Bogleheads® 2022 Conference – Financial and Portfolio Planning for Retirees and Pre Retirees

Episode Overview

• The panel discusses how to realistically estimate spending in retirement, accounting for the "retirement spending smile" where expenses change over time.
• Experts evaluate various retirement income strategies, including bridging the gap to Social Security, the modern relevance of the 4% rule, and flexible "bucket" approaches.
• The conversation covers using different financial products as risk management tools, such as annuities for longevity risk, home equity for sequence of returns risk, and long-term care insurance.
• A central theme is the critical importance of flexibility, regular plan reviews, and adjusting to market conditions rather than rigidly adhering to a single withdrawal rate.
• The discussion concludes with practical advice on preparing a financially uninvolved spouse to manage finances in the event of a partner's death.

Key Concepts

• Retirement Spending Smile: The concept that retirement spending is not linear; it's often highest in the early "go-go" years, declines in the middle, and may rise again later due to healthcare needs.
• Bridging to Social Security: The strategy of funding the income gap between an early retirement date and a delayed Social Security start date by maintaining a consistent asset allocation and using the low-income years for strategic Roth conversions.
• Annuities as Insurance: The clarification that annuities, particularly simple Single Premium Immediate Annuities (SPIAs), should be viewed as insurance products to manage longevity risk by creating a personal pension, not as investment vehicles for generating high returns.
• The 4% Rule as a Guideline: The consensus that the 4% rule is a valid starting point for planning but is rarely followed rigidly in practice. Flexibility and regular plan adjustments are more critical for success.
• Variable Withdrawal & Bucket Strategies: The use of dynamic withdrawal methods, like the bucket strategy, where 1-4 years of expenses are held in cash to provide a psychological buffer and avoid selling assets during market downturns.
• Home Equity as a Buffer Asset: Tapping into home equity through tools like reverse mortgages or HELOCs can serve as a source of liquidity to fund expenses during down markets, mitigating sequence of returns risk.
• Spousal Financial Preparedness: The necessity of creating an "informal estate plan"—a simple document detailing accounts, passwords, professional contacts, and instructions—to help a financially uninvolved spouse manage finances.

Quotes

• At 4:48 - "A lot of folks, they don't necessarily know the answer to this... You've got to track your spending, figure out what you actually are spending, what you're spending it on." - Jon Luskin emphasizes that understanding one's actual spending is a critical and often overlooked first step in determining retirement readiness.
• At 6:33 - "In terms of where you should invest your money, even as you're spending it, I kind of view you should have an asset allocation." - Rob Berger argues for maintaining a consistent asset allocation for the whole portfolio, even during the "bridge" years before claiming Social Security.
• At 8:33 - "They're delaying Social Security... they can engineer their income levels over multiple years and they're trying to create this window where they can do Roth conversions." - Steve Chen highlights how delaying Social Security can be used as a powerful tax planning tool for Roth conversions.
• At 13:00 - "An annuity is an insurance product. It's not an investment product. And if you're using it, think of it like an insurance." - Steve Chen stresses that the primary purpose of an annuity should be viewed as managing risk rather than generating investment returns.
• At 21:57 - "I've only met one person who ever told me that in retirement they actually followed the 4% rule, and that person's name was Bill Bengen." - Rob Berger highlighting the theoretical nature of the 4% rule versus its practical application.
• At 25:01 - "That's going to be more important than whatever strategy you choose... don't go forward blindly every single year not making any adjustments to your plan." - Jon Luskin emphasizing that ongoing monitoring and flexibility are more critical than the specific withdrawal strategy itself.
• At 27:00 - "If you retired in 1974... you actually did okay. And if you retired in '73, you barely made it. There's one year difference." - Rob Berger illustrating the significant impact of sequence of returns risk based on just a single year's difference in retirement start date.
• At 34:46 - "Don't ask the insurance salesman if you should buy long-term care insurance." - Jon Luskin advising on the importance of seeking unconflicted advice when considering insurance products.

Takeaways

• To create a realistic retirement budget, start tracking your current expenses meticulously, as this is the best predictor of your future needs.
• Maintain your long-term asset allocation when bridging the gap to Social Security and strategically use those lower-income years for tax-advantaged Roth conversions.
• Implement a "bucket strategy" by holding several years of living expenses in cash to reduce the emotional stress of market volatility and avoid selling equities at a loss.
• View complex financial products through a lens of risk management; use annuities for longevity, home equity for liquidity, and insurance for care costs, always seeking unconflicted advice.
• Create an "informal estate plan" by writing a simple letter with all financial account details, contacts, and instructions to ensure your spouse can easily take over finances if needed.