Does Your Financial Plan Depend on a “Good” Market Decade?
On this episode of Simply Money presented by Allworth Financial, Bob and Brian tackle a critical question for investors: what happens if the next decade of market returns doesn’t cooperate—and does your financial plan rely on strong returns just to survive? They break down how to properly stress test your retirement plan using real-world scenarios, Monte Carlo analysis, and the importance of separating must-have expenses from discretionary spending to weather any environment.
Plus, they dive into the hidden complexities of restricted stock units (RSUs), including how they’re taxed, vesting schedules, and why they should be treated as a concentrated position in your portfolio.
You’ll also hear strategies for protecting your retirement timing from market downturns, how to think through pension lump sum versus income decisions, and smart ways to gift money for major life events without triggering unnecessary taxes.
Download and rate our podcast here.
Bob: : Tonight, does your financial plan require a good next 10 years' worth of returns? And what if that doesn't happen? You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James.
Well, the last decade sure did make a lot of investors look smart, but what if the next one doesn't? Tonight, we're certainly not predicting a bad decade for stock market returns. We're just asking a much more important question. Does your financial plan require a good next decade of returns to actually work? Brian, this is a good one to jump into tonight.
Brian: Yeah, it is. And what we're doing ultimately here is we're talking about the assumptions that people use when they're doing financial plans, whether it's on the back of a napkin, an Excel spreadsheet, or if you've got some high-powered tools sitting down with an advisor to go through this. One of the variables that you can control are very different from the variables that you can't. We can all take a look at what our budgets are. We can control when we might retire, when we might change our own lives around, but the big one that we can't is whatever the market's going to give us, good, bad, or indifferent.
So, let's talk about the environment we've been in for the last 10, 15 years or so. We've had mostly up markets, and when they go down though, they come back pretty quickly. So, really, other than 2022... Now, 2022, I'm not glossing over that, that was one of the five worst years we've ever had. But beyond that, we had one month at the start of COVID, April of 2025. Those have been really kind of the scariest times that we've been through. Largely beyond that, it's been a very, very forgiving environment. The market has recovered quickly from those missteps.
So, what we need to be doing, of course, is understanding where we are if nothing bad ever happens again, that's our baseline. But what if that next decade doesn't cooperate? We're not talking necessarily about some kind of disaster or scary markets. Those really are not all that common. We all remember them and we all think about them as if they were yesterday and as if they're coming tomorrow because we're human. But they don't happen all that often. We're talking about the longer just kind of doldrums, I would say. Maybe returns are lower. We don't notice them. Just kind of boring years or the volatility lasts longer. Recoveries don't come as quickly.
So, instead of 10% to 12% returns, maybe we're getting 4% to 6% returns for a few years in there. Or maybe we just have a stretch where markets go sideways. Just do a whole bunch of nothing for a while. I'm thinking of years like 2018. Nobody can say what happened in 2018. But if you look at your statements, it wasn't that great of a year. And sometimes that happens. We need to make sure our plans can handle that impact if it occurs.
Bob: Yeah, Brian, and I think you bring up a couple of great points here. I mean, returns that are below average for an extended period of time, those can happen for a couple reasons, and you've already pointed that out. One could be a massive recession and market decline. Think the housing crisis of 2007 to 2009. The market was down over 50%. Or we could just have that sideways doldrums kind of market that you just described where we get positive returns. They're just lower. Lower average returns than normal.
So, I think the point here is what we need to do, is stress test a plan. And I know you do a wonderful job of that with your clients. I've sat and watched you do it. And it really puts people at ease when you go through the different scenarios. We look at both. What if we get an immediate shock to the system of down market 20%, 30% portfolio hit right away, and then maybe a recovery within the next three to four years? Or to your point, more of that doldrums 10-year return, just lower average annual return. Stress test it both ways, this way, that way, upside down, what have you, and just look at how the actual plan would actually work. And I think that oftentimes gives people the peace of mind of saying, "Yeah, my plan is going to work in any environment." And then along with that, make sure we've got short term money. You're going to need in the next one, two, three years or so out of harm's way, so to speak, as I talk about all the time, so that your next grocery bill or next eight tanks of gas or whatever you need to buy are not dependent on the performance of the stock market.
Brian: Yeah. And we've got some examples to share here just to kind of help people frame this discussion. But before we get into that, I want to talk about what assumptions should we be using? What's reality, and what's maybe too conservative and so forth? So, realistically, Bob, as you're well aware, the long-term, average return of the U.S. stock market is roughly 10% to 11%. That's a real thing, but it's a mathematical average, not what investors actually experience year-to-year. That is up 20% down 10%. There's your 10% average. And also, we have to throw inflation into that. So, when you include inflation, that 10% to 11% drops closer to more like 7% to 8% in real purchasing power.
Now, I will say, I rarely, if ever, illustrate anybody's financial plan, even at that 7% to 8% post inflation number. We usually go a little more conservative than that, which allows for a lot of wiggle room for reality to set in and for life to happen as it tends to do. And as we often talk about sequence of returns risk is really, really important. That 10% to 11%, like we just said, that's a long-term average, but it doesn't mean it happens that way every year, year-to-year. We have our good years. We have our bad years. If you're going to have a lot of bad years early in retirement, then that's going to put some stress in your portfolio. If the bad years come middle to later in retirement, they're no fun to go through, but they're not going to have as much of a long-term impact as you might have thought.
Bob: Yeah. And Brian, even with that 4% to 6% average return scenario where, what if things underperform? And I think you and I both see this sometimes with do-it-yourself investors out there where, I think, a lot of folks are very good at building spreadsheets. And their way of stress testing their retirement plan is just lower the average annual return. But still, you're assuming you're going to get that lower positive rate of return every single year. And that's where these Excel spreadsheets often fall short in terms of illustrating reality. What we really do need to do is use that good, old Monte Carlo analysis where it incorporates volatility along the way, whether you're using a 10% return or 6% return, because that's more real world. Because we do get volatility returns, back to your point about sequence of return risk. That's the way you really stress test a portfolio over time.
Brian: Yeah. And you know I love my history, so I always like to point to arrows that people might recognize. So, let's talk about what are the...? Ten to eleven percent, that's been the longest of long-term averages, of course. So, when has it been different, and how long did those periods last? Well, right after World War II, late 1940s to 1960s, we had a huge rebound coming out of the Great Depression and World War II. But then a return settled back to more like 7%, 8% up until about the mid-60s.
And then we had what we talk about all the time, which is stagflation from the late '60s to the early '80s. S&P delivered about 6% to 7% nominal returns. And after inflation, though... Because remember, that was the whole point, we had inflation. After inflation, inflation-adjusted real returns were closer to zero during that period. Late '90s, right up until the financial crisis, returns from '99 to '07 averaged about 5% to 6% annually. And that was one of the strongest bull markets, but it started from an overvalued point, so we had some pullbacks there.
Then we had the lost decade from 2000 to 2010, S&P 500, believe it or not, returned roughly negative 1% to a positive 1% annually over the full decade. But if you extend that window a little bit, make it 2000 to 2015, returns normalize to about 6% to 7% after we had that recovery, because that decade includes, basically, two of the worst markets we've ever seen in the tech bubble bursting. And then, of course, 2008. So, those are the time periods we should have our eyeballs on. If we get an average 10% to 11% return, then great, you're going to be fine. But if we hit one of these periods and nobody can predict it, then we need to understand what impact that might have on our financial plan, and what should we do, if anything, to plan for it if we've got time to do that, or to react to it if it's happening right now in real time during our own retirement?
Bob: Yeah. And Brian, it depends on how old you are, your age, you know, if we get another lost decade. I mean, I can remember talking to people in the early 2000s, you know, they're 70, 72 years old and they're retired. And rightfully so, they're looking at me like, "Hey, Bob, I really don't give a rip about what happens over the next 20 years because I'm probably not going to be alive." So, this is why you have to plan for these kind of scenarios and make sure your portfolio is going to weather any storm for the person that's 35, 38, 42 years old. When we get a lost decade, they really don't care because they just keep stockpiling money into their 401(k) with a match every month. And they hang around and wait for the good years to come back, which they always do, but it's always time in the market that makes this work. So, hey, walk us through a couple of hypothetical scenarios of what we're actually talking about here, using some real numbers.
Brian: Yeah, I want to do that real quick. I want to tack on another thought to what you just mentioned about young people. Once you've seen a full cycle, the full up, down, and then recovery cycle, you start to root for it. So, pay attention for that. For those of you in your 20s, 30s, 40s, because you'll see how quick that upswing happens, and your money will multiply. And that's just how the market works. We panic, panic, panic, and then we're done panicking. We go to the moon.
All right, let's go through some examples. Let's say you're a Cincinnati couple. Let's say mid-50s, maybe $4 million saved. You've done everything right to get yourself to this point. Your plan has you retiring at age 60, spending about $160,000 a year. Everything's fine. Assuming markets are averaging around 8% to 9%. So, realistically, what happens, you could retire, and then the first five years look more like 4% returns, maybe even a couple of negative years mixed in there. So, now, we're withdrawing 160,000 from a portfolio that isn't growing the way you expected. You're dipping into principle a lot more than you thought. That $4 million portfolio is no longer compounding. You are starting to chip away at it. So, what that means 7 to 10 years from now, now, you're looking at maybe $2.5 million to $3 million left, and you still got 20-plus years ahead of you. So, here's the worst part. You didn't do anything wrong. Your plan just required a better market than you got. You use some assumptions that maybe were a little more aggressive than they should be.
Bob: Yeah. And that goes back to modeling and stress testing and doing annual portfolio and retirement plan reviews. And that's the value of having a good fiduciary advisor working alongside of you, is if and when things change and real life doesn't resemble, you know, what we put down on paper, you know, 10, 15 years ago, you can make some adjustments. So, I know you do this, Brian. I like to do this as well. You want to separate in terms of the goals you have in your financial plan. What are the must haves? What are the things that we have to have in any market environment?
Those basic household expenses, the utility bills, the food, the energy bill, all that kind of stuff. And then separate out some of the discretionary goals. You know, how many vacations are you going to take? Are you going to take the whole family with you on a cruise, let's say? Some of those big ticket items that can be more discretionary in a down market. And I think if we could pull some levers and make some switches here and adjustments in periods where we have those lean years, that's what helps these financial plans last over the passage of time.
Brian: It really does. And be careful not to fall into the trap of, "Whatever I'm spending now must be what I'm going to be spending throughout retirement." You may have a mortgage in there that's going to go away. You may be helping kids or paying tuition or doing things that just won't exist in the future, or that are flexible that you don't have to do anymore. You know, a lot of people forget, you know, "I'm taking $1,000 out of my paycheck and sticking it over into a savings account." Well, when you retire, hopefully you're out of that era. You've got enough cash, you've got an emergency fund. That's a 1,000 bucks a month you don't need to account for.
Bob: Here's the Allworth advice, if your plan only works during strong markets, it might not really be a plan. Instead, build one that holds up over time, even if the next decade doesn't. Company stock, it could be an incredibly valuable thing to have in your portfolio, but it's also incredibly misunderstood. We'll break down what we're talking about here, restricted stock units, how they're taxed, and the biggest mistake high earners make with them. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Well, straight ahead, one couple clashes over how aggressive to stay with about a $2 million portfolio. Plus, can you safely retire this year? If you had a $1.7 million, would you run out of money? You feel good about that? And later, how much is too much to spend on your child's wedding without derailing your own financial future? We're gonna try to unpack all of that coming up straight ahead.
Well, let's say you've been working really hard, doing a great job at your company, and your company has decided to reward you with equity compensation in the form of restricted stock units, or RSUs for short. Congratulations, that is great news. Your company has effectively given you a raise. But if you don't understand RSUs and how they work, you could make some really expensive mistakes down the road, Brian.
Brian: So, let's talk about what these are. RSUs, it's stock, just like any other stock. It's effectively for profitability purposes, for the benefit of the investment. It is no different than stock that you could have and may already have bought on the open market depending on who you work for. The restricted part simply means that you can't do anything with it right now. So, it's simply a way of acknowledging that, "Yes, you're a good employee. We appreciate the contribution you made. We want to make sure we keep, as a company, getting that contribution from you. So, here's some golden handcuffs that we're going to tie you to the company for a little bit longer."
And they'll have a vesting schedule. So, basically, the vesting means that's when they are actually yours, and when the IRS will come sniffing around, of course. That's when it counts. Once those shares vest, you own them outright. They are literally no different than what you would have gotten had you just bought them on the market. So, there is a vesting schedule there. Some places will have monthly vesting schedules, others are quarterly, others annually. I normally see a minimum of three years, sometimes six years is very common these days.
And if you've been at your company for a while, and this is part of their established compensation program, you may have multiple grants all stacking up on top of each other, each having its own vesting schedule. So, you'll need to keep track of it. You kind of want to make sure that you're reviewing every tax year, "Okay, this is what came due this past year. Here's what's coming due next year." Because that's the big thing. This is a taxable situation. When those RSUs vest, they do get taxed as ordinary income, just like your paycheck. So, it just gets lumped right on top. So, you got $100,000 worth of RSUs that are vesting this year, that's an extra $100,000. It's kind of like having another job in your household. It's going to get added onto your W-2. Your company will withhold some of those shares to cover the taxes, but most of them only withhold at about a 22% rate. If you're already at a decent-sized income level, you may need to be paying attention to making estimated payments on a quarterly basis too.
Bob: Yeah, Brian, I actually had this situation come up yesterday. I had a client call me, and I could hear birds chirping in the background. So, they were just taking a walk and they got some email from their company, so they called me, "Bob, what are restricted stock units? It looks like I just got an award from my company and they want me to sign something. Is it okay to just DocuSign it and send it in?" I'm like, "Whoa, whoa, whoa. Will you please just slow down. Pull the PDF files of all this stuff that explains," like you just said, the vesting schedule, all that, "Please send it to me so I can read it and understand it. And give me, at least, 24 hours to digest that. And then I'll report back to you on how all this works. And let's do all that." But before you just click and DocuSign and send something back, I think people just want to be expedient with all this stuff, keep the trains moving, so to speak, but you do need to read and understand all this stuff and build it into your financial plan.
Another thing on top of what you already talked about is there are trading windows, you know, from time to time, depending on the company, even after these shares vest. And that's when things could get tricky. You may not just be able to sell these shares whenever you want. Companies will restrict sales to certain periods of time, often a few weeks, you know, only a few weeks each quarter. So, you want to be aware of those rules and regulations or stipulations, so to speak, you know, when you factor all this into your plan. And then Brian, you could talk about, you know, if you leave the company, most of the time these RSUs get left on the table. So, there's things to factor in as far as staying or leaving the company too, right?
Brian: Of course, that's that golden handcuffs part. So, they want you to hang around. They think you've done a good job. You've played a role in creating the value that those RSUs have, and they want to keep you around to keep doing that. So, if you do choose to leave, then you're probably going to give up something. And again, that's according to that vesting schedule. This could be, let's say it's a 5-year, 20% every year vesting schedule or something like that. Then you will give up whatever the remainder is. You have to make the right decision for you. But don't assume, just because you have it on a statement with your name on it, that all belongs to you.
And Bob, to the point you were making earlier about those trading windows, a lot of times, that happens in the case of companies that are not publicly traded, but still are broken up and valued in terms of shares. So, if it's not publicly traded, then there kind of is no market, or put better, the market is the company itself. They do have to go through a rigorous accounting process to decide what the shares are worth and all that other stuff. That's how you get a valuation every year, every quarter, how often they do it. But they may not be in a position where they can cash you out whenever you want to be cashed out. And they only give a...
Bob: And Brian, I'm glad you brought that up because that is exactly the situation I was dealing with yesterday, a privately held, not publicly traded company. So, you do need to pay attention to that. But go ahead.
Brian: Yeah. And that's what people get confused by. Because, where's this price coming from? I just know there's a valuation. They give me a new number every year. That's all I know. And people, of course, are naturally suspicious of things. Well, they can't make it up. It has to be auditable, and so, you can generally rely on that. Granted, crazy things happen out there all the time, but if you trust the leadership of your company, then you can reliably trust that their accounting firm is doing the right thing. But because the company itself is the only market to buy those shares back from you, they budget out times of the year that they will have the cash to do so. So, that's why that happens. It's not because they're trying to cheat you or anything like that.
Bob: Great point. Here's the Allworth advice, RSU's are not just a bonus, they're a concentrated investment as part of your overall portfolio. Treat them like one by managing taxes early and diversifying often. Before you hit that "unsubscribe" button on that unwanted email, listen to our next segment with our cybersecurity expert, Dave Hatter. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James, joined tonight by our tech and cybersecurity guru, Mr. Dave Hatter. We always love having Dave on the show. Dave, thanks for making time for us tonight. And we've got a real common and important topic to cover, and that is unwanted emails. We came across an article in "The Wall Street Journal" here recently about all the things that are happening with trying to delete unwanted emails. And some of that stuff was news to me, and I'm anxious for you to dive into us and educate us on how to handle this stuff.
Dave: Well, first off, guys, as always, thanks for having me on. I appreciate the opportunity to try to raise awareness about these things. And, yeah, I thought this article was very timely. We all get tons and tons of spam, whether it's via email or now text messages. And I'm sure you guys are getting some of those too. And it's really important for people to understand three concepts here. A, the volume of this stuff keeps going up and they'll come at you anywhere they can, could be social media, could be email, could be text, etc.
Two, all of these things rely on spoofing. Spoofing is the sort of nerdy term for the idea that virtually anything that can be digitized can be fake, whether it's an email, it's an entire website, it's a text message, it's a phone call from a number that looks legit, but isn't. Spoofing unfortunately is very easy for the bad guys. And then finally, there's usually a social engineering aspect. You get a text, there's some crisis you have to attend to.
And obviously, people want to stop getting all this stuff, which I fully understand and respect. But the bad guys understand that people want to get off these lists, they want to "unsubscribe". And for legitimate businesses, you have to follow the CAN-SPAM Act, you have to give people an option to unsubscribe from this stuff. Well, the bad guys know that, so a new tactic. And at best, it's a way to confirm that you're live. You get an email or a text message, there's a "unsubscribe" option, if you will. When you click that, at best, you've just told them you exist. So, that's the best thing that can happen.
The worst thing that can happen is when you click that link, either, A, they want you to log in. They've got some very well spoofed credential page where you're going to enter your username and password. They capture that, they know people use the same usernames and passwords across multiple sites. Now, they're off to the races potentially. Or possibly, when you click that link, you download some kind of malware, keystroke logger, ransomware, something like that. So, while it is still a legitimate thing to unsubscribe from emails, and I'll talk more about that in a minute, you need to be very wary of anything you get that has an unsubscribe option unless you are absolutely positively certain that it's legit, which is very hard to do nowadays, because it might be a guy is to get you to click that link and then do some nefarious thing to you.
Brian: Hey, Dave, so on that topic, so here's what I've convinced myself that I know about this, which isn't very much, but I'm still very falsely confident often. If these come from a company like Constant Contact or SurveyMonkey or somebody, legit company, but their primary role is to send out an awful lot of emails, my understanding is that those companies, obviously due to the CAN-SPAM Act you mentioned, that can threaten their very existence. So, they absolutely have to follow those rules. My understanding was, if I unsubscribe from Constant Contact, then that will wipe me out of a lot of different things they might be sending out. Is that real? And I suppose those that can be spoofed as well. Am I on the right path there?
Dave: They definitely could be spoofed. And I mean, you're generally right, although understand, like, you know, many companies use Constant Contact or Mailchimp or are using CRMs like HubSpot to send out emails. And you're right, CAN-SPAM requires legitimate businesses to give you an option to get out of that stuff. However, you know, if Constant Contact is being used by three different companies, and you've somehow gotten on their mail list, when you unsubscribe from one, it's not going to unsubscribe you from the others, right? All of that said, though, yeah, your hunch is exactly right. Legitimate companies are going to honor your request to get out. It's illegitimate companies or companies kind of operating at the edges of legitimacy, and then, frankly, you know, bad guys out there who are using spam and unsubscribe as a way to get to you and convince you that, "Hey, I'm going to reduce the amount of garbage that I'm getting by clicking this link."
Bob: All right, Dave, you talked about being wary of clicking on that unsubscribe link. I mean, talk to the normal person out there. I mean, I don't know, seems like a lot of people are either on Apple or let's just say Gmail. You know, what should you be doing to screen yourself out from all this junk email just to clean things up and to avoid being spoofed or taken advantage of? What are the practical steps you tell people to take to clean this stuff up?
Dave: So, the first thing always with this stuff is awareness, knowing that it is, at least, a possibility that anything you get could be spoofed, and operating with some skepticism and some caution. The second thing then is, you know, if you have a high level of confidence, legit, all right, go ahead and choose unsubscribe. But the safer methodology is to either, A, let's just pick Amazon, for example. You've bought stuff from Amazon. You're on various mail lists. You open up a Web browser. You go to amazon.com. You log into your Amazon account. You go to the communication settings or whatever they call it, and then you start to unsubscribe yourself from your mail list. You are initiating the transaction. You're always in control of it. You're not clicking the links, etc. That's always the best way to avoid any sort of spoofing is you start a transaction with a known legitimate site.
The other thing you can do is, in your mail client, whatever that might be, whether it's Gmail on the Web, Outlook on your computer or whatever, when you get a bogus email or even something like a text, you know, and even if you're not sure it's bogus, you just want to get off the list, just reported as junk or whatever they call it. Right click on it, open it up, whatever you need to do in your particular mail environment, and just say, report junk or report spam, or whatever they call it. While you'll still keep getting those emails, they'll just automatically go to your junk or spam folder. You go clear that out occasionally. You don't have to click anything. It vastly reduces the risk that you're going to be lulled into some false sense of security and click on the wrong thing. That's the two best ways to get rid of it with minimal risk to you. Report it as junk or spam, or log in to the company that sent it to you and unsubscribe that way.
Bob: So, if you do report these unwanted emails as junk or spam, something does actually happen and it gets diverted into a junk folder. I mean, I'm not joking around, this is good stuff to learn. I didn't know that. Is that what happened?
Dave: It's going to depend on your mail platform. And this same kind of logic applies to text. You get these weird texts, "Hey, Bob, are you meeting me for lunch today?" This kind of weird stuff. It's best not to interact with this stuff. Report it as junk. Block it. Block sender. Again, the terminology might vary, but the concept is the same. Rather than you click any links or respond to it, report it as junk or spam using whatever technique is available to you. And if you're not sure, that's something you can look up online. But once you've said this is junk, then you should not see them anymore. Once it hits your mail client, Outlook, whatever it is, it should just automatically throw that in the junk folder. If you just go out and clear those things out once in a while, should be good to go. Again, with minimal risk to you.
Bob: Yeah. And then you'll get the occasional message from somebody saying, "Hey, I emailed you. I tried to contact you and I couldn't reach you." I'd rather have one or two of those every six months than get inundated with this stuff that I never wanted in the first place. All right. Great stuff as always from our tech and cybersecurity expert, Dave Hatter. Thanks again, Dave. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. If you have a financial question you'd like for us to answer, there's a red button you could click while you're listening to the show if you're listening on the iHeart app. Simply record your question there and it will come straight to us. Dan in Blue Ash leads us off tonight, Brian. He says, "We're about 18 months away from retirement. We got about $2.5 million saved. And I keep worrying we will retire right before a market downturn. How do people protect against bad timing without sitting on a bunch of cash forever?" This is a great question and a common one.
Brian: That really is. This is one of the most common fears we hear. I want to retire and I've nailed my date. But, my gosh, what if the market goes over the cliff. And it really seems like ever since 2008, Bob, we have this notion that we are about to go over the cliff. That kind of sense of fear that's been hanging around there. There are still some people out there waiting for the second leg down from 2008. But anyway, so let's talk about some different strategies that that you can use to deal with this.
So, let's call it a retirement runway for this first one here. Instead of putting everything in the market, keep about two to three years of spending in safer assets like cash or short-term bonds. This is my favorite way to handle it. Talk about, what are you going to need? What bills are for sure come and due? There's the household bills that you're stuck with the rest of your lives. Maybe there's a car we're going to have to buy this year, or we've got to replace the roof, the HVAC. All of that kind of what I like to call pre spent money. We know the bills come and due and we're going to have to deal with it at some point. So, that's the money you want to carve out and carve out to the side.
Where that helps you is that you will not have to use any dollars that do get hit should therefore then be your longer-term dollars. If the market does take a downturn, we know we've already carved out the dollars we're going to use to spend to cover those expenses. You know, make sure you have flexibility. You don't have to spend the exact same amount every year. There are probably things you can trim out of your budget and maybe look at the budget and figure out, what are the things I'll pull the trigger on when it's time to back off a little bit if that happens? So, I hope that helps.
So, I think this next question is for you, Bob, comes a little bit down the same lines from Marion Montgomery. She says her husband wants to keep about 70% of their $2.2 million invested in stocks, even in retirement. And that feels really aggressive to her. So, how do you determine the right allocation when you're about to start withdrawals? I think the fears that Mary has are the same that Dan has.
Bob: All right, Mary, I'm going to give you two options here, door number one or door number two. Door number one is you could simply go to your husband and say, "Hey, until you reduce the risk exposure of our retirement portfolio, not just yours, you could sleep out there in the living room on the couch," and just see how quickly that allocation changes. That's door number one. Door number two, you could bring your husband in and talk to a good fiduciary advisor and do some of this stress testing that Brian and I talk about all the time where, "Hey, what happens if we have a down market with our current portfolio allocation? How would that impact the long-term plan? Will it work in a serious downturn market with 70% still with the stocks?" It might still work great, but if it doesn't work, I think, Mary, you and your husband owe that to one another to be prepared for that in advance, and then possibly, make some adjustments in your overall allocation.
Using good data and time-tested stress testing can often make couples feel a whole lot better about how things are situated rather than just one spouse saying, "Hey, here's the way we're going to do it." So, obviously, I was joking around about the first option. I think the second option is the way you ought to go. Sit down, stress test this thing in all market environments, and hopefully, as a team, which is what a marriage should be, you could come away with a good, long-term allocation that's going to allow both of you to sleep at night. All right, Alex in Florence, Brian, he says, "I'm retiring this year with a little under $2 million and a small pension. How do I decide whether to take a lump sum from the pension or the monthly income option?
Brian: Well, you're right to call this out as a question you need some more help with, because this is one of the most irreversible decisions you can possibly make. When you're choosing between a lump sum and a monthly pension, what you're really deciding is between control and flexibility, or do you want guaranteed income you can't outlive? So, let's start with a monthly pension. The big advantage here is stability, assuming that pension is stable underneath that. There's a reason that once a year they send you that really boring letter that talks about how well that pension is funded. Probably time to pull out a couple of those and read them just to get an idea for what kind of shape that is in.
And you might hire a financial advisor to help you through that if you don't understand what that's saying. But the pension. But beyond that, if it's a stable pension, it doesn't depend on the markets, it's not going to wander up and down. It acts a lot like Social Security. It's a paycheck for life. In rare cases, it's going to have inflation built into it. But I'm going to stress the word rare. That takes a lot of pressure off your other portfolio, which is probably riding the waves of the markets, whatever that has.
Now, here's the tradeoff. Typically, you're giving up access to the principal. Once you choose that income stream, the decision is locked in, and there's limited or no inflation protection. You know, like I said, it's a very rare situation that pensions still have inflation built into them. So, how do you decide between the two? Look at that income floor, add up your guaranteed sources, that pension, Social Security, any other steady income you've got out there. If the monthly pension costs helps cover most of your essential expenses, that's really valuable because now your $1.7 can just be your fund money or your unexpected money. And you can go through with a life without a lot more stress.
And then figure out that payout rate. Quick rule of thumb, if the pension is effectively paying you something like 5% to 6% or more of the lump sum annually, then that's usually a strong offer. Lower than 5% to 6%, so you're literally choosing between here's a lump I can stick in my IRA right now and I can invest it in something that'll spit out an interest rate. If that's less than 5% to 6%, then that monthly might be a better option. So, think about those goals. We've got time for one more quick one from Ben in Westchester. Ben says his daughter's getting married and, "We're considering $75,000 toward a house instead of a wedding gift." What tax issues might they experience, Bob? Are there better ways to do this?
Bob: Well, Ben, you're $75,000 number will work. But here's how it has to work. Keep in mind, $19,000. That's the maximum amount of money you can give to any human being on the planet in 2026 without having to file a gift tax return. So, you said you're married, you and your spouse, you could take that number, multiply that times two. That gets you to $38,000. Now, if you're comfortable, you know, also giving your daughter's fiancé $38,000, well, there that number goes up to $76,000 match, which is, you know, your $76,000 is under that amount. So, if you structure it properly, you're going to have to give some money irrevocably to your daughter and your future son in law. That may or may not make you comfortable, but that's a way you can get it done. All right, coming up next, Brian and I are going to kick around a real life example of a client trying to help his mother get out ahead of some future long-term care planning. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Brian, let's talk about an actual listener question and real life scenario that we deal with seemingly more and more every day. And this client's trying to help his 78-year-old mother. She's got about $900 grand saved, and they're starting to be concerned about future long-term care needs. And the question always arises, when should the kids, or the son in this case, step in and start doing some active planning? What are those discussions like? How involved should the kids be with mom and dad?
We're having this conversation more and more, so I want to spend a couple of minutes and kick this around. I think it's good to get involved earlier rather than later, as long as you do it respectfully with the parents. The number one thing is you got to get out in front of cognitive impairments. And we're seeing that early onset dementia or Alzheimer's. I'd say, the first thing, you know, and I put this under the category of long-term care planning, make sure you have financial powers of attorney and health care power of attorneys in place now. Because if the cognitive impairment comes in, you want a backup person ready to step in and take care of things or, at least, be present during meetings where decisions are made. That would be step one.
Step two, Brian, is if we really see a long-term care event possibly coming down the road. I mean, we could get into some gifting, but we got to remember there's a five-year look back rule on any money that mom gives away now, you know, if you're trying to have her qualify for a Medicaid situation. Those are two thoughts that quickly come to mind. What would you add to this question from our listener?
Brian: First of all, I want to frame it a little bit, because a lot of people think that, "Oh, my gosh, the average stay is $120,000, $130,000 per year in this area. I have to layer that on top of her existing expenses?" No, you usually don't. Because she's not going to the grocery store anymore. She's not traveling anymore. A lot of those expenses are simply duplicative. It definitely will cost more than her lifestyle now, but it's not a doubling of the expenses. So, be reasonable about what... I would say, the 78-year-old mother with $900,000, that's all we really know. But at the same time, she's got a good chance of being able to self-insure at that level with some other rearranging things.
Bob: Thanks for listening tonight. You've been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
Well, the last decade sure did make a lot of investors look smart, but what if the next one doesn't? Tonight, we're certainly not predicting a bad decade for stock market returns. We're just asking a much more important question. Does your financial plan require a good next decade of returns to actually work? Brian, this is a good one to jump into tonight.
Brian: Yeah, it is. And what we're doing ultimately here is we're talking about the assumptions that people use when they're doing financial plans, whether it's on the back of a napkin, an Excel spreadsheet, or if you've got some high-powered tools sitting down with an advisor to go through this. One of the variables that you can control are very different from the variables that you can't. We can all take a look at what our budgets are. We can control when we might retire, when we might change our own lives around, but the big one that we can't is whatever the market's going to give us, good, bad, or indifferent.
So, let's talk about the environment we've been in for the last 10, 15 years or so. We've had mostly up markets, and when they go down though, they come back pretty quickly. So, really, other than 2022... Now, 2022, I'm not glossing over that, that was one of the five worst years we've ever had. But beyond that, we had one month at the start of COVID, April of 2025. Those have been really kind of the scariest times that we've been through. Largely beyond that, it's been a very, very forgiving environment. The market has recovered quickly from those missteps.
So, what we need to be doing, of course, is understanding where we are if nothing bad ever happens again, that's our baseline. But what if that next decade doesn't cooperate? We're not talking necessarily about some kind of disaster or scary markets. Those really are not all that common. We all remember them and we all think about them as if they were yesterday and as if they're coming tomorrow because we're human. But they don't happen all that often. We're talking about the longer just kind of doldrums, I would say. Maybe returns are lower. We don't notice them. Just kind of boring years or the volatility lasts longer. Recoveries don't come as quickly.
So, instead of 10% to 12% returns, maybe we're getting 4% to 6% returns for a few years in there. Or maybe we just have a stretch where markets go sideways. Just do a whole bunch of nothing for a while. I'm thinking of years like 2018. Nobody can say what happened in 2018. But if you look at your statements, it wasn't that great of a year. And sometimes that happens. We need to make sure our plans can handle that impact if it occurs.
Bob: Yeah, Brian, and I think you bring up a couple of great points here. I mean, returns that are below average for an extended period of time, those can happen for a couple reasons, and you've already pointed that out. One could be a massive recession and market decline. Think the housing crisis of 2007 to 2009. The market was down over 50%. Or we could just have that sideways doldrums kind of market that you just described where we get positive returns. They're just lower. Lower average returns than normal.
So, I think the point here is what we need to do, is stress test a plan. And I know you do a wonderful job of that with your clients. I've sat and watched you do it. And it really puts people at ease when you go through the different scenarios. We look at both. What if we get an immediate shock to the system of down market 20%, 30% portfolio hit right away, and then maybe a recovery within the next three to four years? Or to your point, more of that doldrums 10-year return, just lower average annual return. Stress test it both ways, this way, that way, upside down, what have you, and just look at how the actual plan would actually work. And I think that oftentimes gives people the peace of mind of saying, "Yeah, my plan is going to work in any environment." And then along with that, make sure we've got short term money. You're going to need in the next one, two, three years or so out of harm's way, so to speak, as I talk about all the time, so that your next grocery bill or next eight tanks of gas or whatever you need to buy are not dependent on the performance of the stock market.
Brian: Yeah. And we've got some examples to share here just to kind of help people frame this discussion. But before we get into that, I want to talk about what assumptions should we be using? What's reality, and what's maybe too conservative and so forth? So, realistically, Bob, as you're well aware, the long-term, average return of the U.S. stock market is roughly 10% to 11%. That's a real thing, but it's a mathematical average, not what investors actually experience year-to-year. That is up 20% down 10%. There's your 10% average. And also, we have to throw inflation into that. So, when you include inflation, that 10% to 11% drops closer to more like 7% to 8% in real purchasing power.
Now, I will say, I rarely, if ever, illustrate anybody's financial plan, even at that 7% to 8% post inflation number. We usually go a little more conservative than that, which allows for a lot of wiggle room for reality to set in and for life to happen as it tends to do. And as we often talk about sequence of returns risk is really, really important. That 10% to 11%, like we just said, that's a long-term average, but it doesn't mean it happens that way every year, year-to-year. We have our good years. We have our bad years. If you're going to have a lot of bad years early in retirement, then that's going to put some stress in your portfolio. If the bad years come middle to later in retirement, they're no fun to go through, but they're not going to have as much of a long-term impact as you might have thought.
Bob: Yeah. And Brian, even with that 4% to 6% average return scenario where, what if things underperform? And I think you and I both see this sometimes with do-it-yourself investors out there where, I think, a lot of folks are very good at building spreadsheets. And their way of stress testing their retirement plan is just lower the average annual return. But still, you're assuming you're going to get that lower positive rate of return every single year. And that's where these Excel spreadsheets often fall short in terms of illustrating reality. What we really do need to do is use that good, old Monte Carlo analysis where it incorporates volatility along the way, whether you're using a 10% return or 6% return, because that's more real world. Because we do get volatility returns, back to your point about sequence of return risk. That's the way you really stress test a portfolio over time.
Brian: Yeah. And you know I love my history, so I always like to point to arrows that people might recognize. So, let's talk about what are the...? Ten to eleven percent, that's been the longest of long-term averages, of course. So, when has it been different, and how long did those periods last? Well, right after World War II, late 1940s to 1960s, we had a huge rebound coming out of the Great Depression and World War II. But then a return settled back to more like 7%, 8% up until about the mid-60s.
And then we had what we talk about all the time, which is stagflation from the late '60s to the early '80s. S&P delivered about 6% to 7% nominal returns. And after inflation, though... Because remember, that was the whole point, we had inflation. After inflation, inflation-adjusted real returns were closer to zero during that period. Late '90s, right up until the financial crisis, returns from '99 to '07 averaged about 5% to 6% annually. And that was one of the strongest bull markets, but it started from an overvalued point, so we had some pullbacks there.
Then we had the lost decade from 2000 to 2010, S&P 500, believe it or not, returned roughly negative 1% to a positive 1% annually over the full decade. But if you extend that window a little bit, make it 2000 to 2015, returns normalize to about 6% to 7% after we had that recovery, because that decade includes, basically, two of the worst markets we've ever seen in the tech bubble bursting. And then, of course, 2008. So, those are the time periods we should have our eyeballs on. If we get an average 10% to 11% return, then great, you're going to be fine. But if we hit one of these periods and nobody can predict it, then we need to understand what impact that might have on our financial plan, and what should we do, if anything, to plan for it if we've got time to do that, or to react to it if it's happening right now in real time during our own retirement?
Bob: Yeah. And Brian, it depends on how old you are, your age, you know, if we get another lost decade. I mean, I can remember talking to people in the early 2000s, you know, they're 70, 72 years old and they're retired. And rightfully so, they're looking at me like, "Hey, Bob, I really don't give a rip about what happens over the next 20 years because I'm probably not going to be alive." So, this is why you have to plan for these kind of scenarios and make sure your portfolio is going to weather any storm for the person that's 35, 38, 42 years old. When we get a lost decade, they really don't care because they just keep stockpiling money into their 401(k) with a match every month. And they hang around and wait for the good years to come back, which they always do, but it's always time in the market that makes this work. So, hey, walk us through a couple of hypothetical scenarios of what we're actually talking about here, using some real numbers.
Brian: Yeah, I want to do that real quick. I want to tack on another thought to what you just mentioned about young people. Once you've seen a full cycle, the full up, down, and then recovery cycle, you start to root for it. So, pay attention for that. For those of you in your 20s, 30s, 40s, because you'll see how quick that upswing happens, and your money will multiply. And that's just how the market works. We panic, panic, panic, and then we're done panicking. We go to the moon.
All right, let's go through some examples. Let's say you're a Cincinnati couple. Let's say mid-50s, maybe $4 million saved. You've done everything right to get yourself to this point. Your plan has you retiring at age 60, spending about $160,000 a year. Everything's fine. Assuming markets are averaging around 8% to 9%. So, realistically, what happens, you could retire, and then the first five years look more like 4% returns, maybe even a couple of negative years mixed in there. So, now, we're withdrawing 160,000 from a portfolio that isn't growing the way you expected. You're dipping into principle a lot more than you thought. That $4 million portfolio is no longer compounding. You are starting to chip away at it. So, what that means 7 to 10 years from now, now, you're looking at maybe $2.5 million to $3 million left, and you still got 20-plus years ahead of you. So, here's the worst part. You didn't do anything wrong. Your plan just required a better market than you got. You use some assumptions that maybe were a little more aggressive than they should be.
Bob: Yeah. And that goes back to modeling and stress testing and doing annual portfolio and retirement plan reviews. And that's the value of having a good fiduciary advisor working alongside of you, is if and when things change and real life doesn't resemble, you know, what we put down on paper, you know, 10, 15 years ago, you can make some adjustments. So, I know you do this, Brian. I like to do this as well. You want to separate in terms of the goals you have in your financial plan. What are the must haves? What are the things that we have to have in any market environment?
Those basic household expenses, the utility bills, the food, the energy bill, all that kind of stuff. And then separate out some of the discretionary goals. You know, how many vacations are you going to take? Are you going to take the whole family with you on a cruise, let's say? Some of those big ticket items that can be more discretionary in a down market. And I think if we could pull some levers and make some switches here and adjustments in periods where we have those lean years, that's what helps these financial plans last over the passage of time.
Brian: It really does. And be careful not to fall into the trap of, "Whatever I'm spending now must be what I'm going to be spending throughout retirement." You may have a mortgage in there that's going to go away. You may be helping kids or paying tuition or doing things that just won't exist in the future, or that are flexible that you don't have to do anymore. You know, a lot of people forget, you know, "I'm taking $1,000 out of my paycheck and sticking it over into a savings account." Well, when you retire, hopefully you're out of that era. You've got enough cash, you've got an emergency fund. That's a 1,000 bucks a month you don't need to account for.
Bob: Here's the Allworth advice, if your plan only works during strong markets, it might not really be a plan. Instead, build one that holds up over time, even if the next decade doesn't. Company stock, it could be an incredibly valuable thing to have in your portfolio, but it's also incredibly misunderstood. We'll break down what we're talking about here, restricted stock units, how they're taxed, and the biggest mistake high earners make with them. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Well, straight ahead, one couple clashes over how aggressive to stay with about a $2 million portfolio. Plus, can you safely retire this year? If you had a $1.7 million, would you run out of money? You feel good about that? And later, how much is too much to spend on your child's wedding without derailing your own financial future? We're gonna try to unpack all of that coming up straight ahead.
Well, let's say you've been working really hard, doing a great job at your company, and your company has decided to reward you with equity compensation in the form of restricted stock units, or RSUs for short. Congratulations, that is great news. Your company has effectively given you a raise. But if you don't understand RSUs and how they work, you could make some really expensive mistakes down the road, Brian.
Brian: So, let's talk about what these are. RSUs, it's stock, just like any other stock. It's effectively for profitability purposes, for the benefit of the investment. It is no different than stock that you could have and may already have bought on the open market depending on who you work for. The restricted part simply means that you can't do anything with it right now. So, it's simply a way of acknowledging that, "Yes, you're a good employee. We appreciate the contribution you made. We want to make sure we keep, as a company, getting that contribution from you. So, here's some golden handcuffs that we're going to tie you to the company for a little bit longer."
And they'll have a vesting schedule. So, basically, the vesting means that's when they are actually yours, and when the IRS will come sniffing around, of course. That's when it counts. Once those shares vest, you own them outright. They are literally no different than what you would have gotten had you just bought them on the market. So, there is a vesting schedule there. Some places will have monthly vesting schedules, others are quarterly, others annually. I normally see a minimum of three years, sometimes six years is very common these days.
And if you've been at your company for a while, and this is part of their established compensation program, you may have multiple grants all stacking up on top of each other, each having its own vesting schedule. So, you'll need to keep track of it. You kind of want to make sure that you're reviewing every tax year, "Okay, this is what came due this past year. Here's what's coming due next year." Because that's the big thing. This is a taxable situation. When those RSUs vest, they do get taxed as ordinary income, just like your paycheck. So, it just gets lumped right on top. So, you got $100,000 worth of RSUs that are vesting this year, that's an extra $100,000. It's kind of like having another job in your household. It's going to get added onto your W-2. Your company will withhold some of those shares to cover the taxes, but most of them only withhold at about a 22% rate. If you're already at a decent-sized income level, you may need to be paying attention to making estimated payments on a quarterly basis too.
Bob: Yeah, Brian, I actually had this situation come up yesterday. I had a client call me, and I could hear birds chirping in the background. So, they were just taking a walk and they got some email from their company, so they called me, "Bob, what are restricted stock units? It looks like I just got an award from my company and they want me to sign something. Is it okay to just DocuSign it and send it in?" I'm like, "Whoa, whoa, whoa. Will you please just slow down. Pull the PDF files of all this stuff that explains," like you just said, the vesting schedule, all that, "Please send it to me so I can read it and understand it. And give me, at least, 24 hours to digest that. And then I'll report back to you on how all this works. And let's do all that." But before you just click and DocuSign and send something back, I think people just want to be expedient with all this stuff, keep the trains moving, so to speak, but you do need to read and understand all this stuff and build it into your financial plan.
Another thing on top of what you already talked about is there are trading windows, you know, from time to time, depending on the company, even after these shares vest. And that's when things could get tricky. You may not just be able to sell these shares whenever you want. Companies will restrict sales to certain periods of time, often a few weeks, you know, only a few weeks each quarter. So, you want to be aware of those rules and regulations or stipulations, so to speak, you know, when you factor all this into your plan. And then Brian, you could talk about, you know, if you leave the company, most of the time these RSUs get left on the table. So, there's things to factor in as far as staying or leaving the company too, right?
Brian: Of course, that's that golden handcuffs part. So, they want you to hang around. They think you've done a good job. You've played a role in creating the value that those RSUs have, and they want to keep you around to keep doing that. So, if you do choose to leave, then you're probably going to give up something. And again, that's according to that vesting schedule. This could be, let's say it's a 5-year, 20% every year vesting schedule or something like that. Then you will give up whatever the remainder is. You have to make the right decision for you. But don't assume, just because you have it on a statement with your name on it, that all belongs to you.
And Bob, to the point you were making earlier about those trading windows, a lot of times, that happens in the case of companies that are not publicly traded, but still are broken up and valued in terms of shares. So, if it's not publicly traded, then there kind of is no market, or put better, the market is the company itself. They do have to go through a rigorous accounting process to decide what the shares are worth and all that other stuff. That's how you get a valuation every year, every quarter, how often they do it. But they may not be in a position where they can cash you out whenever you want to be cashed out. And they only give a...
Bob: And Brian, I'm glad you brought that up because that is exactly the situation I was dealing with yesterday, a privately held, not publicly traded company. So, you do need to pay attention to that. But go ahead.
Brian: Yeah. And that's what people get confused by. Because, where's this price coming from? I just know there's a valuation. They give me a new number every year. That's all I know. And people, of course, are naturally suspicious of things. Well, they can't make it up. It has to be auditable, and so, you can generally rely on that. Granted, crazy things happen out there all the time, but if you trust the leadership of your company, then you can reliably trust that their accounting firm is doing the right thing. But because the company itself is the only market to buy those shares back from you, they budget out times of the year that they will have the cash to do so. So, that's why that happens. It's not because they're trying to cheat you or anything like that.
Bob: Great point. Here's the Allworth advice, RSU's are not just a bonus, they're a concentrated investment as part of your overall portfolio. Treat them like one by managing taxes early and diversifying often. Before you hit that "unsubscribe" button on that unwanted email, listen to our next segment with our cybersecurity expert, Dave Hatter. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James, joined tonight by our tech and cybersecurity guru, Mr. Dave Hatter. We always love having Dave on the show. Dave, thanks for making time for us tonight. And we've got a real common and important topic to cover, and that is unwanted emails. We came across an article in "The Wall Street Journal" here recently about all the things that are happening with trying to delete unwanted emails. And some of that stuff was news to me, and I'm anxious for you to dive into us and educate us on how to handle this stuff.
Dave: Well, first off, guys, as always, thanks for having me on. I appreciate the opportunity to try to raise awareness about these things. And, yeah, I thought this article was very timely. We all get tons and tons of spam, whether it's via email or now text messages. And I'm sure you guys are getting some of those too. And it's really important for people to understand three concepts here. A, the volume of this stuff keeps going up and they'll come at you anywhere they can, could be social media, could be email, could be text, etc.
Two, all of these things rely on spoofing. Spoofing is the sort of nerdy term for the idea that virtually anything that can be digitized can be fake, whether it's an email, it's an entire website, it's a text message, it's a phone call from a number that looks legit, but isn't. Spoofing unfortunately is very easy for the bad guys. And then finally, there's usually a social engineering aspect. You get a text, there's some crisis you have to attend to.
And obviously, people want to stop getting all this stuff, which I fully understand and respect. But the bad guys understand that people want to get off these lists, they want to "unsubscribe". And for legitimate businesses, you have to follow the CAN-SPAM Act, you have to give people an option to unsubscribe from this stuff. Well, the bad guys know that, so a new tactic. And at best, it's a way to confirm that you're live. You get an email or a text message, there's a "unsubscribe" option, if you will. When you click that, at best, you've just told them you exist. So, that's the best thing that can happen.
The worst thing that can happen is when you click that link, either, A, they want you to log in. They've got some very well spoofed credential page where you're going to enter your username and password. They capture that, they know people use the same usernames and passwords across multiple sites. Now, they're off to the races potentially. Or possibly, when you click that link, you download some kind of malware, keystroke logger, ransomware, something like that. So, while it is still a legitimate thing to unsubscribe from emails, and I'll talk more about that in a minute, you need to be very wary of anything you get that has an unsubscribe option unless you are absolutely positively certain that it's legit, which is very hard to do nowadays, because it might be a guy is to get you to click that link and then do some nefarious thing to you.
Brian: Hey, Dave, so on that topic, so here's what I've convinced myself that I know about this, which isn't very much, but I'm still very falsely confident often. If these come from a company like Constant Contact or SurveyMonkey or somebody, legit company, but their primary role is to send out an awful lot of emails, my understanding is that those companies, obviously due to the CAN-SPAM Act you mentioned, that can threaten their very existence. So, they absolutely have to follow those rules. My understanding was, if I unsubscribe from Constant Contact, then that will wipe me out of a lot of different things they might be sending out. Is that real? And I suppose those that can be spoofed as well. Am I on the right path there?
Dave: They definitely could be spoofed. And I mean, you're generally right, although understand, like, you know, many companies use Constant Contact or Mailchimp or are using CRMs like HubSpot to send out emails. And you're right, CAN-SPAM requires legitimate businesses to give you an option to get out of that stuff. However, you know, if Constant Contact is being used by three different companies, and you've somehow gotten on their mail list, when you unsubscribe from one, it's not going to unsubscribe you from the others, right? All of that said, though, yeah, your hunch is exactly right. Legitimate companies are going to honor your request to get out. It's illegitimate companies or companies kind of operating at the edges of legitimacy, and then, frankly, you know, bad guys out there who are using spam and unsubscribe as a way to get to you and convince you that, "Hey, I'm going to reduce the amount of garbage that I'm getting by clicking this link."
Bob: All right, Dave, you talked about being wary of clicking on that unsubscribe link. I mean, talk to the normal person out there. I mean, I don't know, seems like a lot of people are either on Apple or let's just say Gmail. You know, what should you be doing to screen yourself out from all this junk email just to clean things up and to avoid being spoofed or taken advantage of? What are the practical steps you tell people to take to clean this stuff up?
Dave: So, the first thing always with this stuff is awareness, knowing that it is, at least, a possibility that anything you get could be spoofed, and operating with some skepticism and some caution. The second thing then is, you know, if you have a high level of confidence, legit, all right, go ahead and choose unsubscribe. But the safer methodology is to either, A, let's just pick Amazon, for example. You've bought stuff from Amazon. You're on various mail lists. You open up a Web browser. You go to amazon.com. You log into your Amazon account. You go to the communication settings or whatever they call it, and then you start to unsubscribe yourself from your mail list. You are initiating the transaction. You're always in control of it. You're not clicking the links, etc. That's always the best way to avoid any sort of spoofing is you start a transaction with a known legitimate site.
The other thing you can do is, in your mail client, whatever that might be, whether it's Gmail on the Web, Outlook on your computer or whatever, when you get a bogus email or even something like a text, you know, and even if you're not sure it's bogus, you just want to get off the list, just reported as junk or whatever they call it. Right click on it, open it up, whatever you need to do in your particular mail environment, and just say, report junk or report spam, or whatever they call it. While you'll still keep getting those emails, they'll just automatically go to your junk or spam folder. You go clear that out occasionally. You don't have to click anything. It vastly reduces the risk that you're going to be lulled into some false sense of security and click on the wrong thing. That's the two best ways to get rid of it with minimal risk to you. Report it as junk or spam, or log in to the company that sent it to you and unsubscribe that way.
Bob: So, if you do report these unwanted emails as junk or spam, something does actually happen and it gets diverted into a junk folder. I mean, I'm not joking around, this is good stuff to learn. I didn't know that. Is that what happened?
Dave: It's going to depend on your mail platform. And this same kind of logic applies to text. You get these weird texts, "Hey, Bob, are you meeting me for lunch today?" This kind of weird stuff. It's best not to interact with this stuff. Report it as junk. Block it. Block sender. Again, the terminology might vary, but the concept is the same. Rather than you click any links or respond to it, report it as junk or spam using whatever technique is available to you. And if you're not sure, that's something you can look up online. But once you've said this is junk, then you should not see them anymore. Once it hits your mail client, Outlook, whatever it is, it should just automatically throw that in the junk folder. If you just go out and clear those things out once in a while, should be good to go. Again, with minimal risk to you.
Bob: Yeah. And then you'll get the occasional message from somebody saying, "Hey, I emailed you. I tried to contact you and I couldn't reach you." I'd rather have one or two of those every six months than get inundated with this stuff that I never wanted in the first place. All right. Great stuff as always from our tech and cybersecurity expert, Dave Hatter. Thanks again, Dave. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. If you have a financial question you'd like for us to answer, there's a red button you could click while you're listening to the show if you're listening on the iHeart app. Simply record your question there and it will come straight to us. Dan in Blue Ash leads us off tonight, Brian. He says, "We're about 18 months away from retirement. We got about $2.5 million saved. And I keep worrying we will retire right before a market downturn. How do people protect against bad timing without sitting on a bunch of cash forever?" This is a great question and a common one.
Brian: That really is. This is one of the most common fears we hear. I want to retire and I've nailed my date. But, my gosh, what if the market goes over the cliff. And it really seems like ever since 2008, Bob, we have this notion that we are about to go over the cliff. That kind of sense of fear that's been hanging around there. There are still some people out there waiting for the second leg down from 2008. But anyway, so let's talk about some different strategies that that you can use to deal with this.
So, let's call it a retirement runway for this first one here. Instead of putting everything in the market, keep about two to three years of spending in safer assets like cash or short-term bonds. This is my favorite way to handle it. Talk about, what are you going to need? What bills are for sure come and due? There's the household bills that you're stuck with the rest of your lives. Maybe there's a car we're going to have to buy this year, or we've got to replace the roof, the HVAC. All of that kind of what I like to call pre spent money. We know the bills come and due and we're going to have to deal with it at some point. So, that's the money you want to carve out and carve out to the side.
Where that helps you is that you will not have to use any dollars that do get hit should therefore then be your longer-term dollars. If the market does take a downturn, we know we've already carved out the dollars we're going to use to spend to cover those expenses. You know, make sure you have flexibility. You don't have to spend the exact same amount every year. There are probably things you can trim out of your budget and maybe look at the budget and figure out, what are the things I'll pull the trigger on when it's time to back off a little bit if that happens? So, I hope that helps.
So, I think this next question is for you, Bob, comes a little bit down the same lines from Marion Montgomery. She says her husband wants to keep about 70% of their $2.2 million invested in stocks, even in retirement. And that feels really aggressive to her. So, how do you determine the right allocation when you're about to start withdrawals? I think the fears that Mary has are the same that Dan has.
Bob: All right, Mary, I'm going to give you two options here, door number one or door number two. Door number one is you could simply go to your husband and say, "Hey, until you reduce the risk exposure of our retirement portfolio, not just yours, you could sleep out there in the living room on the couch," and just see how quickly that allocation changes. That's door number one. Door number two, you could bring your husband in and talk to a good fiduciary advisor and do some of this stress testing that Brian and I talk about all the time where, "Hey, what happens if we have a down market with our current portfolio allocation? How would that impact the long-term plan? Will it work in a serious downturn market with 70% still with the stocks?" It might still work great, but if it doesn't work, I think, Mary, you and your husband owe that to one another to be prepared for that in advance, and then possibly, make some adjustments in your overall allocation.
Using good data and time-tested stress testing can often make couples feel a whole lot better about how things are situated rather than just one spouse saying, "Hey, here's the way we're going to do it." So, obviously, I was joking around about the first option. I think the second option is the way you ought to go. Sit down, stress test this thing in all market environments, and hopefully, as a team, which is what a marriage should be, you could come away with a good, long-term allocation that's going to allow both of you to sleep at night. All right, Alex in Florence, Brian, he says, "I'm retiring this year with a little under $2 million and a small pension. How do I decide whether to take a lump sum from the pension or the monthly income option?
Brian: Well, you're right to call this out as a question you need some more help with, because this is one of the most irreversible decisions you can possibly make. When you're choosing between a lump sum and a monthly pension, what you're really deciding is between control and flexibility, or do you want guaranteed income you can't outlive? So, let's start with a monthly pension. The big advantage here is stability, assuming that pension is stable underneath that. There's a reason that once a year they send you that really boring letter that talks about how well that pension is funded. Probably time to pull out a couple of those and read them just to get an idea for what kind of shape that is in.
And you might hire a financial advisor to help you through that if you don't understand what that's saying. But the pension. But beyond that, if it's a stable pension, it doesn't depend on the markets, it's not going to wander up and down. It acts a lot like Social Security. It's a paycheck for life. In rare cases, it's going to have inflation built into it. But I'm going to stress the word rare. That takes a lot of pressure off your other portfolio, which is probably riding the waves of the markets, whatever that has.
Now, here's the tradeoff. Typically, you're giving up access to the principal. Once you choose that income stream, the decision is locked in, and there's limited or no inflation protection. You know, like I said, it's a very rare situation that pensions still have inflation built into them. So, how do you decide between the two? Look at that income floor, add up your guaranteed sources, that pension, Social Security, any other steady income you've got out there. If the monthly pension costs helps cover most of your essential expenses, that's really valuable because now your $1.7 can just be your fund money or your unexpected money. And you can go through with a life without a lot more stress.
And then figure out that payout rate. Quick rule of thumb, if the pension is effectively paying you something like 5% to 6% or more of the lump sum annually, then that's usually a strong offer. Lower than 5% to 6%, so you're literally choosing between here's a lump I can stick in my IRA right now and I can invest it in something that'll spit out an interest rate. If that's less than 5% to 6%, then that monthly might be a better option. So, think about those goals. We've got time for one more quick one from Ben in Westchester. Ben says his daughter's getting married and, "We're considering $75,000 toward a house instead of a wedding gift." What tax issues might they experience, Bob? Are there better ways to do this?
Bob: Well, Ben, you're $75,000 number will work. But here's how it has to work. Keep in mind, $19,000. That's the maximum amount of money you can give to any human being on the planet in 2026 without having to file a gift tax return. So, you said you're married, you and your spouse, you could take that number, multiply that times two. That gets you to $38,000. Now, if you're comfortable, you know, also giving your daughter's fiancé $38,000, well, there that number goes up to $76,000 match, which is, you know, your $76,000 is under that amount. So, if you structure it properly, you're going to have to give some money irrevocably to your daughter and your future son in law. That may or may not make you comfortable, but that's a way you can get it done. All right, coming up next, Brian and I are going to kick around a real life example of a client trying to help his mother get out ahead of some future long-term care planning. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Brian, let's talk about an actual listener question and real life scenario that we deal with seemingly more and more every day. And this client's trying to help his 78-year-old mother. She's got about $900 grand saved, and they're starting to be concerned about future long-term care needs. And the question always arises, when should the kids, or the son in this case, step in and start doing some active planning? What are those discussions like? How involved should the kids be with mom and dad?
We're having this conversation more and more, so I want to spend a couple of minutes and kick this around. I think it's good to get involved earlier rather than later, as long as you do it respectfully with the parents. The number one thing is you got to get out in front of cognitive impairments. And we're seeing that early onset dementia or Alzheimer's. I'd say, the first thing, you know, and I put this under the category of long-term care planning, make sure you have financial powers of attorney and health care power of attorneys in place now. Because if the cognitive impairment comes in, you want a backup person ready to step in and take care of things or, at least, be present during meetings where decisions are made. That would be step one.
Step two, Brian, is if we really see a long-term care event possibly coming down the road. I mean, we could get into some gifting, but we got to remember there's a five-year look back rule on any money that mom gives away now, you know, if you're trying to have her qualify for a Medicaid situation. Those are two thoughts that quickly come to mind. What would you add to this question from our listener?
Brian: First of all, I want to frame it a little bit, because a lot of people think that, "Oh, my gosh, the average stay is $120,000, $130,000 per year in this area. I have to layer that on top of her existing expenses?" No, you usually don't. Because she's not going to the grocery store anymore. She's not traveling anymore. A lot of those expenses are simply duplicative. It definitely will cost more than her lifestyle now, but it's not a doubling of the expenses. So, be reasonable about what... I would say, the 78-year-old mother with $900,000, that's all we really know. But at the same time, she's got a good chance of being able to self-insure at that level with some other rearranging things.
Bob: Thanks for listening tonight. You've been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.