617 | The Hidden Assumption in Every Retirement Calculator

27:10Jonathan Mendonsa:And we do put error bars around the date that we think is most likely. So if 79, maybe that's the most likely for me, I would put a 90 % confidence interval around that. And so I would want to see how much I would need at age 90. So the confidence interval is important. Not knowing exactly what that date is means that we will have a legacy value. And so I think the reason it's important to look at this is to see how much they change based on how long we live and not to just have it be a fixed number that everyone plans to 95. That's the improvement that we're trying to bring here today. That is clearly the takeaway.

28:00Jonathan Mendonsa:Because as you know, ChooseAvi is all about people taking action. That's why they're listening. Hopefully this is not just a passive endeavor. That is your big takeaway. We're not telling you who's listening. You're going to die at X age. We can't possibly know that. But of course, Bobby is going to talk about some ways that we can impact that in a positive way, because clearly the takeaway is also not, Hey, I'm going to YOLO the heck out of this now, because I'm only going to live to 72. It's how can I extend my life and health span? But nevertheless, so that's the takeaway is to just not sit by idly and say, okay, the software says, right.

28:37Jonathan Mendonsa:And I think that's something we always try to do in the fight community is really question things. And I mentioned this to Bobby before the episode started. My pet peeve with financial calculators and retirement calculators has always been the starting point. I think some of them have updated over the years, but in the old days, certainly when we started Choose a Buy, retirement calculators started with one number, your current income. And it's preposterous. It has nothing to do with anything. You don't need to cover your current income because by its very definition in your current income, almost certainly, you're at either your highest or pretty close to your highest effective tax rate and certainly your marginal tax rate.

29:17Jonathan Mendonsa:And to ever get to a point of financial independence, there has to be savings built into your current income. And for most people in our community, it's 30, 40, 50%, something upwards of that. Again, by its very definition, you don't need to cover your current income because the savings will not be there. And the effective tax, the tax burden will be dramatically lowered. You just need to cover your current expenses. This is a total paradigm shifting moment. Like I said to Bobby, this is a paradigm shifting moment of all of these calculators assume 95 and we've never thought about it. I don't want to say we, you guys clearly have, but most people in the FI community have never even thought to question the premise of that.

30:01Jonathan Mendonsa:And that is the eternal takeaway of this episode. And I think it's a massive one. Brad, something I'd like to add is we've been talking about the end of life, as in what's the longest, I think I'm going to live or between me and my spouse. And I think that's an important one to look at. But the other scenarios where one spouse or say it's me dies right now, dies in five years, dies in 10 years. I think those are important to look at as alternate scenarios. And death is just one of the things that could happen, but disability is another, you know, all of the what-ifs are worth looking at to see what is the financial experience of the people who are left behind or that are affected by those.

30:49So I think this is one what if, but it's important to think of, you know,

30:55Jonathan Mendonsa:a couple of what if scenarios, not all of them have to be unfavorable, they could be favorable too. But I think that there should be sort of a deck of cards of what if this happens? What if that happens. So we're looking at one today. This is a really interesting concept in terms of we need to think differently about this. And we've set up this original construct. And I know you've run the numbers a whole bunch of different ways, but we really want to throw it to the FI community for questions and different scenarios. And I know you had a thought in mind in terms of looking at historical analysis.

31:32Jonathan Mendonsa:So I just want you to go through that real quick. And you and I then are going to record a follow-up episode or segment about this specifically, because they think that will be of interest to a significant amount of people. So why don't you set that up and then I'll tell them where people can leave their questions and comments. Yeah, thank you, Brad. So far, we've been talking about these numbers from a linear perspective. This is how much you'd need each year given this end-of-life age. But in the FI community, we're used to thinking about things in terms of historical analysis, the same technique that was used to come up with the 4 % rule initially.

32:12Jonathan Mendonsa:And why that's so important is that it subjects our portfolios to real market returns, real inflation, and that has important effects. We call them sequence of returns risk. And so I want to present and prepare the same table. What if you live to 70? What if you live to 80? What if you live to 90? And how does the FI number change using historical analysis? And so that's what we'll share next, Brad. So thank you for that. Yeah, that's going to be a lot of fun. And everybody, if you want to give feedback on this episode or ask questions for Aubrey, for Bobby, we now have the ability to have these conversations on our website and on our Choose It By community platform.

32:58Jonathan Mendonsa:So I'm not 100 % certain what episode this number is, but let's say it's episode 612. You just go to chooseavet.com slash 612, where we'll have that link in the show notes. You can click through. And at the bottom, there's going to be a whole lot of conversation going on on this episode in particular. I know that for certain. So leave your questions, leave what scenario you'd like to see Aubrey run, and we will make it happen in a follow-up episode. So that's going to be really a lot of fun. And Bobby, let's turn it over to you. We've got another fun part. So how long we live. Can we estimate longevity better?

33:33Jonathan Mendonsa:Can we determine how long we live? And I know you said maybe 25x isn't the default because there are different aspects of how long you're going to live. So why don't you, again, set the stage for this aspect of the conversation and just go into it as much as you want right now. Okay, great. Right. So there's a couple of pieces of the puzzle. The first piece of the puzzle is, are there ways to fine tune how long we're going to live or just do I grab the actuarial numbers and work with those? I'll talk a little bit about what are some ways to think through that. The second is, Brad, you raised it earlier, which is, okay, whatever that number or range is, can I beat it?

34:20Are there ways to improve my health and improve my longevity? We'll get into that perhaps a little bit, but if anybody's interested, that's really the nature of my podcast and my newsletter and my website, all of which of course are free. Live long and well with Dr. Bobby and there's a website and all the rest. So every one of my episodes really is talking about how do we push that boundary out further and further, what works and what doesn't. So what I thought we'll focus certainly mostly and initially is, can we get a better sense of how long we're going to live? I think we've disabused ourselves that 90 or 95 is a perfect default for everyone.

35:02What's the first way to look at it? Of course, it's the actuarial approaches. There's actuarial calculators, society of actuaries, there's a variety of them out there. They all give you different numbers. They're not all identical, but that's the statistics that I shared with you is that kind of rough average of a man who's at age 55 might live to 79, a woman might live to be 82. So that's a starting point. Now we go on and tweak it up, tweak it down. And again, I got to say it again, the numbers I talked about were averages. And this is not Lake Wobegon, where all our kids are above average. Half of us will die sooner than those projected averages.

35:48Okay, so that's piece of the puzzle one. Now, you also have to ask yourself the question, is there something unpredictable that could happen to me? I got in a car accident. I fell down such and such hill and broke my hip and ultimately died a year later. So there's unpredictability that you can't predict, obviously, by the very nature. So do keep that in mind. Law of law averages, the numbers I quoted fit all of that into the puzzle. But if you have a more particularly risky lifestyle, yeah, maybe think about that. So that's the next thing. Third, your family history. how long do most people in your family live?

36:36Do most live to be 75, 80, 85, or do you have a whole bunch of them live to be 95 or 100? Now, there's been a lot of discussion about what percentage of longevity is determined by genes. There was a number that it was only 25 % based on genes. Actually, now that they've done better studies, they boosted that up to about 50 % of how long you live is based upon your genes. If you live to be 70, 75, or 80, a lot of how long you're going to live reflects lifestyle, things you have control over. But when you are pushing the 100-year mark, that's really genetically predetermined. Not 100%, of course, but very few people live to be 100, and the ones who do probably are genetically predisposed.

37:36So take a look in your history. If you got a bunch of people that live to be 100, maybe you'll boost those averages in a further direction. So that's the second. So you got actuarial, you can look at your family history. Third, what's the most common reason to die? Well, the most common reason to die in the US and across the globe is cardiovascular disease. The interesting thing about heart disease, of all diseases we have, we have the best calculators to figure out what's your likelihood of a heart attack or ending up in the hospital with heart disease or dying of any disease known to man. So you can go out on the web, get lots of calculators.

38:23One of them is from the American Heart Association. It's called the PREVENT online calculator. And so you can plug in your numbers, you know, like your age and your gender and whether you've smoked and whether you have diabetes, whether you have high blood pressure and whether it's treated, what your LDL cholesterol levels are. And it will give you a 10-year risk of cardiac event or a 30-year risk. This is new. used to be only 10 years. Now you got a 30-year one. So if you're 45, 10 years, you know, you probably don't have a high risk, but it'll also give you the 30-year risk. So you can take a look at that, especially if you have a family history of heart disease.

39:07Now, if your heart calculator says you have a pretty high risk of a cardiac event, then maybe you're not like woebegone living more than average, you might back off and think, well, maybe I'm not going to live even to that average. So that's the next piece of the puzzle. Third piece of the puzzle, how healthy are you today? Now, we've gone down the heart disease path, but there's lots of other diseases you could have. You could have an autoimmune disease. You could have lung problems. You could have liver problems. You could have all sorts of different problems. Take stock of who you are. Talk to your doctor.

39:49Ask him about all these other things you might have going on in you, whether your doctor thinks it might affect how long you live. So that's another piece of the puzzle. Next piece of the puzzle, last piece at least that I'll talk about right now, are genetic tests. So heart disease is a biggie, one that causes us to die. Dementia is another biggie. Causes us to die. It's also something we don't really want for a whole host of reasons. And, you know, there's risk of dementia. The older you are, the more likely it's going to happen. But there is a gene test called ApoE, and you have different flavors in folks.

40:32Some have an ApoE3. Some have the ApoE4 gene. ApoE4 is the one that's risky for dementia. APOE3, APOE2, you too have lower risks. So, you know, if you've done 23andMe and some of those other things, or you go to your doctor and you ask, you can get the APOE testing. Because dementia is one of the big things that will cut your life short, you can test and you can determine whether your risk is 10%, 30%, 60 % based upon what comes out. Now, look, of course, whatever your genes are are not predeterminative. Just because you have a profile for that gene, which looks good, doesn't mean you won't or can't get dementia.

41:22And if you have the worst one, doesn't mean you're destined to have it. But that's another way to get an inkling. So you can start with the actuarial and then ask yourself, should I tweak it up or down? And do the heart calculation, consider the genetic test, look at your family. And then that average number, you might say, look, I really want my plan to cover an extra 10 years above average because that looks likely, or dial it the other way. And as Brad, you and Aubrey have said, it's not a lock and load. Next year, reassess your health state. The year after, reassess your health state and don't just pluck the averages, tweak it up or down like you do in any financial plan.

42:14That's a couple of tools. Now, some of you might be thinking, well, on Instagram and all these other social media sites and everywhere else, they're talking about biologic clocks. You send in a sample of your tissues or your blood, and they'll run tests, and they'll test how old your body actually is. So I just turned 70. I have a chronological age. I am 70. And guess what? I get to start receiving Social Security. My first check is going to arrive hopefully in two weeks. How wonderful is that? So that's my chronologic age. Now, I would argue, rightly or wrongly, that actually my biologic age, I'm younger.

43:04I'm more functional than a typical 70-year-old. I do Ironman triathlon. So I would argue, actually, I'm younger than that.

43:13Jonathan Mendonsa:And I'll jump in real quick, Bobby. Anybody looking at you would never think you're even approximating 70. So you are in extraordinary shape. So just a little hat tip to you on that. Thank you. So there are these highly marketed, not cheap, biologic tests. And the theory here is that if your chronologic age is greater than your biologic age, you've won the lottery. You're doing really well. You're really functioning like a 50-year-old. Or conversely, you're a 50-year-old, but your biologic age is 70. The problem with these tests, they sound great. And then, of course, they've got supplements and protocols to sell you to make your biologic age younger and younger and younger.

44:00The fountain of youth. How are we going to get there? Two caveats. One, if you take the same sample and send it to different labs to test it, you get completely different answers. So probably not a very good test. And if you take the same test the next week, you'll also get a different answer. And the nail in the coffin is at this point, there are no data to say that if you test your biologic age, you do something to make it lower, that it actually helps you live longer or better. So, biologic clocks, cool concept, not ready for prime time. So, I've given you a number of tools that I do support.

44:40As an inkling, I don't think I'd use the biologic clock to say, you know, Aubrey's numbers are too low or Aubrey's numbers are too high. That's where I'd leave it. And again, there's a whole separate topic of can we reduce our risk of heart disease? Can we reduce our risk of a bad accident? Can we reduce our risk of dementia? my podcast talks about a lot of that. We can talk here a bit, but that's a whole different topic.

45:07Jonathan Mendonsa:And yeah, your podcast is fantastic. You've been on our show a couple of times. I've mentioned it every time I listen to your show every single week. So highly recommended. And of course, we'll have a link to that in the show notes. Yeah, Bobby, it's all about updating. And I think that to me is the takeaway on both sides of this in terms of the money and in terms of how long you're going to live. I actually had for the first time, I had my own brush with this where in my own mind, it's always been, okay, barring an injury, I can't imagine getting to a point where I can't do something. Because to me, it's like, what on any given day?

45:45Jonathan Mendonsa:It's not like I'm going to just magically get old someday. It has to be basically inaction is how I see it. I have to let things slip in terms of being able to sit on the floor and stand up, being able to go to the gym and lift hundreds of pounds on exercises. And I actually had, interestingly, this year, I had a calf injury, a pretty significant calf injury that I was playing soccer after a FI event and just picked up this random injury. I was on the sidelines in terms of doing anything really athletic and certainly lifting weights with my legs for like four months. And that in and of itself is not that interesting, but it was again, the first time where had I been updating and not that my life expectancy would have went down because of calf injury, but I would have been thinking about, Oh, Brad, you are mortal.

46:37Jonathan Mendonsa:And I say that kind of jokingly things can happen. And I think that actually is the takeaway is things can happen. Sometimes you get diagnosed with something, okay, you need to update your thinking. Bobby, like you're saying, there are genetics. With dementia, you mentioned the APOE, the APOE gene, that you can get these tests. And actually, I just signed up for, Function Health has one. I think it's about$130. I know the Alzheimer's Organization has one that's$125. And my partner, Aaron, just had this. And they tell you which of these alleles you have. So, like you said, APOE4 is the the one that's the alarm bells.

47:17Jonathan Mendonsa:And Bobby, I don't want to ever quote health stats without the knowledge, but what I've heard on Andrew Huberman and Tim Ferriss is if you have one of those APOE4 alleles, then it's something on the order of a 2.5x likelihood of getting Alzheimer's. And if you have both APOE4, it's somewhere in the order of eight to 10 times as likely. I think those are directionally accurate. We could obviously get the specific numbers from you, but this is something that's important to know. And if you have two APOE4, chances are you would have seen this in the family. Like you said, family history is really important.

47:52Jonathan Mendonsa:Looking at your genes is really important. So we're just trying to paint a picture of you need more information. And there are different ways, different reputable ways, biologic clocks. They're not ready for primetime today. Maybe they'll never be, but they certainly aren't ready for primetime today. And I've seen that again in my own life where I've had different testing from different companies and you're 36 or you're 46 and there's no rhyme or reason to it. It's just totally arbitrary. It's as if they pick the number out of thin air. Bobby, I'll let you talk on the APOE gene, of course, but then I really want you to go into, all right, somebody now is listening to this and let's just say they're 40 years old.

48:33Jonathan Mendonsa:What would be the starting point? If 79 and 82, I think you said, are life expectancy, if you're man and woman when you're 55. So I'm even dialing it back. Let's say you're 40. It's somewhere in that vicinity, 79 and 82. How would someone add or subtract to that based on family history, genetics, et cetera, just as the starting point for this conversation in their own mind? Because everything here is estimated, but we have to give some type of specifics in terms of, all right, directionally, here's how you think about it. Well, there's a whole lot of issues embedded in the scenario you gave and the questions, and I'll try to touch on it briefly.

49:14I do have a podcast episode called, Can You Change Your Future? It walks through specifically what things are somewhat predetermined, what things do you have an impact on and how to think about it. I want to point out one thing, Brad, your scenario was, oh, today I'm healthy, tomorrow I'm healthy, the day after I'm healthy, I guess I won't be healthy if I'm inactive or I don't do something. There's another aspect of this, which is our bodies are changing whether we like it or not. So from a muscle strength standpoint, you lose 1 % to 2 % of your muscle mass every year, probably starting at age 30 or 35.

49:59five. So you may be very active and functional, but you are going to lose muscle. It's inevitable. And why do we care about muscle? It's not that you look buff. Of course, some people think that's cool. It's really, you don't want to get injured. You do not want to fall. You want to be functional. You want to play golf. You want to hike up a hill and you don't want to be wobbly and fall and hurt yourself. And a lot of that is determined by muscle, of course, by balance and other things. So I like to think about health and specifically strength training like it is an IRA that you've invested in.

50:43You don't wait until you're 55 to begin your tax-deferred savings. You want to start young and you want to build it up because compound interest is a beautiful thing. you are going to lose muscle. So what you want when you are younger, when you're 40, when you're 45, when you're 50 is build extra capacity because you're going to lose. And if you're starting at a higher level, you will do better. So that's just one thing to consider. I also have a podcast episode on should you change your exercise as you get older? and you talked about something that is near and dear to my heart, which is as we get older, the tax you pay when you get injured is higher than when you're younger.

51:36If you had a soccer injury at age 25, you'd probably bounce back really quickly. You're in your 40s, you bounce back at a certain rate. You said you were out for a couple of weeks. If you were my age, it will take a lot longer to heal. And while you are healing, whether it's a couple of weeks or it's two months, like you tore your meniscus in your knee and you're kind of out for a couple of months, at my age or frankly at anybody's age, you decondition. Your one to 2 % muscle loss goes up by probably an order of magnitude because you're not exercising. And to build back that strength is hard enough in your 40s.

52:25It's really hard when you get in your 60s or 70s. So what can you do? Think carefully about the exercise you're doing. Maybe you don't do the black diamond runs skiing anymore. I do a lot more of my cycling, biking stuff indoors because if I were to go head over heels over my handlebars now, that might be the end of my exercise career. I may never regain that capability. I'm running an exotic animal ranch and bed and breakfast. If I couldn't do that anymore, that would be a big deal. One thing to keep in mind is, what are you doing? Do you want to assess the risk of those activities? And do you want to change them?

53:13So those are a couple of thoughts. If it's dementia you want to talk more about, I'm happy to talk about how do you go about doing stuff to reduce your risk?

53:23Jonathan Mendonsa:Yeah, let's do that really quickly. I think, like you said, it's very important, obviously. And maybe we can also touch on heart disease since you said that's the most common way of dying. clearly we can't spend five hours talking about every possible way you can improve your health that of course is you have many many more than five hours on your podcast so people can go there but yeah since we brought up those two things I'd love to just quick overview are there things that could move the needle for people because then that's really we're an 80 20 analysis kind of community are there ways really high value ways that are levers that people could pull to really increase their health possibilities on those two fronts.

54:02Absolutely. And the good news is, yes, you can die of a rare disorder that nobody's ever heard of, but most people die of the most common things, heart disease, stroke, cancer. Those are the common things that you would say, okay, can I do anything about it? Cancer, it's hard to avoid them. Don't smoke and get your screening tests as appropriate, but there aren't a huge number of lifestyle levers to reduce that risk. The good or bad news about heart disease and dementia is they carry pretty much the same darn risks. So if you're trying to avoid one, at the same time, you are actually going to avoid both.

54:45So what are the things? For dementia, the Lancet Commission came out with their understanding of dementia. And they estimate that at a population level, 45 % of dementia is preventable, almost half. Now, that doesn't mean it applies to each person, but at a population level. So what are the things that allow you to reduce that risk? Don't smoke. Okay. That's important. Get your blood pressure under control. For heart disease and dementia and everything and stroke and everything else, your cholesterol is something to be considered. Do you have diabetes? Can you get that under control? Are you overweight?

55:31And that keys into all of these illnesses for a variety of reasons. Can you? And now with GLP-1 drugs, it's a miracle how people who struggle can lose weight. Exercise. We love exercise for a million reasons. It reduces your risk of heart disease that reduces your risk of dementia. Here's my unsung hero in my six pillars, sleep, sleep, sleep, sleep. Get your seven to eight hours of all episode on the 12 things you can do to improve your sleep. That reduces your risk of dementia. So there are very tangible things you can do. And I do have a podcast episode called, can you reduce your risk of cognitive decline?

56:20So you can listen to that. So I am very optimistic. There are things you can do. And you feed that back into today's discussion. So am I going to live longer than average or shorter than average? And you can take a look at yourself and your lifestyle issues and help dial that in a little bit more tightly.

56:40Jonathan Mendonsa:In the FI community, we've been focused primarily on making sure we don't run out of money. And if that's a single person, the single person living as long as they expect to or can imagine, or with a couple, it would be either one of them living as long as possible. And we have tools to address that. We have a withdrawal rate. We have asset allocation over time, social security, even annuities and reverse mortgages, things we don't talk about in the FI community very much, but they're out there. But what we're talking about today is some other possibilities, which is if you're single, dying earlier in your life and not having spent much.

57:28Jonathan Mendonsa:And that's a real risk. Or in the case of a couple, one spouse passing away quite a bit sooner than the other one. And yes, expenses go down some, but so do income streams like Social Security. And so I think it's time that we bring in those scenarios, the ones other than just living a really long time and how to plan for that and start planning for the full spectrum of possibilities. And the FI community can do that. I totally agree. Gentlemen, this was a really important episode. I think this is going to open a lot of people's eyes. I thank both of you. Bobby, thank you for bringing it to my attention.

58:08Jonathan Mendonsa:And Aubrey, thank you so much for providing the numbers. And again, we're going to have a follow-up on this for certain. So if you're listening to this, please just give us your feedback and give us the scenarios you want to see run. Any other questions, we can get Bobby back on. We can talk more about health. That's one of the things that I focus on most in life at this point. So it's something I always want to do episodes on. So please, selfishly, I'm happy to field as many questions about that as possible. And we can have Bobby, who's a true expert on. And Bobby, we mentioned where people can find you in passing, but where would you like to send people?

58:42The podcast has lots of stuff I hope folks find interesting. It's called Live Long and Well with Dr. Bobby. Just put in Dr. Bobby. You'll find me on the usual locations. If you want to be on my newsletter and see all the articles that relate to all of this, Just go to drbobbieevidence.com, D-R-B-O-B-B-Y, evidence.com, and that'll take you to the website. You can sign up for the newsletter. I have action guides, one-page action guides for each podcast episode. Again, all free. I don't take sponsors. There's no money in anything I do, no subscription fees, nothing. I really, really want to help folks and not have any underpinning of finances.

59:28So hopefully folks will find it of use. And I too love feedback, comments, and suggestions.

59:36Jonathan Mendonsa:Aubrey, where can people get in touch with you? Where do you want to send them? Best place is my website, and that's openpath.financial. The.financial is like the.com. So that's it, openpath.financial. Wonderful. All right, gentlemen, thank you again for being here. I really appreciate your time and expertise. I think this is going to be one people are going to talk about for a long time. To you, the community, this is something we need to think about. We need to really critically think about how we update our reasoning. That's true in all aspects of life. And when we can find these blind spots, we have to just, okay, this is a paradigm shifting thing and now we're aware of it.

1:00:15Jonathan Mendonsa:And it's a blind spot no longer. So thank you for being here. Thanks for being along for the ride. And until next time, thanks for listening to Choose Have Find.