The Art of Retirement — Christine Benz (EP.257)
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Hi, I'm Jim O'Shaughnessy and welcome to Infinite Loops.

Sometimes we get caught up in what feel like infinite loops when trying to figure things out. Markets go up and down, research is presented and then refuted, and we find ourselves right back where we started. The goal of this podcast is to learn how we can reset our thinking on issues that hopefully leaves us with a better understanding as to why we think the way we think and how we might be able to change that

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Thanks for joining us. Now, please enjoy this episode of Infinite Loops. Well, hello, everybody. It's Jim O'Shaughnessy with yet another Infinite Loops. Today's guest, Christine Bentz, is the Director of Personal Finance and Retirement Planning for Morningstar, a wonderful outfit that I have used extensively over my asset management career.

She is the author of the new book, How to Retire, 20 Lessons for a Happy, Successful, and Wealthy Retirement. Welcome, Christy. Well, Jim, it's so great to see you. It's my honor to be here. You know, I love your title because so often when I was in asset management, it was just numbers. That's what

Everyone talking about retirement was, do you have enough? What's your target number? If you go over to Twitter, you see, you know, what's your number is one of the most common questions that people ask on FinTwit. And yet that is really not the big part of retirement at all. And you cover that really well in your book. It's not just financial planning. Tell us more. My thought is that retirement

Many people tend to either, you know, focus all on the financial piece and ignore quality of life considerations, lifestyle considerations that you need to ponder as you move into retirement. Other people focus exclusively on lifestyle considerations and they come into retirement with this mindset.

bucket list of things that they want to do and how they want to live differently than they did when they were working. And so my sense is that people are either on one side or the other. We really do need to consider both components. So I wanted the book to, yes, focus on the financial piece, help people figure out safe withdrawal rates and reasonable portfolio construction for decumulation. But I also wanted to make sure that they pondered

Some of the things like where they will go for purpose and identity and relationships once they step away from work, because both sets of considerations, I think, are super important. And I will say, Jim, I had been one of the people who had underrated all of the lifestyle stuff. But as my own retirement gets a little closer, I'm thinking more about those things.

Yeah, and I think that that's one of the aspects of the book that I really do admire because people tend to have the out-of-sight, out-of-mind attitude. And in my time in asset management, that was one of the things I noticed. No matter what age investor I was talking to, as they got closer to retirement, they kind of reluctantly said, you know, I guess I should probably start thinking about it.

And really, the better way to do it, obviously, is to start when you're very young. So one of the things that I would try to do with clients is get them to get their kids to understand, this is going to happen. Look what's happening to me. And the

focus on relationships, the focus on health, the focus on a variety of things that don't normally come up when you're doing a retirement plan for somebody. And one of the things that I found was when talking with clients that once they became interested in retirement,

They didn't talk to their kids about it. It was weird to me. And so I would often bring it up. Are you bringing your kids into the equation? Is that something that you think could be helpful for the next generation?

Oh, so much so. In fact, we have a chapter on that very topic in the book. I talked to an author named Cameron Huddleston, who wrote such a lovely, helpful book about these family conversations about money. She shares her own personal sort of harrowing story about losing

Both her mom and dad, her dad initially suddenly passes away and then her mom experiences dementia. And so she's thrust into this situation where she is helping to sort out their financial affairs, what they have, where they have it.

So in her family, they hadn't had even the most rudimentary conversations about how her parents were situated. So I love the idea of families having these discussions. And of course, you know, it's delicate. It does depend on the state of that parent-child relationship.

But to the extent that that is a solid relationship, it makes a world of sense for parents to share some of their views about what they expect their retirement to look like and also get their kids' feedback. I mean, a big disconnect is parents might have this notion of, we want our bequest to be X for our children. We want to leave X amount behind.

And the children's attitude might be, you know what? I want you to enjoy your retirement to the fullest. Forget about me. In fact, that's very common where you have that disconnect where the kids say, you did so much for us already. My expectation is not that there is this huge amount of leftover assets. Our thought is for you to enjoy your retirement to the fullest. So have those conversations, explore those feelings.

It also seems to me that kind of money and talking about money is the last taboo. I mean, people will talk about their sex life all day long online, et cetera, but bring up money and people get very guarded. It's something that I noted over my career.

And and you also see, well, a majority of kids are just like you described. Right. No, mom and dad. Thank you. You've done enough for us already. I do see kind of a undercurrent of younger people.

kind of mad at their parents, especially I'm a baby boomer. Just, just, I often argue that maybe I'm a Gen Xer in disguise because of when I was born, but especially children of baby boomers saying, you know, why leave it to us?

When we're old and gray, why not give it to us now? How would you advise the parent in that situation to kind of approach if their kids are like that? How would you tell them to have that kind of conversation with their adult children?

I actually side with the kids in this situation. I have become a huge fan of lifetime giving. And the simple reason is when you look at the data on when people pass away, well, their children are typically in their mid-50s, perhaps even early 60s.

Their financial fortunes are pretty well set at that life stage. Now, it might be impactful, certainly, for them to inherit money at that life stage, but I believe that you can make a bigger impact on your kids' lives earlier and with smaller sums of money.

One thing I often reference is a gift that my mom and dad made to me and my husband right after we were married in what I think was my dad's first year of retirement. And so he went over his planned withdrawal rate probably that year, but they made a gift to us that we in turn put into a home down payment. And it wasn't in hindsight a huge sum of money. It was a lot to us.

but it helped us, you know, never need anything from them again. And it helped us live close to my mom and dad in a neighborhood where I really wanted to live. And so that small gift early on was certainly smaller in dollar value versus what we eventually inherited from my mom and dad when they passed away. But it was that early gift that made all the difference to us. And

And so I like people to explore ways that they can make an impact with kids and grandkids earlier, whether it's paying off student loans or help with that first home down payment or help pursuing some advanced education that otherwise would entail a lot of costly additional student debt. Those sorts of things, those sorts of earlier in retirement gifts, I think can have a big, bigger impact. And

Kind of a side note in working on retirement planning, I've observed that many people actually do struggle with spending an appropriate amount during their lifetimes. They're very focused on these bequests. And sometimes that shortchanges things that they may wish to accomplish during their own lifetime. So I think it's kind of a problem that we haven't discussed enough.

in this industry. I call it kind of the permission to spend problem. Giving yourself permission to spend from your portfolio after a lifetime of being a saver, I think it's a huge behavioral, psychological challenge for many people. And I think I'm going to be one of them, by the way. Yeah.

I call it human OS, human operating system. And I always preface it by saying, I am a human. So therefore, I have all of the faults of the human OS, just like everyone else. Because people sometimes say, well, that's everyone else, but it's not me. And it also seems to me to be somewhat generational. I mentioned to you before we started to record that we're caring for my 98-year-old mother-in-law. So she's classic human.

depression baby

And that mindset obviously is now the people who remember it are 98 years old. But it did seem to carry on to a lesser degree than with people who really had that got to keep every penny because you just never know. Another thing that people tend not to think too much about that you really address well in the book is the state of their future health.

And Schopenhauer said, health is not everything, but without health, everything is nothing. And you covered that, not just health, but also health.

Things that lead to better health outcomes. For example, you talk a lot about, hey, make sure your inner circle remains vibrant. You, in fact, suggest adding to your inner circle. Talk a little bit about that because I think people don't think about that enough because they just really don't want to.

Right. There is an inextricable link between physical health and social wealth. And I explore that topic in the book with Laura Karstensen, who's head of the Stanford Center on Longevity. It's one of my favorite conversations in the book where she discusses this concept of diversifying your social network. So

So just as diversifying and adding more assets to your investment portfolio and adding different types of assets to your investment portfolio is fruitful, so is it helpful to think about expanding your social network in that way. You always need to be mindful of what that inner circle

of very close friends looks like. And as we age, we have to understand that inevitably there will be some sad things that will happen that might knock people out of that close inner circle. So you need to be thinking about augmenting them, about building additional relationships as you age.

ideally among people of different age bands too. I think there's a lot to be said for diversifying the types of people who we're hanging out with, which is one reason why as much as I like the seamlessness of these continuing care retirement communities that are kind of all in one places where you can age and get whatever care you need. I think that's a major drawback in

in that you are mainly going to be surrounded with people who are in your same general age vicinity. If that is your choice, you need to make a point to get out of that setting so that you're exposing yourself to different perspectives, ideally from some younger people. Yeah, I could not agree more. My grandfather, when he got older, increasingly surrounded himself by young people.

And he was born in 1885, made it to age 88. And so I followed his lead there because one of the things that you forget is all of that enthusiasm, all of that, like, just incredibly good vibes from the young people who, you know, I can conquer the world and all that. It really kind of rubs off on you as well. And so I...

agree with you in terms of that. But how would you go about advising somebody to do that? I have my own ideas, but other than going to where you might find some younger people, I know that in some of the Scandinavian countries, they have a trial where they put seniors and very young people together. And I thought it might make a really interesting documentary. We have a film division, but

But the results of the studies that I've read, it's almost magical. How could you see something like that working here in the United States?

Well, I think we need to start earlier. And so ideally, during our working careers, we do have some of that some of those synergies happening. So I love the whole reverse mentoring idea. Informally, I have a reverse mentor at Morningstar. I guess I'm her older mentor, but she mentors me just as much as

And so I think that, you know, we need to start this in our careers. There is something Mark Friedman, who has written a lot on encore careers, has talked about something he calls age apartheid. And frankly, it's a thing in our culture that, you know, that it's this divide. And so I do believe we need to be very mindful about building those connections during our careers and ideally carrying those friendships and

into retirement. But it's also helpful, you know, as you think about retirement, you do need to think about your activities, how you will spend your time. And, you know, maybe that some of those connections come through shared volunteer activities. Maybe you're continuing to work in some capacity or

And maybe it's something that relates to the job that you had, or maybe it's something completely different. But it's really valuable to be thinking about, okay, what are those activities I'll pursue in retirement? And side by side with that, how will that put me into contact with other human beings? Because as you know, there's been so much research done about

human happiness, and all of it comes back to who you love, who loves you, and you need to put yourself in situations where you are around other human beings.

Completely agree. And I just always think, I don't know if you're a Sopranos fan, but Tony had to put his mother in, as he used to say, it's a retirement community. And she was like, you're putting me in there to die. And I just think that if

If you premeditate these things, you're going to get much better outcomes. Like, for example, I mentioned earlier, you often see on social media, you know, what's your number? Well, everyone's number is going to be very, very different. But it requires kind of thinking about, well, what do I want to do, right? Do I want to leave a lot of money to my kids? Do I want to give a lot to charity? Or like, you know, what's going to make me

Just very, very happy for different people. It's going to be very different things. Some people want to travel quite a bit. Some people want to stay close to family. And I think that, you know, you need to think that there might be a lot of different versions of what you're going to be. So that is going to determine what you need. You had a comment in the book that a friend said, you have to divide or define the three halves.

Have you had enough? I guess that means I've had enough. Remember the movie Network where he starts? Yeah, I'm mad as hell and I'm not going to take it anymore. So have you had enough? Do you have enough right now? And if you don't, are you going to get there? But then this is the part that seems to have the largest disconnect, which is.

Will you have enough after the first two have been a resounding hell yes? And then how do you advise people go about doing that on the third one?

Don't wait until retirement starts. I think that is a big mistake that people make. They show up in retirement and part of it is a function of the way that we work in this country, I think, where, you know, frankly, a lot of people are very burned out by the time they get to retirement. All they can do is think about getting to the finish line and they haven't been able to visualize anything other than like, oh, I'm going to golf. I'm going to

watch Netflix all day long or whatever. And that stuff is fine. You need to do fun, relaxing things in retirement. You have earned it. But it's really important, I would say, in the decade leading up to retirement to start visualizing

what those days will look like, start doing a little bit of experimentation. And the good news is this is an empty nest phase for a lot of people where they have a little more free time. It's a wonderful life stage to experiment a little bit. And, and the, the answer is completely personal, but I would just try a few different things. And I,

I would also say that thinking about phasing into retirement makes a world of sense to me. I wish more people would consider it versus just that hard stop. In fact, I'm beginning to think the hard stop is...

antiquated in a lot of ways. And of course, there are reasons that people need to step away from work, often health reasons. But if you can visualize just that sort of gradual stepping into retirement, to me, that's just a much healthier way to do it, where you're hanging on to some of those aspects of work and

that really light you up. Maybe you are stepping away from the things that you don't enjoy as much. And it's just sort of a gradual iterative process. To me, that's the way to go about it if you possibly can.

Yeah, I agree. And yet, you know, there's a reason they call economics the dismal science, right? When you look at the data, it hasn't changed too much from when I wrote a book about retirement. You know, nearly half of retirees say they don't have enough money to retire. 25, 27% say they have no savings at all.

And, you know, the average in a 401k retirement account is not all that great, right?

It just seems to me there seems to be a better or there needs to be a better way. And it's something I've thought about a lot. It's like as things like AI and VR come online, one thing that I've seen an experimental version of is if you take somebody who's in their prime earnings years, in their 40s usually,

And you can put them in a VR setting where literally it ages them.

And they come out of the experience many times sort of not happy, but at least aware, oh my God, this is going to happen anyway. Are there other tricks that somebody in your seat, like you've seen it all, are there other tricks to get people to take that first step when they're still in their 40s or 50s to really start taking it seriously?

It's such an important point. I love Hal Hirschfield at UCLA has done some amazing work where they help people visualize their future selves. And that gives them a sense of empathy with, with that human being in a way that, you know, you're, you're telling 30 year olds to save for their retirement and they're kind of like, what I'll be old. What do I care? It's just very difficult to forge that connection. So I love that visualization work and,

I am just a huge believer in defaults, defaulting people into saving until it hurts. But one thing we tend to see is, you know, when we look at 401k participant behavior, people are incredibly inert. Like you can put a lot on them and they will not do anything to reverse the defaults that you've put in place. So I'm a big believer in automatic saving.

forced savings. If someone opts out, default them in again next year and see what they do, because we do tend to see pretty good outcomes with more defaults. So I think that's part of the puzzle as well. And then another thing I'd like to see in the retirement planning discussion is we put too much of an emphasis on retirement too early in savers' lives. And

There's been some research, and I can't point to the specific papers, but it shows that early wins, earlier on, so if you achieve something, whether it's a home down payment or whatever, that can get you in the mindset of...

here's what we're doing, here's why this is valuable. So setting savers up for wins earlier rather than telling them they need to focus on this goal that is 40 years down the line, to me, that's another powerful thing that we ought to be thinking about in the retirement planning discussion.

Yeah, I'm a big fan of the opt-out strategy of 401ks and various vehicles to save at work because you're right, people are very inert. And if you give them the same plan, everything is the same, except one is you have to opt out of it. People tend not to. And I've even talked to people who are like,

they'd kind of forgotten that they had been making all of those contributions to their 401k. So I'm a big believer in that as well. And yet the point you made about when you're 30, like,

It's very difficult to conceive of, you know, when I'm 64, right? And so when you're 64, you start realizing, holy shit, boy, did the last 30 years go fast. And they seem to speed up as you get older. And yet when you talk to a young person, like when I was 30, I thought I was going to live forever.

And so I'm like, okay, I can take the risk now. Which leads me to, I want to ask your question because this was a movement that came along after my time in asset management, the so-called fire movement, which is people who want to retire super early. So let's be honest about my priors here. I'm the opposite end of that spectrum. I'm never going to retire, right? In other words-

Like my wife would probably throw me out of the house in the first week because I would annoy her so much. But I respect people have varying attitudes about this. But when did that become a thing? When did it become a thing for people to want to retire like in what to me would be the prime of their career?

I think that Mr. Money Mustache might have been the first FIRE proponent, but the broader context, I think, is just that the bond between employer and employee has frayed so much that people feel like, well, my employer doesn't care about me, so I certainly don't care about them or, you know, continuing this relationship. So I think it came...

from that overall sentiment, that there just is not that interrelationship in the way that there was for employees 30 or 40 or 50 years ago. And I always like to illustrate like the counterpoint, which is I have been at the same employer for more than 30 years, and it has been incredibly fruitful for me, not just financially, for

For them as well, I hope. But it's also just like I think about stages in my life when I was very engaged in helping oversee my parents' care as they were declining and how much grace my employer gave me to pursue that.

that need. And, you know, I'm forever grateful for that, that I, you know, during that period still received a paycheck, still was covered by the employer provided health care plan, all that stuff. And, you know, it has kind of gone back and forth over the years where at various points in time, my employer has demanded a lot and

But it's just been one of the best relationships of my life. But I think that FIRE came out of people not feeling that at all from their employers. And I'm happy to see that FIRE has evolved more to be on the FI piece. Like it's sort of like...

You shouldn't necessarily retire early. I think many FIRE proponents have concluded. But if you can have some leeway to say, OK, this job isn't suiting me, I'm going to go over here and try this other thing. Well, that's tremendous. I don't think anyone can argue with this idea of people being able to call their own shots financially.

Yeah, I agree with that part of it as well. And for those listening and not watching, I'm holding up a gold watch that was given to my grandfather. The funny thing about this is it was his company and he didn't retire. But I keep this on my desk because it reminds me of how much has changed.

Over the years and and the response of people, I think the fire thing was one of the outgrowths of how much the traditional employer employee sort of compact.

You mentioned people think, well, if my company doesn't care about me, I'm just going to not care about them. But it also seems we're doing a series called The Great Reshuffle about how all of these changes are really going to affect everything from where and how you work to when you might retire, etc.,

Um, and, and one of the things that we see is the idea of being able to have a wonderful career like you've had with a great company is becoming less and less obtainable out of the new way things work. So what would you say to somebody who's like, you know, I really have focused on adding that optionality by putting away a lot earlier. Um,

And yet what I want to do is kind of try this, try this, try that. Like, is there a process or a plan that would suit that type of person who isn't going to stay at the same company and have the ability to, you know, build up goodwill, build up their 401k, et cetera? Because it does seem to me that the, I hate the term, but the gig economy, right?

is still with us. Is there a way for those people to be on the right path? Well, it seems to me that if someone is

Thinking along those lines, you'd need to have a bigger pool of certainly liquid non-retirement assets. So this is sort of from the financial standpoint, you'd need to have, you know, that bigger emergency reserve. A lot of the fire people, and I'm not sure I'm 100% on board with this, are very into rental properties as a means of augmenting whatever income that they're earning elsewhere.

I'm not the hugest fan of people being so reliant on rental income, but that's a big recurrent theme within the fire space. So, yeah. Yeah, because you forget you're also a landlord when that happens. And being a landlord, if you've ever done it, it's not the greatest amount of fun I have found.

You talk in the book about the bucket system of investing, which I think makes a lot of sense. And one of the things that you say that I love is it's not black boxy at all. It's pretty simple going forward. So sort of bucket one is cash. You recommend two years of anticipated spending. Bucket two, intermediate term bonds.

very happy that you made it intermediate term bonds versus long-term bonds because I studied the hell out of that. And like you get,

virtually the same returns with intermediate-term bonds as long-term bonds with much less risk because inflation and other things could really affect the returns to long-term bonds. And then a globally diversified equity portfolio, which kind of implies you have a 10-year time horizon. How do people receive that kind of advice? Do you get people saying, do

Two years of my anticipated, I mean, like, okay, I guess I'll just sit here and do nothing and twiddle my thumbs because that's a big number, right? That's 24 months and that can seem like a big hurdle. How do you walk people through that so that they're like, yeah, I can do that. I get it. Well, it's funny, Jim. I felt like I was running around deflecting criticism of this bucket approach because

And then 2022 came along when both stocks and bonds were knocked down at the same time for the same reason. And I think people were like, oh, here's why she's been recommending cash. So there's a good argument that there are environments not at all unprecedented when that bucket two doesn't perform especially well and bucket three doesn't either. That's why you have the cash reserves.

And then I always make a point to say when you're setting aside that cash allocation, it's portfolio withdrawals. So it's like two years of portfolio withdrawals. You're probably getting income from some non-portfolio income sources, social security for many of us, pensions for a shrinking share of us.

So it would be the amount that you are anticipating pulling from that portfolio over the next couple of years. And I just find that it really works behaviorally. I've gotten so much feedback from actual investors over the past couple of years, past several years, really, where when we've had trying market environments, people have said,

This gives me a ton of peace of mind and it helps me keep the peace with that long-term, more volatile portion of the portfolio. I'm not worried about what's going on there because I know that we can still carry on with whatever plans we have for the next couple of years. So I think it works behaviorally beautifully. You just need to be sure not to over-allocate to that cash bucket because, of course, inflation is going to eat away at whatever purchasing power you have there.

Yeah. And, you know, I've long said that the four horsemen of the investment apocalypse are fear, greed, hope, and ignorance. And only ignorance is not an emotion. Fear, greed, and hope have driven more losses, in my opinion, than any bear market, than any recession, even depression. And that's the part that is difficult to get right.

You know, inflation is not linear and we forget that different things inflate at different rates. I mean, the most common is health care.

The compound rate of inflation in healthcare is about 4.1% versus 2% and change for other goods and services. And so you also say, you might also consider an optional fourth bucket, which is funding for long-term healthcare. And I did a quick look up the way people think about this. And I was really, I was surprised when I saw the answer.

But retirement health care costs are unpredictable in that most people seem to think, oh, well, mom and dad were healthy. I'm going to be healthy, too, and kind of leave it at that. And when you look at the actual numbers, 65 percent of people end up with having children.

chronic health conditions that need to be managed and can be very expensive. 22% have acute episodes where those can get very expensive. Just 13% end up with the optimal health outcome.

Yet, it's difficult for us to think that way, again, probably because of human nature. What type of investment would you suggest in that long-term healthcare bucket?

Yeah, it's such an important question. And anecdotally, the long-term care question is the elephant in the room among older adults. And we talked earlier about the permission to spend problem, why people are anxious to spend what the research would suggest is an appropriate amount. It's because they're worried about having this balloon payment at the end of their lives to cover long-term care costs, which are

out of our health care system. They're not covered by Medicare. They aren't covered by traditional insurance. You would need to have a separate long-term care insurance policy. So if

Figuring out how much to set aside for long-term care and then how to invest the funds is something that I think people need to get ahead of, especially if they are not covered by long-term care insurance. So in terms of what to drop into that bucket, well, the statistics would suggest that if we have long-term care costs, they come at the very end of our lives.

So if I'm embarking on retirement at kind of a traditional retirement age, say in my mid-60s, well, then I probably have maybe a 20-year runway before I would need those funds. So I would invest them with a very long-term mindset. So they would be probably an all-equity bucket, right?

and then gradually de-risk that portion of the portfolio as I age. That would be how I would think about it. And the nice thing about setting those funds aside and kind of hiving them off from your spendable assets is that there's some optionality there. So if you do not need long-term care, but you live to be 105 in a healthy body, well, there's your overage above and beyond what you've

had in your spendable portfolio. Or perhaps in the best case scenario, maybe you die at kind of a normal age, you have a nice pool of assets that you could leave to heirs or charity or whatever the case might be.

Yeah. And then back to the three main buckets, what advice do you give for how a person saving for retirement should approach those three buckets? Like one of the things I always found was both easy advice to give, but it was also easily received.

was just once a year, rebalance your target for each bucket, right? So you mentioned 2022. And during that, bonds got killed, stocks got killed. And yet, if you were simply rebalancing, that would force you to buy more bonds, more stocks, less cash, et cetera. What other strategies do you advocate for people following your approach of bucket investing?

For people leading up to retirement, I don't see a strong need to have that ongoing cash reserve, by the way. You certainly need some sort of an emergency fund to cover unanticipated expenses or sudden job loss or whatever. But I would not hold that much in cash on an ongoing basis. In terms of maintaining the buckets, there is, I think, a nice, again, level of optionality with this in that

The beauty of it is that each year you're kind of taking a step back. Year end is a fine time to do this and kind of looking at what has gone on in the portfolio in the previous year. And you are using the funds to replenish that cash bucket if you've been spending from it for retirees.

Today, they've probably had pretty good experience with their equity holdings. They're probably pulling from equities, putting money into cash to supply their living expenses for less fortuitous markets. So that rebalancing, I think, should happen annually. And the nice thing about that is that you're not reliant exclusively on whatever policy

income your portfolio is kicking off, which is another one of those behavioral issues that retirees run into where they think that they are going to construct this portfolio exclusively for income production, and that backs them into some pretty funny-looking portfolios. So the exercises annually are just taking a look at how various constituents of the portfolio have performed and rebalancing, oftentimes to supply your cash flows.

Yeah. And with the proliferation of various investment vehicles, how do you recommend people approach that? Because one of the things that I've noticed is in the early days of my first asset management company, we used to have a folder in which we would do a tear sheet for each of the strategies. We had 10.

that an investor might consider. And I noticed that when we showed all 10, people very rarely actually chose any of them. And so we switched that to only doing a little homework on our client, what their age was, what their intentions were, et cetera. And then only putting two at most three in and people would immediately make a choice and get there.

My word, there's everything from ETFs to mutual funds to direct stock investing to other non-equity investments like, wow, lions and tigers and bears. Oh, my. How do you recommend people approach the just complexity of the alternatives available to them?

Well, less is more, in my opinion. In fact, I'm president of the John C. Bogle Center for Financial Literacy. So Jack is always kind of on my shoulder counseling for simplicity in terms of investment portfolios and away from product proliferation. And the fact is,

Because of the tax code, it's inevitable that most of us will be bringing multiple accounts into retirement anyway, and we'll be managing multiple account types through our accumulation years as well, because we have...

traditional tax-deferred accounts, Roth accounts, taxable accounts, and those need to be maintained separately. And so you add in that a lot of people are part of couples, so you can multiply those by two. And so there's complexity right there with those multiple account types. So I think really taking care to not overcomplexify

to complexify the holdings within each of those portfolios goes a long way. So I'm a big believer in

simple low-cost index funds and or ETFs to provide a lot of the asset class exposures. I don't happen to believe that most people need to be delving into a lot more than those basic portfolio ingredients. One category, though, that I would definitely bring into the picture for retirement decumulation would be

Investments that do directly hedge against inflation risk. So you don't need tips and I bonds in your accumulation years because you're getting a paycheck. But once you move into the decumulation phase, I would definitely bring on board some inflation protected bond exposure.

Yeah. Well, I was still at O'Shaughnessy Asset Management. I was toying with an idea. Wouldn't it be cool to have sort of an automated way that you could help people trying to save for retirement that literally just kind of did it for you, right? In other words, obviously, you as the client would check in, but it made all of those switches. It made all of that just to try to make it as seamless as possible.

Or people. And yet one of the things our mutual friend, I think Jason Zweig, who is a wonderful columnist at the Wall Street Journal, he gave me the best example of when you try to judge risk tolerance. Right. And he said.

Most of the industry shows people a picture of a snake and say, does this make you afraid? And they're like, of course not. It's a picture of a snake. He goes, if you really want to test people's risk tolerance, throw a live snake in their lap.

I always love that because the reality of that situation really makes itself apparent. And so how do you advise that people understand that the single point of failure for most people who are just saving for retirement, in other words, it's not their hobby or their passion or what they love to do. They're going to be very utilitarian about it. And yet,

When the news hits and we have a pandemic and the market's down 30%, the single point of failure is you go in and sell.

And sadly, I've seen this so many times and it just, it makes me distressed because obviously you should probably be doing the opposite. Are there, are there any techniques or services or, you know, strategies that would make it easier for people to not hit that single point of failure? Because emotions can really, and I include myself here. One of the reasons I became a quant and entirely conscious

quantitative was because I realized that I'm just as emotional as every other human. And so I found a process that could alleviate, not entirely eliminate, but alleviate that for myself. Are there others for people who aren't like quants like me?

One of the biggies is enlisting some help. If you're concerned about this possibility that you would sell yourself out at the bottom, which is probably a possibility for all of us, it does make sense to consider bringing on board someone who will do the decision-making for you, who can be dispassionate about market events.

I think that's a terrific use for some sort of financial advice. Interestingly, too, when we look at our data at Morningstar, we have a data point called investor returns where we can kind of look at how the typical dollar in a fund has done. One thing we see when we look at that data is a beautiful picture for all-in-one type investment products.

like a simple balanced fund, but of course, target date funds would fit under that umbrella as well. So those investments that bundle together different asset classes do a fabulous job of keeping people in their seats in good markets and bad. And it may be that those are popular products in the context of 401k plans. We were talking about how

inert the typical 401k participant is. It may be that we're just sort of capturing, well, 401k investors invest there and they tend to be really placid. But I think there's something there. Like if your statement is,

is concealing some of the volatility in the constituent holdings, as is the case with these all-in-one type investment funds. You just see less of the bumps along the way, which tends to help people sit tight. So that's another kind of very cheap strategy.

strategy that people might avail themselves. But I would say some combination of outsourcing of the asset allocation guidance probably makes sense for most of us.

Yeah. When I was young and filled with piss and vinegar, I was always like, oh, you can do it yourself. I quickly changed my view on that. In fact, we changed our business model. We used to take clients directly. And then we realized that a good wingman is worth their fee.

Because if they can keep you from panicking and if they can keep you from doing the worst thing at the worst possible time, it's like the joke about anesthesiologists, right? 95% of their work is pure boredom. 5% is sheer terror. And they earn every dollar they make in that 5% of the time.

but you also bring up costs, right? And I got to the point where I would say, look, I believe in the alpha generating strategies that we offer at OSAP, but if that's not your bag, probably the best thing you could possibly do is buy the absolute lowest cost ETF, global equity ETF, and

What do you find? Because another thing I found was that many financial products are sold, not bought.

And by that, I mean, like people aren't like, oh, I'm going to I'm going to put my money in this. They actively put their money in only when there's a person selling it to them. How do you work? What's the optimal way to kind of put together a plan where you're very aware of costs and yet you're getting the help that you need?

in terms of not selling out, just better understanding, dispassionate partner, etc.?

I'm happy to see that there's been a really wonderful evolution in the delivery of financial advice that I think is making it more accessible to more people. Initially with the various robo products that came out, and now I think there's more widespread acceptance of kind of the robo human advisor. But all of those things are very good for consumers in terms of helping them obtain a level of advice at a low cost and

It's not one size fits all. Some people may want a more bespoke advisor experience where they have a lot of ongoing engagement with the advisor. Some people may not want that at all. So I'm happy to see that the investment services industry has come to deliver an array of different

advice types often at a really low cost. And I also like that advisors are experimenting with different business models to serve younger clients who might not have the critical mass in their portfolios to qualify for, you know,

you know, the ongoing fees where they might pay a subscription fee or something like that that might be more accessible to the younger investor. So I'm glad to see that we've had a healthy evolution away from the everyone needs to have a million dollar portfolio and pay us a million dollar or pay us a 1% annual fee. So now you are an expert at saving, investing for retirement,

What mistakes have you made in your own account that you're like, oh man, I can't believe it.

A couple. So I was a fund analyst before I started doing what I do now. So probably had a little too much complexity in my own portfolio. I probably had too much in the way of expensive active funds at one point in time. I still do have several active funds in my portfolio, mainly because I feel like I'm a

very good picker of those funds. And I'm also really good at staying the course with them that I'm usually, if they're going through a bad spell, I'm usually knowing that sort of everything's the same at the firm. I'm able to actually add to them when they're down. So I still do have a healthy contingent of active exposure in my portfolio. Probably the biggest drag, if we were to analyze it has been holding too much cash on an ongoing basis. And I was earlier cautioning people not to get carried away with the cash that

But part of it is, you know, you get a bonus or something happens. You inherit money from your parents. There's always a tendency to be like, oh, is this the best time to put that money to work? And so just been slow on the draw and having cash does not feel bad. You know, there have been a few times where we've been able to help relatives with things where it's come in handy to have those liquid reserves. So probably the best

biggest long-term drag on our portfolio has been that, just sitting with too much cash too long.

Do you find that there's a personality type that really emerges? Because we talk about saving, but the saver profile, at least to my mind, is very much different than the investor profile. How do you help people? And if you're way on the investor side, you might be far more willing to take risks.

that could end up not treating you well. And if you're on the saver side, you tend to probably take less risk than you should. How do you help people balance between those kind of two personality types? Yeah, it's an important question. And within couples, sometimes there might be two different personality types there where one person is inclined to be all in with stocks and the other one is a little less aggressively inclined.

I think it's a particularly big risk for people embarking on retirement today. I see the people who have honed their skills as investors. It's like, okay, now you're getting into your mid-60s or your 70s. You need to de-risk that portfolio. That's the issue that I have encountered the most is getting the investor to realize that you –

need to kind of adopt that saver mindset a little more as you move into decumulation, that it's time that you don't need to de-risk that whole portfolio. But that's the conversation I find myself having again and again with older adults is they've had a great experience in stocks over their investing career, getting the

trying to pry their hands off that appreciated equity position and de-risk some of that portfolio. I think that is the biggest challenge that I've observed.

Yeah. And it's funny because when I was coming of age, 1982, I was 22. And if you, you probably, you're too young, you wouldn't remember. But if you remember 82, everybody hated stocks, everybody. You had the classic business week cover from the seventies, you know, the death of equities. Right. But it was like really profound. And when I would tell people,

you know, what are you going to be doing? And I said, the stock market, I mean, it looked like I just said something horrible, but looks on Facebook were like,

The stock market, like stocks are for widows and orphans, dude. You need to be in real estate. You need to be in those kinds of things. And then, of course, obviously, we had this incredible period where long-term interest rates declined for most of my adult life, kind of the ideal glide path for stocks. And now, obviously, things have changed. How...

How do you think that affects what people do in terms of the investment? So like for me, I'm, I'm, I'm not a bond guy. Let's my, my priors are, I love, I'm very happy to be long risk. Let's put it that way. But you know, situations change and you know, interest rates could be going in a very different direction, which is one of the reasons I love your focus on intermediate term bonds as opposed to, to longer bonds.

Um, but is there a, a way that an advisor helping a client, like, is it useful for, to continually maybe once a year, like you go to your doctor for your physical once a year, kind of do a reassessment, not just of the plan itself, but things like, has my burn rate changed? Am I spending a lot more or a lot less? Um, and, and if so, like,

Boy, it'd be great. I could see it being on Morningstar's site, for example. Here are four pages that you've got to do once a year. Would that materially help people in terms of trying to adjust as life goes on?

Well, 100%. And I do think that people do tend to underrate the value of that ongoing financial advice in retirement because it's a completely different thing than...

than saving. I'm fine with people DIYing it through their savings career if they know that they can stay the course in periodic downdrafts. But retirement decumulation, figuring out how much you can reasonably spend and how to position that portfolio and where to go for your cash flow needs so that it's

helps grow that portfolio over time. That's a fabulous role for some ongoing financial advice. And I think more people should avail themselves of it. The de-risking, you mentioned you're not a bond guy.

That is the issue. In fact, I was at a New Year's Day party and there's someone I know who's always there. And he's like, before we get before we get into this party, I need to talk to you about bonds. Because and then he proceeded to tell me how he still remembered he's in his 70s now, still remembered, you know, just how bad bonds were during the 70s and first part of the 80s. He's like, people like you are telling me to buy bonds and I just not seeing it.

So the angst about bonds is very real. But nonetheless, you know, when we look at capital markets assumptions from major firms, including our team at Morningstar, they're forecasting equity returns that are kind of on par with fixed income for the next decade. And to me, that should be a wake-up call for retirees to think about having at least a

some component of fixed income assets in their portfolio as a means of lining up some of their cash flow needs without the volatility that their equities will entail.

Well, going off that, that your friend, what are the questions over your career in dealing with this and being an expert in it that you just keep getting and you just keep seeing them ignore that advice and or, you know, coming back, you know, for the next new year's day party and say, yeah, I really should have taken your advice. I didn't bet. Now do it again. Like what, what are the, what are the themes that you just keep

hearing. And even though you give a straightforward and practical answer to the person asking the question, that you just see them not taking that advice. One of the biggies gets back to our conversation about long-term care, where this is just a consistent pain point among older adults. They're worried about long-term care costs.

So my point is, let's make a plan there. Let's not just have that be this looming thing that is keeping us from enjoying our retirement lifestyle. So that would be one. One smaller question that I get a lot is, so you have these required minimum distributions that come due on your traditional IRA accounts.

And we work on all of this research annually where we look at safe withdrawal rates, like if you're embarking on retirement. And so there's a disconnect, especially once you get over a certain age, we're spending more than, say, the 4% or whatever the case might be.

And so people have some angst about that, that, oh, this RMD is higher than I might choose to spend. And so the thing that they ignore is, well, no one's saying that you have to spend that whole RMD, right? It has to come out and be taxed. But if it's

it's taking you over your target withdrawal rate, you can certainly reinvest it back into the portfolio. So those are a couple of things, but the de-risking one is one that's coming up a lot. And it's relative is just why we should keep the faith in international equity investing. That's one that I'm hearing so often from investors

accumulators as well as people who are in the retirement decumulation mode. Like you have told us for so long that international stocks are cheaper than non-U.S. and indeed they have been on many of the traditional metrics, but they just really haven't earned their keep for a good decade. So that's another sort of persistent question that I've been getting about portfolio management. What is your most non-consensus belief?

about this topic and does it surprise people when you express it?

One, I would say, I don't know if it's non-consensus, but it's certainly controversial, is the role of annuities in all of this. And there's a great difference of opinion in the book as well, which I really appreciate because I don't think there's any one single answer on this. But the more I've learned about retirement decumulation, the more I've been attracted to the idea of trying to address or trying to buttress annuities.

non-portfolio income sources, trying to, you know, everyone knows you should try to elevate your Social Security benefit to the extent that you possibly can.

But I do, I'm compelled by the research that shows that people who have purchased some sort of very basic annuity type, some low cost income annuity that maybe steps up and provides cash flow needs up above and beyond what they're getting from Social Security. I think you can provide a ton of peace of mind there.

With the long-term portfolio, it just alleviates stress on that long-term portfolio in terms of spending rates, the composition of that portfolio. Everything gets easier if you are able to address more of those cash flow needs with non-portfolio income sources. So that's something I've come around to.

Over the past several years, people in my Bogleheads community are positively allergic to annuities for some very good reasons. The lack of direct inflation protection is certainly an issue. You have to be reliant on the insurer for a long period of time. Insurers' financial health

health isn't all the same. So you need to do your due diligence there. But I would say that's maybe a place where I depart from some people I respect a lot in the retirement planning circles. The book's been out for a while. What have been the parts where people have gotten in touch with you or you've read something somebody has said where they're like, oh,

This really resonated with me. And, you know, it was great for me because I hadn't been thinking about that at all. And then conversely, what have been some of the, you know, criticisms from your readers like, yeah, and they might be around annuities because I know how the Bogleheads feel about annuities. But what feedback has really resonated with you as well about the book?

That three halves I've heard repeated back to me on several occasions, which is really lovely. That came from my friend Maria Bruno at Vanguard.

Several folks have talked about the relationships discussion, the idea of making sure that you have relationships shored up as you head into retirement. And that's really a through line in several different chapters. Laura Karstensen's hits it most directly, but several people talk about it.

that section. And then Jamie Hopkins' chapter on adaptation, how you need to be prepared to adapt as you evolve through retirement, that you want to think about retirement as maybe a series of phases rather than just sort of that beginning go-go phase. You need to envision what the future phases might hold and how you might adapt and change throughout retirement. It

In terms of the pushback, some of it has been in the realm of annuities. In fact, I was reading a review on Goodreads and someone was like, the author just takes every opportunity to shill for annuities. And I'm like, wow, because we had Bill Bernstein in the book talking about how he

thinks annuities are a terrible idea, and so does JL Collins and a few other people. So I wanted to showcase a range of opinions on that topic. I don't think it's black and white, but apparently it was received as black and white with me saying everyone needs an annuity, which is not my vantage point. Yeah. You've been at this for a while. What problem in this field has vexed you the most? And

Have you come up with a solution to the thing that just kind of sticks like, I really wish we could fix this? The big one in my mind is

Can we have some evolution of the 401k plan to do this retirement decumulation stuff for people where someone could stay in plan and have some sensible cash flow delivered to them? Because there's so much that's suboptimal about our retirement planning system and that we have

you know, people and getting back to Jason Zweig, I remember we were both on Consuelo Mack's show one time and he said, the retirement planning system that we have now is like, everyone's on the bus. Or maybe he said, you know, when we had pensions, everyone was on the bus, they'd get to their desk destination. You file off, it's orderly, you're at your destination. And

Now it's like we're all in private cars driving on the road. Some of us have never been on the road. Some of us have never driven cars before. And there's so much that's suboptimal about how we do retirement planning in this country, especially when it comes to that decumulation phase where you're 65, you get handed this pot of money sent out into the world to try to figure out how to make it last forever.

over your retirement time horizon. So I think that's the main nut that we still need to crack. Can we create sensible decumulation solutions for people at that life stage? And we also know cognitive decline is a big thing for older adults, that as we age, we are more likely to experience cognitive decline. We need to solve this. We need to make it simpler for people, especially, you know, we were talking about all the different ways for people to get financial advice.

Some people cannot afford financial advice. How can we try to deliver some kind of decumulation solution within the 401k context? I think that's the nut that we need to crack where we're delivering sane advice to the mass consumers.

What do you like to read that is outside retirement, outside investment? And have you found that you've found really great ideas reading a novel or something like that? What are your favorite genres?

I'm a huge fiction reader, kind of, I guess, sort of realistic sort of fiction. So anything Jonathan Franzen writes, I am going to read as soon as it comes out. Unfortunately, he only writes a book every, gosh, it feels like five years or so. Right. But he's one of my favorite. In terms of connecting between the fiction that I read and my work,

I don't know. You know, I just think it gives me a greater empathy for people. And that's one of the reasons I like to get out and speak to groups of individual investors, too. It just gives me a sense of what their pain points are, what their worries are, what their joys are. So I always, you know,

tell my bosses, like, I really love to be out there speaking to groups of real world individuals because it tells me what I should be working on. And it gives me that connection to the people I'm trying to serve through my work. You know, that's such a great point. And something I found was if you don't get that feedback, you could have a perfectly great way of doing something, right?

But if you don't listen to the people who are looking to you for some advice, you could be getting it entirely wrong. And people's polite natures, they won't raise their hand and say, yeah, I don't get it. I don't get it. Why are you telling me to do that? We had that experience when we were developing our Canvas program at OSAM, which is the Custom Indexing Portfolio Creation Program.

And we really thought, ooh, their advisors are going to love these seven features. And then we thought, well, why don't we just have a very limited group of advisors and have them really use it, put it through all the stress tests and everything, and then ask them, novel concept, ask them, what do you like the best? We were so wrong, Christine.

Everybody came back with, oh, the reason that I will use this is purely tax management. And we thought it was going to be like they could reflect their values in the portfolio or they could change it to their unique certain. Nope. It was the tax management aspect of it. And so you getting out there and talking more and more to people, just a brilliant way to figure

figure out what to focus on. Well, I'm getting the hook from my producer here on my cell phone. Our final question is fun, I think, in that we're going to wave a wand and we're going to make you the empress of the world. You can't kill anyone. You can't put anyone in a re-education camp. But what you can do is we're going to hand you a magic microphone

And you can say two things into it that will incept all 8 billion people on the planet. They're going to wake up whenever their morning is and say, you know, I've just had two of the best ideas. And I'm like, all the other times I'm actually going to act on these two ideas. What are you going to incept into the world's population?

Well, one recurrent theme in everything I do is keep it simple. Ask all your questions, all your stupid questions of anyone who is proffering financial advice until you are perfectly comfortable with what is being recommended to you. But you can put things together simply and effectively so

So that would be one. And then the other is mind your time on earth allocations. We talk a lot about asset allocations, how to invest a portfolio, but the most precious resource, the truly finite resource that any of us has is our time on earth.

And just to, you know, wherever you are in your proximity to retirement, just to make sure that you are being super mindful about how you're spending that precious time. And it's, you know, obviously easier said than done. It's not something I have perfected, but it's something that I try to get better and better at. Like, this is a great use of my time. This is not such a great use of time. And I try to align my activities with those things that are a higher priority.

time ROI. So just staying mindful about time on earth allocations is really everything, I think.

I think both of those are great, especially the one on time, right? I think she probably never actually said it, but a sentiment attributed to Queen Elizabeth I was, I would give my entire kingdom for but one more minute of life. And we tend to kind of put that over here, and the more mindful that you are of that,

probably you're going to make much better choices, as you point out. Like, where do I want to allocate that very, very precious asset of time? Because the more you think about it, you're probably going to get a lot better at allocating it. Well, Christine, this has been...

Lovely to talk to you. I wish you the absolute best. We will include in all the show notes how to find you. I know you're very active on Twitter and other social media. And of course, they can find you at Morningstar as well. Thank you so much for joining me today. Jim, thank you so much. It's been a lot of fun. Thank you.