By coinnews 
0:05 spk_0
There’s a new commissioner of the Social Security Administration, and we’re going to talk about that and then some with our guest today, Andy Smith, who is the executive director of financial planning at Edelman Financial. Andy, welcome to Decoding Retirement.
0:20 spk_1
Well, it’s, it’s great to be here. Thanks for having me here.
0:22 spk_0
Oh, it’s a pleasure, and I want to start off with the news of the day. Uh, we now have a new commissioner of the SSA.And to me, there are a couple interesting things that he has said during his testimony before Congress. One is that he’s not going to touch benefits, he’s going to work hard to protect personal information, and that he’s opposed to, uh, privatization of Social Security. I’m curious if you have any reaction to the news.
0:46 spk_1
Well, you know, clients have been asking about Social Security in different ways for, gosh, a number of years here. I think with this news, it kind of brings into focus, um, your, your first point specifically, right? We’re not going to touch benefits. When I talk with clients, they see the news, they’re trying to understand what’s going on around them. And so the first things that I try to do is say, look, this is what’s happening.So you talk about those different points. You talk about working away from privatization. You work, you talk about what’s happening or not happening with benefits. So people want to know what’s going on, but ultimately people want to know what that means.More, more importantly past that, people want to know what that means to them. So they see these news headlines. It could be Social Security, it could be tariffs. It could be any piece of data coming out of DC. Ultimately, people want to know, what does this mean for me right now? How do I need to be adjusting my plans based on things that are so entirely out of my control? Help me.get comfortable with this. So I think these are good first steps. I think these are good 1st 1st notes from this new appointee. Um, ultimately time will tell and ultimately time will tell how people kind of feel about this and adjust their own plans so that they feel comfortable no matter what additional news comes out.
2:07 spk_0
Yeah, I don’t think he talked about this in his testimony, but it’s been floated around by the Treasury secretary that the possibility exists that Social Security benefits.Uh, will not be taxed and apparently about half of Social Security beneficiaries are now taxed at some level, and I suppose for them that would be good news, but there’s some unintended consequences that I think people are unaware of, one of which is the fact that those taxes on Social Security benefits ultimately are used to help pay for Medicare Part A, and who knows what that means if um that money goes away.
2:38 spk_1
Well, I think it helps when people understand that, you know, over the history of the Social Security program there already have been changes, right? When, when the plan first started, you weren’t taxed on any of the benefits, then up to 50% of your benefits could be taxed. Then up to 85% of your benefits could be taxed. So people hear these different news items, they see this different news come out of the, the, the new commissioner.Um, you know, ultimately people want to know what do I need to be doing now, if anything. Uh, a lot of the question is just what happens if different things happen to my benefits going forward. The idea is kind of run to the news, run to the trouble, figure out what it means, but then build that back into the plan so that regardless of whatever happens they’re going forward, you know, ultimately what it meansto you.
3:29 spk_0
Yeah. And I think one of the biggest what if’s, uh, Andy, if you don’t mind.Touching on this is this notion that come 2033 benefits get cut by 20% if Congress does nothing. So I’m of the mind that people should be planning for the possibility of a 20% cut in benefits. Maybe not everyone, maybe those who are 50 and older and you don’t need to do that. But if you’re younger than 50, perhaps you need to start thinking about you may not get 100% of your promised benefits.
3:55 spk_1
I think it’s appropriate. I mean this is just one example of what’s appropriate in any sort of planning conversation, right? You have this baseline strategy. What’s, what’s going to be my income? What will be my expenses, um, what do I need to adjust for regarding inflation or taxes? And then you start building these what if scenarios. What if we see an across the board reduction in benefits of 10%?What if my expenses go up drastically? What happens if I lose my spouse 1015 years ahead of what we expected, and then you’re adjusting Social Security benefits even then? So this is just one example where this, you know, these plans that people need to be putting together, these are not.Put them on the shelf, forget about them forever, pat yourself on the back that you went through this process sort of thing. These are active living breathing documents that you have to be understanding what happens when you change these different variables.
4:51 spk_0
So I want to talk about some of the research that you all have done at Edelman Financial recently. One of the things that I think is interesting is that you that you have found that people are moving away from this traditional retirement to a a new retirement. What does that look like from your perspective?
5:06 spk_1
I think it’s important that people remember that there is no one size fits all solution to retirement, to retirement planning. There’s no one right way to retire. So historically, we heard a lot about this desire to focus on relaxation and family time. Well, our everyday wealth in America report, what we found was that nearly 4 in 10 Americans, about 39% of respondents said that they want this adventurous retirement.42% of respondents said that they wanted to stay active. There is this growing number who are thinking about or even envisioning this minimalist or even nomadic lifestyle. So what that forces retirees or soon to be retirees to do, I think what that forces planners and advisors to do is that it requires everybody to think about how we’re planning for these expenses differently.And so what I mean by that is, are you going to phase your retirement or will it come all at once? Meaning, are you gonna have part-time income? Are you going to be consulting, contracting as you’re, as you’re all over the United States, as you’re all over the world, that travel that you’re considering, you know, how much travel is it? When is it through the year, and you have to account for those regular and recurring withdrawals.Um, so I think, you know, before it was, I think I’m gonna need this amount of money. We run that all the way through and we adjust for inflation, we adjust for taxes and everything else. I think with this concept of an adventurous or a nomadic retirement, it forces the conversation into periodic chunks. What are you going to beDoing for the 1st 3 to 5 years? What are you gonna do for the next 3 to 5 years after that? And if people can see how that kind of manifests over time, then they can feel a lot more comfortable about spending different dollars in different ways. Yeah.
7:00 spk_0
I’m all about this nomadic retirement. I have a dream of being in an RV and going from one national park to another. Um, unfortunately, my wife doesn’t want to join me, so I, I think I’ll be going alone, but that’s OK for now.
7:13 spk_1
And that, and that’s totally fine. But the thing is, have that conversation, talk about that, build that into the plan, because the last thing that you guys want to do is your T minus 1 from your collective retirement and you’re still thinking one thing, she’s still thinking the other. It’s more like, how are we gonna make this work so that we’re comfortable.No matter what happens infront of us.
7:33 spk_0
Yeah, that conversation is really important. One of the findings from your most recent research is interesting to me, you found that half of the people would choose a million dollars in retirement savings over 5 extra healthy years of life. And I think that this is somewhat interesting becauseUh, one, it shows some anxiety about maybe not having enough money to fund their desired standard of living throughout whatever period of time that might be.But I also think it means that people are sort of overlooking the fact that they may in fact live that much longer in life. I just came back from the pension Research Council at Wharton University, and that was this the discussion of every single researcher was you’re going to live a long life and planning for a 30, 35 year time horizon is imperative, especially if you are upper income, highly educated, etc.
8:24 spk_1
Um, I think it, absolutely. I mean, think about what the MIT Age Lab has been banging the drum about for years and years, right? People are living longer, what does that mean? How are you going to account for that existence in a different way than maybe your, your parents did or definitely your grandparents. So this trend that we’re seeing, you know, people are afraid of outliving their savings. You know, there’s nothing wrong with being old. There’s nothing wrong with being poor.When you are old and poor, you can’t ever make one wrong decision because the stakes are too high. You don’t have those, those years, those seasons to unwind any potential issue. So these conversations that we’re having around longevity, it’s, look, do I have enough money? What happens if I don’t have enough money? Am I too late in getting ready for retirement? And if I am too late, what does that mean?So then once we kind of analyze and and categorize those specific thoughts, people want to know what do I need to be doing. And so we had uh in April of this year, we had a, we did some tax research and what we found was that about half, about 45% of Americans, yes, they’re prioritizing, you know, personalized professional advice on tax planning for retirement, but where they sat.Based on age was a little bit different. The younger people felt much more comfortable about how they were going to approach things. The older respondents said that, look, I, I don’t think that this is something that I need to be worrying about. So I think that that suggests that there’s this educational gap that that we as an industry have to bridge and people need to plan for all aspects of their retirement.Used to be like, I just want a million dollars or I just want $1.5 million by the time I retire. Saving is important, investing is important, but people need to understand this long term plan is more than just what investment am I using and when do I want to retire. It’s what am I going to be what am I going to be pulling, how much am I going to be pulling, and where do I pull my different investments from so that I can have a paycheck all the way through retirement.
10:36 spk_0
Yeah, so it’s interesting because I always think that saving for retirement is easy. Living in retirement when you have to think about which account do I pull from in order to create tax efficient income is a quite a bit more difficult, and I’m curious, do you have some tax optimized withdraral approaches that you typically recommend for folks?
10:55 spk_1
Uh, we do. So I think the first thing that’s important for people to understand is that if you, if you have put together this retirement plan, if you have put together this kind of holistic financial plan, hopefully,You have finally been able to see everything that has a dollar sign attached to your life. So it could be what’s your income right now, what is likely to be your Social Security or pension income, uh, part-time income, how much does it cost you to live? These different investments maybe that you’ve been collecting over time, pre-tax, uh, 401ks, IRAs, Roth IRAs, brokerage accounts.If you don’t have that plan, the first thing that you have to do is put together this picture of what everything looks like, because until you know how much you have and where you have it, you’re not going to be able to, to appropriately build that tax efficient drawdown strategy. And by tax efficient drawdown, I mean.When you first retire, and if you have yet to claim Social Security, if you have yet to claim pension, you might be in an incredibly low tax period, right? It, it could be the lowest bracket that you’ve ever been in in your entire life. What you pull out dollar wise and where you take those withdrawals might be different in that retirement to Social Security age.Then it will be once you start claiming Social Security or once you and your spouse start claiming Social Security. So it could be that you’re taking money out of pre-tax 401ks or pre-tax IRAs. Yes, before required minimum distribution age, but you do that because you’re able to take out money up to a certain point and not blow yourself up tax-wise. Once you claim Social Security or if you’re working part time, if you have pensions, that may change to brokerage assets.Because your any gains out of the brokerage account would be taxed at that long term capital gains rate, 15%. But here’s the thing with that if you are single and earn less than 40 around $48,000 a year, or if you’re married, filing joint and earn less than about $96,000 a year, there’s a possibility that your capital gains rate might be, might be zero. So what do you take out? When do you take it out?All the way through up to and past requirement required minimum distribution age, but the idea is you have to figure out what you have and how much you have before you can ever build this sort of road map.
13:24 spk_0
Right? Eddie, we have to take a short break, but when we come back, I want to talk about more about your wilderness, um, adventures, so don’t go away.Welcome back to Decoding Retirement. I’m talking to Andy Smith. He’s the executive director of Edelman Financial, and before we took a break, I sort of teased the fact that we were going to talk about wild wilderness emergency medicine. And Andy, my understanding is that you have a background in wilderness emergency medicine, and I’m curious one, what that was and what are the parallels between that and preparing for planning for retirement.
13:56 spk_1
As he sounds like somebody’s done their research. Uh, yes, there was, there was one point in my life where I was, um, I was working towards, uh, considering being a mountain guide. And so the first thing that I wanted to do was, um, go through the wilderness, uh, emergency medicine, um, kind of background. And so, uh, the march of, gosh, many, many years ago, I spent the month of March in the White Mountains in New Hampshire.Um,
14:22 spk_0
thosearen’t the White Mountains behind you, though, I don’t think, are they?
14:25 spk_1
No, thoseare not the White Mountains, no, um, but, uh, it was, it was great, right? So in the mornings, you had the, the labs and then in the afternoons you had all the practical stuff and so you’re doing all of these things.Things that you were studying in the morning. And so I think that there’s, yeah, I mean, you, you, you talk about some parallels. I think there’s definitely parallels, right? Um, one of the things that we were always taught was you plan for the worst, you hope for the best, but don’t be disappointed with averages. And so these plans that we’re talking about, people need to be putting together. Yeah, put everything together, build these different scenarios so that you can see in front of you.What happens if this or this or this happens in these market environments or these economic environments or I lose my spouse 20 years before I thought that that was gonna happen. So you plan for the worst, you hope for the best, but don’t be disappointed with those averages because if you can have those averages and understand what that does inside the plan, those are going to be the things that help you continue to move forward all the way through retirement. Uh, we were big on planning your work and working your plan.So it’s not so much you going through this process and building this cash flow and retirement and financial plan. These are not set them on the shelf and forget about them sorts of plans. These are living breathing documents that you go back to, you revise based on your changing situation, based on the, the economic, the market situations that are changing around you. And the big thing that we always worked on was don’t just build it, test it.Because what looks good on paper, what looks good in a classroom doesn’t always work on the side of the mountain when it’s 10 degrees below zero. So, have these plans, talk with people, you know, build this group of counselors and advisors around you.But you want to work with people where this is not their first rodeo. You want battle tested advisors and counselors on your side because you may never have seen this before. You may never have been carried down the side of the mountain in a litter, but you want the people who have done this at least, you know, 1020, 100 different times. Yeah.
16:38 spk_0
I, I take it that you’ve climbed up Tuckerman’s ravine at Mount Washington then?
16:42 spk_1
Well, there was, uh, so real quick, there was one time, uh, one afternoon where the, one of the instructors just patted me on the shoulder and said, come with me. And so we’re out in the middle of absolutely nowhere. We are in and around the area that you’re talking about, and basically they just left me for dead. And they said, put the pack over your head, we’re gonna cover you with, with who knows what. And so you’re out there and if you want to know what quiet.Sounds like, and if you want to know what tiny feels like, have somebody cover you up and hope that somebody finds you in the next 3 hours.
17:15 spk_0
Uh, not my cup of tea, but
17:18 spk_1
not, look at me now. This, I, you know, I am on this side of the mountain. Yeah.
17:24 spk_0
All right, so you mentioned financial advisors and before we took the break, what was interesting as you’re describing how someone needs to create tax efficient income. You’ve got Roth accounts, pre-tax accounts, HSAs, Social Security, taxable, on and on and on.It requires the help of a financial advisor or or team of advisors, including perhaps a CPA to help you with this. So there’s not only on the income withdrawal side, but, but also sort of on the income strategy side, right? There are so many different strategies that people can choose from. I can choose a bucket or the 4% rule or a mix of, uh, annuities and, uh, and 4%, uh, and systematic withdrawal plans.Do you have a sense of, one, the use and value of a financial advisor in helping you figure out the tax uh withdrawal strategy, but also the income strategy?
18:09 spk_1
Um, I think it’s imperative that people absolutely consider working with a professional, you know, this is your first time planning for retirement. This is your first time taking that step into your first retiredday.
18:21 spk_0
And you only get one shot at it, right? I mean, this
18:24 spk_1
is like
18:24 spk_0
not the law of large numbers, right? This is the law of one number.
18:28 spk_1
Absolutely. And the thing is, people always need to remember that retirement is a one size.Fits none approach. I remember I had two clients. I have two clients, brothers, and so they kind of lived down the street from each other, could not be more different in terms of how they think about money, how they approached money, how they’ve saved. So here are two people with similar backgrounds, similar parents, similar kind of histories with money, but they approach their own retirements so entirely differently.And so it’s, I think it’s important that you have these planners, these advisors, these tax professionals, attorneys, um, you know, around you, because like you said, you get one shot to get this right. So when people are thinking about, you know, if they’re not working with an adviser, if they’re not working with a planner, there’s very specific things that that I always like them to ask. Number one is, you know, are you a fiduciary?Fiduciaries are required to place their customers’ best interests before their own. And so I’m a fiduciary. Edelman Financial Engines were fiduciaries because we’re doing what’s in our client’s best interests first, um, you know, how much is it gonna cost? What’s the total cost that it’s going to be to work with you? It’s not just fees, it’s fees plus investments plus transaction costs and everything else. You know, why are you doing this? If something happens to you, what happens to me?Take that and go off to the side, especially when it comes to the tax considerations. This is not just an investment management sort of game anymore. This is holistic financial planning because if it has a dollar sign,This is gonna be pretty important for you to to to try to figure out because as you retire, you have this wealth that you have spent a lifetime building. Now it’s your job not to continue to save that and earn that, but how do you draw that down? Where do you pull the money? How do you pull the money? when and and where and how much?Taxes are a part of life, but to the extent that you know how the taxes work, where you’re pulling dollars from, you have that tax efficient drawdown plan. That’s why you need to work with investment managers, financial planners, you know, tax accounts or, you know, tax professionals, accountants, attorneys. You have to have all of this understood before you step off into retirement. Yeah,
20:49 spk_0
Andy, we have a little bit of time left and I’m curious for the 20-30 somethings that are listening to our podcast today.Who are just in the workforce and maybe saving for retirement in a target date fund oftentimes they may not have the assets uh to work with an advisor. What advice do you have for those folks who are saving for retirement but and primarily using a target date fund?
21:10 spk_1
Yeah, uh, first of all, congratulations. You are so far ahead of the game because you understand that you have to save. You have to think decades and decades down the way. I like people to remember two things when they’re starting out. Number one, there is no one magical investment.That is going to solve all of your problems, right? So don’t be suckered in by this hot stock or that hot stock or this annuity or that particular fund. The idea is you have to save as much as you can for as long as you can. And those target day funds that you talk about, right, this one investment that invests in different stocks, different bonds, and those allocations change as you get closer and closer to a particular date, i.e. your retirement.It’s a great way for people to start out because it removes a lot of the thought from that entire process so that all you have to do is save as much as you can for as long as you can. But as people age, a lot of times their situations become much more complex. That’s when the target date fund, it may work, it may need other things because your life is completely different now than it was 123 decades ago.
22:16 spk_0
Yeah.And it looks like we’ve run out of time for our discussion today. I so greatly appreciate you coming on and sharing your knowledge and wisdom with our listeners and viewers. Uh, thank you for being on the show and, and hopefully you’ll come back in the future.
22:28 spk_1
I would love it. Thank you for having me. This has been
22:30 spk_0
great. Great. So that wraps up this episode of Decoding Retirement. We hope we provided you with some actionable advice to help you plan for or live in retirement. And don’t forget you can listen to or watch us on all your favorite podcast platforms, and if you’ve got questions about retirement, shoot us an email at YF podcast@yahoo Inc.com.
22:52 spk_2
This content was not intended to be financial advice and should not be used as a substitute for professional financial services.