Retirement Answers

Jacob: 00:00

If you've listened to this podcast for a while, you know that I love to talk about everything retirement planning. I like to spend a lot of time talking about strategy, taxes, and Social Security timing, and Roth conversions, and investments, and withdrawal rates, you know, all the stuff that you wanna get exactly right so that you're confident and comfortable as you enter this next phase of life called retirement. All of that stuff matters. It really does, and I love to spend time on it. But today, I wanna talk about something that I've learned after helping over 100 clients retire successfully and transition into this next phase of life.

Jacob: 00:29

And it's something that, honestly, I just wasn't expecting to learn at all. And here's what it is, that sometimes the right answer is not the correct answer. And you're like, Jacob, that makes zero sense. Right? The The right answer and the correct answer, those two words mean the same thing.

Jacob: 00:42

And yes, on their face, they do mean the same thing. But really what I'm talking about here is that sometimes the mathematically correct or perfect answer is not the right answer for you as a human based on your preferences, your desires, wants, your wishes, your goals. And the more people that I work with, I'm more convinced than ever that retirement is not so much of a math problem as it is just a human problem and an emotional problem that we're trying to solve. We're trying to figure out and create confidence around our spending and what we can do and enjoy. Yes, the money's important for sure.

Jacob: 01:12

That has to be there. Right? But here's the thing. It's not so much the end. It's just the means to the end.

Jacob: 01:18

And most people get stuck on that means. They get stuck on the money, the data, the the math, and never get to the other side of it and actually do something with that. So we're gonna talk about that today. But first, if I've not met you, my name is Jacob Duke. I'm the host here of the Retirement Answers Podcast.

Jacob: 01:32

I'm also a certified financial planner and the owner of a retirement planning firm where we help people just like you plan smarter and retire better. So when we look at this, you know, you've worked thirty or forty years, you're finally to this point of life where you're gonna call it retirement and you're saying, hey, I think I'm really gonna stop working and stop earning my paycheck and walk into this next phase, and I hope I'm doing it right. And the last thing that you wanna do is get the math wrong. No one wants to mess it up right before they get to that end or that finish line. And so what you're gonna do is you're gonna make sure you're searching for that correct answer in every scenario.

Jacob: 02:03

You're the spreadsheet answer. You're trying to get the right answer that maximizes everything. You're gonna leave no stone unturned. And honestly, this is how I thought as well early on in my career a few years back. I'd run every scenario for my clients, calculate every breakeven point, and say, this is the perfect answer mathematically.

Jacob: 02:18

But here's what I've learned over time. There's often a large gap between theory and reality, and so what I've discovered working with real people just like you is that life is messy, things happen unexpectedly, we're all emotional as human beings, and your priorities shift and that peace of mind is much more important than precision. And the answer that is mathematically correct is often not the one that you as a person or as an individual want nor the one that actually leads to your best retirement. So let me give you an example of this real quick. Social Security.

Jacob: 02:50

Right? If we're just looking at the math, if we delay till 70, usually that is the optimal or best strategy because it's gonna lead to higher benefits, better inflation protection for you long term, better longevity, risk insurance, if you will. But sitting across from hundreds of people, I can tell you that that's not exactly what they want. Sometimes the right answer for math in that scenario of timing your Social Security is the wrong answer for the person. Because the person that's sitting in front of me that I'm talking to, they might get overly worried or stressed watching their portfolio go down because they're taking more out of their portfolio while they're delaying Social Security.

Jacob: 03:25

And then if you throw maybe a health issue on top of that or you know, a home repair on top of that or something that's unexpected and a large expense, then they start spiraling from an emotional standpoint and say, oh my goodness. I had a million dollars. Now I've only got $700,000. I can't take this any longer. Jacob, give me my Social Security.

Jacob: 03:41

I wanna turn it on now. Right? So the right answer on paper still says, if you live to 85 plus, take it at 70. Right? That's the break even point, if you will.

Jacob: 03:49

And I have my own issues with break even points around Social Security. Won't talk about that today. But maybe you have dreams right now, right, that you that you need cash, you need cash flow, you need income to actually pursue them instead of later. Or maybe you just wanna sleep better at night knowing there's some sort of guaranteed or consistent stream of income that's not just built out of your portfolio. That sleep at night factor, that's more important than what the spreadsheets will say and what the data and what the math says.

Jacob: 04:14

Or you could even take this to a different scenario and you're like, hey, should I pay off this mortgage or not? You know, the math on this might say, hey, if you have x interest rate, no, don't pay it off. You're giving up potential investment returns, and so you should actually keep the cash you have, invest that to get x percentage rate of return over time, and that's actually a good spread on what you're paying on your debt. Right? So the math would say maybe don't pay off the mortgage if you can get a better rate of return than what your interest rate on the mortgage is.

Jacob: 04:41

So you keep the house financed for longer, and you can invest the difference. That's the kind of concept there on the math side of things. And and on paper, yes, it might work technically to produce a larger number thirty years from now, but guess what? Debt creates a lot of stress for people. And when they finally pay off that mortgage, I can literally see it in their in their faces and kind of see that weight lifted off their shoulders.

Jacob: 05:01

They operate differently. They think differently. They take advantages of different opportunities and simply live differently because they feel free. And you can't measure that feeling and that emotional response in a Monte Carlo simulation. It just doesn't work that way.

Jacob: 05:15

You can see the math for sure, but the math, again, is not always the right answer. You can't quantify peace when someone says, you know, I just feel that much better knowing that I own this house outright and I don't owe any money to anyone. Like, that right there is worth any financial plan that we could ever build to optimize something to the nth degree. And when you think about investing, right, we could do this on the investment side of things as well. Someone might be able to handle more risk mathematically, say, hey, I could actually have an eighty twenty portfolio, but what about their emotions?

Jacob: 05:45

Can they handle seeing their account value drop by x amount in a bad year? And they say, Jacob, I know the math says that I can or should be more aggressive, but I don't want to live like that. I don't want the responsibility from an emotional standpoint and just a worry standpoint. And sometimes the right answer, again, is to accept a little bit less return for a whole lot more peace because a portfolio only works if you can continue to work it. So if we have the best plan, the best portfolio, and on paper it all adds up and says, hey, this is the right way to go.

Jacob: 06:14

And then we have a hard period of time, let's call it a year where investments are down and things aren't going very well and it's just not fun. Well, if you can't continue investing based on the plan through that, then the plan's not very good. Right? Because the plan has to be sustainable. It has to continually be worked by you in order for it to work.

Jacob: 06:32

So human behavior is actually a bigger risk in those moments than market volatility. Now, the reason that I'm talking about this and making this episode is just to really share what I've been realizing and just been hitting me a lot more lately. And I've been asking myself why. Like, why am I thinking about this so much? What is it that I'm seeing over and over again that makes me feel like the correct answer is often not the right answer because there's a human element here, and here's what I've come up with.

Jacob: 06:58

There there are really five different reasons as I think about this why people make better decisions and they stop aiming for the perfect answer and start aiming for alignment, start aiming for the right thing for them. So the first thing that comes to mind here for me is that peace matters more than efficiency. So you can squeeze every drop by doing the math and doing it correctly, but if you're stressed, anxious, or uncertain, it's simply not worth it. Your peace of mind is always gonna be your highest return on investment or your ROI in retirement. I've seen people live in constant fear, worried about spending because they're trying to optimize every single thing.

Jacob: 07:33

They're trying to fit the Roth conversion in in a year where they don't need to do it because it's actually causing them way more trouble and pain. And so they just need to forget about the conversion entirely and forget about that tax thing down the road and just go enjoy their money. Go enjoy their life. See, they've been told that Roth conversions or tax savings or this, this, and this is the best thing to do and how you're trying to optimize your wealth, and yes, we wanna think about those things. But if it causes you your peace, then it's not worth it.

Jacob: 07:57

See, peace beats perfection every time. The second thing I've noticed here is that purpose matters more than projections. See, people think retirement is about maximizing their money, but the truth is is money is just the tool. It's just the means. A real retirement that's successful is really about meaning and purpose and direction and fulfillment.

Jacob: 08:14

If the math doesn't help you achieve that, then the math is wrong. Okay? So mathematically, the optimal decision might end up pulling you away from the life you actually wanna live, and so that means it's not the right decision. And I think about this all the time in my life, right? Like, hey, I could spend money on this or not spend money on this, but really, it's not about having more or less money, it's about what does that actually get you?

Jacob: 08:35

Is it more peace of mind? Is it a better life? Is it, you know, more time with your family? Is it x, y, or z? What are the things that you're actually doing with your money?

Jacob: 08:43

So life is too short to just listen to spreadsheets all day and let that dictate your purpose. What are you about? What is fulfilling for you? And then use your money to reach those different goals. The third thing is that risk tolerance is definitely not logical.

Jacob: 08:58

It's all emotion. So sometimes, you know, in financial advisory world, we have to ask this question like, hey, what is your risk tolerance? You know, if the market drops 20% this year, how are you gonna feel about that? Or what would you do? It's like, well, I think it's a goofy question, quite honestly.

Jacob: 09:12

I think risk tolerance questionnaires are are really silly because no one knows what their risk tolerance is until they're in the middle of that crisis, whatever the crisis is. You can say one thing today while you feel good about everything, and then 30% down in the stock market later, you would say something completely different. So what you could say, hey. Yeah, Jacob. I could withstand a 30% drawdown.

Jacob: 09:31

I want to be a 100% stock, and I'm willing to take the drawdowns along the way because I know it's a better outcome down the road from an investment return standpoint. And while the math might say, yes, that's true, you would have more money long term if you're able to take more risk forever and just kinda ride the wave. The problem is is we're not considering the emotional component of that, how your emotions really do change whenever you're in retirement and not making money anymore compared to while you're working and know you've got a paycheck coming next week, and the fact that, you know, you're saving and investing every single paycheck into your four zero one K. That changes your mindset, your emotions around investing, and your risk tolerance, it changes as you go through retirement because even within retirement, there's different stages. You've got early on, you're kind of getting used to this new thing.

Jacob: 10:14

You've got more time perhaps, a different rhythm to your life, and so a couple years in, you're like, hey, I think I got this thing figured out. Okay. Great. I'm past this initial sequence of return risk problem that every retiree has. Now that you're past that, you're like, hey, is there room to take more risk here?

Jacob: 10:30

You know, we've kinda got some things figured out. We've got this Social Security income stream turned on or, you know, a pension actually turned on recently. You know, maybe your situation's changing. Right? So you're able to take more risk, but the key here is that it could be changing all the time.

Jacob: 10:43

So how do we manage that? Well, I would just say this, that your risk tolerance is tied to so many things. It's tied to your past experience in the market, your fears, your worries, your values. It's not tied to a spreadsheet. So even if the math says that you can take more risk in retirement, maybe it's not the right thing for you because, again, sleeping at night and having that peace of mind is much more valuable because that will allow you to stick to the plan, especially if it doesn't jeopardize anything by being a little bit more conservative.

Jacob: 11:10

Now the fourth thing that I've learned here is that when you're 30, you're trying to maximize everything. You're trying to get the highest returns. You're trying to put as many chips on the table as you possibly can. But when you're 60, really what you're trying to do is avoid irreversible mistakes. You don't have forty years to, quote, make it back or earn back the money that you might have lost.

Jacob: 11:28

So decisions early on, especially in retirement when you're at that 60 to 70 range, they might be suboptimal in terms of the return you're getting, but they're actually optimal in terms of regret reduction or minimization. You're trying to avoid major regrets down the road. I've never had someone tell me that they regretted paying off their house. Right? Going back to that example earlier, maybe paying off the house does not make sense mathematically, but no one has ever said, Man, I'm really sad that I paid off my house and I don't have a mortgage payment anymore.

Jacob: 11:55

Or if you think about, like, your retirement timing, should I retire at 60 or 62 or 65? And, you know, if I work a few more years, I'll have x amount more saved, and that'll be, you know, optimal, right, because then I can for sure retire and never run out of money by 95 or whenever I pass away. That's on paper. Yes. Again, the math might work better out by working longer, but what are you giving up?

Jacob: 12:14

I've had so many people tell me they regretted waiting too long to retire or waiting too long to take the trips while they were healthy, jeopardizing what, again, is most important to them, their fulfillment, their purpose, their passions. What do they actually get fired up about? Right? If you keep working only to have more money and ignore those things, what are you really giving up? You're giving up time.

Jacob: 12:33

Okay? And time is your most valuable resource because none of us know when we won't have any more of it. So here's what I figured out in all of this, is that part of retirement planning is minimizing how many regrets you have when you look back. So that means take the trip, spend the money, retire earlier than you think, all these things that go against having more money and having more certainty or security, those are the things that you're gonna look back and say, man, I'm glad I did that. I'm glad I retired at 58 instead of 60.

Jacob: 12:59

I'm glad I took the trip overseas for two months and did x, y, and z with my spouse. Those are the things that I promise you, you're gonna look back and say, I'm glad I did that rather than have another $200,000 in my IRA one day. Like that having more money just simply won't fulfill or replace what you're missing out on. And the fifth thing here that I've learned is that life and retirement, especially 60, it's just nonlinear. The math that we run, the things that we look at, the projections, Monte Carlo, they all assume stability and they kind of operate in this linear fashion.

Jacob: 13:29

And yes, you can kind of play with the systems and make them show different things, but life throws curveballs at you. Health changes, family needs arise, your goals and priorities, they shift, and markets are always unpredictable. The spreadsheet wants a super clean, tidy, you know, fixed assumption, but real life just doesn't work that way. And if you look back over the trajectory of your life, how many things actually went according to plan? You know, I'd probably say a pretty small percentage, but guess what?

Jacob: 13:54

You figured out a way through all of it. That's not going to stop in retirement either. Yes, we can project forward and know the direction we're trying to head, but you have to also understand that your plan is going to be completely wrong. Your priorities are going to change. The math is going to change.

Jacob: 14:07

Markets are going to change. Your health is going to change. Your lifespan and what you expect to live to is not going to be accurate. All of these things are just variables and they're being assumed. So we just have to make sure we're on the right direction and the right path, and there's this broad kind of cone that's going out.

Jacob: 14:22

Say, yeah, if we just land anywhere in that cone over the rest of our life or we're good, then you're in a good spot. Okay? So understand that whenever you're you're building out a retirement plan, you're actually doing it linearly. You're trying to figure this thing out based on average percentage returns, but that doesn't consider most of the time that there are sequence of return risks in the first year of retirement. The market could drop by 30%, and your question should be, well, what do I do then?

Jacob: 14:44

Right? You should have that answer before you ever get there. So understanding that that life and just retirement in general is not linear at all, you're gonna have different things pop up along the way. The key here is do you have the ability to adapt and adjust and iterate as those different moments and your desires and goals change as well? So all these things, in my mind, as I'm kind of processing this, they've led to a similar conclusion, that the best retirement plan is actually not the technically correct or perfect one all the time.

Jacob: 15:13

It's the one that you feel good about. It's the one that you can actually follow. It's the one that that lets you sleep at night and wakes you up excited for the next day, and that's why working with real people has changed the way that I think about this stuff. Yes, we we can learn all the different strategies and actually the technical side of this, but until you can apply that to a real human, it really doesn't matter. So when someone sits in front of me and they say, Jacob, I know the math says one thing, but this feels better, I listen to that.

Jacob: 15:38

Because feelings, preferences, and peace are definitely a part of the equation, not obstacles to it. So if you're listening to this, I want you to leave here with a different kind of question in your mind. So instead of asking what's optimal, ask what's aligned, or instead of asking what gets me the most, ask what helps me live the life I actually want. That's the shift I want you to kind of process. That's the insight of the day.

Jacob: 16:02

After walking through this with so many different individuals and families, I can tell you with 100% confidence that retirement is not about maximizing your money. It's about maximizing your money so that you can then maximize and enjoy your life. It's just the means to the end. It's not the end. Thanks so much for listening.

Jacob: 16:20

I hope this was helpful. Share it with a friend. If it was, we will see you next week. Thanks. Hey, it's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice.

Jacob: 16:34

Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode. I look forward to talking with you again next week.