Making Your Money Last

PODCAST: The “Gray Resignation” with Liz Windisch

Pandemic pressures (and high stock and real estate values) are leading many to try to move up retirement. Plus, tax-filing season gets under way.

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Transcript

David Muhlbaum: We’re sure you’ve heard about the great resignation, about how millions of people are quitting their jobs during the pandemic for a variety of reasons, but the gray, that’s G-R-A-Y, resignation is a thing too. Many people close to retirement age have been moving up the day they’ll leave their regular gig as well. We’ll talk about why and what goes into making that decision wisely. Also, tax season, it’s here. All coming up on this episode of Your Money’s Worth.

David Muhlbaum: Welcome to Your Money’s Worth. I’m kiplinger.com senior editor David Muhlbaum, joined by my co-host, Kiplinger senior editor Sandy Block. Sandy, how are you doing?

Sandy Block: I’m doing great, David.

David Muhlbaum: Good. Well, since we work for the same employer, I’m pretty sure you got the same email last night that I did. It came from ADP, the big payroll firm, and it had that critical tax form attached, the W-2. What that kind of says to me is it’s on! Tax season, that is.

Sandy Block: That’s right. Actually I got my husband’s W-2 in the mail this week. Yes, Monday, January 24th is the first day the IRS will accept a tax return. You could be preparing your return right now, even submitting it through some of the software, but I seem to recall, David, that you are not one to jump on the filing of your taxes.

David Muhlbaum: You’re correct on that, Sandy. But I’m trying. I have promised my wife to do better this year. In fact, that W-2 is already uploaded to a folder, but I still have plenty of work to do with the more elusive drips and drabs, but hopefully this year, no extension. Look, fundamentally, being early to file versus waiting until the deadline, which is April 18th this year for most Americans, that’s a question of whether you have a refund waiting or you owe taxes. If you got a refund waiting for you, well, go get your money. Do you owe? Well, what’s the rush?

Sandy Block: But even if you owe, what I tell readers is, first of all, you can always arrange to have the amount that you owe paid on April 18th so you don’t have to come up with the money now. But I think even if you think you owe, you should do your taxes because that’s not some information you want to have to digest the night before taxes are due. Better to know now how much money you have to hand over.

David Muhlbaum: Right. Also, I mean, and generally speaking, more people have a refund waiting for them. My understanding is that this year they might have an even bigger refund waiting for them than they realized, or than in previous years, because of these various programs that were launched during the pandemic.

Sandy Block: That’s right. Actually even in the past, most people got a refund. We’ve written a lot about how that’s really not a good idea to give a loan to the government. But most people get a refund. This year they could be particularly rich because of some of the stimulus measures that people have not claimed the entire amount of. There was the expanded child tax credit, which some people got last year, but some people have not gotten all of the credit that they’re eligible for.

David Muhlbaum: By got, you mean that the advanced checks that went out?

Sandy Block: They got checks in the mail or direct deposit.

David Muhlbaum: But even those checks, that was only going to get up to half. Right?

Sandy Block: Right. Exactly.

David Muhlbaum: There’s still money out there.

Sandy Block: There’s still some credit out there. There’s still some money out there. Some people, there was a third stimulus and some people didn’t get that yet. When you file your taxes, that’s your opportunity to sort of true up, to reconcile what your actual tax situation was last year versus what you might be due in terms of stimulus money or child tax credits. Yes, refunds could be very generous this year, for a lot of people.

David Muhlbaum: Well, so tax season is on. Is it our favorite season? I don’t know, but we enjoy it and we make a lot of it. We’ll be back talking about taxes, I’m sure, several times in the next few months. In fact, we’re hoping in our next episode to have on the national taxpayer advocate, Erin Collins. She’s the head of this, essentially, service that is designed to, on one hand, help taxpayers with problems with the IRS and in ... Well, Sandy, you know Erin from way back. Why don’t you define what she does?

Sandy Block: Well, I’ve actually interviewed Erin a few times and I interviewed her predecessor, Nina Olson, many times. Basically it’s an office, as you said, that advocates for taxpayers, but they also provide information to the public. They’re sort of a watchdog for the IRS. They put out annual reports, pointing out problems that the IRS has that how they can be resolved. They’re also sort of a place of, you’re not supposed to call them just because you don’t understand something on your tax return, but if you are truly in a situation with the IRS that you can’t resolve, they’re there to sort of step up and help you.

David Muhlbaum: I mean, that’s one of the things I would like to get into with Erin is where they can help and where they can’t help, because I know at least on their website, they do a bit of work of saying like, “Call us, don’t call us.” But yes, we hope to do that. We hope to have her on soon. But Sandy, give us a little preview too, of their report to Congress, because this is a tax season issue right now. It doesn’t look so good.

Sandy Block: It’s very sobering news. Basically what she’s telling people is that the IRS had a huge backlog of tax returns last year that they’re still trying to complete some tax returns from two years ago. Coming into this new tax season, they’ve got a huge backlog, which means that there could be more delays and more waits for people who file their tax returns this year. One of the really distressing things is that hardly anyone who called the IRS last year got through. If someone picked up the phone at the IRS and I know this from personal experience, that’s like winning the lottery. It just doesn’t happen. They’re just so overwhelmed with all of the things that Congress asked them to do with the economic stimulus, staff shortages, COVID, all these things sort of came together to create just a huge blizzard of unprocessed tax returns.

Sandy Block: What Erin is going to say, and I’ll say this now as we’re going in, is file electronically if you can, because what’s really held IRS up is anything that requires manual work. Those are the ones. There’s a pile of tax returns out there that the IRS has just not been able to get to. File electronically and try and resolve ... Use their website, use irs.gov, as much as you can to answer your questions because calling the IRS is going to continue to be a real problem. I think that’s what she’ll talk to us about.

David Muhlbaum: Got it. Lots and lots of tax questions to talk about in the weeks ahead, but coming up next on Your Money’s Worth, we will be joined by Liz Windisch, a certified financial planner about an uptick in early retirement that’s happening during the pandemic. What if you want to punch out early, too? We’ll talk about how to make sure that’s a wise move. Stick around.

The Gray Resignation with Liz Windisch

David Muhlbaum: Welcome back to Your Money’s Worth. For our main segment today, we are joined by Liz Windisch, a certified financial planner from Centennial, Colorado. We found our way to Liz thanks to Sandy, who interviewed her for a piece she wrote for Kiplinger’s Personal Finance magazine with the very catchy title, Take This Job, I’m Retiring, which I think marks the second time we’ve made a country music reference on Your Money’s Worth.

Sandy Block: Yeah, and my West Virginia roots are coming through here loud and clear.

David Muhlbaum: Well, it was Johnny Paycheck who made you can Take This Job and Shove It a big hit. But David Allan Coe wrote that song. Anyway, we’ll leave the country music podcasting to Cocaine and Rhinestones and stick to personal finance ourselves, when we can. Welcome Liz and thank you for joining us.

Liz Windisch: Thank you for having me.

David Muhlbaum: Sandy’s article didn’t just have a catchy title, it also coined a term. The term, the term I mentioned in the introduction, gray resignation. Seriously, Sandy, I think that was an original term. I’ve searched it and I’ve searched it and I’ve searched it. So Sandy, since you created it, tell us what gray resignation means.

Sandy Block: Well, it means, you know, there’s been so much publicity about the great resignation, how all these people are quitting their jobs or changing jobs. But within those numbers is a very large number of older workers. We’re seeing a significant increase of adults age 55 or older retiring. In 2021, it was 50.3% of adults older than 55 up from 48.1% in 2019. This is according to the Pew Research Center and that tracks for other older demographics as well. We’re definitely seeing a lot of people retiring. I think the question I asked you, Liz, in this story was, are you seeing this in your practice?

Liz Windisch: Absolutely. I have seen a number of clients who are really re-prioritizing what they want their life to look like, and that does not include working any longer.

David Muhlbaum: That re-prioritization, we’re seeing that across the board. What is convincing your clients that they can do it now?

Liz Windisch: I think that there are reasons both financial and non-financial. I think the financial reasons are convincing them that they’re able to do it, that being that the market has been really strong the last few years and people have seen their investment portfolios increase significantly. They’ve seen their home values increase significantly. They may have cut down expenses during the pandemic, which just makes them feel a lot more confident in their ability to retire early.

Sandy Block: I think one of the interesting things that some of the analysis of this trend has found is that unlike 2008, which we can talk about in a bit, people are not filing for Social Security early. Does that speak to just the financial security that they don’t feel like they need it, which is actually a good thing probably?

Liz Windisch: It is a good thing. I was really glad to see that. I think certainly everyone is different, but if you are choosing to retire because you’re taking Social Security early, you may want to reconsider if you can actually retire. I think that the increase in everyone’s feeling of security because of their home values and because of the stock market really has made people feel more secure and feel that they don’t even need to take Social Security. They can delay that and retire on what they have now.

Sandy Block: Liz, maybe for folks who don’t dive deep into Social Security like we do, why is that a good thing that they’re not taking it at 62?

Liz Windisch: If you take your Social Security benefit before your full retirement age, that is, the age that the Social Security Administration deems full retirement, your benefit is permanently reduced for each year before your full retirement age. Your benefit is smaller and it stays smaller for the rest of your life.

Sandy Block: I think it’s 25% to 30% smaller than if you wait until full retirement age, I think is what we usually say.

Liz Windisch: That’s about right.

Sandy Block: But pretty serious haircut if you live for a long time.

David Muhlbaum: Liz, we’ve talked about potential retirees looking at their current asset levels and thinking, "Okay, I’m good to go, good to pack it in and retire." But what about risks in the future, like say a big haircut for the stock market?

Liz Windisch: I’m concerned about that as well. I think the market has been doing so well for so long we’ve all forgotten that it’s not always that way. That goes into the sequence of returns of the market. If you have a downturn on the market the first few years of your retirement, that will significantly impact your ability to be successful and not run out of money. Like I said, I think people tend to forget that that very well may happen. Once you retire, if your account values go down, you may also be permanently reducing the income that you can take from those portfolios. I think that people need to take a long, hard look at truly how sustainable their portfolios are, not just based on the value now, but what could potentially happen if we have a significant market downturn in the next few years.

Sandy Block: Which is another reason that we’ll have to revisit 2008 in a minute, but the other big risk I think you and I discussed, Liz, is the cost of healthcare, particularly for people who retire before age 65. Can you talk a little bit about that?

Liz Windisch: 65 is the age that people are eligible for Medicare. Any year before 65 you retire, you would be responsible for paying for your own healthcare, which can be very, very expensive. Even if you’re able to get health insurance on an exchange, those costs can be really significant. I ran a simulation actually. If a 57-year-old woman wants to retire next year, the average cost of her healthcare between now and 65 is about $14,000 a year.

Sandy Block: A year? Wow.

Liz Windisch: A year.

Sandy Block: That’s a big withdrawal from your portfolio or from your savings.

Liz Windisch: It is.

David Muhlbaum: We’ve just been looking head on into the financial consequences of early retirement. But Liz, can you get back to the motivations? What are.... People see high values in their accounts and think, "Okay, I can retire," but what’s going on right now that makes them want to retire more than in the past?

Liz Windisch: I’ve seen a few different reasons. One is that re-prioritization that we spoke of earlier. The last couple years, a lot of people have seen friends and family get COVID, potentially die from COVID, become permanently disabled. That has really made people think about how long they want to spend working and how fragile our health can be. I think people are really burned out. This goes back to 2008. Back in ‘08 and ‘09, a lot of employers laid people off. When the economy turned around, they didn’t necessarily rehire those people back. A lot of people have been doing the job of two or three people for the last dozen or so years, and I think people are really burned out from working.

Sandy Block: Liz, I’m glad you brought up 2008, because one of the things we talk about people feeling very confident because their stock portfolios have done so well. But I think one of the phenomenons we saw, and I assume you were practicing then, was that in the 2008-2009 severe market downturn, a lot of retirees had to take withdrawals from portfolios that were already depressed. Is that a risk that still is out there?

Liz Windisch: Well, it is a risk because like we said, we don’t know what the market’s going to do in the next few years. If you are planning on taking withdrawals from that portfolio, if the market is down 20% or 30% next year and you need to take money out to live off of, you will not have an opportunity to recapture those gains. I think that’s why a lot of people didn’t retire in 2008, even though they may have been close to retirement or may not have wanted to work. They needed to wait for those portfolios to come back up or put more money, save more money for retirement. Because once you take money out, when your values are down, you miss the opportunity to ride those gains back up.

David Muhlbaum: Part of getting ready for retirement isn’t just saving money, putting it aside. It’s how you invest that money in anticipation of some assumed retirement date. Liz, what happens when you have a client who comes in and says, "You know what? I’m done now. I want to take this job and ... retire." They want to move their retirement up a few years from what was originally planned. What can they do? What should they do with their investments and savings to make that happen? What kind of guidance are you giving?

Liz Windisch: That’s a great question. They may need to change some of their assets from that aggressive growth of saving to something more conservative or something income producing. I think there’s two pieces. There’s the immediate needs, your immediate income needs the first years of retirement. Then there’s the portion that you do still need to keep growing that portfolio. Even if you’re retiring, you’re not taking all that money out and spending it right away. You still need to make that money last 30 or 40 years, in which case it will still need to grow. Certainly everyone is different. I think you do need to get a little more of a deep dive restructuring how that portfolio was going to look to switch from growing to spending.

Sandy Block: Liz, and that leads me to another question that was actually the subject of our cover story in February and something that also gets a lot of interest on our website, which is, what’s your number? If you are thinking of retirement either next week or maybe in a couple of years, which maybe is more realistic, how do you help? The big question people has, do I have enough? How do you help clients reach that conclusion that, yes, I have saved enough for retirement or no, I may need to stay on the job a little bit longer because based on these factors, it might be too risky?

Liz Windisch: I get that question often too. How much money do I need? Well, that all depends on how much money you plan on spending. What I do with my clients is run many, many scenarios. We take a lot of inputs on how much you might be spending, but I run different scenarios for that. We have the amount that you think that you might spend, but that may not actually be what happens. We like to make sure that no matter what happens, you’ll have enough money.

David Muhlbaum: You’re using a calculator for this and just showing them, move this and this happens, move that and that happens?

Liz Windisch: Exactly. I have software that I use that allows us to run many different scenarios. I like to do that with my clients. I don’t just say, "Here, I input your numbers. Here’s your plan. You’re good or you’re not good." We’ll sit down together and calculate lots of different scenarios. What if this happened? What if you had significant health concerns 10 years into retirement? Run the numbers. What if the market goes down? What if it goes up? I use a Monte Carlo simulation, but I don’t know if your listeners are familiar with that, but that would run thousands of different scenarios of possible market outturns, excuse me, outcomes.

Sandy Block: Well, Liz, I’m glad you brought up software because one question that’s been coming up a lot in our conversations is when you do those simulations, usually you put input an investment return, an annual investment return. We’ve had some very long, deep conversations when we’ve done this ourselves about what annual investment return to use. In my recent reporting, I’ve talked to some people who have actually notched it down some because they think the market is so overvalued and interest rates are so low that say a 7% annual return, which I think is some people would consider conservative, might actually be a little aggressive. I’m curious about what you recommend in terms of investment returns when you’re running these kinds of programs for people, because that does affect how much you need.

Liz Windisch: Absolutely. That 7% number, is that net of inflation? We don’t know what inflation is going to be, so that number needs to be in there as well. I think I tend to err more on the side of being conservative, certainly because I don’t want my clients to run out of money in retirement. They can’t come live with me, so we need to make sure that they have plenty of money.

I think that’s where running all of 1,000 different scenarios comes in because that will run numbers if the next 10 years we have really poor returns. I think that’s, where having a little bit more sophisticated software comes into play versus just using a simple online calculator where you put in one number that’s an average, let’s say 6%. Even if we use a conservative number, that’s just an average and we know that the market doesn’t return the same number each year. Even if we get that average correct, that’s not how it works.

David Muhlbaum: Well, on that note, when you’re talking about inputting numbers and since you said the I-word first, how are you using inflation in these calculations? Is that a word that’s on the lips of your clients?

Liz Windisch: It sure is. It sure is because that has changed so significantly in the last six to nine months. The software I use will default to the average of the last 40 years, but we can change that. I like to get my clients input on that and use a number that they are comfortable with. Lately we have been dialing that up. I think the average now is 2.4%, but we’ve been using a much higher number just to err on the side of caution if we have the next 10 years of really high inflation, we want to account for that. We update plans as we go too, just because we’re doing this now and deciding if you can retire, this is something that we adjust each year. If we find that inflation hasn’t been that high, we could rerun numbers and maybe you can spend more money. It’s just a snapshot in time.

David Muhlbaum: Right. But there’s a demographic component too because the people who are retiring now, or the people we’re talking about, the late 50s, early 60s, those are people who lived through, and some were aware of the hyperinflation era of the late 1970s, so it’s not foreign to them, even if it hasn’t been seen in a while.

Liz Windisch: That’s right. That’s why I like to have that discussion and make sure that I have their input on the number that we want to use because I would say people that have lived through hyperinflation of the ‘70s are not comfortable using an inflation number that’s 2% or 3%.

Sandy Block: No 2.4% for those folks.

Liz Windisch: That’s right. I mean, they all remember that their first mortgage was 13% or something like that. We want to make sure that we’re using a little bit higher of a number and if we can dial that down in a few years, great. But let’s err on the side of caution, for sure.

Sandy Block: Liz, we’re talking about the gray resignation of people retiring, but one of the other things that I explored in this column that I interviewed you for is that there is a labor shortage. I wonder if very many of your clients, instead of just really walking out the door, reduce their hours or just get a part-time job, because it seems like right now there are more opportunities to do that and do it from home, which wasn’t the case pre-pandemic.

Liz Windisch: Absolutely. I have seen a huge shift over the course of my career in how people view working in retirement. 15-20 years ago, it was I’m this age, I’m leaving my job. I’m never working again. That’s great. People now don’t mind working. It may just be that they want to leave their stressful corporate job. If their company will allow them to work fewer hours or a less stressful job, they’re happy to do that. But a lot of my clients are saying, "I’ll just get a part-time retail job, something to keep me busy, something to bring in a little bit of money," which even if you bring in a small amount of money, it can make a huge difference in your success in retirement. For every dollar that you make, there’s a twofold benefit to that. That’s a dollar that you’re making and potentially saving, but that’s also a dollar that you’re not taking out of your retirement portfolio. Even making a fraction of your former salary can help a lot. I think people are really interested in doing that and staying active and vital.

David Muhlbaum: Well Liz, for all the people who might have been inspired by Sandy’s title, Take This Job, I’m Retiring, I hope you’ve given some insights as well into what you really need to keep in mind as you consider good bye to the working world and an early retirement. Thank you so much for joining us. We appreciate it.

Liz Windisch: Thank you for having me.

David Muhlbaum: That will just about do it for this episode of Your Money’s Worth. If you like what you heard, please sign up for more at Apple podcasts or wherever you get your content. When you do, please give us a rating and review and if you’ve already subscribed, thanks. Please go back and add a rating review if you haven’t already. To see the links we’ve mentioned in our show, along with other great Kiplinger content on the topics we’ve discussed, go to kiplinger.com/podcast. The episodes, transcripts and links are all in there by date. If you’re still here because you want to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram, or by emailing us directly at podcast@kiplinger.com. Thanks for listening.

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