Welcome back to How to Retire, coming to you from the Fuchs Financial Studio in Middletown, Connecticut. I’m Jackie Post. And with me, of course, is the man with all the answers, Ben Fuchs. He’s the owner at Fuchs Financial. Ben, welcome back. Thank you, Jackie. Happy to be here. Yeah, it’s a great time of year. Kids are going back to school. Things are all falling in place, right? Oh, yeah. We’re enjoying the time and we’re getting used to school again. So it’s wonderful. Yeah, absolutely. Absolutely. All right. So we actually have a great show today. Today’s show is… about one big question. I think this applies to absolutely everyone. Am I ready to retire? The big one. And more specifically, what questions should I be asking myself before I do? It’s also about not just about trusting a chat bot, which I think is kind of an up and coming issue really with everything that’s going on with chat GPT and AI and all that stuff. So you don’t want to do that in terms of letting them tell you everything you need to know about retirement. So how can we avoid that? Yeah, I think there’s a couple of things. Also, you know, a lot of people are really trying to focus on retiring early, right? Now I have to wait till 65 or 70. Can I retire at 55? Can I retire at 60? And so, you know, for me, it’s totally doable, but we just have to make sure everything is in the right place. And when I asked these questions ahead of time to ChatGPT, I was like, man, one, like, these aren’t bad answers. And some of them, I’m like, This is horrible. Like, I completely disagree with a lot of these things and there are specific reasons why. So I think we’ll play a little bit of a game today on like, here’s what ChatGPT says. Do I agree? Do I disagree? Why? We’ll play that game. We are. Well, you guessed it. That’s what we’re doing. Yeah, you’re right on target. So we’re going to do rapid fire questions. I’ll ask. You answer like the robot, and then you can answer like Ben. Do I need like a robot voice? Because I don’t know if I can do a lot of things, but my acting skills are not strong. No, we can just go with the Ben. That’s fine. Okay, got it. Okay, all right. So first one, how big does my nest egg need to be? All right. So ChatGPT said to use the 25 times rule, if you make $120,000 a year, if you need $120,000 a year to spend, aim for $3 million. So then adjust for taxes, inflation, and how long you expect to live. And I disagree with that. Okay. Very, very strongly. So first of all, 25 times what you spend is a really intimidating number for a lot of people. And I think it’s realistic, unrealistic. It doesn’t take into account other things that you have. What we like to do. in our office is very straightforward we like to sit down with people and then just show them what the numbers will be like if we earn x amount of money and you’re spending this and we add inflation here’s what those numbers will be well it’s not one size fits all if i had to guess i mean you’re you’re cut you’re literally customizing a plan for every individual and it’s very different based on what they have and their assets and all of that right and so somebody just says oh here’s what we do at our firm like that drives me crazy but you know what your plan is is going to be totally different than somebody else’s and Where your assets are sitting are going to determine a lot of things. Are they in a Roth IRA? Have you already paid the taxes on them? Are they outside of the account? Do you have a lot of money in the bank? You know, where are our assets sitting? What is it earning? How do all these things work together? It’s not so simple as a 25 times rule. The chat GPT, I feel like I would believe that. So a lot of people believe it and it’s not necessarily true, which is good to know. And I think it’s intimidating when you say you need 25 times what you’re spending. I mean, it’s just not realistic and it’s not been the case for the majority of our clients. what withdrawal rate is realistic okay so i would say that in the history of my frustration like the the things that like will make my face go red and the things that make is you can’t see it yeah it’s a lot of makeup yeah i’m trying to get pretty but it’s the four percent rule and so what chat gpt said was again use the four percent rule three and a half to four percent annually adjusting for inflation if markets are rocky then they say three percent okay and Again, I disagree with that pretty strongly because this doesn’t take into account, again, where your money is. I’m saying if markets go down, then we take less. I don’t think that we have a scenario where anybody says, I want to spend less money just because the market went down, right? I’m 68 years old. I’m planning to take my kids on a Disney vacation. I can’t do that because the markets are down. No, we need to plan around that. It can’t just be 3.5 % to 4% or don’t spend now because… We need to have an actual plan. Expect the markets to go down because about every other year we see a greater than 10% decline in the S&P 500. So every other year we see like significant drops and we have to plan for that to have a happy retirement. Right. And it is all about planning is what it sounds like. And you can do that in a step by step process, which. It’s better than ChatGPT. I hope so. I think I’m getting a vibe that a person is better than ChatGPT. Well, careful. I mean, now, you know, if they record this, this is going to go into ChatGPT. I know. They’re going to get smart. Like another week or so, they’ll be better. Yeah, we’ll see. We’ll see. I don’t know. I think person’s still better. All right. So how do I cover health insurance before Medicare at 65? Got it. ChatGPT said the options are to stay on a spouse’s plan, use COBRA, buy ACA plan, Affordable Care Act plan. Okay. or negotiate retiree coverage. So this I don’t disagree with. This is fine. So if you can stay on your spouse’s plan, typically the best option, easy. COBRA is you can have up to 18 months. So if you retire at 63 and a half, you can spend the next 18 months on COBRA to get you to Medicare, and then you can switch over to Medicare. wonderful but cobra can be very expensive you may be paying very little for health insurance to your company but when you retire and you pay cobra you pay your half and the employer’s part right so all of a sudden you know you could have been paying 100 a month and now you’re paying 1200 a month it could be very very expensive if you don’t pay attention to it so i mean if you just plan to rely on that so you know we’ll do that we’ll look at that and then we’ll quote the aca and see what we options we have but i don’t disagree okay so we’ve got chat gpt one ben two yes great but careful now i don’t want to now i’m worried yeah I better say they’re wrong every time. You’re up against the computer, right? Okay. All right. So which accounts do I tap first? Okay. So this is another scenario where I strongly disagree, but we’ll get to it. So it says to start with taxable accounts, then do Roth conversions in your 50s and early 60s, and save tax-deferred IRAs for later. This is a trap that a lot of people get into. They save their tax-deferred IRAs for later. But what happens is… Again, we have something called required minimum distributions, RMDs, where at 73, you have to begin taking money out of these accounts. If you let the part that you’re forced to take out sit and grow, let’s say you’ve got a million dollars at 73 in your 401k, you have to take out about $38 ,000, give or take, $37,000, $38,000 in that ballpark. If it was $2 million, now you have to take out double that. Math in my head is what, $66,000, $65,000, $64,000, you know, depending on… the exact number but when you do that and you let it sit and grow all of a sudden it’s way more taxes that you’re forced to take out every single year and you may not need that money so now you’re taking out all this money paying taxes on that for no reason just to let it sit in your bank account and then you have to pay taxes on the interest that it grows after you haven’t paid taxes for all that time so in a lot of scenarios we don’t want to take the tag the the the places where you’ve already paid taxes first. You want to take the stuff from the IRAs, from the places where you’re going to be forced to take anyway, and you want to spend that down first in a lot of cases. Not always. There are different scenarios where it is totally unique per person. There are scenarios where we’re taking after-tax money and we played games with, like, the capital gains taxes. Not important. But strongly disagree. Don’t trust the chatbot on this one. Right. And that’s very interesting. me because i feel like that’s something you can’t get out of a computer but maybe you will eventually be able to i don’t know who knows it’s just you know we’ll see all right so okay um when should i claim social security all right so it says to wait until 70 if you can the check is 77 higher than if you take it at 62. that’s all true however if you retire at 60 and you could begin taking social security at 62 let’s say that you could get $2,000 a month at 62, and you don’t take it. That $24,000 a year for the next eight years has to come out of your investments. Would your money have grown more had you taken Social Security? What are the goals here? Do I want to leave money to my children? Because if I want to leave money to my children, I’m taking Social Security earlier because I can’t pass that on if I die. I can pass on my 401k. So I don’t want to pull from that before I have to. If I haven’t been a great saver. and I really need as much income from Social Security as possible, that’s when I might wait until 70. But it is not a one-size-fits-all case. One of the things that frustrate me, along with everything, to no end, because apparently I get frustrated a lot, is if we do a, there are Social Security analyzers. Where can we get the most out of Social Security? And it’ll say, if you’re going to live to 90, you take it at 70. It’s pretty straightforward. But what has to be taken into account is, where is my other income coming from? What are the taxes that I’m going to pay on Social Security if I take it earlier versus later? And how is it impacting everything else that I have? It has to be taken in. You can’t just do Social Security on its own. It has to be included in an income plan and an investment plan and an estate plan. What am I leaving behind? What do I need for my income? And how is the rest of my money going to grow? There’s so many different variables. It really is based on people’s goals in the end, right? A thousand percent. Wow, there really is so much to know. I’ll have more questions on the other side of this break. We’ll be right back. Congratulations, Nancy and Mark. You’ve been chosen to play the retirement game. All right, first question. How long will you live? Too slow. Spin the longevity wheel. Nancy, will inflation eat your savings alive? I hope not. Let’s spin the slot machine and find out. Which strategy will you pick? At Fuchs Financial, we don’t spin wheels. We build real plans. Personalized, adaptable and clear. Welcome back to How to Retire with Ben Fuchs from Fuchs Financial. And today we have been really kind of rapid firing questions at Ben that are sort of like chat GPT, but the Ben version. So we’re taking chat GPT answers and breaking them down, right? So it’s actually pretty fun. All right. So the next question, can I access retirement accounts before the age of 59 and a half without a penalty? Okay. So the answer they gave was yes. And I agree. with the answer being yes, but how they do it is different. So they recommend something called 72T distributions, Roth contributions, and certain hardship exceptions like health premiums after job loss. 72T is this thing that is like annoying. It’s separate equal periodic payments. It has to be done for a minimum of five years if you’re under 59 and a half. There are all kinds of rules that apply to avoid that 10% penalty. But… If within that five-year period you mess up and you take too little or too much or things are just a little bit off, all of a sudden you have to pay the penalty from all the previous years. Wow. So we try to avoid that whenever possible. The most common way that people can retire before 59 and a half and access their retirement funds is there’s something called a rule of 55 and a 401k, where if you retire from a job after you’ve turned 55, you can take money from the year that you turn 55, you can take money from that 401k without any penalty. Okay. It’s a lot easier than doing some crazy algorithm that you have to kind of monitor every single month and every single payment to make sure things are exact. And you better hope that the investments don’t change or get messed up. You have to have a lot more money in that account allocated so that things run smoothly or you could be in a lot of trouble. So this is a, we agree that yes, you can, but how you do it completely different. And again, it’s just another example of. needing a professional to kind of guide you along the way. I feel like that’s the ideal scenario, right? That’s kind of why I have my job. Yeah, you know, you’re employed for that reason. But I mean, everything you say leads to that, right? It’s the customized plan. It’s kind of just making sure that you have what’s right for you. All right, so what’s my plan for, and you’re going to have to explain this to me, sequence of returns risk? Sequence of returns risk is… If the market is down for three straight years right after you’ve retired, it can impact significantly your ability to stay retired. So what happened for people that retired in 1999 was that in 2000, the S&P went down by 10%, 2001 down by 13%, 2002 by 23%. So the first three years in your retirement, it was down by over 40%. That’s when you saw a lot of people be forced to go back to work. So the question becomes, how do we protect ourselves against this? So ChatGPT says, to hold two to three years of expenses in cash and use a diversified portfolio, avoid selling stocks in a down market. The problem with a diversified portfolio of stocks is that they pretty much all went down in 2008. They pretty much all went down from 2000 to 2002. So a diversified portfolio doesn’t quite cut it. You need more. I disagree with this. One, I don’t like to have so much money in cash. If I have two to three years of expenses in cash, we’re getting like… two three percent that’s not enough money we need to have a greater plan and so without getting into all of the specifics and boring everybody watching at home i disagree we can have a different plan where we can have safe money that’s important that you have access to but we need to be able to get a better rate of return than whatever we’re getting from the checking you know checking account And so we need to plan things accordingly. But no, I fundamentally disagree. And it kind of feels general, the answer, just a very generalized answer. OK, how will inflation impact me? So this is interesting. Todd CPT says that every unexpected 2% halves buying power in 35 years. Own inflation fighters like stocks, tips and real estate. So this is a scenario where I do agree. You need to have the stock market, the S&P 500. which is the collection of the 500 publicly traded companies biggest. We use that and that has historically outpaced inflation. Historically, that has beaten inflation over time. So having money in that or in individual stocks makes a lot of sense. That’s important. But like anything else, we don’t want to have all of our money in any one thing because we just talked about sequence of returns. If all of our money are in these things that beat inflation over time, they don’t beat it every single year. Over time, they will beat it. In a year like 2022, the S&P 500 fell by, man, what was it, 19%, something like that? You’re the professional, so I’m asking you. No, no, I need you to fact check me. Fell by 19-ish percent, and inflation went up by like eight or nine. And so it’s not like a year-to-year thing, but it’s an overtime piece. But that’s why having your money in different types of asset classes, different total investments. is really going to be what sets you apart in retirement i am learning so much about the difference between ben fuchs and chat gpt hopefully i’m winning yeah you’re winning you’re winning according to my scorecard so that’s good but we still have a lot more to get to and we’ll do that right after the break we know the market is Your financial future doesn’t have to be uncertain. Plan your retirement right. Call now for your own complimentary portfolio review and tax analysis. Welcome back to How to Retire with Fuchs Financial. Here with me, of course, is Ben Fuchs. And today we’re doing something really unique, actually. We put a bunch of questions into chat, GPT, about finances and figuring out how to retire, obviously. And they spit back the answers. And we’re sort of debunking those answers. Are they relevant? Are they good? Or are they not? And so Ben is going through those with us. So we’ve had some fun. And the most important part is that I’m winning. He’s winning. I’m not competitive, but I’m winning. You’re better. the robot you’re better than the robot so that’s good you’re more personable too yeah all right so let’s get to it what about long-term care costs all right so chat gpt says to budget 150 to 250 000 per spouse or ensure some of the risk with standalone long-term care or hybrid life long-term care policies all right it’s a mouthful it’s a mouthful it’s a lot so 150 000 to 250 000 per spouse would probably be fine in other parts of the country. But in Connecticut, we’ve seen care costs be like $15,000 to $20,000 a month. And so we’re talking $180,000 to $240,000 per year. The last statistic that I saw was that people spend, on average, over three years in these types of facilities. So you’ve got about a year’s worth of savings, and then we’re going to have to tap into other stuff. So I disagree with that number. People like to use hybrid policies like life insurance and long-term care. I’ve done that in the past, but it has to be very specific for people because they are very expensive. The last one that I did was years ago and it was $11,000 a year, the cost of the policy, but it gave somebody half a million dollars of life insurance. They needed long-term care at a nursing home. They could take up to $20,000 a year from that death benefit. to go pay the monthly cost of the long-term care. Okay. So it made sense, but if you do that for a married couple, we’re not talking about $11,000 a year, we’re talking about $22,000 a year. And then the other question is, what are we sacrificing from a lifestyle perspective when we have $22,000 of our retirement budget going to insurance that we may never need? Right. So I think that becomes not just like a simple question or, hey, this is a good idea, but is it worth it? Is it. That’s up to the individual. There definitely have been scenarios where we’ve gotten rid of other policies that other people have sold. I think one of the most important things is being able to do the things that you want to do in retirement. And if all of my money is going to insurance for something that I might not need, I don’t feel like that’s the best use of the funds. I’d rather you go on a couple cruises and then if you end up, you know, going to a nursing home and you don’t remember it anyway. It doesn’t matter. Right. But you spent this money and if your family doesn’t get it, you know, cry me a river. Right. Which is awful. Like, let me be clear. Like, I don’t mean to make so light of it because it is a difficult thing. I’d rather focus on my clients doing the things that they want to do instead of paying for insurance and giving me a great commission, by the way. Right, of course. Let’s be clear. I get a great commission for selling those products, but I still don’t recommend them most of the time unless it fits a very specific name. We had that exact conversation with my parents recently, so this definitely hits home, and it’s definitely a difficult conversation. Very difficult. But you do. You have to decide whether or not you want to live your life or give it to something you’re not sure of, right? Right. I mean, listen, I told my father that I didn’t want him to. keep spending all the money that he was spending on life insurance. He’s like, what about mom? I’m like, mom will be fine. He’s like, well, what about you guys? I’m like, we’re fine. I’d rather you spent that money and do things like go take mom on a cruise. I hate cruises. Well, you know, do whatever you want. But, you know, that’s a lot of money every year that could be going for you and take advantage of it. Absolutely. Agree. Agree. Okay. So next question. Should I relocate or downsize? So ChatGPT says it can free up to 10 to 20% of your budget. Look at taxes, health care, and cost of living before making the call. That’s wonderful. What a lot of people have found in Connecticut is they really can’t downsize and save money. Because there aren’t options available where we find a place where we like to live that costs less that is better. So there’s a concern. Relocating is up to the individual. For a long time, people left Connecticut and went to Florida, and now Florida has a whole bunch of career at the games, and we’re like, no, we’re going to come back to Connecticut. We see a lot of people coming back to the East Coast. So it’s interesting. What I don’t like is… I don’t mind it, right? People want to leave for taxes because they have family in other places. That’s wonderful. But what’s the point of saving all this money your whole life just to leave so I can save a little bit of money in taxes? I had a disagreement with somebody that came into an office recently. And, you know, their position was they wanted to move to a different state. And then I looked at his wife and I said, hey, where are your grandchildren? Oh, they’re here. OK, do you want to live four states away? No, I don’t want to. You know, so what’s the point of saving all this money if it has to dictate where we live instead of using the money to dictate how you live? And takes you away from your family, which is the most important thing. Absolutely. How much cash should I keep? It says six to 12 months of core expenses in a high yield savings account, plus an emergency fund for big one offs. So the traditional like CFP. book says if you’re a single person six months of expenses in a checking account if you’re a married couple where both of yours where each spouse could take care of the expenses should one lose a job then you need three months of expenses but that’s for day-to-day living while working when you’re retired You need more than six to 12 months in a safe type of account. We’ve seen scenarios that we’ve talked about earlier where the market is down for three straight years. In 2008, in the Great Recession, it took five years before the market broke even again. So in 2008, it fell by 38%, and it wasn’t until 2013 until it broke even. Wow. So if we’re talking about five years where we’re not selling things because they’re down, then we need to have a different type of plan. That was an extreme scenario, but it could be coming up again at any point. Nobody knows, really. Well, I mean, and we’ve had like black swan events. So one of my favorite things, and I read a book recently by Jim Collins, and it talked about productive paranoia. And so it was this whole concept where it compared CEOs of one company that thrived and CEOs of the same type of company that completely went under. And what was the difference between them? And so we always think about CEOs as taking these risks and being high flyers and going for it. And what it found was that the companies where CEOs did that were the ones that went under. And the companies where you had those called productive paranoia, those paranoid CEOs that always wondered about what could go wrong. Those were the ones that were able to weather all these black swan events. We can’t predict a great recession or a dot-com bubble or COVID or tariffs, right? I mean, things that we wouldn’t have expected to happen. But we can say that there will be those things that will happen going forward. Whether it takes three months or five years to recover from, we don’t know. But I’d rather be prepared in retirement instead of worrying about my parents having to go back to work. Absolutely. I love that, by the way. That’s a great example. All right. So what asset mix fits an early retiree? All right. ChatGPT says, at 55, go 60-40 stocks to bonds, easing to 50-50 by 70. Keep at least 10% in growth assets for inflation and defense. Okay, that’s a lot. of numbers, Ben. All right. Break it down for me. Got it. Okay. So 60-40 is 60% in stocks and 40% in bonds. Right. And the old joke used to be, I don’t know what the question is, but the answer is 60-40. Okay. So this is like this tried and true, like, oh, just do this. So that’s Chad GPT. I, surprise of all surprises, disagree. I know, shocking. I have clients that say, I don’t like risk. I don’t want 60% of my money in a place where it can go down by 30% overnight. Don’t put me there. And if they’ve saved enough, they don’t have to take that kind of risk. And I have other people that are in their 80s that are saying, listen, I’m not going to need the vast majority of this money. I’d rather have it continue to grow for the next generation. You could have 90% of your money in the stocks. It doesn’t matter. So using age as a determinant of how you should allocate your money. drives me crazy i can tell i feel it i don’t feel strongly yeah no you don’t you don’t hey it’s chat i don’t have strong opinions it’s not a big deal okay so doesn’t agree with that either yeah all right what legal documents should i have this is a big one i think yeah right this is a big one so um they’re saying will power of attorney health care proxy hipaa release and updated beneficiaries may be irrevocable trust everyone should have a will a power of attorney One of the estate plan attorneys that we deal with very often, I asked her the same question. And she said the most important thing is the power of attorney. Because if you are in a scenario where somebody else needs to take over and they don’t have the ability to, it can be a major detriment. It can be a big problem. And so for her, power of attorney was more important than will. I get frustrated when I see people say that everybody needs a trust to avoid probate. In your IRA, in your 401k, in taxable accounts, accounts where you have stocks, bonds, mutual funds, outside of retirement, all of those can have named beneficiaries, which means that they’re going to avoid probate anyway. They don’t go through a well. So the vast majority of most people’s assets already have a direct beneficiary and already don’t hit probate. Right, right. So this idea that everybody needs something drives me a little bit crazy. But I don’t disagree with this one. We can give Jackie PT the win on this one question. We just went through that same exact thing, that probate issue with my parents. Exactly. And it was your answer. Oh, good. Thank you. Another point for Ben. I’m secretly being tested. You are. You’re secretly being tested. All right. How do I monitor and adjust? once i retire this is a big one because i think like with grocery prices changing and stuff always going up and down it’s hard right it’s very difficult and i know it’s not even for just retirees this is like a general thing because we’ve had so much inflation lately that the things that we had done five years ago trying to maintain the same lifestyle has been very difficult we haven’t seen wages come up with pricing Right. And so what they’re saying is check in at least annually, track spending, tax brackets, portfolio growth, use 1% guardrail, up or down. Don’t even know what that means. Me either. All right. So checking in at least annually is fine. I agree with that. At the very minimum, must do. But there are different ways to go about monitoring your spending. And I think ultimately like. we know when all of a sudden our credit card bill is higher than we expected like it’s not summer wasn’t too long ago i i paid for vacations i i can understand the joy of a higher yeah yeah that’s that’s what it was yes a higher than expected but you know so it’s just something that has to be generally paid attention to it can’t be like once a year like we need to look at our bills consistently because things creep up and all of a sudden like that extra money left on the credit card continues to grow and compound and build and it’s one thing when you’re getting three percent savings from a checking account and thirty percent fees on a credit card right so it is something that has to be monitored and monitored closer than it was in the past right absolutely all right ben well that’s it for our test with chat gpt and according to my results you won okay you’re the better robot okay you said there would be a trophy Yes, there is a trophy. We have it for you waiting somewhere. Got it. Back there. Yeah, back there. But great job. We loved it. Okay. All right, guys. We’ll see you next time from the Fuchs Financial Studio. Until then, be smart and retire happy.
