October 2, 2024 • 57 mins
Ok, here us out: retirement is a topic that we talk about all the time here at How To Money, but simultaneously we probably don’t talk about it nearly enough! How is that possible you might ask? Well, we are oftentimes discussing retirement through the lens of investing – spending less and cutting costs so you can invest more… for retirement, maxing out your Roth IRA… for retirement! We’re typically approaching retirement from our personal perspective and it’s no surprise to anyone that we’re not actually retired. We still *think* we’re young bucks even though we’re arguably in mid-life, but because of that we might not cover the nuts and bolts that go into actually retiring, as often as maybe we should. We definitely don’t do it as well as Christine Benz which is just one of the reasons we’re pumped to have her join us today. Christine is a long-time contributor to Morningstar, the fantastic investment research site that we often reference here on the pod. Specifically, she’s the director of personal finance for Morningstar as well as author of the new book, “How to Retire: 20 lessons for a happy, successful, and wealthy retirement.” We get into Chrinstine’s investing shortcomings, how the Morningstar rating system has evolved over the years, how the definition of retirement is also evolving, the value of work, the impact of retirement on relationships, and more!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to How to Money. I'm Joel, I'm Matt, and
today we're talking about how to Retire with Christine Benz.
Speaker 2 (00:25):
Yeah. So retirement is a topic that we actually talk
about all the time here at How to Money, but simultaneously,
we probably don't talk about it nearly enough. And so
what do I mean by that, Well, we are oftentimes
discussing retirement through the lens of investing, right. We're talking
about spending less so that you can invest more for retirement.
We're talking about maxing out your roth IRA for retirement.
(00:47):
We're typically approaching retirement from our personal point of view.
And given that we are millennials, although geriatric millennials, we
honestly we might not cover the nuts and the bolts
in the particular that go into actually retiring maybe as
often as we should, and we definitely don't do it
as well as Christine Benz, who is a longtime contributor
(01:08):
to Morning Star. She's Christine is the director of Personal
Finance over there at Morning Star. She's the author of
the new book How to Retire. She's a personal finance nerd.
We're really excited to be talking with her. She's quoted
everywhere I mean literally all the publications she is oftentimes quoted.
She's even quoted in the Hottomuny newsletter or on the
Hotto Money podcast. Time of time, it's a Christine. We
(01:29):
are honored to have you join us today.
Speaker 3 (01:31):
Well, Matt and Jill, I am so honored to be here.
Thank you so much for having me on.
Speaker 1 (01:35):
Of course, of course we're so excited for this conversation.
But the first question I have to ask you is
what you like to splore John? Matt and I we
splore John Kraft beer. We've got a fancy IPA in
front of us.
Speaker 2 (01:44):
Right now, and join one now. Yeah.
Speaker 1 (01:46):
I mean, it's not worth talking about money if you
can't drink beer at the same time.
Speaker 2 (01:49):
So what is that for you?
Speaker 1 (01:50):
What do you like to splore John, Christine while you're
still doing the smart thing you're saving an investing for
your future.
Speaker 3 (01:56):
One of my favorite things is architecture. And I live
in a now one hundred year old prairie school home
that was designed by someone who worked for Frankloyd. Right wow,
so when I so cool and I love it. I
love architecture, residential architecture, especially so living in a home
that is kind of a piece of art is for
me a splurge. And it's also you know, to be honest,
(02:18):
when you're talking about house, is this old? They need stuff, right,
They need a lot of TLC. And so when we
moved in here now like more than fifteen years ago,
we hired an architect to help us kind of put
it back together to the way that it was when
it was originally designed. So put in a lot of
the original not original, but replicate a lot of the
(02:39):
original design features. So when I think of like something
that's been super expensive but has brought me a ton
of joy, it's just like researching all of this stuff,
learning about it, improving my own house, but also just
like it opens you up to the fact that there's
this living art all around you. So every time I
(02:59):
go to a city, I make a point if I
have time, of trying to at least do a drive
by on some of these places and then sitting outside
and lurking for a while and soaking in the architecture.
But anyway, that's a costly little hobby, but nonetheless one
that I just just really really enjoy. It's a rabbit
hole for me.
Speaker 2 (03:18):
It should be no surprise too, that you are a
fan of residential architecture, given the fact that you are
into personal finance. You're not drawn to corporate finance, You're not.
There's something that when it gets really tangible and something
that feels like I can live there. It's just practical
in such a way that makes life more interesting. And
obviously you do that incredibly well when it comes to
talking about personal finances.
Speaker 1 (03:39):
And by the way, Matt and I used to live
in like nineteen twenties bungalows and we miss we miss them,
and when we moved, we were like, we have to
live near old houses because they're just there's something special
about old houses. The architecture, Yeah, I never see it
never sits as well. I enjoy it all the time,
every time we walk by those beautiful old homes.
Speaker 3 (03:57):
Yeah, No, definitely. And the residential thing. One of the
reasons I love it so much is just that there's history,
that there's like personal history there. So I guess I
never linked it up to my career, but I do
love that aspect of it. Like you can read about
these families often. You know, if it's a big, big,
fancy house, there's some really dramatic story about oftentimes how
(04:17):
the family lost its fortune, but there's some historical drama
usually wrapped up in the beauty of the houses.
Speaker 2 (04:23):
Well, they're narratives that go along with the houses, and
it just makes it so much more interesting. And yeah,
I think we could go on for a while, but instead,
actually I would like to. It's maybe a weird place
to start our conversation with you, Christine, but let's start
by talking about your failings. Oh but now.
Speaker 1 (04:40):
Let's to turn our guests off at the very beginning.
Speaker 2 (04:42):
This is only because you wrote about this, you made
this public and a piece for Morning Star. But just
being honest about your imperfections, it's just so refreshing. I
think it can be a significant help, I think for
young investors in particular. But can you share some of
the mistakes that you share that you wrote about there
in that article.
Speaker 3 (04:58):
One certainly, if I think of like the biggest probably
thing that has cost my husband and me in terms
of our investing, it's that we for many years had
kind of this barbell thing in our portfolio where we
had a cash a bunch of cash, and then you know,
our long term portfolios were mainly invested in stocks and
(05:20):
cash of course, with yields up recently, that's you know,
not a big deal. But during this period where interest
rates were very very low and went lower, bond investors
are beneficiaries in an environment like that. They have to
settle for lower yields too, but they get you know,
the bonds prices improved during a period like that. Holding
(05:42):
all cash, you know, is a real loser in a
period with any inflation at all. So I see that
as kind of a bigger, you know, kind of an ongoing,
ongoing failing. I have trouble getting super excited about bonds,
even though I know I should have more more of
them as I age, but that's been something with some
(06:04):
opportunity cost. I would say, yeah.
Speaker 2 (06:08):
Well, you talk about though that there's a way though
that you can justify that because of the peace of
mind that it gives you. And I mean that's something
that we oftentimes will steer folks towards. Is hey, like,
what is it, like, what kind of strategy, what approach
is going to allow you to sleep better at night?
Speaker 3 (06:21):
Well exactly, And I do think that people sometimes underrate
those peace of mind allocations on the road to optimizing,
you know, they want to do everything that the textbooks
say they should do, but there is something to be
said for putting a little bit more weight on peace
of mind. And that's how the cash has always felt
for us. We had a close family member a couple
(06:43):
of years ago who was moving out of her home
and needed like the equivalent of a bridge loan, and
it was really nice to be able to help her
move into her new condo, just effectively buy it for her,
and she paid us back when she got the proceeds
of her of her home. But that was just such
(07:04):
a beautiful example of like doing something that helped someone
that we love, that knowing we have the funds to
do things like that gives us peace of mind. So yeah,
it's not something that you know, I lose too much sleepover,
but certainly, if I were to look at the Ledger,
having a more fully invested safe portfolio probably would have
(07:27):
been a better thing to do.
Speaker 2 (07:28):
That's cool.
Speaker 1 (07:28):
It is like that was like a life optimization route
instead of a purely portfolio optimization approach, And I think
I think there is a lot of merit to that.
I'm curious too, Christy, You've been writing about personal finance
for a long a long time. I would say Matt
and I since we started the podcast, our beliefs haven't
necessarily changed significantly over these years, since the since the
(07:49):
advent of How the Money, but I think in some
ways maybe some of the things that I believe have
become less entrenched. How have your personal finance views changed
over the course of your career?
Speaker 3 (07:59):
Well, interestingly, I started at morning Star as part of
our fund research team and then eventually headed up our
US fund research team. And so this is like the
nineties when I started in this job, and active funds
were the place to invest for the most part. Index
(08:20):
funds were sort of a niche category. ETFs weren't even
created yet at the time I started working on mutual funds.
So I certainly had a much more active portfolio than
I do today, with more active holdings. I still do
actually have some active holdings in my portfolio, but that
was a much bigger share of my portfolio, and I
(08:42):
think I devoted certainly more mental bandwidth to selecting active
managers and thinking about what they were doing than I
do today today. I mostly put all that in my
two hard pile, and I have been trying to focus
more on a minimalist low cost index based portfolio. But
that's been a major area of evolution, which really mirrors
(09:05):
the evolution of investors writ large over the past couple
of decades, where we've seen just this avalanche of flows
to index products away from active funds. People really see
the light on the virtue of keeping things simple. You
get a lot of diversification through core index funds at
(09:26):
obviously at very low cost. And it turns out that
all of our research on active versus index at morning
Star points to index funds being very very competitive, if
not more than competitive with active funds in many core categories.
Speaker 2 (09:44):
That's right. Well, while you're talking about active portfolios, one
of the things you read about one of the mistakes
that you said, do as I say, not as I do,
But I think this one's worth mentioning. Sounds like some
of my mom would tell me that. But you mentioned
just how you're overweighted with specific companies, in particular the
company that you work for, and so can I guess
(10:04):
just talk about that a little bit, because I think
there is a tendency for a lot of folks just
to continue doing whatever it is that they have been doing,
and oftentimes they can find themselves in a position where
they've they've got oh wow, either redundancy in their portfolio
or in your case, more eggs I guess are in
the same basket. That basket being your employer.
Speaker 3 (10:22):
Yeah, such a good point. And yeah, I think inertia
is the underrated behavioral tendency that many of us have,
where you know, you're busy, you don't spend that much
time managing your financial affairs, which I have to say
I don't really like, you know, maybe a couple hours,
(10:45):
eight hours at the most a year, I would say,
just not much at all, and that's mostly by design.
But then there are things that fall by the wayside,
like selling employer stock in a timely fashion. My husband
and I started to work with a financial plan and
are just on a couple of projects that we wanted
help with, one of which was this employer stock issue
(11:07):
where you know, at a certain point then it becomes
this big tax headache to unload a lot of employer
stock if it's done well, as my company stock has done.
So we wanted to work with her on, you know,
trying to get out of that position in a tax
efficient way, and she she just kind of looked at it,
and she was like, what is going on with this?
(11:28):
Like why have you know, how has this gotten to
be such a large position? And I would say the
answer is inertia. So it's been a work in progress.
I have been trying to sell on a regular schedule.
It's not that I, you know, am wedded to having
a lot of employer stock. I completely understand the thesis
(11:51):
that you shouldn't have a lot writing on your employer
stock because you you have a lot writing on your
employer and you know their their financial wherewithal your job
depends on it, so you don't want your portfolio depending
on it too. So been trying to lighten up a
little bit there, but it's it's a work in progress.
Speaker 1 (12:10):
You mentioned how like so morning Star, which you part
of what happens at morning Star is you rate funds right,
and so it's got yelp kind of vibes. But for investors,
which is yeah, can you talk about how the ratings
are determined? And oh you want to know how the sausages?
Speaker 2 (12:28):
May?
Speaker 1 (12:28):
I did, And I'm also curious to know about how
important because you mentioned the cost and I believe I
don't remember how many the years ago this was This
might have been like ten years ago or something that
morning Star released something saying, hey, guess what, the cost
of the fund matters more than the morning Star rating.
And I remember, like, wow, morning Star wrote that.
Speaker 2 (12:48):
I couldn't believe.
Speaker 1 (12:49):
It, but it was like incredibly honest and and deared
me even more to what you guys do. But can
you kind of can you talk about that for.
Speaker 2 (12:56):
A little bit.
Speaker 3 (12:56):
Yeah, it's a good question. And there are multiple rating
systems that we have, So the main one that people
know is the Star rating, which is a quantitative measure
that looks at how a given mutual fund or exchange
traded fund has balanced risk and return relative to other
funds that do sort of the same investment style. So
it's quantitative, it's backward looking. My colleague Jeff Battak, who
(13:22):
I've worked with on our podcast The long View, heads
up all the ratings, so they've made some tweaks to
give costs an even higher It's an even bigger component
of the rating system than it wasn't in the past.
But of course costs are very much part of returns
(13:44):
that you measure as well as the way that we
measure risk. So that's the Star rating, and then we
have another rating that may be a little less familiar,
but frankly, I think is kind of better if you're
trying to judge a funds measure, and that's called our
Metalist rating, and that's the one that is derived from
our analyst team, where they take into account expenses, have
(14:09):
a very heavy weighting. They look at a little bit
at past performance, but of course we know past performance
isn't especially predictive. They look at strategy, kind of the
stability if it's an active fund, the stability of the
management team, the quality of the fund management company. So
it's just it's much more holistic than the star rating.
(14:29):
So I would say for people who are trying to
do like quick and dirty due diligence, I would rather
that they look at those qualitative ratings because there's more
going on there under the hood than is the case
with the star rating, which is just a kind of
a backward looking snapshot. In fact, frankly, sometimes I shudder
a little bit when I'll meet someone who'll say, yeah,
(14:50):
I just allocated my four to one k, I went
all into five star funds, and I'm kind of like, yikes,
I hope you did more than that, and I think
that the analyst ratings are a really good counterpoint.
Speaker 1 (15:04):
So you don't want that to be the only metric.
Just the star rating that can be a helpful guide,
but go deeper.
Speaker 3 (15:09):
Than that exactly, and you know, sometimes it can even
be a little bit of a contrarian signal. I would
think that the star rating can be because it is
just backward looking. You're going to have times where a
fund has perhaps been taking a lot of risk relative
to its category piers. So for an example, would be
some sort of a core fund that has completely been
(15:31):
loading the boat with Nvidia and the other you know,
magnificent seven companies that would certainly be at the top
of its peer group in the very recent past. But
sometimes that's actually an indication that there's risk going on,
you know, when the fund has absolutely killed its peers.
So my hope is that people would do a little
(15:52):
bit more due diligence before selecting funds and putting money
in them.
Speaker 2 (15:56):
So, as you talk about due diligence, this makes me think,
I mean, we were just talking about bogo Heads conference
before we hit record, and do you think for the
vast majority of folks listening or folks, or maybe who
are just getting into investing, for first time investors, that
they could potentially look to something as simple as a
total stock market index fund, something as simple as what
(16:17):
warm Buffett might say, where he's just like, hey, if
I were to pass, I want I forget ninety was
that Susan his wife? I figure which one but all
of her holdings should just be moved over to the
S and P five hundred. How I guess what I'm
asking here is how much would you recommend for different
types of investors to kind of dive into the wheeze
and to figure out and look at the ratings and
look at the cost and look at past performance as
(16:39):
they're trying to determine what they should invest in.
Speaker 3 (16:43):
The simple solutions are in many cases some of the
best solutions. So certainly the total total market index is
a great place to start. My bias would be a
little bit more toward like a total global like a
total world stock index, especially given how well the US
has done relative to non US. I'd rather see investors
(17:06):
just starting out who want an all in one equity
fund go go global. In my opinion, it's a global
world that we're living in. And you know, we do
see periods of reversion where trends that have been really
pronounced reversed themselves. So global. I also love target date funds,
and it's so interesting to me how in the asset
(17:27):
management industry, especially among advisors who are selling more complicated solutions,
they love to hate on target date funds. And I'm like,
we do this research where we look at dollar weighted
returns effectively, you know, sort of marrying the timing of
investors purchases and sales with the returns that they're actually
(17:50):
able to earn, and target date funds have been some
of the most effective vehicles from that standpoint. So when
people buy target date funds, they're often dollar cost averaging
into them through their four oh one K plan and
then they just kind of keep making those contributions. They
don't pan excel and it may be that they're just
investing in the context of a retirement plan, so they're
(18:12):
not super hands on, but it may be something to
the fact that you have multiple asset classes bundled together,
you can truly be hands off. But it's a very
benevolent picture that we see in terms of actual investor
outcomes that investors tend to capture most of their target
funds returns. It truly is, in my view, something that
(18:35):
you could be quite hands off with. And when we
look at a lot of people saving for retirement, they're busy,
they have other things going on. I love the idea
of a one stop solution that they could wake up
when they're fifty three and be like, oh, you know,
behind the scenes, this has been gaining ground and then
also de risking itself a little bit, which I might
(18:57):
not have thought to do, been too busy to do.
Speaker 1 (19:01):
So I love that is some of that hating inside
of the industry is that because target date funds are
a threat to some of the people inside of the industry.
I mean, like you said, it's incredibly simple and in
the case at least a Vanguard Fidelity Schwab, incredibly low
cost if you pick the right target date fund. So
is in one of those things where target date funds
(19:21):
are are really hitting the nail on the head for
the average person, making it super simple. But then that
means they don't need the help of an expensive CFP
or something like that.
Speaker 3 (19:30):
Yeah, absolutely, I think that's part of it. I think
for many years you had investment advisors, financial financial advisors
who styled themselves as investment pickers. You know that they
really added value with you know, very fancy complicated asset
(19:51):
allocation strategies or selecting you know, specific funds or individual
stocks or whatever. And it's definitely a threat to them
the idea that you'd have this low cost, all in
one product. So whenever I see someone making disparagement, disparaging
remarks about target date funds, I always sort of look
(20:12):
for what the motive might be, because.
Speaker 2 (20:17):
I think what maybe what you put your finger on. Joel,
was the first pushback against AI or the algorithm, like
right now we've got the doc workers. It was the
actors last year pushing back against against that. The OG
pushback against algorithms and AI were fund advisors as saying, well, no,
you can't eliminate us. We are necessary. But Christine, so
(20:38):
far we've kind of been talking about investing and I
guess personal plans generally speaking, but we really do want
to I guess, dive more into the weeds of retirement,
and we'll get to that more. Right after this. We're
back in the break.
Speaker 1 (20:55):
We're still talking with Christine Benz talking about how to retire.
And let's actually kind of get into that. The book,
the new book that Christine just put out is called
How to Retire, And Christine, first off, I kind of
want to start off like a thousand foot level here.
It feels like our general societal perception of retirement is changing.
Like the way we viewed retirement fifty years ago was
(21:17):
one thing, and now part of it's the fire movement. Right,
there's like a million things that have gotten No pensions
don't really exist for the average person anymore. Do you
agree that how we think about retirement is changing?
Speaker 2 (21:28):
And how so? How would you define retirement? Yeah?
Speaker 3 (21:31):
Well, absolutely so. Do you put your finger on what
has been the seminole shift in funding retirement over the
past several decades, which is that most workers will retire
without the benefit of a defined benefit plan a pension plan.
That's a change from fifty years ago, and so the
onus has been increasingly put on individuals to fund retirement
(21:56):
for themselves. They'll have social Security, but to the extent
that they want income beyond what they'll get from social Security,
it's on them. And unfortunately, you know, when you look
at the data, you see that a lot of workers
have not really been able to do that. I'm always
struck by the reports that look at four one K
(22:16):
balances and so you see the averages and sometimes they
get reported out and they look kind of encouraging, and
then you look at the so you see the average
balances for one case, then you look at the medians
and it's like, WHOA. So wealthier people who have been
able to save and aggressively they're doing just fine. But
(22:36):
you've got a lot of people who have not saved
for retirement, and so they're not that you know, they
haven't taken part in the stock market's recent gains. It's
just it's just been difficult for them. And I often
think back to this something Jason Swig said on a
TV show that we're both on, where he said, it's
(22:57):
like the pension system was like people were on a bus.
They're all getting to their destination. When they get there,
they can file off in an orderly fashion. With the
system that we have today with four one K plans,
it's like you've got all these drivers on the road.
Some of them don't have licenses, some of them don't
know where they're going, and so of course it's chaos.
(23:20):
And there have been some improvements in the system to
make a little easier for people who aren't steeped in
investing matters to make smart decisions like automatic enrollment like
target date funds. But that's been one of the huge changes.
And then sort of a happier change I would say
is that people are beginning to kind of rethink what
(23:42):
retirement is. Increasingly people are working longer. When you look
at the data on that, though, you see that the
ability to work longer does disproportionately accrew to higher income,
more highly educated people versus the broad population. So wealthier,
(24:04):
more educated people are healthier, and they're able to work longer,
and they probably need to work less, but they're able
to work longer. But that's sort It.
Speaker 1 (24:13):
Might be working from a laptop more too, which makes
it a little easier to extend your career.
Speaker 3 (24:16):
Lifetime exactly exactly the knowledge type worker, where you're able
to work from a laptop, you're able to work from
different locations. It just affords you a ton more flexibility
and a lot more ability to kind of balance quality
of life considerations. So that's a huge dimension of it.
(24:37):
But overall, I would say that's a happy trend in
retirement that I think people are in some cases retiring earlier,
but they're continuing to kind of stay in the game,
and it turns out that's really good for us. Laura
Carstensen in the book, she's a researcher at Stanford, and
I just love the conversation that we had. But she
(24:57):
said the way she said work is good for us,
the way we work in this country is all wrong.
That we work too hard. You get people coming into
retirement they're so burned out that all they feel like
doing is watching TV, you know, because they're just like,
you know, exhausted, and that's not good. So I do
(25:18):
think we need to rethink retirement. I've been thrilled to
see the fire movement, but I would like to see
even older adults who are still working explore opportunities to
kind of stay engaged with whatever they liked about their
work and potentially do some of that stuff a little longer.
Speaker 2 (25:37):
Yeah. I was having a discussion with some friends recently
and we kind of got onto the topic of talking
about work and what the sort of paradigm that kind
of came up that somebody presented was like, well, there's
a difference between taking more of a I get to
work like I get to continue to work sort of
attitude versus I have to continue working. And I almost
I kind of feel like it's a false dichotomy. I
(25:58):
almost think that you could continue to do the same
sort of work, but it's more of a psychological shift
because I think essentially the same work can be done.
And if you feel like that this is something that
you have to do, well, yeah, you're going to operate
maybe from a more underprivileged position, but if you think
about it sort of like you're saying that this is
something that is good for you, this is something that
I get to do. Nothing has changed on the surface
(26:20):
at all, but everything has changed under their surface, like
on the heart level. What are your thoughts on totally?
Speaker 3 (26:26):
Totally. Michael Finka made the point in the book that
he said, if I told you you had to go
out onto a field and chase a little white ball
around with a stick.
Speaker 2 (26:35):
All day, kind of sounds like work, don't it.
Speaker 3 (26:39):
So the whole mindset approaching working longer is something that
you embrace doing because it turns out that it gets
you out of the house, it gets you engaged with people.
If you're lucky. It gives you a sense of purpose.
All of that stuff is really good for you. And
if you're kind of choosing to do it, maybe you're
(27:00):
altering your hours a little bit. That's I think, really
really empowering.
Speaker 2 (27:05):
Yeah.
Speaker 1 (27:05):
So in the first chapter of the book, you talk
about visualizing your life in retirement and a lot of
our listeners, let's say the average listeners in their thirties,
why is that crucial to retiring well? And how should
people who are maybe kind of more on the front
end of saving and investing and even like conceptualizing their
own retirement. Why is visualizing what life is going to
(27:28):
be like thirty years down the road. Why is that important?
Speaker 3 (27:30):
Well, I think it's important on a number of levels.
One of them one of the reasons is that it's
as you approach retirement, thinking about what you want to
do helps inform some of the choices you make in
the years leading up to retirement. So again, Michael Finka
talked about visualizing your in retirement lifestyle and the example
he gave from his own life is that he really
(27:52):
loves to hike. He likes to do some pretty strenuous hikes,
and he wants to keep doing that in retirement, and
so you know, coming into his fifties, being in his fifties,
he wants to maintain implement healthy habits that will allow
him to pursue that hobby for longer in retirement. So
(28:13):
we all have different things that we love that we
want to do. You know, we want to take advantage
of our free time in retirement to do more of
that thing. Well, you may have to put in place
some habits and other structures to help ensure that you
can actually do those things. And then Michael makes the
excellent point that you know a lot of people do
(28:34):
come into retirement with sort of pent up demand for
relaxation activities, but you need kind of the counterbalance for that,
and it doesn't have to be paid work at all,
but just something to give you a sense of purpose
to get you up in the day. And his point
is that it's all about balance, right, that you might
(28:55):
have some leisure activities that you really love, but they're
all the better if you've accomplished something, and we all
have that on certain days where you know, the leisure
at the end of the day is so much better
if you've accomplished several things on your checklist for the day,
or if you come into vacation having had a really
grinding work schedule, that vacation feels so well earned and
(29:18):
you just enjoy it more. That's kind of his point
that you need to bring that mindset into retirement. You
need to relax from something. So that gets back to
this idea of having purpose. For some people that might
be work, but it might be you know, volunteer work,
community service, whatever, have some things that give you a
sense of purpose.
Speaker 2 (29:38):
I love that. Yes, striving after that balance I think
is so important. It's something that I think we're like
as young folks. You're we're not that young, I can,
I know, but like as what's upon a time young person, Yeah,
I think maybe. I guess it's just the inability to
connect with the desires of us when we are going
to be older. And I underestimated my desire to continue
to be fruitful and want to continue to do something
(30:00):
that provides that value. But one of the things that
struck me in your book was a lot of the
folks that you talk to, they spend a surprising amount
of time talking about how retirement impacts their different relationships
and so how should we jew should we think about that?
And I think working longer not only can that probably
help out, like you discussed in providing not only more
money and not only more purpose in life, but also
(30:23):
more fulfilling relationships too.
Speaker 3 (30:24):
Right, Definitely, I loved that so many of the people
touched on relationships because you know, we have so much
data on human happiness and what makes people feel like
they've had a successful life, and it all comes back
to relationships. Who loves you, who you love, feeling loved it.
It's I mean, it sounds cheesy, but it's everything right.
(30:46):
And we discussed how relationships change a little bit as
we age, and this is speaking of sort of traditional
aged retirees. The data on older adults and relationship is
what we see is that the relationship networks tend to
winnow down a little bit, that people have fewer friends.
(31:07):
And some of that is for sad reasons that maybe
people have died or moved away or whatever the case
might be, but some of it it's actually self selected.
And Laura Carsonsen at Carstensen at Stanford talked about this
that people self select into smaller friendship networks as they age,
(31:27):
that they may cast off some people that I think
she calls them peripheral others. And an example would be
like your your kids friends' parents, who might have been
perfectly fine people to hang out with at the soccer
game or after the soccer game, but you decide at
the end of the day, they're not, you know, my
closest friends. And so people tend to become closer to
(31:52):
the people who really get them, the people who you know,
when you walk away from that meeting with that person,
you're kind of why on air because you feel so understood,
you feel like you totally get them. That's what people
tend to self select into smaller relationship networks. But and
her point is that that's just fine. But her counterpoint
(32:13):
is you should also be kind of, you know, diversifying
your friend network as you age that you don't want
to end up with a lot of same aged friends,
you should put yourself in a situation where you are
meeting people of different ages in an effort to kind
of diversify that friends network.
Speaker 1 (32:31):
That's I feel like that's a societal something we've like
it's a reality of our current society, the way it's
set up. So much of the time as we are
hanging out with peer groups and we're not hanging out
with people of different age groups, And do you think
there's a lot, a lot of downside to that? On
multiple levels. I kind of love that my next door
neighbor is ninety nine and like that just when the
kids hang out with her or when we see her
(32:51):
out walking to the mailbox, like there's something really special
about that relationship. On the sad side of relationships, you
mentioned that too, you talk about how divorce impacts retirement considerations,
because that is from a money perspective and from a
relational perspective that can have really detrimental effects.
Speaker 3 (33:09):
Definitely, divorce is a financial killer, gene Chatsky often a
financial killer, I should say. Gen Chatsky talked about women
and aging and retirement in the chapter I did with
her and divorced women. Single women are among the least
well off retired people in our society, So there's definitely
(33:33):
a financial dimension. But loneliness is also a component of
this as well. That people who are not saying all
divorced people are lonely. That's certainly not the case.
Speaker 2 (33:45):
But.
Speaker 3 (33:46):
People who have a partner have someone looking out for
them oftentimes do have that kind of built in companionship,
which it turns out is pretty good for us. Interestingly,
married men tend to be happy kind of regardless of
whether they're happy in their marital relationship, whereas women who
(34:08):
are married are only happy if they're also happy in
their marital relationship. If that makes sense. It seems like if.
Speaker 2 (34:15):
Men still have football or something.
Speaker 3 (34:17):
I don't know, men are apparently better able to compartmentalize.
I think is the point that if their marriage isn't happy,
they're able to say they're still happy. But women kind
of have their marriages and their feelings about their marriage
is more intertwined with their happiness.
Speaker 2 (34:32):
It makes sense. I guess I have not really thought
about that before, but I feel like something I'm going
to continue to chew on. Christine. Earlier, you touched on
social security, so it's clear that to a certain extent
we should be counting on that. But how should your health,
how should your age impact when retirees or potential retirees
should opt to take their Social Security benefit.
Speaker 3 (34:55):
It's a good question. So certainly, if you feel like
you have some reason to believe you'll have a shorter
than average life expectancy, that gives more weight on the
idea of claiming earlier rather than waiting until later. But
people who are of average health or better, you know,
people who have longevity on their side, should think about
(35:16):
delayed filing. And the main benefit is that social Security,
of course, is a lifetime benefit. Most of us have
no other benefits that are coming in the door that
will last our whole lives. Our portfolios certainly won't unless
we take pains to make sure that they don't, but
social Security will just keep on coming. And so that
is the value of trying to enlarge that eventual benefit,
(35:41):
because if you think you'll have average life expectancy or
longer than life longer than average life expectancy, that benefit
will continue throughout your lifetime. And then whether you're married
or unmarried also figures in. Single people often should delay
social Security, but so should married people. When if you
(36:04):
have a partner who is younger than you and that
partner is going to be reliant on your benefit after
you pass away. That suggests that if the goal is
to help enlarge the total couples lifetime benefits, that delaying
really benefits in that situation as well. So sometimes someone
might say, oh, I'm not in great health, but if
(36:27):
they have a younger partner, it still might make sense
for the older, less healthy partner to delay.
Speaker 1 (36:35):
The nice thing about social security is that it's a
known quantity, right, and once you get to the point
where you're ready to tap it, you know how much
money is coming in on a monthly basis. The tough
part about your portfolio is you never know what's going
to happen with the stock market in a given year,
and if you experience a down year or two in
a row, when you reach retirement, you might not know
(36:56):
exactly how much you can take out, or you might
be two ten to start actually selling some of those positions.
Annuities are one of those things that people purport as
like a solution to that problem. And I feel like
we're seeing kind of a resurgence and annuities right now,
but a lot of the annuities are incredibly fee laden.
How do you think about the role of annuities, what
(37:17):
the role they should play in a person's retirement.
Speaker 3 (37:20):
Yeah, First, I would say that social security is a
type of annuity. We don't really think of it that
way or talk of it in that way, but it
is exactly that, right, It's a lifetime income disbursement. It's
the most beautiful type of annuity. You can't find one
like this on the open market where you have an
inflation adjustment that actually goes along with what's going on
(37:43):
with CPI. So that's another reason why I would say
check out enlarging your Social Security benefits before you even
consider looking at any type of annuity, because Social Security
is better than anything that's out there from insurance companies.
Art there, see how far it gets you, and that
one concept I like to keep in mind in relation
(38:05):
to this type of income is look at your fixed
income or you're fixed spending as closely as you can.
Try to kind of map it out for say the
first ten years of your retirement at least, so look
at your housing costs, your tax costs, insurance and so on,
and ideally you would try to align those outlays with
(38:29):
your fixed income sources like what you would get from
Social Security, and maybe social Security you'll get you all
the way there. If you say, have say a paid
off home, and you're not spending a lot, but if
you find that there's a little bit of a shortfall,
that's potentially a good place to investigate an annuity to
help meet those spending demands, and that way you just
(38:53):
have to worry a lot less about your portfolio, about
making sure your portfolio lasts a lot of research from
our team and other entities who has looked at portfolio
spending has found that if you can be variable with
that spending based on what's going on with your portfolio's performance,
that that helps you spend more over your lifetime. But
(39:15):
I think you're in a better position to withstand variable
spending from your portfolio if you've taken steps to enlarge
the lifetime income stream that you get from Social Security
and or an annuity. So that's kind of the way
I look about look on it when I think about
my own retirement plans, which I'm not planning to retire
(39:36):
anytime soon. I just think it's a really elegant way
to address household cash flows. So that plan, that's how
I plan to approach it for us.
Speaker 2 (39:47):
In chapter eleven, the individual who's highlighted there is you, Christine.
You actually discuss bucket strategies and so can you explain
what tho aw? I can explain why you are so
fond of that approach.
Speaker 3 (39:58):
Yeah, I was talking to Al Davinski, who was a
professor of financial planning and had his own financial planning practice.
It's still up and running, but he's largely retired about
how he managed his retired client's portfolios, and he said
that he just bolts on this cash bucket alongside a
long term total return portfolio. And his point to me,
(40:21):
which a light bulb went off in my head, because
he said, I find that it really gives my client's
peace of mind with the long term portfolio that I'm
managing for them. They don't second guess the decisions that
I'm making. They know that they have their cash flow
needs set aside. And so I think his thought was
to have maybe one to two years worth of portfolio
(40:43):
withdrawals just set aside in cash at all times throughout retirement.
And so I've kind of taken that concept and run
with it because I think it's a it seems to
work from a behavioral standpoint, and B I think it
helps get people to a sane place in terms of
what is an appropriate acid allocation giving given my proximity
(41:06):
to needing the money. So I think of kind of
a simple three bucket structure where you've got maybe two
years worth of portfolio withdrawals in cash. So if you're
taking like four percent of your portfolio, that's eight percent
of your total portfolio with those two years, and then
maybe another five to eight years in sort of a
(41:26):
high quality bond portfolio, maybe short and intermediate term bonds,
maybe a little bit of treasury inflation protected securities, and
then the remainder of the portfolio could go into a
globally diversified stock portfolio. But I think it's a nice
way to kind of back into a sensible acid allocation.
Acid allocation, to me, oftentimes seems really black boxy, and
(41:50):
really the I think a key way to inform it
is to think of the proximity of needing your money,
and you know what sorts of investments stand up to
that time horizon that I have in mind. So we
know that stocks, if you have a really long time
horizon of more than ten years, they're extraordinarily reliable. You know,
(42:13):
like more than ninety percent of rolling ten year periods
they're positive. But if you shrink that time horizon too
three years or five years, they're too risky. They're too
variable if you're spending horizon is so short, and that's
kind of the basic intuition behind how much you would
decide to drop into each of those buckets.
Speaker 1 (42:34):
Yeah, it seems like not having enough cash at that
point when you're reaching retirement could be incredibly anxiety inducing.
And yeah it stinks to look and say, oh, man,
look the market's been crushing it, but I've been overweight cash.
But think about the if the opposite were true, you know,
and you'd be so thankful that you had as much
set assigning cash as you did as if the market was,
(42:56):
you know, on a downtrend. We've got a few more
questions we want to get to you with you, Christine,
including you know, one of the old adages in retirement
advice is pay off your mortgage. Does that still stand?
Is that still true? We'll talk about that and more
right after this.
Speaker 2 (43:18):
All right, we are back from the break talking with
Christine Ben's of Morning Star. You've probably seen her byline,
her author title there, and some of the articles we
oftentimes will reference. But Christine, before the break, Joel mentioned
the mortgage. So let's talk about housing because that is
a it's a big old expense or it can be
a big old asset, depending on where you are in life.
(43:38):
What do you think about paying off a mortgage, because
certainly getting aggressive paying down a mortgage rearly that makes
less sense if you know, let's say you've got a
sub three percent mortgage. Let's say you've got two point
seventy five mortgage these days, Ye, that's not something you
should likely be prioritizing. But talk about housing. What it
looks like to have a payoff house and should you
see that as a bucket You know, we're talking about
(43:59):
your bucket system there earlier, but talk about housing here
for a second.
Speaker 3 (44:02):
Yeah, it's such an important question, and I think one
that really bears down on a lot of people as
they kind of hurtle toward retirement. It's kind of a
moving target in terms of whether to pay off a
mortgage in my view. So when my husband and I
paid off our mortgage, which was probably like ten ten
years ago or so, we had a two point eight
(44:23):
seventy five percent mortgage, and I remember my husband was
so proud of it because he had like at the
time and now, of course mortgages have gone lower, but
at the time it was very low mortgage. But simultaneously
we did have the fun sitting in our vanguard account
from you know, bonuses or whatever earning like, and Vanguard
(44:44):
pays pays well on its money market accounts, but it
was still earning well less than that mortgage rate. So
to us, you know, knowing that we didn't have any
imminent need for those for the cash, we we did
pay off the mortgage. But right now you point to
something that I think is pretty stark. Where we've seen
(45:05):
yields go up really nicely on savings instruments. They've maybe
come down a little bit as interest rates appear to
be going down, but they have generally gone up nicely.
And many people are here with very very low mortgages,
in which case it probably makes sense to hang on
to the mortgage. And that's especially true because you know,
(45:28):
you probably do have other things that you could use
your funds for. And yeah, the math just doesn't add
up in terms of prepaying the mortgage to get rid
of it, even though that does provide some peace of mind.
But again, peace of mind is part of this too.
If you really do want to try to reduce your
(45:49):
fixed spending coming into retirement, it's hard to argue with
a mortgage paydown. And the other thing I would say
is that you know, it's usually like pretty financially well
people who are grappling with this decision. There's probably no
like super wrong decision. Could you optimize it a little
bit more by hanging on to the mortgage and investing
(46:10):
in safe securities? Yeah, but you know, it's it's probably
going to be fine in either instance. The thing that
I often take that that I dispute is just when
people say, well, you can earn more investing in the market,
and then you can you know, paying down your it
(46:30):
helps you more to invest in the market. And my
point there is, well, yes, but you're totally comparing apples
and oranges, because the mortgage paydown is kind of a
guaranteed return on investment equivalent to your to your interest rate,
less any tax breaks that you were getting to carry
that mortgage, whereas, of course, you know, investing in stocks
(46:52):
is way more variable. Your long term returns may be better,
but it's it's by no means guaranteed.
Speaker 1 (46:59):
The savings mortgage comparison makes more sense, the investing mortgage
comparison makes less sense.
Speaker 2 (47:04):
A quick follow up too, what about folks who are
sitting on that paid off home, perhaps or even not
even fully paid off, but you know, they've got a
whole lot of equity there in that home, and they
are nearing retirement, they are looking at their fixed income sources.
They're not seeing enough to sustain their lifestyle. What are
your thoughts on reverse mortgages We.
Speaker 3 (47:21):
Talked about them in the book. I happen to think
that they have been underutilized, And of course there are good,
good reasons in many cases why they've been underutilized, because
some reverse mortgages in the past especially were very high cost.
But I think it's a shame if older adults really
do short shrift their own qualities of life when they're
(47:43):
sitting on a lot of housing wealth. And this is
particularly true, you know when say California, other really high
cost parts of the country, where you have people who
have been in their homes for many, many years and
a lot of their wealth is in the house, they
should look at an opportunity to liquefy that wealth in
(48:05):
some way, either by you know, moving somewhere else, or
if they want to stay put because it's their community
and that's where their family is and so on, they
should think about tapping that equity through some sort of
reverse mortgage.
Speaker 2 (48:21):
Do you think it's more of like an emotional hurdle
or roadblock that keeps folks from doing that, because like
their entire life, this is something that they've been You've
been doing the opposite, but then all of a sudden
you're somehow supposed to flip the switch.
Speaker 3 (48:31):
Absolutely, and a lot of it is that people do
want to pass that asset to their kids. They like
the idea of that. You know, they subsist off the
investment portfolio, but the home is the asset that our
kids will inherit. I think if many people were to
ask their kids, their kids would probably say, well, I'd
probably rather inherit investment assets from.
Speaker 2 (48:52):
You than take the money. I'll take the cash.
Speaker 3 (48:56):
So yeah, there's a lot tied up in all of this.
And of course reverse mortgages didn't do themselves any favor
for a while. It was just a little bit of
a wild West, and many of the products were pretty
crummy and bad for consumers, so they have a bad
name in a lot of consumers' minds.
Speaker 1 (49:14):
Yeah, talk to us about the four percent rule for
just a second, Christine, because that's like one of those
what seems like an iron law of retirement is Oh,
if I just take out four percent of my portfolio
each year, every year, then I'll never run out of
out of assets across the course of my whole retirement.
So that's nice to know. But then you hear the
(49:36):
Dave Ramsey of this world say, oh, no, no, you can
take out eight percent, And then other people are saying, no, no,
you need to be even more conservative, and we're talking
closer to three percent, and we're talking about like significant
differences and what people can pull out from their retirement
assets every single year. If we're in a big, big
enough window between three and eight percent, right, that's gonna
(49:56):
have a significant impact on the way they're able to
live and what their retirement years look like. So conservative
or liberal, like, what are your thoughts on the four
percent rule and how people should think about that?
Speaker 3 (50:07):
William Bengen came up with a four percent rule. I
sometimes call it a guideline. I do think it's a
great starting point for thinking about this. So for people
who are say fifty, and looking at their portfolio and
trying to figure out if they have enough, it's a
great quick and dirty starting point. But I do think
that it's probably kind of a straw man at the
(50:30):
end of the day, because it assumes that someone wants
kind of like a fixed paycheck in retirement, that they're
just going to spend the same amount rotely throughout this
twenty five or thirty year period or whatever it is.
When we look at the data on how older adults spend,
it's not how they spend. That spending actually does tend
to decline through a lot of the retirement life cycle,
(50:54):
and then it flares up for some older adults later
in life. So it just doesn't pass the snow tests
from the standpoint of how people actually live and spend
in retirement. So there's that dimension, and then another issue
is that it's just really suboptimal to spend the same
amount year after year without wavering. I was talking to
(51:16):
John Geiton, and I talked to him in the book
about this, where he said, you know, kind of a
four percent guideline is equivalent to your setting out on
a road trip and you're saying that I'm in a
car with no mirrors, no brakes, no windshield wipers, And
if I asked you what speed limit you'd want to
go at, well, you'd say, you know, I don't know
(51:38):
ten miles an hour. You know, you would want to
take it really, really slow. That's kind of what the
four percent guideline is. It's built for kind of a
worst case scenario where you're never making changes. But guess
what as a retirement, As a retiree, you actually do
have the ability to make changes. You have the ability
to take withdrawals down in a year like twenty twenty
(52:01):
two when stocks and bonds both fell and it turns
out that's good for your portfolio. And you also have
an ability to give yourself raises if things work out
better than kind of the worst case scenario that's built
into the four percent guideline. So I like the idea
of people being somewhat flexible. Which specific flexible system they
(52:23):
use kind of depends on what they're trying to achieve,
but ideally, if they've done their homework to line up,
they're fixed spending with fixed sources of income like social Security,
that gives them more ability to be flexible with their
eventual portfolio withdrawals.
Speaker 2 (52:40):
Yeah, I gotta be adaptable. That makes sense too. Like
you said, as far as that spending in retirement, there's
only so many times that you can go to Munich
in Paris, Like right, Like, I'm not going to keep
doing this every single year, guys, I'm going to switch
it up. I'm go go chase the white ball with
a stick perhaps, which I don't know. Is that actually
more affordable than than European vacation?
Speaker 3 (52:58):
Maybe not?
Speaker 2 (52:59):
Yeah, they're not. We really appreciate you taking the time
to talk with us about your new book, How to Retire.
Where can folks find that and learn more about you
and what you're up to.
Speaker 3 (53:07):
They can find the book at any place where they
would normally buy books, Amazon or local bookseller if you've
still got one. In terms of what I work on,
I'm on Morningstar dot com all the time doing videos
and articles. I also work on a podcast of my own.
It's called The Longview, which is an interview format podcast.
And yeah, it's been It's been really fun to talk
(53:29):
to you guys. I appreciate it.
Speaker 2 (53:31):
Awesome.
Speaker 1 (53:31):
We've enjoyed it too, Christine. Thank you for joining us today.
Thank you all righty Matt that that was a great combo.
I do think that if you were going to come
up with like a mount rushmore of personal finance folks,
Christine Benz would be in high consideration to be. Oh, yeah,
she's she's been around a long time to an amazing
work and it was just such a joy to get
to talk to her today. No, she yeah, she's fantastic.
She's been doing this for so long now. She's an
(53:52):
og personal finance money nerd and certainly glad we got.
Speaker 2 (53:55):
To talk with her today. But was your big takeaway
from our conversation about retirement?
Speaker 1 (53:59):
So this is something we brought up briefly, but it's
always something that's fascinating with me. I just appreciate morning
stars honesty and one of the things she highlighted that
they've changed the scoring over time of their Star system
and the way that they rate funds to incorporate costs
even more they costs they weighed heavier that how expensive
your fund is or inexpensive, it is matters so much
(54:20):
in the overall performance of your investment portfolio. And so
I just appreciate that transparency from Christina from morning Star,
and I think for all how to money listeners, it
means going back, what are the funds you're investing in?
Are they with some of our low cost favorites? Are
you getting the bargain basement rates which thanks to Jack
bocl Like, we have access to incredibly diversified funds that
(54:42):
cost next to nothing at a bunch of these low
cost investment houses. But if you don't pay attention to
that one thing, you'll be shocked if you run the
numbers and how much you might be missing out on
ultimately in retirement funds. So pay attention to those costs. Yeah,
the fund ratings are cool. I appreciate that they do that,
but the cost is likely even more important.
Speaker 2 (55:02):
It's a large ingredient that goes into that rating because
the yeah, the performance of those different funds that varies
year to year, but that expense ratio, that thing is
fixed and so you're paying that no matter what. Well,
my big takeaway is going to be when we're talking
about work and retirement overall. And she said, I can't
remember which guest it was that shared this lesson with her,
but she pointed out how work is good, but how
(55:23):
it is that we work is bad, and she's talking
about burnout, and I think the ability for us to
find ways to scale back the intensity of the work
and maybe not. I don't even want to say that
because it makes it sound like, Okay, yeah, you have
the luxury to be able to work less. I'm not
even talking about working less, but finding ways to incorporate
some of the healthier aspects some of the other factors
(55:43):
of life that make life sustainable. Does that make sense? So,
like the ability to prioritize getting enough sleep, some exercise, relationships,
your mental health, Like all of these other aspects are
that are so important that oftentimes get short changed because
we have elevated work on this pedestal.
Speaker 1 (56:01):
Yeah, you might not feel the need to bail out
of work quite as early. You might not be like, oh,
sixty two, I can't make it past that point. You
might find that you have more years available and actually
more energy to dedicate torture work. If you don't have,
you've taken care of your antagonistic of a relationship towards
in the here and now.
Speaker 2 (56:16):
So totally all right. You and I enjoyed a Strangest
of Places, which is a beer by a Pure project.
This was a collab with great Notion.
Speaker 1 (56:24):
Yeah, well your thoughts, Well, I like that they call
it a murky India opinions instead of a hazy Yeah,
so you got to come up with a different terminology.
So I do appreciate that. One of my buddies in
California was saying, oh, pure project, you got to try
some of their stuff. So I saw it on the
shelf when I was out there. I picked this one up.
I really enjoyed it. I thought it was kind of lush.
It had like some lemony characteristics. So this was an
(56:45):
IPA that I gotta say, said, totally have one can.
Speaker 2 (56:47):
Of I'm glad you picked it up. It wasn't my favorite, okay.
It's something about it, like almost taste it a little
old to me, like it really it was kind of
flat like it. Maybe that's what you call lush.
Speaker 1 (56:56):
Perhaps this was can just a couple of months ago,
so let's didn't be that old, okay.
Speaker 2 (56:59):
So we all have our different favorites. This one was.
It was tasty. Glad we got to enjoy it, but
it wasn't my absolute favorite, but still glad I got
to share this one with you, buddy. Can't win them all,
can't win them all. Yeah, that's gonna be it for
this episode. You can find our show notes up on
the website at howtomoney dot com. And so until next time,
best Friends Out, Best Friends Out,
Welcome to How to Money. I'm Joel, I'm Matt, and
today we're talking about how to Retire with Christine Benz.
Speaker 2 (00:25):
Yeah. So retirement is a topic that we actually talk
about all the time here at How to Money, but simultaneously,
we probably don't talk about it nearly enough. And so
what do I mean by that, Well, we are oftentimes
discussing retirement through the lens of investing, right. We're talking
about spending less so that you can invest more for retirement.
We're talking about maxing out your roth IRA for retirement.
(00:47):
We're typically approaching retirement from our personal point of view.
And given that we are millennials, although geriatric millennials, we
honestly we might not cover the nuts and the bolts
in the particular that go into actually retiring maybe as
often as we should, and we definitely don't do it
as well as Christine Benz, who is a longtime contributor
(01:08):
to Morning Star. She's Christine is the director of Personal
Finance over there at Morning Star. She's the author of
the new book How to Retire. She's a personal finance nerd.
We're really excited to be talking with her. She's quoted
everywhere I mean literally all the publications she is oftentimes quoted.
She's even quoted in the Hottomuny newsletter or on the
Hotto Money podcast. Time of time, it's a Christine. We
(01:29):
are honored to have you join us today.
Speaker 3 (01:31):
Well, Matt and Jill, I am so honored to be here.
Thank you so much for having me on.
Speaker 1 (01:35):
Of course, of course we're so excited for this conversation.
But the first question I have to ask you is
what you like to splore John? Matt and I we
splore John Kraft beer. We've got a fancy IPA in
front of us.
Speaker 2 (01:44):
Right now, and join one now. Yeah.
Speaker 1 (01:46):
I mean, it's not worth talking about money if you
can't drink beer at the same time.
Speaker 2 (01:49):
So what is that for you?
Speaker 1 (01:50):
What do you like to splore John, Christine while you're
still doing the smart thing you're saving an investing for
your future.
Speaker 3 (01:56):
One of my favorite things is architecture. And I live
in a now one hundred year old prairie school home
that was designed by someone who worked for Frankloyd. Right wow,
so when I so cool and I love it. I
love architecture, residential architecture, especially so living in a home
that is kind of a piece of art is for
me a splurge. And it's also you know, to be honest,
(02:18):
when you're talking about house, is this old? They need stuff, right,
They need a lot of TLC. And so when we
moved in here now like more than fifteen years ago,
we hired an architect to help us kind of put
it back together to the way that it was when
it was originally designed. So put in a lot of
the original not original, but replicate a lot of the
(02:39):
original design features. So when I think of like something
that's been super expensive but has brought me a ton
of joy, it's just like researching all of this stuff,
learning about it, improving my own house, but also just
like it opens you up to the fact that there's
this living art all around you. So every time I
(02:59):
go to a city, I make a point if I
have time, of trying to at least do a drive
by on some of these places and then sitting outside
and lurking for a while and soaking in the architecture.
But anyway, that's a costly little hobby, but nonetheless one
that I just just really really enjoy. It's a rabbit
hole for me.
Speaker 2 (03:18):
It should be no surprise too, that you are a
fan of residential architecture, given the fact that you are
into personal finance. You're not drawn to corporate finance, You're not.
There's something that when it gets really tangible and something
that feels like I can live there. It's just practical
in such a way that makes life more interesting. And
obviously you do that incredibly well when it comes to
talking about personal finances.
Speaker 1 (03:39):
And by the way, Matt and I used to live
in like nineteen twenties bungalows and we miss we miss them,
and when we moved, we were like, we have to
live near old houses because they're just there's something special
about old houses. The architecture, Yeah, I never see it
never sits as well. I enjoy it all the time,
every time we walk by those beautiful old homes.
Speaker 3 (03:57):
Yeah, No, definitely. And the residential thing. One of the
reasons I love it so much is just that there's history,
that there's like personal history there. So I guess I
never linked it up to my career, but I do
love that aspect of it. Like you can read about
these families often. You know, if it's a big, big,
fancy house, there's some really dramatic story about oftentimes how
(04:17):
the family lost its fortune, but there's some historical drama
usually wrapped up in the beauty of the houses.
Speaker 2 (04:23):
Well, they're narratives that go along with the houses, and
it just makes it so much more interesting. And yeah,
I think we could go on for a while, but instead,
actually I would like to. It's maybe a weird place
to start our conversation with you, Christine, but let's start
by talking about your failings. Oh but now.
Speaker 1 (04:40):
Let's to turn our guests off at the very beginning.
Speaker 2 (04:42):
This is only because you wrote about this, you made
this public and a piece for Morning Star. But just
being honest about your imperfections, it's just so refreshing. I
think it can be a significant help, I think for
young investors in particular. But can you share some of
the mistakes that you share that you wrote about there
in that article.
Speaker 3 (04:58):
One certainly, if I think of like the biggest probably
thing that has cost my husband and me in terms
of our investing, it's that we for many years had
kind of this barbell thing in our portfolio where we
had a cash a bunch of cash, and then you know,
our long term portfolios were mainly invested in stocks and
(05:20):
cash of course, with yields up recently, that's you know,
not a big deal. But during this period where interest
rates were very very low and went lower, bond investors
are beneficiaries in an environment like that. They have to
settle for lower yields too, but they get you know,
the bonds prices improved during a period like that. Holding
(05:42):
all cash, you know, is a real loser in a
period with any inflation at all. So I see that
as kind of a bigger, you know, kind of an ongoing,
ongoing failing. I have trouble getting super excited about bonds,
even though I know I should have more more of
them as I age, but that's been something with some
(06:04):
opportunity cost. I would say, yeah.
Speaker 2 (06:08):
Well, you talk about though that there's a way though
that you can justify that because of the peace of
mind that it gives you. And I mean that's something
that we oftentimes will steer folks towards. Is hey, like,
what is it, like, what kind of strategy, what approach
is going to allow you to sleep better at night?
Speaker 3 (06:21):
Well exactly, And I do think that people sometimes underrate
those peace of mind allocations on the road to optimizing,
you know, they want to do everything that the textbooks
say they should do, but there is something to be
said for putting a little bit more weight on peace
of mind. And that's how the cash has always felt
for us. We had a close family member a couple
(06:43):
of years ago who was moving out of her home
and needed like the equivalent of a bridge loan, and
it was really nice to be able to help her
move into her new condo, just effectively buy it for her,
and she paid us back when she got the proceeds
of her of her home. But that was just such
(07:04):
a beautiful example of like doing something that helped someone
that we love, that knowing we have the funds to
do things like that gives us peace of mind. So yeah,
it's not something that you know, I lose too much sleepover,
but certainly, if I were to look at the Ledger,
having a more fully invested safe portfolio probably would have
(07:27):
been a better thing to do.
Speaker 2 (07:28):
That's cool.
Speaker 1 (07:28):
It is like that was like a life optimization route
instead of a purely portfolio optimization approach, And I think
I think there is a lot of merit to that.
I'm curious too, Christy, You've been writing about personal finance
for a long a long time. I would say Matt
and I since we started the podcast, our beliefs haven't
necessarily changed significantly over these years, since the since the
(07:49):
advent of How the Money, but I think in some
ways maybe some of the things that I believe have
become less entrenched. How have your personal finance views changed
over the course of your career?
Speaker 3 (07:59):
Well, interestingly, I started at morning Star as part of
our fund research team and then eventually headed up our
US fund research team. And so this is like the
nineties when I started in this job, and active funds
were the place to invest for the most part. Index
(08:20):
funds were sort of a niche category. ETFs weren't even
created yet at the time I started working on mutual funds.
So I certainly had a much more active portfolio than
I do today, with more active holdings. I still do
actually have some active holdings in my portfolio, but that
was a much bigger share of my portfolio, and I
(08:42):
think I devoted certainly more mental bandwidth to selecting active
managers and thinking about what they were doing than I
do today today. I mostly put all that in my
two hard pile, and I have been trying to focus
more on a minimalist low cost index based portfolio. But
that's been a major area of evolution, which really mirrors
(09:05):
the evolution of investors writ large over the past couple
of decades, where we've seen just this avalanche of flows
to index products away from active funds. People really see
the light on the virtue of keeping things simple. You
get a lot of diversification through core index funds at
(09:26):
obviously at very low cost. And it turns out that
all of our research on active versus index at morning
Star points to index funds being very very competitive, if
not more than competitive with active funds in many core categories.
Speaker 2 (09:44):
That's right. Well, while you're talking about active portfolios, one
of the things you read about one of the mistakes
that you said, do as I say, not as I do,
But I think this one's worth mentioning. Sounds like some
of my mom would tell me that. But you mentioned
just how you're overweighted with specific companies, in particular the
company that you work for, and so can I guess
(10:04):
just talk about that a little bit, because I think
there is a tendency for a lot of folks just
to continue doing whatever it is that they have been doing,
and oftentimes they can find themselves in a position where
they've they've got oh wow, either redundancy in their portfolio
or in your case, more eggs I guess are in
the same basket. That basket being your employer.
Speaker 3 (10:22):
Yeah, such a good point. And yeah, I think inertia
is the underrated behavioral tendency that many of us have,
where you know, you're busy, you don't spend that much
time managing your financial affairs, which I have to say
I don't really like, you know, maybe a couple hours,
(10:45):
eight hours at the most a year, I would say,
just not much at all, and that's mostly by design.
But then there are things that fall by the wayside,
like selling employer stock in a timely fashion. My husband
and I started to work with a financial plan and
are just on a couple of projects that we wanted
help with, one of which was this employer stock issue
(11:07):
where you know, at a certain point then it becomes
this big tax headache to unload a lot of employer
stock if it's done well, as my company stock has done.
So we wanted to work with her on, you know,
trying to get out of that position in a tax
efficient way, and she she just kind of looked at it,
and she was like, what is going on with this?
(11:28):
Like why have you know, how has this gotten to
be such a large position? And I would say the
answer is inertia. So it's been a work in progress.
I have been trying to sell on a regular schedule.
It's not that I, you know, am wedded to having
a lot of employer stock. I completely understand the thesis
(11:51):
that you shouldn't have a lot writing on your employer
stock because you you have a lot writing on your
employer and you know their their financial wherewithal your job
depends on it, so you don't want your portfolio depending
on it too. So been trying to lighten up a
little bit there, but it's it's a work in progress.
Speaker 1 (12:10):
You mentioned how like so morning Star, which you part
of what happens at morning Star is you rate funds right,
and so it's got yelp kind of vibes. But for investors,
which is yeah, can you talk about how the ratings
are determined? And oh you want to know how the sausages?
Speaker 2 (12:28):
May?
Speaker 1 (12:28):
I did, And I'm also curious to know about how
important because you mentioned the cost and I believe I
don't remember how many the years ago this was This
might have been like ten years ago or something that
morning Star released something saying, hey, guess what, the cost
of the fund matters more than the morning Star rating.
And I remember, like, wow, morning Star wrote that.
Speaker 2 (12:48):
I couldn't believe.
Speaker 1 (12:49):
It, but it was like incredibly honest and and deared
me even more to what you guys do. But can
you kind of can you talk about that for.
Speaker 2 (12:56):
A little bit.
Speaker 3 (12:56):
Yeah, it's a good question. And there are multiple rating
systems that we have, So the main one that people
know is the Star rating, which is a quantitative measure
that looks at how a given mutual fund or exchange
traded fund has balanced risk and return relative to other
funds that do sort of the same investment style. So
it's quantitative, it's backward looking. My colleague Jeff Battak, who
(13:22):
I've worked with on our podcast The long View, heads
up all the ratings, so they've made some tweaks to
give costs an even higher It's an even bigger component
of the rating system than it wasn't in the past.
But of course costs are very much part of returns
(13:44):
that you measure as well as the way that we
measure risk. So that's the Star rating, and then we
have another rating that may be a little less familiar,
but frankly, I think is kind of better if you're
trying to judge a funds measure, and that's called our
Metalist rating, and that's the one that is derived from
our analyst team, where they take into account expenses, have
(14:09):
a very heavy weighting. They look at a little bit
at past performance, but of course we know past performance
isn't especially predictive. They look at strategy, kind of the
stability if it's an active fund, the stability of the
management team, the quality of the fund management company. So
it's just it's much more holistic than the star rating.
(14:29):
So I would say for people who are trying to
do like quick and dirty due diligence, I would rather
that they look at those qualitative ratings because there's more
going on there under the hood than is the case
with the star rating, which is just a kind of
a backward looking snapshot. In fact, frankly, sometimes I shudder
a little bit when I'll meet someone who'll say, yeah,
(14:50):
I just allocated my four to one k, I went
all into five star funds, and I'm kind of like, yikes,
I hope you did more than that, and I think
that the analyst ratings are a really good counterpoint.
Speaker 1 (15:04):
So you don't want that to be the only metric.
Just the star rating that can be a helpful guide,
but go deeper.
Speaker 3 (15:09):
Than that exactly, and you know, sometimes it can even
be a little bit of a contrarian signal. I would
think that the star rating can be because it is
just backward looking. You're going to have times where a
fund has perhaps been taking a lot of risk relative
to its category piers. So for an example, would be
some sort of a core fund that has completely been
(15:31):
loading the boat with Nvidia and the other you know,
magnificent seven companies that would certainly be at the top
of its peer group in the very recent past. But
sometimes that's actually an indication that there's risk going on,
you know, when the fund has absolutely killed its peers.
So my hope is that people would do a little
(15:52):
bit more due diligence before selecting funds and putting money
in them.
Speaker 2 (15:56):
So, as you talk about due diligence, this makes me think,
I mean, we were just talking about bogo Heads conference
before we hit record, and do you think for the
vast majority of folks listening or folks, or maybe who
are just getting into investing, for first time investors, that
they could potentially look to something as simple as a
total stock market index fund, something as simple as what
(16:17):
warm Buffett might say, where he's just like, hey, if
I were to pass, I want I forget ninety was
that Susan his wife? I figure which one but all
of her holdings should just be moved over to the
S and P five hundred. How I guess what I'm
asking here is how much would you recommend for different
types of investors to kind of dive into the wheeze
and to figure out and look at the ratings and
look at the cost and look at past performance as
(16:39):
they're trying to determine what they should invest in.
Speaker 3 (16:43):
The simple solutions are in many cases some of the
best solutions. So certainly the total total market index is
a great place to start. My bias would be a
little bit more toward like a total global like a
total world stock index, especially given how well the US
has done relative to non US. I'd rather see investors
(17:06):
just starting out who want an all in one equity
fund go go global. In my opinion, it's a global
world that we're living in. And you know, we do
see periods of reversion where trends that have been really
pronounced reversed themselves. So global. I also love target date funds,
and it's so interesting to me how in the asset
(17:27):
management industry, especially among advisors who are selling more complicated solutions,
they love to hate on target date funds. And I'm like,
we do this research where we look at dollar weighted
returns effectively, you know, sort of marrying the timing of
investors purchases and sales with the returns that they're actually
(17:50):
able to earn, and target date funds have been some
of the most effective vehicles from that standpoint. So when
people buy target date funds, they're often dollar cost averaging
into them through their four oh one K plan and
then they just kind of keep making those contributions. They
don't pan excel and it may be that they're just
investing in the context of a retirement plan, so they're
(18:12):
not super hands on, but it may be something to
the fact that you have multiple asset classes bundled together,
you can truly be hands off. But it's a very
benevolent picture that we see in terms of actual investor
outcomes that investors tend to capture most of their target
funds returns. It truly is, in my view, something that
(18:35):
you could be quite hands off with. And when we
look at a lot of people saving for retirement, they're busy,
they have other things going on. I love the idea
of a one stop solution that they could wake up
when they're fifty three and be like, oh, you know,
behind the scenes, this has been gaining ground and then
also de risking itself a little bit, which I might
(18:57):
not have thought to do, been too busy to do.
Speaker 1 (19:01):
So I love that is some of that hating inside
of the industry is that because target date funds are
a threat to some of the people inside of the industry.
I mean, like you said, it's incredibly simple and in
the case at least a Vanguard Fidelity Schwab, incredibly low
cost if you pick the right target date fund. So
is in one of those things where target date funds
(19:21):
are are really hitting the nail on the head for
the average person, making it super simple. But then that
means they don't need the help of an expensive CFP
or something like that.
Speaker 3 (19:30):
Yeah, absolutely, I think that's part of it. I think
for many years you had investment advisors, financial financial advisors
who styled themselves as investment pickers. You know that they
really added value with you know, very fancy complicated asset
(19:51):
allocation strategies or selecting you know, specific funds or individual
stocks or whatever. And it's definitely a threat to them
the idea that you'd have this low cost, all in
one product. So whenever I see someone making disparagement, disparaging
remarks about target date funds, I always sort of look
(20:12):
for what the motive might be, because.
Speaker 2 (20:17):
I think what maybe what you put your finger on. Joel,
was the first pushback against AI or the algorithm, like
right now we've got the doc workers. It was the
actors last year pushing back against against that. The OG
pushback against algorithms and AI were fund advisors as saying, well, no,
you can't eliminate us. We are necessary. But Christine, so
(20:38):
far we've kind of been talking about investing and I
guess personal plans generally speaking, but we really do want
to I guess, dive more into the weeds of retirement,
and we'll get to that more. Right after this. We're
back in the break.
Speaker 1 (20:55):
We're still talking with Christine Benz talking about how to retire.
And let's actually kind of get into that. The book,
the new book that Christine just put out is called
How to Retire, And Christine, first off, I kind of
want to start off like a thousand foot level here.
It feels like our general societal perception of retirement is changing.
Like the way we viewed retirement fifty years ago was
(21:17):
one thing, and now part of it's the fire movement. Right,
there's like a million things that have gotten No pensions
don't really exist for the average person anymore. Do you
agree that how we think about retirement is changing?
Speaker 2 (21:28):
And how so? How would you define retirement? Yeah?
Speaker 3 (21:31):
Well, absolutely so. Do you put your finger on what
has been the seminole shift in funding retirement over the
past several decades, which is that most workers will retire
without the benefit of a defined benefit plan a pension plan.
That's a change from fifty years ago, and so the
onus has been increasingly put on individuals to fund retirement
(21:56):
for themselves. They'll have social Security, but to the extent
that they want income beyond what they'll get from social Security,
it's on them. And unfortunately, you know, when you look
at the data, you see that a lot of workers
have not really been able to do that. I'm always
struck by the reports that look at four one K
(22:16):
balances and so you see the averages and sometimes they
get reported out and they look kind of encouraging, and
then you look at the so you see the average
balances for one case, then you look at the medians
and it's like, WHOA. So wealthier people who have been
able to save and aggressively they're doing just fine. But
(22:36):
you've got a lot of people who have not saved
for retirement, and so they're not that you know, they
haven't taken part in the stock market's recent gains. It's
just it's just been difficult for them. And I often
think back to this something Jason Swig said on a
TV show that we're both on, where he said, it's
(22:57):
like the pension system was like people were on a bus.
They're all getting to their destination. When they get there,
they can file off in an orderly fashion. With the
system that we have today with four one K plans,
it's like you've got all these drivers on the road.
Some of them don't have licenses, some of them don't
know where they're going, and so of course it's chaos.
(23:20):
And there have been some improvements in the system to
make a little easier for people who aren't steeped in
investing matters to make smart decisions like automatic enrollment like
target date funds. But that's been one of the huge changes.
And then sort of a happier change I would say
is that people are beginning to kind of rethink what
(23:42):
retirement is. Increasingly people are working longer. When you look
at the data on that, though, you see that the
ability to work longer does disproportionately accrew to higher income,
more highly educated people versus the broad population. So wealthier,
(24:04):
more educated people are healthier, and they're able to work longer,
and they probably need to work less, but they're able
to work longer. But that's sort It.
Speaker 1 (24:13):
Might be working from a laptop more too, which makes
it a little easier to extend your career.
Speaker 3 (24:16):
Lifetime exactly exactly the knowledge type worker, where you're able
to work from a laptop, you're able to work from
different locations. It just affords you a ton more flexibility
and a lot more ability to kind of balance quality
of life considerations. So that's a huge dimension of it.
(24:37):
But overall, I would say that's a happy trend in
retirement that I think people are in some cases retiring earlier,
but they're continuing to kind of stay in the game,
and it turns out that's really good for us. Laura
Carstensen in the book, she's a researcher at Stanford, and
I just love the conversation that we had. But she
(24:57):
said the way she said work is good for us,
the way we work in this country is all wrong.
That we work too hard. You get people coming into
retirement they're so burned out that all they feel like
doing is watching TV, you know, because they're just like,
you know, exhausted, and that's not good. So I do
(25:18):
think we need to rethink retirement. I've been thrilled to
see the fire movement, but I would like to see
even older adults who are still working explore opportunities to
kind of stay engaged with whatever they liked about their
work and potentially do some of that stuff a little longer.
Speaker 2 (25:37):
Yeah. I was having a discussion with some friends recently
and we kind of got onto the topic of talking
about work and what the sort of paradigm that kind
of came up that somebody presented was like, well, there's
a difference between taking more of a I get to
work like I get to continue to work sort of
attitude versus I have to continue working. And I almost
I kind of feel like it's a false dichotomy. I
(25:58):
almost think that you could continue to do the same
sort of work, but it's more of a psychological shift
because I think essentially the same work can be done.
And if you feel like that this is something that
you have to do, well, yeah, you're going to operate
maybe from a more underprivileged position, but if you think
about it sort of like you're saying that this is
something that is good for you, this is something that
I get to do. Nothing has changed on the surface
(26:20):
at all, but everything has changed under their surface, like
on the heart level. What are your thoughts on totally?
Speaker 3 (26:26):
Totally. Michael Finka made the point in the book that
he said, if I told you you had to go
out onto a field and chase a little white ball
around with a stick.
Speaker 2 (26:35):
All day, kind of sounds like work, don't it.
Speaker 3 (26:39):
So the whole mindset approaching working longer is something that
you embrace doing because it turns out that it gets
you out of the house, it gets you engaged with people.
If you're lucky. It gives you a sense of purpose.
All of that stuff is really good for you. And
if you're kind of choosing to do it, maybe you're
(27:00):
altering your hours a little bit. That's I think, really
really empowering.
Speaker 2 (27:05):
Yeah.
Speaker 1 (27:05):
So in the first chapter of the book, you talk
about visualizing your life in retirement and a lot of
our listeners, let's say the average listeners in their thirties,
why is that crucial to retiring well? And how should
people who are maybe kind of more on the front
end of saving and investing and even like conceptualizing their
own retirement. Why is visualizing what life is going to
(27:28):
be like thirty years down the road. Why is that important?
Speaker 3 (27:30):
Well, I think it's important on a number of levels.
One of them one of the reasons is that it's
as you approach retirement, thinking about what you want to
do helps inform some of the choices you make in
the years leading up to retirement. So again, Michael Finka
talked about visualizing your in retirement lifestyle and the example
he gave from his own life is that he really
(27:52):
loves to hike. He likes to do some pretty strenuous hikes,
and he wants to keep doing that in retirement, and
so you know, coming into his fifties, being in his fifties,
he wants to maintain implement healthy habits that will allow
him to pursue that hobby for longer in retirement. So
(28:13):
we all have different things that we love that we
want to do. You know, we want to take advantage
of our free time in retirement to do more of
that thing. Well, you may have to put in place
some habits and other structures to help ensure that you
can actually do those things. And then Michael makes the
excellent point that you know a lot of people do
(28:34):
come into retirement with sort of pent up demand for
relaxation activities, but you need kind of the counterbalance for that,
and it doesn't have to be paid work at all,
but just something to give you a sense of purpose
to get you up in the day. And his point
is that it's all about balance, right, that you might
(28:55):
have some leisure activities that you really love, but they're
all the better if you've accomplished something, and we all
have that on certain days where you know, the leisure
at the end of the day is so much better
if you've accomplished several things on your checklist for the day,
or if you come into vacation having had a really
grinding work schedule, that vacation feels so well earned and
(29:18):
you just enjoy it more. That's kind of his point
that you need to bring that mindset into retirement. You
need to relax from something. So that gets back to
this idea of having purpose. For some people that might
be work, but it might be you know, volunteer work,
community service, whatever, have some things that give you a
sense of purpose.
Speaker 2 (29:38):
I love that. Yes, striving after that balance I think
is so important. It's something that I think we're like
as young folks. You're we're not that young, I can,
I know, but like as what's upon a time young person, Yeah,
I think maybe. I guess it's just the inability to
connect with the desires of us when we are going
to be older. And I underestimated my desire to continue
to be fruitful and want to continue to do something
(30:00):
that provides that value. But one of the things that
struck me in your book was a lot of the
folks that you talk to, they spend a surprising amount
of time talking about how retirement impacts their different relationships
and so how should we jew should we think about that?
And I think working longer not only can that probably
help out, like you discussed in providing not only more
money and not only more purpose in life, but also
(30:23):
more fulfilling relationships too.
Speaker 3 (30:24):
Right, Definitely, I loved that so many of the people
touched on relationships because you know, we have so much
data on human happiness and what makes people feel like
they've had a successful life, and it all comes back
to relationships. Who loves you, who you love, feeling loved it.
It's I mean, it sounds cheesy, but it's everything right.
(30:46):
And we discussed how relationships change a little bit as
we age, and this is speaking of sort of traditional
aged retirees. The data on older adults and relationship is
what we see is that the relationship networks tend to
winnow down a little bit, that people have fewer friends.
(31:07):
And some of that is for sad reasons that maybe
people have died or moved away or whatever the case
might be, but some of it it's actually self selected.
And Laura Carsonsen at Carstensen at Stanford talked about this
that people self select into smaller friendship networks as they age,
(31:27):
that they may cast off some people that I think
she calls them peripheral others. And an example would be
like your your kids friends' parents, who might have been
perfectly fine people to hang out with at the soccer
game or after the soccer game, but you decide at
the end of the day, they're not, you know, my
closest friends. And so people tend to become closer to
(31:52):
the people who really get them, the people who you know,
when you walk away from that meeting with that person,
you're kind of why on air because you feel so understood,
you feel like you totally get them. That's what people
tend to self select into smaller relationship networks. But and
her point is that that's just fine. But her counterpoint
(32:13):
is you should also be kind of, you know, diversifying
your friend network as you age that you don't want
to end up with a lot of same aged friends,
you should put yourself in a situation where you are
meeting people of different ages in an effort to kind
of diversify that friends network.
Speaker 1 (32:31):
That's I feel like that's a societal something we've like
it's a reality of our current society, the way it's
set up. So much of the time as we are
hanging out with peer groups and we're not hanging out
with people of different age groups, And do you think
there's a lot, a lot of downside to that? On
multiple levels. I kind of love that my next door
neighbor is ninety nine and like that just when the
kids hang out with her or when we see her
(32:51):
out walking to the mailbox, like there's something really special
about that relationship. On the sad side of relationships, you
mentioned that too, you talk about how divorce impacts retirement considerations,
because that is from a money perspective and from a
relational perspective that can have really detrimental effects.
Speaker 3 (33:09):
Definitely, divorce is a financial killer, gene Chatsky often a
financial killer, I should say. Gen Chatsky talked about women
and aging and retirement in the chapter I did with
her and divorced women. Single women are among the least
well off retired people in our society, So there's definitely
(33:33):
a financial dimension. But loneliness is also a component of
this as well. That people who are not saying all
divorced people are lonely. That's certainly not the case.
Speaker 2 (33:45):
But.
Speaker 3 (33:46):
People who have a partner have someone looking out for
them oftentimes do have that kind of built in companionship,
which it turns out is pretty good for us. Interestingly,
married men tend to be happy kind of regardless of
whether they're happy in their marital relationship, whereas women who
(34:08):
are married are only happy if they're also happy in
their marital relationship. If that makes sense. It seems like if.
Speaker 2 (34:15):
Men still have football or something.
Speaker 3 (34:17):
I don't know, men are apparently better able to compartmentalize.
I think is the point that if their marriage isn't happy,
they're able to say they're still happy. But women kind
of have their marriages and their feelings about their marriage
is more intertwined with their happiness.
Speaker 2 (34:32):
It makes sense. I guess I have not really thought
about that before, but I feel like something I'm going
to continue to chew on. Christine. Earlier, you touched on
social security, so it's clear that to a certain extent
we should be counting on that. But how should your health,
how should your age impact when retirees or potential retirees
should opt to take their Social Security benefit.
Speaker 3 (34:55):
It's a good question. So certainly, if you feel like
you have some reason to believe you'll have a shorter
than average life expectancy, that gives more weight on the
idea of claiming earlier rather than waiting until later. But
people who are of average health or better, you know,
people who have longevity on their side, should think about
(35:16):
delayed filing. And the main benefit is that social Security,
of course, is a lifetime benefit. Most of us have
no other benefits that are coming in the door that
will last our whole lives. Our portfolios certainly won't unless
we take pains to make sure that they don't, but
social Security will just keep on coming. And so that
is the value of trying to enlarge that eventual benefit,
(35:41):
because if you think you'll have average life expectancy or
longer than life longer than average life expectancy, that benefit
will continue throughout your lifetime. And then whether you're married
or unmarried also figures in. Single people often should delay
social Security, but so should married people. When if you
(36:04):
have a partner who is younger than you and that
partner is going to be reliant on your benefit after
you pass away. That suggests that if the goal is
to help enlarge the total couples lifetime benefits, that delaying
really benefits in that situation as well. So sometimes someone
might say, oh, I'm not in great health, but if
(36:27):
they have a younger partner, it still might make sense
for the older, less healthy partner to delay.
Speaker 1 (36:35):
The nice thing about social security is that it's a
known quantity, right, and once you get to the point
where you're ready to tap it, you know how much
money is coming in on a monthly basis. The tough
part about your portfolio is you never know what's going
to happen with the stock market in a given year,
and if you experience a down year or two in
a row, when you reach retirement, you might not know
(36:56):
exactly how much you can take out, or you might
be two ten to start actually selling some of those positions.
Annuities are one of those things that people purport as
like a solution to that problem. And I feel like
we're seeing kind of a resurgence and annuities right now,
but a lot of the annuities are incredibly fee laden.
How do you think about the role of annuities, what
(37:17):
the role they should play in a person's retirement.
Speaker 3 (37:20):
Yeah, First, I would say that social security is a
type of annuity. We don't really think of it that
way or talk of it in that way, but it
is exactly that, right, It's a lifetime income disbursement. It's
the most beautiful type of annuity. You can't find one
like this on the open market where you have an
inflation adjustment that actually goes along with what's going on
(37:43):
with CPI. So that's another reason why I would say
check out enlarging your Social Security benefits before you even
consider looking at any type of annuity, because Social Security
is better than anything that's out there from insurance companies.
Art there, see how far it gets you, and that
one concept I like to keep in mind in relation
(38:05):
to this type of income is look at your fixed
income or you're fixed spending as closely as you can.
Try to kind of map it out for say the
first ten years of your retirement at least, so look
at your housing costs, your tax costs, insurance and so on,
and ideally you would try to align those outlays with
(38:29):
your fixed income sources like what you would get from
Social Security, and maybe social Security you'll get you all
the way there. If you say, have say a paid
off home, and you're not spending a lot, but if
you find that there's a little bit of a shortfall,
that's potentially a good place to investigate an annuity to
help meet those spending demands, and that way you just
(38:53):
have to worry a lot less about your portfolio, about
making sure your portfolio lasts a lot of research from
our team and other entities who has looked at portfolio
spending has found that if you can be variable with
that spending based on what's going on with your portfolio's performance,
that that helps you spend more over your lifetime. But
(39:15):
I think you're in a better position to withstand variable
spending from your portfolio if you've taken steps to enlarge
the lifetime income stream that you get from Social Security
and or an annuity. So that's kind of the way
I look about look on it when I think about
my own retirement plans, which I'm not planning to retire
(39:36):
anytime soon. I just think it's a really elegant way
to address household cash flows. So that plan, that's how
I plan to approach it for us.
Speaker 2 (39:47):
In chapter eleven, the individual who's highlighted there is you, Christine.
You actually discuss bucket strategies and so can you explain
what tho aw? I can explain why you are so
fond of that approach.
Speaker 3 (39:58):
Yeah, I was talking to Al Davinski, who was a
professor of financial planning and had his own financial planning practice.
It's still up and running, but he's largely retired about
how he managed his retired client's portfolios, and he said
that he just bolts on this cash bucket alongside a
long term total return portfolio. And his point to me,
(40:21):
which a light bulb went off in my head, because
he said, I find that it really gives my client's
peace of mind with the long term portfolio that I'm
managing for them. They don't second guess the decisions that
I'm making. They know that they have their cash flow
needs set aside. And so I think his thought was
to have maybe one to two years worth of portfolio
(40:43):
withdrawals just set aside in cash at all times throughout retirement.
And so I've kind of taken that concept and run
with it because I think it's a it seems to
work from a behavioral standpoint, and B I think it
helps get people to a sane place in terms of
what is an appropriate acid allocation giving given my proximity
(41:06):
to needing the money. So I think of kind of
a simple three bucket structure where you've got maybe two
years worth of portfolio withdrawals in cash. So if you're
taking like four percent of your portfolio, that's eight percent
of your total portfolio with those two years, and then
maybe another five to eight years in sort of a
(41:26):
high quality bond portfolio, maybe short and intermediate term bonds,
maybe a little bit of treasury inflation protected securities, and
then the remainder of the portfolio could go into a
globally diversified stock portfolio. But I think it's a nice
way to kind of back into a sensible acid allocation.
Acid allocation, to me, oftentimes seems really black boxy, and
(41:50):
really the I think a key way to inform it
is to think of the proximity of needing your money,
and you know what sorts of investments stand up to
that time horizon that I have in mind. So we
know that stocks, if you have a really long time
horizon of more than ten years, they're extraordinarily reliable. You know,
(42:13):
like more than ninety percent of rolling ten year periods
they're positive. But if you shrink that time horizon too
three years or five years, they're too risky. They're too
variable if you're spending horizon is so short, and that's
kind of the basic intuition behind how much you would
decide to drop into each of those buckets.
Speaker 1 (42:34):
Yeah, it seems like not having enough cash at that
point when you're reaching retirement could be incredibly anxiety inducing.
And yeah it stinks to look and say, oh, man,
look the market's been crushing it, but I've been overweight cash.
But think about the if the opposite were true, you know,
and you'd be so thankful that you had as much
set assigning cash as you did as if the market was,
(42:56):
you know, on a downtrend. We've got a few more
questions we want to get to you with you, Christine,
including you know, one of the old adages in retirement
advice is pay off your mortgage. Does that still stand?
Is that still true? We'll talk about that and more
right after this.
Speaker 2 (43:18):
All right, we are back from the break talking with
Christine Ben's of Morning Star. You've probably seen her byline,
her author title there, and some of the articles we
oftentimes will reference. But Christine, before the break, Joel mentioned
the mortgage. So let's talk about housing because that is
a it's a big old expense or it can be
a big old asset, depending on where you are in life.
(43:38):
What do you think about paying off a mortgage, because
certainly getting aggressive paying down a mortgage rearly that makes
less sense if you know, let's say you've got a
sub three percent mortgage. Let's say you've got two point
seventy five mortgage these days, Ye, that's not something you
should likely be prioritizing. But talk about housing. What it
looks like to have a payoff house and should you
see that as a bucket You know, we're talking about
(43:59):
your bucket system there earlier, but talk about housing here
for a second.
Speaker 3 (44:02):
Yeah, it's such an important question, and I think one
that really bears down on a lot of people as
they kind of hurtle toward retirement. It's kind of a
moving target in terms of whether to pay off a
mortgage in my view. So when my husband and I
paid off our mortgage, which was probably like ten ten
years ago or so, we had a two point eight
(44:23):
seventy five percent mortgage, and I remember my husband was
so proud of it because he had like at the
time and now, of course mortgages have gone lower, but
at the time it was very low mortgage. But simultaneously
we did have the fun sitting in our vanguard account
from you know, bonuses or whatever earning like, and Vanguard
(44:44):
pays pays well on its money market accounts, but it
was still earning well less than that mortgage rate. So
to us, you know, knowing that we didn't have any
imminent need for those for the cash, we we did
pay off the mortgage. But right now you point to
something that I think is pretty stark. Where we've seen
(45:05):
yields go up really nicely on savings instruments. They've maybe
come down a little bit as interest rates appear to
be going down, but they have generally gone up nicely.
And many people are here with very very low mortgages,
in which case it probably makes sense to hang on
to the mortgage. And that's especially true because you know,
(45:28):
you probably do have other things that you could use
your funds for. And yeah, the math just doesn't add
up in terms of prepaying the mortgage to get rid
of it, even though that does provide some peace of mind.
But again, peace of mind is part of this too.
If you really do want to try to reduce your
(45:49):
fixed spending coming into retirement, it's hard to argue with
a mortgage paydown. And the other thing I would say
is that you know, it's usually like pretty financially well
people who are grappling with this decision. There's probably no
like super wrong decision. Could you optimize it a little
bit more by hanging on to the mortgage and investing
(46:10):
in safe securities? Yeah, but you know, it's it's probably
going to be fine in either instance. The thing that
I often take that that I dispute is just when
people say, well, you can earn more investing in the market,
and then you can you know, paying down your it
(46:30):
helps you more to invest in the market. And my
point there is, well, yes, but you're totally comparing apples
and oranges, because the mortgage paydown is kind of a
guaranteed return on investment equivalent to your to your interest rate,
less any tax breaks that you were getting to carry
that mortgage, whereas, of course, you know, investing in stocks
(46:52):
is way more variable. Your long term returns may be better,
but it's it's by no means guaranteed.
Speaker 1 (46:59):
The savings mortgage comparison makes more sense, the investing mortgage
comparison makes less sense.
Speaker 2 (47:04):
A quick follow up too, what about folks who are
sitting on that paid off home, perhaps or even not
even fully paid off, but you know, they've got a
whole lot of equity there in that home, and they
are nearing retirement, they are looking at their fixed income sources.
They're not seeing enough to sustain their lifestyle. What are
your thoughts on reverse mortgages We.
Speaker 3 (47:21):
Talked about them in the book. I happen to think
that they have been underutilized, And of course there are good,
good reasons in many cases why they've been underutilized, because
some reverse mortgages in the past especially were very high cost.
But I think it's a shame if older adults really
do short shrift their own qualities of life when they're
(47:43):
sitting on a lot of housing wealth. And this is
particularly true, you know when say California, other really high
cost parts of the country, where you have people who
have been in their homes for many, many years and
a lot of their wealth is in the house, they
should look at an opportunity to liquefy that wealth in
(48:05):
some way, either by you know, moving somewhere else, or
if they want to stay put because it's their community
and that's where their family is and so on, they
should think about tapping that equity through some sort of
reverse mortgage.
Speaker 2 (48:21):
Do you think it's more of like an emotional hurdle
or roadblock that keeps folks from doing that, because like
their entire life, this is something that they've been You've
been doing the opposite, but then all of a sudden
you're somehow supposed to flip the switch.
Speaker 3 (48:31):
Absolutely, and a lot of it is that people do
want to pass that asset to their kids. They like
the idea of that. You know, they subsist off the
investment portfolio, but the home is the asset that our
kids will inherit. I think if many people were to
ask their kids, their kids would probably say, well, I'd
probably rather inherit investment assets from.
Speaker 2 (48:52):
You than take the money. I'll take the cash.
Speaker 3 (48:56):
So yeah, there's a lot tied up in all of this.
And of course reverse mortgages didn't do themselves any favor
for a while. It was just a little bit of
a wild West, and many of the products were pretty
crummy and bad for consumers, so they have a bad
name in a lot of consumers' minds.
Speaker 1 (49:14):
Yeah, talk to us about the four percent rule for
just a second, Christine, because that's like one of those
what seems like an iron law of retirement is Oh,
if I just take out four percent of my portfolio
each year, every year, then I'll never run out of
out of assets across the course of my whole retirement.
So that's nice to know. But then you hear the
(49:36):
Dave Ramsey of this world say, oh, no, no, you can
take out eight percent, And then other people are saying, no, no,
you need to be even more conservative, and we're talking
closer to three percent, and we're talking about like significant
differences and what people can pull out from their retirement
assets every single year. If we're in a big, big
enough window between three and eight percent, right, that's gonna
(49:56):
have a significant impact on the way they're able to
live and what their retirement years look like. So conservative
or liberal, like, what are your thoughts on the four
percent rule and how people should think about that?
Speaker 3 (50:07):
William Bengen came up with a four percent rule. I
sometimes call it a guideline. I do think it's a
great starting point for thinking about this. So for people
who are say fifty, and looking at their portfolio and
trying to figure out if they have enough, it's a
great quick and dirty starting point. But I do think
that it's probably kind of a straw man at the
(50:30):
end of the day, because it assumes that someone wants
kind of like a fixed paycheck in retirement, that they're
just going to spend the same amount rotely throughout this
twenty five or thirty year period or whatever it is.
When we look at the data on how older adults spend,
it's not how they spend. That spending actually does tend
to decline through a lot of the retirement life cycle,
(50:54):
and then it flares up for some older adults later
in life. So it just doesn't pass the snow tests
from the standpoint of how people actually live and spend
in retirement. So there's that dimension, and then another issue
is that it's just really suboptimal to spend the same
amount year after year without wavering. I was talking to
(51:16):
John Geiton, and I talked to him in the book
about this, where he said, you know, kind of a
four percent guideline is equivalent to your setting out on
a road trip and you're saying that I'm in a
car with no mirrors, no brakes, no windshield wipers, And
if I asked you what speed limit you'd want to
go at, well, you'd say, you know, I don't know
(51:38):
ten miles an hour. You know, you would want to
take it really, really slow. That's kind of what the
four percent guideline is. It's built for kind of a
worst case scenario where you're never making changes. But guess
what as a retirement, As a retiree, you actually do
have the ability to make changes. You have the ability
to take withdrawals down in a year like twenty twenty
(52:01):
two when stocks and bonds both fell and it turns
out that's good for your portfolio. And you also have
an ability to give yourself raises if things work out
better than kind of the worst case scenario that's built
into the four percent guideline. So I like the idea
of people being somewhat flexible. Which specific flexible system they
(52:23):
use kind of depends on what they're trying to achieve,
but ideally, if they've done their homework to line up,
they're fixed spending with fixed sources of income like social Security,
that gives them more ability to be flexible with their
eventual portfolio withdrawals.
Speaker 2 (52:40):
Yeah, I gotta be adaptable. That makes sense too. Like
you said, as far as that spending in retirement, there's
only so many times that you can go to Munich
in Paris, Like right, Like, I'm not going to keep
doing this every single year, guys, I'm going to switch
it up. I'm go go chase the white ball with
a stick perhaps, which I don't know. Is that actually
more affordable than than European vacation?
Speaker 3 (52:58):
Maybe not?
Speaker 2 (52:59):
Yeah, they're not. We really appreciate you taking the time
to talk with us about your new book, How to Retire.
Where can folks find that and learn more about you
and what you're up to.
Speaker 3 (53:07):
They can find the book at any place where they
would normally buy books, Amazon or local bookseller if you've
still got one. In terms of what I work on,
I'm on Morningstar dot com all the time doing videos
and articles. I also work on a podcast of my own.
It's called The Longview, which is an interview format podcast.
And yeah, it's been It's been really fun to talk
(53:29):
to you guys. I appreciate it.
Speaker 2 (53:31):
Awesome.
Speaker 1 (53:31):
We've enjoyed it too, Christine. Thank you for joining us today.
Thank you all righty Matt that that was a great combo.
I do think that if you were going to come
up with like a mount rushmore of personal finance folks,
Christine Benz would be in high consideration to be. Oh, yeah,
she's she's been around a long time to an amazing
work and it was just such a joy to get
to talk to her today. No, she yeah, she's fantastic.
She's been doing this for so long now. She's an
(53:52):
og personal finance money nerd and certainly glad we got.
Speaker 2 (53:55):
To talk with her today. But was your big takeaway
from our conversation about retirement?
Speaker 1 (53:59):
So this is something we brought up briefly, but it's
always something that's fascinating with me. I just appreciate morning
stars honesty and one of the things she highlighted that
they've changed the scoring over time of their Star system
and the way that they rate funds to incorporate costs
even more they costs they weighed heavier that how expensive
your fund is or inexpensive, it is matters so much
(54:20):
in the overall performance of your investment portfolio. And so
I just appreciate that transparency from Christina from morning Star,
and I think for all how to money listeners, it
means going back, what are the funds you're investing in?
Are they with some of our low cost favorites? Are
you getting the bargain basement rates which thanks to Jack
bocl Like, we have access to incredibly diversified funds that
(54:42):
cost next to nothing at a bunch of these low
cost investment houses. But if you don't pay attention to
that one thing, you'll be shocked if you run the
numbers and how much you might be missing out on
ultimately in retirement funds. So pay attention to those costs. Yeah,
the fund ratings are cool. I appreciate that they do that,
but the cost is likely even more important.
Speaker 2 (55:02):
It's a large ingredient that goes into that rating because
the yeah, the performance of those different funds that varies
year to year, but that expense ratio, that thing is
fixed and so you're paying that no matter what. Well,
my big takeaway is going to be when we're talking
about work and retirement overall. And she said, I can't
remember which guest it was that shared this lesson with her,
but she pointed out how work is good, but how
(55:23):
it is that we work is bad, and she's talking
about burnout, and I think the ability for us to
find ways to scale back the intensity of the work
and maybe not. I don't even want to say that
because it makes it sound like, Okay, yeah, you have
the luxury to be able to work less. I'm not
even talking about working less, but finding ways to incorporate
some of the healthier aspects some of the other factors
(55:43):
of life that make life sustainable. Does that make sense? So,
like the ability to prioritize getting enough sleep, some exercise, relationships,
your mental health, Like all of these other aspects are
that are so important that oftentimes get short changed because
we have elevated work on this pedestal.
Speaker 1 (56:01):
Yeah, you might not feel the need to bail out
of work quite as early. You might not be like, oh,
sixty two, I can't make it past that point. You
might find that you have more years available and actually
more energy to dedicate torture work. If you don't have,
you've taken care of your antagonistic of a relationship towards
in the here and now.
Speaker 2 (56:16):
So totally all right. You and I enjoyed a Strangest
of Places, which is a beer by a Pure project.
This was a collab with great Notion.
Speaker 1 (56:24):
Yeah, well your thoughts, Well, I like that they call
it a murky India opinions instead of a hazy Yeah,
so you got to come up with a different terminology.
So I do appreciate that. One of my buddies in
California was saying, oh, pure project, you got to try
some of their stuff. So I saw it on the
shelf when I was out there. I picked this one up.
I really enjoyed it. I thought it was kind of lush.
It had like some lemony characteristics. So this was an
(56:45):
IPA that I gotta say, said, totally have one can.
Speaker 2 (56:47):
Of I'm glad you picked it up. It wasn't my favorite, okay.
It's something about it, like almost taste it a little
old to me, like it really it was kind of
flat like it. Maybe that's what you call lush.
Speaker 1 (56:56):
Perhaps this was can just a couple of months ago,
so let's didn't be that old, okay.
Speaker 2 (56:59):
So we all have our different favorites. This one was.
It was tasty. Glad we got to enjoy it, but
it wasn't my absolute favorite, but still glad I got
to share this one with you, buddy. Can't win them all,
can't win them all. Yeah, that's gonna be it for
this episode. You can find our show notes up on
the website at howtomoney dot com. And so until next time,
best Friends Out, Best Friends Out,
Hosts And Creators
Joel Larsgaard
Matthew Altmix
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