David Blanchett: The One Retirement Risk Nobody Talks About

In this episode of The Blunt Dollar, I sit down with David Blanchett, Head of Retirement Research at PGIM and one of the most respected voices in financial planning. 

From his early start as a certified financial planner at 21 to becoming a go-to name in retirement income research, David has spent his career challenging outdated assumptions and building better models to help people retire smarter.

We get into why most retirement plans are based on flawed assumptions, how retirees actually spend their money (hint: it’s not how models say they do), and why the 4% rule may need a rethink.

We also explore:
📉 The psychological traps that make people underspend in retirement
📊 The emotional attachment to real estate
⏳ Longevity, inflation, and the risk of retiring too early
🤖 Whether robo-advisors will ever fully replace human financial planners
📈 Why working just “one more year” can make a massive difference in retirement success

David also shares his thoughts on the future of retirement, why financial independence might be a better term, and what he sees coming in the next 25 years.

If you're interested in retirement, financial planning, or how to future-proof your financial life, this one’s a must.

Oh, and if you haven't already... subscribe to The Blunt Dollar for more raw and honest finance conversations.

New episodes drop every other week! Available on Spotify, Apple Podcasts, and wherever you get your podcasts.

And last, but not least, don't forget to follow me on LinkedIn: https://www.linkedin.com/in/ignacio-ramirez-moreno-cfa/

Enjoy the episode!

Disclaimer: This podcast is for informational and educational purposes only. It does not constitute financial, investment, or legal advice. Listeners should consult a qualified financial professional before making any financial decisions.

Episode Transcript

Speaker 1 (00:00):
What's the best way to protect themselves against
inflation risk?

Speaker 2 (00:04):
I think without a doubt risk that really matters.
Inflation could be crazy high,but if your retirement lasts for
10 years, not that big of adeal.

Speaker 1 (00:10):
The 4% rule.
Is this 4% rule still a usefulguideline, or should we rethink
the whole way?

Speaker 2 (00:17):
Or kind of overly negative on it, like it was
pretty groundbreaking at thetime.

Speaker 1 (00:21):
How much money is left when we retire.
So we always talk about all thefear of people running out of
money when they retire.

Speaker 2 (00:27):
You go to 10 financial planners, you'll get
18 different financial planners,and so there's this massive
range of subjective outcomesthat exist in planning today.
You can't develop tools thatcan consume all the information.
I do believe it's going to bepossible to train models that
can do almost all of it.

Speaker 1 (00:54):
This is the Blonde Dollar with Ignacio Ramirez.
Quick disclaimer the views andopinions expressed in this
podcast are those of thespeakers and do not constitute
financial investment or legaladvice.
This content is forinformational and educational
purposes only and should not berelied upon as a substitute for
professional advice.
Always do your own research andconsult a qualified advisor

(01:15):
before making any financialdecisions.
All investments involve risk,including the potential loss of
capital.
And now let's get started withthe episode.
Hello everyone, and welcome toa new episode of the Blunt
Dollar.
Today we have the great honor ofhaving with us David Blanchett,
who's the head of retirementresearch at PGIM, a forming

(01:36):
Morningstar heavyweight and oneof the most well-known names in
financial planning researchacross the globe, but more
specifically in the US.
David has spent his careertearing apart financial
assumptions and backing up hisinsights with some of the most
respected research in theindustry.
He spent decades studyingretirement income, investment

(01:56):
strategies and the real spendinghabits of retirees, and he
often debunked conventionalwisdom along the way.
He's been published literallyeverywhere.
He won more awards than I canliterally count, and he isn't
afraid to call out bad industrytakes when he sees them.
Today, in this conversation,we're obviously going to be

(02:18):
talking a lot about retirementand retirement planning.
We'll touch topics like whymost retirement plans are based
on flawed assumptions and whatare some of the biggest mistakes
investors make when planningfor retirement.
If you care about understandingmoney markets and the reality
of financial planning beyond allthe industry noise, you are

(02:39):
going to absolutely love thisepisode.
David, welcome to the show.
It's amazing to have you on theBlunt Dollar.
How are you?

Speaker 2 (02:49):
How are you?

Speaker 1 (02:51):
Fantastic.
So, just for context, the CFAInstitute introduced us because
both David and I are going to beattending the CFA Life Summit
2025 in Chicago and we're bothgoing to be participating on a
panel discussion called the RoboAdvisory Evolution and how

(03:12):
client relationships are goingto evolve in the future with the
arrival of technology, ai andso on, and we're going to be
talking, of course, a lot aboutthat today.
So I thought about dividingthis conversation in three
blocks.
Maybe we can start off talkingabout retirement planning, then
we can talk about the psychologyof spending and investing, and

(03:32):
then, on the third block, we'llget into the details of that
panel and we'll talk about thefuture of financial advice.
How does that sound?
Sounds great, so maybe we canstart by just hearing.
What is it that you're doingexactly right now at PGM?

Speaker 2 (03:48):
Sure, so at PGM, I am a head of retirement research
and a portfolio manager, so Ispend a lot of my time thinking
about how do we designmulti-asset portfolios for
different types of investors.
The two main solutions I workwith are our target date series
and then some retirementspending portfolios.

(04:08):
We're also developing our ownrobo-like tool, an advice engine
that can provide digital advice, and then I also do a lot just
in terms of research aroundretirement.
Retirement's pretty complicatedand I think how we think about
the key assumptions and any kindof analysis or financial plan
is really, really important, andso it affects all the stuff

(04:31):
that I do.
It affects the definition ofthe optimal portfolio, it
affects advice on how much youhave to save.
It affects decisions aroundallocating the lifetime income.
So I think doing a better jobmodeling retirement can help us
make better decisions forinvestors.

Speaker 1 (04:47):
So I like to think about myself as the finance nerd
, but you're probably thequintessential retirement nerd.
I'm going to ask you a lot ofnerdy questions about that today
.
That's it.
So let's start talking aboutretirement planning assumptions,
because most retirement modelsassume steady spending,
predictable inflation and linearwithdrawals, but the reality is

(05:10):
that, of course, retirees don'tspend the same amount every
year.
Sometimes healthcare costsspike and, of course, spending
patterns are shifting.
So what is the biggest flaw intraditional retirement planning
models and how should weactually be thinking about
retirement spending?

Speaker 2 (05:28):
So, taking a step back, a point that I've been
researching retirement, I don'tknow for at least 15, maybe 20
years, and a point that I makeis that retirement is the most
expensive purchase you're evergoing to make.
If you do a net present valueof the series of cash flows,
that liability for mostAmericans for most for most
Americans it's it's millions ofdollars, it's a really big

(05:49):
number, and so when thinkingabout about how much you have to
save, it's really important tokind of have a good model to
think about what that goal lookslike.
Because, you know, no one likesto well, not no one.
Few people like to save money.
I don't like saving money.
I'd much rather go out and buysomething or go on vacation or
do something else, and so Ithink that asking ourselves what

(06:09):
are the key assumptions that weuse when it comes to any kind
of forecast and then thinkingabout how accurate they are, is
really really important.
And, for better or worse, a lotof the assumptions or I'd say
most of the assumptions thatadvisors use in financial plans
for clients haven't reallychanged in 30 years, and so, you

(06:30):
know, one of the things thatI'm kind of really focused on is
hoping that, as an industry, wecan evolve, and so you know
what are some of the keychallenges right now with
assumptions?
Well, there's quite a few.
What are some of the keychallenges right now with
assumptions?
Well, there's quite a few, youknow.
Like one is we have moved, asan industry, away from kind of
purely deterministic forecasts.
So when I got in this industry20 years ago, you know, when you

(06:53):
had a financial plan, you wouldassume that the portfolio goes
up 6% a year for 30 or 40 years.
That is, that's one heck of aportfolio, right?
I don't know that I can designa portfolio that goes up 6% a
year without fail.
Maybe you can.
That's not an accurateassumption, and so we've evolved
into a place where we do MonteCarlo or stochastic models,

(07:13):
where there's randomness as partof the analysis, and that's an
improvement, because we'reacknowledging uncertainty.
The question, though, is how dowe do that effectively?
And to your point, mostfinancial planning tools assume
that someone takes out the sameamount every year plus inflation
.
They never make a change.
If the markets go up, themarkets go down.
We use success rates as theoutcomes metric, so it's a

(07:38):
binary objective function.
Either I accomplish all of mygoal in its entirety, or I'm
being befailed.
And my concern is that when youkind of relax these assumptions
and you use better modelsaround, you know how people
spend, how they experience anoutcome you can, you can kind of
radically affect how much theyhave to save, how much they can
spend.

(07:58):
Do I allocate the left to makethem?
So you know, like, like, likethese things might sound trivial
, but when you kind of justimprove the key assumptions in
these forecasts, it can lead tojust wildly different advice and
guidance.

Speaker 1 (08:11):
So I have a few questions about those models.
But before that, you said 15,20 years in retirement planning.
How did you land in this area?
I mean, did you wake up one dayand you're like, oh my God,
this is it?

Speaker 2 (08:28):
I want to become a retirement planner, because it's
not the sexiest of topics,right, when you think about it.
Yeah, my wife's a veterinarianand our kids love to have her
visit the school fairs.
And what do my parents do?
I've never been freely.
No one asks hey, david's aretirement guy, come talk to us
about what you do.

Speaker 1 (08:42):
I have the same thing as a fixed income advisor.
I'm in your team here.

Speaker 2 (08:46):
Yeah.
So it's funny, when I Iactually had been drawn to the
field of financial planning whenI was in high school I don't
know why, I think just investingin general, I really enjoyed
investing and I think, basedupon kind of where I live and
who I interacted with, you know,my only kind of window into
what I could do was was being afinancial planner.

(09:07):
So I was doing internships inhigh school, um, in college, Um,
and you know, at a very youngage though, I started kind of
looking into, well, how do Ihelp people make better choices?
Um, there's a designation, uh,the CFP exam, a certified
financial planner.
I actually passed that when Iwas 21.
I finished the CFA when I was24.

(09:29):
You know I've had a whole and soI think you know part of the
problem is I'm a son of twoteachers, my, I also just
realized that some of the timeswhen you go to work for a
company and they tell you tosell something or do something,

(09:50):
it isn't always the best thingthat you could be doing for that
household.
And so I wanted to learn myselfwhat should I be recommending
these people do?
And so it kind of took me onthis path of doing research in
the field of financial planning,and the one topic that I always
come back to is retirement,because retirement is just so
complex and there's so manydifferent ways to think about it
that you know, I kind ofevolved from being a financial

(10:13):
advisor as part of a team intonow.
It's really kind of, you know,my, my, my focus is a lot more
like research and investmentbased.

Speaker 1 (10:21):
Okay, wow, that's a cool answer, and yeah, I mean
having two parents that areteachers.
I guess you learned your mathsquite early.
Not only the rates of return,but it's also things like

(10:46):
inflation, particularly when itcomes to retirement planning.
Right, because inflation erodesyour purchasing power over time
, is enemy number one ofretirement savings, I guess, the
same way as it is enemy numberone for bonds, which is the
asset class that I cover, and asa retired person, you don't
have salary increases to offsetthat impact.

(11:07):
So, of course, some advisorsrecommend divs, others say
dividend stocks, and some othersargue that real assets is the
way to go.
But my question for you iswhat's the best way for retirees
to protect themselves againstinflation risk?

Speaker 2 (11:23):
So, in the US, right, our public pension system,
social Security.
It offers income for lifethat's linked to inflation
explicitly.
There are no other lifetimeincome products that are sold in
the US that offer an uncappedbenefit linked to inflation,

(11:47):
that offer an uncapped benefitlinked to inflation.
So, in terms of where to go interms of getting inflation
protection, I think, without adoubt, delayed claimant of
social security is kind of thatrisk-free asset because not only
does it cover inflationexplicitly but it also covers
the longevity component, whichis really complicated, right?
I make the point that the riskthat really matters for
retirement is longevity risk,right?
I make the point that the riskthat really matters for
retirement is longevity risk,right?
Inflation could be crazy high,but if your retirement lasts for

(12:10):
10 years, not that big of adeal, right?
Where all the risks kind ofgrow exponentially is the
possibility of living to 30 or40 years in retirement.
So to me, the place you startwhen it comes to inflation
protection is delayed claim ofsocial security.
Beyond that, there's a lot ofthings you can do.

(12:30):
You mentioned tips.
There's real assets.
I think that this is where alot of the behavioral stuff
comes in, because you and I canboth do a great job building
someone efficient portfolio, butmy experience working with
households is that you know whatan optimizer might deem to be
suboptimal is something thatthey're willing to follow in a

(12:54):
much better you know rate oflikelihood than a truly
efficient portfolio.
So I mean, I think thatdiversification is key.
I don't have kind of like asingle place I look, because I
think it depends upon what thatinvestor or household is looking
to accomplish.

Speaker 1 (13:16):
So you were talking about the longevity and the risk
of living longer than expected,which I think it was created in
the 90s, when bond yields werea lot higher between 6% to 8% in
the US and people, of course,also didn't live as long as
today.
Now everything has changed.

(13:37):
Is this 4% rule still a usefulguideline, or should we rethink
the whole way we're thinkingabout retirement?

Speaker 2 (13:49):
Yeah, so that was work by Bill Bengen.
You know, it's kind of like theOG research when it comes to
retirement income, right, andpeople like I think people are
kind of overly negative on it,like it was pretty
groundbreaking at the time,right?
So you know, for thoselisteners that don't know what
the 4% rule is, what Bill didand this has been replicated
hundreds, if not thousands, oftimes now is he used historical

(14:12):
data and said you know, if we'regoing to assume retirement
lasts for 30 years and I'm in abalanced portfolio, what can I
take out in the first year ofretirement, where that amount is
then increased by inflationevery year for 30 years?
So what's really important isthat percentage isn't an ongoing
withdrawal rate, it's aninitial withdrawal rate

(14:33):
increased by inflation.
And what he found is he wasusing US historical returns is
that 4%-ish was the safe initialwithdrawal rate.
So over the last, you know, 70,80 years of the time, that was

(14:53):
the most that you could take outto be safe.
Now there's been, you know, 30years of research, kind of
building upon that.
You know.
Personally, I think that 5% isprobably a better place to start
when you think about thestructure of a household
liability, structure of theassets, things like that, but I
think it's still a usefulstarting place.
Now, what I really wish he hadsaid, though, versus doing 4% is
said a 25 times rule.

(15:14):
One divided by 4% is 25 for themath folks out there Because
that's really all it's tellingyou is how much do you have to
have saved when you first retire, assuming you're about 65 years
old.
It doesn't really apply as anongoing withdrawal percentage.
It's not necessarily highlyrelevant for someone who is 75
or 80 years old, but I thinkwhat it is is it was a much.

(15:35):
Whether it's 4% or 25x, it's amuch different number than a lot
of folks were used to.
They would think, oh, I cantake out 8% and be fine.
No, that's way too high.
So I think that, collectively,a lot of us have kind of thought
about you know what are the keyassumptions in this model and
how do we improve those, but Ireally do think that it was
great research and it's stillreasonable today.

Speaker 1 (15:57):
Definitely one of the numbers that comes to mind when
you think about retirementplanning.
So it really shows indeed howhe was the OG of research, as
you were saying.
So one cannot all talk aboutmodels without thinking either
about Monte Carlo, given thatit's super present in all parts
of the financial industry.
Are Monte Carlo simulationsalso useful for retirement

(16:20):
planning, or do you think not atall?

Speaker 2 (16:24):
So I think they can be right.
So I have a very healthy doseof reality, right?
This notion that we can somehowbuild a model that is going to
accurately predict what happensnext in the markets and in
someone's life over the next 50years it's kind of nonsense,
right, it's going to be wrong,but I think the key is to make
it as reasonable as possible.

(16:45):
So, again, I think that movingaway from these kind of purely
deterministic forecasts, wheremarkets go up 6% a year, to a
model where we can vary things,is useful.
I think that the question,though, is again it's what are
we using as our key assumptionsin this model in terms of their

(17:06):
usefulness?
And so one example is that a lotof advisors use pure historical
returns, and that's problematicbecause the returns in
different countries have variedwildly, and so if someone's
using pure historical returns inGermany versus the US, versus
Portugal versus, say, spain, youcould get dramatically

(17:29):
different estimates of what asafe withdrawal rate is, and the
issue there is that people usethis as an expectation.
I would argue that, at the endof the day, retirees don't
really care what you could havedone historically.
They want to know what they'regoing to experience, and that's
where I think.
So one important evolution inhow we think about Monte Carlo

(17:52):
is using expected returns, andthis is somewhat this is kind of
intuitive for anyone thatbuilds portfolios You're not
just going to use purehistorical returns, but it's
very common for advisors to usepure historical returns, and so
I think there has been movementthere.
But there are still issuesaround assuming again this idea
of static withdrawals, thatsomeone takes out a certain

(18:12):
amount and then increases it byinflation and then also just
success rates.
Most models assume that eitheryou accomplish your goal or you
fail, and what that doesn'tcapture is this notion of a more
continuous range ofpossibilities.
I would contend that if yourgoal is to have $100,000 a year
for 30 years and in the 30thyear of retirement you fall

(18:35):
$10,000 short, you didn't failright, you just barely didn't
accomplish your goal.
And using a binary objectivefunction, I think, can often
lead to advice and guidance thatjust isn't very good.
I think that we need tocollectively kind of improve our
models and improve the way thatwe estimate outcomes to ensure
again that the advice isreasonable, given all the

(18:56):
estimation that are present.

Speaker 1 (18:58):
And have you seen any developments in that field as
of late, like what's the, inyour opinion, the best models at
the moment to try to move?

Speaker 2 (19:08):
I think there are other companies developing tools
.
We're developing one.
I know others are really askingthis question of what is a good
retirement income forecastingtool.
One of the things I say issuccess rates.
That's the outcomes metric thatyou often receive in these
reports.
So what it is is whatpercentage of the runs or trials

(19:30):
in this projection did youaccomplish your goal in its
entirety?
And one thing I say is that youshould never tell a client a
success rate right?
You should never tell them youhave an 87% chance of
accomplishing your goal, becauseall they're going to think is I
have a 13% chance of eating catfood or some kind of diet.
I don't know what that means atall, and so I think one thing
that we could do today is youjust map success rates to ranges

(19:54):
and that's all you tell aclient.
If your success rate exceeds80%, you're in fantastic shape.
Let's come back again next year.
I think there are things wecould do right now to help
clients internalize what theseprojections are, but for some
reason, a lot of advisors liketo tell them the number.
They like the sense of falseprecision.
Oh, I can tell you've got an87.34% success rate.

(20:15):
I'm like who cares.
That's not a reasonable thingfor someone to interpret, and so
one.
Let's change the way that wecommunicate these results to
clients so that they can betterunderstand what it actually
means for their situation.

Speaker 1 (20:27):
One of the other big ideas that comes to mind when I
hear you talk is obviouslyfuture returns.
And I read this concept, thisinteresting concept, the
sequence of returns.
Because it's not how much youearn in retirement but when you
actually earn it.
Because if the market tanks inyour first five years of
retirement, your portfolio maynever recover right Even if the

(20:48):
market does your first fiveyears of retirement.
Your portfolio may neverrecover right, even if the
market does.
So how should investorsactually manage sequence of
return risk in their portfoliosbeyond?
Just diversify and hope for thebest.
If you enjoy the blunt dollar,the unfiltered takes, the
stories and the laughs, theeasiest way to support the show

(21:10):
is by tapping that subscribebutton right now.
While you're listening andhere's my promise If you do,
I'll keep bringing you honestconversations, fresh
perspectives and the kind offinance talk that's engaging,
insightful and worth your time.
Thanks so much for being hereand let's keep these great
finance conversations going.

Speaker 2 (21:32):
Sure.
So you know, one of the mostcited risks in retirement is
sequence risk, and all thatreally suggests is that the
returns you experience earlierin retirement have a
disproportionate impact onwhether or not you accomplish
your goal.
So you know, for example, youknow if the market goes down 20%
in the first year of retirement, that's going to have a much

(21:52):
larger impact on your particularoutcome than if it goes down
20% in the 30th year ofretirement.
And so there's been, you know,a lot of research on, well, how
do you mitigate or minimizesequence risk?
Well, you know, one thing thatyou could do is you could put
all your portfolio in safeassets, so fixed income, and the
problem there is that it's kindof like a scale where, yes,

(22:15):
sequence risk is an issue, butso too is longevity risk.
If you put all your money incash, you would effectively
eliminate sequence risk.
You could argue there's stillkind of like some inflation risk
there, things like that.
But the problem with that isthen, if you keep it invested
conservatively, that portfoliois not going to last more than
25 or 30 years Again, it'scertain.

(22:36):
And so I think that, like to me, the key is just being
diversified.
It is just having a verydiversified portfolio and
investing for the longterm right.
You know I think that you knowevery retiree out there.
You know if, to the extentpossible, should have lifetime
income that covers theiressential expenses, and what
that does is it gives them a lotmore flexibility around.

(22:57):
If the markets do go down, youcan cut back and adapt right If
we go back you know 10 minuteswe're talking about how a lot of
the models work.
You know, when you assumestatic withdrawals, you assume a
complete inability to adjustspending if the markets
misbehave.
I think what you see, though,is if you have income that's
protected for life, that coversyour essential expenses, and the

(23:20):
markets go down, it'll affectyou less in the long term
because you can adapt.
Where sequence risk is justreally really dangerous is if
you don't have that ability toadapt you.
Where sequence risk is justreally really dangerous is that,
if you don't have that abilityto adapt, you have to keep
taking those withdrawals, andthat kind of creates almost a
death spiral for your portfolio.
So, again, having flexibilityis just really important for
retirement, and I think one wayyou get there is, again, just

(23:41):
having lifetime income thatcovers your most essential
expenses.

Speaker 1 (23:45):
It's funny when I hear you speak, because in my
mind, yeah, I always thoughtabout retirement planning as
something very, very static.
Once you're there, you're thereand you don't touch it.
But hearing you talk, Irealized it's something a lot
more dynamic and you have tohave a much more flexible
approach than what I thought,and that's really, really
interesting.
Thanks for that color 180degrees change here in terms of

(24:09):
topics still within retirementplanning.
But I'd like to talk aboutgender gap and why women face a
tougher road, because obviouslywomen tend to live longer than
men and we know, because there'sbeen a lot of research out
there, that they earn less overtheir lifetimes due to wage gaps

(24:29):
.
Until now, thankfully, that'sobviously starting to change,
but that's the sad reality as ofnow, and a lot of retirement
planning models obviously don'tfully account for those unique
challenges that women face.
So how should retirementplanning change to better
address the financial realitiesthat women face when it comes to

(24:52):
retirement planning?

Speaker 2 (24:54):
Yeah, I mean, I think that women face, on average, a
lot more challenges than men do.
I think that just out of thegate there's a longevity piece
right In a marriage.
The average spouse is, you know, two years younger.
Women live four to six yearslonger on average.
That creates, you know, fiveyears on average that they'll be

(25:15):
kind of on their own inretirement and there's a lot of
interesting implications there.
You know, usually it's the malein the relationship that does
the financial planning or theinvestment stuff and to the
extent that the spouse is notbrought in, that can create a
lot of complications andconcerns.
When that first spouse passesaway.
There can be healthcare issueswith the first spouse the spouse

(25:38):
has to deal with.
So there really is a lot thereand there isn't at least in the
US, in my opinion a really goodway to deal with long-term care
risk.
I think globally there areeffective solutions to deal with
longevity risk via eitherpublic pensions or lifetime
income annuities, but I don'treally have a great answer here.

(25:58):
I think that having a trustedadvisor that the spouse can rely
on, that both spouses can relyon, to help in the event of a
financial emergency, is reallyimportant, Because what you do
see is issues like cognitivedecline at older ages that make
it, you know, you know olderAmericans more likely to suffer
from any kind of financial fraudor abuse.
So I think that, again, likethis is, you know, an area where

(26:21):
having trusted advisors canjust be so.

Speaker 1 (26:23):
Yeah, definitely still lots of room of
improvement there and hopefullywe're going to get there.
And talking about another groupof people for whom retirement
is not necessarily easyentrepreneurs and gig workers.
The traditional retirementsystem in the US, but globally
too assumes steady paychecks,employer contributions and

(26:46):
things like that.
But obviously freelancers,entrepreneurs and so on a lot of
times, or most of the times,there's no employer match and
not a really structured savingsplan.
So how should people outsidethe traditional workforce plan
for retirement when the systemyou've been talking about is not

(27:07):
necessarily designed for them?

Speaker 2 (27:09):
Yeah, I mean, I think the one thing we've learned in
the US is to get people to savefor retirement.
It needs to be effectivelyautomatic, right?
So today, roughly 70%-ish ofworkers are covered by some kind
of employer-sponsoredretirement plan.
This has gone up.
I think that in the US, giventhe incentives being created at

(27:33):
the state level, at the federallevel, we're going to see more
gig workers, more employees haveaccess to retirement savings
plans.
I think that will improveparticipation and savings rates
among those workers.
Your point, though I thinkthere'll still be lots of people
that are gig workers, that areself-employed, et cetera, that
don't have access to these plans, and it is really tough.

(27:56):
I think that, to the extent thatyou can make it automatic,
that's what's going to be soimportant.
If you only save for retirementwhat is left at the end of the
month, quarter or a year you'regoing to find that to be a
relatively small number.
You have to kind of create asystem, like we do for workers,
where the money comes out ofyour paycheck before you almost

(28:17):
ever see it right, and then youhave to learn to live off the
less.
So I do believe we need401k-like solutions, where you
get paid and then immediatelyyou have 5% or 10% taken out and
transferred to a differentaccount that exists for
retirement.
Now I do think there are someplatforms that can do that, but

(28:41):
I think that's what it willhonestly take to get those types
of workers better prepared forretirement.
Because we don't have theemployer contribution.
When it's not easy to save forretirement, it just doesn't end
up being a priority.

Speaker 1 (28:54):
It's interesting how humans adjust to whatever is
left, and that idea ofwithdrawing a certain amount
directly, I think is brilliant,and I think that's also a nice
transition in the conversationto move towards the second part
of the podcast, which is thepsychology of spending and

(29:15):
investing.
So I'd like to start with aquestion about how much out of
money when they retire.
But the actual data shows thatretirees actually underspend and
they fear uncertainty so muchthat they actually die with more

(29:36):
money than they actually needed.
So my question is why do somany retirees underspend and how
can advisors help them feelconfident enough to actually
enjoy more their hard-won money?

Speaker 2 (29:52):
So this is a pretty big anomaly or puzzle, right?
You know, if you listen to somepeople, they'll talk about,
like this idea of a retirementcrisis and how everyone is like
not prepared and no one has anymoney saved.
But, to your point, peopledon't spend at near the rate
that most retirement economistswould deem optimal, right?

(30:14):
So I just released someresearch with Michael Finca,
who's at the American College,and we did a kind of complex
analysis looking at howhouseholds deploy all of their
wealth.
How do they spend lifetimeincome, wage income, capital
income, qualified andnon-qualified accounts?
You do a bunch of regressionsand all this stuff to think okay

(30:34):
, well, how do differenthouseholds who are retired use
their wealth to fund consumption?
What we find is that the onlyasset and this is the term asset
very broadly, asset, and thisis the term asset very broadly
that households tend to useeffectively as lifetime income.
So we estimate they spend about80-ish percent or more of their

(30:56):
lifetime income on average.
Everything else is closer tolike 50%.
So, for example, we talkedabout the 4% rule.
We find that the averagewithdrawal that's, the
coefficient from a regressionwhatever from qualified savings
for 65-year-olds, is 2%.
Okay, so you know, 2% is halfof 4% and I think the 5% is a

(31:17):
better starting place and solike you know, it didn't matter
what it was.
You know, you know they're notspending from other assets like
they are from lifetime income,and you know, you know, you know
, and someone might say, well,that's not rational.
Well, I would say, well, I mean, it kind of is right.
When you don't know how longyou're going to live and you

(31:39):
don't know what the market'sgoing to do, you don't know what
inflation's going to do, itcreates this incentive to spend
less.
I think what happens is peoplehave this giant pot of savings.
They don't want to touch thesavings and so they kind of
learn to live off of less inretirement.
So they consistently and thenkind of persistently underspend

(32:01):
because they don't want to be aWalmart reader, they don't want
to have to go back to work, andthey kind of fear gloom and doom
.
And so you know, the only kindof good idea that I have here is
that, well, okay, in theory,yes, an advisor can help someone
spend more on retirement.
Okay, in reality, most of thefolks that are in the study have

(32:23):
financial advisors, so they'realready, in theory, doing that.
I think that that can help.
But I think that even anadvisor can't provide guarantees
around future market returnsaround future longevity.
So having that base of lifetimeincome is really important
because I think peopleunderstand this notion that no

(32:44):
matter how long I live, I'mgoing to receive income and
effectively nothing else isguaranteed.
So I think advisors can play arole here.
But in the absence of the factthat they can't provide lifetime
income guarantees, there's onlyso much they can do to kind of
encourage spending.

Speaker 1 (33:01):
Spend more, folks spend more.
That's the nobody sees.

Speaker 2 (33:06):
Well, I mean, some folks do spend too much.
So, like that's, it's reallyhard to kind of generalize,
because there are people thatare vastly overspending, and so
there's this fun notion of antsand grasshoppers.
Okay, so if you think aboutwhat it takes to get to
retirement, you have to be anant, you have to be a diligent
saver.
For your entire 30 or 40lifetime working, you're like,

(33:31):
you've got to be a great saver,saver, you've got to put money
away, you've got to see thatportfolio grow.
And the 401k statements in theUS, the balance, is the first
thing.
You see.
You don't want that balance togo down.
Then, though, you train peopleto be ants for, let's just say,
30 years.
Then you get to retirement andhey, go be a grasshopper for,
let's just say, 30 years.
Okay.
Then you get to retirement andhey, go be a grasshopper.
You know, you trained yourselfpsychologically to save money,

(33:53):
you know, and defergratification for, you know, 30
years.
But now you have to spin thatdown.
That's not an easy switch thatmost folks can make, and so the
grasshoppers will keep beinggrasshoppers and the ants keep
being ants.

Speaker 1 (34:07):
It's hard to kind of turn one into the other,
especially after doing somethingfor so long I love that analogy
and and, yeah, the the thething is that, definitely,
talking about psychology, uh, ofcourse, at the end of a
lifetime, with hindsight you cansay, oh yeah, he should have
spent less or more.
But I also understand thatwhilst you're in it, whilst
you're in retirement, and youdon't know how much you're going

(34:29):
to leave, how long yeah, I'mwith you.
I can see why people tend tounderspend, and one of the
reasons also for that, I guess,is because of the fear of big
sell-offs.
And obviously one of the yeah,the main problems is that the

(34:51):
best financial plans don't workif people panic because
investors tend to overreact andthey ignore all the things I
guess that you explained to themand can actually make emotional
decisions that ruin theirreturns in the sector.
How much of financial planningis actually about the models and

(35:12):
the math that you were alludingto, and how much is it really
just about managing humanemotions?

Speaker 2 (35:21):
So it's both you know .
So I just had a piece in theJournal of Portfolio Management.
Like it was about.
It was effectively how to buildportfolios.
Factoring in FOMO or regret,fear of missing out right.
And I think that earlier in mycareer I would have been a lot
more dismissive of the morebehavioral aspects of investing

(35:45):
right.
But what it takes to accomplisha goal is to remain invested in
a portfolio for a long periodof time, and so everyone has
different perspectives, forexample, on owning
cryptocurrencies or Bitcoinright.
So I would say that I'm in thecamp that I'm not necessarily a
fan, but I think that there is acase that you could make to

(36:08):
having someone allocate part oftheir portfolio to it, even if
you hate the investment merits,if you're concerned that by not
owning it, they may at somepoint say you know what, I'm
missing the boat here.
I'm going to go all in and dosomething else, and this is the
same with employer stock right.
You know I've done a lot ofresearch looking at this idea
that no portfolio is an aisleright.
When you own a portfolio, it'sa part of this kind of other

(36:29):
stuff and you know things likehuman capital should affect how
you invest your portfolio rightand so technically, you know
diversification says that youprobably should never own
employer stock.
As soon as you get it, youshould sell it.
You know if you have RSUs.
But you know what?
If I worked at NVIDIA and Ifollowed that great financial
advice and all my colleagues aremultimillionaires and I'm

(36:50):
invested in this S&P 500 index.
So I think that what we have toacknowledge is how individuals
would respond in differentcircumstances to different
market events, and then thiscreates this kind of massively
blows out this notion of anefficient portfolio right.
When you introduce all theother things that people have in
their preferences, I think whatwould seemingly be a very

(37:14):
inefficient portfolio could bevery efficient for an investor
to the extent it helps themaccomplish their goals.
So I think that you know, Ithink you know understanding,
you know the math, and portfoliotheory is very important, but
you know, for the individualsthat deal with with, with
investors directly, you know,especially households.
I think that that you know.

(37:34):
You know factoring in thebehavior of something that is
critical to ensure that they dohave the highest chance of
achieving whatever financialgoals they're paying the advisor
to help them accomplish.

Speaker 1 (37:44):
So you're a part-time analyst, part-time psychologist
.

Speaker 2 (37:48):
Well, so like I would say yes, I mean like I don't
work at all these days with,like retail investors.
I would say most of my and ourclients are more institutional,
but I do talk to advisors, andso I think that I do talk to
normal humans too, aboutretirement all the time as well,
but I think that how, but thattakes.
The problem with that kind ofpersonalization is that it's not

(38:08):
necessarily easily scalable,right, but I think that's where
advisors can truly add value.
I mean to call a spade a spade.
It's not difficult to go outtoday and get a relatively
efficient and expensiveportfolio using a variety of
multi-asset products.
There's tons of onlineinformation, there's tons of
tutorials, there's robo tools,all these things.

(38:28):
I think where there's going tobe a niche for advisors in the
future is more than justinvestment planning, but also
thinking about someone'ssituation and then adjusting
that portfolio to really buildit based upon what that person
is trying to accomplish, theirpreferences, all of that.

Speaker 1 (38:46):
So you said before that your retirement savings is
by far the most importantinvestment you're going to make
in your lifetime, because of thepresent value of all those
discounted future cash flows.
But arguably the second mostimportant investment for a lot
of people out there is realestate and their homes, and

(39:07):
we've noticed that many retiredpeople stay in their homes long
past the point where it makesfinancial sense for them, and
even if downsizing could free upcash, reduce costs and improve
their quality of life overall, alot of people still are
hesitant to make the move.

(39:29):
So what's driving thisemotional attachment to real
estate?
And do you think should morepeople be open to selling their
homes once they retire for greatguests who bring raw,

(39:55):
unfiltered insights to the table?
Or maybe you know someone witha story worth telling?
Please put us in touch.
You can reach out to medirectly via LinkedIn.
I'd love to hear from you.
And now back to the show.

Speaker 2 (40:08):
You know I do so.
I wrote some research calledthe Home is a Risky Asset, right
, and I think this is somewhatintuitive post-2008, but
pre-2008, people had this ideathat homes are great investments
.
Well, homes are not.
Well, okay, so let me take astep back.
Homes are kind of fascinating inthat it's one of the few things
that people purchase that areboth investment and consumption

(40:33):
goods.
Right, it's a consumption goodin that I have to live somewhere
that I typically have to payfor something.
I guess I can move with myparents, and maybe that's free,
but for the most, most adultsare going to have to live
somewhere.
Right, but it's an investmentgood in that it has the
potential to appreciate in value.
Right, very, very few thingsthat people buy, you know, meet

(40:55):
those two criteria.
If you buy a car, a car is aconsumption good, but they
depreciate like 1% a month invalue, not, you know, no
appreciation there, and I thinkthat because of that, you know,
in the US especially, we havelots of incentives to buy homes.
You can deduct your mortgageinterest, you know real estate
taxes, all these things.
So I think that owning a home,though, is also a very emotional

(41:16):
purchase.
I think about the research thatI did and I think one of the
things people get wrong is howlong do you think they're going
to live in a home, right?
So I think it's kind ofintuitive that the longer you
live in a home, the higher thelikelihood of that being a
better economic decision versusrenting.
And especially young, youngerAmericans vastly overestimate by

(41:36):
like a multiple of two, likehow long they'll live in a given
home.
Like you ask them how long youlive in the home, they say, oh,
we'll be here like 10 years.
They're there for like fiveyears, and so the problem is is
like, is that really changes themath of renting versus buying?
But you know, homes are also ameans of forced savings, like
there's been a lot of greatresearch showing like, yes, like
, even if certain assets youknow aren't aren't as efficient

(41:58):
as buying, you know the market,if it's a way to force
individuals to save, it can beefficient from that perspective.
So where they would haveconsumed the money on a vacation
, they're willing to kind of useit for a house, and so I think
that you know, like you know,I've seen it myself, you know.
You know I could have contendedto my wife back a few years ago
that renting would be a bettereconomic decision.

(42:19):
The odds of that happening arezero.
Like we're going to behomeowners, we're going to live
in a neighborhood because of ourschools and all that.
So I do wish that more peoplewould view homes as a, as an
asset they can use to deploy inretirement.
There's reverse mortgages,there's lots of ways you can do
that, but I don't know thatthat's going to happen.
What you often see, though, ishomes are characterized as the

(42:43):
asset of last resort forhealthcare expenses.
Most retirees want to leavetheir home to their kids.
They're willing to use it asthe asset to pay for healthcare,
should something happen.
So I think it's definitelyworth a conversation among lots
of people, but I don't expectperspectives on that to change
anytime soon.

Speaker 1 (43:04):
Yeah, and homes have such a huge emotional value too
that, despite probably in a lotof cases making economic sense,
there's that part where feelingstake over, and I can see why so
many people cling to theirhomes.
So was research?
Yeah, tell me.

Speaker 2 (43:23):
What people get wrong is the idiosyncratic risk of
owning a home.
People talk about theCase-Shiller Home Price Index,
and I'm like whoa, whoa, whoa.
The case Schiller home priceindex, and I'm like Whoa, like
the case Schiller home priceindex is a repeat sales index of
, like all the homes in Americaor wherever.
Whatever the region you like,you own one home in one place,

(43:44):
and so that's like, that's likeowning like a one micro cap
stock or some tiny little thingthat subjects you to just
massive levels of idiosyncraticrisks.
Right, the people that boughthomes in Detroit, like weren't,
you know, you know versus likeSan Diego my brother lives in
San Diego, like you know, like,like, like Detroiters were very,
very unlucky.
Right, the Californians havebeen incredibly lucky.

(44:06):
You've got other places likePhoenix and Florida, and so I
think that the issue with homesfrom like, an investment
perspective, is that peopleoften perceive them as being
safe, and they are relativelysafe, but there's just a massive
amount of idiosyncratic riskthat's not captured in a lot of
the indexes people use when itcomes to modeling residential
real estate, for example.

Speaker 1 (44:25):
So one of the things I learned about whilst
researching for this podcast wasthe one more year syndrome,
which is that many high incomeprofessionals plan to retire
early but keep delaying itbecause they worry about running
out of money or losing purposeor missing out on the peak
earning years of their career.
In your view, why do peoplestruggle to actually pull the

(44:48):
trigger on retirement, andwhat's the best way to overcome
that hesitation trigger on?

Speaker 2 (44:53):
retirement and what's the best way to overcome that
hesitation.
Well, so what's interesting isin the US the effect is pretty
pronounced.
I've done a lot on this.
Ebri has been doing along-running survey.
Most Americans retire threeyears before they expect to do
so.
So there's a Gallup poll.
That's really neat.
That shows kind of how bothexpected and actual retirement

(45:14):
ages have increased prettyproportionally over time.
Where that gap is three years,and why that's really really
important, is the number onething that you can do to improve
your retirement success rate ifwe can just use that term is
delaying retirement term, isdelaying retirement right To
your point.
You know, when you delayretirement in the US, you have

(45:39):
one more year to save, one moreyear for your assets to grow,
one more year to delay claimingsocial security and one less
year of income to fund.
That can massively change youroverall retirement economic
situation.
But people tend to retirebefore they expect to do so on
average.
And what's really importanthere is that people, when they
tend to retire early, it'susually not because they choose
to do so right.

(45:59):
Usually it's because they havea health issue with themselves
or their spouse, they get laidoff or something else happens,
right, those who choose toretire early typically do so
because they are in great shapefinancially.
That's not the norm, and sowhat we do see is this is to me
is this is a risk that I don'tthink is properly incorporated
in retirement financial plans.

(46:20):
People say, you know, oh, I'mnot on track to retire at 65.
I'll just work to 67, 68.
Well, in reality, you'reprobably retire at 62.
And that gap then of you know,of retiring three years before
you expect to do so, I think isjust financially devastating.
Now to your point, though.
There is the opposite, right,you know, like I kind of get it.
You know, if I'm in theworkforce, if I have a job and I

(46:44):
have the ability to keepworking an extra few years, I'm
actually okay with that.
Just one more year thing.

Speaker 1 (46:51):
Especially if you like your job right?

Speaker 2 (46:53):
Well, so even if you don't okay, even if you don't
okay, I call this let's make adeal.
Let's say that you hate yourjob, okay, but you're in a job
that is pretty effectivelyutilizing your human capital, so
you're well-paid, okay.
If you're in your 60s and youare to leave that job, whatever
else you could get will likelynot pay as well.

(47:15):
You could take a 50%, 70%,whatever it is haircut.
So what I have said before topeople is let's say that you are
older and you're not in thebest shape for retirement.
You want to retire.
What I say is okay, let's makea deal.
Every penny that you are usingto save for retirement, spend
that on the thing that will keepyou going.

(47:36):
Go on vacations, I don't know,buy a boat, whatever it is, but
just keep working, because ifyou keep working, maybe you're
not saving more for retirement,but you're getting healthcare if
you're under 65, or your assetsare growing.
You're delaying claiming socialsecurity.
You know you're not fundingretirement and you're giving
yourself that social network,and so I get it.

(47:58):
At some point, work becomesuntenable for most people.
But you know like, to theextent that you can keep going,
you know, I think, people youknow who haven't you know, test
run retirement, think that, oh,it's, things are gonna be great,
I'm gonna stop working and dothis stuff.

(48:19):
Well, you know, people areoften in for a huge shock.
So, the extent that you cantolerate your job, you know,
find a way to kind of negotiatewith yourself about, you know,
reallocating that retirementsavings things you enjoy to keep
you in the game as long as youpossibly can, because
realistically, like once you getout, at least in today's world,
the odds of getting back in arejust not very good.

Speaker 1 (48:36):
And so, talking about the way that the model is
constructed and maybe movingtowards the third block of the
conversation, the future,there's this model of work until
65, then retire that somepeople think looks a little bit
outdated.
Do you think the idea of thistraditional retirement will

(48:56):
still exist in the future, orare we going to see it evolving
to something completelydifferent?

Speaker 2 (49:04):
I think that what we're going to see is what
retirement is is going toincrease and vary I honestly
don't my title is head ofretirement research to
increasingly vary, you know, Ihonestly don't.
You know my title is head ofretirement research, so I'm like
, retirement is in my title butI don't love the word retirement
.
I think that, realistically,what people want is financial
independence.
Right, because retirement is aword that has baggage with it,

(49:26):
sometimes negative baggage, andI think what most people are
saving for is an opportunity tochoose how they spend their time
.
Completely Right, you know, I Ilike my job.
I maybe I love my job, I don'tknow.
But like, not everyone feelsthe same, like a lot of us are
stuck doing things that you knowwe'd rather, I don't know, go
surfing or do art or somethingelse, and so I think that why,

(49:48):
why we save, is to giveourselves, you know, optionality
around how we, how our futureselves, spend their time.
And so from that perspective,you know, I think retirement has
been viewed historically as avery kind of like you retire at
65, you play a little bit golfand then you die.
I think that what we're goingto see more of are many
retirements, where individualstake time off, you know,

(50:09):
throughout their careers to kindof just just pause and take a
break.
And I do think we're going tosee lots of different ways when
individuals do get to older age,where they move away from that
primary job they were using topay the bills to other things
that might pay a little bit butthat they enjoy more.
To me, the key here is you haveto save to create that

(50:30):
optionality.
If you want many retirements,if you want to retire, if you
want, you have to be saving.
So the point that I make islike, even if you don't want to
quote, unquote retire, youshould still be saving to give
your future self a choice abouthow you're going to spend your
time right.
And if you don't save, you'renot giving yourself very many
choices.
You're going to have to keepworking for a long time.

(50:52):
So, like, the more you save,the more you give your future
self options in terms of whatyou end up doing 100% love the
concept of having optionality.

Speaker 1 (51:03):
I think it's so important.
A lot of people don't thinkabout it, but it's definitely a
privilege to get to that pointwhere you can actually choose,
you know, and if you need towork more than you can, but to
that point where you canactually choose, you know, and
if you need to work more thanyou can, but if you want to
retire, then so be it.
So that's really cool.
So now, talking about thefuture, I want to.

(51:26):
I want to get back to the topicwe're going to be discussing in
Chicago.
So again, for those of you thatmissed it, david and I are
going to be from the 4th to the7th of May in Chicago at the CFA
Left Summit, amazing event opento all finance professionals.
I think there's going to beover a thousand attendees this
time.
There's going to be amazingconversations around different

(51:46):
topics related to the financeworld, and one of the topics I'm
most interested about is thefuture of the profession.
So David and I are going to bein this panel talking about the
robo-advisory evolution, and Iwant to talk to you about that,
about robo-advisors and AI ingeneral, because we've seen it
in this past year has gottenreally, really good and we're

(52:12):
seeing tools handling portfoliomanagement, tax optimization.
We're even seeing now companiestrying to do behavioral
coaching and my question, Iguess, is whether investors are

(52:39):
really trusting this tool.
And um, the broader question Iguess is will robo advisors ever
fully replace financialplanners or is there something
completely irreplaceable abouthumans?

Speaker 2 (52:45):
sure.
So I've been building like roboadvisors for like 15 years,
right.
So it's like it's beencharacterized as the revolution.
That wasn't right, because wehaven't really seen the uptake
in the use of digital only toolsfor a while.
Right, there was just anotherone announced yesterday that is
effectively going under, and,you know, my perspective is that

(53:07):
it's not possible to replacethat human to human connection.
It's not possible to replacethat human-to-human connection.
Right, you know you don't needAI to do robo, but I think you
can use AI to provide methods ofengagement that you can't
create in more traditionalrobo-type tools.
And you know where I just seetremendous promise for the robo

(53:30):
tools is that not every Americancan afford or even has access I
mean, this is probably globalto a high quality financial
advisor, right?
If I only have $100,000 savedfor retirement, you know the
range of advisors that I couldget is not going to be the same
as if I had a million dollars,and so what I hope is that it's

(53:53):
kind of the same as if I had amillion dollars, and so what I
hope is that it's kind of thedemocratization of advice, where
everyone can get advice, highquality advice, at a relatively
low price point.
I think what Robo does is itfrees up individuals who might
not want to pay 1% of theirassets to someone to build a
portfolio, and now they can getit for 25 basis points.

(54:15):
Right.
To be clear, like, I do notthink that human advisors are
going away.
We're going to need, we needhumans for everything.
Humans like talking to humans,but the key is there's a cost
there, right, you know you cando more of the.
You know the hybrid solutions,you know where you have a Zoom
advisor and you can see pricepoints there at less than 50
basis points.
And so what I want is I wantevery American to have access to

(54:38):
a tool, a solution whatever youwant to call it that can help
them make good financial choices.
So I think that where Please goahead.
No, I think that's where Roboexcites me.
I think that it's been a slog interms of, you know, adoption so
far, but I mean, we're talkingabout AI.
I think that's where Roboexcites me.
I think that it's been a slogin terms of, you know, adoption

(54:59):
so far, but I mean, we'retalking about AI.
I think that you know, aiconcerns me a little bit because
of, you know, like thehallucinization I just so like.
I think it can do a lot toimprove things we don't really
need.
You don't need AI for Robotechnically, Like there's
already tons of Robo tools outthere that do things already.
I think where the opportunityis is just in a perfect world,
every American has access to alow cost advice tool that can

(55:19):
give them help based upon theirpersonal situation.
We'll never get there if itrequires human advisor
intervention.
We can get there utilizing robo, utilizing AI at some point,
utilizing robo utilizing AI atsome point.

Speaker 1 (55:37):
So in which areas do you think that these robo
advisors could outperform humans?
In Leaving, like all the thingsabout, yeah, the empathy and
the fact that humans liketalking to humans.
What do you think these roboadvisors could be better at than
human advisors?

Speaker 2 (55:55):
I don't think that robo-advisors could be better at
than human advisors.
I don't think that robo,technically like, if I mean,
anything a robo does I as ahuman advisor can deploy.
And so, like I don't know thatI would characterize the robo,
as I mean, as being better thana human, because, in theory, I,
as the human advisor, couldutilize multiple robo advisors,

(56:16):
you know, and that can be thetechnology that powers my advice
.
And so I think that, like, like, like, advisors will
increasingly, human advisorsshould be utilizing robots and
AIs and they should be usingtechnology tools to automate
their advice and solutions.
And so I don't, you know, to me, I think where I see that the

(56:37):
gap is is how you would engagewith a person if you have
questions, and where humans canreally add the edge is
additional personalizationfactors, right?
So, like you know, as someonethat develops these engines, you
know these are effectively moreclosed form solutions.
We're, like you know, if thesecriteria are met, you do this.
Well, I can't develop a solutiontoday that encompasses all of

(57:00):
what is possible for someone'ssituations, right, I think when
we overlay AI, it can help withthat, but I think that that's
where humans will have the edge,is that they can kind of you
know they can one be moreempathetic than a robot can in
theory, but two like they'regoing to have the ability to
kind of pull in different toolsand know how to use different
things.
That you just might not getthrough a pure digital solution,

(57:22):
but the key is there's a costfor that.
You're moving from a tool thatmight cost 30 basis points to
one that costs 100 basis points,and I think what's good there
is that there's going to be lotsof folks that say I don't need
to have that personal touch,that personalization.
I'm going to pay less and stillget the advice.

Speaker 1 (57:41):
So you were touching on the notion of cost and
affordability.
That could maybe be a tailwindfor these robo-advisors, but
there's another notion, that istrust.
So I think many investors arestill hesitating when using
these robo-advisor or AI-drivensolutions.

(58:03):
So, in your view, what needs tohappen for these robo-advisors
and machines, I would say ingeneral to earn the same level
of trust as human advisors?
Could they ever get there, oris that something that will just
never happen?

Speaker 2 (58:18):
So you know, I just actually was it this week or
last week had a piece releasedlooking at how the different
sources of advice have changedfor Americans over the last 20
years.
Right, and now the internet isthe primary source of, or a
primary source of, investmentand savings advice for many

(58:41):
Americans, especially youngerAmericans.
It did not exist as a source 20years ago.
No one was using the interwebsto figure out investment stuff,
and so I think what we've seenis a massive increase in the
interest of people utilizingdigital tools.
Now there is an important falloff at older ages, You'd think,

(59:03):
as people who were youngerbecome older, but there is this
kind of you see this drop off.
So there are still issues outthere.
Right, I do think that somepeople will always want to work
with people first, but what I dothink is there's so much room
for these tools to expand in thefuture.
So what I want is just anincreasing diversity of

(59:23):
solutions.
Historically, there's been humanadvice.
That's been kind of the onlygame in town, but what I like
the idea of is a much widerspectrum of.
There's still human advice, butthere's also pure robo
solutions.
There's like hybrid digitalsolutions.
There's just different ways,all these different ways that
individuals can engage with with, you know, getting financial

(59:44):
advice and a future that coversa range of different topics.
I mean, when I first was inthis industry 20 years ago, you
know I worked for a companywhere stockbroker was synonymous
with financial advisor youwould use the terms
interchangeably.
Right, We've evolved, I think,as an industry where, you know,
financial advisors are providingmore holistic services, but I
know lots of advisors that onlydo investment managementools to

(01:00:06):
help them do things theywouldn't do otherwise, and so
what I just see Robo doing intheory is kind of creating this
much wider range ofpossibilities of services versus
what's existed traditionally.

Speaker 1 (01:00:24):
And how much of the whole financial planning process
do you think that can actuallybe automated, be automated?
Do you think all of it can beautomated?
Or, like, let's say, 80% andthe last 20%, which is the
actual client meeting where youpresent the solutions that will
always be more efficient whendone by humans.

Speaker 2 (01:00:46):
So here's the problem , if I can use the word problem
loosely.
You know what's 4 plus 4?
Date, right, like, that'sunambiguous, like, like that's
math.
Okay, you, you, you go to 10financial planners, you'll get
18 different financial plans,and so there's this massive

(01:01:06):
range of subjective outcomesthat exist in planning today,
right, and so I'm not suggestingthat there, that there can or
should be a single set ofstandards, but I have a hard
time thinking.
You couldn't, you know youcan't.
I'm sure that people havedeveloped, you know, you, you
can't develop tools that canconsume all the information,
provide guidance on what to doand then monitor an ongoing

(01:01:30):
basis.
And so you know, like, like,like.
There's a lot of subjectivitythat exists in financial
planning.
So I do believe it's going tobe possible to train models that
can do almost all of it at somepoint in time in the future.
Now, how you communicate thatto a client, how you get them to
stay invested, that stillrequires a lot of behavioral,
emotional connections, but I dobelieve that most of what needs

(01:01:55):
to get done can be done in anautomated fashion.
Now, at the super high end, forfolks that have five or 10
million bucks, I think that willbe difficult, but when I was an
advisor, a lot of people'ssituations are pretty standard
they have a 401k, they mighthave a taxable account and maybe
they need life insurance, andso I think there are going to be
relatively similar households,which are most households that

(01:02:18):
can have an entire plan doneeffectively via a robot.

Speaker 1 (01:02:24):
Yeah, I love how you said that there's an element of
subjectivity and, at the end ofthe day, retirement planning, as
investing in general, is almostas much as art as science,
right, like there's a bit ofboth, and I think that's a very
powerful, interesting idea.
So, maybe to wrap up theconversation, final thought here
about the future of retirementas an expert, if you had to

(01:02:47):
summarize in one sentence whatwill retirement look like in
2050, for example, what is yourboldest prediction?

Speaker 2 (01:02:58):
You know, it's just going to continue to evolve.
I think that again, maybe we'llstop calling it that Like
there'll be a new term we use todescribe this period of older
age, but it's going to be vastlydifferent for so many people.
It's really exciting.
I embrace the robos, I embracethe challenge.
I think it's a reallyinteresting, fun time to be

(01:03:22):
helping people figure this outWell.

Speaker 1 (01:03:26):
thank you for that, david.
For those of you that are notfollowing David on socials,
please do, but, most importantly, just Google his name and read
some of his research, becauseit's absolutely top-notch, very,
very interesting and insightful.
David, once again, thank youfor coming to the show.
I'm super excited to meet youin person in Chicago.

(01:03:46):
For those of you that are stillhesitating, please don't
hesitate anymore.
Buy your tickets, come to theCFA conference and come say hi,
because we're gonna have anabsolute blast.
And, david, um, thank you somuch for for your time and I
hope this year, uh, you keepdoing some amazing models, uh,
when it comes to financial model, and that you get published

(01:04:07):
quite a lot, true, thank you.
The written produced, hostedand edited by me, ignacio
Ramirez Everything you hearconcept, script, sound, design
and production come straightfrom my desk and, occasionally,
my kitchen table.
Thank you so much for listeningand join me in the next episode

(01:04:27):
of the Blunt Dollar for moreraw, honest finance
conversations.