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Do you plan to work to age 65? Well, the problem is many people actually don't work to 65, and here to talk with me about that is Michael Konrad. He's the chief retirement strategist at JP Morgan Asset Management. Mike, welcome. Thanks. It's a pleasure to be here, Bob. So, uh, it's the, the new 2025 guide to retirement, yes, is out. It's chock full of great information and statistics. We're gonna go through some of these statistics.And I also want you to make sure that we provide our folks with some actionable advice as we go through these, these stats. And the first one that I want to tackle is what I just mentioned is that many people say they want to work to age 65, but your statistics show that 70% of them say they do, but less than 30% actually make it to 65%. The vast majority retire by 62.

Correct. It's, it's a big gap, Bob, and it just shows people have plans and then life.Comes at them and things change. And sometimes we make decisions thatAround retirement that our our our own and within our control and there's other things that, you know what, I am downsized to my company or now I'm a caregiver for a loved one or or a spouse or on the other side of things, you know what, I've been listening to all the good advice that all your listeners have been following for years, Bob, and they say, you know what, I am ready for retirement and they make that decision, but it's a mix of things. Again, what people have in mind years before retire.It may not be where they land. So you've got to plan for this what if

situations. So in terms of planning, I think one of the things that you talk about in the new guide is that you may need to plan for a 35 year time horizon. And the notion is maybe it's not that you're living longer, it's that maybe you're retiring sooner and that you're 35 years is really, you know, to age 95 or whatever it may be, but it's because you're retiring sooner.

Yeah, it's, it's abit of both for sure, and I think you're right in pointing out that mix andI think a lot of people were left to their own devices will sometimes plan based on averages, and you mentioned life expectancy, they might say, OK, my parents lived to year X or to this age, and that's what I have in store. And there's actually a lot of research out there that says your personal lifestyle decisions can have an even greater part of your longevity than just your genetics. So, so there's a lot of interesting things out there, but you generally need to plan for a long life and especially for those what if situations.Your time horizon is extended for things out of your control.

Yeah, so it raises an interesting question for me. If you were planning to retire at age 65 and you were thinking I'm going to have these 3 years of savings that I don't get, I may have to accelerate my savings and say, I'm going to play it for 65, but I'm gonna actually save as if I'm going to retire at 62.

Yeah, it's, I thinkit's planning for the what, but it's also planning for the how. So how are you going to bridge that gap? You know, 3 years, simple math might not feel like that long a time, but there's a lot of dollars and cents associated with retiring 3 years earlier. So that's where you need to think about, OK.Social Security is one option tapping that potentially, but there's benefits and trade-offs there as we know, but there's also, do I have other things in my portfolio or something that can provide a bridge to carry me through? Yeah.

So when we talk about older Americans in the workforce, uh, maybe 30% are working past age 65, about 10% are age 70 and older, and they're working for a number of reasons, both wants and needs. Maybe tell us about some of the wants and needs that are that you're seeing. Yeah,

and it's interesting like retirement is no longer this binary decision to work or to retire, and we actually see that play out when we look at.Anonymized data across Chase households. So we bank half the households in the US through our, our Chase banking. So we can see their spending and their savings again anonymized, but what's interesting is 53% of households are actually partially retired.Meaning that they have some combination of income, either Social Security, pensions, annuities, but they also have a bit of wage income as well. So there's this hybrid approach and we see like certain nuances of those partially retired households and for one, people,Simply enjoy getting up and going to work and they love what they're doing. They love the social elements of that, you know, they have purpose, but there's other people they're working or partially retiring because they have to. In fact, when we look at partially retired households, we see that they actually transition to full retirement later than those who go straight from working to retirement. They're also carrying more debt.As well, so a lot of them are spending more and they're working to be able to maintain that spending but also pay off their debt and then they transition to retirement. So some interesting trends that came out of the research thisyear

we had Olivia Mitchell on from the University of Pennsylvania Wharton School and she talked about how so many older adults are now retiring with debt either either mortgage debt, credit card debt, auto loans, student loans, etc. so this notion of maybe working out of need.is just as important as maybe as you said as as out of

want. Yeah, and we're seeing this spending spike, not just because of people, oh OK, spending on things on their bucket list, traveling, sure that that's happening, but they're actually experiencing this spending spike because they have to maintain a certain standard of living and then they start to spend out. So there's this spike and then there's this curve, but we also see spending volatility.Happen in the early years of retirement and throughout retirement for manyindividuals too.

Yeah, so I mean, what's the actual advice given that kind of spending volatility? I guess it's easier to accommodate that, that those spikes if you're working still or uh or if you have enough assets.

Sure. Yeah, and some people have one or the other or both, but I think that's where there's an opportunity to look, first of all, speaks to the need forFlexibility in your strategy and the vehicles you're using but also I think there's an opportunity to explore guaranteed income options, you know, whether that is something that's offered in plan through a target date fund or on a standalone basis annuities just again something that could help bridge a time period if you're not working or if you do need more income for a certain periodof time as well.

Yeah. So here I've got this, your guide, yes.Uh, filled with Post-it notes, and one of the topics that I wanted to talk about in the guide is this notion of income replacement needs. And generally people are told you should, uh, plan on retiring around with 70 to 80% of your pre-retirement income, but your research seems to suggest that there's a wide range of income replacement rates based on your

income. Sure, and what we found, what was really interesting, Bob, this year isWhen we did a refresh of our placement rate research, we found that that conventional wisdom, it's actually not applicable to to so many households. In fact, like the so-called rules of thumb, 70 80%, they can feel a bit broken and what we found is actually for the lower income households you're.Replacement rate could be 90%, 95%, even north of 100% based on spending, whereas higher earners, you get into 20 300,000, so two ends of the barbell, those higher earners replacement rate is far lower in the 50s and 60s on a percentage basis.

And, and what's the explanation for that? Do do you have a sense of why that is?

Yeah,it's a few things. I mean one is just differences in spending.But for the lower income households, you know, they actually, they're spending whatever is coming in and that's at a necessity. And then once you move higher on the income spectrum, what we see is people are actually saving more, which is a good trend just given where we know how big the numbers are, but we see that, but also what we found in the research this year.Uh, is that Social Security tends to be a smaller portion of the overall income than what we've seen in thepast.

Yeah, if, if I look at the income replacement chart here, it shows that Social Security is 14% of someone in the highest income that, uh, bracket that you track 300,000 and above. But if you're at 30,000, uh, and below, Social Security represents 2/3 of your income in retirement.Right. So for sure makes sense that you would, uh, that you would do that. Talk also you, you have in the booklet these retirement savings checkpoints, and I'm just gonna focus on one of them. Average or median household income in America is around $80,000 and in your table here you suggest that someone who is age 30 needs to have, uh, who has household income of $80,000 should have $90,000 in their retirement account. So roughly 1 times.Uh, salary or household income,

yeah, yeah, that's about right. And then you see that um.As you get older, closer to 65, it's more like a factor of 8. So it, it, it goes exponentially from there, but yeah, that's a general guideline there and, and by the way, these are the numbers based on what you're expected to fund out of pocket, so net of what you're getting from SocialSecurity there,

right? And, and, and I guess obviously and and in your table here, the assumption was that you're using a 60/40 portfolio and that you're saving at 5%.

Yeah, so yeah,we're, we're assuming that, yeah, 6040 in the years leading up to retirement and once you transition to retirement, you're downshifting your equity, so you're 4060 throughout

retirement and that you would fund 35 years of retirement, which is interesting. So this, I think this table gives people some hope if they were to go download this from your website.This guy to look at their checkpoints and say, how am I doing relative to these

benchmarks? Yeah,and, and one of the big reasons we created this was, first of all, this is, I think, a starting point in the conversation for all the advisers that listen listen to Bob, we know that they have pretty robust tools that can really offer individualized guidance. So this is a starting point in the conversation, but what we see.In our own research is roughly 56% of households in America have not done a simple calculation as to how much they need in order to retirement. So this is to help answer that question what do I need? And am I, am I on track or not? And if I'm not on track, then you know, hopefully that creates some action, not shame or this is not for fear factor, it's giving them guidance, but also, OK, now that you know this, what do you need to do to get close to yourgoal?

Yeah.It's interesting. Uh, we have to go to a break, but the Employee Benefit Research Institute in their retirement confidence survey, they always note that people who have done the calculation are that much more confident about funding their retirement than those who have not calculation knowing is half the battle. Yeah. So when we come back, we've got more to talk about, Mike. We're going to talk about with all strategies, the bucket strategy, the 4% rule, and the spending volatility that you referred to a second ago. Don't go away, we'll be right back.Welcome back to Decoding Retirement. I'm speaking with Mike Konrath. He is the chief retirement strategist at JPMorgan Asset Management, which most recently introduced their 13th annual edition of the retirement guide, uh, guide to retirement. Uh, Mike, I, I promised that we would talk about spending and inflation and.You know, when I think about inflation in retirement is one of the big risks that people face in retirement in addition to longevity, and it's insidious, right? People don't actually feel it day to day or even month to month or sometimes even year to year. Uh, in your guide, you talk about, uh, inflation and at what run rates it is that people can expect in retirement and, and how it changes by category.healthcare, food, transportation. Talk more about

that. Yeah, I mean, inflation can feel like that slow burn, or it's like the pot of boiling water, you know, you got your finger in the pot of boiling water and you don't feel it until all of a sudden, ouch, right? But it can erode a portfolio and spending power over time.So we look at it, we do break it out by category because we find that not only do people spend differently in different ways over time, but things inflate at different rates.As well, so one thing that I think is particular for folks to be aware of is health care inflation, like specifically Medicare, you know, that historically has run a lot hotter than general inflation. So we even see some advisors as a best practice they will run general models based on inflation, but then for healthcare, they'll handle that separately. So we look at inflation on healthcare about 6% annually. And if you look at the Medicare trustees.For that coincides with what the government is actually producing as well and we also know that as people age they require more health care and healthcare only gets more and more expensive so you definitely have to factor in, especially the latter years and even long term care should be something that's discussed aswell.

Yeah, and I, you know, I'm fond of the Bureau of Labor Statistics in their consumer expenditure survey. They say that when you're 65, health care expenses runs around 5%.But by the time you're 85 and 90, it's 15% of your expenditures, and that's partly due to the increased need for healthcare, but also the inflation of healthcare. It's a big, big expense. Uh, you also tracking the guide changes in spending, and this to me is one of the most interesting tables charts in the entire guide.Um, Rand, Boston College, others have noted that spending declines on a real basis over the course of retirement. David Blanchett came out with the spending smile, and in this, uh, guide, there's dramatic evidence of how spending changes and declines over time. Talk about what folks need to know and how they plan for that.

Yeah, I, I think historically people have thought in the past that spending is this linear progression and you just spend to keep pace with inflation andYou know, like we were saying, you have to be mindful of inflation, but people will generally spend more in those early years of retirement. So there's this curve over time and then there's a bit of a surge for many retirees, but then it starts to trail off. So as they start to slow down, they've done their traveling, they've taken the grandkids on the cruise as they slow down their spending slows down as well, but then we start to see it taper back up. So and that's the other end of that smile, if you will, and that's where the health care expenses and long term care really enter the picture. So.Spending is not linear. It adjusts over time, but it's important to have a strategy that's dynamic and flexible so you can accountfor that.

Yeah, so I, I sometimes think that when planners are creating retirement income plans, they're planning as if, uh, there'll be a nominal increase in inflation and not maybe not factoring the possibility that there's a real decline in in spending, sure, and that you may find yourself, uh, with too much at the end of retirement because.You were planning on a nominal increase. Is that fair to say? I,

I think it is, and we've done research on the 4% rule, for, for example, which is great in terms of thinking guardrails on your portfolio. However, as we were just saying, that's not how people spend because the 4% rule is generally premised on if you spend 4% on your portfolio that will last you 30 years with a high likelihood of not running any money. You're gonna give yourself a raise based on inflation, but we see in the actual household data.That people are not continuing to spend at that same clip over time and I'll give you an example, Bob, and we have this in the guide as well. If you retired with a million dollars portfolio and you followed the 4% rule when we ran this through JPMorgan's long term capital market assumptions.And we looked at it, what would be the residual value? How much would you have left at that the end of the 30 year time period? And we found 2/3 of the scenarios in the Monte Carlo simulation, 10,000 scenarios, 2/3 of the time you would have at least where you started at a million dollars or more. And you go below that, you know, about 4 out of 10 scenarios, you'd actually have about $2 million or more. So,Again, great guardrails for not running out of money, but recognizing that many people have multiple goals and if legacy is in there, that's great, but I think that's where you have to balance longevity risk with lifestyle risk, not spending enough or having the confidence to spend the money that you've rightfully earned.

Yeah, I want to talk more about the 4% rule and the bucket strategy, butIn terms of changes in spending, you looked at it at it by household wealth, and is there a difference in terms of how much wealth someone has relative to how the spending changes?

There is. I mean, you see differences in the categories, but, but directionally it's, it's about the the same phenomenon. The the difference is that people in theend of the spectrum, they're going to be spending less on leisure versus people that have more wealth are gonna be more concentrated there, but also it's how is healthcare going to be funded as well. So once you get into the middle income ranges, higher income, you're you're on the hook for out of pocket as opposed to maybe qualifying for government services and things like that.

All right, so let's turn our attention back to the 4% pool. Uh, in your guide, you ran some, uh, scenarios using a 40-60 portfolio. And by, by way of background, we just had Bill Bengan on the show and it's no longer the 4% rule in his book. It's now the 4.7% rule, and, uh, and he says that there's a high degree, uh, of, of not running out of money over a 30 year time horizon if you withdraw a 40.4.7% adjusted for inflation, uh, and you use a 60/40 portfolio, roughly a 6040 portfolio. But in your study here, uh, it seems to suggest that, uh, at 4%, uh, you have a somewhat decent chance of

you yeah, between 35-40 years perhaps. So 4% rule does generally work if your primary metric is not running out of money, but it's for all those other reasons, just how much money is left at the end and also.Is this how people actually spend over time?

Yeah. So at, at, at 5% and 6%, at 6%, you're going to run out of money, a little after 20 years and at 5% a little after 25 years.

So yeah, so he rolling the dice.

Yeah,

so, and he is the OG of that. So, so that rule that 47 is probably in line with what we uncovered as well. But again, just thinking of how households are actually spending what they're doing, it doesn't always align with that.

Yeah, so in the guide you, you say, well,Compare the 4% rule to the bucket strategy. And, uh, I'm a big fan of the bucket strategy for lots of reasons. I want to hear why you, you feel that it's a better perhaps a better strategy. But I'm also reminded of some research that Joe Tomlinson had done some years ago where he compared the two and said it's really a preference thing. I can't really determine which is better than the other. It's perhaps how you feel about it. So,

yeah, and I think, I mean, it's a great point. How you feel influences how you will act too.And what what I mean by that is with a bucket strategy, so one of the benefits of the bucket approach is that it helps from a mental accounting perspective. So when you see volatile markets, you at least have some confidence that OK, my short term needs, you know, my monthly bills going out to the next 3 years, for example.I'm covered and if I know I'm covered there and I have enough put aside, then I'm less likely to focus on the investment components of my portfolio. So cash, cash equivalents were great for that first bucket, but it gives people the confidence to get invested and stay invested.And for the longer term parts of their portfolio.

So when I think about the short term bucket, I also think about this notion of I'm trying to manage and mitigate the risk of sequence of return risks, and, and which I do by having a bucket that's in safe, secure, riskless, perhaps assets.

Yeah, now in sequence return risk is real, and we actually, in our participant research that we produced this past fall, we found thatRetirees are most concerned about market volatility at two points the year right before they retire and the first few years that follow, rightfully so, because as we know, if they experience bad returns early on in retirement, then it's gonna be that much harder to make up for it and just think of it, if someone has $1000 and I'm using extreme examples here, purely hypothetical, $1000 and their portfolio goes down 50%, they're now at $500.They now need a 100% rate of return to get back up. So it's not so much average annual returns and back to was saying earlier, like people focus on averages, they're really meaningless when you have cash flows or when you're spending out of a portfolio. It's the path or the sequence thatreally matters. Yeah,

I often think of uh of this notion that we talk about the law of large numbers, but it's really the law of one number and it's your number. Yes,

itis your number.And it's an important one,

and it's your number. So in the book, you talk about the 4% rule, we talked about the bucket strategy as a way to create a retirement income portfolio. You also talk about something called goals-based planning. And, and how do all those three square up? Are they different or not?

No, I think they're, um, interrelated. So if you think about goals-based planning, you can, in essence, so people are.At an individual level, people have goals. OK, I want to fund my children or my grandchildren's education. Of course I want to be able to fund my retirement. I want to pay for my daughter's wedding. There there's things on their list. Those are the goals, and I think, excuse me, where the bucket strategy comes to place is, OK, when are you funding that vacation? When are you going to need to fund that wedding and thinking of those goals and bucketing them short term, medium.In the long term, so I think they are directly related, and I think it helps people understand how so if I'm an adviser, I want people to know the asset allocation that we selected is tagged to a specific goal because in the absence of that, people might think I'm not sure why we picked that asset allocation or maybe someone told me to do this and then when.Markets start to get volatile. That's where they miss the connection. So connecting the portfolio to the goals can make a big difference in keeping people invested over thelong term.

Mike, we've run out of time unfortunately. I want to thank you for joining us, for walking us through the new guide to retirement. You can find it on the JPMorgan asset management website.I believe yes, under retirement insights highly encourage people to download it and read it and think about it and apply it in their lives. So once again, thank you for thank you. It's been a lot of fun. So that wraps up this episode of Decoding Retirement. I hope we provided you with some actionable advice to help you plan for or live in retirement. And don't forget for the latest retirement news, check out Yahoo Finance.com.

This content was not intended to be financial advice and should not be used as a substitute for professional financial services.