Roger Whitney is known as the “retirement answer man.”
“All I think about, all day long, is how to make that [retirement] transition successfully,” he says.
But he holds a dirty little secret.
“I don’t believe in retirement. And the most successful clients that I work with … technically they’re retired, but they’re still working.”
Huh?
What does that mean?
In today’s episode, Whitney and I discuss the nuances of 21st-century modern retirement — and how this ain’t nothin’ like the traditional retirement that you’ve been taught to expect.
Enjoy!
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“WTF?” — Vocabulary guide from this episode:
Monte Carlo simulation — This is a mathematical model that calculates the probability of different outcomes under uncertain conditions.
The Monte Carlo simulation builds a probability distribution (a range of values) for any uncertain factor. It then re-calculates the results using random values from the probability functions. After thousands of recalculations (depending on the number and ranges of uncertain factors), the Monte Carlo simulation will show the probability distribution of possible outcomes. It may, for example, show a bell-curve distribution, a triangular distribution, a uniform distribution, etc.
Sequence of returns — The “sequence of returns risk,” in the context of investing, refers to the risk that a person’s returns may be lower either (a) at the start of their investing timeframe, thereby reducing their compounding growth, or (b) early within their withdrawal period, such as a retiree who needs to start withdrawing money at the bottom of a particularly bad bear market.
Standard deviation — This measures variance, a concept that we discussed in detail in our podcast episode with professional poker player Billy Murphy. Standard deviation is a measure of the variance of a data set from the mean, or average. The wider the range (i.e., the further that the data points are from the mean), the higher the standard deviation. TL;DR — Higher standard deviation equals higher volatility.
Long-term aggregate average — This is the measure of the long-term average performance of an asset or investment.
529 Plan — This is a tax-advantaged college savings plan.
Resources Mentioned:
- HP12C Financial Calculator
- Michael Kitces – Your Mind is More Powerful Than Money (Interview)
- What Professional Poker Taught Me About Running a 7-Figure Business, with Billy Murphy (Interview)
- Mind the Gap (Article on Afford Anything)
- Retirement Answer Man
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Evan Jones
Thanks for the shout out Paula! Can not tell you how exciting it was to hear my silly suggestions make it on the show!
Ms. Frugal Asian Finance
This is really helpful, but I can sense the tension in the debate.
Roger Whitney
I told Paula it wasn’t tense, it was spirited.
Herb
I must admit I felt uncomfortable at times listening to this interview because it appeared to be more of a debate between a baby boomer and a millennial on how to achieve financial freedom. Paula in my opinion this wasn’t your best interview and I hope you will be a little more respectful to your guest in the future.
Evan Jones
Paula was challenging him in a very respectful way and pushing him to defend his ideas. They definitely both have their own perspectives and Mr. Whitney deals with people who are already further down their path than the target audience of this podcast. His ideas are in response to cleaning up ignorant Boomers messes his whole career. Paula is presenting and educating the new generation in the ways that we can do better than the boomers. Max 401k, get in debt up to your eyeballs, and hope social security pays the rest? That is not the way Millenials who are listening want to live their lives. Stacking Benjamins recently put out a fascinating show about how Americans are dying with an average of $62k of debt! (Stacking Benjamins Podcast Episode https://goo.gl/ptWlsH ) Thats the kind of shenanigans we are trying to avoid, and the kind of out of the box thinking we are willing to embrace. Mr. Whitney is a very well educated guy who knows his line of work, but I personally believe he has seen so many people fail at the personal finance game it has led him to have less faith in the abilities of average people to do the kinds of things that Paula is debating for.
Roger Whitney
Hi Evan, Roger here. I have great faith in the average person to create a great life and retirement. Didn’t mean to imply otherwise. I love Paula’s message. You correct in pointing out that I deal exclusively with those over 50. I wouldn’t call them ignorant. They are super smart (like every generation). I just help them think outside the lines of traditional planning.
Redwagon
Perhaps your most entertaining show to date!? Reminded me of an old podcast when Andrew Horowitz interviewed MMM (definitely check that one out if you haven’t already)!
Roger Whitney
Glad you enjoyed it. It was totally unplanned.
Tom
Love the back and forth! I would have liked to hear him finish his thoughts on how someone looking to earn $60k in passive income in 10-15 years using the hypothetical $100k earned, $30k saved, for 10-15 years in a VSTX fund. To achieve a $1.5M portfolio it’s gonna take more than 10 years for sure and even more than 15. At 10’years that’s only $300k invested. Even if that got to $500k we are still $1M short. To your credit Paula you have done an incredible job with earning enough to cover your expenses. Doing the same in non real estate type of investing (other than owning a business) is going to take quite some time unless you can live like MMM on $25k per year. Keep being you Paula and thank you for all that you do!
Evan Jones
I made a spread sheet to show roughly the number of years it would take to get to that point using simple growth, not accounting for dollar cost averaging. It is flawed but using a 4% withdrawal rate and assuming 6% growth it looks like it would take 24 years to crack the 60k per year withdrawal rate. I also assumed that some of the 4 % will be taken out and therefore not be able to grow, so the 4% is assumed to be taken out in one lump sum at the beginning of each year.
Numbers are for educational purpose only and should definitely be taken with a grain of salt.
https://goo.gl/bJj8c1
You can play with any of the numbers on the right, Anything under green is a variable that you can mess with to see what your contributions could grow and look like.
Carolyn
I was waiting for the conversation to get back to this discussion but it didn’t! If a couple is able to save $30K of their after tax $70K income consistently for 20 years – I’m super impressed. I don’t think it’s as easy to save $1.5M as Paula made it sound in this podcast. If it is that easy – would the FI blogs and podcasts be so popular?!?!
I love listening to your podcasts. Thanks Paula!
Ron
Thanks for sharing Paula, cheers to compounding returns! I found myself nodding along to all of your responses.
RKNB
What a great interview Paula Pant! I’m no Millenial but I always love the optimism and enthusiasm on Afford Anything. Similarly, I’m not a Baby Boomer but Roger brings the cold, hard realism (still optimistic) that experience has taught me to respect. Thank you Roger for keeping it real!
I agree it is irresponsible to discount the inevitable financial curve balls that can quickly squash the 4% “rule”, ESPECIALLY health care costs. It’s easy to ignore that in your 30’s if you are healthy but there is a reason it is the leading cause of bankruptcy in middle class people in this country. I will definitely be checking out Roger’s podcast now, too.
I have to chuckle because I think this interview had the same tenor of a conversation I recently had with my teenage son.
Keep it coming Paula Pant.
Roger Whitney
Hey RKNB, glad you enjoyed the discussion.
Daan Duijm
I really liked this episode. So much so that this is the first one I actually commented on (I’ve binge listened to the first 70 episodes in the last 4 months). I liked the discussion/debate. I think it was done with an open mindset but indeed coming from 2 different backgrounds, and that was interesting to me.
Also just in general, I liked the depth and terms used in this podcast. I started listening to So Money, and although I still listen to it, I feel that afford anything goes more into detail, and into the technical aspect of a lot of things, what I really like. So thanks for all the hard work you both do, and I can’t wait to continue listening.