The Overlooked Aspects Most Retirement Plans Miss With Christine Benz (EP.200)

0:28We all need to make smart decisions with our money. It's about making the right decisions once you get there. And yet, the transition from saving to spending, managing investments in retirement, and maintaining purpose beyond work are all things I've seen tons of people struggle with. In this episode, I'm joined by Christine Benz, Morningstar's Director of Personal Finance and author of How to Retire, a book that distills 20 key lessons from top retirement experts. Many of you have heard Christine on the show before. She has spent years researching and writing about the nuances of retirement planning.

1:06And in this conversation, we're diving into the often overlooked aspects that can make or break a successful retirement. We discuss why lifelong savers have trouble spending in retirement, how social connections impact long-term happiness, and the biggest debates in the retirement planning community today, including whether annuities are actually worth it. And hey, if you don't have enough time to sift through endless financial content every week, I've got you covered. I do the reading for you and share my top five must-read articles in a quick, easy-to-digest email. You can sign up for that newsletter at thelongterminvestor.com or in the link in your podcast app description.

1:48And now, let's get to my conversation with Christine, because whether you're planning for retirement or already retired, this episode will help you approach the next stage of life with more confidence and clarity.

2:03Christine Benz, welcome to The Long-Term Investor. Peter, it's so nice to be with you. Thank you so much for having me on. You are always one of our most popular guests, so the pleasure is all mine. And last time we had you on the show, we were talking about a book you were working on that is now out that's called How to Retire. You can buy it anywhere. I'll be sure to link to it in the show notes at the long-terminvestor.com. And your first book, I know I've told you this, was so influential on how I think about so many personal finance issues. So I was naturally excited when I heard a new book was coming out, and I'm just curious, how did the idea for this book come about in the first place?

2:42So you know Craig Pierce at Harriman House. He's an editor there. And I had been talking to Craig for several years, Brian Portnoy had connected us and I had wanted to do a book and we thought it would be a book about probably bucket retirement portfolios, which is a topic that I've written a lot about. And then I just kept not having time. And so Craig was like, well, I do do a podcast for Morningstar. He was like, you've got all these connections. Could we think of a book as a series of interviews? And would that be a lighter lift for you? And I was like, yeah, it sounds like it would be in hindsight.

3:17And I've joked with Craig, I'm like, that was not a lighter lift because it just was like a lot of coordination and certainly editing, but it was really fun. And the thing that I love about the format of the book, which is it's a series of 20 interviews, each of which is kind of a lesson about how to do some aspect of retirement planning. And I loved that my imposter syndrome didn't show up. Like I didn't have to put myself in the seat of being an expert on things where I know a little bit, but I'm not an expert. Like Carolyn McClanahan is an expert on healthcare planning as we age, or Jenny Roselle is an expert on estate planning because she's an attorney who does estate plans.

4:00So I loved that the format allowed me to leverage sort of my generalist knowledge, but I did not have to have that deep subject matter expertise. My interviewees brought that. So I felt that it worked out really well. And I learned a lot. I learned a lot as well. And I've recommended the book to a number of people in conversation as they prepare for retirement, because I feel like there aren't a lot of books that are addressing some of the issues that I think the subtitle is, you know, it's how to retire 20 lessons for a happy and successful retirement. Maybe I'm butchering the subtitle a little bit, but what do you feel like in general, after having written the book, even going into it are just some of these under-discussed items that lead to having a happy and successful retirement?

4:47Well, a couple of them. One is kind of a through line in a lot of the chapters is the importance of relationships. Laura Karstensen, who is the head of the Stanford Center on Longevity, talked about relationships. Her research points to how our relationships evolve and change. It turns out that our relationship networks actually shrink a little bit as we age, And some of that is for sad reasons, like people dying and moving away. But some of it is actually self-selected, that we choose to have a smaller network of deeper relationships rather than having this more dispersed network that we might have had earlier.

5:26So that comes up again and again, the importance of nurturing those relationships. If a lot of your contact with people is coming through your work, you need to be really thoughtful about, well, where will you go for that human contact once you step away from work? And then another thing that comes up in a lot of different places in the book is the importance of giving yourself permission to spend after a lifetime of saving that I think a lot of financially healthy people have really burnished their identities as savers, as investors. Oftentimes they kind of latch onto their portfolio's high watermark and they don't want to spend from their portfolios.

6:12And that's when you can get into some kind of funky looking situations where people want to subsist entirely off of income distributions. And I feel like that is an under-discussed topic of retirement planning, trying to figure out how much you can reasonably spend, giving yourself permission to spend a reasonable amount from that portfolio. And I think, unfortunately, sometimes spending, people equate it with profligacy or something that they think that when we say, oh, you know, you should spend a reasonable amount given how much you've managed to save. And they think underspending means that they will not be true to themselves as savers.

6:53And so I just think there's a lot there psychologically when people transition from saving to spending mode. I'd love to dig into a couple of those. And I guess I will start with what you just finished with. People fear running out of money generally. They also tend to die with regret from what I read in research. But I guess, how would you recommend reframing this fear of running out of money to help people feel more confident in their retirement plans? Yeah, I often recommend Mike Piper's book, which is called More Than Enough, which is about this problem. And it's kind of perverse to even call it a problem because we have so many people who are quite undersaved relative to what they need for retirement.

7:35But there is a healthy cohort of adults who have been good savers, they've been employed throughout their careers, and they have amassed a nice nest egg. And so I do think that lifetime giving needs to be a bigger part of the discussion. And sometimes people hear lifetime giving and they think, oh, you know, it's like if you're going to donate a wing at the hospital or something really enormous like that. But in Mike's book, he talks about the value of, can you potentially help pad your child's home down payment to help them get into a house that they could stay in longer than that starter home that they might be out of in five years?

8:13Or can you help your grandkids pay down their student loans? Maybe not pay off all their student loans, but take a$10 ,000 bite out of one of your grandchildren's student loans. Things like that, or help someone go to grad school or whatever the case might be. And certainly giving to charity can fall into this context as well. But I do think that advisors can add a lot of value in helping their clients figure out how much they could reasonably spend and kind of give them encouragement to enjoy their wealth during their lifetimes versus leaving a big bequest for their heirs. And the other thing is, when we look at the data on bequests, what we see is that parents often leave their adult children money when the kids are in their mid-50s or even their 60s.

9:03Their financial fortunes are pretty well cast by that life stage. If you can make an impact earlier, that I think is a smart decision, even though it might accelerate your retirement spending a little in those early years of your retirement. Really interesting points and something that I feel like I see in my everyday role and watch our advisors coach others on. And sometimes I hear a little pushback of the parents giving to the younger adult child in their 20s, 30s, even 40s, that they worry about the kids becoming reliant on it. But I would agree with you from what we see is that by the time the kids do end up with the money, it's not as impactful.

9:45And it's not that they're not appreciative, but I think it can be challenging not only for the dedicated saver to shift that mindset, but then to see money that they've saved and not spent themselves go get immediately spent. So I can certainly understand why it's a tough thing to overcome, but I agree with you that it's so important. The other thing I wanted to touch on that you mentioned in these under-discussed areas that I found really interesting throughout the book was just the importance of relationships. How do you feel like retirees can prepare for the shifts in their social dynamics or the relationships that they have or will have after they leave the workforce?

10:22Yeah, I think it's particularly important for men to think about this. And of course, this is a huge generalization, but the research, the data show that men oftentimes struggle with relationships in retirement. It's really hard to meet someone, to meet new people, unless you're consistently putting yourself in situations to meet people later in life. And so the research points to men oftentimes having a lot of their social networks and their sense of identity and purpose coming from work. Women tend to have somewhat more diffuse social networks that might be in the neighborhood, other parents, whatever.

10:59Women have more diverse and diffuse social networks. Men sometimes struggle with that. So I do think that in the years leading up to retirement, if you can try to plant the seeds, whether it's at the gym or through some volunteer activities, or perhaps by continuing to work, even consulting or part-time a bit longer, all of those things can put you in the path of meeting people. And I also think it's important for people to kind of use successful retirements that they've seen in their networks, whether with their parents or in their neighborhoods, whatever. We all have examples of retirees who have done this really well, as well as less successful retirees, the retirees who just kind of retreated to their couches and then ended up with some bad health situation a couple of years later and died earlier than one might have expected them to.

11:58So my advice is there are great examples right in front of you. Mentally reference them and use them to affect how you are directing your activities. So for those of you listening or watching, we haven't talked about the nuts and bolts of retiring. And I think that's really a testament to the book that Christine has compiled and written. And I think we were talking a little bit about this before we hit record, I just feel like the playbook for saving for retirement is largely agreed upon. And so the do it yourself community, I think is very, very confident in saving and managing their own money up to retirement.

12:40But when you hit that decumulation stage, I'm finding that it's more difficult for people in part because it's more nuanced. So it's easier to make mistakes. But then also there just are so many things that aren't discussed as widely. And I think there is more debate. And so I'm kind of curious, having spoken to so many experts for the book, as well as your own podcast, what do you feel like are some of the things that people disagree most about when it comes to retirement? Yeah, it's a great question, Peter. I think one of the biggies, and it does come out in the book, is the role of guaranteed income, the role of annuities.

13:16There's stark disagreement in the book on that topic. So you have people like Wade Pfau, who is pretty pro-annuity in a lot of his research, comes to the conclusion that to the extent that people can pad their guaranteed income, that helps enhance their lifetime spending. And then I think adjacent to Wade's chapter in the book is Bill Bernstein, where he practically has annuities marked with a skull and crossbones. He just thinks they're terrible products and they are often very high cost products. He doesn't like the fact that you can't buy an annuity that's linked to the consumer price index.

13:55You can buy annuities that carry inflation riders, but not the CPI linked inflation protection. So that's one big topic of disagreement. I would say another one is just how to structure that in retirement portfolio. And I wanted to showcase an array of opinions there too, where Bill Bernstein is kind of like build a laddered portfolio of treasury inflation, protected securities, maybe add some equities or a target date fund and call it a day. I'm a believer in the bucket approach to retirement portfolio construction. So I wanted to showcase a range of perspectives on those topics as well. And then we also discussed different approaches to safe withdrawal rates.

14:41David Blanchett shared some of his research. I talked to John Guyton, who's a financial planner, about his sort of guardrail system for guiding retirement cash flows. So definitely a range of opinions on those kinds of topics. Now, you mentioned the people who typically dislike annuities, it's often because of the cost and fees are coming down quite a bit. I sort of wonder if we'll see a shift over time. For a long time, the people who recommended them did so because they would get compensated for it. Meanwhile, you have a large community of advisors who have a hard time billing on annuities, and so they don't recommend them and they point to high costs as the reason.

15:25But as costs come down, I will be interested to see over the next, let's just say, decade on how that might change the landscape as well as how it might change people's opinion of them. The other thing that stuck out to me in the book with different opinions was just how people felt it was important or not to work longer or how you sort of structure retirement. What were some of the things you noticed about those conversations? Yeah, I think that several people did point to the value of working longer, certainly from a financial perspective. It's a home run that you can achieve a lot of things if you're willing to work even a couple of years longer.

16:04But it turns out that from a quality of life perspective, that people who work longer are often healthier and happier. And it's a tangle, really, because you wonder if those who are able to work longer were healthier to begin with. So it's hard to say, oh, aha, working longer helps you live longer. Not necessarily, but there's definitely some compelling research that points to the financial and health and happiness benefits of working longer. But I also interviewed Fritz Gilbert for the book, who was an early retiree, not super crazy fire early, but retired, I think, in his late 50s. And he has found a great kind of next act apart from work, where he's doing his blogging and kind of a retirement expert in his own right.

16:52And he also has this charity that he and his wife started. So he was there to provide kind of the contra perspective on the whole working longer idea, saying, if you can find purpose, if you You can find social activity and a little bit of structure for your life away from work and you have the money. Don't necessarily reflexively reach for working longer. I think that's probably where I fall. If there's purpose, you don't need to. But if there isn't purpose, you know, can give you something if that's the easy button, so to speak. Right. And certainly the financial benefits are there. One of the things that I've learned in the I think my podcast has been going for three years now.

17:32Yours has been going for much longer than that. But what listeners probably don't realize is that when we get to interview people, you have these aha moments where you might have followed or read a person's thoughts on all sorts of topics, but you get them in conversation and suddenly they say something that just hits a little different. You spoke to so many people for the book. I'm curious, did you have any of those aha moments when going through the writing process? Well, definitely. So one was with Laura Carstensen in that conversation about relationships, and her message was very reassuring in terms of saying that if you're an introvert, that you aren't relegated to be less happy.

18:12So even though a lot of the research points to the value of these social interactions, introverts can be just as happy as extroverts. So as an introvert, I was very relieved to hear that. But another aha moment came up in the conversation with John Guyton, where he was talking about being flexible with your portfolio withdrawals and the advantages of that from a financial standpoint. If you can take less when your portfolio is down, you may be able to take more when it's up. And those things tend to contribute to your money lasting longer and a higher lifetime withdrawal. all. But the point he made that just kind of stopped me was he said, it's a rare thing that makes sense financially, a rare action that makes sense financially, that also is the thing that feels right.

19:02So his point was like, often the things that feel good are not great for our finances. So spending more feels better than saving more, right? And taking money out of the market when the market is volatile feels better than just leaving it in and watching it slash around. His point was, in this case, the thing that you feel like doing, which is probably to spend a little less when your portfolio is down, well, guess what? That's also good for your portfolio. So I thought that that was kind of an interesting way to frame it up and a nice reference to some of the behavioral research that's been done.

19:40Now, you had mentioned earlier different approaches to investing and how you're a big fan of the bucket approach. I actually think your bucket approach framework really was a huge influence on the savings system that I describe in my book, Making Money Simple. Maybe explain briefly, what is the bucket approach towards your portfolio and savings and what makes you such a big fan of it? Yeah. So the bucket approach that I often talk about was originally launched by Harold Davensky, who was a financial planner and a professor of financial planning. And I remember talking to him, it was probably 20 years ago.

20:18And And at the time, yields on safe securities were going lower and lower. And everyone was scrambling to figure out, well, if you're retired, where do you go for cash flows if CDs now are yielding 3 % or whatever the case was? And I remember asking Harold, well, how do you do it for your clients? How do you construct an in-retirement portfolio? And his point was, well, I just use this cash bucket and I bolted on to the long-term portfolio that consists of stocks and bonds to varying percentages. And his point was that having that cash bucket to supply like a couple of years worth of portfolio withdrawals went a long way toward keeping his clients comfortable during periods of market volatility, which would inevitably crop up during their retirement periods.

21:08That if they knew that they could plan and that they could go forward with their plans, regardless of what was going on with the long-term portion of the portfolio. They didn't actually bother him. They weren't constantly saying that they were feeling nervous or that they wanted him to make changes. They knew that they could go ahead with those plans. So that's kind of the basic idea. And in my basic three-bucket setup, I use roughly two years' worth of portfolio withdrawals in cash instruments, then another five to eight years' worth of portfolio withdrawals in a high quality fixed income portfolio, mainly short and intermediate term bonds.

21:48And then the remainder can go into a globally diversified equity portfolio. And to the extent that I have any sort of higher risk other assets, whether high yield bonds or commodities or something like that, I would hold them in that long term bucket too. But the basic idea is that if, say, a really bad stock market shows up early in your retirement, with that first bucket, the cash bucket, as well as that high quality fixed income bucket, you effectively have seven to 10 years worth of portfolio withdrawals in those safer assets. And so stocks could go down and stay down for a good long time without you having to raid that long-term portion of the portfolio.

22:34So I just really think it works behaviorally in these periodic market downdrafts since I've been writing about this bucket approach and sharing model portfolios on bucket strategies. I hear from actual retirees who say, this has given me a lot of peace of mind and riding out the volatility that inevitably will accompany those long-term investment assets. So I think it works from a behavioral standpoint. And And even though there is a little bit of opportunity cost in having the cash set aside, it's not terribly significant in the grand scheme of things, especially now that yields are up a little bit on cash.

23:14Yes, for the first time in nearly 20 years, we can get some yield on our cash as long as you place it correctly. And I know we typically guide our retirees to look at one to two years of cash in some part to eliminate the sequence of return risk that can come with having a bear market those early years in retirement. But even after retirees have gone through their first retirement bear market, they just get used to having that cash and it helps them sleep at night. I'm kind of curious. I don't know that you've ever written about this. And if you have, I missed it. How do you think about refilling the bucket structure you described?

23:48So if you have this cash, are you spending down the cash and then refilling it annually? What do you think about it? I think that ideally you would once a year kind of pick your head up and say, OK, if I need to get my cash lined up for the year ahead, what is the smartest place to go for that refill? And so after 2023, for example, strong equity markets, I would probably pull my living expenses for the next year from selling appreciated U.S. equity securities. So I would take some risk out of the portfolio, set aside cash reserves for the year ahead. In a year like, say, it's early 2023, stocks were down, bonds were down in 2022.

24:33I don't want to touch them, right? I want to leave them intact. So I probably would be spending from that cash bucket in a year like that. So that's another thing that I like about the bucket strategy is that it's flexible. It allows you to pull your withdrawals from whatever asset pool makes the most sense at a given point in time. But it's an important point, Peter. Sometimes I think people think that if you set up these three buckets, you're just going to mow them down in order that you'll spend through that bucket one, then move on to bucket two. Not necessarily. If stocks have been good, you probably want to be taking your living expenses out of those appreciated equities to take some risk out of your portfolio.

25:15At least that's how I would approach it. Now, you covered a lot of ground in the book. You got a lot of interviews. Even when I go into any single interview, sometimes I'm hoping somebody says something or we hit a certain topic. I'm curious, there were 20 chapters, 20 interviews. If you could have added more chapters, what do you feel like was missing? What are some other areas that you would have liked to dive into? There were a couple, Peter. It's a really good question. One I would say is how to find a financial advisor. I feel like that is a little bit of a black hole for a lot of retirees.

25:50And you referenced these DIY type retirees. I know a lot of them through the Bogleheads community that I'm part of. And I love DIYers, but I do feel like Like as we age, it's really important to get a second set of eyes on your plan to give you some confidence in whatever withdrawal system you're using, whatever portfolio setup that you have. And it's kind of a logistical backstop to have somebody who is a receptacle of your assets. And my husband and I use a financial planner for really, this is one of the main reasons. We just like having someone who knows what we have. If something happened to us, our loved ones would be able to turn to her and she knows, she can see in real time our assets.

26:39And I just love having that backup plan. So that's one chapter that I would have liked to include, how to find an advisor, how to kind of custom craft your advice by based on your needs, because they're all different models of charging for financial advice. And I think it does depend on the investor. It's not one size fits all. So that's one chapter. Another chapter that could have potentially been in the book is widowhood, which I think is unfortunately such a sad and dark topic. But I've heard from enough widows and widowers that it's obviously a life-changing event to lose a spouse. And there are financial implications.

27:22There are certainly huge emotional implications. and the fact is if someone is part of a married couple, one of you will lose the other. And it's something to brace yourself for. There are some important considerations there, both financial and non-financial. So those are a couple that come to mind of topics. And then finally, FIRE, Financial Independence, Retire Early. My book is very much geared toward traditional retirement, but I love what I've learned from the FIRE community and I would have liked to include some of those folks in the book as well. I will go ahead and say, because I don't think I have many FIRE listeners, that I'm not a huge fan of the financial independence retire early crowd, in large part just because I think it undervalues the time that you're giving up as a young person.