Defining Purpose in Retirement

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Podcast 179

179: Refusing to Retire with Steve Parrish

Steve Parrish is an Adjunct Professor of Advanced Planning and the Co-Director of the New York Life Center for Retirement Income. He’s also an Adjunct Professor at Drake University Law School, where he teaches estate planning.

Steve is an expert in estate and financial planning with a specialized focus in issues of business ownership. He’s a regular contributor to Forbes and the Journal of Financial Service Professionals, and he has lent his expertise to outlets including InvestmentNews, MarketWatch, The Wall Street Journal Radio, HR Magazine, and the Journal of Financial Planning.

Today, Steve joins the podcast to talk about the ever-evolving retirement landscape, exit strategy planning for people who have no intention of retiring, even late in life, and the important questions every retiree should be asking their financial advisor.

In this podcast interview, you’ll learn:
  • The difference between personal retirement and financial retirement - and why Steve has no intention of personally retiring any time soon.
  • The value of having a backup plan, no matter what your intentions are when it comes to your career.
  • Why there’s no academically best, one-size-fits-all strategy when it comes to retirement planning.
  • How to sift through information about the massive amount of financial products available as you determine what will and won’t to suit your needs.
  • Why retirement is a completely different situation for people retiring now than it was for their parents or grandparents - and what today’s retirees are doing to best understand and make the most of their opportunities.
  • What purpose and meaning mean to Steve - and where he finds them.
Inspiring Quote
  • "Part of the job now is the consumer really does have to engage because typically what they're going to have is when they retire, they're going to have a pot of money. They're going to have to decide what to do with it." - Steve Parrish
Interview Resources
Disclosure
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Read the Transcript

Casey Weade: Steve, welcome to the podcast.

Steve Parrish: Well, thank you very much. It's great to be here.

Casey Weade: It's great to have another professor of the American College. We have had, I don't know, I mean, we've had Jamie Hopkins, David Littell, Wade Pfau. We just keep going down the list here of professor after professor. Now, we have Steve Parrish here and I'm a big fan. I've been through your courses. I've got my CLU, my RICP, my ChFC. I didn't do my CFP training for you guys but I did that as well. I'm a big believer in education and what you're doing. So, thank you for all that you're putting out there in the world.

Steve Parrish: Well, that's our purpose. So, when we hear you getting all those initials and actually remembering what they are, I'm impressed.

Casey Weade: Well, you are one that you just got your retirement income certified professional designation at the age of 64, I understand.

Steve Parrish: That's correct. In the beginning of my youth, yes. Sixty-four because, I don't know, I just decided I wanted to stay fresh and this is the hot topic these days.

Casey Weade: Well, I heard that you refuse to retire. Is that true?

Steve Parrish: Well, I refuse to retire but I guess a distinction that I always like to draw, in fact, for people that are thinking about it is there is a difference between personal retirement and financial retirement because, yeah, I refuse to retire. I'm working hard after. Since the pandemic, I'm probably working more than I ever have but I have to admit, Casey, from a financial standpoint, I still had to decide about Medicare. I still had to decide about Social Security so that's kind of financial of retirement.

Casey Weade: What's the personal retirement? So, you said personal and financial retirement. These are two very different things. Can you go a little deeper there for us?

Steve Parrish: Sure. On the personal side, I'm not retired and when I left the company I was with before I went to the American College, my wife sometimes would say, “Oh, my husband's retired,” and I would just get mad because I'm not retired and I don't want to be but we were dealing with Medicare and Social Security distinctions. It's kind of like when I deal with business owners, you don't go to a business owner and say, “When are you going to retire?” Because you've said the equivalent of, “Hey, when are you going to become insignificant?”

Casey Weade: Yeah. Yeah.

Steve Parrish: I'll be thought of as retired. But obviously, I had to deal with the financial side of it.

Casey Weade: Yeah. So, you're in a position that you could retire if you want, as I understand. So, financially, you have retired and you're working for a different reason at this point.

Steve Parrish: Yeah. So, I'm doing it because, well, first, it's personally fulfilling. Second, well, it’s good as it gets me out of the house but that kind of went away with the pandemic but I mean, in other words, it keeps things live and busy. And I, frankly, believe a lot in the topic we're talking about so I feel like it still had something to give. So, I don't know when I'd personally retire but, again, you still have to deal with all these things that you deal with.

Casey Weade: So, do you have a plan for that retirement in the future?

Steve Parrish: No. The nice thing is the only thing I'd have to plan really is what I do with my time because I have taken care of and keep monitoring with my tax advisor, my financial plan. So, retirement would really be just the day you hang up the spurs.

Casey Weade: Yeah. And I think about this in a business sense. I've been told a million times, "Hey, you need an exit strategy. You need an exit strategy. You need an exit strategy for your business. If you're going to start a business, you start with the end in mind.” And I recently had this conversation with the largest independent Insurance brokerage owner in the country, if not the world, and I said, “Do I really need an exit strategy? Because I don't ever plan on retiring. Do I really need an exit strategy?” He said, "We don't have an exit strategy because we don't ever plan on quitting either. I feel like you don't have an exit strategy either. You don't have a point in time when you said, ‘Well, at 75, I'm going to retire.’” What are your thoughts on that? In your opinion, in your mind, do you have an exit strategy from your position at the college and others?

Steve Parrish: I don't at this point. And part of that is I'm just not at an age yet where I truly have to have one. I suppose there is a point where you might either have cognitive issues or being feeble or whatever but I do want to draw a distinction because my concern these days is particularly the pandemic because people go, “Okay. Well, I'm not making as much money as I thought I was going to so I'm never going to retire,” but hidden behind that comment is, "And therefore I don't have to deal with some of these issues.” So, yes, you need an exit plan in terms of your health insurance. When Medicare? What are you going to choose for supplement? Those kinds of things. You have to think about am I going to delay social security or you’re going to take it now? What am I going to do with my maybe coming from a company? And what am I going to do with my qualified plan? That still has to be dealt with at the exit level? I just mean, at the emotional level, if you're happy with what you do, I'm not sure you need a plan or then if you see it coming, and then you say, “Okay. Am I going to take up golf?”

Casey Weade: Yeah. Well, and I guess the next question we do so you've addressed a lot of these issues, maybe tax planning, health care planning, insurance planning? What about retirement income planning? Because many times I'll sit down with someone that says, “Well, I don't really need an income plan because I don't really plan on retiring but as you said just a moment ago, there is, I don't remember the exact percentage, you probably have this at the top of your head, but it's something like 60%, 70% of individuals plan on continuing to work but they can't. You may be forced into retirement for a million different reasons and so you want to have a backup plan. You want to have retirement income strategy on the sidelines. Do you have that for yourself?

Steve Parrish: Yeah. That part we really, when I say we, I think it has to be – I’m married for 42 years and so it's got to be something we do together but we do have that kind of a plan because you never know what might happen for all the reasons you just mentioned. Once I work with my brother a little bit on his plan is an example, just to give you one, is he was a retired executive but a large part of his retirement strategy involves getting a supplemental executive retirement plan, a non-qualified deferred comp from his company. But he really did two different plans because those things can, if a company goes out of business, you stop getting your payments. And so, he really had two plans and I hate to say this, but guess what happened? The company did go out of business. So, he and his wife were not caught off guard. They had thought through cash flow planning and all that in case he lost his deferred comp, which indeed he did. So, you still have to have your plans for cash flow management, again, when they didn't take Social Security, how are you going to cover your health, those kinds of issues.

Casey Weade: Do you think that you would be enjoying your work as much as you are or just life in general right now if you didn't have that backup plan in place? I feel like I've seen this so many times. People say, yeah, I want to retire then we put together a retirement strategy. We've got this comprehensive plan. They go, “Huh, I really like what I'm doing.” I'm going to keep working now that I know I don't have to.

Steve Parrish: Yeah. This is my way of looking at it is because you don't have to look at it and know so much as a retirement income plan. In my case, this will probably be one of my highest paying years but you still have to deal with retirement risk. So, the plan you're doing for somebody like myself who's having an encore career, that's what they sometimes call it, it went from business to academe is fine. The income’s in pretty good shape but you still have to deal with risk, long-term care, health, those kinds of things. So, you can't escape those issues. You really have to if you can check off the boxes of the risks that could happen, cognitive decline, long-term care, a major health crisis, a family crisis, a loved one, that kind of thing, if you can check those off that you've done something with insurance or annuities or long-term care, then you can kind of say, “Okay. The income side were good on for now,” but you still have to deal with retirement risk. It's not just income. It is risk as well.

Casey Weade: Right. Yeah. You mentioned a second act, third act. You have encore career. This is one of the ways that retirement planning is changing. Today, the retirement landscape is changing today that individuals are putting together implementing a retirement strategy and yet they're not actually retired. It's just allowing them to live more free in what they really want to spend their time doing in retirement. What other ways do you see the retirement landscape evolving today?

Steve Parrish: Well, Casey, I think one of the big ones and it's happening very quickly and so I think we have to recognize it and it's because of the pandemic is that some people are almost being forced into that second career. I just recently talked to a gentleman who, well, I'll just say it this way. He was very early 60s, his job as an editor at a book company and his job’s not in jeopardy but his wife is a middle school teacher. And she's 60 and suddenly, her school district said, "You have to teach in class live,” and she looked and said, “I'm not willing to jeopardize my health. This is kind of nuts,” and so frankly said, “I didn't intend to retire this early but I need to,” and so they're suddenly in the panic. They're in pretty good shape financially but you now have the issue like they had their coverage for health insurance through her employer. Well, if she retires, what do you do about health insurance? They were talking about when I hit 62, should I take my Social Security early even though their income is not bad.

What I'm getting at is mine is a situation where I've chosen to take it as long as I can. We're seeing a lot of early retirements that are by choice like a teacher or another essential individual who just says, “I'm just not sure I want to go to work where they're still probably going to be an okay situation but it really surprised them and advanced the period of time in which they have to start really getting down and thinking about their retirement plan.” And that's definitely a trend that we didn't see before but it's been pushed forward because of what's going on out there.

Casey Weade: So, the trend and maybe it seems like this is a trend that's been out there, at least maybe as a risk that's been out there. Forced retirement’s always been a risk. I guess it becomes more real when we have a recession or some type of economic downturn then it becomes real. So, if we just took this and backtrack this to the financial crisis and didn't we see that same trend at that time?

Steve Parrish: We did the same kind of thing and something you see that somebody of my age can relate to is some people I know who are doing fine, upper-middle-class, whatever, some people are maybe in their young 60s and saying, “I don't want to see somebody in my department lose their job. I'd rather give up my job than have that person suffer.” They got to put food on their table. And I can think of several cases both during the Great Recession and currently where people have said, “I love what I'm doing but I don't have to do this. I'd rather give it up.” So, you really do have that kind of thing when you start getting in your late 50s or 60s and saying, "There's more to life than just income. I want to give back some way.”

Casey Weade: Yeah. Well, I think this is a good transition into I think my favorite article that you ever wrote. So, if you didn't know, every single Friday, we send out a weekend reading for retirees. Just email for myself, four articles, trending topics, and little commentary. And, I mean, I’ve included so many of your articles. I think we've probably got one of your articles going into that email every week for like a half a dozen weeks because they're that good. I really enjoy your content, especially the ones around retirement income planning. And one that we most recently actually did a spotlight on, on the podcast was titled, How Should Your Retirement Asset Drawdown Strategy Fit Your Personal Story? And I really loved this article. I really connected with this article. I guess, you say it should fit your personal story and some are going to go, "Well, I just want a prescription. I just want the best strategy.” I went to one that the academics say this is the best strategy and I think there's some of that. You can find some of that. Easy question, is there an academically best strategy?

Steve Parrish: Easy answer? No, there isn't. Humans are human. And I know which article you're talking about so I might just give you the short version of what I was getting at.

Casey Weade: Sure.

Steve Parrish: And by the way, I don't think you said it but those articles are available. Just look in Forbes, Forbes.com, and type my name but what I was getting at is what if he had three women who were just turning 65 soon and they're in a book club together, and they just coincidentally are all going to get $30,000 from Social Security and all have a million dollars built up in their 401(k). Well, if the answer was yes, there's one academic solution, then they would all have the same retirement drawdown strategy. But the difference is one of them was very risk-averse and didn't want to deal with investments and was kind of scared of them, frankly. One was a risk-taker and said, “Oh, you bet.” So, with one, you might use a flooring strategy where you use things like annuities so that she knows she's going to get the retirement she wants, whether she lives to 80 or 105.

The other one, you would probably keep her money in market. And you would use you probably, “Oh, I know you've heard of the 4% or 4.5% rule,” and she'd draw that down. But isn't that interesting? They're both 65. They both have the same amount in their 401(k) and they're going to get the same Social Security but use radically different strategies because of their attitudes, how they feel about their money, and about their life.

Casey Weade: Do you think anybody doesn't have an attitude like that? Because I go to the engineer, I've got these engineers I've worked with. They say, “I want the best strategy. I've ran all kinds of numbers and spreadsheets.” I want the best strategy out there. And for my particular goals, let's say that they want to maximize their income. They're not concerned with what's left over. They just keep it very simple, max income, nothing left over. I just want to get the best strategy there is. And then there's still some bias in there, right? Even though they've analyzed all the scenarios, and they say, “Well, I want the best strategy.” You present the best strategy and they go, “Yeah, but I want to be a little bit riskier or, you know what, I just don't like those kinds of products.”

Steve Parrish: Right. Yeah. I mean, that's just reality and when I first started in the business, there wasn't anything called behavioral finance. Now, everybody talks about it but we have to realize that people are going to be people. They have built-in biases and it's not a pejorative. It's not a bad thing. It's just the way we are. And so, one engineer might be risk-averse and another one might be a risk-taker and that's part of how an advisor can help them is just sort through their own mind because I think we're the worst judge of our own characters. We need that person outside to say, “I get it but how would you feel about a 10% loss?” The person explodes and you know maybe they're risk-averse. It's just the nature of the human psyche and we should celebrate it.

Casey Weade: Right. There's nothing wrong with it, right? You can have those biases but you need to know you have them. I think that's the risk that you don't know that this is a bias that you picked up from reading an article in the newspaper somewhere or the neighbor told you or the doctor told you that you went and got your fiscal from, right? You need to recognize that those are not necessarily reality. You're telling yourself a story.

Steve Parrish: Right. I think of a situation years ago, when I used to work a lot on big, large corporate situations and I was in a boardroom with the CFO that was a CPA, and I am not picking on accountants. But we were using life insurance in this particular situation and I still remember him saying, “I don't like life insurance.” I said, "Pardon? He said, “I don't like life insurance.” I finally said, “Well, I'll tell you what. Let's call the thing I'm talking about Fred. Now, let's discuss what Fred could do in your corporate situation.” You have to admit, he kind of leaned back and he said, "Okay. Touché. Let's talk about it.” And then we worked our way through the whole process. But at least he was admitting his bias but he didn't realize the bias could get in the way of his corporate decision. And so, we had a good laugh about it. We moved on.

Casey Weade: Well, you wrote an article for Forbes, another one, called Retirement Tools That Are Misunderstood Yet Useful. And that was one of my questions was, what do you do to shift someone's prejudice? It sounds like you just call it Fred.

Steve Parrish: I suppose today probably the biggest one you hear that's really changing quickly is the whole area of annuities. And I can say that because, at the American College, you've had several professors have talked about it. We do the numbers. We look and go in the right situation it makes sense but for various reasons and then I'm not even sure what they all are, annuities kind of got a bad name and they're kind of lumped in with others. And so, that would be one of the misunderstood ones where you have to say, “All right. Let's call it whatever you want to call it,” but if you need a tax advantage, lifetime income, there are only so many products that can do that. Let's talk about what it is. So, yeah, there are a lot of those kinds of things out there and I'm sure in my own prejudices, in fact, I will say, Casey, that I had a prejudice against reverse mortgages until I got professors at the American College and they showed me some of the numbers and went, "Oh, okay.” I read some just general articles. I really didn't do my research until they showed it to me, and in the right case, it can fit.

Casey Weade: Isn't it cool when you find one of your own biases that you had that you didn't really realize was there? Reverse mortgages, that was the same for me. And for years, I said, I don't even look at them. You shouldn't. That's bad stuff. Only scammers do these things. And then I read Wade's book that was about 300 pages on reverse mortgages, and I go, “Oh, well, maybe there is a use.” And I'd say the same thing about variable annuities. You know, for years, I just said these things, they're just expensive. I've never seen a good one. It's inefficient. And then my dad, he was a financial advisor for about 40 years and he said, "Keep your mind open. There's a reason that there are so many people utilizing these tools because they might have a fit for someone and maybe there is a good one out there. Just keep looking.” And I kind of came around and said, you know, especially with I think it was, I think Wade also wrote a little bit about variable annuities saying, “Well, if you have someone that wants upside potential but they want a guaranteed income then this might be the only way to get them invested.” What's the alternative? The alternative is doing nothing. So, something is even better than nothing, even if it's inefficient.

Steve Parrish: Right. Well, and what we tend to do is we take a personal experience we've run into or somebody that's close to us runs into and if they had a bad variable annuity or a bad advisor, you then take that and just assume that applies to everybody. So, it's kind of like the, “Plato was a Greek. Plato was brilliant. Therefore, all Greeks are brilliant.” You just come up with these logical traps that you get yourself into and I think that's what's happened. There are certainly annuities that have absolutely bombed. They usually have to do more with the advisor than the annuity but because of that, you just assume that applies to everybody. And frankly, I think the reverse mortgage area is almost a disservice to itself through some of its commercials. It's late. You see a commercial and you go, "Well, that must be a real rip off.”

Casey Weade: Well, how do you sift through that stuff? You have all this stuff being thrown at you from advisors to just maybe focus on news networks, right? You've got one talking ahead saying annuities are good, one saying annuity is bad, one saying term only, invest the rest, another one saying, “Well, you should focus on cash value life insurance.” And if you google any product, it could be mutual funds, ETFs, any insurance product, whatever it is, there's going to be an article out there saying how terrible it is, an article out there saying how great it is. How do you sift through to find the truth?

Steve Parrish: Well, now, of course, at the academic level, we have the advantage of being paid for taking the time to do that. But I think the general consumer and I don't claim to be an expert on social media but a lot of that, and people have gotten smarter about that, is to check where the source is. In other words, you read an article, and where really is that coming from? Are they making these big, massive conclusions that say reverse mortgages are rip off or reverse mortgages are always good? Then you worry about it. I think it's that process of sifting through it and I have to say one other thing is it depends on who you're talking to and what their situation is but, in many cases, that what's the advisor can help out and the advisor can come from many different areas. But I just mean, I think it used to be that advisors, they were the keeper of the information but then they invented the internet. So, we all have access to all the information. It's more you may need somebody to help you interpret the information. So, the answer to your question, in some cases, depending on where you are with your situation and who you trust and all that is somewhat using the advisor to help you sift through the various information that's out there.

Casey Weade: Yeah. Well, I know when I read an article before I put it into our weekend reading series, I googled the author. I want to know where they're coming from, right? Quite often, if I find an article that it's basically, I mean, we had one recently, it's either cash or the market. There’s only two options and look at, well, it’s a fee-only advisor, right? They don't have any other solutions but cash or the market. And then you all find another article that's pro-life insurance and everything else is bad and I look up at the advisor and it's an insurance-only salesperson, right? And so, I want some kind of unbiased source, preferably not an advisor at all. Preferably it’s someone like you that's approaching this from an academic perspective. But I think we got a little off track. I really wanted to stay on this article that you talked about your personal story because I think there's a lot in there that can offer a lot of benefit to our audience. And one is just balancing goals and that's a lot of what this article is all about.

You've got Abigail, Camilla, Beth. If you've got these three individuals and each one of them has a slightly different goal, how do we balance our goal from say simplicity or easy to understand to legacy to income? Because there's a tradeoff for all of these different things. And I think that's where we get down the rabbit hole of complexity is we're trying to maximize our legacy but we want as much income as we can possibly get. We only like the market. We don't want any guarantees. How do we balance all the different goals that we have and maybe you want to relate this to your wife and you? Maybe you two had different goals. We see that often with spouses.

Steve Parrish: Well, and I'll start with a personal and then kind of go back to where I was going with that article is we looked and said because we do well and I don't mean rich, but I mean, we do well, maybe we can peel off some money that we otherwise could invest in all that but we could take the risk off the table. So, one of the areas that we've had this ongoing debate on is long-term care. We bought it I will say like in the late 50s and, as you will know, the cost of long-term care has frankly skyrocketed. And this was from a very quality company but they had increases that I never would have thought it would happen and we know that's just the reality and what's going on in the marketplace. I've wanted to maintain that. My wife has said that, “But, gee, you were paying a lot.” And part of it is our case, we just worked it through but what we finally agreed is even though that's taking money out of our cash flow, it's that peace of mind of feeling that we don't want to be a burden to our adult children.

And so, for us, that worked well. For another couple, they might say, maybe they're not as in good financial situations. So, maybe they have to just take on that risk and get rid of the insurance to improve their cash flow. Those are the kind of things you have to do is sort through and say, I used to call it my butterfly index. If a recommendation I come up with for a client gives them butterflies or what keeps them awake at night, then what have you accomplished? I mean, if they're nervous, who cares if they get 50 basis points more return on it? So, a lot of it is sorting through those personal feelings. So, like in that article, again, I was distinguishing between the person whose personal experience was such that she hadn't been around investments, was nervous about it, wanted to make sure she was okay, and then if there was any money left over for a legacy for the kids. Great.

You had the other who said, “Look, I am a disciplined person. I can take risks. Just help me, advisor, sort through. I've got this big pot of money. How much can I take as an income such that all things being equal, even in bad markets, I'll probably have enough money to take me out to 90? And then if it happens to be I die before that or the markets do better than I expect, a legacy for my kids, that's great.” Those are two different stories and yet they're in the same financial situation. So, it's really sorting through how do you feel about risk. How important is it that you get a particular income? And then, yeah, what legacy would you like to leave if possible?

Casey Weade: Right. So, we've got those three things. You need to balance your risk tolerance and when you say income, the flexibility with the income from year-to-year. You're not talking about the income level that you need but your propensity to take risk, not just with the investment, the portfolio, and the fluctuations in it, the upside and the downside, but also the upside and the downside of your income as well. Is that what I hear you saying?

Steve Parrish: That's correct and particularly for pre-retirees because many of them have not really as adults experienced the high inflation that we had in the late 70s and early 80s. And so, they're not factoring in the inflation as being one of those keep myself flexible type of things. So, that's an example of the kind of thing they have to keep in mind is how much does my income have to change to deal with current situations?

Casey Weade: So, we have some risk tradeoffs, income, legacy. And so, we're trying to balance these three things. In your opinion, those are the three core things that you're trying to balance. So, is there always a trade-off from one to the next?

Steve Parrish: It's not so much a trade-off as factoring all of those in. So, I guess, a good way of putting it is where is the important one? So, if they say at the end of the day, legacy is a big issue, then you probably have to figure out a way to capitalize or to monetize that legacy so you know that will be taken care of. So, I mean, to put it in practical terms, if leaving something for the grandkids is a really big issue, then maybe you have to peel some money off and prepay for it in the form of life insurance because that way it's going to come. The amount is identified because it's a life insurance policy. If instead it's no, I really do want to leave something for the kids but I need to know I'm going to have at least $70,000 a year, then you might have to, like I said in the article, with that one person you might use that money to buy an immediate annuity because come hell or high water, you're going to get your immediate annuity and Social Security. You still love your kids, they'll still probably get a legacy, but you kind of move that secondary to your income. So, part of it is just prioritizing which one of those is the most important.

Casey Weade: Well, I think what you said in the article was really helpful, I think, hopefully for more people than just myself but that many people get into this process. It becomes very overwhelming and confusing very quickly but it's all about the story. You talked about figuring out your story, the story you most attached to before you engage with a financial planner or on the front-end of engaging with a financial planner rather than getting right into the academically best strategies, right? You are walking through multiple strategies and now you're overwhelmed because there's just so many different things going in. So, we've got this risk, income, legacy. So, is it about figuring out your story before you engage with an advisor? What's the best way that we avoid overwhelm and confusion which is such a common thing with those engaging an advisor?

Steve Parrish: I think, well, as you said, part of it is you can't use the advisor as the excuse for putting off important decisions. So, in other words, saying, "Well, I'll just have an attorney write me a will and then have to think about it,” still have to figure out in the will what it is you want. So, the same thing on the financial side is you kind of have to think when might we retire? How do we feel about risk? How engaged do we want to be or not want to be? Some people are saying, “I want to golf.” And so, let's just put that money somewhere where I don't have to think about it. Those are not questions that the advisor can solve for you. They’re questions maybe the advisor can ask you but you have to go through that process. The example I'm seeing right now is in the tax area. People rarely go and say, “I need help on a financial plan.” What so often happens is I need a will or I paid more in taxes last year than I wanted to or I lost one of my investments. So, again, eyes are focused in on that issue and that's kind of a way of almost avoiding asking yourself the tough questions. When do I want to retire? How much do I need for income? Those kinds of things.

Casey Weade: Isn't that so true? As you say that, I remember all the conversations I've had. As people come in and visit with our team, it's usually the one-offs, “I feel like I'm paying too much in fees,” or, “I lost money last year.” “I overpaid in taxes last year.” Yeah, it's never the big questions. How long am I going to live? How much do I want to leave behind my heirs? What's going to be my charitable giving strategy? It's never about all of these things. It always starts with one point. And you’re saying that leads to a dangerous place?

Steve Parrish: Yes, because you focus on the minuscule and ignore the big. Again, this sounds critical. I don't mean it to be but I think one of the things that's why we're having these kinds of discussions is people have to be reminded, "Oh, yeah, I don't like it that I paid more taxes but what's the bigger issue?” The bigger issue is will I have enough money when I retire? I mean, it's often the question behind the question that you're really trying to get at. So, an example, if this helps, is right now I'm an attorney and I've been an estate planner for years. The estate planning attorneys are absolutely swamped. They're having trouble taking people in. Well, the issue is because people are recognizing their own mortality because of COVID-19. That's not a bad thing and I'm glad they're taking care of their estate planning but that should lead to the further question of, “Okay, maybe it's time to sit down and really think through this.” What if I lost my job? What if I decided to early retire? How am I in finances? Do I really understand when Medicare kicks in? Do I understand this whole thing about social security? So, it's okay to focus on the one-off as you called it but that has to lead to the bigger conversation.

Casey Weade: And you gave us some examples of different questions that we should be asking ourselves before meeting with a financial advisor. Is there one question in particular that you think everyone needs to ask? It's the one big question in your mind? I know I'm putting you on the spot there too. So, just give me the first one that comes to mind if that's too difficult.

Steve Parrish: Well, I think the big issue right now is health insurance or health coverage and I say that only because people don't really understand how our system works and our system is kind of it’s challenged right now so people don't always know where they can get their health insurance. If they're going to early retire, they may not understand. Here's the one I run into all the time is people don't realize you cannot get your Medicare through your spouse. And so, in the example I gave you of the people in their young 60s and the woman who was a teacher who wanted to retire, what they didn't really understand is they had to do something about securing health coverage until 65 with Medicare. So, I mean, that to me is what I'm hearing right now because people don't understand it and we're in a situation where we don't know where the Affordable Care Act will go. Without getting all technical, there's this thing COBRA, which is essentially the insurance that you can maintain after you've left or lost your job. The rules changed on that because of COVID-19. So, that's the hot issue. That's the burning one right now I think in retirement planning.

Casey Weade: This all sounds so confusing. You've brought up estate planning. You've brought up wills. You've brought up long-term care, Social Security, Medicare, investment strategies, annuities, life insurance. You've brought up all these different things and I wrote about a lot of these things in my book, Job Optional. I don't know about you but I really struggle reading reviews, sometimes. I want them to all be good and there was one in particular that popped out at me and he basically said, “Hey, this is a great book. A lot of great information in here. However, definitely overcomplicating the retirement income strategy.” And what I did in the books, I went through all the different income strategies. I went through the 4% rule, systematic withdrawal approach, went through flooring strategy, bucket strategy. You know, I went through all the different strategies because I guess it doesn't need to be complex. Does retirement plan, in your opinion, is he right? He said, "Just throw in an index fund, draw 4% a year, everything's going to be just fine.” And there's a lot of that out there. Can it be really simple? Do we need to make it complex? Is there a middle ground?

Steve Parrish: I think that really goes back to the individual. So, some people, as in that article that you mentioned, I think her name was Abigail where she just simply said, “Look, I don't want to worry about investments. I know the amount I need,” or you could work with an advisor to help figure it out. And so, let's just keep this simple because I'll sleep better at night. That will work. But as you know, there's going to be some tradeoffs. In other words, she might miss some market opportunities, you might pay a little more in tax than she might otherwise have to but that's fine because she said, "That's a concern of mine.” With other people, maybe it's a little more work and maybe it's a little more reading, a little more time with the advisor, whatever it takes, but there can be more complex answers but the tradeoff is that you might get a better return for it. You might pay less tax. You really have to decide what's important to me. So, truly, you can make it simple but just realize you're paying something for that. It might be more tax. It might be less return.

If that's what you need to really be able to sleep at night, great, but the one thing you can't do is ignore it all because then it's going to be a mess, because you either didn't take advantage of the government program that was there or you paid way, way more in taxes than you needed to or maybe even a penalty because you didn't take out a required minimum distribution and get hit with big tax penalty. So, you can't just ignore it but you can make it easy if you need to.

Casey Weade: Sure. So, it kind of sounds like you said, “Hey, we can keep it really simple but there's going to be a tradeoff.” There's a downside to keeping things overly simple or we can make it more complex and that's going to lead to a more efficient strategy. But as we get more down that road of complexity, people start asking, “Well, I'm supposed to only invest in what I know and what I understand and I'm not sure I completely understand this strategy.” It's getting more and more complex. How much do we need to know about the retirement strategy we're putting in place? Some say, “I don't want to know anything. You just do it.” What is the correct balance of knowledge there?

Steve Parrish: I think the challenge is if you think about our parents or grandparents, they had a defined benefit plan, Social Security, and that kind of took care of a lot of it so they really didn't need to know a lot plus there wasn't much out there. I mean, you had a passbook saving. That was about it. Mutual funds were just barely known. The unfortunate situation I will concede is nowadays, one way or another, you do have to engage because I've been using the term DIYDB. What's that mean? Do it yourself defined benefit. The fact is and if I'm the purveyor of bad news, I'm sorry if I'm doing it, but part of the job now is the consumer really does have to engage because typically what they're going to have is when they retire, they're going to have a pot of money. They're going to have to decide what to do with it. Now again, as we said before, you can take some simple steps like an annuity or whatever but there may be a tradeoff but I don't think in the United States right now we're in a situation where you can say that I'm not going to worry about it because it's just not that situation. Most people don't have defined benefit plans. You're not covered for health insurance automatically until Medicare kicks in. So, it doesn't have to be super complex but I think you have to check off a few of those boxes because no one else is going to do it for you.

Casey Weade: Right. It's starting to get more complex, and I do find the happiest clients, the most confident clients are the ones that really understand the plan. They've really taken the time to spend time with us, spend time in the reading we've provided them to really understand the strategy. That's what's given them more confidence. I want to talk a little bit about the three strategies that you discuss in this article. You've got Abigail. So, you've got guaranteed income strategy. She's getting a guaranteed income of 82,000 a year and then we've got Camilla. She's a little bit more risk-averse than Beth. And so, Camilla used a bucket strategy and Beth used a systematic withdrawal approach. So, you had a 4.5% withdrawal, you had a bucket strategy, had an annuity strategy. So, we had these three different strategies. I wanted to talk a little bit about Camilla and Beth. So, you said Camilla is more risk-averse than Beth so that's why Camilla ended up with this bucket strategy. So, she's got income from say a fixed income portfolio, quick cash, very conservative investments last 10 years. She's got a second bucket she's not going to touch for 10 years. She's got a third that she's not going to touch for 20 years or more.

And then you've got another individual that's got the same investment mix. And they both end up with a 60/40 investment mix but one's just going to take 4%, 4.5% out a year. The other one has this bucket approach where the fixed income is in like, one, the equities are in leg three, a little bit of leg two. I don't really understand why we would ever use the systematic withdrawal approach if it's the same investment mix. Why wouldn't you just go with the bucket approach over the single portfolio if you're going to end up with the same investment mix? I don't know what your thoughts are on that.

Steve Parrish: Well, first, I would draw a distinction. I'm not sure that the one woman is any more risk-averse than the other. It's just that she is concerned that her human capital is gone. She's retired. So, gee, should somebody in their 60s be in the market? Isn't the market risky? So, it's almost a question. And so, the bucket approaches that. It tells the story because it says, "Wait a minute, what we'll do is keep you liquid with a third of it so that you can live in your go-go years of retirement. We'll put some of it away for the next bucket 10 years from now and when you start slowing down, and then look, there's inflation and things we don't know and you want to leave a legacy for your kids. Let's carve some of that off.” As you point out, it's the same portfolio mix. In some ways, it's just that Beth, who was the risk-taker kind of cuts through it and says, “I'll just take 4.5%.” But to answer your question, and this is my observation of just having worked with advisors for many years is most people are not Beth. Most people are not in a situation and said, “Yeah, we'll just put it in a nice portfolio and cut off 4.5% or whatever.”

And so really, at the end of the day, the bucket strategy, I totally agree with you is that it's the story that helps you understand your own career as a retiree because you realize you're going to have go-go years, slow-go years, no-go years, and those buckets kind of played to each one of those. So, I agree with you but the nice thing is you're getting to the same solution but you're getting it in a different way depending on their personality.

Casey Weade: Is it the same solution, though? If we're taking 4.5% out of a 60/40 portfolio quite often, I see that done. It's just kind of shaving a little bit off of all those different positions in the portfolio. So, you're not strategically selling where you should be selling necessarily.

Steve Parrish: Actually, yeah, I do agree with that because the trouble with the systematic withdrawal is that's more of an academic solution in the sense that all things being equal looking at past history. You can make it to age 90 and it won't collapse. But the fact is what if you have that money in something like 10-year bonds? And it's going to take a while before you can recover that and if you surrendered early, you're going to take a market hit. The bucket approach really segments your assets and doesn't cause you the practical problems that just severing off 4.5% would. And I know you're aware of this, but in reality, no one just takes 4.5% off a mutual fund. That'd be crazy because you'd be taking all kinds of risk and all kinds of hits you don't need to. What you would do is put on some guardrails. You would make sure some of that money is still liquid. You might put some money in deferred annuities. In reality, the 4.5% is more of a concept than it is reality.

Casey Weade: But people don't know that. That's the danger, right? You read an article and says, "Well, it says I can take 4.5% out a year. I got 90% chances this works out. Sounds good to me,” and not diving further into the research that really illustrates the dangers of doing something like that. The two individuals, Camilla, Beth, they had started with a lower income. So, it was like 72,000, 74,000 that they started with, whereas Abigail, she had this flooring strategy. So, she had a guaranteed income of 82,000 a year. So, she took a portion of that portfolio, set it aside, but about 800,000, she set aside to guarantee all the income she needed the rest of her life. It's level. And then setting aside 200,000 in a balanced portfolio, you said she shouldn't necessarily need inflation protection. And yet these other two are thinking they're going to need an increasing income the rest of their life. So, does one need at age 65 inflation protection or not?

Steve Parrish: Actually, in my mind, all three of them do get inflation protection but they get added a different way. You probably knew I was going with that is with the woman who said let's just take 800,000 and give me that $82,000 income, I believe it was mixing Social Security. And remember, Social Security has a cost of living feature in it. So, she is getting some inflation protection at least on part of her income. The rest of it, I said, a balanced portfolio because I didn't want to complicate it but I would if I were advising her, I'd make sure that's fairly heavy in equities because, in general, equities tend to work well with long-term, with inflation. So, one, that might give her that inflation buffer for at least 200,000 of her wealth, and also, it might help as a legacy for the kids. With the other two, you already were building in inflation because you had a 60/40 split. So, maybe it's a little different emphasis but I think all three of them do have some inflation protection. And of course, social security was part of that as well because that does have a cost of living feature, we hope.

Casey Weade: So, what are your thoughts on I'm sure you've seen David Blanchett’s work on the spending patterns of retirees. Wade included much of this in his most recent book as well talking about retiree spending patterns and how the average retiree will not be impacted by inflation and will not need an increasing income for their lifetime. That depends on where their spending pattern starts but the average retiree will have a level income and I'm saying, from experience, we've got clients we've been working with for over 20 years. They're spending less today than they did 20 years ago. However, the average retirement planners throwing together a plan and draws this 3% inflation rate your income needs. Those clients we're working with going that route, they should be spending twice as much today as it did 20 years ago, but it's not actually happening. I don't know what your thoughts are on all that research.

Steve Parrish: I would throw in one distinction in what Drs. Pfau and Blanchett have, and both of them I think would agree, is the research tells us that some of the services that people get when they retire actually at inflation levels are even higher because it might be the person retires now needs the young person to help them with their web or to mow their lawn or whatever. So, there are some expenses that actually go up a little bit and can actually be a little more than inflation. But what the research especially Dr. Blanchette gets at is the fact is very true is because you're not, well, I was going to use the example of dressing up in suits but no one does it anymore because you're not commuting and going to I was going to use restaurants. I have to come up with an example, some new examples now during this crisis, but you simply as a retiree. And I know that personally, you don't have some of the expenses that a young family would be, some of the entertainment and all that.

So, yes, I don't think that you have as much inflation pressure on retirees as you would have on pre-retirees. The one qualifier I would say, which is the big unknown, of course, is health expenses. Under our current system, really even that can be contained if you do the right thing with Medicare and Part D and Medicare Supp. But yes, in general, as you get older, the reality is unless you're going to give big gifts to your grandkids and remember, you love your kids but you really love your grandkids, you're not going to experience perhaps as much inflation impact as a young family would.

Casey Weade: Yeah. And then if you've got someone that's spending 150,000 a year and going on elaborate vacations, multiple cars, large home, they're probably going to spend even less as they age than someone that's spending $35,000 a year and they're really just using that for their basic needs. But I still like that you've set some funds aside. I mean, I really like Abigail’s strategy because I think there's a portfolio that should be set aside specifically for not just inflation protection but flexibility. We don't know the impact of inflation. We can look at research all day that shows that, hey, for someone that spends $50,000, $60,000 a year, you shouldn't be impacted by inflation. Don't worry about it. However, if we have a really bad period of time, it's kind of like a Monte Carlo simulation, right? We've got a 10-year period where the market doesn't grow and we have a big hit during that period of time, then we need to have a backup plan.

If we have a 10-year period, receive 15% inflation, we need to have something set aside that can increase our income during that period of time. We won't find the right tools for that. You said largely equities. You didn't say anything about gold but that seems to be something that usually comes to someone's mind. They say, “Well, why don't I just put all that money in gold?”

Steve Parrish: Well, and of course, right now, that's the interesting thing going on because you really have the tangible gold. There are these different ways of getting your piece of the big brick and then you have the more the futures where you're kind of betting on where it would go. Commodities in general are an interesting topic right now because anytime you have the huge volatility we have, suddenly commodities become a possibility. And a pretty good one, you just have to remember is if everybody thinks that commodity is the hot thing that's going to tend to push prices up, and certainly gold has had some upward pressure, but maybe justifiably so. I think that is an area that traditionally has been ignored and probably should be considered if you can do it in a balanced way. And I don't mean to change the subject, but I'll tell you the one that I think is just not hit the consumers' attention but I think is a powerful tool and they've got different names.

You hear QLAC and DIAs and all that but the basic idea, because it really didn't exist until the last few years, of going to a financial company like typically an insurance company, and giving them a pot of money now that starts paying an income way in the future and you go, “Wait a minute. That’s just deferred annuity. I've heard of those,” and he either likes them or don't. It's different. This is one that says the money is gone. You don't get it. You can't commute. You can't do anything. But it's kind of like Social Security is when you hit the age you tell us you want to hit, it's going to provide an income that you can't outlive. So, I just want to bring that one up because academic research tells us that can make all kinds of sense but people go, “Why on earth would I just take money and make it go away?” And the answer is because it's a DIYDB. You do it yourself to find benefit but one that maybe doesn't kick in until you're 75. So, I just had to throw that in because in some ways, that didn't sound like gold, does it? But in some ways, it has the same effect. It's looking way out in the future and saying, "This is one way we can make sure you got some income.”

Casey Weade: Yeah. Now, I'll say in total transparency, that's one of those tools I've had some bias towards. I said, “Ah, QLACs, they're just awful.” And they haven't been good. The rates have been just awful and it's hard for me to justify but we keep revisiting it. It's like, "Well, maybe they'll come out with one and as this progresses, it's such a new thing. Maybe we'll get some good opportunities in the future,” but I hadn't really thought about it as inflation protection. It was just longevity protection. I don't think I've heard anybody put it in that perspective saying, "Hey, what if you experience inflation?” Rather than setting it aside in an equity portfolio and taking risk, why don't we set it aside? And if inflation kicks in, we can kick it on for some increased guaranteed income down the road. An interesting approach. I like what you're thinking about that. So, we talked about QLAC. So, we’ve talked about life insurance, long-term care. You have these three gals. You've got one that's got a flooring strategy, a bucket strategy, a systematic withdrawal strategy. Can all advisors offer that level of personalization?

Steve Parrish: Well, a simple answer is some the answer's no because they either haven't gotten the education level they need or without going into details, I know you're aware of it, some of them only can represent a product or a company or that kind of thing. But are they capable of it? Certainly, the information is out there. The education is out there. The infrastructure in the United States for offering this product, these kinds of products are out there. It just depends on the level of commitment and knowledge of the individual advisor.

Casey Weade: Now, if I want that level of personalization, I want somebody to bring all the tools to the table, not just one or two, I want all the tools be brought to the table so that they can really customize it at that level, how do I find the best-fit advisor for that scenario?

Steve Parrish: One of the things that, at least, can be an initial indicator is what level of commitment they've had through designations. So, at the American College, we have the Retirement Income Certified Professional. We have, I think, most people know the term CFP. So, those indicate at least the person made a commitment to their own career. It doesn't suddenly make them a perfect person or anything else but it's an indicator of that. A second, obviously, is referrals. I mean, other people that have used that, I would be a little careful with that because what's good for Henry isn't necessarily good for Sally but that's a way of looking at it. And then your own research on it where you and, frankly, you can do broker check to see if there's any complaints with FINRA. FINRA is the government organization that monitors all this, checking to make sure they're doing well. You do your homework on that just like you would on I just recently bought a boat. Well, guess what, I looked at it a lot of different ways and I saw, you know, I asked for people's referrals. I checked it on the web. It's the same kind of process.

Casey Weade: Well, Steve, literally, I only got through half of my notes here today. I've got some really good stuff. I'd love to dig deeper into some of your other articles on Social Security and estate planning, business owner issues. So, hopefully, we get that at some point in the future but as we run out of time here, do you have time for one more question before we wrap things up?

Steve Parrish: I do. Certainly.

Casey Weade: Steve, what does purpose and meaning mean to you?

Steve Parrish: Purpose and meaning in some ways they’re the same thing except for I would say purpose is looking a little bit outside of yourself and saying, "There's a reason I'm here. I’m just not here to breathe oxygen and eat food and make money.” It's to me a little more internal to say, "Okay, and how do I feel about it? I've got a lot of gray matter in here. How does it make me feel?” Well, let’s take charitable giving. That has a purpose. That helps people especially in these times and it's very external looking meaning we all know that you get an endorphin rush when you give. And that's not bad and it makes me feel better. That's how I would distinguish the two.

Casey Weade: And where does Steve find purpose?

Steve Parrish: Where I find purpose and I hope it doesn't sound trite but so much in family. I told you how long I've been married and I have adult kids and all that. I think at the end of the day, that's part of it is doing the right thing for my family and this goes to the I'll never retire theory. And maybe it's a little more of the purpose thing is I think none of us are as smart as all of us. And so, to the extent I can continue to offer ideas, it absolutely thrills me to have a young person like yourself, say, “Gee, I read your article on those three women,” because I felt good when I wrote that because I thought maybe someone might actually read that article and get something from it.

Casey Weade: Well, I think several thousand people read that article if I do remember. I was just one of many but now I'm pushing it out into the world because, Steve, you have so much to offer. Thank you for coming on the show. Thank you for sharing your wisdom and your knowledge. I hope we get to do this again.

Steve Parrish: I appreciate it. Thanks, Casey.