At The Money: Planning Your Retirement?

Thinking about retirement? Do you know how you will spend your time? And perhaps most significantly, how much retirement can you afford? Christine Benz is Director of Personal Finance & Retirement Planning at Morningstar; her new book is “How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement.” She joins Barry Ritholtz to discuss what you need to know about planning for retirement. Each week, “At the Money” discusses an important topic in money management. From portfolio construction to taxes and cutting down on fees, join Barry Ritholtz to learn the best ways to put your money to work. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  At K K R, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance and sports, K K R has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. K K R, understanding what matters. Visit K K R dot com slash what matters.

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  This is the Bloomberg Tech Minute brought to you by Chat G P T. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 1:13Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by Chat G P T. Get started at Chat G P T dot com.

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• 2:34Speaker 03

  Out of the tree of life, I just picked me a plum.

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• 2:58Barry Ritholtz?

  Have you thought about retiring? Do you know what you'll do? How you'll spend your time and income? I'm Barry Ritholtz, and on today's edition of At the Money, we're going to discuss your retirement. To help unpack all of this and what it means to you, let's bring in Christine Benz. She is the Director of Personal Finance and Retirement Planning at Morningstar. She's published numerous books on the subject. Most recently, How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement. So, let's start with the basics, Christine.

• 3:38Barry Ritholtz?

  In your book, you talk about you need to define your purpose in retirement. Explain.

• 3:47Speaker 05

  Purpose is super important to us throughout our lives, Barry. And that's true as we age. The problem is that a lot of people do receive some sense of purpose from their jobs. And so, when they step away from work, they're stepping away from part of themselves. So, the idea is, as you approach retirement, make sure that you're being super thoughtful about how you will replace that sense of purpose that you derived from your work, that you should kind of pre-populate your activities to find some that do provide you a sense of purpose. Jordan Grummet, who is the last chapter of the book, has a whole book about purpose called The Purpose Code.

• 4:31Speaker 05

  And his point is that there's a lot of purpose anxiety out there that you say, you find a purpose. And people think really big. They think, oh, I need to write a book or start, start a foundation or climb Everest or something like that. And maybe you do things like that. But his point, I think, is really comforting, which is that small P purpose, he calls it like bird watching or gardening or, you know, cooking meals for your family, smaller things that bring you joy. Those are just fine, too. While, so while you're trying to cook up what your big P purpose might be, just find those things that bring you joy, that give you that animating force for your days.

• 5:13Barry Ritholtz?

  So daily goals and activities that bring fulfillment, not just Kilimanjaro. So, so let's talk a little bit about planning. How important is it? When should people start planning? Is this something you do five months before you retire? Is this something you do 15 years before you retire?

• 5:33Speaker 05

  I've really concluded that this idea of retirement as a hard stop where we're not really thinking about it, except for like the months leading up to retirement, it's a terrible model. And I know why it happens that, you know, the way we work in this society is so intense that people show up in retirement totally depleted and they haven't really been able to envision anything besides like Netflix or traveling or whatever. And those things are all great. But you should ideally start, I think age 50 is kind of a good marker. Start thinking about this vision for your later years. Perhaps you will continue working a little bit longer.

• 6:13Speaker 05

  And I love the idea of people at that life stage being super thoughtful in trying to direct the work that they do, taking an inventory of the things that you still enjoy, taking an inventory of the things you don't enjoy as much. I have a stop doing list on my desk of things that I don't enjoy as much that I have to remind myself to stop saying yes to. But I think that that is a great way to segue very gradually into retirement so that the complexion of your work is that you're doing more things that you enjoy and you're shedding some of those things you don't like as much.

• 6:50Barry Ritholtz?

  So let's talk about income while you're in retirement. What are some of the more common forms of retirement income? We automatically think of stock dividends or bond yields. How do most people generate the sort of income they need to enjoy a retirement?

• 7:08Speaker 05

  I think it starts with non-portfolio sources of income. So being thoughtful about how you are maximizing social security. Potentially, you know, I've warmed up to the idea of using simple income annuities to augment what someone might get from social security. So the idea is that you're trying to address your basic living expenses with those non-portfolio sources of income. Then it just gives you a ton more flexibility with your investment portfolio and it puts you in a better position to put up with what will be the inevitable ups and downs in the market. You mentioned bond income and dividend income barrier.

• 7:50Speaker 05

  And certainly retirees love the idea of subsisting on organically generated income. I think that that can be actually a huge trap from a portfolio construction standpoint. I can't tell you how many weird looking portfolios I've seen that have been assembled in the name of kicking off whatever amount of income someone wants. I'm a big believer in assembling a total return portfolio and then maybe annually taking a step back and saying, well, what is the best source of funds for me in this year? For the past few years, it has been trimming large growth stocks, I think, for a lot of retirees. But the idea is that it's a dynamic approach. It's not a one and done.

• 8:34Speaker 05

  I'm going to source my income through the portfolio and never think about it again.

• 8:38Barry Ritholtz?

  I like the idea of the dynamic approach. We're going to come back to portfolio organization in a moment. But since you brought up social security, I always get asked, hey, what's better? Do I start taking social security as soon as I'm eligible? Or if I could get by, do I wait until I have to take it and generate the maximum monthly income? How do you answer that question?

• 9:05Speaker 05

  We had seen this steady trend toward people delaying over the past several years, but that seems to have reversed itself a little bit recently as some of the scary headlines about potential adjustments to social security have been predominant. And so delaying is a really good strategy for people who can afford to do that, who can afford to subsist on their portfolio income prior to social security starting. And everyone's heard the reasons, but you know, you get a guaranteed pickup in benefits for every year that you're able to delay past your full retirement age. And that benefit is also inflation adjusted.

• 9:46Speaker 05

  So even if you haven't yet claimed, the benefit that you eventually receive will be inflation adjusted to reflect whatever inflation increases have come along. So it's a terrific strategy, especially for the high earners in a household. If you've been the the main earning partner or the high earning partner, it's often a great strategy for you to delay in order to enlarge for the whole household that social security income. For a lot of couples, it's maybe, you know, kind of divide and conquer where one claims at full retirement age and the other waits until age 70. I often recommend the open social security tool is kind of a good, basic and free tool for people.

• 10:27Barry Ritholtz?

  And since you brought up portfolios earlier, let's talk about, I do like the idea of being dynamic and flexible where you can look at, hey, we're up 20% in equities. I could peel that off rather than draw something else down. But how do you advise people organize and structure their investment portfolios for maximum cash flow during retirement?

• 10:51Speaker 05

  I've become a huge evangelist for the bucket approach to retirement portfolio planning. I remember talking to Harold Wavinsky, the financial planner, probably 20 years ago. And I was asking him how he sources cash flows for his clients. And basically, he said, I run a total return portfolio and I bolt on this cash bucket. And he noted that having that cash earmarked for down markets really gave his clients a ton of peace of mind with the long term portfolio. They weren't bugging him about losses in that portion of the portfolio. Because they knew in a down market, they could pull from the cash. So I love that idea of having

• 11:33Speaker 05

  very liquid reserves, maybe amounting to a couple of years worth of portfolio withdrawals. Then maybe fixed income assets accounting for another five to eight years worth of portfolio withdrawals. And then the rest of the portfolio in a globally diversified equity portfolio. I think it's kind of a simple way to think about it. And I always say even for financial advisors who aren't using buckets. It's a wonderful client illustration tool. My sense is that people really get it. And they're on board with the asset allocation. It doesn't seem so black boxy to them.

• 12:07Barry Ritholtz?

  And just to clarify, when you say cash, in my mind's eye, I immediately think money markets with just last summer were paying over 5%. Some form of investment grade corporates or treasuries. And then depending on the tax bracket and the state people live in. Munis, how do you think about quote unquote cash?

• 12:32Speaker 05

  So I would think of cash as being more or less pure cash, money market funds, some sort of high yield savings account. The idea is that you aren't monkeying around with any potential losses. This is, these are your cash flow needs. And so you don't want any volatility whatsoever. I would put fixed income assets in that second bucket. And I would kind of stair step, stair step at my risk level where maybe I have very short term bonds, just as kind of a step beyond um cash and then moving into intermediate term bonds. Um, Muni certainly if, if uh pulling from the taxable portfolio is, is part of the equation, you would want to think about them.

• 13:16Speaker 05

  Especially for people in higher tax brackets, but I'm kind of a purist about that cash bucket. And I think of it as kind of a zero risk portion of the portfolio, probably a federal money market fund or maybe a Muni money market fund for higher income folks.

• 13:32Barry Ritholtz?

  So we started out talking um about What actually retirement is and how people should define their purpose? What about those who want to keep working part-time? How does that transition go from full-time to part-time? Or even from full-time to fully retired? It seems like that's a challenging time period.

• 13:56Speaker 05

  It's a beautiful model. What we see when we look at the data is that working is really good for people. That people who are able to work later in life do tend to be healthier and wealthier. And of course, it's a little bit of a cause and effect puzzle there. That the healthier and wealthier people are probably able to continue working longer. And it's important to note that the spoils of being able to work longer are not falling equally in our population. That wealthier people are able to continue working longer and they need to less. But it is a really great model for people who like some aspects of their jobs. So Barry, I think you're probably a perfect example.

• 14:40Speaker 05

  I'm a good example of this, where I really like a lot of what I do and want to continue doing it longer. Have that conversation with your employer. And I realize it's kind of a rarefied position to be in where you are able to have an open dialogue. But older workers are good workers. And I think people should realize the power that they probably have if they've been in their positions for a while.

• 15:05Barry Ritholtz?

  The idea of retiring at 65 or 70 is an anathema to me. At the same time, what was Warren Buffett when he announced he retired earlier this year? 94? That's like incredible. I don't know if I got another 30-plus years in me. But he clearly loves his job. If you're in a situation where you can keep working, find it not only remunative, but...

• 15:33Barry Ritholtz?

  Fulfilling and bringing you some degree of purpose, is there a reason not to retire?

• 15:40Speaker 05

  Absolutely not. I mean, you do want to check that you are able to continue to do the job. I was recently on a panel with Carolyn McClanahan, who's an MD and a financial planner. She made the point that financial advisors should actually consent to take cognitive tests periodically, just to make sure that their acuity is where it needs to be in order to do the job. And you'd want to have a feedback mechanism in place so that people could tell you if you're not really delivering on the responsibilities of that job, there needs to be something in place to help you step away from that. So that's one kind of thing that I think people should troubleshoot in advance. But it is a beautiful model, you

• 16:23Speaker 05

  know, especially if people might say, well, I like my job. I just don't like it 40 hours a week. And so maybe you can transition where you're, you know, taking Wednesday off at first, or, you know, maybe just, just working three days a week, whatever the case might be. Yeah, exactly.

• 16:41Barry Ritholtz?

  Three day weekends.

• 16:42Speaker 05

  Move into it very gradually.

• 16:44Barry Ritholtz?

  So to wrap up, like so much else involving our financial life, planning goes a long way. The sooner you start planning, the better. You have to think through where your revenue's going to come from, what your spending looks like. I like the idea of having a dynamic portfolio that gives you flexibility and adaptability, no matter what the markets do, or what inflation looks like. And then, most importantly, organize your financial affairs and communicate it with your immediate family. I'm Barry Ritholtz. You're listening to Bloomberg's At the Money.

• 17:34Speaker 00

  At KKR, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance and sports, KKR has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. KKR, understanding what matters. Visit kkr.com/whatmatters.

• 18:06Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk, and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 18:48Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at chatgpt.com.

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