D is through often independent agents or brokers who sell some of the biggest players in the marketplace are no longer paying the broker's commissions. They've already announced that we're not gonna pay you guys to sell these particular Part D plans. The net effect here, we saw it last year coming into 2025 also, um, what had been in Washington state, a woman sent me her two bills in 2024, she paid $3.30 a Part D plan, right? $3. You got $3. Exact same plan. Her exact same drugs, nothing from her perspective changed. Her monthly charge jumped to $35.90 a she's paying $430 for this year versus $39 last year.I expect that same thing to happen because what happens, the brokers no longer have on their platforms the ability to see that the cheapest drug plan option was only 50 cents a month and it covered all her drugs. So we are really beingNot squeeze as consumers. We are the prices are being jacked up and we're doing nothing that for me is the biggest problem, going out with the Part D plans as a result of, you know, many factors and that these companies are all, you know, on the stock exchange. we didn't, and it, it would take too long for this segment to talk about how in the case of Medicare Advantage plans, brokers are getting compensated at what, 2 to 3 times more than what they would get compensated to sell a Mediga plan and thus part of the reason why 50% plus of, uh, Medicare beneficiaries are now on Medicare Advantage plans when they might be better off in a different plan like uh original Medicare with Medigap, but we're gonna say that for another day because I want to talk about, uh, there's in the one big beautiful the possibility that that potentially 4 million people who are on ACA plans and maybe another 4 million, so call it 8 million people, will get dropped from, uh, from Obamacare or the AC Affordable Care Act, uh, if the one big bill goes through. What, uh, how should people plan for that? Oh, this one is between the Medicaid cuts at about 8 million people coming off of Medicaid and the 8 million dropped by the ACA. Uh, it is just catastrophic in my book because what is happening is, in the simplest terms I can come up of the burden is being shoved on to the regular hardworking consumer to figure this stuff out. We have, you know, a Congress that can't figure it out, an industry that can't figure it out, but all these rules put around normal regular people. So you go figure it out if you can cover yourself and your children on any of these plants. And so what's the big thing I just call it lots of hoops, have to prove your insurance that you're in a lower uh prove your income rather, that you're in a lower income or whatever your income is going to be for the forward looking year. Well, how are you supposed to do that? Um, there's no auto re-enrollment, that's one of the proposals. You know, like when you work for a company, if you oops, forget to do something during your open enrollment window, you're just rolled the next year into the same plan that you had elected this how the ACA had been working as well, so that people don't fall off insurance inadvertently. The proposal from the House is that, yeah, we don't want you to be enrolled. You gotta actually jump through more hoops to make sure you're enrolled. Uh, and they're shortening the window to get enrolled. So there's a lot of these, I think it flaming hoops that these bills, these provisions in this uh in this proposal areRequiring people to jump through, and the net effect is gonna be people aren't gonna know. There is no way for normal people to know thisstuff, Bob. In the meanwhile, I really appreciate you sharing your knowledge and wisdom with us. Thank you so much for inviting me on, Bob. It's been a delight. So that wraps up this episode of Decoding Retirement. We hope we provided you with some actionable advice to help you plan for or live better in retirement. If you've got questions about retirement, email me at YF podcast@yahoo and we'll do our best to answer your question in a future episode. And don't forget you can listen to Decoding Retirement on all your favorite podcast platforms. This content was not intended to be financial advice and should not be used as a substitute for professional financial services. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Times
a day ago
- Entertainment
- Times
Robert Powell fears e-bikes will give him a heart attack
Robert Powell, the Bafta-nominated actor who starred in Jesus of Nazareth, has said that he fears suffering a heart attack after being plagued by rental e-bikes being left outside his north London home for the past four years. Powell, 81, has spoken out about his ordeal and the 'couple of hundred emails' he has sent to Camden Council over a parking bay for the rental bike operator Lime outside his Highgate home. • Lime calls in bankers to explore $500m listing Along with his wife, Barbara Lord, the actor who also appeared in Holby City and The Thirty Nine Steps, has complained of e-bikes crowding their home. Powell objected to the untidy parking of Lime bikes — seen here in central London — outside his home ALAMY He told the Camden New Journal they had sent '570 photographs'. He said: 'You've got two octogenarians here who are in danger of being killed. I have probably sent a couple of hundred emails about the bike bay. We had 100 bikes outside the front door once. The entire pavement has been blocked by bikes.' • Edward Lucas: there are ways to tame the e-bike menace Fearing a 'heart attack' as he was forced to move between 10 and 12 heavy e-bikes each day, Powell said his GP had written a letter to the council describing the potential health effects. 'I've had moments myself feeling wobbly moving the bikes out of the path. They are awfully heavy,' he said. Camden council has said it was moving the parking spot elsewhere. It said: 'We've been in touch with Mr Powell and Mrs Lord and assured them that we're using our powers to relocate this bay. 'While we're committed to promoting active travel options like cycling, we also understand how inappropriate parking of electric bikes can block access for residents.' But Powell said interactions with the council had been a 'literal nightmare' and he felt insulted by the experience.
Leader Live
02-07-2025
- Leader Live
Acrefair man in dock after 'petty and silly' neighbour issue
Robert Powell, of Caer Efail in Acrefair, appeared at Wrexham Magistrates Court on Tuesday morning. The 52-year-old admitted using threatening or abusive words or behaviour, as well as an offence of littering - both of which took place at Caer Efail in Acrefair on June 15 this year. Prosecutor Sarah Edwards told the court that on the day in question, police attended the location and witnessed Powell throwing 'junk mail' into his neighbour's garden. He was told to pick it up and bin it or he'd be investigated for littering, but Powell said he "didn't care." The defendant then began making gestures, showing his neighbour the middle finger, Ms Edwards said. Following that, he was arrested for the littering and public order offences. Chris Clark, defending, told the court: "It was Father's Day, he'd had a drink. "There was a problem with the neighbour - It snowballed." Mr Clark conceded his client's behaviour on the occasion had been "silly," adding: "He works at an engineering firm and is married with one child." He asked the court to accept Powell's apology over the matter. District Judge Gwyn Jones characterised Powell's behaviour on the day as "petty and silly," telling him: "You lost the plot." MORE COURT NEWS The defendant replied from the dock: "That's fair." The Judge told the defendant: "I am sure that with the benefit of hindsight, you accept your behaviour wasn't the best. "It could have been avoided." Powell received a two-year conditional discharge and must pay £85 costs, as well as a £26 victim surcharge.
Yahoo
27-06-2025
- Business
- Yahoo
Everything retirees need to know about RMDs: Ask Yahoo Finance
A required minimum distribution (RMD) is the minimum amount of money you must withdraw from your retirement plans annually after reaching a certain age, depending on your birth year. Yahoo Finance Senior Columnist Kerry Hannon and Yahoo Finance podcast Decoding Retirement host Robert Powell join Mind Your Money with Brad Smith to answer all of your questions about RMDs. To watch more expert insights and analysis on the latest market action, check out more Mind Your Money here. Sign in to access your portfolio
Yahoo
24-06-2025
- Business
- Yahoo
The secret to a great retirement: Think like an engineer
Can AI really replace a skilled financial professional? In this episode of Decoding Retirement, Robert "Bob" Powell speaks with Nick Holeman, director of financial planning at Betterment, about why you might not want to ditch your adviser for a chatbot just yet. Nick also discusses how to utilize the Roth conversion window, how political uncertainty is affecting the market, and approaching your investments algorithmically to focus on goals, not just Finance's Decoding Retirement is hosted by Robert Powell. Find more episodes of Decoding Retirement at It's a brilliant tool. It's really powerful, it can be really incredible. If you are confident in your financial literacy and you know which questions to ask it, then I think it can really empower you, but if not, that's where I would be a little more cautious. Should you use AI for your retirement plan, whether you're living in retirement or planning for it? Well, here to talk with me about that and then some is Nick Coleman. He is the director of financial planning at Betterment. Nick, Bob, good to be here. Good to have you here. And I want to start with this question about artificial intelligence. Uh, a year ago, if you had asked me whether you should use AI for your retirement plan, I would have said absolutely not. But fast forward a year, and I'm beginning to think that it's getting closer and closer to the point where it might be OK to start using it for your retirement planning. Uh, curious for your thoughts, given that betterment is well known as a robo advisor. Yeah, well, I was actually just in DC a few weeks ago, meeting with the heads of financial planning from a bunch of firms, and we were talking about this very issue of AI and not only just retirement planning but uh financial planning in general, and I don'tI would be cautious about using it for personalized financial advice right now. I think where we've seen a lot of adoption and we're seeing a lot of traction is with general financial education. In that case, it's a brilliant tool. It's really powerful, it can be really incredible, uh, but using it for personalized financial advice, I don't think it's quite thereyet, right? And, and, and why is that the case? I mean, I, I, I take it that you've experimented with it and come up with some results that just seem askew. Yeah, we're working on it. We're testing things internally. Uh, we don't use AI for our financial advice currently. Um, we're, we're looking into it like we said, we've seen a lot of promise, um, but it can, it can act a little bit odd when you start to get into some really technical details. Um, the hallucinations are getting better, which is great to see. um LLMs were not do math, and so we're seeing that get a little bit better as well, but still a little bit of concern there. So it's moving incredibly fast. I think we're not far away from it, but we're just not seeing that widespread adoption quite yet. Yeah, it's interesting. I just had a chance to talk to a professor at the Rochester Rochester Institute of Technology. He has degrees in computer science and uh he's all in on having AI do his retirement plan. He asked it to create a Roth IRA conversion timetable and uh and uh I asked him if he was going to take the results to a financial planner for a second opinion, a sounding board, and he said, no, I'm pretty good with this. I feel like it's all about the prompt engineering and, uh, as an engineer, he feels pretty comfortable that what he got is accurate I'dsay that's true, uh, the prompt engineering matters and maybe that's a good thing to dive into because a lot of investors just don't know what to ask it in the first place. They're, you know, whether it's a specific term, you know, adjusted gross income, or, you know, things like that, uh, it can get really complicated when anytime you get the IRS involved, you get all of these and it's such a fast paced environment we're seeing here with, you know, potential tax bills changing, coming very soon as well. So if you are confident in your financial literacy and you know which questions to ask it, then I think it can really empower you. But if not, that's where I would be a little more cautious. Yeah, I'll tell you one story. I've been playing a lot with AI and I input some of Michael Herd from the RAND Corporation's research around spending declines in retirement, howHow spending declines on a real basis 1 to 2% uh per year, and I input that research into AI and I asked it to create a spending plan and then I uh sent the results back to Michael Hurd at the RAND Corporation who then said, wow this is pretty good. This sort of incorporates my research into an actual spending plan. So I felt like if it's good enough for someone from the RAND Corp, it might be good enough for me. That's really interesting. No, that's a good, I love hearing the examples, the anecdotes of how individuals and how advisors are using it. We're, our team of financial advisors is using AI today with clients, just not on the retirement planning calculation side. someday we'll get there. I, I, I agree with you. Um, another recent trend is this notion of, uh, private assets, private credit, private equity, private real estate being incorporated into, uh, either 401k plans in the form of target date funds or managed accounts. I'm curious for your take on that trend. Yeah, well, Betterment's a huge fan of investor choice. Uh, we have a number of model portfolios, we're launching single stocks later in the year. So, uh, I think investor choice is great. Um, you do want to be careful with any type of alternative asset, um, so you know, you don't want to have 50% of your nest egg, maybe say, uh, in, in alts, especially in your 401k, um, but I'm a big fan as long as the transparency is there, um, I, I think it could be a really interesting shift, something that isBrand new. We haven't seen this before atall. Yeah. I mean, if you think about it, we're witnessing a decline in the number of publicly traded stocks, an increase in the number of private companies, the possibility for greater risk adjusted performance. Uh, and yet there are some drawbacks, right, where people have to deal with the illiquidity of private assets and the possibility they may not be able to get their money when they want it. Uh, I'm of the opinion that people need to at least think about this with their eyes wide before they start investing in something that they don't know about. Yeah, I don't think it's a critical piece to financial, you know, retirement success. I think it can be an add-on, of course, if you're doing all of the basic things right. Um, I have been, I've been researching this topic as well, and I think there is some concern from financial advisors around, uh, are retail investors going to be left holding the bag potentially for some of the lower performing uh private assets out there or especially as you mentioned, the lack of liquidity sometimes. How does that work with a target date fund that isHaving periodic drawdowns or, you know, periodic contributions and withdrawals from retirees that maybe don't have that liquidity and how does that, how does that work in the fund itself. So I think it's really interesting. Uh, I'm, I'm for it for from the idea of investor choice, but I think you got to do your due diligence as well, right? Uh, another sort of recent trend is this notion of how political uncertainty is affecting, uh, investors' asset allocations. You've noticed some trends that are worth talking about there. Yeah, our advisors have been having lots of calls with our our clients and we're definitely hearing that pick up, um, just an increase in the number of clients that are referencing political uncertainty, uh or just disagreements politically with that translating into how they're behaving with their money. And so anytime we see that, it does throw up a little bit of a red flag for us as advisors, uh, we can definitely talk through but we're seeing an uptick on investors being nervous, investors may be sitting on a little bit more cash. Overall, our investors have been very well behaved with their retirement portfolio that we're not seeing mass panic or sellouts of their existing nest egg, but we are seeing them hold on to cash for a lot longerthan usual. Yeah, waiting till until thingsGet back to normal, whatever that may be until things get back to normal until the uncertainty decreases, um, which you probably know as well. By the time you wait until things get back to normal, the stock market has largely rebounded, you know, 6 months before that, right, because the stock market is always looking ahead. So, um, when you hear that with clients over and over, it does start to see a it is something that we want to be cautious and, you know, better and we have diversified portfolios, internationals performed better than US year today, we automatically rebalance, we tax the services. I think we've harvested $60 million in trades for clients right now. So as long as the clients are doing the things think will lead to their long term financial success, then we can have that discussion of, OK, let's keep up the good savings habits. Are you comfortable maybe with dollar cost averaging instead of investing in a lump sum? We can work with them from a behavioral side because even though if we know what's right on the math side, I've seen a lot of themselves, shoot themselves in the foot, when even if it makes sense, you know, all the data, all the literature, all the math says this is right, if you're not comfortable with it, then you can end up causing a lot of problems. So yeah, we're big on the behavioral finance side, but we're trying to tell clients, hey, stay the course, we're doing all the right things, don't let the the politics influence your retirement are the, that's the advice that we're giving at themoment. So years ago I used to work at a uh a research company called Dalbar where we had uh created something called the Investor Behavior analysis Qua we called it, and we looked at how the average uh uh investor performed relative to a buy and hold strategy and at the time we, we, uh, uh, we found that average investors were buying and selling at the wrong time and that had you been a buy and hold investor, you would have far outperformed the average was in the post 1987 era. Uh, and it seems to me that investors have learned through various crashes, 2000, for instance, or the, the COVID era crashes, that buy and hold is the thing to do. Um, have you noticed that, or, or is this recent, this notion of let me go to cash to wait until the uncertainty is over? Yeah, well, I think there's a number of things going on there. Betterman does have a really competitive cash account, so they're kind of looking at this and saying,Well, if I am nervous, I'm getting a decent interest rate on my cash. This doesn't seem like that bad of an option, you know, tell me why, tell me why, Nick, or whatever advisor they're speaking with, that doesn't make sense. And so I think now there's a lot maybe better alternatives than there used to be in the past for uh for sitting on the sidelines a little bit, at least you're earning something. Uh, interest rates are a little bit higher than they have been over the past, you know, decade or so. So uh I don't think it's totally irrational by any means for them to say, well, I'm not seeing the risk reward tradeoff being but in general, our investors are still, still doing the buy and hold. It's just maybe going in the new deposits is where it's coming in a little bit more intocash. Yeah, I mean, we are living in a different time where the nominal yield is lower than the right that you're getting a real return on your money just by sitting in cash right now. Yeah, and just another idea there, one thing that we found that is really resonated with retirement investors is if you are nervous to dump new money into the stock market right now, cash is one good option. But what about just taking the money that you would be saving on a monthly basis and using it to pay down debt, you know, the average mortgage rates something like almost 7%.That right now people have debt. You've seen all the stats on, you know, whether it's credit cards or not. So um that can sometimes be another really great alternative if you're nervous about the market. Don't stop your good savings habits, just maybe temporarily redirect it towards paying down some debt instead. That can still leave you coming off ahead in the future. Yeah. So you have mentioned something called top-heavy savings plans where people are saving well for also feeling uh broke in the, in terms of uh living. What what are those folks todo? Yeah, it's something we see really often, unfortunately, where, you know, people are told, hey, compound interest, start saving for retirement when you're young, and I don't disagree with all of that. That is all great advice, but I would say maybe it's incomplete advice, uh, and what we see a lot of times is maybe these uh 30, 40 year olds who are right in what we call the messy middle, right? They've, they'reThey just bought a house and maybe their housing costs increased, they're paying for daycare, they're trying to save for their kids' college, they're trying to pay down student loans. They're trying to do all of these other things. And meanwhile, they've done a great job at, you know, saving 5, 10% into their 401k, but that money is not accessible to them right now, and they have real world financial strain today, and they're looking at this and they're saying, well, why do I feelBroke, Nick. Like I've, I'm doing a good job saving. I'm doing all the things that you hear that, you know, my parents told me that financial advisors say, what's wrong with my plan? And I say, hey, you are correct, you're doing a great job saving, but you're not saving necessarily in the right priority order for the situation that you're finding yourself in at the moment. And so, oftentimes what we'll do, you know, of course, you want to try to say,If you have an employer match, at least try to contribute enough to get the match, we'll run the retirement plan, but oftentimes we'll pivot and we'll redirect some of their savings to more short term or mid-term needs like a 529 for college, um, like, you know, other emergency funds, debt payoff, and that could just bring the sense of relief to these people who are, you know, they have good incomes. The, the clients that my team talks have an average income of something like $250,000 that's household income. So they're doing great by all stretches of the imagination when you compare it to, you know, the average American investor, but they don't feel that way because their money is, it's locked up for retirement, which again, it's not a bad thing, but it just doesn't, it's not a balanced approach to their financial plan. Yeah, Nick, we have to take a short break and when we come back, I want to talk about something called the Roth conversion window. Don't go back to Decoding Retirement. I'm talking to Nick Coleman. He is the director of financial planning at Betterment. Nick, I, when we took a break, I promised that we would talk about the Roth conversion window, but the first thing I want to talk about young people are often told to invest aggressively when they're young, right? This is sort of what we were taught when we were taking the CFP classes and this notion of life cycle finance is that you, when you're younger, you can withstand the ups and downs of the market. Your biggest asset is human capital, your smallest asset might be financial capital, and so you can afford to put 80% of your money into the stock market and 20% in cash or bonds, but you have a different thought on that? Yeah, again, I, I don't think it's bad advice, it's just incomplete advice. So it's, it's what we believe in, it's what we recommend to clients for retirement savings or for anything long term, you're talking 2030, 40 years out, depending on how old you but for example, we were working with a client who was trying to save up to buy a house this year, and luckily we had gone, we told them to take that money that was invested 100% in the stock market and say, hey, you're looking at buying a house, you need this money soon in the next few months, go to cash with that. And at first they were a little bit, you know, they pushed back a little bit. We told them to do it, and they actually called us afterwards said, hey, we closed on a gosh that you told us to to get out of the stock market given the recent volatility that we've seen. So, long term, long term financial goals, it's great to invest aggressively, but short term to mid-term goals, you need to start dialing back that risk. Otherwise, you can find yourself in a situation where you need this money now and the stock market happens to be down 15%. That's what we're trying to avoid. So when you're young, you've got a lot of competing goals, building an emergency fund, that should not be aggressively, saving for a house not should not be invested aggressively if you're looking for, you know, only a few years out. So that's what I mean by by not all investors should put 100% of their investments into long-term aggressiveinvestments. Yeah, it sounds like what you talk about, Nick, is what has been referred to as goals-based investing where what you're doing is tying the asset to the goal and the time horizon and not necessarily just having one big bucket of money aimed at all your multiple goals. Exactly. We're huge fans of goals-based investing and betterment. Our entire UX is shaped around asking clients, what are your different goals we allow clients to input the name of their goal, the time horizon, and then set up automatic savings for it. And by default, we will recommend a portfolio with an appropriate risk level for your goals time horizon. So huge fan, I, I couldn't say more what you just saidthere. Uh, I want to talk about, uh, a lot of people have described this period of time asUh, a good time for Roth conversions where we're experiencing, uh, low tax rates, uh, volatile markets that may provide opportunities to do Roth conversions. Uh, talk a little bit about, you know, the perfect window for these conversions. Yeah, we're seeing a lot of success talking about this topic with clients right now because as we've talked about, there's a lot of volatility, and oftentimes investors feel they need to do so if we can redirect that energy from, you know, adjusting your portfolio into something that is actually potentially productive, whether that's a Roth conversion or something else, that can be a big win from a behavioral and a mathematical standpoint. So we're seeing a lot of clients that there's really this finite window that we, we call the Roth conversion window where maybe you were the average retirement age is nationwide. So if you retire at 62, um, you know, you haven't started Medicare yet, so those IRA charges, IRA surcharges aren't a thing. Um, RMDs haven't kicked in. Maybe you're not claiming Social Security yet. You have a window where you are maybe temporarily in the lowest tax bracket that you might ever be in for the rest of your life, right? And so that is a really unique opportunity to execute some rough a lot of clients, it might just be, you know, to the top of the 12% tax bracket. Of course, it'll depend on your situation, but really being able to look at this and say, OK, now let's do some Roth conversions. We'll, we'll manage your tax bracket, especially if you can pay the taxes from the Roth conversion with some brokerage money or some, you know, paying it from a separate account. That can be really, really powerful and it's a great way for you to really highlight the value ofFinancial planning or show the increase of their retirement success, despite all of the ups and downs that we've seen recently. Right at the top of the show, I mentioned the professor from RIT doing the rough IRA conversion table. The notion is that it doesn't have to be full conversions. It could be full or partial or different amounts of partial conversions as you think about like bumping yourself up to the next higher tax bracket before you uh. I would agree with that. Most of the time, it would not make sense to convert your entire 401k balance in one year, for example. That's gonna, you're trying to do some tax savings, but you're actually being counterproductive because when you do that Roth conversion, it's all gonna be counted as taxable income and you could find yourself actually bumping higher tax brackets than you otherwise would be. So partial Roth conversions are by and large the way to go there. That's what, that's what we tell our clients. Yeah. And, and there was a time when we're right now we're in the middle of this debate around the Republican one big beautiful the tax cuts and Jobs Act, tax cuts may be extended. And so at one point before this happened, people were saying this is the year in which to do Roth conversions because tax brackets may rise from here, but it looks like the possibility exists that you'll have more time than you thought otherwise. Is that fair to say? Yeah, I would agree with that. Um, really what it comes down to though is like, it's why it's important to revisit these things because tax brackets are always going to be changing. So maybe you don't need to be quite as aggressive now, but it doesn't mean the Roth conversions still aren't a good idea. Yeah, um, all right, I'm gonna return to our professor of engineering at RIT. Uh, you have said in the past that one ought to think like an engineer. What does that mean? Yeah, this is one of my favorite stories to tell. I, you know, when I first came to Betterment, I was leaving the more traditional financial planning arena, working for a company that had more engineers than financial advisors, which is a paradigm shift from what I was used to. Uh, and I remember my boss at the time, Alex Behki, asking me some questions about, hey, we're trying to figure out how do we help clients at scale, prioritize which type of sense for them in which order. So 401k versus IRA Rock versus traditional, throwing an HSA in there. These are some of the most common questions that we get from clients, because there's so much choice, they all have different rules, contribution limits. Uh, it's a tough problem and it's a common problem for our clients. And I was like, oh, well, it depends, right? And I laughed the answer to everything in financial planning, it depends, needless to say, my boss wasn't a big fan of that answer. He goes, it depends on what? Identify the inputs, tell me what it depends on, and then we can build an algorithm that can solve that. And I was like, oh, that was kind of a a light bulb moment that has impacted how I work with clients and how we shape the financial advice that we give our clients, um, and it, it's something that I think a lot of financial advisors can fall back, uh, fall back on and saying, oh, Mr. and Mrs client, your situation is so unique, it depends, you can't solve it to me. And uh I've never been a fan of that. If you can identify what the inputs are, what the calculation should be, and then what the output should be, then that can help demystify some of the advice and help give you more consistent advice on a regular basis as well. Yeah. So to me, one of the most important inputs is how long do you expect to live and I always tell people, if you could tell me your exact date of death as your input, I could build you a bulletproof retirement there's always, yeah, we by default, we assume age 90 for clients, which is it, that's conservative, right? You look at its average is mid 80s, a little bit longer for women than men, um, but by default, we recommend just starting a little bit conservative because the last thing you want to do in your retirement plan is running out of money just because your assumptions were wrong. So, uh, I, I agree with that. It's, it's a hard variable to to figure out because no one knows it, but it's a really important variable aswell. have spoken in the past to David Blanchett, who says age 95 as a default, but on the other hand, says go use the longevity illustrator as a way to maybe pinpoint more accurately what your longevity would be, as opposed to sort of picking a default, curious for your thoughts there. Yeah, I'd say for a lot of our clients, they've never built a financial plan before. The majority of them have never worked with an advisor, and so, um, having a an easy smart default in there that's a little bit on the conservative side makes a ton of sense for the clientele that we're working with, but we still, of course, when we're onboarding you as a new mentioned that and we say, hey, based on family history or health or, you know, whatever reasons, um, we can't adjust this input, and it's really easy to run what if scenarios until we're blue in the face just to make sure you feel good about the plan that we're building. And so I agree with that. Have a good default assumption, but of course it should be personalized ontop of that, right? Nick, uh, 23 minutes goes by in the blink of an eye. I want to thank you for uh being on the show and sharing your knowledge and wisdom with us. Appreciate it. Thanks for having me, Bob. It was great to be here. All right, so that wraps up this episode of Decoding retirement. We hope we provided you with some actual advice to help you plan for or live in retirement and don't forget you can listen to us on all your favorite podcast platforms. And if you have questions about retirement, email me at YF podcast@yahoo This content was not intended to be financial advice and should not be used as a substitute for professional financial services. Sign in to access your portfolio
