Jason Stipp: Hi, I'm Jason Stipp, site editor for Morningstar.com and welcome to our Retirement Readiness Q&A with a panel of great experts here. We are capping off Retirement Readiness Week on Morningstar.com. We have accepted a lot of questions from our readers. We look forward to digging into those. But before we get to the questions, I'd like to introduce a great panel that we have here today.
We will start with Mark Balasa on the end. Mark is a CPA and a CFP. He is co-CEO and CIO of Balasa Dinverno Foltz. It's an independent private wealth management firm. He oversees at the firm the overall investment philosophy and also he's been recognized as one of the top wealth managers in the country by organizations such as Robb Report, Worth magazine, Medical Economics, Mutual Fund magazine, and Bloomberg. He has also been a great friend of Morningstar over the year.
So, welcome, Mark. Glad to have you with us.
Mark Balasa: Thank you.
Stipp: Christine Benz is our director of personal finance. I'm sure if you're on Morningstar.com, you know Christine quite well. She's the author of 30-Minute Money Solutions, a step-by-step guide to managing your finances and also the co-author of Morningstar Guide to Mutual Funds, Five-Star Strategies for Success, which was by the way a national bestseller. Before assuming her current role, Christine served as director of mutual fund analysis.
Christine, thanks for joining us.
Christine Benz: Thank you.
Stipp: Also on the end a relative newcomer to Morningstar, but a great friend of ours. So far we really have enjoyed the work he has done. David Blanchett, a research consultant for Morningstar Investment Management, which is a division of Morningstar Inc. His research has focused on financial planning, tax planning, annuities, and retirement plans, and prior to Morningstar, David was director of consulting and investment research for the retirement plan consulting group at Unified Trust Company. So, thank you guys, all for being here.
Lots of questions from readers again. Please keep those questions coming in as we go through the panel today. I want to start off for pre-retirees, probably one of the biggest questions that folks have as they are approaching those retirement years: "Have I saved enough?" So a typical question we've received, Becky from New York, "How do I determine if I am saving enough for retirement based on my age, current savings, and the amount that I'm contributing each year? What tools can I use? What should I be looking at?"
Mark, I am sure this is a question that you get a lot from folks who walk through your doors for the first time. It's going to be different for everyone of course, but what are the key considerations?
Balasa: There's a couple of different ways to approach it. From our perspective what we do inside of our firm typically is we have software, that we sit down with the individual and go through all the assumptions that are important to them in term of their priorities and so forth. Then, of course, we help them with assumptions about inflation, life expectancy, and some of the bigger issues, and then we come up with a very detailed plan.
That's great if you've got that resource; but if you don't, which most don't, what do you do? And so, again, like I said, it's a nice question. There's a number of online tools I think that can be very helpful. Morningstar, for example, has some of those; some of the fund families do, as well. The challenge there always though is understanding how the numbers are generated, what are some of the assumptions built into the software, and then conversely what assumptions you are going to put in.
There has been a couple times that I am aware of in the last 10 years where people have taken different programs, online free programs, put in as best they could the same fact set and got considerably different outputs. So, it's really important to understand what you're putting in and what assumptions are underneath the hood, which takes time. So, I guess, my bottom-line answer is, "There's no easy answer," to give a concise answer. I think David, some of your research gives you maybe some broader ideas, but that's our approach anyways.
Stipp: I know that we have looked at, for example, income-replacement rates and things like that, and I think that's one of the things people key in on figuring out how much money will I need in retirement versus beforehand, and we've looked at some of those numbers. Do you any insights on how much they should be trying to replace?
David Blanchett: Well, I think replacement rate is going to vary by your income. So, when thinking about how much income you need when you retire, the replacement is going to be based upon what changes. So what changes when you retire? Well, you don't have to pay Social Security taxes; you aren't saving for retirement. Someone who has a lower income may need a 95% replacement rate. Someone who makes more say $100,000 you may need like an 80% replacement rate, but it's going to vary by every single person based upon their kind of unique facts and circumstances.
Stipp: Christine, I know that you've talked to some experts at T. Rowe Price, and they had some assumptions that they've baked in. What sort of the range? There's 80% rule that's out there and there's some swing factors on that, but what are you hearing as far as a reasonable replacement rate?
Benz: T. Rowe, you mentioned, Jason, uses 75% as a starting point and so they're looking at the FICA taxes that David mentioned as well as savings. And I think it's really important to underscore what David said: If you are someone who has not been able to save a lot for retirement--and so retirement saving hasn't been a big part of your spending pattern to date or that's not what you are doing with your money--you will need to replace more of your pre-retirement income when you are actually retired. But talking to a lot of our users, they're writing to me and saying, "I've been living on 60% of my income all along. Who is telling me that I need to actually have 80%?" Well they don't. If they've been getting by on 60% of their income, there's a good chance that they should be able to get by on that amount, maybe even less, in retirement.
Stipp: We've all heard the reports about baby boomers and how they haven't saved enough. We also know there's a difficult employment market out there. We got a question from a reader, Jack, he writes, "As a married 45-year-old who has recently been pushed out of the job market, thanks to a long-term weak economy, what suggestions would you have if I want to think about retiring early?"
And he says he has a wife around the same age who wants to retire within five years. Early retirement I think is a nice idea, but it seems like a really tough idea in this environment. Mark, if someone came into your office and wanted to retire early, what are the factors you would look at to see if that's feasible for them?
Balasa: Some of the stuff we've already discussed. So if you think about what they're living on now, how long they think they're going to live, what [they] want to assume in terms of what to give to [their] kids, are any big purchases coming into the future--all those things have to kind of come into the equation. If you just do some simple math and you say, "Gosh I’m going to live off of--I’m going to pick a number here--$75,000 a year" and you divide that by some yield, let's say 5%, which is not easy to get today, that gives you a lump sum of what you would need to generate. This is a real rough-and-tumble approach, and that quickly tells people that normally they have a bigger mountain to climb than they think, which is again coming back to your question.
Stipp: So it's a tough environment obviously. We've also done a lot of research that shows if you're able to work longer and even work past sort of the general retirement age, Christine, that actually has a big benefit for your portfolio. Although retiring early, is a nice idea, there are a lot of benefits to waiting, as well and working longer, if you can?
Benz: Absolutely. One thing to back up to the person who is 45, the key thing I think about when I hear that question is, what are you going to do to cover your health-care costs from now until when and maybe Medicare will change, by the time you are actually ready to take it. I think that's probably the big factor I would focus on for that particular person. I’ve talked to a lot of our Morningstar.com users. A lot of folks have retired in their mid- to late 50s, but they have said that bridging that gap between the time when their private health-care ended and Medicare started was very, very costly, so you'd need to factor that. But certainly in general people who can wait longer and continue working will see a lot of benefits. They will reduce the demands on that nest egg that they have amassed, so that’s a good thing. And then also you see a huge compounding benefit to deferring Social Security, as well. So, there are a couple of key things there.
Stipp: Those are all topics that we're going to get to, especially the Social Security part--a lot of questions we have on that, and I know David you've done some research there. Before we get there though, I want to talk about a topic that a lot of users had been emailing us about and there are a lot of questions on this topic right now and that's fixed income specifically fixed income in the current environment. A typical question we got from Arlen on the Morningstar.com Discuss Boards: "Bonds typically represent a sizeable portion of investment portfolios because of the income stream generated for retirees. In light of the fact that interest rates on high-quality bonds are at all-time lows, should retirees stay put with high-quality bonds, which will inevitably show losses when interest rates rise?"
This is a huge concern; folks should be getting into fixed-income as they grow older as asset-allocation advice would tell you. But it's also not a great time to invest in bonds. Mark, what do you say to clients that are worried about fixed income at a time when they should have more of it?
Balasa: Probably one of the biggest questions we've gotten in the last year or two is exactly some variation of that question you just went through, and it's not a short answer. But let me give you a few things to think about. Think about the last 30 years [in which] interest rates have been falling, which has essentially been a tailwind for bonds. So, a lot of people do their asset allocation for themselves, and they look at the historical rate of return on various bond products or even bond funds in general. They say, "Gosh, that looks pretty good."
Going forward, at some point, [Federal Reserve chairman Ben] Bernanke came out Sept. 13 and said apparently not for at least the next couple of years, but at some point rates are going to go up. And to your point, that's going to be a headwind for bonds now. So, the total return for many domestic bonds, especially government bonds is going to be challenged. The traditional answer of having more fixed income in retirement to provide stability in the portfolio and an income stream are both going to be challenged. In that environment what should someone do?
From our perspective, [that person should do] a couple of things. One is, don't look at just U.S. bonds. There are different bond yields or bond curves around the world that will help. Second, you might have to go out a little bit further on the credit quality, not junk bonds necessarily, but something on the corporate bond side of the equation. The other is to think about total return; don’t be just focused on income, especially income on the way of interest. You think about equities; they are scary. I know the world's a scary place. But if you think about the valuations where we are now over someone's 30-year lifespan, is that maybe something that retirees should look at more closely than they historically have because of the concern? Again you are trying to get a return in an environment where we've got financial repression, and I can explain that later if we want, but that's something that all of us are going to be struggling with.
Stipp: David, when we're looking at asset-allocation models and portfolio longevity in retirement and the fact that there are headwinds for fixed income, what's the research out there saying about the typical asset-allocation advice? There is "subtract your age from a number," and that a certain percentage should be in fixed income; that has been a rule of thumb for a long time. Have some of those rules changed by the market environment, or should investors stick to what some of the traditional advice has been there?
Blanchett: Things are always changing, but one thing that people need to be aware of is if you're retiring today you may live 20 or 30 years. So while equities are very scary right now, I think having equities in your retirement account is very important because it allows you to hedge against longevity risk over your lifetime. So fixed-income rates are very low, but having a good diversified portfolio I think is still very important.
Stipp: And also if you are going to do a total-return approach you are going to want that growth component in the portfolio and in fact need it over that longer time span in retirement. Christine, we had some questions, you mentioned inflation there and obviously interest rates going up, about individual bonds or bond ladders. If you have an individual bond and rates go up the value of that bond might go down, but if you don't need to sell it, then the investor might say, "Well maybe I really don't lose anything." How should investors think about individual bonds in an environment where rates might go up and the pros and cons there?
Benz: I think it's definitely a trade-off. So, people have to understand that even though you will not have that principal volatility that you'll have with a bond fund if you intend to buy and hold individual bonds, you're giving up a couple of things. One key thing is diversification. So with a bond fund you've got professional management and a diversified portfolio. As an individual investor without a lot of money, it can be difficult to build a diversified bond portfolio.
And then also what I think people sometimes forget is that with a bond fund, your manager is able to obtain higher-yielding securities. As bond yields go up, [the manager is] able to swap into them. So that helps offset some of the principal volatility that you endure. One thing that Ken Volpert who runs the fixed-income operation at Vanguard shared with our user base and I have talked about since, is if you find a fund's duration on Morningstar.com or some other website, then find the SEC yield, which is a recent snapshot of its one-month yield extrapolated out over a 12-month period, if you find those two statistics and subtract that SEC yield from duration, that's the amount you could expect a bond fund to lose in a one-year period in which interest rates rose by 1 percentage point.
So, it's a very rough rule of thumb, but it's a way to kind of stress-test what you've got going on in your portfolio. That rule of thumb will be less useful if you have other bond types other than Treasuries in your portfolio. But it's a starting point to see well how interest-rate-sensitive is my portfolio actually, based on the securities that I have.
Balasa: One other thing too, Jason, Bernanke in his remarks [on Sept. 13] essentially apologized to the country’s savers, especially elderly savers, and he did it for this reason.
What the Fed is doing right now is essentially keeping the rates artificially low which is called financial repression. So, you penalize the country's savers for the benefit of the country's borrowers. It's not necessarily good for the people in retirement that have savings and relying on an income off of that. But his point was, it's better for the whole economy. When you think about showing asset allocation, you have to understand that this is a conscious choice that the Fed is making, and you can't just go with what's worked historically going forward. You have to make some adjustments.
Stipp: And one of those adjustments perhaps is keeping a closer eye on the total-return approach. If we get some traction with economic turnaround or a stronger economy, that should do better for that stock portion of your portfolio, and if you've sold directly out of stocks and hope to be more conservative, you won't really benefit from that going forward. The other thing that I wanted to ask you, Mark, do you employ bond ladders at all for any clients? We get a lot of questions from readers about this and the best tools they should use to do that. Is that something that you do?
Balasa: It is. We use both. It depends on what we are trying to solve for. I think the simplicity, the low cost, and the lack of interest-rate risk, those are all positives with bond ladders, right? It's very straightforward. You eliminate internal costs, and who cares what happens to the interest rates, if they go up or down, if you have a ladder because you're insulated against it, assuming you hold to maturity.
The disadvantage is what Christine talked about. You can't manage against what's going on in the rest of the world because to trade your bond ladder is very costly; it's usually prohibitively costly. So, you are stuck with whatever you have. Whenever you happen to build your ladders, especially with intermediate- or long-term ladder, this would be a tough environment for that. A short-term ladder is easier. So, as always in life, there are trade-offs. There is a place I think in most people's portfolios for using funds as opposed to a ladder.
Stipp: We talked about some of the uncertainties in the economy there, and some of the things that cause investors to have moved into more fixed income. This is one of the reasons we get a lot of questions on bonds right now. So, [we have] a few questions about market volatility and risk aversion. Robert from Avon, Ind., says, "How can one be conservative in regard to their investments in their later years when they lost up to 40% of their investment funds in 2007? If we are retired, we're not putting any new money into the pot." So these are folks that really had some tough times a few years ago, and they're worried about another 2007-08.
David, you mentioned the importance of a portfolio that's well-diversified--that stock portion is where most of that risk comes from--for folks who are worried about another 2008, how should they think about being more conservative with their equity piece?
Blanchett: So, I think it's good to stay diversified, to have a good diversified portfolio, but let's think about that investor that lost 40% in 2008. So, they lose 40% and they sell their stocks and they buy bonds. Well, right now, if you buy bonds, there is a lot of risk, if rates go up, you lose money in bonds, and so there isn't kind of an easy answer here. I think the best thing to do is to think about of a diversified portfolio for the long term. I know that's painful because you lose 40% in stocks. You would have made most of that back up though over the last few years, so if you can stay the course and stay invested, that's basically the best philosophy.
Stipp: Christine, I know that one of the things that you have talked about before is even though you have that stock piece, it doesn't necessarily mean it has to be extremely risky. Stocks are always going to be more volatile than the other asset classes, but it doesn't mean that you have to be in the most volatile stocks or stock funds?
Benz: That's right. I think if you do keep the focus on higher-quality stocks, that's definitely going to help reduce your loss potential, and also I think that maintaining a diversified portfolio and then also having in mind, "What is my time horizon for each of the components of my portfolio?" [You want to think of] the equity piece as being maybe the piece that you don't get to for another 10 years because we have seen 10-year periods where stocks really didn't outperform fixed income. So, I think you just do need to have that appropriately long time horizon in mind if you do have stocks as part of your portfolio mix.
Stipp: Mark, we had another question from a reader who sold out a lot of equities in 2007 and now they have cash but they don't know what to do with it. There are still uncertainties out there in the market. If someone walked into your practice and had a lot of cash because they had sold out of their investments, what would you recommend for them to get back in the market at this point?
Balasa: Well, taking off some of the things that both Christine and David said, a long-term approach is always the best, as difficult as that is. So, if you think about cash right now, there is trillions of dollars in the United States earning zero because that's essentially what cash is paying. Inflation, even though is fairly low, means you have a negative real return. That should be a great incentive for someone to go out and start to get on with it. I kind of half-jokingly call that going broke safely, right, because they feel safe, that's in cash, but you are actually losing purchasing power.
Bonds and stocks and real estate, all the major asset classes should be part of that mix. As David said, there is no magic in terms of the right answer, right? It kind of depends on what you are trying to solve for; but for us, for our clients, we say, "Look, if it seems too risky and too scary now, at least get started. Do some variation, dollar-cost averaging, six months, a year, whatever it might be so you can start to get in. If the market happens to go down then put a little more in; if it happens to go up then slow down a little bit, but at least get started."
We have a client right now on the East Coast who has been only with us for a year and this to me typifies what we struggle with. We were supposed to be doing dollar-cost averaging since last summer. So, when the market goes up, her response is, "I don't want to put in now because the market is up." When the market goes down, [the response is] "I don't want to put in now because the market is down." So that's the dilemma. And so if you can do something mechanical, hopefully that helps you just keep marching through and getting it in.
Stipp: Treasuries historically, you mentioned there at the beginning of your answer, are considered the risk-free return, but we had heard someone quip recently that they are actually, in today's environment, return-free risk given the low yields that they are paying right now and just going to be eroded by inflation potentially.
I want to move now to Social Security which is a big, big topic among our readers for a lot of different reasons, but it's also a big part of their retirement plans. So although there is a lot of debate about the program, the fact is it's going to be a piece of most folks' retirements. So the first question, and this is a big one, and I'm going to start with you, David, and you can start to answer how you'd like, is typical of many questions that we get. Susan from Evanston, Ill., asks, "What's the best age to start taking Social Security?" That is a question that has a lot of swing factors. Can we start to break those down on the very high level of what you should be thinking about when you decide that age to begin?
Blanchett: So, as you mentioned this is a very messy simulation, If you're about to retire your normal retirement age to full retirement is 66 years old. So what should you be thinking about? Well, to me one of the biggest issues is how prepared you are to retire. Can I afford to delay retirement from age 62 on to 66 or even 70? If you can't wait, then there is no option [to delay] at all. If you have assets to fund those extra few years, then [delaying is] a possibility.
Then well, let's say someone has the assets to fund retirement for a few years. One of the biggest factors in determining if it makes sense is your spouse. When a worker passes away the spouse is entitled to the greater of his or her benefit. So if you have a much younger spouse, delaying retirement a few years could significantly increase your spouse's benefits. So one of the biggest things I think is looking at what are your life expectancies, what is your general health, and how long do you expect to live?
Stipp: Christine, one of the big reasons to delay Social Security is that there is essentially a guaranteed return that you'll get by not taking it early, and it's pretty significant right?
Benz: It's 7% or 8% per year plus an inflation adjustment, so it's a sort of return that you would be very hard-pressed to earn with your securities in your portfolio. It's very compelling. It's just a great strategy for people who have longevity on their side and good health on their side.
Stipp: And you know sort of a follow-up question to that, Steve had asked, could it be advantageous to liquidate my stocks early, as you were mentioning, in order to delay taking Social Security? Is there a tipping point where you have to draw down on your portfolio too much in order to wait to take that benefit later and have a higher benefit in Social Security, and how would investors think about that? Is there some kind of strategy they should use there?
Benz: Well, I'd like to hear Mark's take on this because that was something we heard from a lot of our users following the bear market. They were saying, rather than tapping my portfolio right now, I think I may take Social Security to reduce the demands I'm placing on an already-depressed portfolio. So I think that does have to be in the mix, market environment, though I do think and appropriately segmented retirement portfolio wouldn't make you vulnerable on that situation. So if you had enough set aside in cash and bonds, that probably shouldn't be a consideration.
Stipp: So you wouldn't necessarily have to sell stocks that might be depressed in the short term so you could delay that Social Security. What factors do you look at in advising clients whether they should take it early or they should wait and to what extent does the portfolio value at that age 62 or 66 factor into that decision?
Balasa: As you've already heard, there's no really simple answer. I go back I think over the last 20 years in the professional publications, I equate it to research on wine. One year research would come out and say wine is not good for you, and the next research will come out and say wine is great for you. I've seen both ends of this, where you should take it early and you should wait. It really comes back to the assumptions.
Most recently I saw one in The Journal of Portfolio Management talk about how you should wait because it's the low-return environment. In other words it's twisting the research to account for where we are today. So my bottom line is it really comes back to the assumptions; some of the ones you talked about. How much stress you're putting on a portfolio, your health, the spread in age between you and your wife, et cetera. There's this whole long list of things. In general, which is always scary, but in general, we prefer to wait. If everything else is equal, and it's not putting stress on your living and so forth, we prefer to wait, given how long people are living today, et cetera.
Stipp: A follow-up question for you, Mark, there are a lot of concerns about the program itself, how it will be funded, and the demographic shifts that have put some pressure on that program. Is there certain age of investors where you would recommend they shouldn't consider that you might get as much in Social Security as the current beneficiaries are getting? If I'm in my 30s or 40s, might I think of Social Security as potentially playing a smaller role in my portfolio than it would play for my grandparents today?
Balasa: Great question. If you look at most of the proposals that have been out there including Simpson and Bowles, pretty much everyone over 55 and up is kind of like grandfathered, so [it affects] the crowd underneath that. Of course, this is such a big question. Everyone in Washington tells us that we're on unsustainable path in terms of funding what we've promised. It's going to be less in some ways. But if you look at Simpson and Bowles, they can close that gap by making small adjustments 30 years out. In other words what I would say is, I would still have Social Security in my plans even if I were 35 years old, maybe I'd tone it back 20%, let's say, I'm making guesses here. But it's hard for me to believe with how popular the program is and what small tweaks we need to make to actually make it work that I wouldn't include it. I would include it, in other words, in my projections.
Stipp: I remember you mentioned in an earlier roundtable that we had when you take it out of projections for a lot of folks, it just doesn't look like a pretty picture anymore, right?
Balasa: Exactly. The typical reaction is, "I don't want to have it." But as soon as you take it out and show the numbers [the reaction becomes "Yes, include Social Security in the projections."]
Stipp: We had a couple of folks, and I don't want to wade into treacherous waters here, but they said delaying is a good idea because of those benefits that we talked about, but they're worried about the program in the shorter term though. Do you think the concerns of maybe I should take it now versus four years--you mentioned, Mark, that probably today's folks that are nearing it will have the benefits that they expect--do you think that there is any political or program reasons within folks in their 60s to not delay because they're worried about the solvency of Social Security?
Blanchett: See, I see solvency as a longer-term issue. But to Mark's point, Social Security is a government bond; let's call it a government bond. So, right now, if you delay retirement you get 8% per year; let's say, increased benefits. You can't get 8% in a government bond risk-free right now. Right now, especially, I think really speaks to the idea that if you can afford to wait, you don't have a lot of other great options out there. Now I think delaying is one of the most optimal times because the opportunity cost is so low.
Stipp: I want to switch gears a bit and talk about another very important topic, and that's withdrawal rates, and I know that David you've also done some research on this. There is this 4% withdrawal rate rule of thumb, and I think there are a lot of assumptions baked into that 4%. But we had Ralph of Fortson, Ga., ask "Is the 4% withdrawal rule of thumb still a good guide for retirement planning in today's environment?"
I think before we even start [to analyze] whether it's still a good idea, what are the assumptions, David, that go into that 4% withdrawal rate? There are a few things that that study was assuming about a retiree.
Blanchett: If you look at the research on retirement income there is the 4% rule. The 4% rule says that pretty much a married couple age 65 takes 4% of their portfolio in the first year. So, if you have $1 million, that $40,000 in year one, increase that every year by inflation. So if inflation is 3% in year one, then it would be $41,200 in year two, and you increase it every year by inflation. So, to me, it's a very simplistic rule. It's rooted in some good science, but it's not kind of the end all, be all because it doesn’t really apply to someone who is 80, or someone who is single. But it gives to one a good starting place. So I think it of that as like the inverse. So if you take out 4% you need 25 times your goal saved for retirement.
So I think that kind of helps paint a picture of where am I for retirement. Well if you want to replace $100,000 of your income for example, you need $2 million to get there. So I think there are better rules to define how you should take money from a portfolio, but I think the 4% rule is a good starting point for someone who is 65 and married.
Stipp: Christine, you've written about some of the swing factors that may affect that 4% rule. What are some of the factors that folks should consider in adapting essentially this rule of thumb to their own personal situation?
Benz: There are a lot, certainly the composition of the investment portfolio, so I think the 4% rule hinged on sort of 60% equity, 40% bond portfolio with 30-year time horizon. If your time horizon is shorter than that, arguably you could take more, and if the composition of your portfolio is different than that substantially--so say you are more equity-heavy or something--that would argue for a higher withdrawal rate, as well.
Mark shared with me that he thinks in terms of actual client management that that amount actually causes people to under withdraw, that they suppress their own standard of living and that it's too safe, which I think is interesting, as well.
Stipp: Well, on that point, Mark, we got some other questions that asked how should you think about other sources of income with that 4% rule? So Social Security or income from a pension, how do those swing factors affect how much you would then need to draw on the portfolio?
Balasa: That’s exactly right. Kind of going back to the comments already made, if someone has 5 times what they need to live on, well, of course 4% is too much, right, then that doesn’t make sense. There are not too many people in that boat, but of course there are people like that. So there is an example that rule of thumb doesn’t make sense. Another case is people have kind of a traditional rollover going into retirement. They've worked their whole lives, so they've got a nice amount, but it's modest relative to what their needs are. And they literally have read that in multiple places, this 4%, and they will literally try to live by that, all in: Social Security, small pension, their withdrawal from the IRA and so forth. And what they end up doing in some cases is they underspend what they actually could spend. It's not a conscious choice, but it ends up more goes to the kids or in some cases it goes to the government.
Like with most rules of thumb, I think you have to take it with a grain of salt. You have to look at your particular situation. As David said I think it's a great starting point. I'll give the opposite of this, too. People come in and sometimes one spouse is a spendthrift and the other is not so much, and so to use the 4% rule can be helpful to slow someone down, too. So, it can play both sides of that, but in general, unfortunately it comes back to specifics as opposed to a hard-and-fast rule.
Stipp: I know that we've also discussed in recent videos that there are other alternative strategies out there for withdrawal rates. Christine, I know that you've written about a few of these. What are some of the tweaks that have been put on onto the 4% rule that investors might also consider for their given situation?
Benz: Well, one that I know a lot of our users embrace is a fixed percentage per year of their portfolio. So rather than using the 4% rule which sort of grounds you in a fixed dollar amount plus inflation adjustment, people say "I'm okay with those income fluctuations; I'm going to stick with a fixed percentage rate instead." And the beauty of that, of course, is that you would probably never run out of money, but you may be living on smaller and smaller dollar amounts.
I think that that is one those things that sounds great in practice, helping my parents manage their own assets in retirement. I know they are in their 80s; they are not in the mood for a lot of fluctuations in their income. They want to know that their money is there to pay their bills. So, I think it really does come down to comfort level. If you are comfortable with the volatility in your dollar-income stream, maybe that's a better way to go. I know, David, some of your research points to that being maybe more in the right direction versus that fixed withdrawal.
Blanchett: Yeah, I think that it's good to review the withdrawal amount. I think the notion that you're going to make a decision when you're 65 years old and do the same thing for 30 years is kind of silly. So, to Christine's point, like I call that the endowment approach, where you pull a fixed percentage every year and anything you can do, where you're kind of regularly saying, "This is how much I have; this is what's affordable." So going to a financial planner is very important; figuring out every year what I can actually sustain.
There is also one kind of easy heuristic which is the RMD approach, so RMD is required minimum distributions over 70 1/2 years old when you take it from a 401(k) plan. So, how it works: It's 1 over your life expectancy. So, if you had 10 years left, you could take 10% out, 1 over 10 is 10%. If you had 20 years left, 1 over 20 is 5%. Those kind of provide a simple starting place to figure out what you really can afford to take to take from a portfolio.
Stipp: Another thing that I know our readers have taken a look at is being market-sensitive to their withdrawal rate. So, if we have a bad year, like hopefully we won't have again, but like 2008, they might choose to ratchet back their withdrawals in a down year. Is that something that can certainly help sustain the life of a portfolio?
Blanchett: It definitely is. I mean, there is this thing called sequence risk for money retirement which means that the order that you experience returns is very important. Once you kind of pull money from a portfolio and then you have a bad market return, you can't get that money back. So, I think that it is a good thing if someone can, if the markets are down, kind of defer spending as long as possible.
Stipp: Mark, do you have a market-sensitivity component to the withdrawal rates that you have with your clients, so if you have a bad year, do you encourage them to maybe not do that big spending that they might have otherwise done in that year?
Balasa: It depends on how close they are to their goal. So if someone is living right at the maximum of what their assets will afford them then yeah, it's important, to David's point, to preserve as much you can so that it allows you to recover when the market recovers. If someone has 5 times what they need then obviously it's interesting and exciting, but no just keep going, we're fine.
Stipp: On the topic of withdrawal rates and portfolio sustainability, there are a lot of questions about inflation, so what are those expenses going to be? So we mentioned the 4% has this inflation adjustment. A question from Steve of Boise, Idaho: "Given QE1, QE2, and QE3," and we talked about that already a bit today, "do you foresee inflation being an issue in 10 years? In the past what have been the best investments to protect against inflation?"
So, let's start with the first part of that question. We've seen inflation be somewhat volatile but generally tame in recent times. Christine, do you have a take on where you think inflation rates might go in the future?
Benz: I really don't, Jason. I think it's important for retirees though to kind of look at their customized inflation rates. So think about what your actual costs are in retirement if you own your home for example, what goes on with home prices won't matter to you, what goes on with rents won't matter to you, but you'd still have your maintenance costs and your tax costs. But really stepping back and thinking about "What do I expect my spending to look like in retirement?" and using that to arrive at a customized inflation rate.
One area that retirees in particular need to stay attuned to is health-care costs which have historically run about twice as high as the general inflation rate at least with no apparent end in sight. So I think that all retirees should be naturally bumping up their inflation rate a little bit above CPI. There is a statistic called CPIE which I think is sort of in the experimental stage right now, but historically it does run a little hotter than the general CPI because of those health-care costs.
Stipp: It's interesting that you bring up health care, because Dennis from Houston was asking how much should he set aside for health care, given that we have seen inflation there. Mark what kinds of inflation assumptions do you use in your calculations for folks for medical expenses, and how much does that differ from your general inflation expectations?
Balasa: Yes. We were actually talking about that earlier this morning. So when we run projections for clients we typically use 3.25% for the general living expenses because the long-term average is about 3.1%, so to be a little more conservative. But for education, for example, we have that at 6% for those costs. So another breakout, an obvious one would be the one you just asked, is for health care. We are doing work in turn inside of our own firm with the understanding that it should be something different, but it's a hard thing to quantify because we don’t know what the government programs are going to be over the next 30 years, right. For the time being we haven't made changes yet but it's something that we are looking at, so maybe when you check back in six months I’ll have a better answer for you.
Stipp: What folks are looking at for inflation protection, to what extent might this affect how you should think about the way your portfolio might be allocated from an academic perspective just to make sure that you keep up with that rate of inflation because it can really erode your spending power? If you are counting on a certain amount of money in retirement, you start to subtract out the inflation adjustment, and it starts to look not quite as pretty.
Blanchett: Yes. I think the first thing is inflation matters for every retiree, but how inflation affects people, differs. I forget who had this concept, it was the idea of the three phases of retirement. There's the go-go years, the slow-go years, and the no-go years. The go-go years are when you first retire, and you have expenses that increase with inflation. The slow-go years are when you kind of slow down a little bit and you spend a little less. Then there is, the no-go years where your spending drops off precipitously as you kind of have health-care issues.
So when thinking about, what do you have to kind of assume as an inflation rate, it depends upon your lifestyle, it depends upon like what you're going to be doing as you move through retirement. And so that kind of make a question, "Well then how should I invest my money." Well, the risks for a retiree differ than someone who is accumulating. So, I like thinking about things that have a high correlation, high relationship with inflation like Treasury Inflation-Protected Securities or real estate or just securities that kind of hedge against the possibility of a high possible future inflation.
Stipp: Christine when you're thinking about tools that investors can use to hedge inflation, it seems like stocks would have greater return potential, so that could be making sure that you are correctly allocated for your time horizon. But beyond that are there any favorites that you have that investors might inject in their portfolios?
Benz: I think TIPS would probably be my go-to choice mainly because they are sort of the cleanest and most direct hedge against inflation. I think for people who are looking at adding TIPS now, they are going to have that interest-rate sensitivity, so I think a dollar-cost averaging strategy makes a lot of sense.
One of our colleagues in Morningstar Investment Management, Marta Norton, also looked at the issue of other security types that provide some inflation protection. She found a really nice correlation with bank-loan investments, floating-rate-type products as also being potentially additive for people who do want some bulwark against inflation. They tend to have some risks, some credit risk in them, so I think you'd want to move slowly and carefully and limit the position to 5, 10 percentage points of the portfolio at the high end.
Stipp: You mentioned there a percentage recommendation or a guide post for that particular asset class, but how would investors know how much should they put in TIPS and how much should they have in the rest of their fixed income? Where can they look for some of that guidance there?
Benz: I look to Ibbotson for that kind of stuff, and I know that I have looked at this in the past. Ibbotson's recommendations have typically run in the range 25% or 30% of the fixed-income component of the portfolio for TIPS, and David maybe you can amplify that, [but it's] less for people who are in accumulation mode because you are getting cost-of-living increases in your salaries so you have a less imminent need for that inflation protection.
Blanchett: We like more TIPS when you are retired versus when you are accumulating, but still that's one part of your bond portfolio. It's not all of your bond portfolio.
Stipp: And when you are looking at the toolset that you employ in your practice, Mark, what are some of the go-to options for inflation protection? Do you look at commodities in addition to TIPS, or do you have a mix of investments that you use there?
Balasa: Yeah, it's pretty much what's been already discussed. The challenge with TIPS is I think it's a great long-term approach, but the valuations right now are miserable. I mean there is like a negative return. So, you have to weigh that with what's going on in the real world. But like Milton Friedman said, there's nothing an individual can do to control inflation other than vote in people that get it out of the system.
In terms of investing though, two asset classes that have a real rate of return after inflation are real estates and stocks. Hyperinflation challenges that theory, but I’m talking about normal inflation, even a little bit higher than normal inflation.
But you look at gold, many times people come in with gold as an inflation hedge, and I'm not sure that that's something we subscribe to. You look at the last two, three years, there's been an enormous price movement for gold, but there really hasn't been any inflation in the system to speak of. So, there's an example where there's kind of a very lose connection between gold and inflation. So anyways, kind of the big asset classes, that we've already talked about.
Stipp: So we talked about inflation, generally; we talked about inflation in health care. There are some specific tools that folks might use to combat inflation or to combat their expenses that they'll have later in life, and long-term care is one of those tools.
We have a question from Steven from Hendersonville, N.C.: "What are some of the best ways that I can ensure long-term care expenses?"
Christine I know you've written about long-term care and some of the factors that an investor should keep in mind. What’s the environment right now for buying that insurance?
Benz: Well, I think that when people go out and price those products, they’ll find it very costly because in part of the current interest-rate environment. So part of the price that you pay for that insurance is keyed off what the insurance company can earn on your money. Right now, they can’t earn very much on your money, so the products are costly.
I had been hearing from a lot of our users, "Well, I plan to self-insure." And a couple of our users pointed out that just that term itself is sort of erroneous because the beauty of insurance is that you are throwing your future in with everybody else's. Some people will have a good outcome, some people will have a bad outcome. If you’re self-insuring, it’s all you. So I think that if you are in that camp where you are going to set aside money to fund your own long-term care, you want to make sure that you have the appropriate time horizon in mind.
If you are, say 75, I think you’d want to have most of that money very safe, sort of locked down because your need for those assets could come sooner rather than later. If you have a longer time horizon, if you are, say 55 and planning to pay for your own long-term care, I think you could have sort of a balanced portfolio that includes stocks as well as fixed-income assets.
Stipp: Mark, in your practice, do you have some rules of thumb about long-term care, something that you would want to consider with long-term care, something you wouldn’t want to consider? It seems like there are some bands of folks where it makes more sense than others.
Balasa: It is. It’s usually the bad combination of the people that need it the most can’t afford it; the people that don’t need it at all can afford it. So therein lies the dilemma. Kind of going back to Christine’s points, if you think about the average stay for most people, let’s call it, 36 to 48 months and then in Chicago at least it’s maybe $5,000 to $8,000 a month for care. So that gives you at least an idea of a block of funds to be available. And so, you can have it as just part of your regular portfolio.
Most people first won't need it, but for those who do need it, it will be there and maybe you do set it aside as a separate portfolio. But for even the people that can afford it psychologically sometimes they are challenged with actually getting help inside the house because they are paying for it out of their own pocket. So sometimes we encourage families to get at least a basic policy. So if there's something coming in, in the event that there's a need, that just helps the whole family manage their way through the issues.
Stipp: Related to addressing some of these expenses that might crop up later in retirement. A question on longevity insurance, Bob, in New York asked, "Can you provide general background on what longevity insurance is? Can I use an annuity to meet this need?"
Basically, if I live very long and I need some money at the end, what are my options there? I know that Ibbotson has looked at the use of annuities in retirement plans. Could an annuity play that role, and is there any real difference between longevity insurance and an annuity?
Blanchett: I would call longevity insurance a type of annuity. The most common annuity is like an immediate annuity where you give an insurance company $100,000 and it gives you income for life. Longevity insurance is like reverse-term life insurance. It's you give an insurance company money today then if you live to age 85, for example, they start paying you as long as you live at that point in time. So longevity insurance is attractive for someone who wants to kind of use a portion of their portfolio to hedge against if they live to that certain age then have an income for life.
Stipp: Christine, when you're thinking about annuities or investing in some of these products as you mentioned the interest-rate environment has an effect on how attractive they are right now. What should investors keep in mind in today's environment?
Benz: I think that's the big risk of anyone looking at any sort of fixed annuity product today is that the payout you'll receive will be keyed off the current interest-rate environment. So my thought is that for people who do have a substantial amount of money, they would like to put it in annuity. They might consider laddering those annuities. So that's purchasing several annuities over a period of years, and that has the salutary effect of also allowing you to spread your money among multiple insurers. You can help reduce the risk of any of those insurers running into problems and affecting you, affecting your payout in that way. So I think that’s one possible strategy I would say for people who can possibly wait, that they think about waiting unless they have an eminent need for such a product.
Stipp: Mark, Cathy from Austin, Texas, just asked a general question. "What are your thoughts on the different types of annuity products and how they should be part of a portfolio plan?"
You probably have clients that walk in with annuities. Do you generally think about annuities as one of the tools in your toolkit.
Balasa: You can. It kind of depends on circumstances. So I will give you one example. We had a woman here on the north side of Chicago who was widowed, and her asset base was not probably enough to live the rest of her life. And so to ensure against longevity risk, we thought that an immediate annuity would be a good solution for her. But in most cases, we don't typically use annuities, and I can go through the reasons if you want to hear that, but I mean we typically don't.
Stipp: I know that there are a lot of different kinds of annuities for one thing, and fees associated with annuities. Is it just because of product complexity?
Balasa: Well for us, it is a few things. One is that the costs are higher than if you had products outside the insurance wrapper, so there are additional costs. Some can be very high, north of 200 basis points. Some of the no-load products are less than that of course, but there is a range. So that’s a drag on the difference between using an annuity and not.
Another is the breadth of products that you can pick inside of annuities; you are limited. But outside annuities you have the whole world open to you. Another issue is the tax-deferred nature of an annuity. There is no step-up in basis at death. With assets outside of an annuity, there are.
There is the risk of the underlying insurance company, not so much if it's a variable product, but if it's a fixed product. And on the estate side, they are not as user-friendly, if you will, as a taxable asset would be. So those are some reasons for us that we look at them, and there is potentially a good use for them, but in general, we tend to not use them because of that list of reasons.
Stipp: David, the research Ibbotson I think has shown that there can be some positive benefits to using annuities, and part of it has to do with that floor of income that it provides, which is very important for retirees. What have you found; what's the research suggesting? I know there are swing factors on what's better for some portfolios and others?
Blanchett: Well, I think the most important thing is that most people have an annuity with Social Security. So, most people have guaranteed income for life, and I think the goal for people should be to replace kind of that minimum floor of nondiscretionary expenses. And to Christine's point, though, the best approach to do so varies wildly based upon interest rates. So, right now, like which insurance products look better than others is based upon where rates are today.
Stipp: I want to shift the conversation a little bit and touch on something that we've discussed a little bit here and there before and that's RMDs, these are required minimum distributions, something that retirees are required to take from certain types of accounts. We had a question from Nick of Charlotte, N.C.
"We are close to retirement, running various scenarios. The required minimum distribution at age 70 appears dauntingly large even if we withdraw small amounts now. Since RMDs come as we will probably be spending less, what ideas does the panel have to mitigate the impact? A Roth conversion does not make sense in our situation."
We can talk about Roths later, but RMDs, how to handle them? It's a great maybe situation for you, if you don't need to take them, but for folks that maybe would rather have that money stay invested, Christine, what are the strategies there?
Benz: Well, I don't have a solution to the tax issue. So, if you take an RMD, you will owe taxes on that money. But I think one thing people forget is that they can reinvest that money. There is nothing saying that they have to go spend it, and if you are working and earning at least enough to cover your Roth IRA contribution, you can actually reinvest in a Roth IRA. So, that's one thing that I would throw out there that people sometimes have this misconception that somehow the RMDs are going to affect their spending rates or their withdrawal rate. They will in a way, but in a way you can just put it right back into the kitty.
Stipp: If you don't take those RMDs, the penalty is pretty stiff, right, Mark?
Balasa: I believe 50%. It's onerous.
Stipp: We had another question here and this leads to I think another interesting topic of conversation. Doug from Michigan says, "Can you discuss strategies for using Roth conversions in the early years to offset anticipated required minimum distributions later in life?
So, maybe we can talk about Roths more generally. So, in this case, if you have a traditional IRA or a 401(k) plan, the RMDs would apply; but if you have a Roth, then you don't have to take that money out; there is no requirement to do that at that age 70 1/2. When you're thinking about the trade-offs in doing a Roth, what are some of the benefits, maybe I'll start with you Mark, of doing that, and what are some of the drawbacks? And I think a lot of folks near retirement are wondering if it makes sense for them to do a Roth conversion.
Balasa: Again, assumptions are critical, but I'll give you some general rules of thumb. If you are, in our view, over 45 or 50 years old, it starts to become difficult to do a Roth conversion for your own use. If you are even 70 years old though and you are thinking of doing a Roth conversion, it could makes sense if it's for your children or grandchildren, right, because they have enough years of compounding to offset the fact that you're paying the tax today.
Now one thing that's unique about where we are today in 2012 is that we have until the end of the year before the Medicare surtax, the 3.8% kicks in next year. So, this is for people that are going to be subject to the surtax which is based on your income. This might be one of your last chances to do a Roth conversion to help minimize your RMD withdrawals later in life, again depending on your size of your IRA and your income needs and so forth, but this window is going to close, and so for some of our clients right now, we are revisiting it because of the surtax.
Stipp: Just a follow-up question, you mentioned some of the tax uncertainty in general. I think a lot of investors are concerned about what's going to happen at the end of the year. We know that if action isn’t taken in Congress, and I'm not sure folks feel confident that action will be taken in a timely way in Congress, we will see tax rates go up. Do you have any thoughts for investors who are worried about the fact that they would have to pay more on dividends or potentially on capital gains and they're wondering, "Should I take action now? What if I take action and Congress does pass something then what do I do?" Are there any strategies for such an uncertain environment?
Balasa: I think again this is a unique little slice of history right now. So, normally you go out if you're away to defer taxes because you pay them in the future, it'll cost you less because of the time value of money. Take an example though, let's say next year, you have to live off of your portfolio and you're going to have to liquidate, I going to make this up, $100,000 of capital to provide your income next year. Should you do that in January or should you do that in November of this year? It would make great sense to do it now because if you're subject to the surtax, you're going to pay an extra 3.8%.
There is a calculator on Parametric's website, parametric.com, and what it does, this is a nice little calculator, you put in your basis for your holding, you put in the fair market value, you put in what you think you're going to earn on that money, and what your tax rates are going to be, and it's this sliding tool. I'll give you an example. If you're going to make 4% on your money, that's what you think you're going to make, you should liquidate that holding in 2012 as opposed to liquidating it for the next nine years because it would be money you had. If you're going to defer for the next 20, then of course not. So everyone has to look at their portfolio with a little bit of a different view, whereas in terms of postponing gains and harvesting losses given your particular tax situation, if you're subject to the surtax that advice actually gets turned on its head.
Stipp: Christine, also regarding Roths, we know that there is a lot of spring factors in deciding if you want to convert or not, but just a more general question, Kerry of Sarasota, Fla., said, "What kind of securities are most appropriate for a Roth account and which are better held outside of a Roth type of account?"
So we mentioned that a lot of times the Roths will help you defer for longer generations. Do you have any sort of rule of thumb guidance there of what should go in a Roth?
Benz: It's a great question and obviously very individual-dependent, but usually when you look at information about sequencing withdrawals in retirement, that Roth piece would be your last piece that you would liquidate because it's the most valuable to you from a tax perspective. It's the least costly to you and most valuable to your heirs. So, to the extent that you have long-term assets in your portfolio stocks and so forth, you'd want to locate them in your Roth because that will be what you will tap last or possibly pass to your children and grandchildren.
Stipp: We're reaching close to the end, but I wanted to get one thing in there before we close. We had a lot of questions on cash and what to do with cash right now. So, we have that question earlier about, "I am in cash, and I want to get back in the market." But we do know that all retirees should have some amount in liquid assets.
We have a question from John of Austin: "What percentage of portfolios should be in cash for the next three years or for that short-term bucket?" And I'm assuming this will of course vary, but you don't want to put too much in cash right now because you're not getting anything for it. When you look at some of the research from Ibbotson what do they say about cash as a rule of thumb, and would it be different today maybe because you are probably getting a negative return on cash after inflation?
Blanchett: I think it might be, but I mean for someone who is about to retire I'd like to see them have at least one year of cash, maybe up to three years. It is costly, but I rather see if someone used cash to fund expenses than having to sell their stocks if they had to, for example. So I think having cash is nice cushion. It's painful right now [to get] virtually nothing by holding cash, but still it's kind of a very safe way to kind of pay your expenses as you incur them.
Stipp: Christine, one of the things with cash is it's not necessarily there to earn you a great yield anyway, right?
Benz: Right. It's your principal-preservation piece, and I would echo what David said. I talked to a lot of people who say, "Well, I'm going to step out a little bit beyond cash." And really the yield pickup that you get versus the risk potential, I think the risk/reward trade off just isn't there for doing that. You're not earning appreciably more and yet you are subjecting that money to some principle volatility that might be unwelcome.
Stipp: Mark, broadly when you look at your client's portfolios have you tried to have them keep not quite as much in cash, just because of the fact that it's yielding so very little, and even beyond that like even short-term bonds, as well, have you sort of inched out a little bit from some of those really, really low-yielding investments?
Balasa: If someone is in the accumulation phase we typically only have 1% of the portfolio in cash, but if they are living off of it from our perspective six months to two years is a really nice window if you will in terms of the amount of cash. In terms of the instruments yeah, I mean, I agree. I think you look at some of the cash products in the last couple of years that have gotten trouble, they were too cute by half, and so I think if you just understand what the primary objective is, which is safety of principle and liquidity, I would go with that.
Stipp: The bonus question that I'd like to end with, this is from Vandy73 who says, "How would you change your pre-retirement finances, if you could do it over?"
So, this is one of those things where you might hear from readers or you may hear from clients, and it's like I just wish I had X, something that I would have done before I was retired that might have helped me later on. Any ideas, Mark, of clients regrets I guess you could say?
Balasa: I have had a number of people say that they wish that they would have spent more when younger, earlier in their retirement. It kind of comes back to that healthy part of retirement, the not so healthy, and of course the final stages. So I have a group of folks that fall into that camp.
The other ones are just the engagement they have with working and so as we said earlier in the conversation when you work you postpone retirement by a year, you get to save another year and the assets compound another year. That's a really powerful tool to help, but it's just the psychological engagement with working, not everyone has that luxury. But those would be two things that stick out.
Stipp: Christine, if you were going to advise someone in pre-retirement years or even earlier to do something now that would help their retirement be better, what would that advice be?
Benz: I like what Mark just said about the aspect of work and integrating work into retirement. We had a great conversation with some of our users just last week, and some people talked about their work being their passion. Of course that's a very lucky position to be in, but I think even for people who don't love their jobs, maybe even hate their jobs, finding some job that they can do, maybe not one that completely replaces the peak income that they had, but finding some way to sort of gracefully continue doing something that keeps you engaged, keeps you earning a salary, contributing, maybe deferring retirement, but also keeps you engaged in the world, I think can be very valuable. I was very compelled by hearing from our users about that particular issue.
Stipp: David, from the research perspective, what are some of the factors where before you reach those retirement years, if you do something, it will have a greater impact on your retirement. What are the key things that investors should keep in mind, so that they don't look back and say, "I wish I had just done this?"
Blanchett: My one key piece of advice is get help. Retirement is a very different thing you have to deal with versus saving money, and before you make decisions about what to buy, how to invest, what your income amount is going to be, get a good financial planner and work with them on a good strategy for what you can actually do in retirement. Don't just watch this video, and say "I know what I’m going to do." Hire a professional and make sure you’ve got a good plan for your retirement.
Stipp: Just my two cents there I would say is save, save, save. So we’ve looked at a lot of things, a lot of factors that can help your portfolio on the margins or even more than on the margins. But you haven't socked enough money away, even if you're in the best investments, I think it can be really tough for folks. And we know that power of compounding can be on your side over the long term. So whatever you can eke out to put away for retirement would be the thing that I would advise.
So I want to thank the panel for being with us today. I think it's been a great discussion, Mark Balasa from Balasa Dinverno Foltz, thanks for coming in today. Christine Benz, director of personal finance from Morningstar and David Blanchett from Morningstar Investment Management.
Thanks for all your insights and for joining us.
Blanchett: Thank you.
Benz: Thank you.
Balasa: Thank you.
Stipp: We will have a replay of this webcast available for you probably later today or definitely for tomorrow for sure. We’ll email you when that replay is available. So if you missed anything, you want to watch anything again, be sure to tune in for that.
We want to thank you also for being Premium Members of Morningstar.com and for tuning in today. We hope to bring you more insights on retirement and investing in general in the months to come. Have a great day.