Roger Young: The Importance of Visualizing Retirement

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Our guest on the podcast today is Roger Young. Roger is thought leadership director at T. Rowe Price, where he and his team conduct research on retirement planning and financial planning matters. Roger has been with T. Rowe Price since 2017. Prior to that, he was a financial advisor at Wells Fargo Advisors, and he’s also held a number of corporate finance roles. Roger earned an M.S. in manufacturing and operations systems from Carnegie Mellon University, an M.S. in operations research and statistics from the University of Maryland, and a B.B.A. in accounting from Loyola University, Maryland. He is a Certified Financial Planner professional.

Background

Original Post>

Thought Leadership Projects

“How Coordinating Beneficiary Designations Can Increase Your After-Tax Legacy,” by Roger Young, troweprice.com, Oct. 12, 2023.

“Is Financial Advice Worth Paying For? Investors Share Their Perspectives,” by Roger Young, troweprice.com, Oct. 25, 2023.

Retirement: Financial Considerations

“2024 U.S. Retirement Market Outlook,” troweprice.com.

“How to Make Sure You Won’t Outlive Your Retirement Savings,” by Jasmin Suknanan, cnbc.com, July 30, 2023.

“How to Determine the Amount of Income You Will Need at Retirement,” by Roger Young, troweprice.com, Feb. 1, 2023.

“A Closer Look at RMDs and the New SECURE 2.0 Rules,” by Roger Young, troweprice.com, July 24, 2023.

“Spenders vs. Savers: How to Determine Your Retirement Spending Personality,” troweprice.com, Dec. 7, 2023.

“How to Make Your Retirement Account Withdrawals Work Best for You,” by Roger Young, troweprice.com, Aug. 7, 2023.

“Helpful Options to Take Into Consideration for Your 401(k) at Retirement,” by Roger Young and Judith Ward, troweprice.com, Feb. 6, 2024.

“A Closer Look at RMDs and the New SECURE 2.0 Rules,” by Roger Young, troweprice.com, July 24, 2023.

“How Catch-Up Contributions Help You Reach Your Retirement Savings Goal,” by Roger Young, troweprice.com, Sept. 12, 2023.

Retirement: Nonfinancial Considerations

“Beyond Retirement Savings: How to Achieve the Post-Career Life You Want,” by Roger Young, troweprice.com, Sept. 26, 2023.

“4 Things to Do in the Decade Leading Up to Retirement,” by Roger Young and Judith Ward, troweprice.com, April 10, 2023.

“‘Unretiring’: Why Recent Retirees Want to Go Back to Work,” by Judith Ward, troweprice.com, Sept. 18, 2023.

“5 Important Factors to Consider When Planning for Retirement,” T. Rowe Price, forbes.com, Dec. 19, 2022.

“Need to Boost Your Retirement Savings? Spend Less to Save More,” by Lindsay Theodore, troweprice.com, Jan. 23, 2024.

Other

“The State of Retirement Income 2023,” by Amy Arnott, John Rekenthaler, and Christine Benz, Morningstar.com, November 2023.

Retire, Inc.

Transcript

(Please stay tuned for important disclosure information at the conclusion of this episode.)

Christine Benz: Hi, and welcome to The Long View. I’m Christine Benz, director of personal finance and retirement planning at Morningstar.

Amy Arnott: And I’m Amy Arnott, portfolio strategist for Morningstar Research Services.

Benz: Our guest on the podcast today is Roger Young. Roger is thought leadership director at T. Rowe Price, where he and his team conduct research on retirement planning and financial planning matters. Roger has been with T. Rowe Price since 2017. Prior to that, he was a financial advisor at Wells Fargo Advisors, and he’s also held a number of corporate finance roles. Roger earned an M.S. in manufacturing and operations systems from Carnegie Mellon University, an M.S. in operations research and statistics from the University of Maryland, and a B.B.A. in accounting from Loyola University, Maryland. He is a Certified Financial Planner professional.

Roger, welcome to The Long View.

Roger Young: Thanks so much. Great to be here.

Benz: Well, it’s great to have you here. We wanted to start by discussing your role in thought leadership at T. Rowe Price. Can you share an example or two of a project that you’ve worked on?

Young: My team covers a fairly broad range of financial planning topics, an emphasis on retirement. Personally, I tend to get some of the quantitative work, and it’s often at the intersection of investing and taxes. So, one example of a project I completed recently was about beneficiary designations for retirement accounts. And you might think, well, that’s not terribly exciting. But we showed how some people might be able to increase the amount that their kids get after income taxes with some techniques that seem straightforward. You might want to leave more tax-deferred money to a child who has a lower tax rate, other assets to the higher-income child. Implementing that in a fair way can be a little tricky. So that’s the type of analysis I do where I feel like I can hopefully expand the set of knowledge that’s out there and help a reasonably wide range of people.

Arnott: Who is the main audience for the work that you and your team produce?

Young: Our audience in my business is individual investors. By that, we mean we work with people who invest directly with T. Rowe Price, largely in our funds. But our work is also used for participants in retirement plans and with financial advisors, especially material that they can use to share with their end clients. So, I think that the overriding theme is individuals as opposed to B2B, but we get to those individuals in different ways.

Benz: It sounds like you work with financial advisors a fair amount. When you talk to them about what are their pain points when they work with clients, like what are the issues that the clients really struggle with or that the advisor has trouble communicating to the client. Can you talk about some of those areas? And I assume that you’ve tried to direct your efforts into those spaces.

Young: Yes, I think a common theme is advisors find clients can struggle with that transition from the accumulation phase to retirement and decumulation, that made-up word that we talk about in our industry. There are lots of facets to that. One of them is just a reluctance to spend or a fear of spending the money that they could spend and also, the challenge of visualizing what retirement looks like. So, I think, you know throughout the world of financial advice the behavioral side has become much more important. So, we do find that advisors are increasingly interested in that visualization and nonfinancial aspects of retirement.

Benz: I wanted to ask, Roger, about the “permission to spend” question. It’s something that we’ve been thinking a lot about, too. Can you talk about whether you’ve hit on any ideas to help advisors help their clients get over that hurdle of transitioning from “I’m an employee, I get a paycheck” to “I’ve got to spend from my portfolio and figure out how much to take from it”?

Young: In our business, we have a retirement advisory service. We use financial planning software to help people with understanding where they stand. And a lot of our clients, when you do a Monte Carlo and you show them, well, what’s my probability of success? They’re high 90s. They’ve prepared very well for retirement. So based on that initial cut of what they think they want to spend, they’re very unlikely to run out of money. And so, our advisors do try to work with them to say, well, we can build in some cushion at the end, you can live a little larger, you can play around with these numbers a little bit to have a 95% instead of a 99% probability of success.

I would say we haven’t exactly come up with the magic formula to give people that permission. A lot of people still say, “I love my 98 score, and I’m comfortable with what I think I’m going to spend.” So even if they say, “Sure, bump up the spending,” they may not actually do it. So, it’s not an easy question to answer by any means.

Arnott: But at the same time, it’s a good problem to have, I guess, if people have such a high probability of success.

Young: Absolutely, yes. Better than the alternative. Yes, that’s for sure.

Arnott: T. Rowe Price did some interesting research where you surveyed people about which aspects of financial advice they valued the most and which they valued less. One of the conclusions was that people tend to value aspects of financial advice that are more quantifiable, like investment selection and tax planning, as opposed to less quantifiable advice, like behavioral coaching. Can you discuss that?

Young: There are a few different ways to think about that. And considering how advisory services have been marketed to people in the past and what they’ve offered, I guess we shouldn’t be too surprised that investment selection comes up at the top of the list, especially for retirees, but it’s also high up for people who are working. So, what it says to me is, maybe it suggests the industry still has a fair amount of work to do in conveying the value beyond investments. There is that generational gap in our findings and the younger people, the workers, are more interested in some of the other aspects other than investments.

One of the top ones for workers is retirement planning, which is pretty broad, and we helped define that for them. So, it’s a combination, I think, of the quantitative and less quantitative. So, I think there’s a good direction there in the way that the world is going for advisors with potentially clients who are on the fence today, who are still working. Most retirees are not on the fence. They’ve decided either, yes, I’m going to use an advisor or no, I won’t. So, there are positives out of it, but still some work to do in conveying that value.

Benz: Yeah, I was surprised by that study that Amy referenced as well, Roger. The behavioral piece seems to have moved such to the fore in the conversations that I’m involved in about the value of advice. So, I was surprised to see that, at least from a client standpoint, it doesn’t seem like that’s valued as much. Can you talk about maybe the advice industry being a bit ahead of clients on this, or is it just that there’s just a disconnect where the clients aren’t valuing it?

Young: I think maybe the industry is ahead in its thinking of where it actually is. I think that could be some of it. Some of it, I think could be, again, coming back to behavior and biases and issues in terms of ways that we think that we’re prone to some misconceptions. I think a lot of people, if you ask them, “Are you going to get a lot of value out of behavioral coaching? Are you someone who needs behavioral coaching—people to make sure you don’t make these cognitive mistakes?” I think a lot of people who probably do need the behavioral coaching are going to say, “No, that’s not me.” And so that in itself might be a little bit of a cognitive blind spot. So, we may never see those numbers line up, but I think there have been other studies out there that have shown similar things that advisors think, “Oh, they value me for this.” And then people say, “No, not as much as you think.” So, I think there is work to be done. And once people start seeing, oh, yeah, my advisor actually saved me from a pretty big mistake, maybe we’ll see that number rise in the future. We’ll be asking that question again. It will be interesting to see a few years later whether the numbers have moved at all.

Arnott: A lot of advisors out there seem to be increasingly moving away from investment selection as their main way to add value and really downplaying that part of their role. T. Rowe Price, I think, has been more positive about the value of investment selection and specifically active management in helping individuals build their financial futures. Can you expand on why you think active management and investment selection are still important?

Young: Well, I think we’re taking a multipronged approach to how we serve our clients. And yes, we definitely think that there is value in good-quality, well-researched active management. We have numbers to back this up. I don’t have them with me. It’s not my role, so to speak, to talk to those performance numbers. But I think you can look and see there are firms that have had pretty good track records, and they tend to be ones that have the resources to devote to quality research and a process and a view on a long-term outlook for investments. At the same time, we’re getting more into providing advice. So, I mentioned we have in my business a retirement advisory service. So, we recognize that people need more than just the investment management. So, we’re approaching it from both perspectives.

Benz: I wanted to delve into retirement. In your 2024 U.S. retirement market outlook, you and your colleague, Lindsay Theodore wrote, “Retirement income cannot be solved by a single investment plan or solution.” I wonder if you can expound on that thesis and why you think creating a retirement income plan is so idiosyncratic and why people really need to customize?

Young: Well, let me contrast it with people who are accumulating. For accumulators, in general, we’re somewhat comfortable suggesting some rules of thumb for people to think about. So, we’ve talked about things like saving 15% for retirement. We suggest ranges for asset allocation at different ages. We have savings benchmarks that suggest to people how much you should have saved at different ages, and it varies a bit by income. And we think those tend to apply to fairly broad groups of people. You shouldn’t rely entirely on rules of thumb, but it’s not as complicated as some other things.

When you enter into retirement, there are some key differences between people that are magnified in terms of the effect on your planning. So, variables would include things like longevity. There’s a wide range of life expectancies that people have, and that plays a huge role in how you go about planning for retirement and retirement income. Your health plays into longevity, but also other expenses. The mix of account types you have. It’s very different to plan if all of your money is in your old 401(k) traditional account versus having a different mix. People vary in terms of their desire for predictable income streams. There’s a lot of talk in the world of financial research about the value of annuities that there’s always this surprise that people aren’t taking them up as much as you would think that they would. People have different thoughts on how important that is to them. So, with all of those different factors, we think that means it should be more about an ongoing planning process than a financial product. So that’s what we mean when we say that it’s not all about the product in retirement income planning.

Arnott: So, it sounds like with all that complexity, you would say that a one-fund decumulation product, like some of the retirement-income funds that we’ve seen various asset-management firms come out with, isn’t the best solution for retirement income?

Young: Well, I wouldn’t put it that way. I would say that type of product can be part of the solution. So as an example, suppose someone has all of their investments in a tax-deferred account. Well, in that case, maybe a product like that is a big part of the solution. Even then, though, I would say there are other tools and other strategies they should at least consider. Should they do a Roth conversion? Should they think about an annuity? Should they think about different mixes of products instead of a single product? So, asset location, there are lots of aspects to consider. But for some people who want something fairly straightforward and don’t want to have to manage a lot of different stuff in their retirement, that one fund product could be a big part.

Benz: It seems like a financial advisor coaching you through the decumulation phase is the gold standard where you truly have that customized advice. The thing I struggle with is, how do you scale that? How do you ensure that the broad population, many of whom can afford a good quality financial advisor, that they have some assistance with these questions and issues that you’ve been talking about?

Young: I would say there are a few aspects to that. One is, there are good-quality advisors and advice that isn’t as expensive as you might think in terms of a high percentage of assets under management, in terms of the fee and a high minimum. Yes, you go to some advisors and it’s going to be out of reach for you if you’re merely affluent or merely in good shape for retirement. But there are services like our service where it’s not an enormous minimum relative to what people save for retirement and it’s also not an outlandish type of fee.

That doesn’t cover everyone, and I think increasingly workplace retirement plans are trying to develop solutions for that broad audience. Workplace retirement plans cover all sorts of ranges of income and wealth. That’s also something is in relatively early stages. So, I don’t think the industry has a perfect answer yet, but I would also say stay tuned to what you might see in the retirement plan market for retirement income and more tools or planning, whatever you want to call it, in terms of help for people planning for retirement.

Arnott: When people are starting to think about how much they can spend in retirement and how to calibrate that, is the 4% rule a decent starting point? And are there any adjustments that you would make for people to adjust that number to fit their own situations?

Young: I think decent starting point is probably a reasonable way to put it. We call it a good sanity check for whether you’re ready to retire. If you can support your spending with a 4% withdrawal, gross before taxes, in that first year of retirement, that’s helpful to say to yourself, OK, good chance I’m ready for retirement. On the other hand, we don’t think that people really live by the 4% rule. People can make adjustments. We don’t tend to get too caught up in estimating or perfecting what is that safe withdrawal rate—and “safe” in quotes—nothing is perfectly safe, even if it’s been historically safe. My colleague, Sudipto Banerjee, has done some good work on how people adjust in retirement, how their spending on an inflation-adjusted basis tends to decrease over time. So, there’s a wide range of outcomes in the population. That suggests that more comprehensive planning is really a good idea. So, that would be a way to adjust to your own situation.

One thing I’ll specifically call out though is—I’m sure you’ve heard of the FIRE movement, financial independence, retire early—and some of the literature and blogs about that FIRE movement talk about rules of thumb like the 4% rule or 25 times your spending as a target. And we think there are some serious issues with extrapolating the 4% rule in that situation, the biggest one being if you’re retiring early, you’re not talking about spending 30 years in retirement, you could be talking about 40, 50 or more years in your retirement or financial independence. So, that’s a situation where we’d be very cautious about just blindly applying a 4% rule.

Benz: There are all these systems for calibrating how much you can withdraw each year, a lot of dynamic systems, some of which we examined in the research paper that Amy and I and John Rekenthaler worked on, like guardrails and things like that. Can you talk about whether you have a favorite in terms of those dynamic strategies? And do you see the appeal to having a dynamic strategy where you change up your withdrawal based on how the portfolio has performed?

Young: I think conceptually, there’s definitely some benefit in being flexible. Whether you follow a specific dynamic strategy is another matter. Again, since we’re not anchoring ourselves to the 4% rule, we haven’t spent a lot of time on what’s the best of the dynamic strategies. I mentioned earlier we have a retirement advisory service. That service combines financial planning and investment management. And I’m not here to tout that service too much. But the point is that we use a goal-based software, and it uses Monte Carlo analysis to help someone determine a safe spending level. And of course, we review it with clients every year and adjust as things change in their life. I personally like Monte Carlo analysis. I think some critics or other experts will point out probability of success is not the be all end all of planning. For one thing, it’s kind of binary. You succeed or you fail, and if you only fail by one dollar, how much of a failure is that? So, it’s a reasonable observation. But I think for a lot of people, the Monte Carlo is directionally very good, and it’s a good tool to help them with their planning. So that’s what I like to suggest rather than a specific dynamic spending rule.

Arnott: You’ve also written about the topic of how to sequence withdrawals in retirement, whether you should tap into your taxable accounts first or tax-deferred or Roth assets. Can you share some guidance on how people should approach that issue?

Young: It’s not easy, I will tell you that. I’ve done a good amount of work on it. And in addition to the work I’ve done, I’ll call out our new colleagues at T. Rowe Price. Last year, we acquired a company called Retiree, Inc., and that company has developed software to help people with the withdrawal strategy, as well as the Social Security-claiming decision, so looking at those in combination. One of the things that I really like about their approach—and I advocated us talking to them—is they recognized how the tactics you choose can optimally change over the course of retirement. You might do different sequences or strategies at different phases.

So as an example, early in retirement, your income that is locked in place might be somewhat low. So, you might want to fill up low tax brackets with income from a tax-deferred account like a traditional IRA or 401(k). You might even do Roth conversions, moving money from an IRA to a Roth IRA. Then the approach might change. When you start getting Social Security, now you have a certain level of income, you have to worry about the taxes on Social Security, which are a whole another weird topic. And then again, then later, required minimum distributions take effect. And that dramatically affects what your income looks like in retirement.

So, there are lots of techniques that can be used in these different phases. One technique is holding on to appreciated investments late in your life so that your beneficiaries get the step up in basis, so that in that case, they wouldn’t be paying capital gains taxes on the appreciation during your lifetime. On the flip side of that, you might have a strategy that involves selling taxable investments when your income is fairly low, and you don’t face capital gains taxes because your income is lower. So, there are a lot of techniques and there are a tremendous number of combinations of those techniques and the phases of retirement. And there are also things like differences in ages between spouses and potentially changes in the tax law. So, there are so many combinations, it’s very hard to convey broad guidance—everyone should use this particular approach—and that’s why we think software to help crunch those numbers can be so beneficial. But we have outlined some of those key strategies to consider and we think that people will benefit if they work with us and use that software to develop a customized plan.

Benz: One logistical question that comes up right when people retire is whether they should take their funds out of the 401(k) context, out of the company retirement plan context and roll it into an IRA. Can you talk about when it might make sense to stay back in the 401(k) and whether the rollover is usually advisable?

Young: There are a number of different factors to consider in that decision. I wouldn’t say that it’s a slam dunk one way or the other. My colleague Judith Ward and I worked with some of our colleagues in the Retirement Plan Services group and wrote an article specifically about this decision. I think we took a fairly evenhanded approach, especially since we’re coming from two parts of the businesses with different interests there.

Broadly speaking, an IRA gives you more investment choices. It typically also gives you more control over how you take distributions. There are bound to be some rules and limitations with a 401(k), and it could be, you have to take things out at certain frequencies or limit the on-demand or require things like pro rata distributions by type of account or by investment. So, you have a lot more freedom typically with an IRA. On the flip side, with a 401(k) at a large organization, your investment fees might be lower. There might be some other reasons to keep money there. So, it depends on your situation. It depends on the specifics of your workplace plan. And I’d also add, your personal preferences play a role, too.

I found some people like the simple approach of staying in a plan that’s worked for them. Our research and surveys over the years have shown that people find they get a lot of their financial education and guidance from their plan sponsor or the company that manages their 401(k). So, there are reasons people might like that. On the other hand, other people just can’t wait to cut every possible tie with their former employer. So, very, very different views. The good news is either approach can work out OK. And it’s not necessarily a one-time decision. If you don’t do a rollover right away, you can change your mind later. So, I’d say there are a lot of facets to that question.

Arnott: We often hear complaints from retirees who have been able to build up a lot of retirement assets about required minimum distributions. They hate the tax impact; they feel like they don’t need the money necessarily to support their living expenses. Is there anything they can do about them?

Young: Well, first, one good thing is that the government has helped do something about them with the SECURE Act, delaying it now from instead of 70.5 to 73. So, there’s some recognition that people are living longer and stretching out those distributions and delaying them is a good thing for people.

There are three more specific ideas that come to mind that people can do. One I mentioned earlier is you might want to draw down some of those assets that are subject to RMDs early in retirement. And that’s counter to what you may hear referred to as the conventional wisdom, where conventional wisdom would tell people, well, take money out of your taxable account first, and then tax-deferred, and then Roth. Well, you might want to switch that up a bit and take some of that tax-deferred money out first, and that will reduce your future RMDs. If you’re charitably inclined, the second idea is to use qualified charitable distributions. You’ll hear those QCDs that can support causes you like and also satisfy your RMD up to IRS limits. And third, you can use up to $200,000 of your retirement account money to buy a qualified longevity annuity contract, another acronym here, QLAC, and that may or may not be available to you at this point, but it’s something that’s allowable under the law. With a QLAC, that money is not subject to RMDs until you start actually getting the annuity payments out of it. You have to start those payments by age 85, but that’s significantly later than the age 73 when RMDs start. So, you delay the RMDs, you don’t completely get rid of them, but it could help you manage your income over time a little bit better if you do a QLAC, and that obviously helps you to also prevent or protect against the possibility of a really long life that strains your finances as you get very old.

Benz: We wanted to ask about some of the softer lifestyle considerations that go into retirement planning. And it seems like the more I study this topic of retirement planning, the more I’m convinced that the decision about whether and when to retire is way less than half financial. So, when you think about some of the most successful retirees who you’ve known, not just financially successful, but successful from the standpoint of happiness and well-being, what are some commonalities among them?

Young: An example that I think about is very personal to me and it’s my parents. So, I’ll share a little bit of personal stuff here. My parents were actually younger than I am today when they are fully retired. They spent most of their careers in the public school system here in the Baltimore area. My dad died a few years ago, my mom shortly before that. And I talked to my dad about it a little bit before he died. He was 91. And I asked him how they managed it, which I had some idea of in terms of the finances. But he said really the key was they had a clear vision for what they wanted in retirement. They wanted to travel. They wanted to take their big trailer, buy an even bigger trailer actually, across North America. They had owned trailers for several years, took some big trips with us when we were kids. They bought into campground networks. They planned ahead to practice what they were going to do in retirement. They knew what they were getting into, and they had that shared vision. And I feel like they had a very long and rewarding retirement. Things change over the course of retirement and eventually, they got rid of the trailer, spent more time with the grandkids, things like that. But they had that vision. And to me, that vision is really important. And I think as I’ve talked to people and I’ve talked to other colleagues at T. Rowe Price, that visualizing retirement concept is so important, and I think one of the things that advisors can really help their clients with.

Arnott: So, it’s thinking about not just the end of work, but the beginning of something else that you have a clear vision for?

Young: Yes. And that could involve volunteer work, it could involve a different type of job. When we do these surveys, a lot of people who say they’re retired are actually working. Roughly a quarter of those people are either working or looking for work. I think we all have seen that retirement means different things to different people, and it’s not necessarily all about, I’m going to stop working on Friday and never work another day and get another paycheck the rest of my life. My parents did that. But certainly not everyone does that.

Arnott: So, this is a really basic question but an important one that Christine alluded to—how should people figure out when is the right time to retire?

Young: I personally haven’t figured it out quite yet. I’ll keep you posted, I guess. I’ll let you know if I decide or pull the trigger on that. I do feel like there is a combination of the financial preparation and the nonfinancial planning. So, I mentioned visualizing a number of times. Our team that serves advisors likes to talk about visualizing the five W’s. So, you think about those W questions. Who you want to spend time with; where you want to be; when—obviously a big one. Those are relatively easy to get your hands around, maybe not easy to decide necessarily. The harder ones, I think, are probably the what and the why. What are you going to do with your time in retirement? Why are you going to get out of bed every day? What’s your purpose, your mission, so to speak? So those are probably tougher ones for people to grapple with. And when you hear about people who retire and regret retiring when they did or how they retired, it’s often that kind of misconception of what the what and the why were going to look like.

But again, as we’ve talked about, retirement doesn’t have to be just turn a switch and never go back to work. There are other options. If you find that, well, maybe I underestimated how much I’d miss the social interaction or a sense of purpose. So, there are ways to get back into that. But the more you think about it ahead of time and maybe even think about those contingency plans, I think the happier you’ll be and the better you’ll be able to figure out when it is that it really is the right time to retire.

Benz: I wanted to follow up on your point about visualization, Roger, which I think is a great one. One thing someone mentioned to me is that people tend to visualize like their young 65-year-old yoga-doing self, who easily can hop on a plane and travel overseas. People tend not to go further into retirement and visualize the less-fun aspects of retirement and aging, like considering the appropriateness of the home that they live in and so forth. Can you talk about that, like, having a full vision for the full length of retirement and how important that is?

Young: Well, it’s certainly important. And I don’t think it’s for lack of awareness that that’s an issue. I think most people as they head into retirement, one of the big fears they have is, well, what about healthcare? What about long-term care? I think the challenge is, yes, there’s a difficulty in visualizing it. Maybe there’s also just a fear of the unknown and reluctance to hit it head-on. Oh, you know, well, we’ll see when I get there. We’ll think about that later. And to some extent, you can’t know. Someone 30 years ago, probably would have no idea what the world of continuing-care retirement communities would look like, and how hard it is to get into the right facility, and who’s going to protect you if you run out of money, and all of that. So, some of that is natural. I do think that most people would benefit from hitting it a little bit more head-on and having it in their plan. I know there are advisors who will insist pretty strongly with their clients that, if they don’t have something in their plan already about long-term care, they’re just going to tack on a couple of years at the end of X thousand dollars per year as a financial goal that’s taken into account when you do the numbers. But that’s, again, just the financial side. And who’s going to care for you, and where do you want that to be, and what does that look like in terms of the type of care—those are hard and they’re hard until you get there to some extent. Those of us who have parents who have gone through it, I think maybe we get a little bit more of a reality check. But yeah, we’ll all hopefully get to some stage where that becomes an important question at some point.

Arnott: Are there any specific ways that you think people can think about that issue ahead of time and visualizize what might be the best option if their health does eventually decline?

Young: It’s interesting. I was just talking with Judy Ward, my colleague here. And actually, Christine, we both really like how you have framed it: One of the options as not self-insurance, but self-funding of long-term-care costs. And I think that’s an important distinction to remember that, yes, you can buy insurance, but if you’re doing it on your own, it’s not really insurance. You’re funding it. You have to have the money, the investments, or cash to do that. So, it’s an important distinction.

We’ve written about it a little bit. When I studied health savings accounts, for example, obviously the applicability to long-term care comes up. And we haven’t said a lot about it, but we have said, we think there’s probably some sweet spot of people out there who are not super wealthy but do have some assets to protect where considering a long-term-care policy can make sense. There are other people, it doesn’t make sense because either they can self-fund easily, or they don’t have the assets to really justify spending significant money on an insurance policy. But if you are one of those people who should think about long-term-care insurance, we would also caution you, know what you’re getting. There have been challenges in that insurance market over the years in terms of increases in premiums and people not having things guaranteed that they thought might be guaranteed or not understanding how the benefits are paid out. There’s a lot of details there. So not to bad-mouth those policies, but people should be very aware of what they’re getting at before they sign up for any insurance policy, but especially a long-term-care policy.

Benz: We wanted to ask about the fact that many people are working later in life for both financial reasons and to stay engaged, to have that sense of purpose that you were talking about. Do you think more people should consider it based on the interactions you’ve had with older adults? And a related question is, this idea of people returning to work, which is something that you and your team have looked at, that people hang it up and then go back. Maybe you can talk about that whole phenomenon of people working later in life.

Young: And both the working longer before retirement and going back to work or even just continuing to work part-time in retirement, those are both things that we are seeing people do. My colleague Judy has studied this, both in terms of delaying, but also that unretirement phenomenon. She had help from that survey that we rely on a fair amount—our retirement saving and spending study. And we found over a quarter of people who consider themselves retired are either working or looking for work. And consistent with what you had talked about earlier in terms of financial/nonfinancial, the motivation for doing that is roughly evenly split between the financial reasons and the social or emotional reasons. So, I think those are both very legitimate reasons to think about working in retirement.

I think there are some different trends in terms, at different income levels, you would naturally see lower income levels, people are more focused on, well, I’m working because I need to. People who have more means tend to be working more because they want the enjoyment, they want the emotional connection, social or the meaning of it. So, different trends with men and women. The men tend to be more, the folks who are doing it, interestingly, for the social connections, maybe they’ve not done as good a job over life of maintaining their social connections outside of work. So, lots of facets to it. But to answer your question of whether it’s something people should consider, I’d say, yes. There are lots of good reasons either to ease into retirement, build up your savings, get some more years in your Social Security calculation, or to, after retirement, go back and do some work. I’d say people should at least be open to that possibility if retirement, for one reason or another, is a little different than they expected.

Arnott: Another question that people really struggle with, with retirement planning is whether they should come into retirement mortgage-free. Do you think that preretirees and retirees should prioritize paying down their mortgage, let’s say, if they have an interest rate of 3% or so? Or is it harder to argue for paying down a mortgage now that you’re able to get decent yields on cash and bonds?

Young: It’s an interesting segue because like with this one too, there’s also an emotional side in addition to the financial side. My colleague, Lindsay Theodore, wrote about this last year. And yes, at a 3% mortgage rate, it’s pretty compelling to invest excess cash in something that’s probably earning more than that today, rather than pay down the mortgage faster. So that’s the financial side. As with a lot of things, it can depend on the situation. As one example, suppose you’re doing very well with your retirement savings—you’re on track, you’re also very risk-averse. Well, then, that mortgage paydown is like a guaranteed return. And you might want to emphasize a little bit more of that guaranteed return than a riskier return.

And to be honest on the calculation side, you also want to be careful that you’re comparing apples to apples. Now with tax law being what it is, most people take the standard deduction. So, most people don’t deduct mortgage interest anymore. So, that 3% hypothetically, that’s after taxes. Whereas if you’re investing money, well, you need to account for ordinary income taxes, if that money is interest in a money market account or bonds in a taxable account. So, you want to be careful not to skew the comparison. On paper, is it probably better to invest than pay down your mortgage? Yes. But if your situation is where you get an emotional benefit from being debt-free, there’s value to that, too.

Benz: A related question, Roger, is the conflicts of interest that can crop up in the advice space. There have been assertions that advisors and certainly asset managers would have a vested interest in arguing against decisions like mortgage paydown or buying an annuity, anything that takes funds out of the portfolio. Can you talk about, when you think about thought leadership in these areas, how do you mitigate the risk of those conflicts of interest, like permeating the advice that you might give?

Young: That’s an important question, and I appreciate you’re asking it. To start, at T. Rowe Price, we feel like we have a very strong culture of putting clients first. So, for my team, we’re in the thought leadership role, and we take a lot of pride in presenting topics fairly. We’re given the freedom to do that, which is nice. And again, we serve people across different parts of our company. You might think that as an example, we would have an incentive to recommend a decision that, as you say, boosts gross investment levels. Like, we might say, well, you’d want to do traditional contributions over Roth if the Roth would be a smaller contribution to maintain someone’s spending power. Or you might think that we’d say, oh, well, you should claim Social Security early and hold on to your assets. Well, in both of those examples, we don’t do that. If anything, we go the opposite direction on those for a lot of people.

T. Rowe Price serves a lot of types of clients. We’re very careful to stay even handed on things, like we talked about IRA rollovers. All of that said, I do have to concede. We all naturally have some biases. So, we have to be on guard. When I speak in public, I try to mention where I have biases because I work for an active asset manager. But we do believe that there’s value in active asset management. We do think long-term investing is overwhelmingly the key to someone’s financial success. So, on something like annuities, we aren’t directly in that business. So, I don’t tend to talk much about it. I haven’t done a lot of research on it. But we have relationships with insurance companies. We don’t disparage them. And is there bias in the fact that we don’t talk about them much? Maybe. But we also have to be, I guess, humble enough to realize when we’re not experts on something. So, long answer to your question. We try hard to mitigate those potential conflicts of interest. But someone who reads our stuff should be aware of what we are and what we do.

Benz: You know the retirement planning system inside and out. Can you talk about whether you have any pet ideas about how to simplify things so it’s not so darn complicated for people to sort out as they approach and enter retirement?

Young: I wish I had a great idea on that. In terms of public policy, there have been some positive developments recently, like the SECURE Acts that make it easier for some people to save in different ways. I’m not sure that those have really simplified the system. To me, if there was one big win that would eliminate uncertainty and with that uncertainty, of course, there’s more complexity, it would be reducing the risk of insolvency of Social Security and Medicare. We hear that from people all the time, especially younger people that, “I’m concerned Social Security is not going to be there.” And for me, given my age, I feel pretty good. Social Security is going to be there and probably most or all of what is currently projected. But I can absolutely see why younger people are taking a different view on that. So, reducing that uncertainty would certainly make planning simpler for a lot of people. I unfortunately don’t have claim to any good answer on what should be done to make sure that those are solvent going forward, however. Not a complete answer. But if it were more complete, I’d probably be doing something different.

Arnott: We’ve talked a lot about some pretty serious and complicated topics, but to maybe close on a bit of a lighter note, in your free time, I’ve heard that you play in a rock band called Front Page. Have you always been interested in music? And do you see any synergies between being a good musician and being a good financial planner or investor?

Young: This is a band that started when I was a teenager and we played for about 12 years. We took about a 30-year break after stopping in the ‘90s. It’s interesting you say that. I have found, there are a lot of people who work at T. Rowe Price who are musicians, good number of us. So, I don’t know if there’s a synergy or a parallel in terms of the types of people that the fields attract. But I did think a little bit about, well, is there a parallel to what we do in retirement planning? And it comes back to that vision thing that we’ve talked about. The initial vision behind getting back together was, hey, let’s have some fun, play a gig or two for friends. But then we just kind of kept going. And so now, we have other decisions. The vision is changing, and we have to think about what songs to learn and how often to perform, whether to pay someone so we don’t have to lug as much gear. And we all in the band—there are six of us—we have different visions on some of those. So, maybe the takeaway is, especially if you’re planning with a partner in life, you do need to sweat the details of that combined vision and also, be aware that it can change a little bit over time, and you have to adapt to that and respect differences of opinion and work through them.

Arnott: Yeah, that’s a great point.

Benz: Well, Roger, we really appreciate your time today. We’ve loved hearing from you. Thank you so much for being here.

Young: Thanks. I enjoyed the conversation. Appreciate you having me.

Arnott: Thank you so much for taking the time to talk with us.

Benz: Thank you for joining us on The Long View. If you could, please take a moment to subscribe to and rate the podcast on Apple, Spotify, or wherever you get your podcasts.

You can follow us on Twitter @Christine_Benz.

Ptak: And @Syouth1, which is S-Y-O-U-T-H and the number 1.

Benz: George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week.

Finally, we’d love to get your feedback. If you have a comment or a guest idea, please email us at [email protected]. Until next time, thanks for joining us.

(Disclaimer: This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording. Such opinions are subject to change. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. and its affiliates. While this guest may license or offer products and services of Morningstar and its affiliates, unless otherwise stated, he/she is not affiliated with Morningstar and its affiliates. Morningstar does not guarantee the accuracy, or the completeness of the data presented herein. Jeff Ptak is an employee of Morningstar Research Services LLC. Morningstar Research Services is a subsidiary of Morningstar, Inc. and is registered with the U.S. Securities and Exchange Commission. Morningstar Research Services shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analysis, or opinions, or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile before making any investment decision.)