Transcript
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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
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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.
