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Federal Employee Financial Planning: Distribution Planning Assumptions (EP69)

Have you considered whether your financial plan can adapt to fit your life as things change? Join Tommy, Michael, John, and Ben in this episode as they unpack distribution planning assumptions and explain why a one-time financial plan falls short. They tackle the myth that running out of money equals failure, highlighting how other income sources like federal benefits and investments can play a crucial role in financial security. 

Listen in as they discuss the fluctuating nature of investment returns, stressing the importance of not relying on average percentages alone. You'll learn about retirement phases, common spending misconceptions, inflation's impact, and practical strategies for setting robust financial guardrails that align with your lifestyle goals.

Listen to the full episode here:

What you will learn:

  • Why we have strategic meeting surges. (3:00)
  • What a Monte Carlo simulation is. (6:05)
  • The problem with a one-time financial plan. (11:45)
  • Why your financial plan needs to change as your life changes. (13:30)
  • The rule of thumb for financial planning. (16:45)
  • The phases of retirement. (22:30)
  • What you should never assume in financial planning. (26:30)
  • How to set guardrails for your financial plan. (30:00)
  • The importance of living your life the way you want to. (36:00)

Ideas worth sharing:

  • “Life doesn’t happen on averages. Just because we think we will average 6% doesn’t mean we’re going to get 6% every year. In the end it will average out, but we need to work out the variability.” - Mason & Associates
  • “Life changes, and your financial plan needs to change along with it.” - Mason & Associates
  • “Inflation does happen. To assume that inflation won’t happen is a bad assumption, but to assume that inflation is linear is also not a good idea.” - Mason & Associates

Resources from this episode:

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Read the Transcript Below:

Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.

John Mason: Welcome to the Federal Employee Financial Planning Podcast. I'm John Mason, certified financial planner. And on today's episode of the Federal Employee Financial Planning Podcast, we have Tommy Blackburn, Mike Mason, Ben Raikes. Guys, how we doing?

Ben Raikes: Doing well, John, it's always funny to me when we kick these off. So we're virtual now for our podcast. And so you say, “Hey guys, what's going on?” And we all kind of look at each other. “No, you go,” “No, I go.” We're still getting the hang of it here, but doing well. Had a great long Memorial Day weekend. I won't bore everyone with our 8K race again, but that was a ton of fun and was happy to compete in that with you.

Tommy Blackburn: Doing great. Getting through, as we talked about, in the last episode, the echo boom and in particular, I think maybe I feel this echo boom as I call it because we're getting ready to head out of the country here on a family trip overseas in a couple weeks. So quite a bit to get done both personally and professionally before we go on that trip and we're really looking forward to it. It's going to be an adventure with a three-year-old and an infant, but it will be good memories. And by the way, Nate has two more teeth coming in. So he's doing good, and we've got teething going on, which he handles pretty well, but as you can imagine, there's some pain that he has to get through there.

John Mason: Well, ever since Carter's, well over four years old now, it's hard to remember back what that's like, and being a new parent, I'm sure we have some audience out there who's a new parent and probably nice to know that your financial planners on this podcast are in all different phases of life, some newlyweds, some parents for a few years, some folks who are getting closer to retirement and everything in between.

So for next episode, let's just plan or choreograph. We don't choreograph a lot here, folks, on the federal employee financial planning podcast. But next time when I ask a question to start the podcast, Mike, you're going to answer first, okay. That way we don't run into this silence that needs to be edited out on a future episode.

And then Tommy, you mentioned the echo boom, and I was also thinking the aftershock, and it's like the strategic planning meeting season was so fun. And we kind of beat ourselves up a bit, a little bit at Mason & Associates because the whole idea behind strategic planning, meeting season and surge is we're supposed to have these dedicated points in time to do a variety of things, time with our family, time with our clients, time to work on the business instead of in the business.

And sometimes it feels like we're just searching strategic planning, meeting season all the time. And I know we all even have appointments next week. So we have this week where we're recording podcast surging and then next week we'll surge again with another set of client meetings. So that doesn't mean it's less valuable.

It just means that the aftershocks just keep coming, I think. So in this episode, we are talking distribution planning assumptions. And distribution planning assumptions, we're specifically talking about a financial plan done in financial planning software, which really could be Excel or any other software program where it shows you a one-time snapshot in time your likelihood of running out or not running out of money.

And I want to call back to episode, I believe it was 22, and it's titled Retirement Plan Success Rate Equals 100%. So some of these assumptions and these software programs and so much of what the industry puts out there talks about if you run out of money, IRA, TSP, 401k, you failed. And what we talk about in episode 22 is that's only true if you don't have any other income.

If you are a federal employee family who has a retired military pension, a VA disability check, two social securities, and a federal pension or two, if you run out of money at 92 years old, we're pretty sure that you're still going to be okay on your guaranteed lifetime income for the next seven to 10 years or however long you live at that point.

Granted, you may still have failed if your goal was to leave an inheritance, but you never failed. You were never financially destitute. Maybe your inheritance goal failed, Tommy, but there was never a point in time where you physically couldn't be retired anymore and had to go back to work.

Tommy Blackburn: Right. Yeah, because the projection doesn't take in. It's just those investment assets. And it really a lot of times that even ignores if you had real estate assets. so we do like to drive that home even if that Monte Carlo goes to zero, that means your investments went to zero. You still had social security, assuming you were eligible for it. You still had a pension, assuming you had a pension, and your house. So that's most people will say that's not a failure.

John Mason: Yeah, it's a great point. And maybe you can share for the audience quickly like what is a Monte Carlo simulation? What does that even mean? I'm sure people never heard of it.

Tommy Blackburn: Yeah, Monte Carlo simulation is it's a mathematical model where it says, “Okay based upon the assumptions you've given me of what you want to spend and what you're saving and what you have in investments, model this out through these different, You potential market outcomes based on the portfolio that you want me to run it.”

And ours does a thousand trials. So a thousand simulations where it's saying, “Hey, based on all these inputs, here's all the randomness that could occur.” And we get this cone. And then it says, “Well, what's the median?” And that was probably we're going to end up somewhere in the middle of all these possibilities.

And the probability says, “Okay, well, out of those thousand trials, did any of them go to zero? Any of your investment assets?” And if any of them went, that takes a percent off, right? So 99% means % of those thousand we run out of money. 50% means half of the time we ran out of money. And granted, this is a lot of times a 30-plus year projection.

So there's a lot of room for different outcomes. It's just another way to try to stress test and acknowledge that life doesn't happen on averages, right. It was not just because we think we're going to average 6% doesn't mean we're going to get 6% every single year. We're going to get some years with 20, some years with negative 10 and in the end it will get back to the average, but we need to model out the variability.

John Mason: And why that's so important, Tommy is, when some people at home maybe have built a spreadsheet, right? And they use the real rate of return. So we'll say, 6% return, 3% inflation, 1.06 divided by 1.03 minus one gives you your real return. They plug that into Excel.

They're making 2.9% or whatever it is every year straight line. And they say, “Well, Mike, John, Tommy, Ben, everybody, I never ran out of money. What's the problem?” Well, you simulated a straight line, 3% net after inflation growth, which has never happened over 30 years straight line, right? What if you had a good decade followed by a bad decade or a bad decade followed by a good decade or 10 years of no growth or historic inflation like you can't factor that in. Maybe unless you're an Excel guru. The average Joe is not going to be able to build a model that does this. The only model that most people, and I would argue most people probably can't do that either, is build in this real rate of return straight line. It's just not accurate.

Michael Mason: Yeah, and those, in those decades, the lost decade, right? They happen with no rates of return. 2000 through 2009, your S&P 500 would have been negative. They happen. And the other–

John Mason: Yeah.. We're recording today, May 28th, our second episode that we're recording, and I wish I had the exact numbers, but we had the lost decade, Mike, for stocks.

The C fund and the TSP from 2000 through 2009 was like negative 1%. I don't know if that was with or without dividends, but essentially flat to negative. I don't know if we're in like the lost decade of bonds, but you have the last decade of stocks. You have the last couple years here in bonds and we have to be able to have a financial plan that acknowledges all of that.

And the Monte Carlo, I guess is the long story short, gets us back to those assumptions where we can factor in all the various variables.

Michael Mason: And at the end of the day, the Monte Carlo for our clients, federal employees, sometimes dual federal employees, if you have a 99 or a 90, 10% of the scenarios say, you've run out of money. But and they would call that a failure. In the plan that's a failure but you have income, right? And I did one. I just looked at it, John, back when we did the excel financial plan. So for this one client in 2005, we projected that their retirement would be $73,000 at age 62. And I'm sure we were really close to that, you know, at age 62.

They're now 77 and their guaranteed pensions are $136,000. And at age 90 in 2037, with standard inflation, there are 182. So at 90, if you've whittled, and many of these people would tell you, “I don't want to leave my kids that money.” But they say that and then the minute they see their money go to zero they're upset, right?

But it's, there's no money there, but there's income. 182 grand. That'll be cost of living adjusted the next week.

John Mason: Yes. And we'll talk more about this aspect too because you mentioned, “I don't want to leave my kids or my grandkids in inheritance.” And that doesn't seem to be– inheritance doesn't really ever seem to be a huge focal point with our clients for whatever reason. Having something is important, but massive inheritance doesn't seem to be a big goal for our folks. And one of the things I think we all say is, “Well, if you don't want a massive inheritance to be your goal, you're going to have to work really hard at that for it not to be.” Meaning you're going to have to spend some of your own money.

So Brn, let's talk a little bit to the audience or share with the audience today, as you know these one-time financial plans, you get in, you get the snapshot, you have x percent probability of success. We ran these Monte Carlos. What is the problem with a one-time financial plan and a one-time snapshot? Like what is so inherently flawed about only looking at this one time?

Ben Raikes: The biggest problem, John, is exactly what you said. It is just a single point in time. So right now we're recording this podcast episode on May 28th, just after Memorial Day. If you came into the office and you said, “Hey, this is the best financial plan ever.

You guys accounted for everything. All of your assumptions looked accurate and in line with the averages.” The minute you leave our office something will have changed, right? We don’t know what the markets are gonna look like. We don’t know about the lost decade in the stock market. We don’t know that bonds are gonna be negative for three or four years in a row, that mortgage interest rates were going to go up. We don't know what's going to happen in your personal life. Our kid's going to go to college and then go to grad school and maybe your parents aren't doing so well and now they need help and that takes time from your assets and your resources.

I mean it's part of the reason that we have structured our practice the way that we do, where we say, “Hey, we essentially work on a retainer for you guys. And as life happens. We want to know so that we can update the plan, see how it impacts savings, see how it impacts your withdrawal strategy.” So I guess John, the really long-winded answer is just life changes.

Your financial plan is just a point in time on a printed piece of paper. Life changes and your financial plan needs to change along with it.

John Mason: So you have this one-time financial plan, and if I'm an advisor, which I am, so I am an advisor and I'm meeting with a client. Let's say they hire us to do a one-time financial plan.

I'm not going to show them a one-time financial plan with a 50% probability of success. I'm going to show them a financial plan and the high nineties to a hundred percent, right? Because I have to assume that whatever I build into this plan has to weather an unknown amount of variables and scenarios.

I'm never going to be able to adjust it. I'm never going to be able to make tweaks. So I have to build it as conservatively as possible. So the reason one-time financial plans are only so valuable, let's think about this, one of the default assumptions in financial planning software is if you need 50,000 today from your TSP, you'll need 52, 000 tomorrow and 55,000 the year after that and 60,000 the year after that.

So one, we assume we need inflation adjustments every year. Two, we assume we're going to spend the same amount of money every year till death do us part. And then, number three, that we're never smart enough to make an adjustment if we need to. And all three of these are inherently flawed, bad assumptions.

Now, if I'm only meeting with a client one time, those are true, right? But if I'm going to meet with a client on an ongoing basis, so tell me as I think about this, we do one-time financial plans, and then we move clients into an ongoing relationship. The one-time financial plan is inherently more conservative. Once we get into years two and three, we get to open up the playbook a little bit, don't we?

Tommy Blackburn: We do. It's the fun of having that ongoing relationship because as you said, the one time, it's like I don't know if you're going to take this and this is going to be it. And so I need you to have something very conservative to follow.

Whereas when we start working together, we get to make adjustments and we get to watch that needle potentially come down if we're having fun or if there's something in the short term. Maybe we're delaying social security and we can just see that it's okay to not be at 100%. It's okay to not be at 90 because we've got each other.

We're gonna monitor this and if this begins to get in a downward trajectory, we're gonna make some adjustments. I’m actually was telling you guys before we hopped on the podcast I had a client recently where I was talking with them about this and they're not federal so they don't have the guaranteed income aspect of it or at least as strong and the conversation was, “You can retire early. It is going to be higher than the rule of thumb distribution rate when we start out. However, if we can agree that if the market deals us a bad hand, or if something happens in life that we're going to make an adjustment, and this is what the adjustment would look like right now, does that sound okay?”

And they said, “Yes, yeah, that sounds great.” And honestly, it sounds like common sense to us that if the world changed to the negative, we needed to change with it. But that's the beauty of this ongoing, “Let us be your partner and give you advice as we go.”

John Mason: So what is, and whoever wants to answer, Tommy, whoever, what is the standard rule of thumb for distribution rates? And again, why is there even the standard rule of thumb?

Tommy Blackburn: So I'll just at least answer that part of it because you asked me to, 4% is the rule of thumb you hear quite a bit. And it's a good rule of thumb. And what it is that a financial planner, decades ago, looked at various, pretty much all the historical markets that they could look at.

And they said, “If you started with a 4% distribution rate and you inflated it every year thereafter, and that's what you did, no matter what market you retired into, no matter how bad your timing was or how bad the markets got your retirement portfolio. I believe it would last for 30 years.” Was that the amount of time it would last time?

John Mason: Yes, I think so. I was like 4% for 30 years, but it contains all of those flaws, right? You're going to spend all of this money at the same amount of rate. You need inflation adjustments every year. We never make an adjustment. So they set this at 4% and so much of our audience I know has heard this and they're probably thinking, “On my million-dollar TSP, I can only do 40 grand a year.”

Tommy Blackburn:Not the case.

John Mason:So. Yeah. Yeah. It's just not the case. So as we think through–

Michael Mason: Can I jump in? Yeah. I want to go back to that one-time financial plan. And of course, we don't do one-time financial planning ‘cause I don't want a client to have a document 10 years from now that I did, that my name's on it and they didn't bob and weave, and bad things happen and they want to say that Mason & Associates was their financial planner. Nobody's your financial planner, right? You got a time look, and we'll go back to that example that I gave earlier, the 2005 Excel financial plan that said at age 62, 73,000 is going to be your income, and that was 2005.

And this client is a client, which means they're paying us through fees and we had to hold their hand through the 2008 financial crisis and we had to keep them invested when the market rebounded and then we went through the Trump tax cuts, we went through Roth conversions.

We had the discussion a year ago on SBP Open Season, not to mention at retirement you're going to take survivor benefits from the federal government, even though we might have met you. We did meet this particular client after he retired from the military and didn't take survivor benefits. What is a firm charge when life happens and somebody walks off the street that had a one-time financial plan done 15 years ago and you're their hero and you can save their family?

What if you're that person with pretty much a death sentence that we walk in and say, “You're going to take survivor benefits during this open season.” How do you charge for that and get fairly compensated for me now, 40 years worth of, I know this instantly. That's why we don't do one-time plans.

John Mason: I guess you're just saying that, well, we do one-time financial plans, right? When people want to become a new client, we say the first step is a one-time financial plan. And then if you want to hire us from that point, we'll establish an ongoing relationship. When we try to stack the deck, because not 100% of the people that pay us for that initial plan, we call it an initial plan, not a one-time plan.

But the people that pay us for the initial plan, we try to screen out the folks who just want a one-time plan, but everybody gets an initial plan and that initial plan is always going to be more conservative than the ongoing plan. And I think you did a great job articulating why somebody would want to have an ongoing relationship with us and why we need to make those adjustments and why we need to tweak things over time because that's just the last 10 or 15 years of changes that you just highlighted. And we know that your clients are going to be running this retirement race for another two decades. And if we have that same level of change and modification required over the next two decades, we have the opportunity to provide lots and lots of value.

Michael Mason: Yeah, you miss, as we've discussed before, you miss being in the market the first three months of the rebound in 2009. It took you an extra five or six years, you know don't fact check the exact number but it took you an extra five or six years to get back to where you were supposed to be and if with a planner in your life, you're there, you stay the course, you make a three-month delay and picking up for, “Oh, I need another one time plan to see if I should still be in the market.” Well, you just cost yourself five years.

John Mason: So the standard distribution rate, the rule of thumb, 4%. I remember when I came into the business, we used to do a lot more in-person meetings and we had these beautiful slick, like card stock or laminated glossies and Ken loved it in particular.

And he would go right to this middle column, Monte Carlo, 35-year retirement, 3%, 91% chance of success. And that was kind of how I was trained initially. And then we've continued to evolve and get smarter over time. And the reason that that's used is it's an inflation-adjusted spending model, meaning you need 30,000 this year, and then you'll inflation-adjusted up into the rest of time. Let's talk about some of the other spending models that exist and let's talk about the phases of retirement. So the phases of retirement, as we see it at Mason & Associates, and we didn't coin this phrase, you have the go-go years, the slow-go years and the no-go years. And we can just break those down really easy to say 65 to 75 is go-go, 75 to 85 is slow go, 85 to 95 is no-go. And as we've experienced this with our clients, some people would call that last decade, the marginal decade. If you're following folks like Peter Attiya and these other health experts out there, but for our clients, they've actually become net accumulators again in phases two and three. They've done all the things that they want to do in phase one.

Phase two, things slow down phase three, things slow down further. And unlike most people, we don't have any health issues because we have the greatest health insurance on the planet when you combine Tricare and Medicare and federal health benefits and Medicare, we don't see these like super inflated healthcare costs over time in our practice either.

So those are the three distinct phases. Go-go, slow go, no go. And as we see it, Ben, clients don't spend the same amount of money each decade of life, do they?

Ben Raikes: They certainly don't tend to spend the same amount of money each decade, John. And again, I think what tends to happen is the first couple years of retirement, everyone is naturally nervous, even though they have us in their corner and their paycheck stops and then their pension starts coming in, but their pension check that they're receiving isn't quite a full 100% replacement of what they were making prior. So now they're in retirement. They say, “Okay, well, you know what I think I could take. $2,000 a month. That'll get me to about where I was before.” So a year goes by, they spend $2,000 a month. They're starting to feel pretty good about themselves. Their portfolio balances are still strong next year, same thing. There comes a point where there's a switch that flips and they say, “You know what? Mike Mason, John Mason, Tommy and Ben, you guys were right. I can do this retirement thing.”

And then they start to take special trips, they start to take vacations, that car that's 15 years old, they decide to replace, they update their kitchens, they start taking grandkids on different trips, and they start enjoying their lives more, and that's really that, that go-go phase of their life, and I think the slow go and the no go are kind of self-explanatory, there does come a time in your life where, “Hey, you know what, my, my health isn't what I used to be. Getting on a plane from here to Australia or here to somewhere in Europe is probably not gonna be great on my knees. Maybe instead of doing that twice this year, I'll just do it once.”

And that kind of natural progression happens until you get to the no-go years. And that's where you're doing. Unfortunately, not a lot of fun things, but maybe healthcare expenses go up a little bit at that time as well. But that's kind of the, I would say, John, the glide path that we see our clients on.

John Mason: Well, I like that you added something that I wrote down, the proof of concept period. And we do hear this quite often. You know, “ Mike, Tommy, everybody, you told me I was going to be able to do this, but I didn't really believe you.”

Ben Raikes: All the time.

John Mason:“I didn't really believe you.” So that proof of concept period could be six months to five years for some folks. So maybe there are actually four phases of retirement. The proof of concept period followed by those other distinct phases. Another spending assumption is the no inflation adjustment. “I need 50,000 this year. And I just do that for the rest of time.” Well, if you don't inflation-adjust your withdrawal, then you're going to have a much higher likelihood of not running out of money. You can also start your initial distribution rate higher, you know, if we know we're never doing inflation adjustments. Tommy, inside of right capital, we have some fun switches that we can flip so the default is inflation-adjusted distributions. What are some of the other options that we have that we can model for folks?

Tommy Blackburn: Sure. And I think I wanted to just hit on inflation for a second and say what the research shows as well as our own experience working with clients, many clients over many decades amongst us.

And that is that one, inflation does happen. So to assume that inflation does not happen is not a good assumption, but to also assume that inflation is linear is not what we see or what the research shows either. And what we mean by that is that our clients don't come and say, “Hey, inflation went up two and a half percent last year, increased my distribution by two and a half percent. And let's do it every single year just like that inflation-adjusted plan said we were supposed to do.” It's usually, “Yeah, I'm fine. Yeah, things have gotten a little more expensive, but I've, instead of buying hamburgers, I'm buying chicken.”

They've come out with some way to continue to stick to that budget for a little while and some things can't be avoided and so eventually it starts going up. So that's kind of the flaws of why we've been mentioning inflation is that it is true in some form, but it's also not linear from what we see. So some other spending assumptions we have is we have the retirement spending smile and what that says is it's almost somewhat like that go-go, slow go, no go where it says, “Hey, we're going to start out here, but instead of the linear normal inflation, assume inflation is going to go slower than that.”

And that might actually model a little bit more what we see is inflation is happening, but it's not happening at the pace of inflation in the economy. And the reason it's called smile is because we don't slow down the medical. So that one keeps inflating it twice the normal rate, which for the assumption would be 5%.

So as you get further into time, the medical is picking up and it kind of makes that smile, and even with great healthcare coverage, I suppose there's still other expenses that could be coming in. So that's the smile. That's one strategy, one assumption we can use. Another is stages. That's, again, another way of trying to look at that go-go, slow-go, no-go. Let's just begin to reduce it at different phases of life.

And guardrails I think is one that we utilize selectively and it's to try to model a more flexible spending assumption. And what it does is essentially says, “Or we can start out with a higher distribution rate, 5%, for example, market goes up 20%. We can spend more. Now we can increase our distribution by 10%. Market goes down by 20%, cut it by 10%.” So if we're willing to walk into that type of strategy and say, “Yep, as the market changes, I'm willing to change with it.” Which is not true across all of our expenses. There's a certain floor of expenses that it's not going to change, right? If we have a mortgage, we've got to be able to maintain that.

But it does just give us some, “Hey, if I want to live now or I want to delay Social Security and live now, we can start out higher than 4% if we're willing to be flexible.” And that's what that strategy, to me that's the best way to frame that spending strategy, and it's the most conservative is a constant inflation-adjusted spending. This one is not as conservative, but we think it's actually potentially closer to real life.

John Mason: And for those who are watching the podcast, I'm doing some hand motions now, when you do the 3% initial distribution rate to get a high 90s probability of success. When you look at your terminal value of your accounts, you have a couple percent of time that you ran out of money, and then you have the times where you died with 10, 15, 20 million dollars, right?

So when you start the distribution really low and you arbitrarily inflate it over time at x percent, you have a wide range of dispersion on your ending terminal value. What I really like about the guardrails philosophy, and we should mention to our audience and the clients that we don't have any software that just rings the bell every time somebody hits a guardrail right now, right?

We don't have that, but we will review these concepts during our strategic planning meetings. So what I find to be very valuable with guardrails is when you can clearly articulate to a client when and how you will need to make adjustments, it will give them more confidence in their ability to spend today, period.

If you just say, “Well, 3% is good.” And there's no conversation around how or when or why we would need to adjust the withdrawal rate up or down, let's face it, with federal employee clients, if we start the guardrails at 4%, we may never have to go up or down on the distribution rate, period.

But, just knowing that there is a simple, logical thought process as to how and when and why we would adjust the distributions, we find we'll do the things that we want to do, support, empower, educate, and motivate our clients to use some of the resources that they've saved their entire life. The other thing that it's going to do is if we're willing to make these adjustments, guys, if we're willing to tweak and we're willing to start the distribution higher, if you can see my hands on the YouTube video, we're going to shrink that dispersion.

We're not going to die with zero and we're not going to die with 75 million dollars either. We're going to have a much more reasonable terminal value at the end of this if we can just constantly adjust the plan and Mike, I know you in particular have a client right now who wants to go on a pretty awesome vacation two years from now.

And that distribution is going to be 150, 200, whatever hundreds of thousands of dollars it is. How easy is it for you to say, “Well, Mr. and Mrs. Client, that's 20% of your account, which means if we're going to take out 20% of your account, we need to cut your spending elsewhere.” It's just such an easy conversation because you know they're hitting the guardrail by taking that distribution.

Michael Mason: Yeah. And at the end of the day, inheritance is just not an issue with them and a planned failure is not an option. Their guaranteed income is so high. So it's the only thing we have to manage to is let's just not create bills that we don't need. Let's try and structure these withdrawals, so we don't go into a Medicare bracket, but it's, and I laugh, and this is the Federal Employee Financial Planning Podcast. I laugh at all these withdrawal rates scenarios. You'd like for all your clients to at least start making a withdrawal when they retire, but they don't, right? They don't. And it's just, for the audience, it's kind of interesting and not self-serving for us.

We want happy clients, but many other financial planning firms, the outflows are tremendous because they don't specialize with federal employees. We're encouraging our clients to take money out, which when they take money out, that's less money under management and less fees for us. We're trying to encourage that, right?

And it's, so we know, just the bottom line, you've listened to enough of these, Federal employees, career federal employees are going to make more money for the rest of their life than the last three years of their working career, always. Our goal is just to help you enjoy what you worked a career for.

Because unfortunately, like we've said on several podcasts, every planning season, every SPM strategic planning meeting season, somebody that's too young gets a diagnosis. So it's our goal as your financial planners to help you enjoy what you've worked a lifetime for.

John Mason: Well, we don't know how much time we have. We never know how much time we have on this planet. We never know how much time we have to make a right decision. And for me, I think I'm good in particular of identifying a problem and just wanting to solve it immediately, even if it's five or 10 years too early. And there's probably a delicate balance between identifying like your hair's on fire, identifying things that probably should be solved immediately, but not today, and then things that you can kick the can. But I hope what our clients feel supported, empowered, again, educated, and motivated is that, and the good and the bad, that we've checked all the boxes and we've done our best. That's all we can do is do our best.

Tommy Blackburn: John, you're absolutely right. And as I think about this, as we go through, I'm like, “Hey, we've got assumptions. We've got stress test of Monte Carlo withdrawal rates. And we have this whole other framework of guardrails withdrawal.” I'm thinking this is why you have an expert, right. And you've got taxes changing on you. You have everything that comes into a financial plan as well as the caring of a partner in life, somebody who can look at you and say, “Your health's not good,” or “I want you to take, I want you to take that trip as well. I want you to take distributions.” But if this all sounds complicated, that's the beauty of having that retainer expert advisor in your corner who's got all these arrows in their quiver. Because as I think about it, it's yeah, we look at a lot. I mean, we look at many different stress tests and many different considerations as we're advising clients.

And some of our clients love this guardrail. So just that's so cool that I know these thresholds of when I need to take action. But I know we have a number two that also say, “You'll tell me, right? Thank you for explaining it to me, but you'll tell me when I need to make an adjustment.” It's like, “Absolutely. That's what we're here for.”

John Mason: Well, hopefully, the proof of concept period and getting clients comfortable and their spending doesn't take too long, but we know that for some folks it does. And at the end of the day, one of the issues that we, I think all have as humans who have made really good decisions for decades is we buy things on sale. We buy things at a discount. We try to buy the cheapest version of the best possible product that we can get, right?

And I was meeting with a client the other day who, I guess maybe we're still in proof of concept for them, even though they are going to Alaska this summer and there was like a helicopter ride that was like, I'll just, I'll exaggerate. One minute for $500, but they really wanted to do it.

And they're like, “But it's just so expensive. Like that's just too good a deal for the pilot.” I'm like, “And? Does it matter?” I know it's not a good deal. Like I get it. It's not a good deal, but you'll also probably never go back to Alaska. So spending assumptions aside, Monte Carlos, et cetera, Tommy, to your point is, we also have to get over the fact that once you retire, you're going to make a lifetime of bad financial decisions, or you're not going to have lived your life the way that you wanted to because ultimately your money is a tool to do all the things that you want to do in life.

It's supposed to serve you, whether that's turning left on the airplane, Mike, whether that's a personal trainer, whether that's eating organic, whether that's traveling the world, whatever it is to you, gifts to your family and your grandkids, none of those are inherently good financial decisions, probably.

So we've got to step back for a second and just give ourselves the freedom and flexibility to allow ourself to spend money on things that don't make sense, I guess.

Michael Mason: Like you talk about with your mom, my wife, we call her, Banker Bobby, and our world is better than we would ever have dreamed it, and I have to, every time she's booking our flights, I have to remind her, “Well, it's so much more expensive than coach.”

“Yeah, that's what it is. I don't want to ever hear that again. I just want to sit in front of the plane.” Let's do that, right? But it's hard. It's hard to get that out of your system. Finally, with your grandma, she's in the no-go years. At least I can get her to pay somebody $50 every day they come out and water her grass.

And she's not freaking out over it, right? So even though you're a no-go, maybe you're going to have some other expenses creep in there. And if you've got a great son like I am, and a great financial planner, I can help her understand that spending $50 every time somebody is going to water her grass, even if that's three times a week, is not going to bust the plan, right? So it's the habits that we help people get out of. The ones–your client, that $500 for a helicopter ride, well then they get home from Alaska and they didn't do it, and now they realize five years from now and what did you call it? Proof of concept, John, they realized, “But we could have done that.” Well now the helicopter ride is going to cost them 5,500 bucks because they got to get back to Alaska and then pay 500 bucks for it, right?

Tommy Blackburn: Money well spent, I think, is the word that's coming to my mind, is maybe 50 bucks to have the grass watered. It's money well spent for your health, for the enjoyment of your life. And don't let the little things ruin that trip, right? That 500-dollar helicopter flight, enjoy it at this point. Yeah, don't regret this down the road.

John Mason: So we're getting close to wrapping up another episode of the Federal Employee Financial Planning Podcast. And maybe we can, I don't know if we'll give a shout out, but we'll at least acknowledge that it's not our saying, is so many clients get to the distribution phase or get to the retirement phase.

And they're like, “Guys, I just don't need it.” And it's like okay, I get it. You don't need it. That's fine. We're not going to should, S-H-O-U-L-D. We're not going to should all over you and tell you that you need to take these distributions or that you'd have to arbitrarily buy a new car every five years or go on vacations that you're not going on.

We’re not gonna should all over you but if there's something we can do with this money that enhances your quality of life, let's do it. Whether that's the food you consume, the trips you go on, the conveniences at your house, if there's something we can do with this money that will enhance the quality of your life, then let's spend it.

If there's not, grow, baby, grow. We're good with that. Let's dial up the risk tolerance. Let's talk about leaving a massive legacy. Let's do all these things, or let's think about enhancing our quality of life. Guys, let's wrap this up. Any parting thoughts, closing thoughts that you'd like to share with the audience?

Michael Mason: Yeah, from my perspective, I think it's been a tremendous podcast. Hopefully, folks will take it to heart.

Tommy Blackburn: Yeah, I agree. I think it's been a great one. My main takeaway while self-serving is you don't have to go this alone.

Ben Raikes: If there's things that you would otherwise not be doing because of a financial reason, if it's that helicopter ride, if it's the new car, if it's the roof, or starting a education fund for your kids or grandkids, make sure you're not working with an advisor that's just planning for the most conservative scenario possible and telling you, “No, you can't do that.”

But have an understanding of your spending parameters and what your plan can truly accomplish, particularly if you're a federal employee who's essentially going to have guaranteed income for the rest of their life. Make sure you're having that conversation. Don't make a 500-dollar helicopter trip a 5,500-dollar helicopter trip, as Mike Mason said.

John Mason: Tommy, I want you to share your saying that you used with a client yesterday. Federal employees, especially ones that work with us, but those who work with other advisors who have done really good financial planning, what you're saying, they can have everything–

Tommy Blackburn: You can have anything you want, but you can't have everything.

John Mason: You can have anything you want, but you can't have everything. And that is, again, helicopter ride and being able to do these things that maybe aren't the best financial decisions. So again, we're recording this, folks, on May 28th. We'll release this sometime in the next 4 to 12 weeks, we assume. So I say let's say late summer.

Here's what this looks like for you. Do you like this? Do you want to be a part of the Mason & Associates family? Are you looking for a financial planner? We'd love to hear from you., 757-223-9898. We are taking new clients. The process starts with an introductory phone call. We take new clients through about November, and then we pause for the last month or month and a half of the year.

And then we begin new relationships again starting in January of the following year. So if you are interested and you'd like to be a client, we serve clients not only in Virginia, but throughout the country doing federal employee financial planning and tax planning just for you. We know these federal benefits better than most, if not the best.

Thank you for being a part of this episode. Thank you for continuing to encourage and support us to releasing this content. We're Mason & Associates, and this has been another episode of the Federal Employee Financial Planning Podcast.

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