95: Cash Flow vs. "B.S." Retirement with Walter Young

Speaker: 00:00:00

Hello, everyone.

Speaker: 00:00:00

I'm John Montoya, and I'm John Perrings.

Speaker: 00:00:04

We're authorized Infinite Banking Practitioners and hosts of the

Speaker: 00:00:07

Strategic Whole Life Podcast.

Speaker: 00:00:11

Episode 95, The Fifth Option, our interview with Walter Young.

Speaker: 00:00:15

So today I am really excited to share, with you, my friend,

Speaker: 00:00:22

colleague, Walter Young.

Speaker: 00:00:24

He is the coauthor of an incredible book called The Fifth Option.

Speaker: 00:00:29

Walter, how are you?

Speaker: 00:00:30

I'm doing well.

Speaker: 00:00:31

Thanks.

Speaker: 00:00:31

Good morning.

Speaker: 00:00:32

Appreciate being here.

Speaker: 00:00:33

Yeah, absolutely.

Speaker: 00:00:35

I want to first start off with a five star review that I read last night on Amazon

Speaker: 00:00:42

that I think does a very apt job of just describing what you did with this book.

Speaker: 00:00:50

Here it is.

Speaker: 00:00:52

The Fifth Option is a great book that helped me understand my

Speaker: 00:00:54

options for a strategic retirement.

Speaker: 00:00:57

I come from a marketing and project management background, so financial

Speaker: 00:01:00

concepts are a new language for me.

Speaker: 00:01:02

The beauty of the book is that it helps provide information through a story of

Speaker: 00:01:07

a real couple and real as in quotes, and their journey into financial wellbeing.

Speaker: 00:01:12

If you have no background in financial planning, you'll be able to understand.

Speaker: 00:01:15

Everything!

Speaker: 00:01:17

This book prepared me for my next meeting with my financial advisor,

Speaker: 00:01:21

filling my head with ideas and questions I never thought to ask.

Speaker: 00:01:24

The insights of the book are mind opening, easy to digest, and applicable

Speaker: 00:01:28

regardless of your starting point.

Speaker: 00:01:30

I find myself recommending to my friends who want to make educated decisions

Speaker: 00:01:34

about their financial future in quotes.

Speaker: 00:01:37

Exclamation point.

Speaker: 00:01:38

Read this book.

Speaker: 00:01:39

And I couldn't agree more.

Speaker: 00:01:40

I couldn't agree more, Walter.

Speaker: 00:01:42

This is an incredible book.

Speaker: 00:01:43

I've recommended it to clients that I work with.

Speaker: 00:01:48

It's a must read if you are trying to plan for your retirement.

Speaker: 00:01:53

And that's, in addition to what we teach here on the podcast

Speaker: 00:01:56

with Becoming Your Own Banker.

Speaker: 00:01:57

This was a really eye opening read for me and we've done joint work.

Speaker: 00:02:01

And what what you teach, I think is something that people

Speaker: 00:02:06

really, need to pay attention to.

Speaker: 00:02:08

So Walter, let me turn it over to you and, what can you tell us

Speaker: 00:02:14

about yourself and, maybe what inspired you to write this book?

Speaker: 00:02:18

Yeah.

Speaker: 00:02:18

So appreciate you asking the question.

Speaker: 00:02:20

I really appreciate that review.

Speaker: 00:02:21

I hadn't read that one yet.

Speaker: 00:02:23

it's just always, it's always fun to see what people, you don't

Speaker: 00:02:26

know how they interpret your work.

Speaker: 00:02:27

So that's fantastic.

Speaker: 00:02:29

so I started my journey in the early nineties where I got into financial

Speaker: 00:02:32

services right out of college.

Speaker: 00:02:34

and then I transitioned into going to MBA school.

Speaker: 00:02:38

and during my MBA school, I was working at a small company.

Speaker: 00:02:41

That needed help organizing its finances and its, just the

Speaker: 00:02:45

financial structure of the company.

Speaker: 00:02:47

And so part of the, impetus to going to a based school is that I would

Speaker: 00:02:50

learn how to do this for this company.

Speaker: 00:02:52

'cause we didn't have anybody in house that could do that.

Speaker: 00:02:54

And so as I was going through my MBA work, I realized I could take this

Speaker: 00:02:58

exact lesson from the night before, bringing into the, to my job, right?

Speaker: 00:03:02

And help organize the company.

Speaker: 00:03:04

And then I realized.

Speaker: 00:03:05

I could take this to my home and do it in the same way and realize that,

Speaker: 00:03:10

finance to a large degree is the same, whether it's, in a corporate

Speaker: 00:03:14

world or, in a personal world.

Speaker: 00:03:16

And, so I explained to people that.

Speaker: 00:03:19

Personal finance and corporate finance, although they share the

Speaker: 00:03:22

same word, finance, actually manifest themselves in different ways.

Speaker: 00:03:25

And I think that can be a challenge for individuals because at the

Speaker: 00:03:28

corporate level, we know finance really revolves around profits and cash flow

Speaker: 00:03:33

and the movement of money, right?

Speaker: 00:03:34

We, go on CNBC, we see CFOs bragging about their cash flow

Speaker: 00:03:38

and returns to shareholders.

Speaker: 00:03:39

We don't hear them talking about their balance sheets, but on the personal side.

Speaker: 00:03:44

It's really more focused on balance sheets, right?

Speaker: 00:03:46

You sit down with a financial advisor and it's always how much, can you save?

Speaker: 00:03:50

How big can you get your balance sheet?

Speaker: 00:03:53

And I joke with people that you can't take your 401k statement into any

Speaker: 00:03:57

grocery store and buy milk with it.

Speaker: 00:03:59

Even if it says a million dollars on it, you have to take a balance sheet

Speaker: 00:04:03

and eventually turn it into cashflow.

Speaker: 00:04:06

And the more efficiently you can do that.

Speaker: 00:04:09

The better off you're going to be.

Speaker: 00:04:10

And so there's some very good lessons we can learn in the corporate world

Speaker: 00:04:13

that we can bring to the finance world, or into the personal finance

Speaker: 00:04:17

world, so that we can learn how to act more profitably and really have

Speaker: 00:04:21

a cashflow centric financial planning as opposed to a balance sheet plan.

Speaker: 00:04:25

I think in the book I joked that a balance sheet plan, I call that BS.

Speaker: 00:04:30

It's just a BS plan.

Speaker: 00:04:31

We have to learn how to, we have to learn how to add in.

Speaker: 00:04:35

The Cash Flow Component of it, so that I can have a really healthy retirement,

Speaker: 00:04:39

which I think is safe, predictable, and plentiful income for as long as I need it.

Speaker: 00:04:44

So that's been my passion and, the emphasis behind writing this book.

Speaker: 00:04:48

The book actually comes from a lot of the academic world, white papers

Speaker: 00:04:52

that are actually mind numbing if you try to get through them.

Speaker: 00:04:54

And so the idea was to take some of this really high intellectual thought

Speaker: 00:04:58

and turn it into a story that could be accessible to the average person.

Speaker: 00:05:02

I'm one of the mere mortals too, where, we get to the point of retirement.

Speaker: 00:05:05

We need every dollar to act as efficiently as possible so

Speaker: 00:05:09

we can enjoy our retirement.

Speaker: 00:05:10

And that was really the goal of the book.

Speaker: 00:05:11

And so far, the feedback has been really tremendous.

Speaker: 00:05:14

Yeah.

Speaker: 00:05:14

And I love, I love that joke, the, BS retirement plan, stole my thunder

Speaker: 00:05:20

there because I was going to ask you next, what is this BS retirement

Speaker: 00:05:24

Yeah.

Speaker: 00:05:24

Yeah.

Speaker: 00:05:25

Yeah.

Speaker: 00:05:25

And I think, the, idea is that, two people could have the same balance sheet, right?

Speaker: 00:05:29

We can both have a million dollars and if your a million dollar

Speaker: 00:05:32

spends at 40,000 a year and mine spends at $70,000 a year, I win.

Speaker: 00:05:36

And that's simply just a function of understanding how to turn a

Speaker: 00:05:40

balance sheet into cash flow.

Speaker: 00:05:41

But you don't get that.

Speaker: 00:05:43

By default, you have to take certain steps to unlock better

Speaker: 00:05:47

cash flow into retirement.

Speaker: 00:05:49

Otherwise, you do get pigeonholed into, the safe withdrawal rate,

Speaker: 00:05:53

the 4 percent rule kind of style of thinking, that most people, have.

Speaker: 00:05:57

And that's where I think a lot of the frustration exists, is how do

Speaker: 00:06:01

I, how can I do better than that?

Speaker: 00:06:03

and that's what The Fifth Option's about.

Speaker: 00:06:05

yeah, exactly.

Speaker: 00:06:06

And how did you, narrow down or come to, the decision on the title of this book?

Speaker: 00:06:12

I think it's, aptly named, The Fifth Option.

Speaker: 00:06:16

Maybe you could tell us about the first four options and how

Speaker: 00:06:19

you got to The Fifth Option.

Speaker: 00:06:20

Yeah.

Speaker: 00:06:20

So, when you sit down with a financial planner traditionally, right?

Speaker: 00:06:23

And I grew up in this world too.

Speaker: 00:06:25

Traditionally, you sit down with a financial planner, they project how

Speaker: 00:06:27

your assets are going to grow if you save and you get returns in the market.

Speaker: 00:06:30

And then the question then becomes, what can I take out?

Speaker: 00:06:33

How much money can I take out each year to live on?

Speaker: 00:06:35

And so we know that most financial planning revolves

Speaker: 00:06:38

around the 4 percent rule, right?

Speaker: 00:06:40

And I don't know how much we want to get into the 4 percent rule, but back

Speaker: 00:06:43

in the 90s, there was a study done and lo and behold, and After a lot

Speaker: 00:06:46

of research done, it turns out that 4 percent was about the max you could

Speaker: 00:06:50

take out during every 30 year period since 1926 and not run out of money.

Speaker: 00:06:56

And so that was the, rule of thumb.

Speaker: 00:06:59

But the problem is that some people will look at their assets and realize

Speaker: 00:07:02

that the 4 percent rule means a really small income, a smaller

Speaker: 00:07:06

income than they were hoping for.

Speaker: 00:07:08

And so when they talk to their financial advisors about, what can I do to improve

Speaker: 00:07:11

my situation, they'll give you four, what I call, frustrating options.

Speaker: 00:07:14

The first option is we'll save more money.

Speaker: 00:07:16

we know that saving more money always helps the situation,

Speaker: 00:07:20

but it's not always easy to.

Speaker: 00:07:21

And one of the other things, John, that makes it interesting is if I save more

Speaker: 00:07:24

money now, I might be robbing my current lifestyle for a future lifestyle, right?

Speaker: 00:07:30

So we have to understand that there's two lifestyles that are

Speaker: 00:07:32

always at war with each other, my current self and my future self.

Speaker: 00:07:36

And so we have to, everyone has to come up with a balance of what their

Speaker: 00:07:38

savings capacity that feels good is.

Speaker: 00:07:40

And if you can save more money, fantastic, but it's not always an option.

Speaker: 00:07:44

The second is, then we can start to try to increase our rates of return, so we

Speaker: 00:07:48

can have more money at the end of our retirement, but that involves taking

Speaker: 00:07:51

more risk, and most of our people we work with as we get closer to retirement

Speaker: 00:07:56

are actually looking to reduce risk, not take on more risk, because the

Speaker: 00:08:00

volatility can be very uncomfortable.

Speaker: 00:08:02

The third option is people might say, I'll just work longer, right?

Speaker: 00:08:05

I'll just work till I'm 65 or 70.

Speaker: 00:08:08

and, that certainly is an option, but not always does our

Speaker: 00:08:11

business let us do that, right?

Speaker: 00:08:12

This doesn't mean that the company will say you get to work here until 70 and

Speaker: 00:08:15

not always does our physical bodies allow us to work until we're 70, right?

Speaker: 00:08:20

So that's not necessarily a given that we can do that.

Speaker: 00:08:22

And the fourth option is when people really capitulate to say, you know

Speaker: 00:08:26

what, I'll just have to live on less.

Speaker: 00:08:27

They take on this kind of defeatist.

Speaker: 00:08:29

TheFifthEdition.

Speaker: 00:08:30

com.

Speaker: 00:08:31

TheFifthEdition.

Speaker: 00:08:32

com.

Speaker: 00:08:34

TheFifthEdition.

Speaker: 00:08:35

com.

Speaker: 00:08:36

TheFifthEdition.

Speaker: 00:08:37

com.

Speaker: 00:08:38

TheFifthEdition.

Speaker: 00:08:39

com.

Speaker: 00:08:40

I guess I don't have to travel as much as I wanted to, or maybe I won't go out

Speaker: 00:08:44

to dinner as much, and they start taking away from retirement because they realize

Speaker: 00:08:48

that 4 percent rule is so limiting.

Speaker: 00:08:50

But the good news is there's a fifth option, which is the name of the book,

Speaker: 00:08:53

which is a way to transcend those four frustrating options to improve the

Speaker: 00:08:58

withdrawal rate scenario so that you can get more income out of the same dollar.

Speaker: 00:09:03

And that's an efficiency metric that corporations really take, advantage of

Speaker: 00:09:08

understanding how to, drive efficiency from dollars, how to drive better cashflow

Speaker: 00:09:12

from dollars, that when we instill those same principles, we can actually

Speaker: 00:09:16

get a better retirement, even though we might save the same amount of money, and

Speaker: 00:09:19

that's where that fifth option came from.

Speaker: 00:09:22

Yeah, absolutely.

Speaker: 00:09:24

one of my favorite, parts of your book is the desert Island problem.

Speaker: 00:09:30

And this is, this is a problem that, people have, when they're trying to plan

Speaker: 00:09:36

for retirement and the goalposts keep on getting pushed out further and further.

Speaker: 00:09:40

And I love the way that, you, put this in the book.

Speaker: 00:09:46

the, desert Island problem, maybe you can share a little bit

Speaker: 00:09:48

about that with the audience.

Speaker: 00:09:49

Yeah.

Speaker: 00:09:50

That, yeah.

Speaker: 00:09:50

It's one of my favorite parables that we came up with.

Speaker: 00:09:52

The desert.

Speaker: 00:09:53

Everyone has to solve.

Speaker: 00:09:54

The desert island dilemma, everybody does when it comes to retirement planning.

Speaker: 00:09:57

No matter how wealthy or not you are, and the desert island simply, the desert

Speaker: 00:10:01

island dilemma simply goes like this.

Speaker: 00:10:02

Imagine you find yourself washed up on a deserted island, and as you look around

Speaker: 00:10:09

the island, you realize it's just you.

Speaker: 00:10:12

But luckily you see at the shoreline a barrel that's floating.

Speaker: 00:10:16

And you run down to the, shoreline, you pick up the barrel, you bring it up to

Speaker: 00:10:20

the beach, you open the barrel, and you smell the sweet smell of fresh water.

Speaker: 00:10:25

And the thought hits you suddenly that this might be the only

Speaker: 00:10:29

water you have on the island.

Speaker: 00:10:30

And as you look around the desert island, you realize that this

Speaker: 00:10:32

is the only water you can drink.

Speaker: 00:10:35

And so the question starts to formulate in your mind, how much

Speaker: 00:10:38

water can you drink each day?

Speaker: 00:10:40

in order to answer that question, I might have to answer two additional questions.

Speaker: 00:10:44

The first is How long am I going to be on this island?

Speaker: 00:10:47

And so when you look around the island, you recognize there's no ships,

Speaker: 00:10:50

there's no planes overhead, so you might be on this island for a while.

Speaker: 00:10:54

The second question you want to answer is, will it ever rain?

Speaker: 00:10:56

And when you look up in the sky, it's just a blazing sun.

Speaker: 00:10:59

It doesn't rain here very much.

Speaker: 00:11:01

So if you don't know how long you'll be on the island, and you don't

Speaker: 00:11:04

know if it will ever rain again, how much water can you really drink?

Speaker: 00:11:09

And when I ask that question to people or in groups of people, the

Speaker: 00:11:13

answer invariably comes back, as little as it takes to stay alive.

Speaker: 00:11:16

Because I have to ration this water for as long as it takes and

Speaker: 00:11:19

I want to make sure I get rescued.

Speaker: 00:11:22

But now let's change the scenery and say instead of being on a

Speaker: 00:11:25

desert island, that I'm in my office celebrating my last day of work.

Speaker: 00:11:29

And my boss gives me this barrel.

Speaker: 00:11:31

And this barrel instead of water has all the money that I have for retirement.

Speaker: 00:11:36

And on the way home as you drive home thinking about your barrel of money,

Speaker: 00:11:40

the same question hits your mind.

Speaker: 00:11:42

How much money can I spend each day?

Speaker: 00:11:44

So that I don't run out.

Speaker: 00:11:46

you would ask, want to ask two other questions very similar to the desert

Speaker: 00:11:48

island, which is how long will you live?

Speaker: 00:11:50

I can't know that answer.

Speaker: 00:11:52

And what return will your, will the markets give you on your, money?

Speaker: 00:11:56

You can't know that answer either.

Speaker: 00:11:57

So if I don't know how long I'm going to live and I don't know

Speaker: 00:12:01

what rates of return I'm going to get, How much money can you spend?

Speaker: 00:12:05

And you see the parallel that for most people, they realize, yeah,

Speaker: 00:12:09

probably as little as I need to, because I have to make this money last.

Speaker: 00:12:13

And so the idea is that if we don't have the ability to answer those

Speaker: 00:12:17

two questions, then we start to live out of a scarcity mindset,

Speaker: 00:12:20

which is really the 4 percent rule.

Speaker: 00:12:22

The 4 percent rule is a small withdrawal because we are anticipating a potentially

Speaker: 00:12:27

long life and variability in the markets.

Speaker: 00:12:30

And so the idea behind the fifth option is that we can answer those questions.

Speaker: 00:12:35

We can put some stakes in the ground of being able to say, I

Speaker: 00:12:38

can have an income that I can, is protected against longevity.

Speaker: 00:12:41

I can have an income that's protected against variability.

Speaker: 00:12:44

And when I do that, my confidence level grows when it comes to retirement income.

Speaker: 00:12:50

We all know, a parent or a favorite aunt that has plenty of money but doesn't spend

Speaker: 00:12:56

a dime because they're just so worried about what happens next year, right?

Speaker: 00:13:00

And as we go through life, we realize we look back on retirement

Speaker: 00:13:03

and we didn't get to take advantage of the things we could have done.

Speaker: 00:13:07

And as some people in the financial industry joke about that, if you

Speaker: 00:13:10

don't fly first class, your children will, and that's all because we

Speaker: 00:13:14

don't have this ability to understand how to answer those two questions.

Speaker: 00:13:18

And that's, I think, the two most important questions when

Speaker: 00:13:20

it comes to retirement planing.

Speaker: 00:13:22

So the kind of the, industry story is if you're getting on an airplane

Speaker: 00:13:26

and the pilot got on the airplane and say, Hey, congratulations,

Speaker: 00:13:28

we're all going to Hawaii.

Speaker: 00:13:30

But we have an 80 percent chance of getting there.

Speaker: 00:13:32

Most people wouldn't get on that flight, right?

Speaker: 00:13:35

And now I know that, in, in reality, the pilot will make some

Speaker: 00:13:39

adjustments and things, right?

Speaker: 00:13:40

So it's not stark, but, the point of the story is that when we have this

Speaker: 00:13:45

low predictability or if we have this probability based sense of retirement

Speaker: 00:13:50

saying, hey, you have a 20 percent chance that, or 80 percent chance that

Speaker: 00:13:54

you should get through retirement.

Speaker: 00:13:56

That's a one in five chance that you don't, so if you're having a

Speaker: 00:13:58

dinner party with five people, it'd be interesting to see which one of

Speaker: 00:14:01

these people is going to die broke or may not even make it to that point.

Speaker: 00:14:05

So the idea is that we don't have to settle for low probabilities of success.

Speaker: 00:14:10

There's no reason why you shouldn't have a 95 percent chance or better

Speaker: 00:14:14

of having the income that you want for as long as you live.

Speaker: 00:14:18

And the 4 percent rule really limits us to that 80 percent chance.

Speaker: 00:14:22

You may see on commercials.

Speaker: 00:14:24

with financial planning commercials, you have to be really quick to see

Speaker: 00:14:27

this, but you'll see like a graph that they show about your income and

Speaker: 00:14:30

lifetime income, and you'll see in the corner sometimes an 80%, which is

Speaker: 00:14:34

the probability that this will happen.

Speaker: 00:14:37

And so for some of us, we would like to have a higher than 80

Speaker: 00:14:40

percent chance that our retirement dreams are going to be sustained.

Speaker: 00:14:44

And so that's what we work towards is really teaching clients

Speaker: 00:14:46

that you can do better than a probability based retirement plan.

Speaker: 00:14:51

Yeah, absolutely.

Speaker: 00:14:52

Whenever I fly to Hawaii, I want to make sure we actually land.

Speaker: 00:14:55

So that's where your expertise comes in and making sure that

Speaker: 00:14:59

people get to where they want to go.

Speaker: 00:15:03

I found it really interesting because I'm a history buff.

Speaker: 00:15:06

page 47 of the book, you, give a timeline on, the history of pensions.

Speaker: 00:15:14

And I really liked that.

Speaker: 00:15:17

A pension is, for, the most part, it's, my mom retired with a pension, but few

Speaker: 00:15:24

people nowadays retire with a pension.

Speaker: 00:15:27

And I'd like you to.

Speaker: 00:15:30

discuss that a little bit and, the idea about, bringing in this

Speaker: 00:15:37

type of pension like planning into what you share in your practice.

Speaker: 00:15:44

Yeah, I think it starts with the idea that we are, for the, especially the,

Speaker: 00:15:48

maybe our generation and younger, we are really back at the same kind of retirement

Speaker: 00:15:54

strategies that were in the 1900s.

Speaker: 00:15:56

And what I mean by that is if we go back to pre industrial revolution,

Speaker: 00:16:01

most people were in some sort of, apprenticeship and masterclass.

Speaker: 00:16:06

arrangement where you maybe you were a cobbler or maybe you were some sort of

Speaker: 00:16:09

a print and you had an apprenticeship and you gained skills by working

Speaker: 00:16:12

with someone that was your mentor.

Speaker: 00:16:14

And in the early 1900's, there was no retirement, right?

Speaker: 00:16:18

You worked, as soon as the industrial revolution came in,

Speaker: 00:16:21

you became a cog in the machine and you worked hours and hours.

Speaker: 00:16:25

And life expectancy wasn't even that long, so there was no idea

Speaker: 00:16:28

that I was ever going to one day retire right off into the sunset.

Speaker: 00:16:31

You either died on the job or you moved in with your family

Speaker: 00:16:33

or became an award of the state.

Speaker: 00:16:35

But slowly, these ideas started to come into fruition, which was in

Speaker: 00:16:39

the late 1800s, American Express.

Speaker: 00:16:43

came up with the first private pension, which really was an ability to try

Speaker: 00:16:47

to retain and attract employees, no different than it is today, but it also

Speaker: 00:16:51

had this other trade off, which gave a little bit of dignity for people that

Speaker: 00:16:55

left the workforce, the ability to have some sort of an income stream, and it

Speaker: 00:16:59

was a nice way to say goodbye to some of the aging workforce and give them some

Speaker: 00:17:03

sort of ability to have some income.

Speaker: 00:17:06

But again, life expectancy was so short, it was not meant to be this long, and

Speaker: 00:17:09

Along pension system as it is today.

Speaker: 00:17:12

And then as the thirties came around, we introduced social security where we gave

Speaker: 00:17:16

another safety net to the public at large.

Speaker: 00:17:19

And over the course of the next 50 years, pensions grew substantially.

Speaker: 00:17:23

Social security became part of our retirement linguistics, and

Speaker: 00:17:27

then whatever money you could save really became the third leg of

Speaker: 00:17:30

what we call the retirement stool.

Speaker: 00:17:32

So in the old generations you had pensions.

Speaker: 00:17:34

Social Security and some savings, and quite frankly, if you paid off your

Speaker: 00:17:38

mortgage and were fairly debt free, that generation can ride off in the

Speaker: 00:17:41

sunset and have a decent retirement.

Speaker: 00:17:44

And as longevities began to grow, more pressure starts to show up, right?

Speaker: 00:17:48

We understand that pensions have to pay out longer maybe than expected.

Speaker: 00:17:51

Social Security, of course, has its own challenges into the future.

Speaker: 00:17:54

And so this new generation of folks that are working are not going to

Speaker: 00:17:58

have some of the financial tools that previous generations did.

Speaker: 00:18:01

You're going to be more responsible for your own financial outcome

Speaker: 00:18:05

than any generation pre pensions.

Speaker: 00:18:09

But with the one caveat that you're going to live a lot longer.

Speaker: 00:18:12

And so the idea is that the latest thinking from the American College

Speaker: 00:18:15

of Financial Services and a lot of these white papers that are

Speaker: 00:18:17

coming out is that we can recreate.

Speaker: 00:18:20

A pension style retirement plan privately that we, can assemble the tools, the

Speaker: 00:18:26

products, the, philosophies, the math.

Speaker: 00:18:29

To create our own private pensions, I call it Pension 2.

Speaker: 00:18:32

0, where we can create a custom pension, right?

Speaker: 00:18:35

And one of the things that we grab, when you leave a job is you get

Speaker: 00:18:38

whatever pension they get, right?

Speaker: 00:18:40

for us, we can actually create levels of pensions, levels of

Speaker: 00:18:43

guaranteed incomes, level of money that will last as long as we do.

Speaker: 00:18:47

and we know that when we create these pensions, there's a lot less anxiety.

Speaker: 00:18:51

We also know mathematically from research that people with

Speaker: 00:18:54

pensionstend to live longer.

Speaker: 00:18:56

There's something that, having that predictability of income, less anxiety,

Speaker: 00:19:00

something to look forward to, changes some of the longevity that we enjoy.

Speaker: 00:19:06

beginning to understand how to recreate some of the tools that we

Speaker: 00:19:09

enjoyed in the past, will certainly push for generations to retire.

Speaker: 00:19:14

Yeah, absolutely.

Speaker: 00:19:15

and this is where I think we can segue into, the.

Speaker: 00:19:20

Importance of life insurance in this type of planning, because, as you

Speaker: 00:19:26

put it in the book, modern retirement planning equals stressing and guessing.

Speaker: 00:19:31

but when you start to add actuarial science, life insurance products into

Speaker: 00:19:36

the mix, now you are able to, give yourself more income options and options

Speaker: 00:19:43

in any form is always a good thing.

Speaker: 00:19:46

Why wouldn't you want that for your retirement?

Speaker: 00:19:49

we're talking about pensions here and, a pension 2.

Speaker: 00:19:51

0.

Speaker: 00:19:53

how can listeners do that?

Speaker: 00:19:56

when, putting together a strategy for their own retirement, I think

Speaker: 00:20:00

you, you nailed it with your book.

Speaker: 00:20:03

let's talk a little bit about how you, recommend the marriage

Speaker: 00:20:08

of, let's call it Wall Street and the life insurance industry.

Speaker: 00:20:15

Insurance industry, in general, is the only place we can go to get

Speaker: 00:20:19

what is called actuarial science.

Speaker: 00:20:21

Actuarial science is the long study Of how long people live, right?

Speaker: 00:20:25

And in fact, it was one, it has its roots in, Haley's Comet, the founder

Speaker: 00:20:30

of Haley's Comet was one of the first people that actually brought

Speaker: 00:20:32

actuarial tables into fruition, where we actually have a sense for life

Speaker: 00:20:37

expectancy of how long people will live.

Speaker: 00:20:39

And the benefit of the insurance world is they can actually pool people together.

Speaker: 00:20:45

And when we get large pools of people together, then the insurance company can

Speaker: 00:20:49

say we think the average life expectancy of this pool is 83 or 84 years old.

Speaker: 00:20:54

And so they can pay these large payments to these people knowing

Speaker: 00:20:58

that if they live longer than that.

Speaker: 00:21:01

They are subsidized by the people that died before.

Speaker: 00:21:04

And so what's really challenging when we sit down with a couple is we have to

Speaker: 00:21:08

establish their life expectancy, right?

Speaker: 00:21:10

If we knew when they were going to die, financial planning would be simple.

Speaker: 00:21:13

But the reality is one of them or both of them could live

Speaker: 00:21:16

well beyond life expectancy.

Speaker: 00:21:18

And so if we don't use the pool, then we have to pay them smaller

Speaker: 00:21:22

amounts to be able to protect the assets in case they live a long time.

Speaker: 00:21:27

So one of the benefits we get by pooling together.

Speaker: 00:21:30

Is that when we live longer, we get what's called a mortality credit.

Speaker: 00:21:33

Meaning the people that died before us actually.

Speaker: 00:21:36

That are able to give us the subsidy for the people that live longer.

Speaker: 00:21:40

But one of the things that we want to have to understand is that in

Speaker: 00:21:43

order to plan for this, we know that, every product has its pros and cons.

Speaker: 00:21:47

So if I want to buy what's called an annuity, that annuity

Speaker: 00:21:52

is a payment until I die.

Speaker: 00:21:54

the insurance company can pay me a much larger payment because they

Speaker: 00:21:58

don't have to worry about whether I live past life expectancy or not.

Speaker: 00:22:01

Because the pool of people on average will be accurate, but

Speaker: 00:22:05

those annuities might pay out.

Speaker: 00:22:07

Substantially more than the 4%, and so I could maybe purchase a six, seven,

Speaker: 00:22:13

8% annuity for as long as I live.

Speaker: 00:22:16

Now, one of the challenges is if I pick the highest annuity choice, then I have

Speaker: 00:22:21

to understand that just like social security or some pensions when I die.

Speaker: 00:22:26

That income stops.

Speaker: 00:22:29

So I have to create a tool to protect against that potential outcome,

Speaker: 00:22:33

and we do that with life insurance.

Speaker: 00:22:36

So if I marry life insurance and an annuity together, I get this higher

Speaker: 00:22:40

payout than a safe withdrawal rate.

Speaker: 00:22:43

And if I were to pass away early, my spouse would get all the money

Speaker: 00:22:47

back that I gave to the insurance company, so that my spouse can now

Speaker: 00:22:50

choose what to do with that money.

Speaker: 00:22:52

Or if I get what we really want, and we both live a long time, then my

Speaker: 00:22:56

children are refunded all the money I gave to the insurance company.

Speaker: 00:23:01

And I think it can be a very elegant way of getting more income from the same

Speaker: 00:23:05

dollar and a way to protect my legacy.

Speaker: 00:23:08

Lots of people, when we talk about legacy, are always trying to decide,

Speaker: 00:23:12

what do I do with my children?

Speaker: 00:23:13

And we'll always get the conversation of, I'm going to spend mine first.

Speaker: 00:23:17

If there's anything left over, they can have it.

Speaker: 00:23:19

And that usually comes from people that don't have any sense.

Speaker: 00:23:22

For how retirement income is going to work, and that's because

Speaker: 00:23:25

they don't know I have enough.

Speaker: 00:23:27

But when you begin to deploy the ability to use Wall Street and

Speaker: 00:23:31

insurance together, I can generate better income streams and provide the

Speaker: 00:23:35

legacy that ultimately we would love to do for our children if we can.

Speaker: 00:23:39

and I think, so that's one of the, strategies in the book.

Speaker: 00:23:42

It comes from the old pension maximization strategy where someone

Speaker: 00:23:46

would leave a company like, my neck of the woods, like a Boeing, they would

Speaker: 00:23:51

have to choose their pension payouts.

Speaker: 00:23:53

And if they chose the highest level of payout, that would give them the most

Speaker: 00:23:56

money, but when they die, there'd be no money left over for the spouse, right?

Speaker: 00:23:59

That pension would disappear.

Speaker: 00:24:01

So a lot of those people then would take a smaller payout.

Speaker: 00:24:04

Because they wanted the income to persist as long as, their spouse would

Speaker: 00:24:08

live so that both of them were covered.

Speaker: 00:24:10

But that reduction is really just an insurance premium, isn't it?

Speaker: 00:24:15

It's, the, it's that reduction is, is, like paying a life insurance premium.

Speaker: 00:24:21

And you think about four outcomes to a pension.

Speaker: 00:24:24

One is.

Speaker: 00:24:25

I can live a long time and my spouse dies before me, in which case I wish

Speaker: 00:24:28

I took the highest payout, or we can both live a long time, in which case

Speaker: 00:24:34

I wish I picked the higher payout, or if I die early, or we both die early,

Speaker: 00:24:40

the kids don't get anything, right?

Speaker: 00:24:43

The only time where taking the lower payout works is if my spouse outlives me.

Speaker: 00:24:49

That's the one scenario where I would have to guard against.

Speaker: 00:24:52

But the other outcomes means I took less income over my lifetime.

Speaker: 00:24:56

So if I bought a life insurance policy that protected my spouse, then I could

Speaker: 00:25:00

choose that higher payout, so that the other three choices, if one of those

Speaker: 00:25:04

manifested itself, then I had better income all the way through retirement.

Speaker: 00:25:08

But if the one instance where I, pre deceased my spouse

Speaker: 00:25:11

happens, I protected my spouse.

Speaker: 00:25:14

So we're taking that same concept and just doing it privately.

Speaker: 00:25:18

When we don't have pensions anymore.

Speaker: 00:25:19

And that's what pension 2.

Speaker: 00:25:20

0 is all about.

Speaker: 00:25:23

Yeah.

Speaker: 00:25:23

And if there's one word I can think of in my experience in working with

Speaker: 00:25:27

you and what you bring to the table, it's the efficacy of what you do.

Speaker: 00:25:32

In fact, that's probably, my favorite word, that, you

Speaker: 00:25:37

reintroduced to me in your planning.

Speaker: 00:25:39

It's just how impactful, not, so much how much a person is able to save.

Speaker: 00:25:46

But how they save it.

Speaker: 00:25:49

And, a lot of people in my experience, when they're in their late forties,

Speaker: 00:25:54

fifties, maybe even early sixties, and they're trying to plan for a retirement

Speaker: 00:25:59

income, they're, trying to sock every last dollar into their 401k and IRAs,

Speaker: 00:26:07

that may not be, the best choice.

Speaker: 00:26:10

Can you talk a little bit about that?

Speaker: 00:26:12

Yeah.

Speaker: 00:26:12

So that's, if you think about the four options, that's the first

Speaker: 00:26:14

option of saving more money, that's brute force retirement plan, right?

Speaker: 00:26:18

That's just trying to get as big a balance sheet as I can, because I

Speaker: 00:26:21

don't know how it's going to spend.

Speaker: 00:26:23

And it's also relying on a 4 percent withdrawal rate, or maybe even less,

Speaker: 00:26:27

depending on kind of interest rates.

Speaker: 00:26:29

And so when we, when we.

Speaker: 00:26:31

think about efficiency or efficacy, we want to understand how do I get

Speaker: 00:26:36

dollars to spend at the highest level with the most predictability.

Speaker: 00:26:41

And we understand that Wall Street is tremendous for growth.

Speaker: 00:26:44

There's no question that Wall Street can be a great growth vehicle.

Speaker: 00:26:47

But at a 4 percent withdrawal rate, it's not a great distribution tool.

Speaker: 00:26:51

When I can get distribution options on a guaranteed basis in the 6, 7, 8 range,

Speaker: 00:26:56

that's a lot more distribution per dollar.

Speaker: 00:26:58

But I have to make plans for that to work.

Speaker: 00:27:01

I don't get those choices.

Speaker: 00:27:03

By a default plan, I have to do some proactive planning along the way to

Speaker: 00:27:08

unlock these other choices that exist.

Speaker: 00:27:11

And that's the message that we really want to get to our clients is you don't have to

Speaker: 00:27:14

make the choice of how you're, which one of these strategies you're going to use.

Speaker: 00:27:18

But you do have to put in place tools that give you those choices today.

Speaker: 00:27:23

It's too late when you get to retirement to say, I want to have certain choices

Speaker: 00:27:26

because you didn't plan for those.

Speaker: 00:27:28

So as we were in that forties and fifties, like you said, these are the time

Speaker: 00:27:31

where we can really begin to understand the full array of financial tools.

Speaker: 00:27:35

That we can put in our financial plan that give us the most choices

Speaker: 00:27:39

because we won't know in 10 or 20 years what that's gonna look like.

Speaker: 00:27:42

But as you said, choice, having choices is better.

Speaker: 00:27:45

We can always have the 4% rule, right?

Speaker: 00:27:46

We can always do that, but we can, might also open the door to maybe six, seven,

Speaker: 00:27:51

8% distribution choices if we plan ahead.

Speaker: 00:27:55

Yeah, and I think most everyone, would like to have that option of,

Speaker: 00:27:59

6, 7, 8%, versus 4 percent maybe.

Speaker: 00:28:04

I think that's true.

Speaker: 00:28:05

And, the older we get, the more people start to feel that.

Speaker: 00:28:09

that desire to have that predictability, but we got to, you got to train our

Speaker: 00:28:13

younger selves to be thinking into the future long enough that when we get there

Speaker: 00:28:18

in our, future self looks at us in the mirror and says, you did a good job,

Speaker: 00:28:21

John, you put together these tools that really gave me these wonderful choices.

Speaker: 00:28:25

Thank you.

Speaker: 00:28:26

As opposed to someone saying, we thought we were doing it all

Speaker: 00:28:29

right, but my safe withdrawal rate just isn't as much as I'd hoped.

Speaker: 00:28:33

Yeah.

Speaker: 00:28:33

And that's why your book is so important because people need to be

Speaker: 00:28:37

aware that there are other options out there and better options.

Speaker: 00:28:43

just other than, what they have been, Saving to that point or the

Speaker: 00:28:49

strategy, the 4 percent rule, it's just, it's, industry standard and

Speaker: 00:28:54

that's all people know that, your book really, for me, it's, a, must read.

Speaker: 00:29:03

Because it elucidates these other ideas and gets your wheel spinning

Speaker: 00:29:09

that, you know what, maybe I don't have to work as long or as hard.

Speaker: 00:29:13

you can be more strategic with how you save, not where you save.

Speaker: 00:29:19

you, you mention in the book, the beat the bear strategy and there,

Speaker: 00:29:24

there's a couple strategies, in the book and I really want people to.

Speaker: 00:29:28

to read this book.

Speaker: 00:29:29

So I'm just going to limit, our discussion to the beat the bear

Speaker: 00:29:34

strategy, and allow people, hopefully, they, are motivated to go out and buy

Speaker: 00:29:41

the book and, read about the other strategies, but can, you share with

Speaker: 00:29:44

us, however briefly, or not, the, beat the bear strategy that you write about?

Speaker: 00:29:50

the Beat the Bear strategy is pretty simple, which is, all right, if I

Speaker: 00:29:54

like the markets, some people are very comfortable with markets and they may

Speaker: 00:29:57

always be comfortable with markets and they want the markets to be part

Speaker: 00:29:59

of their retirement plan, then one of the reasons why the 4 percent rule is

Speaker: 00:30:03

so restrictive is that we have to be very careful about taking money out in

Speaker: 00:30:09

a negative market environment, right?

Speaker: 00:30:11

So what we have to learn is that an average rate of return is not

Speaker: 00:30:15

indicative of the sequence of returns that go into that average, right?

Speaker: 00:30:20

So the way I explain with people is if I have a bucket of zero degree

Speaker: 00:30:24

water and a bucket of 200 degree water and I put a foot in each bucket,

Speaker: 00:30:28

on average I should be comfortable, but really I have two unhappy feet.

Speaker: 00:30:32

And so what I want people to understand is that the sequence of return risk is going

Speaker: 00:30:37

to dictate how well your money spends.

Speaker: 00:30:39

And the 4 percent rule was there to guard against The potential for

Speaker: 00:30:43

negative returns right out of the gate.

Speaker: 00:30:46

Lots of times you could've spent more than 4 percent over a lifetime because

Speaker: 00:30:51

the markets may have been in your favor.

Speaker: 00:30:53

But you'll never know, until your last day, how that went, right?

Speaker: 00:30:57

and the most important parts of your retirement are the first few years

Speaker: 00:31:01

where a large downturn, and then a withdrawal to pay for life expectancies

Speaker: 00:31:06

is the fastest way to run out of money.

Speaker: 00:31:09

So the Beat the Bear approach really is A way of saying, okay, I

Speaker: 00:31:13

need to navigate negative markets, especially out of the gate.

Speaker: 00:31:16

If the market's negative.

Speaker: 00:31:18

I want another pool of money that's not correlated to the markets so that

Speaker: 00:31:22

it didn't go down, in fact, maybe it was guaranteed to go up, so that when

Speaker: 00:31:26

the markets are negative, I could turn to a second bucket of money and

Speaker: 00:31:29

pull up my expenses for that year, allowing the markets to recover.

Speaker: 00:31:33

As we look at negative markets, usually there is a good recovery, it just

Speaker: 00:31:37

takes a year or two, and what we're trying not to do is accelerate the

Speaker: 00:31:41

loss of capital just because we got unlucky with some negative markets.

Speaker: 00:31:46

by having this pool of money in reserve, I can actually tend to take more money out

Speaker: 00:31:50

of my investments because I'm not having to play the game of, getting through

Speaker: 00:31:56

negative years with my investment pool.

Speaker: 00:31:59

And so that actually does allow us to have a healthier withdrawal

Speaker: 00:32:02

rate with similar risks, as long as I have this non correlated asset,

Speaker: 00:32:07

that, that's in the sideline.

Speaker: 00:32:08

And life insurance cash value is one of the best places for that because

Speaker: 00:32:12

it has a competitive rate of return.

Speaker: 00:32:14

It's a tax free rate of return, meaning I don't have to take out as

Speaker: 00:32:17

many dollars to satisfy my income because there's no tax consequence.

Speaker: 00:32:21

It of course comes with a death benefit.

Speaker: 00:32:23

It has all the benefits that life insurance brings, long term

Speaker: 00:32:25

care, protections from creditors, all those kinds of things.

Speaker: 00:32:28

Makes it a very good tool for a beat the bear approach.

Speaker: 00:32:33

Yeah, absolutely.

Speaker: 00:32:34

and for listeners for the show, they're, already learning about

Speaker: 00:32:41

whole life insurance policies and the incredible value and benefits.

Speaker: 00:32:45

And the, interesting thing for me after reading your book is that this is a

Speaker: 00:32:52

way that if you're already practicing infinite banking and you have a

Speaker: 00:32:57

pool of policies, you already are.

Speaker: 00:33:01

In a sense, a step ahead of the curve, right?

Speaker: 00:33:04

Because you have access to this pool of capital where you can, before even reading

Speaker: 00:33:11

this book, you actually have the ability to apply this beat the bear strategy.

Speaker: 00:33:15

But once you realize you have the strategy, in your back pocket, because

Speaker: 00:33:20

you had, the forward thinking to plan and capitalize these whole life policies,

Speaker: 00:33:27

it, leads you down a road to, Maybe I should capitalize a little bit further.

Speaker: 00:33:33

And, this is where an appointment with someone like yourself really

Speaker: 00:33:39

makes a whole lot of sense because you can run the numbers and say,

Speaker: 00:33:42

based off your, your current situation and where you're saving money.

Speaker: 00:33:47

you can be more efficient here, and this is what your options, could look

Speaker: 00:33:53

like, compared to, the situation now.

Speaker: 00:33:56

So for, all the listeners out there, I know you come to, IBC because you want to

Speaker: 00:34:02

control your banking function and a host of other reasons that Nelson writes about.

Speaker: 00:34:07

in the book, but when it comes to retirement income planning, there, there

Speaker: 00:34:11

really isn't a whole lot of, information out there on, on how to use IBC and

Speaker: 00:34:18

these whole life policies to create more options for income, which is why I

Speaker: 00:34:23

recommend your book so highly, Walter.

Speaker: 00:34:27

So on that note, I do want to recommend to all the listeners out there, in

Speaker: 00:34:35

order to further your education, of course, read Nelson's book, Becoming

Speaker: 00:34:39

Your Own Banker, but also when it comes to retirement income planning,

Speaker: 00:34:43

you really need to pick up a copy of Walter's book, The Fifth Option, and

Speaker: 00:34:48

learn how you can marry the, the concepts that he writes about in his book.

Speaker: 00:34:55

With what you're doing, in establishing a portfolio of whole life policies

Speaker: 00:35:01

and practicing being your own banker, because, ultimately you want to

Speaker: 00:35:05

have as many options as possible in retirement, and you want to have the

Speaker: 00:35:10

ability to generate that pension 2.

Speaker: 00:35:14

0 that you talk about.

Speaker: 00:35:16

Walter, on that note, what's the best way for listeners to reach out to you?

Speaker: 00:35:22

If they have questions, want to learn more?

Speaker: 00:35:24

a couple of ways.

Speaker: 00:35:24

One is they can visit my website, which is, www.TheFifthOption.Com,

Speaker: 00:35:28

all spelled out.

Speaker: 00:35:29

but I'm also happy to entertain, conversations.

Speaker: 00:35:33

You can email me at walter@TheFifthOption.Com,

Speaker: 00:35:36

all spelled out.

Speaker: 00:35:37

and as you mentioned, sometimes it's really fun just to run numbers and

Speaker: 00:35:40

just say, here's, the course you're on and here's some other options that

Speaker: 00:35:43

you may or may not have thought about and just see how you react to that.

Speaker: 00:35:47

I think, people with life insurance policies are already one step ahead of

Speaker: 00:35:51

the game, but they don't always know how else to use them, as opposed to

Speaker: 00:35:56

just the Infinite Banking Concepts.

Speaker: 00:35:58

And, so we might be able to help them unlock other strategies that

Speaker: 00:36:01

they didn't even know existed with their life insurance policies.

Speaker: 00:36:06

Absolutely.

Speaker: 00:36:06

And that's phenomenal.

Speaker: 00:36:07

So Walter, thank you again for taking your time to, to be here

Speaker: 00:36:12

on the show and, definitely look forward to chatting with you again

Speaker: 00:36:16

soon.

Speaker: 00:36:16

it's been a pleasure.

Speaker: 00:36:17

Thanks, John.