Emily Guy Birken Retire With Purpose Emily Guy Birken Retire With Purpose
Podcast 8

008: Surviving the 5 Years Before You Retire (and Beyond) with Emily Guy Birken *

Author and educator Emily Guy Birken is on a mission to help people end financial stress. Using her gift for making typically complex financial topics relatable and easy to understand, she’s written about parenting and money for Kiplinger’s and the New York Times. She’s also the author of four books, including The Five Years Before You Retire: Retirement Planning When You Need It the Most – which is also what we focus on at Howard Bailey Financial.

Emily brings something of an outsider’s perspective to financial planning, but has the experience, knowledge, and research to help people transition from pre-retirement to retirement, finding purpose, and aligning their assets to defending that purpose at all costs. Today, she joins the podcast to talk about the challenges of preparing for retirement – and how to make them much easier to navigate, no matter who you are or what your situation is.

In this podcast interview, you’ll learn:

  • How Emily grew up in the financial industry – and how she uses her background in writing and teaching to help people better understand finance.
  • What you can do to ensure a safe retirement – even during a market correction.
  • Emily’s bucket method for financial planning – and how it gives you the ability to both cover your expenses and invest like a young person.
  • Why the 4% rule is so tempting – but doesn’t solve problems or allow for safe, sustainable, effective retirement.
  • The new obstacles Boomers are facing that their parents likely didn’t – and what you may need to do to address them, especially when it comes to potentially devastating healthcare costs.
  • How Emily simplifies budgeting for newbies and why budgeting is about what you want to do – not what you can’t.
  • What you need to know about Social Security and Medicare – and why you don’t need to worry about these programs running out of money as often as politicians want you to.

Inspiring Quote

“People who are spending money mindlessly on little things are also spending money mindlessly on big things. It’s a lot easier to figure out where your big-money drains are than it is to keep track of the $5 every day you spend on the latte.” – Emily Guy Birken

Interview Resources

Emily Guy Birken’s website
The 5 Years Before You Retire: Retirement Planning When You Need It the Most

Investment Advisory Services may be offered through Howard Bailey Securities, LLC, a registered investment advisor. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. The CLU® mark is the property of The American College, which reserves sole rights to its use, and is used by permission. Howard Bailey Financial is a registered trademark of Howard Bailey Financial. All rights reserved. Howard Bailey does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Not associated with or endorsed by the Social Security Administration or any other government agency.

Read Full Transcript


Casey: Today, we’re welcoming Emily Guy Birken to the show, author and blogger. She focuses on parenting and most importantly for today's topic, money, with a mission to help people and financial stress. She has a way of making typically complex financial topics that we all know exist in the financial world. She helps make these topics very relatable and easily understood which is what I found as I dove into one of her more recent books, which is why her personal finance articles have also proliferated the Internet, appearing everywhere from Kiplinger’s to New York Times and she has written four personal-finance books, four, so Emily is actually one ahead of me right now. And she has a focus on one of her books which we’re really going to talk about mostly today is the five years before you retire. So, it’s titled The 5 Years Before You Retire: Retirement Planning When You Need It the Most. And this is what we specialize in at Howard Bailey Financial is helping those that are getting ready to make that transition from pre-retirement to retirement and finding the right purpose and aligning those assets to defend that purpose at all costs. And I think it’s going to be interesting today to get an outside of the industry perspective from Emily.


Casey: And, Emily, welcome to the show.

Emily: Thank you. Thank you for having me.

Casey: So, Emily, I’m going to kick it off and I ride in if that's okay with a question that came from one of our fans that I think you said that some people like to know. And as I said, we’re getting an outside industry perspective from Emily here and I think that’s very important. One of the things I do with my spouse is every time I write a book, I hand it to her and say, "Hey, does this make sense?” She comes from medical background and so if she can really understand what I'm talking about, understand the concepts, and see how they can be applied, then I know I'm on the right track. I'm doing a good job with my writing. And you kind of have that outside industry perspective but also have the experience and the knowledge and the research to back it up. So, my question here comes from Eric Todd. Eric said, "Where did she come up with her ideas on what to do five years before retirement? Does she have a financial background other than being a stay-at-home mother? So, it’s straight to the point. Eric.”

Emily: Absolutely. So, by training, I'm actually an English teacher. I have a bachelor's degree in English and a master’s degree in English education. So, right there it’s like, "Wait, what?” However, that doesn't tell the whole story. My father was a financial planner and so I grew up in the industry. So, I kind of absorbed quite a bit of financial information like with my applesauce as a small child and, in fact, I've always been kind of a money nerd so when my father would talk to me about money stuff, I actually was paying attention. Unlike other people might who are raised by people in the financial industry, they’re like, “Yeah, yeah, whatever, dad.” So, that is kind of where my interest began. So, I was kind of a money nerd growing up. I've always been very interested in money and did some like research even when I was working as an English teacher in other points of my life. So, I need to pivot into becoming a financial writer right around when my first child was born, and it was not an expected career move for me, but we moved when I was pregnant with my child and I decided to take a year off. And so, during that year, to just keep some money coming in, I started doing some writing, and specifically some money writing, and that's why blogging was kind of my entrance into writing about money.

And I found that my background in education and then having my dad's expertise to kind of lean on and then my own money interest has made me very good at writing about money and I'm coming at it, like you said, from an outside perspective. I know that there's like an alphabet soup within like the financial planning industry and I know that that can be intimidating to people who are outside the industry because I’ve got kind of one foot in both worlds. And so, between that and the fact that I really learned how to research with my background in education and I truly love researching and I, for several years as an English teacher, was making things that the kids thought were boring, interesting to them. I found that I can translate that directly to talking about money. Once I understand it, I can make it palatable and interesting and actionable for people who are outside of the financial planning industry which can be really difficult to do. A lot of times when you’ve got the burden of expertise in some ways you forget what it's like to be a newbie. So, I’ve got a foot in both worlds. I’m able to be able to get that information to the people who most need it while making it a little bit funny then, which is something I really try to do.

Casey: Well, there are so many valuable things that you said there from being able to understand the research and also your educational background. I mean, those are the things that we want to accomplish is go back, research, understand what's going on, and then be able to communicate it in a way that everyone can understand. And one of the big problems in our industry and I’ve suffered from this in the past is we kind of turn ourselves into academics. We live it and breathe it every single day from graduating with a degree in finance, becoming a CFP, getting a CLU, becoming an RSVP, getting that alphabet soup that you speak about. I’m always reading research. One of our podcast guests coming up is Dr. Wade Pfau. He teaches at the American College on financial planning and I mean he’s a researcher. He started retirement researcher and I read that stuff day in, day out. We got Michael Kitces that’s going to be joining us at the beginning of next year and it's a nerdy, I mean, he built his whole blog on being a nerd and a financial nerd, and then we live and breathe them. We kind of lose touch with what it's like to actually have to consume that information on the other side of the table.

And I think what you've done is you've offered up the research and the facts and not just that, but you don’t have the bias, right? That you're not there trying to sell a product or an investment or both, well, even get a client for that matter. You're just there to deliver the facts and the information so the people can make the best-educated decision they can as they transition into retirement or they’re making decisions about Social Security. I think sometimes Social Security decisions for that matter are made because, well, we want you to take it early and we want you to take it early because we don't want you to draw down retirement accounts or charge you a fee on it. There are so many potential problems no matter what type of advisor you're working with, a fee-only advisor or a commission-based advisor or a broker, that it can be really refreshing I think to get somebody's perspective that doesn't have a financial incentive for you to make one decision or another. So, I really appreciate that, and I've enjoyed your books. I’ve read two of them now, so I'm too behind. I did pick up making Social Security work for you which it seems to be the topic of the day-to-day. Everybody wants to talk about Social Security and everybody’s concerned about Social Security, especially our generation that completely writes it off as never being anything we’re going to be able to use anyways.

And so, I want to get to that, but I really want to focus on the book that I enjoyed most, which was The 5 Years Before You Retire and I also want to focus on that because that's a large part of the people that are listening are in that range. Personally, I call this the red zone for retirement. So, you’re in the retirement red zone when you're 5 to 10 years before retirement, 5 to 10 years after retirement. This is when you can make or break your retirement. The decisions you make during this period of time even statistically and research shows are going to make or break your retirement so there’s never a more important time for you to really dive in to your financial education and never a better time to pick up a book like the five years before you retire when you're five years after retirement. So, I think this question is going to be though why five years? Why not seven? Why not 10? Why not 15? Why not two? Why not the year you retire? Why five years?

Emily: So, five years is an important benchmark before retirement because that's when it becomes real. For most people's careers, retirement is kind of this far-off mythical thing like you'll get there eventually but you're not really thinking about it. So, when you're about five years out, that’s kind of becoming crunch time. You’re like, "Oh, this is going to happen and there are decisions I haven't made. Do I have enough savings? Do I know what I need to do to access my savings? Do I know where I'm going to be?” And so, that's when you really start thinking about like logistics retirement. Whereas like 10 years before, even 10 years before, even though you kind of see it on the horizon, it’s still enough time that people aren't really like, "Okay, I'll deal with this later.” Within that five years, it becomes the Steven Covey of important versus urgent. It becomes both important and urgent because there's not a huge amount of time left but there’s still enough time that you can make a difference if you're behind or if there are decisions you haven’t made yet or those sorts of things. Whereas, if one year beforehand it’s important and urgent, but it's a little too urgent. You sort of missed the deadline.

Casey: Yeah. That five-year period is when it becomes real and I think prior to that five-year period when you're 20, 30, 40, maybe you’re 40 years old, you’re 20 years out from retirement or 15, even 10. You’re at a point where it's not all that complex. You just see this line in the sand, which is 65 or 70, whatever that potential retirement date might be for you, and say, “Well, how much do I need to save?” How much do I need to save and ultimately retire while you need to take X amount out of your paycheck every month and make appropriate investments, keep your costs low? However, you don't have to think about things such as Medicare and Social Security and rising taxes, making your income last for the rest your life. What about inflation? Well, inflation affected you during your working years, but you got an inflation adjustment, typically in your W-2 every year or your salary. You continue to earn more during that period of time. Now, you got a fixed budget that you’re going to have to live on for the rest your life. How do you inflation index that income? What about long-term care? It becomes very overwhelming for a lot of people within this five-year period, and this is typically why they start to seek help during that period of time.

Emily: Absolutely. It’s recognizing that there's a new normal coming after retirement that your life is going to have a new normal and that's part of what I think happens within that five years is you recognize, “Oh, things that I've been taking for granted are going to change. So, I need to figure out what those changes are going to be so that I don't go into retirement unprepared and still taking things for granted that are not going to be true anymore.”

Casey: Well, and some people call that new normal today pertaining to what you talked about. There’s also the new normal, a period of potentially extended period of low-interest rates, an extended period of lower returns in the stock market than we've seen in the past but that's a completely different podcast. We’re probably going to have to do that another time. We really dive into those kinds of things, but I think today let’s focus on those five years before retirement and transitioning into as you call it the new normal. What do you see that's different when you go from those accumulation years into your retirement years? How do you make that transition from one stage to the next?

Emily: So, one of the things that I think people get very overwhelmed with is figuring out how to draw down their nest egg in retirement because we have this sense like, "Okay, you save all this money then you’re going to live off of it,” but we’ve got kind of the lizard brain view of money in that we think of it like Harry Potter where there's a big bank vault full of our money somewhere and we’ll just go and take a few coins when we need it and it's going to be – it has to be more complex than that, particularly, if you are at all concerned about market fluctuations. So, typically the 4% withdrawal rule has been like kind of the gold standard of a safe withdrawal rate. What we've seen recently, not as recently as it was, but in 2008 anyone who plans to retire that year could not use the 4% withdrawal rule. And so, all of a sudden, they’re like, "Okay. How do I retire? How do I access this money? What do I do?” And so, that's something that I feel like people don't necessarily recognize there are multiple strategies available and that you really do need to think about how you plan to draw down your accounts as you approach retirement so that you can make plans for like if there is a market correction in the year that you decide to retire, how you can still retire without feeling like you’re going to have to live on ketchup sandwiches.

Casey: Yeah. And I think a lot of people, I mean, what you're saying is just making that shift from I'm growing my money at all costs to giving an income that can last the rest my life and that sometimes we think of growth as income. So, well, I made 7% a year on my 401(k) and now I need to take 4% a year out. Why would that ever be a problem?

Emily: Well, and that's when things are going well, that works just fine, but so one of the reasons why I am a big proponent of the bucket method for retirement withdrawal is because it allows for things to screw up. It allows for Murphy's Law. So, the bucket method is where you separate your money into different buckets depending on when you plan to access that money. So, your first bucket will be for years one through about five or so and so, that will be in things that tend to be pretty stable so stable bonds, even cash equivalents, things like that. And so, if you have some money in that bucket and you are forced to retire during a downturn or things are just not going well, you know that you have enough to live on for the first five years.

Then the second bucket would be for let's say you're 6 through 15, and those can be in slightly more aggressive investments because that will allow you to let that money grow because you got a longer timeframe about a decade, but not a huge long timeframe, so that's bonds that are a little bit more aggressive, some safer stocks, those sorts of things. And then you can have a long-term bucket that is for your 16 plus and in that way, if you use the bucket method, you can invest like a younger person, whereas if you treat everything like you're going to draw things down like a 4% rule, then there is a point at which you have to be an old investor because you have to switch everything to bonds to be safe. Whereas, if you use the bucket method and plan on that for your retirement drawdown, then you will have the opportunity to continue to invest like a younger person and see that growth for long-term investments and protect yourself as you get older.

Casey: So, the reason I think that the bucket method and really not just the bucket method but just having some type of income strategy. The 4% strategy is not a strategy. It's just I’m going to take 4% out every year, I’m going to increase it for inflation and, well, I hope everything works out. And previously, when William Bengen created that, there is ultimately a safe mass drawdown. It was about a 90%, 95% chance success with a balanced portfolio, but in reality, you go, “Well, what's that 5% chance that this doesn't work out? Is that another 2008, 2007?” and that's just indiscriminately taking distributions from your retirement investments. No matter how diversified they are, you’re just taking 4% out of each one. You don't have a natural strategy for where I'm going to draw that income from when the market’s down. And I think the bucket approach is one or just simply having a place where we can go that we know is maybe some type of alternative investment, a place where we can go take a distribution from and know that it's not going to be down or it’s just going to be inversely related to something else that's in our portfolio. That's why we diversify during retirement, diversifying our income streams. Maybe it’s real estate for that matter, but it's another place you can go while you wait for your equities to recover. And ultimately, investing is all about psychology, right?

Emily: Oh yeah. Yeah.

Casey: I mean, the reason retirement doesn't work out for many is because of panic and if we say, well, a lot of people say, “Well, I get to retire. I can’t afford to take any risk anymore.” Well, the reality is you are still going to be investing for maybe the next 30+ years so you have time. You just don't have time on everything and if we have a place we can go, maybe it's that first five or 10-year bucket that we put in place that has some protections or as more conservative, for that matter, then we know well, “Hey, market’s down 50% but I don't need to touch that money for 20 years, and I can wait for it to recover just like I did during my working years.” I think ultimately, it's largely about psychology and if we don't have that degree of understanding of we’re going to be okay then we will ultimately panic.

Emily: So, I think you're absolutely right. I mean I think a lot of the reason why the 4% rule is so tempting is because it allows people to feel like they've got a strategy without having to think too much about it because a lot of money decisions are based on like what can I do so that I can ignore my money? And that's…

Casey: But it's overwhelming. This whole retirement planning thing can be incredibly overwhelming with all the different topics and all the noise that’s hitting you from every single angle. I mean, really even most publications, most financial articles, most things you hear on the radio or TV. They’re all so biased that it’s so difficult to get an unbiased opinion that now you hear, "Well, annuities are horrible. Annuities are great. Life insurance is bad. Long-term care is bad. Long-term care is good.” Well, who's right, and who's wrong, and how do you possibly discern that? How do you help people overcome that feeling of being overwhelmed and how do you help them with that?

Emily: So, one of the things that I try to do is I try to remind people that they're smart and they can understand money and one of the things that I want to remind people of is that they've learned other skills that have actually higher stakes before this. So, if you cook at all, if you cook something wrong, you can kill somebody. But people don't have the same kind of just absolute fear of cooking wrong. That’s not to say I’ve met people who were cooking phobic, but in general, people are like, "Yeah. I can cook. It’s no problem.” And so, it's the same way with money. People have this phobia about money like, “Oh my goodness, I’m going to do it wrong,” but with money, yeah, they can have devastating consequences, but you cook something wrong, you could kill somebody.

Casey: That’s why you follow a recipe, right?

Emily: Yeah. Exactly.

Casey: I mean, that’s what's going on when you're cooking. You first start looking or you first start watching, I mean, when I grew up, my grandmother taught me to cook for the large part, my dad, my grandma, and I was always in the kitchen, always watching them do what they did. And that's how I learned to cook, but then I started following some recipes, getting a little bit more sophisticated. I think we can kind of do the same thing with our retirement. We can talk to others that have already been through the process and get a feel for what not just not what advisors are recommending but what other baby boomers or other retirees are doing, especially if they've been in retirement for 20 or 30 years finding out, well, what worked for you and what did the good times and the bad times feel like? And so, you get that kind of education around the kitchen table or around the kitchen like I did, and then you could also find a framework or a recipe that ultimately gets you where you want to go, and that's what we try to do when we establish the purpose-based retirement strategies as put together a plan that isolates the things you can control. What can you control? You can control your emergencies. You can control your income, your expenses. You can control your risk and your asset allocation. You can control your long-term care protection and your tax strategy.

And so, now we've got a framework that is here’s the forward risk you’re going to face: emergencies, market downturns, inflation, and health care, and taxes. So, here are the four different risks and now we just need to find out how much we need to allocate to each one of those risks so that we can most efficiently accomplish that specific goal. I think that's largely because I think there are new obstacles that baby boomers are facing today that previous generations didn’t which is making this recipe and this education prior to retirement more important than ever, what do you see as the new obstacles that baby boomers are facing that are maybe different from what their parents faced?

Emily: Well, I think there are two aspects of it. One is the greater longevity and it's a good problem to have, but it can also be devastating. The greatest tragedy is not necessarily that you die young, but if you outlive your money, it can be really, really difficult and tragic on a day-to-day basis. And so, that's something that baby boomers’ parents didn’t really have to worry about. They certainly have longevity on for individuals but as a generation, they do not live as long. So, that longevity is kind of a double-edged sword. I mean, it's wonderful to be able to enjoy long life. It can be really, really devastating if you don't have enough money.

Casey: Well, retirement is a relatively new concept.

Emily: Yes.

Casey: I mean, it’s really not something that our parents and grandparents really had to plan for. A lot of them had pensions and they had guaranteed income, they had their Social Security, and a lot of that took care of most of their needs as they step into retirement and now we've got retirees that are still retiring at the same age as their parents, however, their longevity has increased dramatically. I think I saw a statistic. The other day, I interviewed John Leland about his experience with interviewing people over the age 85 to 104, and one of the things he said was today's 85-year-old had a life expectancy of I want to say he said 66 years old when they were born. Now, you look at how much further they’ve lived, well beyond their original life expectancy and I think that is only going to continue to become more and more challenging in the future as we have more improvements in the health care system and just the way we treat our bodies. And so, you have to, I absolutely agree that longevity is one of the main issues that this generation is facing that other generations didn’t, just one of many.

Emily: Yeah. And then added to that, I mean, kind of goes hand-in-hand with that is the cost of healthcare in retirement. So, Fidelity does a study every year of how much a 65-year-old couple retiring that year can expect to pay for health care costs over the rest of their lives. And for 2018 I believe it's $270,000 and what's so concerning about that is that 65-year-old couples are both eligible for Medicare. So, that is on top of Medicare covering what…

Casey: Yeah. And we’re only talking about a slice of the pie. I mean, we’re talking about things that Medicare doesn't cover traditional healthcare. That doesn't even begin to approach the subject of long-term care, home health care, assisted living, nursing home care, and those costs can easily turn into six figures annually, and they’re only increasing about twice the rate of inflation. So, those are really concerns of previous generations and have you might say, "Well, I'm really healthy and I won't need long-term care because I take such good care of myself,” but that might be exactly why you need long-term care in the future is because you've taken so much such good care of yourself. Now, you're in a position where you continue to live but you might lose your cognitive ability.

Emily: And this is also part of this change in our social structure over the past hundred years. So, retirement didn’t use to exist. You work until you couldn't work anymore and then your family would take care of you. And we are now at a point where that's not the expectation anymore. You absolutely see parents moving in with their adult children, things like that, and families do try to help each other. But now that the two-income family is the norm for married couples, you no longer have someone who is able to help take care of grandma if she's no longer able to live independently and those sorts of things. So, this is with every step forward in one area of our lives, the social expectations and culture and things like that you get a different step backward, unintended consequence that we didn't think of. And that's kind what's going on here is because retirement has become an expected part of our lives, we have these expectations for what retirement should be, but we no longer have the safety nets, just kind of family and social safety net in place to help people who might not have saved enough for retirement or who are dealing with cognitive functional issue and can't live alone anymore and those sorts of things. And so, that each generation has to solve a new problem and I think that's the current problem that we need to solve.

Casey: Well, I really enjoy that. Each generation has a different problem to solve because we often say, "Well, this generation doesn't have this. This one is worse off than last or this one's better off than last,” make these generalizations and it's really just a different obstacle for a different time in history. So, you covered healthcare planning in your book, 5 Years Before You Retire, quite extensively and you also covered budgeting quite extensively in the book. I really enjoyed the budgeting part of the book because I think that's one of most difficult things retirees to do that most of them have never built a budget. Now they have to have one. Before we get into budgeting, though, let's talk about that healthcare aspect. Being that it's such a challenging thing to predict, it seems like there are just major changes going on in healthcare every single year. Someone that's going retire at 65 or 60, whether they need to get a traditional healthcare, insurer, insurance policy prior to 65 or they need to go on Medicare we can kind of budget I think for Medicare for the large part. We’ve got some good statistics and some good numbers, but most people don't know what their health insurance premium is going to be if they go off their employer plan, and they also don't know what it's going to be at some point in the future. How do you budget for healthcare insurance during retirement, and especially prior to 65?

Emily: So, it's a tough question to answer. When I wrote the book, it was just after the implementation of Obama Care and so, I was able to say like, "These are what the options are going to be.” And now things are up in the air. We’re not sure what's going to be happening with the ACA. And so, that makes it difficult for anyone who is looking to retire before age 65 and is therefore not eligible for Medicare. So, as for how to budget, it’s one of those things where like you have to take your own health into consideration and you also have to recognize that you may be better off continuing to work until you can reach Medicare age, then trying to game the system. Well, that’s a bad way of putting it but trying to just make it into Medicare. For instance, I had a neighbor who retired early, and he was just going to grit his teeth and bear it until he got to 65, Medicare. Unfortunately, he ended up getting cancer and passed away and I can't fault him for making the choices he made. He wanted to retire. He was ready to be done with his career. He had worked as an attorney and so had plenty of money but when he started feeling ill, he didn't go to the doctor and I think it's because he knew it was not going to be good news and just kind of hoping he could make it and that's a tragedy.

Our system should not be set up that way. But knowing that it is, you need to make the most practical best choices for your health, and often, that might mean if you need to continue working even on a part-time basis to keep that health insurance or if you can find a way to be on a spouse's health insurance so that you know what to expect financially from your healthcare because, again, you might find you just don't know what you're going to be spending and you might be overspending those five years between 60 and 65 and so that's something where it's just a shame that that has to be a part of someone’s decision-making process for when to retire but it is something to consider.

Casey: Well, as far as health insurance goes, I see a lot of the clients we’re working with differing retirement until 65. More and more differing retirement to 65 because of the unknowns when it comes to traditional healthcare coverage, and then we also work with people that are retiring let’s say 55 or 60 and 75, 10 years out for Medicare age. And during that period of time, you’ll go out and get quotes. It seems like a lot of times, well, I just don't know how much it's going to cost. How am I ever going to afford this? I’m just continuing to work, and I’ve seen families that have done that, and they could’ve retired five years prior and paid for their own health insurance, but they didn’t realize how much it was costing. Maybe their employer was covering half of the cost and maybe we can even give them in a position due to good tax planning that they get subsidies that can help cover that insurance. So, I think you have to know the facts and then build a buffer in place to cover those premiums where you say, "Well, it's going to cost me today 20,000 a year for health insurance,” and I'm just throwing down the numbers.

It’s probably going to cost that much but let’s say it's 10,000, 20,000, whatever it is. If it's 10,000 a year for the next five years, it’s $50,000 and you set that aside. I’m going to set aside $50,000 to cover health insurance and I'm going to increase that by 25% just to make sure if premiums go up in the future, I've got a plan for that. I just hate to see people that have put off retirement. I've got a couple that worked with that have over $10 million saved for retirement. They are 55, 60 years old and they are continuing to work because they are afraid of what health insurance premiums are going to cost and if it costs them $50,000 even $100,000, wouldn’t that be worth your time? I think one of the things we have to make sure we understand, when we’re five or ten years out of retirement, if we can afford to retire and we don't do that, if we got more than enough saved to cover all of our potential needs and we don't retire, now you're putting yourself in a position where you’re working for someone else. You're not working for you anymore. You're working for your heirs. You’re working for your children, your grandchildren, maybe the church you want to leave your life savings to and that's just because you haven't sat down, you haven’t put a plan together, and said, “You know what, I can afford it.” At the end of life when you're 90 years old and you said, "Boy, if I could get back five years of my life, how much would you pay?” Would you pay $50,000 to get back five years of your life? Most people say yes.

Emily: Absolutely. It's really all about knowing what your options are, knowing what is available to you, and making educated conjectures about like you said, in case premiums go up. And because things are a little bit up in the air right now, the folks who were planning on retiring in the next five years right now are in an enviable position because they just don’t know. So, it's understandable. Even you’re a couple who has $10 million saved, it’s understandable that they’d be like, “I just don't know.” So, you always want to base your decisions on the most rational possible decision. You want to gather the facts. You want to figure out what are you doing that's an emotional decision, what are you doing that is like actually rational about, what it is that you want going forward. And with healthcare, it can be so scary and that can cause a lot of irrational decisions in both directions, where someone is like, “Oh, I've always been fine. I can just grit and bear it until 65 like my neighbor did.” Or, you know, on the other side like, “I'm just terrified. What if there is a cancer diagnosis or an Alzheimer's diagnosis or something so I got to make sure I have healthcare.” And when it comes to health, health and money are two of the most emotional personal decisions you have to make.

Casey: Yeah. And they need to be made rationally, however, their emotional decisions and it’s so hard for people to overcome. One of those emotional decisions in that along the lines that healthcare discussion is long-term care and you covered that extensively in your book. You talk a lot about long-term care, and who needs it, and I cannot remember the last time I had a meeting with a family that was getting ready to step in retirement that didn’t ask what are your thoughts on long-term care insurance. So, Emily, what are your thoughts on long-term care insurance?

Emily: So, long-term care insurance is you purchasing insurance generally when you're a little bit younger and you have it in place in case you need long-term care, like for example, someone with dementia or Alzheimer's could be otherwise be perfectly healthy and so not need medical care, but need daily care with things like dressing, cooking, getting around, those sorts of things. And so, and the cost of long-term care can be devastating to a budget because it is not in any way shape or form covered by Medicare. So, this comes down to a number's decision. There is, I think something like 40% of retirees would benefit from having long-term care. The rest are either in a financial position where they have enough money that they can self-insure basically or not long-term care, long-term care insurance. So, 40% of retirees are in a position where they need benefit from long-term care insurance because the rest are either in a position where they can self-insure because they have enough money that if they do need long-term care, they can pay for it out-of-pocket, and it will not affect their quality of life too badly. Then the rest are in a position where the cost of long-term care insurance premiums would be far too much for them to be able to take on and so it would make more sense for them to just completely defeat their finances if they do need long-term care because at that point they could become eligible for Medicaid and Medicaid does cover long-term care.

Now, obviously, that is not what you want to happen if you are in that group. However, if you know that you can't afford long-term care insurance premiums, that is the rational role of the dice is like, "All right, it makes more sense to just plan on depleting my savings and going onto Medicaid if I do end up needing long-term care rather than depleting my savings by paying for long-term care insurance premiums and find out I don't need them.”

Casey: Well, and I think today there are some different options for achieving that coverage for long-term care than most people dismiss long-term care insurance and say, “Well, I don't even want to look at it because I don’t want to pay for something I may or may not ever use, even if there's a 50% chance that I'm going to ultimately use that long-term care policy. 50-50 I'll take my odds,” even though it's a higher percentage of odds that you use that insurance policy than it is that you have a house fire or a car accident, you still end up avoiding one of the biggest risks typically to your retirement because of that use it or lose it part of long-term care insurance. And a lot of long-term care insurance premiums have skyrocketed for policies that we're putting forth 10 years ago, but today there are so many different options. Even if you're uninsurable, you can still get coverage and actually, I met with a couple today that had that situation. One of the two of them they were in a situation where they had about $1.5 million in investable assets and they had some good pension and Social Security, but they’re kind of in that sweet spot where they say, "Well, it could be devastating. I might be able to self-insure, but I’m only going to be able to handle a couple years. If it ends up lasting five years, then we could end up in a very difficult situation for my spouse typically.”

And so, they really want to focus in on that because they would've been fine outside of that major risk. Everything else we just protect the life savings, make a decent rate of return. They’ve got enough money to last the rest of their life, but long-term care could take it away. She, being insurable, rather than buying a long-term care policy because she did not like the idea of use it or lose it. And so, instead, they're saving $10,000 a year in a savings account at the bank. So, instead, we said, "Let's take that $10,000 a year, put it in the whole life policy and now you can have backup.” Those funds we’ll put in there, over 10 years will put in $100,000. They can have it back if they want back. They have a death benefit that they can leave behind their heirs. It's tax-free. It's about $150,000 but if they ever need long-term care, they’ve got $0.5 million in long-term care benefits for her. Well, that money was just going to sit in the bank otherwise so why not go ahead and pick up some coverage? And it’s not use it or lose it, and they’ll never see their premiums increase. For him, on the other hand, he was uninsurable due to some previous heart attack that he had. No long-term care carrier was going to take him as a risk. He had a pacemaker. So, he had a pacemaker and he had a heart attack and so we ended up looking into an alternative where he could set aside a portion of his savings. We’d set aside around $300,000. We could make 3% to 6%, so it’s still going to grow. They didn't need it for retirement so it’s still someplace they can get at if they wanted. Now, they've got an income benefit that would create about $15,000 to $20,000 first year. It's going to increase every year and would double if they needed home health care. And if they never used it, there’s a substantial death benefit passed on to their heirs.

So, in instances like that, you might not realize that there's so many other options out there for long-term care coverage and for those that say, “I'm just going to self-insure,” look real hard at your assets I would say and see if there’s a chunk of money that’s sitting in a savings account, sitting in a CD, that’s sitting in an IRA and money market and that could be reallocated where it can earn a little bit of higher rate return or at least the same but pick up some long-term care benefits. There’s just so many other options out there today.

Emily: Well, and that I feel like is the main thing is knowing what the options are. Taking the time to think it through because a lot of times, again, this gets to that psychology of money where people don't want to think about it. Thinking about mortality I think is actually even easier than thinking about if you lose independence. So, we all know that we’re going to die. We like to think like, “Oh, but I'm going to be sharp as a tack right until the end,” and it's really hard to think about if something were to happen if you have a stroke or diagnosed dementia or something like that, that people hate to think about that which is completely understandable in human nature. But because of that, I think that there is kind of this difficulty in looking rationally at long-term care insurance and options for long-term care because people don't want to think about the fact that they might need it.

Casey: Yeah. We don’t want to think about the end of our life. That's why so many I have the wrong beneficiary designations, avoid putting a will in place, enough with probate assets, and sometimes, believe it or not, end up with assets that’s passed to a next spouse even because they just didn’t want to think about death and change their beneficiaries. We just don't want to think about those things in finance that can be dealt with, even major market downturn. Sometimes we just close our eyes, put the blinders on, and say, “I hope everything works out.” We’ll have to do that. You can put together a plan. There's a couple of topics that I really enjoyed in your book, one being budgeting, so I want to make sure we talk about budgeting which is nothing more important than budgeting when you're talking about retirement, living on a fixed income, then we have some questions from some of our fans on Social Security and, heck, I am looking at a book that you wrote that’s 250 pages long on Social Security so I would say that we have to get a couple of Social Security questions.

But, first, let's talk about budgeting. We often hear there's nothing more important in retirement than income because we don't have income. You don’t retirement. However, I'd say even more important than that is putting together a budget, understanding your expenses so that we know that we have the right income. It has to start with a budget. It has to start with understanding our expenses so that we can put together the appropriate income strategy to satisfy those expenses. So, as I said, many times we’re stepping into this new stage. We’d never put together a retirement budget whatsoever, especially for someone that's maybe had a substantial income and they've never really had to worry about money or just slap on a credit card and they’ll put some overtime in over the weekend to pay for it, the home equity line of credit and say we can't do that necessarily in retirement and it can be very overwhelming. It seems to me when I sit down and someone’s never done a budget, I don't even know how to do a budget. It's scary. How do you simplify budgeting for the newbie?

Emily: So, to simplify budgeting for the newbie, the first thing is you need to deconstruct what they think about budgeting like people hear the word budget and they think deprivation.

Casey: Right. Can't spend the money.

Emily: Yes. So, and instead, you need to think about it as like what do you want to do? So, if you start your budgeting journey with like what do you want to be able to afford? And so, let's say, "Well, I want to be able to fly to see all my grandkids in all four corners of the US twice a year.” Okay. Great. That's a great first start. We know that you’re going to need, it costs about $300 to fly round-trip. You’re going to need about that eight times because you got four sets of grandkids each year. So, okay, that's your first line item on your budget. Now, that's going to eat up quite a bit of money. So, what can you cut? What do you not care as much about? You’ve got in the habit of dining out three times a week but let's say you reduce that not all the way. Not even just no times a week. Once a week. How much moneys do that free up? And so, that's really what budgeting is more about. I like to think of it as like a big Tetris game with your money. So, you are trying to make things fit and you start by identifying what is most important to you. What is it that you need to have to feel like you are having an enjoyable and fulfilling retirement?

So, start with those and then from there, you can make the choices of where you have the trade-offs where like, okay, well I don't need to do this anymore because maybe you really enjoyed clothes and you always bought new clothes while you’re working. So, you can still enjoy clothes but it's more important to you to see your grandchildren, so you can slash clothing budgets, still be able to look good and enjoy new clothes maybe once every season or once a month but knowing what is most important to you and identifying those things is really what budgeting is all about. And then once you've done that, you can play that kind of budgeting Tetris where you figure out how to make things fit and from there you can always reassess if you decide, "You know what, I don't like flying that often. Not as much as I love seeing my grandkids.” So, maybe it's once a year for each set of grandkids. Okay. Well, that frees up this amount of money. What else would I like to fill my time with? What else would I like to use that money for? So, that's the other aspect of budgeting that people don't necessarily understand. It's not a once and done thing. It’s a living document that you consistently come back to, to say what's working, what's not working, how can I rearrange things that I feel most fulfilled with the way that I'm spending my money?

Casey: Well, I think it kind of follows a process that we like to share with the people that we meet with when they're first trying to put together this budget is, "Let's dream. Let's sit down and think of all the really cool things that you would love to do while you're in retirement. You want to go on a cruise with all the children? Do you want to have a new fancy car? Do you want to have a second home?” What would a perfect retirement look like? And then let's see what fits in the budget. But I really like how in the book you help people prioritize those things. In the book, you had a little worksheet that I found really interesting that it helped people prioritize their needs and their wants in order to help them minimize their expenses and you brought this up after mentioning David Bach and David Bach’s talking about buying coffee. Can you talk to that worksheet and your thoughts on David Bach?

Emily: So, David Bach coined the latte factor and so his point about the latte factor is that you end up spending a lot of money without thinking about it on little purchases like a daily latte. And so, David Bach is a colleague of mine, so I got to be careful. I say that I hate the latte factor in the book and it's because I don't have any quibble with the math or the fact that there are some people out there who are spending money without thinking about it on their lattes. My quibble with the latte factor is the fact that generally people who are spending money mindlessly on little things are also spending money mindlessly on big things and it is a lot easier to figure out where your big-money drains are than it is to keep track of the $5 every day you spend on the latte, put that in the bank. Whereas, spending a big amount of money on let’s say you lease a car and that's a big money drain when you could afford a used car for cash and that's going to save you a lot more money and much more easily and quickly than trying to figure out where $1,300 is going every year because you’re buying lattes every day.

Casey: And you kind of work back into that worksheet from there, which help list out each one of those expenses and once you've listed out those expenses I think you had it rated on a scale of 1 to 5, or maybe 1 to 10 so you could see which one of those were most important to you and then that allows you to kind of rearrange that budget and play a little Tetris, “You know, I don’t really like that block. I might like that, but this is much more important to me. I think that's the one that I want to make sure we have in retirement. That's the expense that I want to make sure we hit.” And to your car point, you had a real need, just simple math really, but in a way a lot of times I think we say, “Well, we’re going to get rid of a car and we’re done.” However, you'd shared that it's not just the car but adding up all the other things go along with it as you sometimes are in your working years, you have to have two cars then you retire then you’d maybe be down to one car and it's not necessarily we have to cut our expenses for the car but just to realize how many other little things go along with one expense like that. You had car payment, insurance, gas, maintenance, and then multiply it by 12. That’s your yearly savings and you do that with a lot of different pre-retirement items and how those things are going to change once you retire.

Emily: Yeah. There is a cost to working and that’s something I think that again that one of the benefits of coming from a nonfinancial background because I took a year off from teaching to stay home with my son. And part of the reason why I did that was the amount we would pay in daycare was going to almost eat up my salary as a teacher. And so, there's this cost to working that we don't necessarily think of unless we’re in early parenting or right after we finish our career and start retirement and realize, “Oh, I’m not going to the dry cleaner every week. Oh, I’m not eating lunch out three times a week,” you know, and you don't necessarily think of these things because they fold so seamlessly into your work life and because you are working, you're able to cover those costs. But that's something that it's important to think through is like how will you save money by retiring because there are some ways that you will save money that you may not have thought of prior to getting there.

Casey: Now, I think we have to make sure we touch on Social Security because if we did have a lot of questions that came from our fans on Social Security so I want to make sure we get to those things and I think before we even get into there, a lot of folks don't believe Social Security is going to be around for their entire retirement. What are your thoughts on the sustainability and security of Social Security?

Emily: So, there are two things about Social Security that I think that people don't know and need to know. The first is that the United States is the only country in the world that does a 75-year projection of its social insurance programs like Social Security and Medicare. So, that means that we know things are coming for a really long time, so we tend to get into the, “Sky is falling,” a lot earlier but that also means that we’re in a position to make changes and that's actually why there have already been changes. The baby boomers were a huge generation and they were a surprise to the preschools and kindergartens when they signed up when they were five years old. They're like, "Oh my goodness, there’s a lot of kids here.” But when it came to Social Security we’re not surprised. We know that there's going to be I think it's about 10,000 people turning 65 every day and so we know that's coming. You know, their retirement is not a surprise, and so they made changes in the 80s as to when people like our generation can be considered full retirement age and things like that to try to save some money. So, that's something to remember. I think that our government tends to like to use Social Security as a political football and they like to argue about it. I truly believe that when the chips are down, they will make the changes necessary to make sure that it fulfills all of its promises but…

Casey: The other ones don't get elected I guess.

Emily: Yes, exactly. Social Security is also incredibly popular. So, there's a lot of anguish and hand-wringing about Social Security and I think that as kind of fear to get people upset but I do believe that when it comes to it, they will get off their hinnies and do something about it.

Casey: There will be changes without a doubt, and I think what a lot of folks understand is yes, while there are problems with Social Security funding, they’re not actually all that difficult to fix. There could be some minor changes even in just payroll taxes that can quickly fix the underfunding problem that Social Security has. So, I think we have to believe that it will be around. However, there will be some changes and maybe those are material changes that but whenever changes have been made to Social Security, they have been sunsetted and so younger generations, maybe a 35-year-old. Well, if you plan on taking Social Security at 62 you may not be able to. Maybe they push that age back to 65. Maybe it’s 70 and there are ways that funding can be fixed without taking it away.

Emily: Yes, absolutely. The other aspect to remember is that so people get very, very concerned about the Social Security trust fund and the thing to remember is the trust fund was put in place because there was more revenue from payroll taxes than there were needs at the time. So, the trust fund’s put in place because they needed a place to invest the money. I also get a lot of people saying like, well, Congress raids the trust fund. Well, no, that's not true. When any time you invest money, it is immediately being turned around and loaned out. So, if you put money in a savings account at your bank, there’s not actually a pile of money in an account with your name on it. What's happening is that the bank is loaning it out to for mortgages, for small business loans, personal loans, car loans, that sort of thing, and same thing happens with the government with the trust fund. When payroll taxes go in, then the money is loaned out to different government programs and there it earns interest in the same way that's any kind of investment does. So, that’s something people get very, very concerned about that. Now, we are depleting the trust fund right now and it should be completely empty I believe by 2033. And that is a worrisome thing because, at that point, we can only fulfill 79% of what is currently promised.

Casey: Given current tax revenues.

Emily: Yes.

Casey: I mean, just because there is nothing left in the trust fund, doesn't mean there is no longer any revenue coming in to satisfy distributions. It just won't continue to grow. Think about it. Just say you're getting a pension, you don't have any more savings in your account and you’re spending your pension every year, but only covers 80% of your spending needs. I think that's kind of a similar analogy we might be able to use.

Emily: Yeah. So, it’s something to keep in mind. It's like there's a lot of hyperbole about Social Security, but it's actually set up in a way that is actually very beneficial in that current workers’ pay for current retirees. And so, that means unless there is some kind of global phenomenon where nobody is working, in which case we got bigger problems in Social Security, there will be something there for us. And the only other way that Social Security could go away is if the United States decides to do away with it, which again I can’t imagine happening. Now, there are likely to be changes. When I wrote the Social Security book, I turned in my manuscript. I believe it was like eight days before Congress made a change to Social Security which affected about 50% of what I’ve written. So, I don't want to complain because like that was a minor thing for me really. I had to rewrite the book. There were some people who that very negatively affected their retirement planning because they were just on the wrong side of the deadline for their birthday and that's a much bigger problem than me having to rewrite some chapters. But those are the sorts of things where like I want people to know Social Security will be there but don't make long-term plans based on any particular aspect of Social Security.

Casey: Yeah. So, many people that had planned on filing and suspending and all these fancy really loopholes that could be used to maximize your benefits have kind of gone away, but people that had planned on doing that had to revamp their retirement plan. This is why it's so important to have a flexible retirement plan, so you can make changes that will inevitably occur over a 30-year retirement. I'm sure we could stay on the Social Security topic for a whole hour. We might have to save that for another episode. I'd like to use our last few minutes here just to cover some questions. I like to ask at the end of every podcast that gives us a better insight into you and some of your principles and some of our most interesting answers come out of this segment. And my first question is a question that I've literally asked thousands of people and it seems that most people have a different answer and someone such as yourself who studies retirement, researches retirement, writes about retirement, in one word, what does retirement mean to you?

Emily: Freedom. So, I don't have plans to traditionally retire. I love writing so much that I know that even when I'm retired, I will still be writing. For me, getting to retirement means getting to the freedom of being able to choose the projects that I'm most interested in rather than there's – I’ve been writing for eight years now and I’m interested in pretty much everything I do, but sometimes I write similar articles over and over again, it feels like Groundhog Day somewhat. So, having the freedom to choose the specific projects I'm most interested in, in retirement, and having the freedom to say, "You know, I'm to go for a hike today instead,” that sounds like what retirement is going to be for me.

Casey: Well, I think a lot of especially self-employed individuals, business owners really love what they do, and they’ll say, “I never plan on retiring, so why do I need to meet with the retirement planner? I'm not planning on retirement. I'm 60 years old. I’m going to work until I’m 80.” I think there are multiple reasons to do that though, and the biggest being freedom. One being that you could be forced in retirement whether you want to retire or not, but freedom is such an important word there because once you get to that stage, I've worked with business owners that said - I’ve got one that I worked with that said he never wants to retire. He’s going to work as long as he possibly could. And he had sold his business and he was planning on getting started into another business, but he said, “I just want to make sure that if I don't like that new business I get involved in or someday I just decide I want to quit or if I decide I don't want to go to work that day, I’ve got a plan that gives me the income and emergency fund and inflation protection. I want a plan that I can fall back on,” and you won't believe, I mean, I think the things that he's working on today could potentially change the world and he wouldn't have that same opportunity because he wouldn’t be able to take that same degree of risk with his life and really his financial life if he didn’t have that plan to fall back on.

I had a mentor of mine that once said, figure out your number. Once you figure out that number, once you get to that number, get there as quickly as possible. You don’t have to be 65. It could be 40. It could be 25. Whatever that number might be, you get to that number and you live your life completely differently. We’ll treat the people in your life differently. You’ll treat your business different. You’ll treat your employees different. And that's where you can really make the biggest impact, biggest positive impact in the world. My next question is what is something you would like to see as absurd 25 years from now?

Emily: I would like to see people staying in a job they don't like for the health insurance is absurd 25 years from now.

Casey: I like that. Yeah. How much do people hate to stay in a job because of health insurance? Now, I think we got a long ways to figure out how we’re going to get there, but if we get there, that would be really nice. That's a great answer. And my last question is if you could revisit your 20-year-old self, what kind of advice would you offer?

Emily: I would tell my 20-year-old self to take a couple of courses in economics. I double-majored in English and French literature with a focus on creative writing and I loved it. I absolutely loved it. I would not change a thing but there's a lot of stuff that I’ve had to teach myself about both micro and macroeconomics that I would’ve found interesting back then. I just was woefully literary as a 20-year-old and would not have heard like couldn't imagine being interested in this, even though I've always read like sociology books that kind of bordered on things like behavioral economics and stuff like that. I read those for fun even in my teens and in early 20s. So, if I could tell myself to just take an intro at economics course, see how you like it, you might get into that later. That I think that would be very helpful.


Casey: Well, we just don't get taught those things typically and they’re so important, really, whether it's economics or the basics of finance, just taking couple courses along those line for anyone regardless what their future career might be. You can apply those topics in that education in your life no matter what career you’re ultimately in. So, what you’ve shared with us, I know it’s been very helpful for all. It’s just getting that outsider's’ perspective on what retirement is all about. You’ve done the research, you’ve had your education, you've done your experience, and now you've been able to write about and provide a lot of value to people that have been getting some very complex answers for years. And I'm going to have my fair share of complex guests here on the podcast so it's nice to mix it up a little bit and offer some really common-sense advice that everybody could use. Now, Emily, if someone wanted to reach you if they wanted to get in touch with you, if they wanted to get your blog, if they wanted to pick up one of your books, how can they make that happen?

Emily: So, I have a website, EmilyGuyBirken.com and that’s E-M-I-L-Y-G-U-Y-B-I-R-K-E-N.com and you can also find me on Twitter and my handle is @EmilyGuyBirken and I welcome any and all comments on Twitter.

Casey: Well, Emily, thanks for sharing and you'd also offered that you'd like to get a couple signed copies of books out to people. I think we've got five books that we’re able to do that with so for the first of you that head on over RetireWithPurpose.com, we’ll be able to get you a copy of Emily's books. She’s going to sign it and she’d love to personalize it for you as well. Thank you, Emily, for coming onto the show and I look forward to continuing our relationship in the future.

Emily: Great. Thank you so much.