What is a Financial Plan?

Meet with Greenspring Advisors: https://greenspringadvisors.com/contact/

What is financial planning? Join us for a conversation on what financial planning done well looks like and how to tell when it’s done for the wrong reasons – typically if the conclusion is to buy a product a salesperson receives a commission on. We discuss the difference between static versus dynamic plans, how your families’ plan is similar and different to a company’s financial plan, and trade-offs in the accumulation and withdrawal phases of life. And more.

Sources

1 Riskiest Day of Your Life – a flashback to Pat’s 2015 article discussing the tradeoffs between short- and long-term risks at retirement. The Riskiest Day Of Your Life

2 Exploring the Retirement Consumption Puzzle – David Blanchett’s (Morningstar) research on declining spending in retirement, despite higher inflation for goods common in retirement https://www.financialplanningassociation.org/article/journal/MAY14-exploring-retirement-consumption-puzzle

Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.

Episode Transcript

(00:05):
Hey Pat, great to see you.
Just a reminder, I am Marcus Schafer, the Director of Growth here at Greenspring.
This is Pat Collins, our CEO.
And Pat, I'm here with one question for you today to kick us off.
What the F is financial planning?
I this was a PG podcast, we'll dive into it.

(00:26):
Great question.
And it's one I think that a lot of clients and investors have when they're thinking about,is it that you guys do?
What is financial planning?
So I have a few thoughts.
Maybe we can kind of kick that off with that.
First is, think there are, do you consider financial planning a noun or a verb?

(00:49):
And we think about it as a verb, but I think a lot of people in the industry think aboutit as a noun.
just to expand on that a little bit more, a lot of times people think about a financialplan as this document that's created or a binder or whatnot that has all of their
information in it and all these projections.

(01:10):
And it's this thing that you do as far as like you put this together and it's a documentthat you have.
it clearly is a part of it, but really we believe more in financial planning or the actualact of what you're doing each year.
Because the thing is, is that your life is not a point in time.
The economy is not a point in time.
Taxes are not a point in time.

(01:31):
They are this dynamic changing thing and all these things change all the time.
And when you're doing financial planning as a verb, it's an act of doing something.
You're always changing.
You're always having to tweak.
You're always having to make
updates to it.
And so we think that it needs to be a dynamic process.
It needs to change with your life.
Your circumstances could change, but your plans could change too, what your goals are.

(01:54):
So I think that's a really important concept when you're thinking about financialplanning.
A few other things that I would just say about financial planning, and this is probablyhas some similarities with investing.
We are dealing essentially with uncertainty when we do financial planning.
We do not know what the future is.
And when you're doing

(02:14):
you know, financial planning looking forward, you are making assumptions on what's goingto happen in the future.
And that is a really difficult thing to do.
We can make really good guesses, but that's really what they are.
And so that's also a really important reason why you don't want to do a financial plan asa one-time thing, check the box and say, I've done my part here.

(02:34):
moving on to whatever it is else I'm going to do in my life today.
That really should be a dynamic ongoing thing because
your circumstances are gonna change, there's uncertainty in your life, there's uncertaintyin the economy, you need to kind of stick with it, you should be updating it regularly.
Yeah, I mean, you kind of talk about financial planning done poorly versus done well.

(02:56):
You know, I think about this, I've worked with some of the best advisors and everybodytalks about financial planning and it's kind of a different output for everybody.
And you told this story one time about somebody that, you have a 300 page financial planand like three pages are actually useful.
And the rest is just kind of these back end assumptions.

(03:16):
So let's maybe spend a little bit of time talking about what is kind of diving deeper,what is financial planning done well versus poorly.
And then we can talk about kind of two different situations.
What are some of the components of financial planning in the accumulation phase?
And then we could jump into kind of the withdrawal phase, because it's really a lifecycle, right?

(03:38):
So we don't want to bucket into two components.
But it's just easier to think that way, so we'll do so for the purposes.
So let's talk a little bit more about what financial planning done well is compared todone poorly.
It's a really good question.
The financial planning done well, in my opinion, at least I think the feedback that we'vegotten from our clients over time when it's done well, that you'll hear things like, I

(04:05):
just feel so much more at ease.
I know that I'm on the right path.
I know that when things change, I can talk to you guys and we'll make updates and changesand you'll tell me how I need to tweet the plan.
So it's this decision-making framework in a lot of ways.
And that's really what financial planning is, is this trade-offs that you're thinkingabout.
mean, to give you an example, like if I wanted to buy a second home, I might have themoney to do that right now, but I should understand in the context of how this can impact

(04:34):
other things, because now I'm to start using resources to buy, pay for a new mortgage orwhatnot.
That's going to divert away from maybe my retirement or my kid's college or a legacy thatI want to leave.
So.
No matter how much wealth that you have, there's always going to be trade-offs as far asyour financial plan.
So a good financial planning helps clients make good decisions, in my opinion.

(04:54):
So you have all the information and you can make a really, really good decision.
What it looks like...
sorry, go ahead.
And you're kind of building off on this point about trade-off.
And I think there's this really important concept in economics called the second bestchoice.
And what it means is kind of you have a first best, an optimal decision, right?

(05:19):
But then you have the second best choice.
It's not a bad choice.
It's just a different choice.
And this is maybe one of the differences between a point time financial plan or something.
which is, let's think about...
the trade-offs associated with these decisions and then make the best one for you, not thebest one for some metric that you don't really care about that relates to the financial

(05:44):
plan, right?
And in that case, the second house, hey, this might give you so much more happiness andfulfillment, you're willing to draw resources down, but from an optimal financial plan,
like does this help your planet?
It probably does not.
It's a really good observation.
One of the things that I think sometimes, maybe this is where it's done poorly and I havesome other thoughts on how it's done poorly, but when it's only thought about as wealth

(06:12):
accumulation of how the plan outcome should all be about how much more money do you have?
That's not typically when you start to talk to people, what their ultimate goal is, Iwanna die with a lot of money.
It's usually to accomplish things, it's to experience life, it's to...
create maybe experiences with their family or whatnot.
And so really making sure that your financial plan isn't set up for just maximum wealthaccumulation, but it's really more about like maximum enjoyment of your life.

(06:41):
And so that means that you have to consume some of your resources.
But again, there's trade-offs there and you just have to be aware of those trade-offs thatyou're making.
And so for some people, the right decision is I'm gonna consume a little bit more now.
And I understand the trade off is maybe I have to work a little bit longer, or maybe I'mgonna have to spend a little bit less later, but that's okay because that's really a good

(07:03):
trade off that I wanna make right now for whatever circumstances are in their life.
for us, so I think being very one sided to think financial planning should be all aboutwealth maximization is not really a great way to kind of consider things.
Really at its worst in my opinion, from a financial planning standpoint, and you see thisas well as it's used as a
product sales technique.

(07:26):
it's, hey, we did this financial plan for you.
It's 300 pages.
Like you mentioned, it's in this nice leather bound book.
And by the way, you need to buy a lot of life insurance.
Now you might need to, but if it's being used as a sales tool, to me, that's probablywhere it's done, you know, done poorly.
Or if it's used to try to sell different funds or mutual funds or whatnot, this is really

(07:48):
not meant to, financial planning should not be, it will involve products potentially atsome point, because you have to implement.
But if it's being primarily used as a way to sell those products, that to me is kind ofwhat financial planning done bad looks like.
Yeah, it's the difference between, you know, if I think about it from a consumer'sperspective, what is the product I'm getting?

(08:10):
For us, we want to be providing advice.
That's the product.
Once you start getting into, hey, no, it's actually a thing that you buy, and it's cookiecutter, and it works with most people in your situation, that's when it starts to get,
that's when you can tell maybe it's more of a sales tool, or an advice tool to talk about.

(08:31):
frameworks and decisions to help you live your best life.
And then that kind of gets into, I think, you could tell I've spent one too many times ina business school class because the way I think about financial planning is every great
company, they have an income statement, they have a balance sheet, statement of cashflows, and they use these documents to help them understand this year,

(09:01):
next year, 10 years down the line, what is my expectation around cash flows?
And what can I do with that, with those cash flows?
And I think some of it, you hit it at one of the ways it breaks down, but let's talk aboutthe similarities and then some of the differences, kind of viewing it through that lens, a

(09:22):
financial plan for a company, how is it similar to a financial plan for a person?
Yeah, there's quite a few similarities and there's definitely some differences as well.
But I think the similarities are that we have very similar financial statements for ahousehold as we do for a business.
So in a business, you have a balance sheet and you have a P &L or profit loss that showsincome and expenses.

(09:45):
And you can do the same thing for a family.
You have a net worth statement that's going to show assets and liabilities.
And then you have an income statement that's going to show income that's come in.
as well as expenses for the family.
With those two statements, if you can put those together, you can do a lot of work for afamily.
And as an investor, you have a lot of insight into how things are going.

(10:06):
If you can really look at those statements at a singular point in time, but thenhistorically as well, to look to see how things are going.
And to your point, if you want to take it a step further, you can project things out fromthose as well.
So there's a lot of similarities.
I would say for Greenspring, that's where we start with every client.
There's two things that we're doing at the onset.

(10:27):
So one is, when you talk about this, really trying to vision cast for the future for afamily of what is really important to them.
Probably similar to a company doing strategic planning.
Where do we wanna be in 10 years?
What markets do we wanna be into?
What are the products that we're gonna sell?
Things like that.
A family's gonna be, there's differences, but there's some similarities there.
We're gonna say, where do we wanna be?

(10:49):
in 10 years, in 20 years, what are the big things that we want to accomplish?
And so that kind of gives us the one side of the equation.
And then the other, which is where do you want to get to?
The other side is where are you starting from?
And that's all of these financial statements that we're talking about.
Really good financial statements are going to have assets, liabilities, income, expenses.
And that kind of gives us the bookends.

(11:10):
If you think about it, it's you, where do you want to get to?
Where are you starting from?
And then
Our job as planners is really figuring out a way to get someone from point A to point B.
And I would say that the other part to that is in the most efficient way possible.
There's a lot of different ways you can get from A to B.
Some of aren't efficient.
You can burn your money on certain things.
You can pay too much in taxes.

(11:31):
You can have really high costs on your investment products.
You can not have the right set up with different accounts.
So.
We're trying to optimize that so clients can get there in the most efficient way,hopefully the quickest way possible to get to their goals.
Yeah, and I think another similarity is there could be kind of different versions ofcomplexity.

(11:53):
Probably everybody needs a financial plan, but the complexity of the plan should reflectthe complexity of your situation.
So if I'm 22 and I have no debt, my financial plan is like pretty simple.
Be great at my job, save as much money, invest cheaply.
Like you don't need

(12:14):
a big balance sheet analysis to understand that there's nothing on the balance sheet.
And then you get into these more complex situations and this is where your assumptions canvary a lot and they can vary.
year as well.
But again, think something else that's really similar is what I just referenced,assumptions.
And you talked about that earlier.

(12:35):
Everything we're doing is so critical on assumptions.
A lot of those assumptions are very volatile year to year.
Talk a little bit about maybe how you see assumptions playing a role in a financial plan.
So it's critical.
plans, especially for people that are younger, are so sensitive to the assumptions thatyou put into forward-looking projections, probably the same as a company, too.

(13:01):
You say that they're going to grow at 10 % versus 12%.
There's vast differences in the future values of that company.
So from the standpoint of assumptions for a household, there are some that I would say wehave control over to a degree.
And then there's some that are out of our control.
So some of the things that we need to make assumptions on are things like, what is yourincome gonna do over the next 10 years?

(13:23):
We need to make assumptions on also how much of that are you gonna save each year?
What are you gonna be doing from a spending perspective over the next 10, 20, 30 years?
you staying in your current home?
Are you gonna buy a second home?
Are you gonna give money away?
Do you wanna start some other venture in a business that's gonna cost some money?
So there's so many assumptions.
that go into the personal household situation.

(13:46):
And then on top of that, you're going to have assumptions on what's happening externally.
So what's the inflation rate going to be?
What are taxes going to be?
What are the investment markets going to do in the capital markets over the next 10, 20,30 years?
All of these have uncertainty associated with them.
Some of them are somewhat correlated.
The inflation rate and investment markets might have some correlation together.

(14:09):
but probably not a ton on maybe where you're working five years from now is going to bebased on.
So there's a lot of things that are totally independent of each other that are happening.
And that's why, again, it's so important, we think, to be revisiting that, you know, atleast once a year, maybe once every other year, and maybe even more frequent if your
circumstances are really changing, because some of those assumptions we know for a fact,maybe the majority or all of them are going to be wrong.

(14:38):
We just don't know for 100 % certainty what the investment returns are going to be.
We don't know what your income's going to do.
So, you know, that's why when we're doing a financial plan, we'll start at one point andwe build these projections.
But what we need to do is come back to that and revisit and say, are we on pace for whatwe thought we were gonna do?

(14:58):
Are we behind?
Or maybe we're ahead and...
If we're ahead for reasons that are not really, for example, let's say we start with aclient.
We think that their investment markets and their portfolio, however their mix is gonna go,we're assuming a 6 % return, let's just say.
And let's say we had a year like last year and their portfolio was up 15%.

(15:20):
Should we make changes to say, oh my gosh, now you can spend more.
Now you can do, you can retire earlier now after what, no, probably not.
We're gonna say this is just normal variations in the investment.
Conversely, if we're making an assumption on somebody's savings rate and we say, we thinkyou're going to save $100,000 a year and for five years straight, they are saving $50,000

(15:43):
a year.
Moving forward, we probably don't want to use that $100,000 savings figure.
We probably want to get it back towards more reality of what it's been.
And by that, then there, yes, we probably need to start talking about adjustments to theplan.
Hey, we thought you were going to spend a hundred or save a hundred.
You're only saving 50.
We need to think about extending out your working years, maybe spending a little bit less,maybe, you know, that second home, maybe not spending as much on that.

(16:11):
So anyways, it's the assumptions are so critical.
You don't know what they're going to be.
So that's why they're assumptions.
And that's why you need to keep coming back.
Yeah, and you just touched on it at the very end of that, which is realistic assumptions.
And this is why you need somebody you trust because anybody could tell you, hey, we thinkstock markets are going to do 15 % because they did that in the US over the past decade.

(16:36):
And we're going to extrapolate that forward.
And the tough conversations are the ones around, that US recent return, that's actually asignificant outlier compared to what we've seen with returns.
across countries, across the world.
Hey, if the US keeps doing 15%, we're going to be in a great spot.
The likelihood based upon all the evidence we have is that was just a period of relativeoutperformance.

(17:02):
We should be very thankful for it.
But that might not be something we want to factor in.
And sometimes what we see is if you come in and your expectations are vastly differentfrom what is realistic,
It's going to make your financial plan look great, but in 10 years, you're going to have alot of really tough challenges because you might have spent too much relative to what's

(17:23):
realistic.
So I just think just like as a company goes to somebody else to get their valuation done,whether it's a third party valuation firm or an investor, you kind of have to go to a
third party to say, hey, are these assumptions we're using realistic?
Because we're making spending choices today based off of them.

(17:44):
It's a really good observation.
think it's one of the kind of dirty secrets in the industry that I believe needs to kindof be revisited.
So it's similar to a company, if I'm looking at, let's say I have a client who isconsidering investing in a private equity firm and he sends me all of their investor

(18:06):
materials and it's got projections for the future.
They always look good.
They always look good.
And so,
A lot of times what I see with financial plans is the planner is not doing enough diggingin the backwards side of things, going looking backwards to say, did they actually
accomplish these things, these savings rates, these income figures, whatever it is.

(18:28):
Because if all you're doing every year is coming back to the financial plan and justupdating the asset values, that's not enough because you really need to understand if
Again, if you've been using a certain savings rate and that client hasn't been hittingthat bogey, then you really need to be thinking about, do I need to adjust the forward
looking projections?

(18:49):
They're too rosy, basically.
So I think there's an element when you are doing financial planning of looking forward,making these assumptions that we think are best guess.
But to inform those guesses, you have to look backwards, not only at the investmentmarkets and taxes and things like that.
That's what a lot of people already do well.
You also have to look at the household situation and say, is this realistic based on thepast that they would continue to do this in the future?

(19:13):
Yeah, that's great insight into how you can really think about realistic versusunrealistic.
Let's maybe jump into some of the key differences, I think, between a household'sfinancial analysis and a company financial analysis.
I kind of referenced one of them a little bit earlier, I'll just call it out, which iscompanies have a very specific purpose, maximize profits.

(19:44):
People have a very specific purpose.
Maximize what the economists call utility, this is why they're not fun to hang around.
What they really mean is happiness, right?
Our goal is to maximize happiness.
And if you have more money, you probably can have more happiness because you could do morethings with that money.
But I think that's one of the key differences between a company and a person is...

(20:09):
you're actually trying to maximize two different things and oftentimes they get confused.
And they're kind of at odds with each other.
If I told you, we're gonna save every single dollar that you made to maximize your wealth,that's gonna probably drive down the level of happiness you have.
You can't go on vacations anymore, you can't be a member at this club, you can't do thator this, you can't really spend money on yourself.

(20:33):
So yeah, there's definitely a give and take there.
So I totally agree with you that that's a huge differentiator between a company and ahousehold or individual.
I think the other part is the timeframe.
We're here for a short period of time, all of us, but companies can be around forgenerations and hopefully they are around for generations.
So there's kind of a perpetual life versus a finite type of planning period that you havefor a client.

(20:59):
Even if it's intergenerational and you're planning for the next generation or thirdgeneration, there's still some level of kind of time that you're factoring in.
Whereas a company,
they're trying to basically perpetuate forever if they can.
That's probably for most companies, unless they're trying to sell, that is a goal thatthey want to continue to maximize profit for as long as possible.

(21:20):
Yes, and some companies their goal is, I want to sell in three years, so let's maximizeeverything until then.
I have yet to find somebody that said, hey, I really want to be happy for the next threeyears of my life.
And then I'm good being disappointed beyond that point.
The last one is a very nuanced one, but I think that it's really helpful to think aboutfor individuals, a lot of income or revenue.

(21:46):
is actually taxed before it reaches you.
And that's just something that kind of plays into some of the dynamics of things you coulddo down the income statement where if the government's taxing you right up here, not on
your profits, right?
So you can net out expenses in all cases, but right there at the revenue mark, that'sgoing to have some different effects for abilities and ways you can structure things in

(22:08):
order to maximize total lifetime happiness by keeping more wealth
in an after-tax like spendable reference.
And this is where another dirty secret of the industry is everybody's talking aboutpre-tax numbers.
And sometimes they're talking about pre-fee numbers too, which is a really weird thing.

(22:29):
But it's not, hey, if I want to go spend my money, how much money do I have?
How did I grow that money?
It's, well, here's how we grew your money before all these different considerations.
So I think that plays a role too.
It's great insight into, know, there are a lot of similarities, but there are also a lotof differences.

(22:51):
The last thing I mentioned that we haven't really touched on, but I think it's interestingfrom a role standpoint is, you know, at a corporate, at a company, you have a CEO and a
CFO typically at a larger company.
So when you think about what each person's role is, the CEO typically casts the vision forthe firm.
Where is it that we want to go?

(23:12):
making kind of strategic big decisions.
The CFO's job is really to think about how are we gonna get there financially?
How are we gonna handle financing and how are we gonna do, you know, debt issuance orthings like that?
And how are we gonna set up the projections and make sure that we can accomplish all thesethings and coordinate it with all the different departments?

(23:32):
So how that would relate to a household is we kind of say this often, we considerourselves
company's personal CFO.
So, but the client, the household, they're the CEO, they're the ones that need to set thevision.
And we can help them with this, but set the vision for the future.
What is it that's important to you?
What do you value?
What is it that you want to accomplish in your lifetime?

(23:53):
And then our job as a CFO is we got to figure out all the money parts of it to get themthere.
And so, you know, we're going to probably touch on a lot of those different areas, but
But anything financial kind of runs through the CFO at a company and probably runs througha really good planner through a financial planner.
Yeah, and what you're talking about is the difference between kind of strategy andtactics, right?

(24:16):
Strategy, that's your long-term vision that we've been talking about.
But tactics, these are the things you have to do every day, every year to make thatstrategy realistic.
So let's maybe just jump into some of these different tactics in the accumulation phase.
So this is a phase where you have more human capital.
than financial capital, right?

(24:37):
Which you're younger in your career.
If you were to do a present value of all your future cash flows, you'd say, wow, I have somuch present value from my ability to earn money.
And what I want to do is I want to turn that salary, that paycheck, the dividends from thecompany I'm running into financial capital.
So when I stop working, I have something to pay me back.

(24:58):
So let's talk about this accumulation phase and what are some of the tactics.
for how we think about the income statement and the balance sheet.
So I think it's probably good to talk about it in the context of these financialstatements.
So we have income statement bound and net worth statements.
So it really all starts with the income statement in my opinion.
So you need to get that part right, especially when you're younger.

(25:21):
There's not a whole lot on the net worth statement.
You don't have a lot of assets, probably therefore you don't have a ton of debt.
But if you think about the income statement, you have income and expenses.
A lot of times people might just stop there and just put them on a piece of paper.
We like to think through each one of these categories.
So maybe on the income side, I'll start there.
Probably one of the best investments you can make if you are a young person that's in theaccumulation phase is figuring out ways that you can increase your income.

(25:46):
You made a great comment that your largest asset, if you're going to take the presentvalue of all of your income over the next 40 years, that is by far your largest asset.
So if you want to talk about sensitivity and assumptions, well, if you figure out a way,
make 10 % more because maybe you've got a designation or a certification or you move intoa different industry or maybe you take a drastic change and you decide you have this

(26:10):
lucrative business opportunity.
You could start a business and you can make more money.
All those different things are probably one of the largest determinants when you're youngon the success of a financial plan or your overall situation.
So us helping to think about with our clients, how do we increase your income?
is an important step.
Some of that is on the client.

(26:30):
But I would say there's a lot of examples of us getting involved in that with our clientsfrom the standpoint of things like making connections.
If we know client A sells some products that client B could use, we're oftentimes tryingto connect them.
A lot of our clients, unfortunately, lose their jobs.

(26:50):
We are trying to connect them with companies that we know could.
This is kind an ancillary thing, but because Green Spring has got a decent network, we aretrying to figure out ways to help enhance income.
So that's probably on the front end from an income statement standpoint.
The other side of that is the expense side.
And this is really important to get right, because if you can get these two things right,you're going to have margin.

(27:12):
You're going to have extra savings at the end of the day that now flows into your assetson your balance sheet, on your network statement.
When you think about expenses and the accumulation favors really five places it can go.
So it can go to taxes, it can go to giving, it can go to debt reduction, it can go togeneral spending, and it can go to savings.

(27:33):
And one of the things that we're doing when clients come to us is we're looking at theratios there to say, what percentage of your income is going into each of those five
buckets?
And when we see an imbalance, maybe
their debt is really high and therefore that's starting to crowd out other things likemaybe it's spending, maybe they just can't really live that well because they got to spend

(27:56):
so much on their mortgage for example or their car payments.
Or more likely what first gets crowd out is savings.
So we want to get those ratios right.
We believe there are certain ratios that you need to keep and that's something that we'relooking at on the accumulation side is are things right on the income statement?
so that you're putting yourself in a position where you can save enough to be able to kindof transform that human capital that you have into financial capital.

(28:23):
Yeah, nobody tells you when you start out in your career that, if you get one of thesehigh paying jobs, your chance of getting let go actually increases a lot.
It's like, hey, no, I make more money, I'm more stable.
Well, there's a lot more challenges that come with that.
So I think that's an interesting point.

(28:43):
And then on the expense side, to your point, going back to the CFO CEO role, our role isnot to tell a
tell you what you can and cannot do, but a lot of times when you go through those buckets,you find expenses that you look at and say, hey, this is not worthwhile for my happiness

(29:04):
that I get out of this.
You find, I have two houses and my cable bill is $5,000 a year, so how do I think about,is there any other option behind the side's cable?
And lo and behold, we live in a super innovative
economy you could get YouTube TV for a hundred bucks a month at both locations right sothere's this ability sometimes to stop and reflect and say going through this with

(29:28):
somebody else what do I get enjoyment out of and it's not really a budgeting exercisebudgeting exercises for millionaires vastly different than everyone else but it's more of
a happiness exercise and a lot of times we find that people are actually under utilizing
capital today, right?
So it's, actually, maybe you should go out one more time or two more times a month to arestaurant and enjoy it because we're looking at your financial plan.

(29:56):
We're confident in the assumptions and you're going to have enough down the road to startto utilize some of this when you can.
At the extremes, you see bad things happening.
So on one extreme, you have the person who is overspending that can't save any money.
That's obviously not good.
That's what, that's, see, we have a savings problem in the U.S.

(30:19):
and that's a bad thing.
We tend to see kind of the opposite a lot of times at Greenspring, which is the chronicunderspenders, I guess I would say, or savers.
And you'll see that sometimes happen.
And that also at the extreme is bad because there's just kind of this feeling that younever have enough.

(30:40):
can never be secure and safe no matter what we tell them, no matter how many projectionswe show.
I remember I had a great client who passed away just a couple of years ago and she livedduring the depression and she was young.
But...

(31:00):
She had this memory of losing her house as a child and essentially being homeless.
And she never made more than $40,000 a year in her career between her and her husband.
They retired with tens of millions of dollars.
And it was really interesting because they even, they got to the spot and as much as Itried to encourage them, you need to spend more money, you need to go out and travel and

(31:28):
enjoy things.
they just had a really hard time.
went to their house, their stove had to be from the 1960s.
They would not update things.
And so a lot of these things that happen from a spending standpoint that are behavioral,it goes deeper than just, I wasn't sure how much I should save or spend.
There's a lot of times deeper issues that go back to your childhood and whatnot.

(31:51):
I don't want to get all philosophical here, but I do think that it helps to understand whyyou're doing what you're doing.
Are you trying to get fulfillment by spending and buying new stuff?
That typically doesn't work.
And do feel like money to the extent that you have millions and millions more than youneed is going to make you feel secure?
That probably doesn't work either to some level.

(32:12):
So really understanding yourself through this is an important aspect of
Yeah, wow.
What a crazy story it is.
You reinforce a behavior over your life and then trying to reverse that, you know, in bothdirections is a really, really hard thing to do, which probably makes, you know, more
power to figuring out the right balance as young as you could be and then making littleadjustments along the way.

(32:39):
Let's maybe talk about some of these other examples, I think.
You know, oftentimes people in the accumulation phase, it's like, what are the biggestassets that they have?
Number one, future earnings.
Number two is oftentimes somebody's primary residence, right?
Early on.
And you could get that because we have great legislation and regulation in America thatreally encourages home ownership and makes it really favorable and some advantages to it.

(33:09):
So how do you help somebody think about
their home purchase and making sure that that fits into their financial plan in best way.
Yeah, so you touched on this before, I'll just mention it.
And then I'll touch on the home purchases.
So I think it's really important to understand the difference between strategic andtactical with a financial plan.
So I think of strategic as like the long-term things that aren't really gonna change thatmuch.

(33:33):
If you do these well, you've got like 90 % of things in really good shape.
Your plan's gonna be in good shape.
So that's things like how much you're saving each year.
You know that that's a huge component of your financial plan.
It could also be what asset allocation you choose.
What's your risk, you know that you're taking in your portfolio?
Those types of things are going to have massive impacts on the overall success of how muchwealth you accumulate and what you can do in the future.

(33:59):
But then there's these tactical things that happen every single year and I look at theseas kind of more like the pennies and the nickels or another analogy, the singles and the
doubles that we can do that will enhance and optimize.
overall wealth accumulation over time.
so buying a house would be one of those things where there's a strategic element to it,which is what size house should you buy?

(34:21):
First off, that's probably a strategy decision because if we buy something too big, itcould really derail our overall kind of resources that we have for other things.
But let's say we make that decision right now.
It's well, how do you optimize buying this thing?
Because should I put money down?
Should I finance it?
What are some other aspects?
So I'll give a couple like quick, you know, anecdotes and you know, usually it involvesfinancing when you buy a house.

(34:47):
Most people aren't just writing a check for whatever the value of their house is,especially their first home.
But we had a great example just recently from one of our advisors who client came to themand said, I need to put a down payment on this house.
It was a sizable amount of money.
And so they said, I need to liquidate some part of my portfolio.
And you know,
The easiest thing would have been to say, okay, well, let's just prorat a sell, whateverit was, a few hundred thousand dollars out of the portfolio and send that to the client to

(35:16):
be able to buy this house.
The advisor took a little bit different approach and said, I'm going to go through everyposition that they have.
And not only that, I'm going to go through every lot that they own.
So a lot would be if I own a hundred shares of Apple.
Maybe I bought three different lots, know, one, two lots for 30 shares and one lot for 40shares.

(35:36):
So he went through every lot and looked to see what, where are the lots that they havelosses on.
And I'm only going to sell those so that in the first example of just selling everythingkind of randomly, it's going to generate, it would generate a large tax bill for the
client.
And in the second alternative where you're picking lots in this case, they actually had notax associated with raising these funds.

(35:58):
So.
That's a tactical thing that can happen on a kind of a year to year basis.
The other thing would be things like, you know, we'll have clients trading homes, if thatmakes sense, where they're in a home and they say, you know, our family's gotten bigger.
We're going to, we're buying another home, but we need equity in our current house to buythe next house.

(36:18):
Well, there could be a timing issue sometimes with that.
Maybe they want to buy that, that next home, but they're still going to own their, thisfirst home, you know, for some period of time before it sells.
So that's a tactical decision.
I'm like, how do we do that optimally?
do we want to get, you know, maybe in the second home, we don't want to take out a bigmortgage because we're going to be able to have all this money to put down, but we don't

(36:40):
have the money yet.
So how do we deal with that?
Do we want to pay all these fees for a new mortgage when we only need it for like 90 days?
So there's a lot of times we'll be looking at things like, well, what are other lendingalternatives that we can do?
And let's measure.
the interest costs and the time and whatnot and figure out what's the most optimal way todo this.
So again, the strategic is that's the most important things.

(37:03):
But then there's these other things that are like, hey, this, if you do it this way, it'sgoing to save you $2,500 or we just avoided $4,000 of capital gains taxes or whatever the
number is.
And that kind of stuff adds up over time.
If you have a good planner that's thinking through the tax.
Yeah, and if you tell me as a client, you know, I just want to tell you, hey, we want tosell our house by a new house.

(37:25):
And I just went through all signing all these paperwork.
If I can avoid the mortgage process, I would really appreciate that because there's a lotof signatures that are required.
And I also think something else in that example too is one of these abilities to unlock.
And that's just thinking about
the interlay between your investment accounts and what you need to fund those investmentaccounts for, right?

(37:48):
And I think there's this big common perception where it's in a really safe environment,you save as much for your down payment as possible, right?
And one of the differences, your example, somebody's pulling from their investmentaccount.
So it's kind of one of these things where, if you're able to save more, you can actuallytake

(38:08):
a little bit higher degrees of risk versus somebody saying, I have to save $200,000 in abank account that's going to lose money after inflation every single year, maybe keep up
with it.
There are some abilities, I think, to really help someone understand, here's, as wecontribute and save, here's some of the possibilities and just know here are some of the

(38:34):
different risks and walking through those frameworks enables you to maybe take a step up.
in risk, that's really going to help the long-term viability of your financial plan.
Totally agree.
What other examples do you have for the accumulation phase?
So I think there's, again, kind of going back to the income statements we have, income,expenses, assets, and liabilities.

(38:59):
So when we think through kind of how a dollar travels through those financial statements,it will come in as income.
Obviously, whatever we're gonna spend, we spend.
And then whatever's left over, let's say we spend 80 cents of that dollar.
20 cents of it is left over, it's now going to go over to the balance sheet side of thingsor the net worth side of things.
And it can do one of two things there.

(39:20):
It can be added to assets or it can be used to pay down debt.
And so I think that's something that's really important and probably an example that Iwould just talk about because we get this question a lot is, hey, I have this extra
income.
What should I do with it?
Should I pay down?
Should I accelerate my mortgage payments?
Should I pay off my car payments?
Should I pay off my student debt?

(39:42):
or should I invest it?
And so this one's always an interesting conversation.
I would say I put this in the strategy camp of what's the right thing to do here.
If you are just moving that over to your net worth statement and putting it in cash andearning two, three, 4 % on it, there's probably an argument made is that the right thing
to do with your money.

(40:02):
So there's a few things when you're in the accumulation phase.
First is,
we do believe everyone needs to have some level of an emergency funds, cash reserves,things happen, whether it be if you're buying a house, anybody that's a homeowner knows
that there's expenses that come up with a house, people can lose jobs, there's all sortsof things that happen there.

(40:22):
you you can Google this and there's all sorts of rules of thumb, but I would say typicallythree, six months of cash, six months of expenses in cash is probably a decent rule of
thumb there.
We, you I've found that clients have vastly different levels of comfort with cash.
You know, there's some clients that live almost paycheck to paycheck and they're totallycomfortable.

(40:45):
And I have other clients that have $2 million in the bank and they say, if it went down toa million and a half, they'd be very nervous.
They wouldn't be able to sleep at night.
there's probably, again, extremes are bad in this one.
There's kind of an optimal way to do this, but a general rule of thumb, you want to makesure that your, when assets move over to the balance sheet,
make sure first that your cash reserves are filled.

(41:08):
Once that happens, then you start thinking about, well, where do I get better optimalreturns with this extra dollar than I'm saving?
And the question that we get from so many people is, should I pay off my debt or not?
And that one, I would say, is a really good question from an accumulation standpoint.

(41:29):
There's a financial decision that's very simple to calculate.
What am I earning on my investments that I can assume?
What am I paying on my interest costs on my debt?
What are the tax ramifications of both?
And then you can make a pretty quick decision to say, which kind of is a break even pointthat I need to earn on this money to make it make more sense to invest it versus pay off

(41:50):
the debt.
We can do those almost within two minutes and help a client think through that.
There's another element, is, I guess I'd call it emotional or behavioral that
is harder to quantify for people.
And I'll go back to my client who went through the depression.
And I have other clients like this too that I've talked to over the years that have gonethrough things early on and they're just so adverse to debt.

(42:15):
And so this idea that having debt creates fear, concern, anxiety, I don't know if I'mgonna be okay.
have this thing overhanging.
I feel like I got to pay it all the time.
It's I don't really know I could be evicted from my house.
There's all sorts of these fears that are out there.
So if it's that level of fear that people have with debt, they have to start thinkingabout is this really am I getting the utility to your point of, you know, the savings that

(42:45):
I'm going to get versus kind of this removing the fear that I have around debt.
So I try to gauge that.
I think we all try to gauge that is what is what's their level of
comfort with debt.
if someone is just, hey, I can sleep better if I don't have debt, it might make sense forthem to do that, even though it's not the optimal way to do it.
Even though we might say, you know, there's a much higher probability you're going to havemore wealth if you invest this, it still might not be the right thing to do.

(43:10):
it's a little bit, you know, it's not a specific example.
I would say that happens on a monthly basis here, probably more often across all of ouradvisors.
And it's a very common conversation.
It's not just the dollar and cents conversation.
Yeah.
And, it, changes over time, right?
Like sometimes in order to be ready to retire, makes you feel safer to just completely ownyour house and take that next leap.

(43:34):
Right?
So it's one of these things that you have to revisit over time.
The, the other big kind of component of what goes into a financial plan and it's really atactical year to year and kind of is very personalized.
is the tax planning aspect of what we do and why we're the one stepping in because it'sjust a tough thing to do.

(43:57):
But tax rate arbitrage is something that is one of the real tools that we have, which isto say, hey, what's your marginal tax rate?
How can we move things around to adjust that?
And then not only today, what's your marginal tax rate, but what do we expect it to be inthe future?
so we can think about when do we want to quote, you recognize income, when do we want todefer a tax into the future.

(44:22):
So that's also one of the big areas of that we're providing value is trying to thinkabout, hey, at any given year, what's your tax situation before we run out of time?
What are some strategies that we can actually put into place to accomplish your goals justin the most tax efficient way possible?
started the firm, this is 20 years ago, I had just a very small core group of clients andI went to them because was curious and I just asked each one of them, what's one area of

(44:50):
your life you feel like you're not getting a whole lot of great advice in?
And it was almost unanimous that it was taxes, that people said, you know, I like myaccountant, but it's really more
At the end of the year, the beginning of the upcoming year, like this time, I startgetting all my tax forms from my job and from my brokerage statement.
And I give them my account and they do a great job.

(45:11):
They prepare my returns.
They tell me how much I'm gonna owe, how much I might get back in a refund.
And then, you know, and if I have to pay any estimated taxes, they'll tell me what I haveto do for the upcoming year.
But I don't feel like there's a whole lot of active approach to figure out ways to reducemy overall tax liability.
And this is not a knock on accountants.
My dad was a CPA.
He had a firm for, I don't know, 40 years, 50 years.

(45:33):
But I think the mindset of an accountant tends to be backward looking.
It has to be, because they are taking data and putting it into reconciling it in such away that it all reconciles on a tax return.
And so we just take a little bit different approach.
are more forward looking to say, you know, so.
To your point, at the end of the year, we are doing projections to try to figure out whatare you going to owe come next April?

(45:58):
And is there anything we can do this year tactically to reduce that overall burden?
And not only that, what is your overall tax liability going to look like over maybe thenext five years?
And because of, like you said, there could be situations for, if we're talking aboutpeople in the accumulation phase, there could be situations where people lose a job.
People just have lower, maybe they're in a position where they have lots of variableincome.

(46:20):
And so we know that maybe this year they're in a much lower bracket than they're going tobe in the following year.
Maybe they're exercising stock options.
There could be a lot of different things.
So they're in a high bracket.
So what can we do to plan around that when you're in a low bracket?
And there's all sorts of things that we can do there.
So we're really looking at that piece of the income statement.
One of them is, you know, one area where your money can go is taxes.

(46:43):
And how do we minimize that?
for clients, these are the tactics that we're using each and every year.
Yep, yeah, and you kind of like, I think when I visualize taxes, I think taxes are relatedto salary, right?
So then I'm thinking, hey, in the accumulation phase, this is where I want to be really,really focused.
But turns out you actually want to be focused on both phases, accumulation and withdrawal.

(47:09):
And maybe this is a good spot to jump into financial planning in the withdrawal phase, butthere so many actual opportunities that open up once the salary doesn't even have to stop,
just slows down a little bit because a lot of people are coasting into a change of life.
But how do we think about…
Hey, now that salary's decreased, it actually unlocks so many more tools for us to reallythink about how to help somebody maximize their after-tax investments.

(47:37):
Yeah, the withdrawal phase is really interesting.
There's a lot of changes that happen for a client.
So the first thing that I'll mention, and this is just a little bit more, again, I'llmaybe go philosophical a little bit, is just a mindset shift.
It is really a challenging thing for most clients to go from 40, 40, 45 years of workingto all of a sudden, and earning an income and spending based on what they've earned and

(48:03):
whatnot, and then just totally stopping that.
or winding that down and go into a point where they have to now live off their assets.
And that is a scary proposition.
I think it takes some time to get used to.
So I think that's an important aspect of us as planners.
We get planners hopefully been through this a lot with clients, understands maybe some ofthe things that are gonna be important to a client, know, security, stability, just

(48:29):
understanding how it's going to work.
How am gonna get a paycheck in retirement?
I used to get this paycheck every week or every two weeks.
How are we gonna recreate that?
Those are all really important things.
But then you mentioned that there's these other parts of the withdrawal phase that aresimilar, but there's some real unique situations that happen in retirement.
One of the things that we see a lot is obviously people are going from a very high incomesituation to typically dropping quite a bit.

(48:55):
And what's really interesting is that there's these...
of highs and lows, there's kind of a valley that happens when most people retire.
I go from working, I'm making really good income, all of sudden I retire.
Let's say I retire at 65 years old.
Well, the only income I might have at that point if I'm not doing consulting or whatnot ismy portfolio dividends and maybe capital gains.

(49:17):
I don't have to take social security yet.
I don't have to take any money out of my retirement accounts yet.
So I have this like valley that I'm in.
And there's all sorts of interesting tax planning you can do when you have rate, you yourincome going from really high to really low to eventually maybe going back up to some mid
range at some point, because once you turn into mid seventies, you're going to haveminimum distributions from a retirement accounts.

(49:41):
You're going to have social security.
so anyways, that's part of the withdrawal phase.
Again, this is the tactics that are happening year after year is.
we're trying to minimize taxes over your lifetime.
And so if you're in a low bracket, let's maybe accelerate some income into those years andpay taxes at very, very low rates so that we don't have to pay taxes in the future at very

(50:02):
high rates.
Yeah, it's, again, it's, we talk all about taxes, but taxes are just one of the costrights.
We're trying to minimize the cost, but we're still trying to maximize the return aftercosts, right?
And I think that's something that sometimes also becomes a little trip up is, hey, we'retrying to minimize taxes.

(50:23):
All of the focus is, let me minimize taxes as much as possible.
We want to do that, but not at the expense of
of a future dollar of gain.
One of the other things you mentioned was one of the most important things is kind ofreplicating that paycheck and retirement income.
And income, you know, maybe is just, we'll classify it as a dollar you can spend, right?

(50:47):
So what are some of the different ways that you can adjust portfolios to change how thatdollar you can spend comes into play?
And that's something that's super, super critical in the withdrawal phase.
Yeah, I wrote about this a years back.
I said that the riskiest day in your life is the day that you retire.

(51:08):
And the reason why, at least from a portfolio standpoint, because when you think aboutthat day, you have to have your money last for the longest period possible.
Every day you live there after a year, this period shortens basically.
So...
So how does that, what does that mean from like recreating a paycheck and how you design aportfolio or whatnot?

(51:30):
You wanna make sure when you're retired that you're hedging out to some degree the risk ofa really bad market in the very beginning of retirement.
That's really, there's a sequence of returns risk that you have to be mindful of.
And that's really important in retirement.
In the accumulation phase, it doesn't matter as much because you're just.
buying into that.

(51:50):
There's some level of sequence of returns.
You would prefer to have the highest returns of your life to be at the very end of yourworking years because that's when you have the most capital invested versus having high
returns when you don't have any capital investor, you're just starting out.
But in the retirement scenario, if we have a really bad market and extended for a longperiod of time in the very beginning,

(52:12):
Remember, we have a long period that we need our money to last.
We have this big shock to the system immediately.
We're still taking money out because we need to live, but we need our money to last.
Conversely, if I'm 92 years old and I have a good sized portfolio and the market drops,it's probably okay.
I don't have as long of a life expectancy at that point.
I'm probably gonna be able to weather that storm.

(52:34):
So, well, how do you design portfolios?
Well, first off,
You have to pick a good withdrawal rate.
That's important.
So how much am I pulling out of my portfolio?
We could probably have a whole podcast on that.
There's all sorts of different strategies around that.
I probably won't get into that, but I would just say you have to pick a sustainablewithdrawal rate.
And once you pick that, then you need to make sure that your portfolio is positioned insuch a way that can weather a really bad market outcome over the first few years.

(53:03):
So we believe that you...
want to have some level of protection in the portfolio with things like fixed income thataren't going to really, know, especially like shorter term fixed income that's not going
to be dependent on the market to go up or down or whatnot.
When you think about that, one of the things we measure when we're putting portfoliostogether for people that are retired is how many years of expenses do we have sitting in

(53:27):
bonds?
So when a client comes to us and we look and say, you know, if we were to take
the first 10 years of your retirement.
And we were to say, how much money would we need to have in bonds today to be able toessentially fund that first 10 years?
Let's just say that's a million dollars.
Well, we probably are going to look to say, well, how much do we actually have in theportfolio?

(53:51):
Do we have a million dollars?
And for a lot of clients, if they want to be less risky, they want to be more certain,then they might say, I don't want 10 years.
I want 15 or I want 20 years.
of certainty around spending.
And so we may have the fixed income look like that.
Others would say, now there's a cost to that, again, trade-offs.
The trade-off is you're have less in equities, less in growth assets, probably gonna haveless ending wealth, but more certainty around your spending.

(54:18):
The other side of it would be the client that says, no, I wanna have more opportunitiesmaybe to spend more in the future, or I wanna have more legacy wealth, or I may wanna buy
a second home down the road.
I wanna have the potential to do that.
So I'm willing to maybe have a little bit shorter certainty, but I'm gonna have moreupside, not a guarantee, but certainly more upside to my spending in the future or to my

(54:40):
legacy wealth that I'm gonna leave.
So those are really important decisions.
The actual tactical of most clients, what they like to see is once a month, on the firstof the month, I get a paycheck.
And it's some level of dollars that we've kind of measured compared to their financialplan spending.
and we want to marry those two up.

(55:00):
And so that's coming out of the portfolio.
And again, that's the tactical of where do we pull it from?
What's the most tax optimal?
Which accounts?
Again, that's very circumstantial to the client, but that's kind of how it works.
Yeah, I just love that this is the riskiest day of your life and you're trying to hedgeagainst two risks, right?
Which is what happens in the short term, there's this terrible market drawdown.

(55:24):
But then at the same time, like we don't know what's going to happen 30 years down theroad.
And as you look at life expectancy changes, especially for the wealthiest of Americans,your withdrawal phase is roughly
as long as your accumulation phase, right?
So it's kind of this very, there's this juxtaposition.

(55:46):
You have short-term risk and long-term risk, and bonds help you reduce that short-termrisk, but they increase some of your long-term risk.
Vice versa, more long-term risk you're trying to hedge out, you're gonna have moreshort-term risk.
And getting that balance right is incredibly challenging.

(56:07):
You know, a lot of...
A lot of times there's also this concept of, we were talking about earlier, I want incomeand the definition that is driven is income is things that are just generated where I
don't do anything from the portfolio.
So dividends and interests, capital gain distributions, if you're still in legacy mutualfunds that haven't evolved yet, those will kind of be factored in.

(56:30):
But the way we think about income is...
Now, sometimes it's actually more tax favorable to think about a total return approachwhere, instead of a dividend is just a company giving you cash from their bank account to
your bank account, that reduces the value of that company, so there's less cash there,right?
So what if we just sell some of that company and put it in your bank account?

(56:54):
There's different ways where you could do things like that that aren't traditionallyviewed as income, but we view it as income.
because we can actually control some of the tax levers a little bit more precisely throughsome of these different mechanisms.
Yep, totally.
I think there's one other component on the withdrawal phase I wanted to touch on that Ithink is worthwhile, which is spending in retirement.

(57:19):
You when we're in our working years, you know, you can see spending kind of, it's prettyvariable depending on are my kids at home, once they go to college, all of my expenses go
up because I got to pay college tuition, then they're hopefully
empty nesters, they're off the payroll, your expenses go down a bit, but maybe you startto travel.
So there's just kind of this volatility to overall spending.

(57:40):
There's been some research that's been done in this space.
David Blanchett from Morningstar is probably the one that comes to mind that looked ataggregate retiree spending.
So what really happens when you retire?
Is it fair to say that you're going to spend the same at 65 that you are at 85?
And I think anybody that has

(58:01):
aging parents or have been through kind of the life cycle of spending, the answer that'sprobably no.
We tend to be more active at 65 than we are at 85.
And so what his research found is that actually real spending rates, spending afterinflation goes down all through retirement until maybe the very end, there might be some

(58:21):
healthcare costs at the very end that spike back up, but it's something to consider whenyou're doing your projections again.
We have to make assumptions into the future.
And we would rather be conservative in our assumptions.
To be conservative in spending means we're gonna assume that you're probably gonna spend alittle bit more every year.
But I think it's something to really factor in and think about in your financial plan iswhat is my trajectory spending gonna look like?

(58:46):
Am I still gonna own the second house at 87 years old?
Maybe not.
Maybe when we start thinking about that, it's like, well, yeah, I probably aren't gonnawant, I'm not gonna wanna maintain two households.
probably downsize at that point.
what's that going to do to our overall spending?
Well, now all of we don't have real estate property taxes, you're point a cable bill,utility bills, all those different things.

(59:08):
So I think it's really important to just not just say, well, whatever I was spendingbefore retirement is what I'll spend after.
And that'll just stay in perpetuity.
It's probably not the case.
There's going to be some leveling off of spending or maybe even a reduction and justanecdotally what we're seeing with clients.
is somebody that comes to us says, we would like $10,000 a month, for example, to kind ofhandle our spending and retirement.

(59:33):
And we set that up.
They don't come back to us typically.
I've almost never seen this happen a year later and say, I need my inflation adjustmentbecause costs are going up.
What tends to happen is five years later, we check in, we're checking with them regularlyand, know,
we may say five years ago, hey, we haven't really changed your spending out of theportfolio.
Is that, are you doing okay?

(59:55):
Like, yeah, we're doing okay.
is it because they're, what's really happening is they're actually are spending less on areal basis, because costs of goods are going up, but they're spending the same.
So they're buying a little bit less.
That's kind of what we've seen anecdotally.
It doesn't happen with every client, but it kind of validates the research that we'reseeing out there.
Yeah, and it validates kind of work with somebody through the life cycle because you wantto be able to help guide them.

(01:00:21):
You know, the way I think about it, when my knees are still working, that's when I kind ofwant to use them, right?
So now, hey, can I make sure I'm taking the vacations I want, building the memories I wantwith my family when I can.
And I want to have the confidence in my plan where I don't have to worry about that downthe road.
You have a saying about spending in retirement.

(01:00:43):
Do you remember what that saying is off the top of your head?
Yeah, I didn't come up with this.
is, I can't remember where I read this, but I think it's exactly the aspect of what I wasjust talking about.
So there's kind of three phases to retirement spending.
You have the go-go years, the slow-go years, and then the no-go years.
So, you know, the go-go is I'm retired, I'm ready, I'm traveling, I'm gonna go see thegrandkids all the time, we're gonna be active.

(01:01:05):
Then the slow-go is maybe somebody has, you know, some sort of...
surgery or something or whatever that forces them to maybe just travel a little bit less,go out to dinners a little bit less, just activity starts to slow a little bit.
So spending tends to kind of match that and slows down.
And then no go is it really starts to slow significantly and that's kind of towards theend of retirement.

(01:01:28):
So I think as planners, we need to think about how are we modeling this for clients?
Because again, the sensitivity is very...
high in these models.
If you say, I'm going to assume that they don't increase their spending in retirementversus they increase at the rate of inflation, you can have drastically different incomes
that are different probabilities, which means drastically different amounts that you needto be able to retire successfully.

(01:01:52):
And that means maybe when you can retire.
So I would encourage people, if they're working with a planner, be conservative in your,don't assume that, I'm just going to spend nothing when I'm 85 or I'm going to cut my
spending in half.
I think you wanna be careful.
You don't wanna get to 85 being great health.
We're talking averages here.
So there's people above and there's people below.
So we wanna make sure that we're not saying, similar to trying to pick what your lifeexpectancy is, you wanna be conservative.

(01:02:19):
You don't wanna get to the average life expectancy and then realize, well, that's all asfar as my financial plan went.
Realizing that more than half the people are gonna live past that age.
So just a word of caution, I guess more than anything is make sure you're conservative inyour assumptions for.
retirement spending, life expectancy, things like that.
Yeah, you know, the thing about assumptions is oftentimes they start building off of eachother and this is where you want to be really careful.

(01:02:42):
It's, I assume this for my investment return and then now it's, well, okay, since Iassumed this much investment, now I'm going to assume this and now I'm going to assume
this.
And each one of those assumptions have these range of outcomes and when you stack them alltogether, that's where you just have to be really, really careful as you allude to, to
make sure that at the end of the day, you're protecting

(01:03:03):
kind of the minimum best case scenario for you.
Well, we talked about, yeah.
it's a really good point on assumptions.
When you're young and you're 20s, we talked about accumulation phase, the assumptions arefairly important.
But if we're thinking about retirement, for example, we have no idea.

(01:03:23):
You don't know at 25 what you're going to be spending, where you're going to be living,all these things.
make some good, to your point, you don't need a complex plan.
You could probably do it on a one page piece of paper.
make some basic assumptions, get the strategic part right, and you're gonna be in goodshape.
Every year you get closer to retirement, the assumptions become more clear, it becomesmore certain.

(01:03:44):
Because if I'm 30 years away from retirement, I have no idea what I'm gonna spend, I don'teven know where I'm gonna be.
If I'm one year away from retirement, I have a pretty good sense of what my life's gonnalook like next year.
So again, that's why it's so important to be dynamic, keep coming back to it.
because the assumptions become certainty over time and they turn into real results.

(01:04:04):
And so again, even in retirement, there's more certainty around what life's going to looklike, how much you're going to need.
And we can say with more certainty how, you know, how much, you know, what the likelihoodis and the probability of success as we get closer.
Yeah, Pat, I can't think of a better kind of group of closing comments than those.

(01:04:26):
would add that, you know, I would just really think about the difference between dollarsand happiness.
I think that's the most crucial trade off, especially for people that are too analyticallike me and not as much fun as we should be.
We should be thinking more, hey, how do I turn this into something that I can enjoy?
Do I want to...
Enjoy that moment more now or do I want to enjoy that moment moment more into the future?

(01:04:52):
How can I think about?
maximizing my enjoyment and then all this other stuff tax location tax alley Acidallocation which raw strategies How do I think about tax planning, you know towards the
very end of the year and I gotta get that type of stuff You want outsource why becauseit's not happiness related
unless you're geeks like us, in which case you do this for a living.

(01:05:14):
You love it and you wouldn't change it for the world.
So with that, Pat, I'll let you go before I make any more bad jokes.
Great conversation.
Thank you.
All right.