Retirement Income with David Blanchett

Speaker 1 (00:00):

Alright, welcome everyone to the Retirement Power Hour podcast. This is episode six where we're gonna gonna be talking about retirement income with a special guest, David Blanchett, as you can see on the, on the screen. David, thank you so much for joining. Thanks.

Speaker 2 (00:13):

Having me.

Speaker 1 (00:14):

Now, people watching may not know this, but like I told you, I, I feel like I'm kind of talking a little bit to a celebrity. Um, I've seen you, you're all over the financial industry. Uh, I, I've followed your work previously with Morningstar, now Head of Retirement research at PGM, and I'm gonna, I wanna ask you a little bit more about that. But, um, I, I mean, you've been published in way too many places to name the biggest industry publication, so I really do, uh, I'm so honored that you, that you came on to our podcast. So I wanna thank you for, for joining us again. Sure. And those that are listening, this is a special treat. So, so stay tuned. Um, so David, first off, yeah, tell me a little bit about your, your background. I know you were again, at Morningstar for quite a while. You've moved to PGM. Could you just tell the listeners a little bit about what exactly you do at PGM and your journey to sort of get where you are?

Speaker 2 (01:07):

Yeah, so I mean, if we go like way back two decades ago, I used to be a financial planner. I mean, I used to, I sold life insurance for three years. I kind of, um, my, my bad joke is I, I've been kind of climbing the ivory tower for two decades. <laugh>, um, <laugh>. I really, I've always enjoyed helping people. Um, I guess I just kind of do it more now at scale. Well, maybe I used to kind of focus on more of the individual conversations. Um, I got started kind of working in the DC space. I defined contribution like 401k, um, about two decades ago. And I've just kind of been more engaged in that. And, um, for those listeners that know about 401k plans, you know, someone has to kind of run the plan, has to provide investments and options. And so I've kind of been going that track now for the last two decades.

Speaker 2 (01:49):

So, um, I was with Morningstar for about a decade. Um, my title there was Head of Retirement Research. I worked, um, in the investment management group focused on DC plans. Um, now I work for PGIM, uh, which is an investment manager, uh, focused on DC plans. And I, my title is Head of Retirement Research, so it's a relatively similar job, uh, as I had before. Um, it's just a, a different set of responsibilities, a different company, different opportunities and all that. So, um, I'm really focused on creating research and strategies to help folks in lots of different domain,

Speaker 1 (02:21):

Right? Yeah. So when I follow you, you know, on LinkedIn or wherever, industry publications, I, you know, so you're, you're coming out yourself with interesting studies and research studies on things that affect normal everyday retirees. Right? And, and a lot of it that we're gonna talk about today is around that retirement income. Uh, which again, it, it's relevant to 401k, but it's, it's relevant to anyone that's, that's retiring. And as I, as I told you, many of our listeners and many of our clients are, I would call them the next door millionaire type of, of people where I, I consider them, you know, quote normal people. Although they, they're still probably in the top what 1% you, you'd probably have a better idea than I do on that. But, you know, there's just people that have done a very, very good job saving and mu most, or much of their money is maybe in a 401k or was in a 401k, and they, they don't, they don't have five mansions all over the country and $10 million.

Speaker 1 (03:16):

I mean, they don't get me wrong. We, we have, you know, we have a few clients that are higher net worth, but the main bulk of the people that we work with are that sort of next door millionaire people. So these, these things that we're dealing with now in the market, um, and people that are retired, one, one issue that that doesn't go their way could really have a big impact on them. So that leads me to my, my first question for you. So with rising rates, inflation, volatility in the stock market, bonds just being down, having I think, the worst start to any year in the history, uh, of, of bond market, what should retirees keep in mind given this this current environment?

Speaker 2 (03:58):

Yeah, I mean, 2022 has been an absolute hot mess. I mean, you've got, yeah, <laugh>, you've got bonds down, stocks down, inflation up. That is not, that is, that is like the, the ultimate worst trifecta, right? I mean, you can't pick a, a worse environment especially to retire. I think that, you know, like a few things. The first is, is don't panic. Um, right. I've done a lot of research, um, with Michael Finca, who's a professor of the American College. And you know, what we find is that older investors are the ones who are most prone to panicking when the markets kind of, you know, get crazy. The reason is, is because they're worried about it. It has a direct impact if the portfolio's down on their perceived retirement enjoyment and consumption, right? Right. So they're saying, I can't do all this stuff now. And you know, the funny thing is, is you'd think it'd be younger investors that would be more prone to kind of trading decisions, but I think that for the younger person, they're like, ah, like, what is retirement?

Speaker 2 (04:49):

I, I'm going to, I'm gonna keep going. Right? So I think, I think to me, the most important thing is just not to kind of, is not to make, um, a knee jerk decision to kind of, you know, have a plan in place and ensure that you just don't say, oh my gosh, the market's down. I'm gonna, I'm gonna go to cash. Right? Because what tends to happen is when people go to cash and they get conservative, they tend to lock in those losses and they miss the rally. So just make sure you have a plan and you're not reacting to the volatility without a, a, a plan to adjust as things move forward.

Speaker 1 (05:17):

That's like music to my ears, hearing you say, you know, don't panic. Have a plan. We did a whole episode, episode two, why you shouldn't worry about retirement. Big, big asterisk on that if you have a plan, right? So don't worry about it, but, but have a plan that's super important. And we hang our hat on that here for, you know, for any listeners out there, you getting a plan in place and sticking to it, whether it's a bucketing, you know, income approach or, you know, whatever your investment philosophy is, uh, these things that are happening in the environment, they're not, you know, we don't know exactly when or the severity of, of what's gonna happen, but they are quote normal, uh, somewhat normal. The uncertain the unknowns they happen. Um, and that leads me to the next, the next question, which is about withdrawals. And, you know, when we do a retirement plan, we sort of assume that people are just going to, uh, take a set amount of withdrawals in any environment because we really want them to be able to do that. Uh, but that's not always the case. And I know you have some research out on this. So what have you found in your research about being variable with your withdrawals versus fixed withdrawals?

Speaker 2 (06:30):

Yeah, I mean, I think that, that there's an obvious difference out there in terms of what, uh, is easy to model and what people actually do. <laugh>. I mean, retirement is like this incredibly stochastic dynamic process where all these things happen that you could never possibly imagine before retirement, and people are gonna make adjustments over time, right? And I think that that the idea behind adjusting what you spend in retirement is, is very, it makes a lot of sense, right? I think that everyone's different, right? The ability to adjust spending varies by retiree. Some retirees have to have X amount per year, others need more or less, whatever. I think the key is, is, is when you think about yourself as a retiree and you ask yourself, well, you know, how comfortable am I adjusting my spending level if I need to? And the more comfortable you are making those adjustments, the more you can spend from your portfolio.

Speaker 2 (07:22):

Um, there are like rules of thumb that exist in the industry. There's this thing called the 4% rule. Um, it's kind of, it's kind of misnamed, really. All it says is you need 25 times your initial income goal when you retire. And that's not bad guidance. Okay? Um, but you could actually, you could only need maybe, maybe 15 times if you're like super flexible. Sure. You're like, Hey, I wanna go on these cruises 'cause I'm gonna be a younger retiree. But it, but let's say that you're the opposite. You're like, you know what? I cannot afford to cut back. I have to have this every year plus inflation, or I'm gonna be really angry. Well, your number could be like 30 times or more. So I think the key is, is understanding how flexible you are and that really will drive what that withdrawal rate or amount would be. Yeah.

Speaker 1 (08:02):

I think that's why rules of thumb can be, you know, it can be good, but can be bad because everybody's different. And, um, so we never, we never start there. It starts with the individualized customized plan, and that tells us what's best for, for that person.

Speaker 2 (08:17):

So, well, so like one, it's like one thing, like the one thing people get really upset about 4%, they're like, oh, it's like 3.4 and it's like 4.5, but other, other people that are prominent out there have said it's 8%. Okay, I'm not gonna name names, but there a prominent, a prominent financial voice in the industry that has suggested 8% is a safe control rate. And it is not like, that is like, that is like crazy. I mean, again, like if you're like crazy flexible, you can do it. But so people could all up in arms about like, oh, is it 3.7 or is it five? Whatever. Like, I think the key, the key for me is, is that like, you know, people need a lot more than they might expect when they retire, but it, it needs to be personalized based upon your individual facts and circumstances.

Speaker 1 (08:58):

Yeah. And things are out of our control. Again, like in 2020, uh, we had many conversations with clients that said they had a bunch of extra money in their checking account savings account because they, they couldn't spend the money. They, they wanted to travel, but, but didn't, and who would've been able to forecast that, so, right. Um, we like to draft plans where people can assume that they can, you know, at least maintain the level they want, which includes all the extras in the travel. But some people wanna retire a little bit sooner and maybe they're more borderline. And that's a great question to ask and a great thing for them to think about. Can I be variable? Am I willing to cut back if the environment is a, you know, not an ideal environment. And right now, inflation's probably the, one of the biggest things, you know, I just, I, I got gas on the way to work this morning, and, uh, I looked at the, you know, the, the meter about three times when it was done pumping. I paid over 80, $81. I have a, you know, four door sedan <laugh>. Um, it was just mind blowing. And so everyone's feeling it, you know, we're hearing about it all, all over the place, especially in our industry. So what, in your, in your experience, how, how do certain, um, guaranteed income products in our space address inflation or how can, how can retirees address the concern of inflation?

Speaker 2 (10:21):

Yeah, so I mean, there's, there's, there's a, a lot to unpack there. So first inflation is, is measured different ways. Um, yeah, technically it's measured these things called the consumer price index. Um, there's the CPIW, which is how social security is linked, your benefits increase in retirement. There's the CPIU, which was a, it's a more common definition of inflation. There's the CPIE, right? The only point is, is that, is that there's lot, lots of different ways to cut that cake. And a lot of the, the, the, the, the big drivers of inflation, especially over the last year, so don't necessarily directly relate to retirees. I actually had a piece last week in the Wall Street Journal that actually made this exact point, like, you need to understand what your inflation rate is before you get super concerned about, you know, the fact that the airline prices are up 50%, okay?

Speaker 2 (11:09):

Like that might not affect you at all. It might really affect you. And so I think first off, inflation is, is a very actual, very personal thing. And it also gets to flexibility. So like if airline prices are up a ton, if you use car prices and <inaudible> over a ton, can you not do those things? Like if you have the flexibility to say, Hey, you know, I I can wait to buy a car, it won't affect you as much. Like, like, like medical inflation's always live about two or 3% over the last year, not a big deal. Okay? However, right. You know, if we have persistent long-term inflation, that can, can almost devastate a financial plan that doesn't somehow explicitly incorporate inflation into it. Now, there's kind of good news and bad news there in terms of guaranteed income. The really good news is the best place to get guaranteed income right now, and there's almost always is, is delaying claiming social security retirement benefits. Um, right. I'm hoping most of the listeners know this, but like, delay claiming social security, um, it doesn't change based upon market interest rates. So like if interest rates are super low, which is what they've been, versus historical long term, remember just it's like a really, really good deal. Even if they go up, it's still like a really good deal because it's tax advantaged, there's survivor benefits, all this great stuff. So to me, the place to get guaranteed income is social security and it's also linked to, to inflation a problem. But

Speaker 1 (12:23):

I, but I want my money, but I want my money now. David <laugh>.

Speaker 2 (12:26):

I know you do. I know, you know, and one thing that, that, that kind of breaks my heart about a lot of these, like there's all these break even calculators that exist. Yeah. You can go and figure out, you know, here's the thing. I always make this point about social security. Okay? If you, if you delay claiming to say age 70 and you die, your kids get all your stuff, okay, they could have gotten more stuff, right? But they get all your stuff. So the, the, the, the kids, everyone is like in, in spectacular shape. Okay? Sure. The real risk when it comes to retirement for most individuals who kind of actively u use the services of a financial advisor are what if I live to age 110 and I deplete all of my resources and then have to, you have to use money from my kids to live off of. Yeah. So I'm not, you know, I always say like, you know, I worry that these breakeven calculators kind of paint the wrong message because okay, you have to live to age 80. But the problem is, is is the downside of passing away early really isn't that bad for most retirees. It's living a long time. Right? And the implications of that on possibly, you know, your children or your loved ones who will then have to be responsible for providing for you.

Speaker 1 (13:30):

Yeah, no, I, and when that's something that we do and we get some strange looks at times, but we'll run every financial plan for the most part to age 100. And most, a lot of people look and say, I'll never live that long. But, you know, you, you don't know that, you know, you're 60, 65 years old, you could easily live to age 100. And that is the worst case scenario in the financial world is that you live a long time. It's, it's maybe great for your life, hopefully have a good quality of life. But it's the, the worst case financially. On the flip side, you know, if you pass away tomorrow, well financially, hey, you didn't run outta money. You know, you were, you were fine. So it's sort of an upside down world in that sense. But you're right. Living a long time, that is the most expensive thing. Um, and then inflation is a big factor. And I, and I wanna talk about, I think you referenced it, the piece you had in the Wall Street Journal, um, how consumers can, can deal with inflation and maybe even benefit from inflation if that's possible.

Speaker 2 (14:32):

Well, I mean, so I think inflation just, just, it just changes, you know, your perspective on things. I mean, things do cost more, you know, you can explicitly hedge inflation through delay claiming social security, right? Um, you can get a pretty good coverage through buying certain investments. I mean, one thing that, you know, so I am, I am a proponent of, of of guaranteed income, um, I'm gonna use the a word annuity. Yeah, go ahead. <laugh>. We're looking at like higher quality products. But a, a really important point right now is there is not a single product that exists today that explicitly is linked to inflation in retirement. Right? And so, you know, you can, you can add on these things called cost moving adjustments where it's a fixed 2%. Well, let's just say we have inflation that's like 8% a year for like five years. I don't think that's unlikely, but, but there's no way that you can, you can hedge against that technically using, you know, guaranteed income from other other insurers. I don't know that that retirees need that. But if you are worried about inflation, if you are exposed to it, you know, delay claiming social security is the way to go right now. But you also might think more about using, you know, investments to do that. At least intermediate hedge versus buying a nominal annuity. 'cause of the impacts of that longer term.

Speaker 1 (15:43):

Yeah. When the, the retirement income puzzle that so many people have a hard time figuring out, which is why we exist as a firm is to help people with that. But it's the question of do I invest in stocks and bonds? Do I use what you said annuities, do I delay social security? It's all these foreign questions that no one's ever heard or had to deal with before. And it, and it's tough because there's, in my opinion, I don't think there's one right answer. Right? And that's maybe not what most advisors say because I think most on the annuity end of the spectrum would say everybody needs an annuity. Right? Well, maybe I would say maybe, maybe not. You know, maybe someone has a pension, maybe they have two pensions, maybe they have all the, you know, two pensions and social security and they have more guaranteed income than they're ever gonna need.

Speaker 1 (16:29):

I don't think that person needs an annuity. But then you have the person over here that has everything in a 401k, you know, no pension and you know, so social security maybe is, maybe is all they have, uh, in terms of guaranteed lifetime income. So, you know, and maybe they have a high amount of living expenses too. So when you talk about, you know, high amount of withdrawals, high reliance on non-guaranteed sources, then we start to think about, okay, well an annuity might be a good fit, also has to do with your risk tolerance as well. But, um, you know, in terms of annuities, you've got so many different types and I've tried to educate and I I really appreciate your research on, on the topic of annuities. 'cause I would say we're, we're, uh, I'd say we're for them in the right instance, like I mentioned, but you did a piece in advisor perspectives that explored light annuities. Uh, and in that you, you talked about seven retirement income strategies, which included, uh, no annuities, delaying social security, immediate annuities, guaranteed lifetime withdrawal benefit annuities, deferred income annuities. Can you talk a little bit, just real briefly, I know it's, it's hard to probably condense it down, but what did you find to be the top strategy in your research, uh, for retirement income out of those seven that you looked at?

Speaker 2 (17:44):

Well, I mean, the delay claiming social security, like it is the layup. And the thing is, and I actually didn't even fully, um, incorporate all the benefits because I don't incorporate like the tax aspect to it, the survivor benefits to it, the, the explicit inflation hedge there. So I mean, like, I mean, it is like today unbeatable. Now to be fair, you know, like the payout structure could change if interest rates keep rising, that it's marginal benefit over other strategies declines. But still, like I just, I'm, I'm amazed at how many advisors don't actively recommend that as just a starting point for retirees just because it is such a good deal versus everything else out there right now. Right.

Speaker 1 (18:23):

So interesting. Yeah, you don't hear that. So, you know, like you've hit on it a couple times already. You don't hear that, uh, just reinforced enough, I don't think on social security we talk about it, but there is a huge psychological factor and it's, it's that, well, I don't wanna dip into my money and wait for social security, which is not my money, which, hey, is it even gonna be there? Um, I don't know. Do you follow the social security, you know, state of the Oh

Speaker 2 (18:52):

Yeah. You, I mean, you have to. So I think that the, the notion like it'll definitely always be around, right? Yeah. There's like, I mean, it's, it's a, it's a social security system to ensure that our, our grandparents and elder Americans are not destitute, right? So it's not going anywhere, right? Um, there is a trust fund that's becoming depleted, even if it becomes fully depleted, um, it would result in a benefit cut about 25%. But I mean, here's the thing. I think the odds of them cutting existing retiree benefits is approximately zero <laugh>, um, older folks vote. Um, no one wants, I don't want my great grandfather who's 96 years old to, to have less money to live off. Like that's just not a way that we Americans are gonna take care of each other, right? I think it's highly likely that that younger Americans will experience, um, smaller benefits.

Speaker 2 (19:38):

I think that they could raise easily, like, like the tax rate on the, I think there are, there are ways that, that you can make the system solvent, but it, it, it will not, it will not fall on the shoulders of older Americans. It'll fall on the shoulders of younger Americans. That's how they've always done it in the past. And so, you know, I wouldn't, you know, if you're probably past the age of, of 55, I just can't think it's gonna really affect you. 'cause it's not the way they've, I instituted changes in the past.

Speaker 1 (20:01):

Yeah. Boy, you, it sounds like we're, uh, I I'm hearing an echo from, uh, other shows where we've talked about social security. 'cause I've said the same thing. I mean, the, the chances of a 25% cut, and that would be across the board if I'm not, so the chances of that cutting grandpa and grandma's social security when that's all they have there, there's just, there's too many people that are, that that's all they have coming in. Right? And it's not that much already. And the chances that they're gonna cut that more, I don't think are, like you said, they're probably about 0%. Um, but the, it is not going away. I'm still gonna be paying it for a very long time. So the people that are retiring would, will get to enjoy that. Um, and I agree with you. I think delaying is good. You gotta look at your health and that's, that's a big consideration, you know, to kind of,

Speaker 2 (20:50):

Because even, even think it's like, even if you're like crazy unhealthy, it could make sense to delay. It could, yeah. If you are the unhealthy and your spouse can get a higher benefit, right? So I think that, right. There's a lot of things that aren't intuitive and, and in the grant and like, to me, and like the grand scheme of things, like most, if you are working with a financial advisor, so that means you're on average, much wealthier, much healthier, average American, you should likely be delayed claiming to age 70, assuming that you can, like, you know, there are gonna be exceptions to that rule, but by and large, like that should be the default if you have any kind of means to fund retirement. Awesome.

Speaker 1 (21:24):

Fair enough. All right, I've got a, I've got a few more questions here. And they're, they're kind of, uh, big complex topics, so we'll do our best here to cover 'em in a, in a few minutes. But, you know, I wanna talk about annuities and guaranteed income a little bit more because it seems like in the past, annuities have had a very, have had a negative connotation maybe due to fees due to lack of education or you know, how they not knowing how they work, the lack of transparency in sales practices and such. Do you think that's still the case today where people have a negative connotation or annuities have a negative reputation? Is that, is that still the case in 2022?

Speaker 2 (22:02):

Oh, heck yeah. There, there was a dateline special on annuities and it wasn't Chris Hansen popping out, but you know, yeah, there's a dateline special things are going wrong. And I think, right. I mean, for better or for worse, you know, an annuity is, is a product, right? And, and that product annuity that changed radically from when it was reduced, say 2000 years ago, now, it means like so many different things. And for better or for worse, a lot of the individuals that that recommend or sell these products aren't fiduciaries. They don't have to do what's in the client's best interest. Right? And so what you often see not always is, is a lot of, a lot of products, a lot of situations where it just really isn't in the client's best interest to do that now. Mm-Hmm. <affirmative>, I think that is changing, right? I think that we see more advisors, more planners actively considering them because in the past there weren't necessarily products designed for, you know, like fee only advisors or low commission products.

Speaker 2 (22:52):

There's a lot more of those today. And so, you know, one point I always make is I totally get that there's a lot of bad products out there, but like for advisors, you know, you know, advisors pick among like 25,000 mutual funds and investments. And I, I, I can guarantee you, well, not guarantee you, but I'm pretty, I'm pretty confident that when they build a portfolio, they pick really good investments on average. So I, like, I always make the point, like right, I feel like an advisor should be able to figure out what could potentially help and what couldn't because that's what they're paid to do. So, and again, like right now with inflation, things going on, like, I'm not suggesting that that every, every retiree needs them. I think a lot could, but you should be able to figure out certain clients, you know, that could make sense for certain products just based upon that evolving landscape.

Speaker 1 (23:36):

Yeah. And I, I, I'd love to dive into which we're not today, but I, I'd love to dive into the work you've done with annuities and 4 0 1 ks and all that that, 'cause that's sort of a new landscape, but just, just in general, when, what do you think makes a, a good annuity for a retiree or a pre-retiree? How, how should they evaluate that if they're shopping

Speaker 2 (23:55):

For one? So, yeah, so I an important point, like when I'm, so when I think about annuities, like I, I almost always and pick the lens of them as a product to create protected lifetime income. Yeah. Um, in reality though, most annuities that are sold are more accumulation focused, right? Yeah. So when I, when I, when I'm using the a word, I'm focused on their more traditional approach or benefit, which is, which is lifetime income, right? I think that, you know, like where they can make sense, and this also applies to social security, is just ensuring that, you know, how much money do you need to have guaranteed or protected no matter how long you live? Yeah. And I think that that, that is an important starting place. You know, like what is your threshold where if you have less than this, you're gonna be in a, a deep world of hurt.

Speaker 2 (24:37):

And I think that that, you know, you're gonna get part of that from social security. Maybe you have a, a private pension, a DV plan, something else. But then if you don't, if, if, if all those, you know, bases don't cover what you need, yeah. I think you can look out in the market and there are very simple products. There are what are called deferred income annuities. There are single premium annuities. There are other, there are lots of different products out there. Um, the key is, is is figuring out, you know, for whatever reason, which one makes the most sense for your

Speaker 1 (25:03):

Situation. Yeah. Yeah. I think understanding the fees, understanding how the product works, you know, and what it's really designed to do. Yep. I think people, if they, if I had to guess the biggest complaints about annuities, it would be, it would be fees. And then people that don't understand the lack of liquidity around some of the types of annuities where they, they purchase it and they don't realize, well if I, I want to take all my money back out that now I have to pay a penalty. Um, or you know, and I just, I didn't understand how the growth worked, maybe, or maybe not because I heard someone on the radio saying that, oh, your annuities can, you know, grow with the SP 500 with no downside risk. Well that's, that's not true <laugh>, that that's, that's totally not true. Uh, well, it's not, not a complete statement.

Speaker 1 (25:50):

And I think that's a problem. I'm, I'm, I'm sharing my own opinion because I, I think annuities can be a good tool, but like you said, when they're sold for accumulation, that's where the complexity I think comes in because you've got all these index products that people don't understand how the indexes work. But, you know, on the other end, there are annuities that provide guaranteed lifetime income and you could, you could get a deferred income annuity, an immediate annuity, uh, an index annuity with, with an income rider, and that income rider could have just simple guarantees embedded, and it's really not that complicated to figure out. But yeah, you could also go the other end and, and get really complex. So I don't think anything I, you can't say anything is really like a bad investment type an annuity. You can't say annuities are bad, you know, it's like saying, like you said, mutual funds are, are they good or are they bad? You can't say that there's, so there's way too many different types of varieties and I, I think that probably there's a, there's a good product for everyone, but you gotta get, gotta find, uh, that right, that right fit for you blend of fees and, and benefits. Um,

Speaker 2 (26:57):

Yeah, I think, I think that annuities are, are kind of an easy whipping boy because there are maybe, maybe there's more bad annuities than bad mutual funds. I, I don't know. Yeah. But there, there is, there, there is often less or more complexity, less transparency. And so you just, you often end up in situations where someone was sold a product that really wasn't what was best for them. But again, that doesn't mean that they're all bad. Just that that one that person was sold was bad.

Speaker 1 (27:21):

Yeah, exactly. Um, and, and you were quoted in A-A-C-N-B-C article recently about rising rates and how it might be a good thing for annuity buyers. So I was wondering if you could talk just a little bit about that.

Speaker 2 (27:34):

Yeah, I mean, so I mean, the thing is, rising rates are, you know, if you, if you had your money in cash, you can now earn more money on your cash. And I actually have a, you know, I have a, a checking account that's now paying 1%, it's been paying nothing forever, right? So, I mean, rising rates aren't necessarily a bad thing for anything that that's tied to them. So, you know, you know, if you buy a bond right now, the, the, the coupon is higher than what it was three months ago. If you buy an annuity that's linked to any kind of like market rate, it's up. And so I think that that, yes, like, you know, yes bonds are down, but you know, there's an inverse relationship between bond returns and bond yields. And so it's true that, that you probably have lost money on your bond funds over the last three months, but the good news is going forward, you're gonna, you're gonna make that back slowly over time in theory based off the higher yields today.

Speaker 1 (28:22):

Right. Yeah. And that was actually, that was actually my next, next question was about bonds. We've seen bonds get really beat up and you said, yeah, over time you can catch back up, you know, as higher yields, um, per persist for longer periods of time that that helps, you know, dividends get, get kicked out. And, and now, um, again, I'm, I'm, I'm catching up a little bit, but do you have, at PGM, I mean you guys, you guys have, I would say you do a lot of different things, but you know, you're known pretty well for fixed income. So what is your long-term view of, of bonds? Do you have any, do you have major concerns about that? Or is it, like you said, is it just a matter of time before things catch back up?

Speaker 2 (29:05):

Well, I mean, I think, you know, everyone, everyone's gonna have different perspectives on this. I mean, I, I have been relatively shocked at how quickly the yields increased over, say the last three months. Um, yeah, you know, it's hard to say if this is permanent. Um, there's, you know, different reasons why they could actually go at more or go down, but I, I still think that bonds are an essential part of a, an individual's portfolio. Um, I, I said that back when they were yielding 1%. I think that no matter what you do, you have to have this safe asset. And I think that, you know, for a lot of folks, maybe you have like riskier bonds, but I think having that kind of like relatively low to intermediate duration, high quality bond exposure is just so important because they do well typically when you need them the most when markets are down.

Speaker 2 (29:48):

Now today is obviously an anomaly. Um, but I think that the bond, you know, people are like, oh, fixed income's dead when yields were only at like 1% on, you know, no, like, like they serve an important part of, of a portfolio now it, you know, if you can only make 1% on fixed income, maybe it changes how much you allocate to them, how you invest, how you spend. But you know, we don't get to choose what markets return. We can't choose what dividend yields are, what markets do. Uh, but we, it doesn't change the need to have a diversified portfolio.

Speaker 1 (30:19):

Yeah, that's, that's refreshing to hear, to hear you say that. We say that all the time that bonds are an essential part of a portfolio and we talk about a, a bucketing approach where there's, I don't know how many bunches of, of, of bucketing approaches out there and we've got our own variety of that. But what I tell clients is that every investment is really designed for a specific period of time. You know, there's, there's, again, there's no bad investment. Your checking account, David, that you mentioned, that's not a bad investment, that's a bad long-term investment. It's a great short-term investment 'cause it's liquid, it's, it's safe, you earn a little bit, but that's not, not really your main concern. So bonds, you know, we, we like to use them in that sort of the midterm bucket where you've got some different layers of, you know, really safe bonds, maybe some intermediate to earn a little bit more than, than that checking account. But boy, that 30 minutes went very fast. Um, I could talk with you all day, David, but I just wanna thank you again for coming on and sharing your insights. I know that our listeners are gonna enjoy listening to this interview. Is there anything, if you, you know, you could leave our listeners with one thing today, is there anything you could leave with them and given the environment, maybe given they might be a little anxious with, with inflation and interest rates, anything you wanna leave them before we call it a day here?

Speaker 2 (31:37):

Yeah, I mean, I don't wanna, I don't wanna give you more work, but I think it's, it's good that they regularly check in with you now more than ever. Sure. I think that now is, now is when the value of advice is probably the highest. Yep. Is ensuring that, you know, you know, 'cause things could change, the markets could go down 30%, interest rates could go up, inflation could be high. It, it might require adjustments. And the sooner you can address them with a a solid plan, the better. So I mean, you know, change is just the nature of life and I wouldn't, I wouldn't fear it. And, and the faster that you can address it with a professional, the better off you're gonna be able to long term to create those expectations. So I would say that, you know, it might, you might be afraid to call right now, give things, but it really is the best thing to do just to make sure that you know that because things happen and you wanna make sure that your, that your current plan is the right one that's gonna last you 20 or 30 or 50 how many ever years.

Speaker 2 (32:23):

That's right. The longer it takes you to address any kind of pain points, the more painful it might be.

Speaker 1 (32:28):

Yeah. You took the words right outta my mouth. We want, if you're listening out there calls, if you're a client, obviously give us a, give us a call. If not, we're happy to help. We do a free retirement analysis for those within five to 10 years of retirement. And it's no better time to do it than than right now. So get those questions answered. When we do that planning too, David, you know, we look at very conservative assumptions. So that's part of the planning process is you don't wanna put an assumption in that you have no control over of Yeah. The markets earned 9%, the 60 40, the last 40 years has earned 9%. So I'm gonna throw 9% as an assumed rate of return. 'cause you know it should happen again. Right. Well, probably not. It'd be a little bit more conservative. David, thank you again.

Speaker 1 (33:10):

Appreciate your time. Thank you very much. A million times. Uh, enjoyed it. And I hope we can do this again sometime in the future. We'll keep following your work at PGM and uh, best of luck to you. Sure thing. Alright, for everyone else that's watching listening, thank you for tuning in. Make sure and, uh, check us out on Apple, Spotify. Uh, you can listen to the podcast or watch us on YouTube. You can go to our website, carsonallaria.com and check out more resources there. With that, I wanna again, thank David, thank you for listening, and we'll catch you next time on the Retirement Power Hour podcast. Take care.