Bulls, Bears, and Pigs

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Welcome to something more with Chris Boyd.

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Chris Boyd is a certified financial planner, practitioner,

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and senior vice president, financial advisor at Wealth

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Enhancement Group, one of the nation's largest registered

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investment advisors.

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We call it something more because we'd like

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to talk not only about those important dollar

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and cents issues, but also the quality of

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life issues that make the money matters matter.

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Here he is, your fulfillment facilitator, your partner

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in prosperity, advising clients on Cape Cod and

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across the country.

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Here's your host, Jay Christopher Boyd.

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Welcome to the show, everyone.

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Thanks for being with us.

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I'm Chris Boyd, a certified financial planner, practitioner

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here with Jeff Perry and Russ Ball, both

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of whom are with me on the AMR

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team at Wealth Enhancement Group, and we're going

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to talk a little bit about markets and

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pensions today, so to start things off, great

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headline I saw yesterday across my phone, markets

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hit new high, and we keep hitting new

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highs.

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What was it, Jeff?

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You said it was both the S&P

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and the NASDAQ?

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That's correct.

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Yeah.

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And I think on the one hand that

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gets people excited, hey, all right, new highs,

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and then at the other hand, it gets

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people nervous, like, oh my gosh.

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It's been quite a couple of years here.

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Yeah.

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We've had some really good run just in

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the neighborhood of up 25% last year

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and this year, thus far, so the year's

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not over, but about a month to go,

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and we'll see where we land when all

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is said and done, but it does cause

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you to think about, on the one hand,

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am I getting enough of that, and then

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on the other hand, should I be worried

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about the other shoe going to drop, that

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kind of thing, so you get these different

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kinds of anxieties that bubble up.

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You know, my little favorite saying here, bulls

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make money, bears make money, and pigs get

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slaughtered.

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So where are you in that perspective today?

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When you think about the market, is someone

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being a pig?

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Are they staying too long?

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Maybe.

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It's a coincidence that you wanted to talk

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about this today because I recently saw, I

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think it was this morning or yesterday afternoon,

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commentary on CNBC that there has not been

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a correction 10% decline in the market

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this year, which, you know, corrections are normal,

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you say this all the time, Chris, corrections

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are normal parts of the market cycles, even

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in a bull market, a 10% pullback

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is normal, we shouldn't- That inhale, exhale

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kind of thing, right?

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It's just a normal course of activity.

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It is surprising we haven't had a full

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10% drawdown this year.

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I was looking at a JP Morgan slide,

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it showed that there was about an 8

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% decline thus far this year.

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So I'm going to answer your question.

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I don't want to evade it by referring

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to CNBC.

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I'm a bull, I'm a long-term bull,

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but I think it's prudent when you have

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a nice run, staying away from the pig

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thing, is to take some profits, put them

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in either a holding area to reinvest in

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maybe a money market account, or if your

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risk tolerance has shifted because of gain, if

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your risk tolerance is what it is and

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your allocations have shifted, and now you have

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all this much greater exposure to stocks, it

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might be a time to rebalance and say,

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okay, I have too much stock for my

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comfort level, let me put some off to

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the side into a different type of investment

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that's not correlated with the stock market.

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But I am a long-term bull.

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I believe in the country.

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I believe in free enterprise.

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I believe in the history of the stock

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market.

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So for my long-term money, and for

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our clients who have long-term horizons, I

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think the stock market has a place in

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their investment portfolio for sure, but make sure

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that your allocation isn't out of whack and

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that your risk tolerance is able to handle

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your current allocation.

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Really well said.

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Russ?

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Yeah, one thing, it's kind of been coming

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up again and again in client conversations we've

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been having, and we're just looking at the

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outperformance of the last year or two, I

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guess, and asking, are you comfortable with this

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amount of risk, like the fact that the

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market has gone up as much as it

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has, it could be a good time to

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rebalance even if, obviously we do our rebalancing

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quarterly, but I think just having a conversation,

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are you too risked in your portfolio?

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Yeah, having that open conversation.

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Are you comfortable with where you're at?

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Yeah, and because the market's done so well,

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it could be a good time to take

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some of that risk off the table.

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If a change is pending, rather than after.

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Right, right.

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Chris, you do something with our clients that

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I've learned many things from you, but this

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one really is key.

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So when you say to a client, they

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may have a million dollar portfolio, for example,

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and you say, can you sustain a 10

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or maybe even a 20% reduction in

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the market?

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Those are normal things that happen in the

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market.

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And you might get a quick yes, but

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then you frame it in the context of

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that would mean between 100 and $200,000.

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And that their face just changes from 10

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% when you say yes, it's a different

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thing to say $200,000, you know, wait

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a minute, wait a second.

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That's a lot of money, right?

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It is 20%, but it puts it into

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a little bit different.

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Yeah, it's exactly true.

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You got to make that material and if

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whatever someone's level of wealth happens to be

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right, the same principle applies.

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If you have $10,000 and people who

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have $10,000 say, well, if I had

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a lot of money, meaning a million dollars

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in that scenario, you know, they'd be like,

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oh, that'd be, I could live with that,

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but I can't afford to lose, you know,

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20% in that scenario, right?

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And if you have a million dollars, you

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think, well, 200,000, that's a lot of

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money.

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And so it really depends on the person,

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right, on what's going on in the rest

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of their context and what they're really willing

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to tolerate.

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I think it's worth pointing out that historically,

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we talk about it for a very long

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time, period of time, you know, 100 years,

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markets tend to go up two out of

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three years, but it doesn't happen that they

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necessarily go up every two years, you know,

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and then there's a third year and it

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doesn't, you know, it doesn't always happen sequentially

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that way.

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There can be periods of time where we

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have, think of the year 2000, where we

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have three years back to back with declines.

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It's hard to tolerate.

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We've had the good fortune lately when markets

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go down, they come back very quickly.

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In 2000, rather 2020, we had a 20

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% decline or whatever it was during the

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year, but it didn't end that far down.

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And it came back very quickly within a

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year, we were back in business, let's say,

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into the positives.

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When it came to 2022, you know, very

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quickly, we're back in the positives.

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So it's tough when you see markets drop,

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but we've had the good fortune that they've

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come back very rapidly in recent years.

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And that's not always the case.

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Investors should be prepared for the way they

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think about their investments, as you described it,

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Jeff, long term in nature, and therefore you

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might be tolerant of a couple of bad

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years back to back, whatever it might be,

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so that it might take, what if it

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takes five years to recover?

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And what if it takes longer?

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You know, the 1970s, a prolonged period of

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time.

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You could even look at the 1990s, where,

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you know, you started at this peak at

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the end of the 1990s.

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And then in 2000s, rather, we have this

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peak, it declines, it comes back in 2007,

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peaks again, and then declines.

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We end the decade not really much different

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from where we started the decade, probably even

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a little lower.

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And so there you look at that and

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say, well, you know, this can happen from

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time to time.

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It's not to say that it's always the

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case or that it's going to necessarily be

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the case.

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But when you look at year to year,

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markets move in different directions every year.

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Given time, you'd expect better performance.

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I'm looking at a slide from JP Morgan,

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going back to 1980 through the end of

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the month, November 30th, a couple of days

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ago.

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And it's suggesting that the average annualized returns

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over that period of time was around 14%.

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That's good.

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Yeah, isn't that awesome, right?

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Very good, yeah.

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And yet 33 of the 44 years involved

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were positive and 11 were negative.

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That's still pretty good odds for, you know,

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better than the two out of three kind

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of...

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It's like three out of four, that one.

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It's more like three out of four, right?

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So, you know, something to be mindful of,

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but it is very common, even in years

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when markets end higher, that they've had a

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correction or a more substantial decline.

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We talk about this with clients that it's

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normal for markets to decline 10%, 15%, even

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20%, in some cases more, right?

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But, you know, we've been through in the

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2000s and, you know, 2020, we've seen these

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more substantial declines.

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So, it's not unheard of for markets to

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get cut in half in our recent investment

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lifetime, not just looking back at, like, long

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history of things, you know.

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Just as if you've been an investor since

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2000, you've incurred two periods of time where

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the markets essentially went from down about 50

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% cumulatively in the case of 2000, 2001,

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2002, and then again in 2020, where the

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market dropped...

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No, sorry, 2008, right?

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The financial crisis, and then those were significant

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drops.

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And then I think in 2022, it was

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down about 34% in a year, and

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then it came back very quickly.

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But my point is, these are things that

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we don't think of as normal, but we've

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seen it.

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And as much as...

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And we're going to see it again.

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We're going to see it.

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And so, as much as things are really

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good right now, and I'm glad, and we're

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not trying to scare anyone to say that

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they're necessarily going to be terrible or anything,

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it's just you have to be mindful of

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00:11:59,620 --> 00:12:01,140
the fact that markets move.

270
00:12:02,060 --> 00:12:06,240
And we get more return from taking more

271
00:12:06,240 --> 00:12:10,020
risk because there is risk, and there will

272
00:12:10,020 --> 00:12:11,720
be declines.

273
00:12:12,300 --> 00:12:13,880
We just don't know when and how much

274
00:12:13,880 --> 00:12:15,280
at a given moment in time.

275
00:12:15,960 --> 00:12:18,460
But knowing that, we want to prepare.

276
00:12:18,780 --> 00:12:20,320
And we talk about this a lot, Jeff

277
00:12:20,320 --> 00:12:22,460
and Russ, when we talk with clients about

278
00:12:22,460 --> 00:12:24,740
buckets and the idea that we want to

279
00:12:24,740 --> 00:12:27,500
have low-risk money, a place for security

280
00:12:27,500 --> 00:12:32,020
and safety, some comfort-type money, and then

281
00:12:32,020 --> 00:12:34,540
something that's maybe a little less risk, but

282
00:12:34,540 --> 00:12:36,320
somewhere we could get at stuff we needed.

283
00:12:37,320 --> 00:12:39,140
And then we think longer term, more in

284
00:12:39,140 --> 00:12:41,120
line with our risk tolerance, whatever that is.

285
00:12:41,240 --> 00:12:42,420
Maybe you're a moderate investor.

286
00:12:42,800 --> 00:12:46,140
Okay, whatever that looks like in aggregate.

287
00:12:46,140 --> 00:12:50,100
But we don't want to be too short

288
00:12:50,100 --> 00:12:52,480
-sighted, and we don't want to be ignoring

289
00:12:52,480 --> 00:12:53,060
risk.

290
00:12:53,220 --> 00:12:55,060
It's this trying to find this sweet spot

291
00:12:55,060 --> 00:12:59,500
for everyone's own circumstances and what's palatable for

292
00:12:59,500 --> 00:12:59,760
them.

293
00:13:00,300 --> 00:13:02,920
Right, and think about how long your time

294
00:13:02,920 --> 00:13:03,500
horizon is.

295
00:13:03,540 --> 00:13:05,320
I'll share a personal story that I've already

296
00:13:05,320 --> 00:13:08,240
shared on the radio, so I'll kind of

297
00:13:08,240 --> 00:13:09,220
give an update on it.

298
00:13:10,240 --> 00:13:12,280
I have a granddaughter who's going to college.

299
00:13:12,280 --> 00:13:14,660
She's a senior in high school, and we've

300
00:13:14,660 --> 00:13:17,960
had her 529 invested in an S&P

301
00:13:17,960 --> 00:13:18,860
fund forever.

302
00:13:19,300 --> 00:13:20,400
It's done very well.

303
00:13:20,920 --> 00:13:22,440
And on the show before, Chris, we talked

304
00:13:22,440 --> 00:13:25,120
about, so what are you going to leave

305
00:13:25,120 --> 00:13:25,620
it invested?

306
00:13:27,620 --> 00:13:30,160
So just last week, because of the market

307
00:13:30,160 --> 00:13:32,660
gains, I took the first year of what

308
00:13:32,660 --> 00:13:36,000
we expect our contribution to put it in

309
00:13:36,000 --> 00:13:36,500
a money market.

310
00:13:37,160 --> 00:13:37,640
Yeah.

311
00:13:37,940 --> 00:13:39,160
And I left the rest in there for

312
00:13:39,160 --> 00:13:41,440
the other years because I feel like we're

313
00:13:41,440 --> 00:13:44,020
getting, another word I like to use, frothy.

314
00:13:45,240 --> 00:13:48,100
Markets are getting extended, and maybe they'll keep

315
00:13:48,100 --> 00:13:48,400
going.

316
00:13:48,540 --> 00:13:52,020
And if they do, that's great because 75

317
00:13:52,020 --> 00:13:53,660
% of the money is still invested.

318
00:13:54,400 --> 00:13:54,560
Yeah.

319
00:13:54,800 --> 00:13:56,580
But I have that peace of mind that

320
00:13:56,580 --> 00:13:59,640
I know that- You're ready for whatever

321
00:13:59,640 --> 00:14:01,960
direction it's moving the short term.

322
00:14:02,160 --> 00:14:02,540
Right.

323
00:14:02,620 --> 00:14:03,480
You've got it prepared.

324
00:14:03,720 --> 00:14:05,480
And you can't feel bad.

325
00:14:05,700 --> 00:14:08,260
Like, what if the markets go higher, Jeff?

326
00:14:08,680 --> 00:14:12,820
You'll have missed out on that extra percentage

327
00:14:12,820 --> 00:14:13,520
of returns.

328
00:14:13,820 --> 00:14:14,280
Just for the first year.

329
00:14:14,360 --> 00:14:17,160
I didn't get nervous or make some emotional

330
00:14:17,160 --> 00:14:19,560
decision and say, it's all coming out and

331
00:14:19,560 --> 00:14:23,060
miss the next four years, if you will,

332
00:14:23,120 --> 00:14:24,060
of opportunity.

333
00:14:24,500 --> 00:14:29,220
I just made a strategic, I guess, decision.

334
00:14:29,400 --> 00:14:31,100
And I think some of that is also

335
00:14:31,100 --> 00:14:33,400
your tolerance and temperament for risk.

336
00:14:33,520 --> 00:14:35,860
Someone else might say, well, maybe I don't

337
00:14:35,860 --> 00:14:37,360
want to risk it for the next two

338
00:14:37,360 --> 00:14:38,220
years, you know what I mean?

339
00:14:38,860 --> 00:14:39,880
Very personal, right?

340
00:14:39,900 --> 00:14:41,300
Yeah, it could be somewhat of a personal

341
00:14:41,300 --> 00:14:42,420
evaluation, right?

342
00:14:42,860 --> 00:14:45,780
But yeah, I think that's a good example,

343
00:14:45,860 --> 00:14:47,620
a good illustration of that notion.

344
00:14:48,760 --> 00:14:50,900
And you can't live in the past, too.

345
00:14:51,000 --> 00:14:53,220
If you make that call, make that judgment,

346
00:14:53,400 --> 00:14:55,800
you're doing something that gives you comfort because

347
00:14:55,800 --> 00:14:56,500
of its absolute.

348
00:14:57,360 --> 00:14:59,580
And then you can't live in the, oh,

349
00:14:59,600 --> 00:15:01,220
if only I had, what if I had

350
00:15:01,220 --> 00:15:01,420
done?

351
00:15:02,480 --> 00:15:04,660
It's one of these things where there's no

352
00:15:04,660 --> 00:15:06,620
way to know in the short term what's

353
00:15:06,620 --> 00:15:09,460
going to move good or bad, better off

354
00:15:09,460 --> 00:15:11,240
to just say, this gives me peace of

355
00:15:11,240 --> 00:15:13,780
mind, whatever direction, that is staying invested or

356
00:15:13,780 --> 00:15:16,600
and living with the risk or pulling the

357
00:15:16,600 --> 00:15:19,640
money off and living with the diminished return

358
00:15:19,640 --> 00:15:21,480
potentially, you know, that kind of thing, the

359
00:15:21,480 --> 00:15:23,660
absolute of having it on hand, you know.

360
00:15:23,760 --> 00:15:25,780
We do hear a lot of clients or

361
00:15:25,780 --> 00:15:28,500
people that we engage with saying, I'm going

362
00:15:28,500 --> 00:15:31,460
to stay invested until I see something that

363
00:15:31,460 --> 00:15:33,500
I'm concerned about or, you know, I'm going

364
00:15:33,500 --> 00:15:35,520
to stay on the sidelines until something happens.

365
00:15:35,520 --> 00:15:36,440
Yeah, yeah.

366
00:15:36,740 --> 00:15:41,140
These, these corrections or bear markets happen quick

367
00:15:41,140 --> 00:15:42,160
when they happen.

368
00:15:43,100 --> 00:15:45,380
So I know I can't time the market

369
00:15:45,380 --> 00:15:47,060
successfully.

370
00:15:47,060 --> 00:15:48,860
And I don't think there's anyone who really

371
00:15:48,860 --> 00:15:50,260
can over the long term.

372
00:15:50,520 --> 00:15:52,460
People get famous for doing it once.

373
00:15:52,900 --> 00:15:53,160
Yeah.

374
00:15:53,420 --> 00:15:53,640
Yeah.

375
00:15:53,700 --> 00:15:53,980
Right.

376
00:15:54,240 --> 00:15:54,520
Right.

377
00:15:54,780 --> 00:15:56,260
But where they go after that, you know,

378
00:15:56,280 --> 00:15:56,820
that kind of gets.

379
00:15:57,000 --> 00:15:59,300
Oh, I guess my point for listeners on

380
00:15:59,300 --> 00:16:02,840
this topic is we've had a great year.

381
00:16:02,900 --> 00:16:04,020
We've had a great two years.

382
00:16:04,020 --> 00:16:06,600
Um, after some, you know, a rough year,

383
00:16:06,820 --> 00:16:09,780
but the prior, you know, three years before

384
00:16:09,780 --> 00:16:13,520
that, again, really fabulous double digit returns.

385
00:16:14,120 --> 00:16:16,800
So, uh, what's my message.

386
00:16:16,900 --> 00:16:18,060
Markets are volatile.

387
00:16:18,420 --> 00:16:19,540
We've had a good run.

388
00:16:19,820 --> 00:16:22,640
Um, it's, it's okay to, to stay the

389
00:16:22,640 --> 00:16:23,900
course or all that.

390
00:16:23,900 --> 00:16:25,880
And you should have a plan that works,

391
00:16:25,880 --> 00:16:27,520
but expect volatility.

392
00:16:28,240 --> 00:16:30,940
And as much as, um, we, we may

393
00:16:30,940 --> 00:16:35,000
benefit from, uh, just a consistently rising market,

394
00:16:35,160 --> 00:16:37,800
but that's not normal, you know, so expect

395
00:16:37,800 --> 00:16:39,340
bumps in the road.

396
00:16:39,440 --> 00:16:41,380
And if you don't want to tolerate those

397
00:16:41,380 --> 00:16:43,380
bumps in the road, reassess your level of

398
00:16:43,380 --> 00:16:45,740
risk and what you're willing to tolerate.

399
00:16:46,260 --> 00:16:48,900
Um, and maybe, uh, as you talked about

400
00:16:48,900 --> 00:16:50,940
earlier, one of you guys, the idea of

401
00:16:50,940 --> 00:16:53,940
rebalancing, you know, this is probably a reasonable

402
00:16:53,940 --> 00:16:56,600
time as we look to, uh, moving toward

403
00:16:56,600 --> 00:16:58,600
year end, start a new year.

404
00:16:59,020 --> 00:17:01,620
Um, it's probably a good time to reassess

405
00:17:01,620 --> 00:17:03,220
what's the right level of risk.

406
00:17:03,220 --> 00:17:04,780
And do I have the right allocation?

407
00:17:05,060 --> 00:17:07,500
If you do rebalance, cause you've had this

408
00:17:07,500 --> 00:17:09,040
disrupt, you know, this, this.

409
00:17:10,060 --> 00:17:12,020
Disproportionate return in the last couple of years

410
00:17:12,020 --> 00:17:15,359
that it, if you haven't rebalanced it's time,

411
00:17:15,359 --> 00:17:17,440
you know, and that forces you to do

412
00:17:17,440 --> 00:17:20,640
the discipline of selling high and buying low.

413
00:17:20,640 --> 00:17:22,380
And that's a good thing over time.

414
00:17:22,760 --> 00:17:23,839
You know what I mean?

415
00:17:23,839 --> 00:17:25,200
So it's a good thing.

416
00:17:25,780 --> 00:17:25,940
Yeah.

417
00:17:26,119 --> 00:17:29,440
So in any case, um, something just food

418
00:17:29,440 --> 00:17:31,420
for thought as we, you know, look ahead.

419
00:17:31,640 --> 00:17:34,200
Um, I wanted to also talk about a

420
00:17:34,200 --> 00:17:34,920
couple of other things.

421
00:17:35,100 --> 00:17:38,080
If we can switch gears, um, we probably

422
00:17:38,080 --> 00:17:39,700
could end the show there and be like,

423
00:17:39,720 --> 00:17:42,460
okay, that was one episode, but I got

424
00:17:42,460 --> 00:17:43,440
some more to talk about.

425
00:17:44,740 --> 00:17:48,440
Um, I had a conversation last night and

426
00:17:48,440 --> 00:17:49,760
Jeff, uh, you came to mind.

427
00:17:49,780 --> 00:17:51,040
I thought, oh, this would be a good

428
00:17:51,040 --> 00:17:53,380
one to, uh, clarify for people.

429
00:17:53,840 --> 00:17:57,120
Um, have clients who are, um, planning for

430
00:17:57,120 --> 00:18:00,880
their retirement and they're, um, in their fifties,

431
00:18:00,900 --> 00:18:05,120
but getting closer to, um, you know, thinking

432
00:18:05,120 --> 00:18:09,640
about retirement at either 60 or 65, right?

433
00:18:09,760 --> 00:18:12,380
So it's, it's a few years off, but

434
00:18:12,380 --> 00:18:13,220
they're getting close.

435
00:18:13,560 --> 00:18:14,960
Great time to have this discussion.

436
00:18:15,400 --> 00:18:17,280
And so, you know, we had the good,

437
00:18:17,340 --> 00:18:20,320
um, financial planning, you know, kind of modeling.

438
00:18:20,890 --> 00:18:23,280
But when push came to shove, they were

439
00:18:23,280 --> 00:18:26,700
like, well, I'd really rather retire at this

440
00:18:26,700 --> 00:18:27,820
age and that age.

441
00:18:28,500 --> 00:18:29,960
So one, you know, one for him and

442
00:18:29,960 --> 00:18:30,360
one for her.

443
00:18:30,440 --> 00:18:35,200
So she has a, um, public, uh, pension.

444
00:18:35,980 --> 00:18:40,120
Um, so it's the, um, the teacher's retirement

445
00:18:40,120 --> 00:18:42,760
system in Massachusetts, Massachusetts.

446
00:18:42,960 --> 00:18:43,100
Yep.

447
00:18:44,540 --> 00:18:47,300
So she had been looking at things and

448
00:18:47,300 --> 00:18:50,040
saying, well, if I work till age 65,

449
00:18:50,440 --> 00:18:54,260
she had calculated the numbers for years of

450
00:18:54,260 --> 00:18:58,440
service and, um, the amount of, uh, the

451
00:18:58,440 --> 00:18:59,700
age she would be at the time.

452
00:18:59,700 --> 00:19:01,540
Three fact, three factors, right.

453
00:19:01,600 --> 00:19:03,040
And her income.

454
00:19:05,280 --> 00:19:07,260
So she was kind of looking at it

455
00:19:07,260 --> 00:19:08,440
saying, all right, this is what I think

456
00:19:08,440 --> 00:19:09,760
my pension number would be.

457
00:19:10,260 --> 00:19:12,960
And then we talked about the possibility of

458
00:19:12,960 --> 00:19:13,860
retiring sooner.

459
00:19:14,920 --> 00:19:17,680
And the question that she's like, oh, it'll

460
00:19:17,680 --> 00:19:18,980
change my numbers completely.

461
00:19:19,220 --> 00:19:21,080
I was like, yes, it would, but you

462
00:19:21,080 --> 00:19:22,460
know, you don't necessarily have to turn it

463
00:19:22,460 --> 00:19:23,340
on right away.

464
00:19:24,100 --> 00:19:24,200
True.

465
00:19:24,600 --> 00:19:27,400
And that was what created the, oh, well,

466
00:19:27,420 --> 00:19:28,340
how would that work?

467
00:19:28,580 --> 00:19:29,200
You know that?

468
00:19:29,380 --> 00:19:31,200
So I just thought maybe you'd want to

469
00:19:31,200 --> 00:19:35,780
elaborate on, um, does the number change, uh,

470
00:19:35,800 --> 00:19:38,600
if, if the years of service doesn't change,

471
00:19:38,720 --> 00:19:40,260
you know, or is it like these two

472
00:19:40,260 --> 00:19:41,440
distinct factors?

473
00:19:41,640 --> 00:19:44,960
So like every financial planning question, it depends.

474
00:19:46,840 --> 00:19:49,500
So in Massachusetts, there are three factors.

475
00:19:50,000 --> 00:19:53,180
And when you reach the maximum factor of

476
00:19:53,180 --> 00:19:56,280
any maximum level of any one factor, it

477
00:19:56,280 --> 00:19:57,120
does not go up.

478
00:19:57,660 --> 00:20:00,900
So the maximum factor for the number of

479
00:20:00,900 --> 00:20:02,460
years of service is 32.

480
00:20:02,820 --> 00:20:05,460
And she does not have that, right?

481
00:20:05,460 --> 00:20:08,720
So she works more, say she had 25,

482
00:20:08,920 --> 00:20:11,440
for example, right now, if she 20 right

483
00:20:11,440 --> 00:20:11,720
now.

484
00:20:11,760 --> 00:20:13,740
So if she has 20, you need 10,

485
00:20:13,840 --> 00:20:14,940
by the way, to even have that.

486
00:20:14,940 --> 00:20:17,220
And have this discussion, but so she has

487
00:20:17,220 --> 00:20:17,560
20.

488
00:20:17,680 --> 00:20:19,680
So for the next 12 years, she'll get

489
00:20:19,680 --> 00:20:21,600
an increase in her ultimate pension.

490
00:20:21,600 --> 00:20:25,180
If she adds a year's year service, the

491
00:20:25,180 --> 00:20:28,380
match max factor for most public pensions in

492
00:20:28,380 --> 00:20:29,740
Massachusetts, 65.

493
00:20:30,740 --> 00:20:33,640
So if you're below 65, you to get

494
00:20:33,640 --> 00:20:35,920
a small reduction for each year you're below.

495
00:20:36,200 --> 00:20:38,560
And then depending on when you started your

496
00:20:38,560 --> 00:20:41,560
state service for her 20 years ago, it's

497
00:20:41,560 --> 00:20:43,920
the highest of the average of the it's

498
00:20:43,920 --> 00:20:46,140
the average of the highest three years of

499
00:20:46,140 --> 00:20:47,980
salary.

500
00:20:48,500 --> 00:20:50,620
And so if you work longer and your

501
00:20:50,620 --> 00:20:53,320
pay is going up, you know, like most

502
00:20:53,320 --> 00:20:55,300
public employees, they get two or 3%

503
00:20:55,300 --> 00:20:59,020
raise every year, that factor of the average

504
00:20:59,020 --> 00:21:00,740
of the highest three would also be going

505
00:21:00,740 --> 00:21:01,120
up.

506
00:21:02,100 --> 00:21:04,360
So for someone who's going to have a

507
00:21:04,360 --> 00:21:07,320
higher salary, only has 20 years and is

508
00:21:07,320 --> 00:21:12,360
below 65 each year, all three of her

509
00:21:12,360 --> 00:21:13,960
factors are going to be going up.

510
00:21:13,960 --> 00:21:18,240
Now, whether that's enough of a change over

511
00:21:18,240 --> 00:21:21,600
the next 12 years or 10 years is

512
00:21:21,600 --> 00:21:22,960
kind of a personal decision.

513
00:21:23,780 --> 00:21:25,420
Doesn't mean she has to stop working.

514
00:21:25,540 --> 00:21:25,800
Also.

515
00:21:25,980 --> 00:21:29,020
She could, as you alluded to, she could

516
00:21:29,020 --> 00:21:32,760
stop her public service and not take her

517
00:21:32,760 --> 00:21:33,140
pension.

518
00:21:33,980 --> 00:21:36,060
Yeah, obviously her years of service wouldn't be

519
00:21:36,060 --> 00:21:38,460
gaining and her highest three years wouldn't change,

520
00:21:38,900 --> 00:21:40,920
but her age factor would, she could wait

521
00:21:40,920 --> 00:21:41,460
until 65.

522
00:21:41,460 --> 00:21:43,820
I was going with it that, you know,

523
00:21:43,820 --> 00:21:45,980
say she wanted to, that's a good analogy,

524
00:21:46,080 --> 00:21:47,420
you know, example or illustration.

525
00:21:47,580 --> 00:21:49,940
It was 65, 70, whatever the number is.

526
00:21:49,940 --> 00:21:50,120
Right.

527
00:21:50,140 --> 00:21:51,920
Let's say 65, she delayed.

528
00:21:52,400 --> 00:21:52,840
Right.

529
00:21:53,640 --> 00:21:56,320
And no reason to, no reason to delay

530
00:21:56,320 --> 00:21:58,780
past 65 for this situation.

531
00:21:58,980 --> 00:21:59,200
Right.

532
00:21:59,280 --> 00:21:59,860
You're right.

533
00:22:00,200 --> 00:22:03,900
So, um, so let's say for example, you

534
00:22:03,900 --> 00:22:05,680
know, she says, I want to stop working

535
00:22:05,680 --> 00:22:07,780
in three years or whatever it is, instead

536
00:22:07,780 --> 00:22:11,020
of waiting until 65 or, you know, that

537
00:22:11,020 --> 00:22:11,580
kind of a number.

538
00:22:12,020 --> 00:22:13,020
Well, okay.

539
00:22:13,060 --> 00:22:14,980
Then you could stop working.

540
00:22:15,200 --> 00:22:17,680
Whatever your years of services would be locked.

541
00:22:17,920 --> 00:22:20,920
That number of years of service, say 23,

542
00:22:21,360 --> 00:22:21,920
23.

543
00:22:22,720 --> 00:22:24,420
And then she, she doesn't have to turn

544
00:22:24,420 --> 00:22:25,720
it on at that age.

545
00:22:26,300 --> 00:22:27,280
She couldn't wait.

546
00:22:27,400 --> 00:22:28,700
And I think that was where she was

547
00:22:28,700 --> 00:22:31,100
like, Oh, how does that factor in?

548
00:22:31,140 --> 00:22:33,880
You know, that there's a different calculus at

549
00:22:33,880 --> 00:22:34,240
that point.

550
00:22:34,260 --> 00:22:35,720
It's a math, it's a math question.

551
00:22:36,220 --> 00:22:36,580
Yeah.

552
00:22:36,580 --> 00:22:38,300
So it's a, that becomes a, maybe you

553
00:22:38,300 --> 00:22:39,800
wait a couple of years and when you,

554
00:22:39,980 --> 00:22:41,780
when you're ready to turn on the income,

555
00:22:41,780 --> 00:22:43,360
if you want it to, if they wanted

556
00:22:43,360 --> 00:22:44,600
to start it right away, they can do

557
00:22:44,600 --> 00:22:46,780
that, but they'd have their choice of those

558
00:22:46,780 --> 00:22:49,580
aren't necessarily the same decision when you retire

559
00:22:49,580 --> 00:22:52,940
and when you start the pension, aren't the

560
00:22:52,940 --> 00:22:54,200
same, it don't have to be.

561
00:22:54,300 --> 00:22:56,200
And the same is true with social security.

562
00:22:56,200 --> 00:22:58,140
When you, when you, when you retire and

563
00:22:58,140 --> 00:23:00,600
when you turn on social security, doesn't have

564
00:23:00,600 --> 00:23:02,020
to be the same time.

565
00:23:02,240 --> 00:23:02,860
That's right.

566
00:23:02,860 --> 00:23:04,840
You know, the public pension, there is a

567
00:23:04,840 --> 00:23:07,980
secondary level of question is where are you

568
00:23:07,980 --> 00:23:09,400
getting your health insurance?

569
00:23:10,240 --> 00:23:12,600
Because if she stops working, she'll lose her

570
00:23:12,600 --> 00:23:13,460
employee benefit.

571
00:23:14,140 --> 00:23:17,580
If she retires, you know, she, and she

572
00:23:17,580 --> 00:23:19,680
was, well, if she gets a 60 retirement

573
00:23:19,680 --> 00:23:21,780
is turning on the pension in that case.

574
00:23:21,780 --> 00:23:22,820
Right, right.

575
00:23:22,920 --> 00:23:25,700
But she could retire now or in three

576
00:23:25,700 --> 00:23:28,500
years and still have the health benefit, even

577
00:23:28,500 --> 00:23:31,100
though she's not 65, her health benefit would

578
00:23:31,100 --> 00:23:33,780
change from the state when she is 65,

579
00:23:34,300 --> 00:23:38,680
but you can't pause your retirement and could

580
00:23:38,680 --> 00:23:40,300
get the health benefit is what I'm saying.

581
00:23:40,380 --> 00:23:41,040
That's a great point.

582
00:23:41,340 --> 00:23:44,380
That's a great, uh, that's additional consideration.

583
00:23:44,460 --> 00:23:48,200
So in their case, uh, this family's case,

584
00:23:48,200 --> 00:23:50,460
if they do it before 65, that might

585
00:23:50,460 --> 00:23:53,600
be a relevant consideration to where they want

586
00:23:53,600 --> 00:23:55,140
to draw their benefits from.

587
00:23:55,780 --> 00:23:56,300
Yeah.

588
00:23:56,400 --> 00:23:58,700
And the other question that's always in this

589
00:23:58,700 --> 00:24:00,720
subject is survivor benefit.

590
00:24:01,140 --> 00:24:02,000
In Massachusetts.

591
00:24:02,380 --> 00:24:04,960
If you collect your full pension, it's on

592
00:24:04,960 --> 00:24:07,820
your life only the employee's life.

593
00:24:08,580 --> 00:24:11,160
If you leave your survivor, typically a spouse,

594
00:24:11,380 --> 00:24:14,900
you'd lose, lose roughly a third round number

595
00:24:14,900 --> 00:24:18,960
of your monthly benefit, but the pension would

596
00:24:18,960 --> 00:24:21,260
survive you and go to a second life.

597
00:24:21,380 --> 00:24:23,240
In other words, the death of the second

598
00:24:23,240 --> 00:24:25,720
life, your spouse, and that's just a personal

599
00:24:25,720 --> 00:24:28,640
decision based upon a lot of factors, age,

600
00:24:28,740 --> 00:24:31,100
health, other pensions, other assets.

601
00:24:31,620 --> 00:24:33,880
Well, that's the other topic I wanted to

602
00:24:33,880 --> 00:24:36,600
bring up when coming into the topic of

603
00:24:36,600 --> 00:24:37,040
pensions.

604
00:24:37,120 --> 00:24:40,000
I had another scenario where we got, uh,

605
00:24:40,000 --> 00:24:42,160
an inquiry from a client saying, you know,

606
00:24:42,160 --> 00:24:43,800
we have this pension option.

607
00:24:44,400 --> 00:24:47,020
It includes the possibility of a lump sum

608
00:24:47,020 --> 00:24:50,200
as one possibility for private pension.

609
00:24:50,300 --> 00:24:52,600
It is a private pension in this case.

610
00:24:53,020 --> 00:24:57,140
Um, they also have, um, you know, this

611
00:24:57,140 --> 00:25:00,080
decision of, well, what should we do when

612
00:25:00,080 --> 00:25:03,920
it comes to the, the, the monthly income,

613
00:25:03,920 --> 00:25:06,000
if they opt for that.

614
00:25:06,000 --> 00:25:07,800
So they have, you know, this range of

615
00:25:07,800 --> 00:25:10,180
possibilities to evaluate.

616
00:25:11,100 --> 00:25:13,580
And, you know, I think this is a

617
00:25:13,580 --> 00:25:17,420
tough one sometimes because, um, you know, on

618
00:25:17,420 --> 00:25:19,120
the one hand there's an impulse to say,

619
00:25:19,180 --> 00:25:21,440
well, I want that cash, you know, let's,

620
00:25:21,580 --> 00:25:23,100
let's control this whole thing.

621
00:25:23,980 --> 00:25:25,680
Uh, and then on the other hand, some

622
00:25:25,680 --> 00:25:28,100
people say, I want to guarantee, you know,

623
00:25:28,100 --> 00:25:29,040
I like the absolute.

624
00:25:29,040 --> 00:25:30,340
I don't have to worry about it.

625
00:25:30,420 --> 00:25:32,380
I know what I'm in for as long

626
00:25:32,380 --> 00:25:34,380
as I live, both of us live, whatever

627
00:25:34,380 --> 00:25:35,420
the way they choose it.

628
00:25:35,640 --> 00:25:35,740
Right.

629
00:25:35,980 --> 00:25:36,220
Right.

630
00:25:36,800 --> 00:25:41,020
So, um, it becomes sort of, uh, a

631
00:25:41,020 --> 00:25:42,860
challenge to say, well, how should we think

632
00:25:42,860 --> 00:25:43,460
about this?

633
00:25:43,500 --> 00:25:48,920
And life expectancy does certainly factor into how

634
00:25:48,920 --> 00:25:50,100
you think about this.

635
00:25:50,620 --> 00:25:55,100
Um, if you envision of a prolonged life

636
00:25:55,100 --> 00:25:58,620
expectancy, that there really does help make the

637
00:25:58,620 --> 00:26:01,740
case to, to suggest that maybe the absolutes,

638
00:26:02,100 --> 00:26:06,820
the guarantees of, uh, the pension options might,

639
00:26:06,980 --> 00:26:09,940
and maybe the, some, some manner of survivor

640
00:26:09,940 --> 00:26:12,320
benefit, you know, would have virtue.

641
00:26:13,360 --> 00:26:19,900
Um, another possibility would be, um, to think

642
00:26:19,900 --> 00:26:23,260
in terms of, um, you know, if, if

643
00:26:23,260 --> 00:26:26,500
you don't think there's a long life expectancy

644
00:26:26,500 --> 00:26:31,540
involved, well, the idea of a larger lump

645
00:26:31,540 --> 00:26:35,320
sum that you might have assets to retain,

646
00:26:35,460 --> 00:26:39,480
to pass on as wealth, uh, that you

647
00:26:39,480 --> 00:26:42,060
aren't worried about the risk of running out

648
00:26:42,060 --> 00:26:42,320
of.

649
00:26:42,640 --> 00:26:44,840
I think in this case, it also comes

650
00:26:44,840 --> 00:26:46,740
down to what are the other assets involved?

651
00:26:47,620 --> 00:26:49,560
Uh, how, how much do you spend?

652
00:26:49,740 --> 00:26:51,180
Where's that money coming from?

653
00:26:51,220 --> 00:26:51,440
Right.

654
00:26:51,520 --> 00:26:56,840
If there's demand for resources, more resources, then,

655
00:26:56,840 --> 00:27:00,260
you know, then the pension might be the

656
00:27:00,260 --> 00:27:00,900
right way to go.

657
00:27:01,020 --> 00:27:03,740
If, if you've got maybe more coming in

658
00:27:03,740 --> 00:27:07,320
than you need, well, then a lump sum

659
00:27:07,320 --> 00:27:09,820
sounds pretty appealing, you know, you can control

660
00:27:09,820 --> 00:27:10,800
that a little bit more.

661
00:27:11,180 --> 00:27:11,720
I don't know.

662
00:27:11,800 --> 00:27:14,040
Anyway, I just thought that was another variable

663
00:27:14,040 --> 00:27:16,040
talking about pension discussion.

664
00:27:16,340 --> 00:27:18,680
I think that's the whole episode that, that

665
00:27:18,680 --> 00:27:23,660
question of a private pension, lump sum on

666
00:27:27,080 --> 00:27:30,700
your social security, all of these factors is

667
00:27:30,700 --> 00:27:32,100
probably a whole episode.

668
00:27:33,240 --> 00:27:36,180
Well, recent, uh, conversation we had, Chris was,

669
00:27:36,380 --> 00:27:38,740
um, you were kind of comparing what is

670
00:27:38,740 --> 00:27:40,460
the return you can get based on that

671
00:27:40,460 --> 00:27:42,180
lump sum per year.

672
00:27:42,460 --> 00:27:44,480
And it's like, can we beat that number

673
00:27:44,480 --> 00:27:46,060
by having invested?

674
00:27:46,800 --> 00:27:49,620
And if not, yeah, there, there used to

675
00:27:49,620 --> 00:27:53,680
be circumstances, um, you know, 20, 25 years

676
00:27:53,680 --> 00:27:55,560
ago, we'd, we'd sit down with people who

677
00:27:55,560 --> 00:27:59,240
had a pension and, uh, the formula for

678
00:27:59,240 --> 00:28:01,480
how they calculated the lump sum had to

679
00:28:01,480 --> 00:28:04,320
do with interest rates and, you know, 25

680
00:28:04,320 --> 00:28:07,020
years ago, interest rates had dropped from being,

681
00:28:07,040 --> 00:28:10,660
you know, historically more normal to that zero

682
00:28:10,660 --> 00:28:12,660
or very low interest rate environment.

683
00:28:14,480 --> 00:28:19,060
And, um, suddenly these lump sums were fabulous,

684
00:28:19,340 --> 00:28:22,560
you know, and you'd say, well, we can

685
00:28:22,560 --> 00:28:25,780
make 4%, you know, whatever, you know, uh,

686
00:28:25,780 --> 00:28:27,540
let's just take some risk, you know, that

687
00:28:27,540 --> 00:28:28,060
kind of thing.

688
00:28:28,060 --> 00:28:31,180
Uh, when I was doing this recently, what

689
00:28:31,180 --> 00:28:33,660
was it like more like 8% that,

690
00:28:33,780 --> 00:28:35,780
uh, they, you know, they'd have to be

691
00:28:35,780 --> 00:28:37,920
able to consistently earn.

692
00:28:38,660 --> 00:28:41,260
Well, if you're going to expect 8%, some

693
00:28:41,260 --> 00:28:43,260
of that's coming off a principle in all

694
00:28:43,260 --> 00:28:45,460
likelihood over a retirement, right.

695
00:28:45,520 --> 00:28:47,180
The level of risk you'd be willing to

696
00:28:47,180 --> 00:28:50,320
tolerate volatility that you'd expect, you know, there's

697
00:28:50,320 --> 00:28:52,020
going to be down years and some of

698
00:28:52,020 --> 00:28:53,640
that comes out of capital.

699
00:28:53,640 --> 00:28:53,960
Right.

700
00:28:53,960 --> 00:28:57,740
So, um, you know, it's less of an

701
00:28:57,740 --> 00:28:59,940
absolute, you know, so that kind of thing.

702
00:29:00,080 --> 00:29:02,380
So it becomes a question of, well, let's

703
00:29:02,380 --> 00:29:04,220
take a look at what's that rate of

704
00:29:04,220 --> 00:29:04,740
return.

705
00:29:05,560 --> 00:29:08,220
Uh, how, how much can, how long could

706
00:29:08,220 --> 00:29:09,580
we expect that to last?

707
00:29:10,560 --> 00:29:13,860
Um, even, you know, with some market disruptions

708
00:29:13,860 --> 00:29:15,900
and things like that, the way you'd be

709
00:29:15,900 --> 00:29:18,200
invested, that sort of thing, what's the rate

710
00:29:18,200 --> 00:29:21,080
of return we might anticipate from something like

711
00:29:21,080 --> 00:29:21,220
that.

712
00:29:21,300 --> 00:29:23,080
And then again, it's not an absolute.

713
00:29:23,080 --> 00:29:26,060
It's, it's a, a calculated risk.

714
00:29:26,160 --> 00:29:26,760
Right.

715
00:29:27,300 --> 00:29:32,060
Um, so again, all these variables of how's

716
00:29:32,060 --> 00:29:34,940
it fit into the whole becomes part of

717
00:29:34,940 --> 00:29:35,620
that equation.

718
00:29:36,220 --> 00:29:38,680
Uh, but yeah, Jeff, it probably should be

719
00:29:38,680 --> 00:29:40,060
its own conversation.

720
00:29:40,200 --> 00:29:42,660
And so there's a lot to evaluate.

721
00:29:42,800 --> 00:29:45,940
There's the whole idea of, do I, um,

722
00:29:46,240 --> 00:29:47,820
take the lump sum?

723
00:29:48,400 --> 00:29:51,340
Do I take a pension with a single

724
00:29:51,340 --> 00:29:53,200
life and buy some life insurance?

725
00:29:53,700 --> 00:29:55,180
And that's, that's where I was going.

726
00:29:55,260 --> 00:29:55,460
Yeah.

727
00:29:55,660 --> 00:29:55,900
Yeah.

728
00:29:56,120 --> 00:29:58,860
So replicate that, uh, potential for keeping.