Building a retirement plan means balancing financial security with the life you want to live. Steve Chen sits down with fee-only fiduciary financial planner Jesse Cramer, host of Personal Finance for Long-Term Investors and writer behind The Best Interest, to explore both the numbers and the human side of retirement.
They discuss how Coast FIRE can create flexibility, why retirement requires more than a portfolio adjustment, and how stacking conservative assumptions can keep you working longer than necessary. Along the way, Jesse shares ways to think about retirement income, competing risks, and the trade-offs behind Roth conversions.
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Transcription
Steve Chen
Hi, folks. Today on Boldin Your Money, we're joined by someone with one of the more unusual paths into financial planning that you're gonna hear about. So Jesse Kramer is joining us from Rochester, New York. And he used to launch orbital satellites before he got into financial planning. And so he's a fee-only fiduciary financial planner focused on retirement primarily. He's also the host of the Personal Finance for Long-Term Investors podcast. and he's the writer behind The Best Interest, and that reaches about 20,000 folks and retirees every month. So he's respected for something genuinely rare in this field, the ability to take complicated retirement questions and make them clear. So with that, Jesse, welcome to our show. Appreciate you taking the time.
Jesse Cramer
Hey, Steve, I am happy to be here.
Steve Chen
Yeah, it's gonna be awesome. So today I wanted to dive in kind of like, you know, into your history a bit, how you got into how you made
Jesse Cramer
Sure, sure.
Steve Chen
that transition into retirement planning. talk a little bit about some of the big things people get wrong, you know, from your practice as
Jesse Cramer
Mm-hmm. Mm-hmm.
Steve Chen
they think about their retirement plan, and then also some of your insights into kind of behavioral finance and some of the big risks that that people face. So,
Jesse Cramer
Cool.
Steve Chen
but let let's get started. So yeah, no, we'd love to just hear your story from how'd you like how why'd you make the switch from, you know, orbital science engineer to
Jesse Cramer
Yeah.
Steve Chen
You financial planner.
Jesse Cramer
Yeah. So the the the sixty second background is I'm from a tiny little town in upstate New York, went to college, two degrees in mechanical engineering, worked in aerospace for seven years, designed and built and tested satellite telescope systems, which is really cool, really fun. And while working as an engineer though, in my twenties, I'm making a paycheck really for the first time in my life and just got incredibly interested in my own personal finances. You know, as you do, and just dove in headfirst to all the books, you know, Boglehead's Guide of Investing and a random walk down Wall Street and listen to I would go on runs, Steve. I would run and I would listen to Warren Buffett, Charlie Munger, Berkshire Hathaway shareholders meetings. Like I I just found it so fascinating. And in twenty eighteen I started a blog which really was inspired. I would I would write these emails to my colleagues, my engineering colleagues. They knew I was a nerd for personal finance. They'd ask me questions, I would write them these long answers. And then it's like, well, I just explained to my colleague the the logic behind an index fund. Why don't I publish this? It's it's basically a blog post. It's just a one-to-one email. Might as well publish it on an actual blog. So that was the birth of the best interest. And then a couple of years later, I figured if I'm doing all this writing that's close enough to a podcast script, might as well speak into a microphone. So that was the birth of my podcast, which I eventually renamed and now it's personal finance for long-term investors. And then as my audience grew, I wondered, would any of these people pay me for really sound financial planning advice? And so that's when I switched careers and and left engineering for good and and became a financial planner.
Steve Chen
I that's kind of a s I it's a cool story and and by the way, my my dad worked on he was a quality assurance engineer and worked at a company called called Orbital Sciences.
Jesse Cramer
Hmm.
Steve Chen
So he d and remember he was telling me about satellites and I think I visited him one time and these things used to be custom built, like
Jesse Cramer
Yeah.
Steve Chen
handmade satellites. And like then they would send them up and then this the rockets would explode sometimes and it's I just remember thinking that would suck.
Jesse Cramer
Yeah. Yeah. Yeah. Well, we so so now a lot of the small sats, the stuff that like Elon Musk is doing with Space Link. Is that what it's called? Space Link? The the Starlink. Like right. These these
Steve Chen
Yeah, Star Link. Yeah.
Jesse Cramer
are hunt these are like almost mass produced. But but some of the projects I was working on, I mean, they were N of one or like N of three projects. So yeah, these were custom specialty, pretty cool stuff.
Steve Chen
Yeah, no, it's so interesting. But I mean, we could do a whole separate thing on space and what's happening here.
Jesse Cramer
Yeah, yeah.
Steve Chen
It's it it is the next frontier. I don't know if it's the final frontier, but it's the next frontier. for the Star Trek fans out there. anyway. yeah, I mean, but it sounds like it's it's it's such a big career pivot. I guess when you're younger, it's like, okay, you know, you have ti you know, you may you have maybe fewer obligations. I don't know if you had children then and stuff like that. But you know, to go from like, hey, I'm you know I'm an engineer, right? So I have an engineering degree and you can make pretty good money as an engineer and like it's pretty reliable. There's a lot of demand for it to be like, Okay, guess I'm gonna start this company with probably a few clients. W you know, was that scary? Was it do I mean, did you have an how'd you think about that?
Jesse Cramer
Yeah. Yeah. So I jo what what I did was I joined this small firm that was already you know, this small fiduciary firm that already existed. And I was just a W two employee for them. and then more recently I left that firm and and really more you know, I I joined a partnership. So now I I really do feel like I work for myself. But the the the thought process that I went through was one of my college buddies helped me with it because he he was a risk taker and his risks worked out for him. And I was like, man, how did you take these big risks? And his thought process was, well, what's the floor? Like what's the worst that could happen? In his case, he had multiple degrees in biomedical engineering. And if his entrepreneurship didn't work out, there's 20 companies that would hire him in a second. And similarly for me, I worked for L3 Harris, one of the larger aerospace contractors in the country. And and if if if financial planning didn't work out, or maybe it still won't, if it doesn't work out for me, I could go to Boeing, Northrop Grumman, Lockheed Martin. I think they would hire me because I I still have the the engineering skills required.
Steve Chen
do do you find that your engineering skills translate to your planning practice?
Jesse Cramer
Definitely. I think you know, engineering, engineering school, working as an engineer, there's a very, very rigorous and logical way of of solving problems. You know, you understand the inputs, do you try to understand the the physical rules or the equations at play? You take this this theoretical way of solving a problem and you bring it into reality, which might mean thinking about cost and schedule and customer expectations and that kind of thing. Financial planning is quite similar in that way, right? You've got inputs from from the client. You've got these mathematical financial rules and equ equations or models that you have to think about. When you're working with real family, though, you have their timelines and expectations. Maybe the main difference is at the end of the day, a lot of engineering projects are governed by the rules of physics, ultimately. In financial planning, a lot of the projects are governed by psychological you know, psychological interests in the people themselves. And that is a unique element, but it it makes it really fun.
Steve Chen
I think it's really interesting. Like a lot of our users are quantitative people and many engineers. I've met many engineers
Jesse Cramer
Yeah. Yeah.
Steve Chen
in our community. And a lot of them have a similar thing that they're attracted to it for the same reasons you are. They're like, Hey, in my work, I see these problems and I break the problems down. I mean, like the the big thing I took away from engineering is like, Yeah, take problems, break them into pieces, solve those pieces, put it back together. And you can have like a more scalable solution, right? Or it's it's one approach. but many people that were initially in financial planning were more of you know, or and there's this whole other human side of it that's the emotional, messier, hardier, harder to understand. I think, and I feel like a lot of people that got into planning early were maybe more of the, you know, right brain people, and now there's more left brain people, but the solution is this right and left brain thing, which is not trivial to to do well.
Jesse Cramer
Mm-hmm. Yeah, correct. Correct.
Steve Chen
So, were there any big aha moments for you on this journey? like just for yourself, like just around some of the I guess, you know, you're educating your friends about this, but like where you're like, wait a sec, there's a lot of power in financial planning or a lot of power in the personal finance side of things.
Jesse Cramer
I think so, yeah. I mean I Maybe one of them is just that it's so easy to take for granted the things that we know versus the things that other people maybe don't know. I think that right, i in some domains it's called the curse of knowledge, which is, you know, when you learn something, especially when you learn something really, really well or you want to become an expert in it, you you forget what it was like to have never known that thing in the first place. And it becomes really hard to put yourself in the shoes of someone who doesn't know what's going on. And I think with, you know, retirement planning specifically, financial. Planning in general, communities like ours, I mean, odds are if you're going out of your way to use Boldin, if you're going out of your way to listen to a podcast of us talking right now, you are probably on one end of the bell curve when it comes to financial planning knowledge. And so we're kind of we're all we're all part of the what is it, preaching to the choir? Like Steve, you and I are preaching to a choir right now, and these people are all
Steve Chen
Yep. Mm-hmm.
Jesse Cramer
part of our of our choir. And it's it might be hard for us to think about like, yeah, the general populace is. out there doesn't know the difference between traditional and Roth.
Steve Chen
Yeah. Right.
Jesse Cramer
They don't know. they they they they don't understand what might even begin to go into a decision about when to claim social security. So something I I try to do is always remind myself of the fact that you know, s sometimes I sit across from someone and because of the conversations we've already had, I know that they're pretty well versed in this stuff. but sometimes I I have to go back to absolute square one. It's it's you know, back to basics, yeah.
Steve Chen
I think one of the things that I was reading on your when it was prepping, I was looking at your blog, you talked about Coast Fire. And by
Jesse Cramer
Mm-hmm. yeah.
Steve Chen
the way, like I had a recent thing where I like w Coastfire, for what it's worth, I I always thought this is an example that it was like, it means I can achieve financial dependence and live on the left or right coast of this country. Like
Jesse Cramer
I'm living on the coast. Yeah.
Steve Chen
it was like I hear barista fire, you fat fire, all these things. I'm like,
Jesse Cramer
Yeah.
Steve Chen
coast fire. It's like maybe fat or fire. I don't know. Like
Jesse Cramer
Right, right. As opposed to a flyover flyover state fire would be the other one, right?
Steve Chen
But would love for you to exactly fly over fire. but I would love for you to explain that and how it came to life in in your own life.
Jesse Cramer
Yeah. Yeah. So shout out there's another great creator named Andy Hill who invited me on to his show because he does a a series about Coast Fire. And and the way I define it to people is It's when you've achieved a point where you cannot retire yet, but you have saved enough. You have already saved enough at this point in your life that you could probably get away with never saving another dime. And just what you would do is let your current savings continue to compound and eventually you will be able to retire early. And so, you know, again, if I use some reasonably some realistic numbers, maybe a touch of conservatism on them, but reasonable numbers, my wife and I could probably never save another dime. And And using historical rates of return, I bet we could retire in our mid fifties. And here we are in our mid thirties. so so
Steve Chen
Well. Yeah.
Jesse Cramer
you know, we could quote unquote coast for the next twenty years and stop saving and and retire early. so that's the definition. I forget, Steve, what was the second part of your question? Was there a second part?
Steve Chen
No, just like yeah, just I mean, that's exactly it. Like how it came to life. I mean, I guess I'd be curious like
Jesse Cramer
I see, yeah.
Steve Chen
w how has it changed your li so are you doing that? Or have you stopped saving? Are you spending that money on other things?
Jesse Cramer
Yeah, haven't well, stopped saving a little bit. And and the main reasons we have we have two young kids. We've got two daughters, one of them's a little over two, the other one was just born in March, so she's almost six months old. Kids are expensive. Kids will probably continue to be expensive. So what Coastfire has done, at least in our case, is it's I I can kind of breathe easy knowing that our retirement savings are in a really healthy place. Maybe at some point in the future I'll need to press on the gas a little bit again. But for now I can take my foot off the gas, I can coast, and we can kind of retarget that cash
Steve Chen
Yeah. Got there.
Jesse Cramer
flow towards our children and feel really good about it.
Steve Chen
That's awesome. And like in the course of did you have to say, were you saving a tremendous amount of money to do this? Were you saving a really high rate?
Jesse Cramer
I'm we were saving de I mean, I don't mind sharing numbers that, you know, here we are. Rochester is not exactly an expensive city. and we were both making right around the hundred thousand dollar mark. So we had two incomes around a hundred thousand dollars each, and we were probably for a number of years saving. Maybe maybe thirty percent of that would be a good guess, something like that.
Steve Chen
Okay. Yeah.
Jesse Cramer
But you do I mean, we got lucky with it being the twenty teens, right? Markets have been amazing for us and and just you save a lot of money for ten or twelve years with the markets at your back and you end up with a pretty big number.
Steve Chen
Totally. I mean, that's kind of what I the way I frame it for people now. It's kind of like everybody, you can get wealthy, but it i think about a fifteen year time frame. Like think
Jesse Cramer
Yeah, right.
Steve Chen
about saving a lot of money for 15 years and then you're gonna look up and have more money. And that and if you those 15 years happen when you're in your early or mid twenties, right? or ideal, you know, then by the time you're kind of mid thirties, yeah, you can be well on your way. If they happen in your when you're forty, Or forty five, you know, it takes you longer and you have less time to compound and then there's it's it's higher consequence. Like you can you can coast. You're like, Okay, I can get off the gas, kinda see what happens. If the markets go
Jesse Cramer
Mm-hmm.
Steve Chen
go for it, great, you know, and if not, maybe I start saving more. That that margin of error decreases though as you get older. So time
Jesse Cramer
Yeah, yeah.
Steve Chen
is such a huge factor here.
Jesse Cramer
Correct, correct.
Steve Chen
okay. So next I wanna kinda dive into kind of some of the big things people get wrong about retirement. But before we do that, can you kind of share like just how your practice works? So are you are you kind of your fee only, just like what your mod just I'm just curious for for folks to understand that.
Jesse Cramer
Yeah, yeah, yeah, yeah. So Fionley, fiduciary. And some of my clients pay flat fees, meaning like a flat annual fee, you know, ten thousand dollars a year. some of my clients pay an AUM fee. Typically, it their their average AUM fee might be between like 40 basis points and 60 basis points, 0.4%, 0.6%. And and that's intentional. I mean the the idea behind behind my practice, the way me and my colleagues, it's not just me, there's there's a team of us, but our approach is let's keep investing really, really simple, right? It's it's low cost. It's rules-based funds. So a lot of index funds, some like dimensional Avantis style factor tilts in some cases, but even those
Steve Chen
Mm-hmm.
Jesse Cramer
are very low cost. So it's low cost, academically rigorous. Let's focus our time and energy on the aspect of planning. Planning work is where you can actually control what's going on and move the needle through through rigorous planning work. And so yeah, and and you know, I I tend to work with retirees the most. That's really where I focus my energy. It's certainly where I focus my marketing for lack of a better. term because I think you know if someone's my age right now, and just you know, if someone's in their mid-30s and they're they want to retire in their mid-50s, the best advice I can give them is keep on saving money. Do it in a tax-advantaged way if you can help it, try to keep your costs low. There's not that much
Steve Chen
Yep. Yep.
Jesse Cramer
planning I can do, at least not yet. But all of a sudden when the event of retirement itself, I mean, there's a reason why Boldin, it's like, where do you guys build out the the most kind of like interesting, nuanced tools? It's it's retirement planning. so that's
Steve Chen
Yeah. Yep. Yep.
Jesse Cramer
where I focus a lot of my energy.
Steve Chen
Yeah, no, there's a there's a lot of complexity there. And I I agree with you. Yeah, it's it's like when you're younger, it's kind of like, yeah, start saving, save as much as you can, keep your fees low, broadly, and stay yeah, don't be too conservative. We'll talk about that in a minute. and actually, so one of the questions I wanted to ask you is like I I saw another of your blog posts you talk about like the pilot versus the flight instructor analogy. I thought
Jesse Cramer
Yeah.
Steve Chen
that was kind of an interesting way. And I and I thought your perspective was I mean, was, you know, different than I I wasn't sure which way you're gonna answer it. And so
Jesse Cramer
Mm-hmm.
Steve Chen
I'd be You know, love you to share that that your point of view and why you kind of like chose one path versus another.
Jesse Cramer
Yeah. Yeah. So so that analogy is basically the people who tend to reach out to me, at people who listen to my podcast, I'd argue probably the people listening right now fall into one of two main camps when it comes to if if they plan on interacting with a financial planner, they fall into one of two camps. Camp one is where they say, Hey, what I'm really looking for is a flight instructor. I want to fly this plane. I want to fly my own retirement plan. I just want an expert in the seat next to me to let me know, maybe just to double check. I'm dialing my dials correctly to make sure I'm not doing anything incredibly stupid. But the point is I'm not hiring a pilot for my plane. I'm hiring an expert flight instructor. And then the second group of people is the people who say, no, no, I'm gonna go into the back of the plane and drink some champagne. You're gonna fly this plane for me. Mr. Financial Planner. And and from my point of view, I would just rather I'd rather be the pilot, candidly. I find it It's there's an analogy in the world of contracting, like like people, you know, renovating your kitchen, which is like, hey, if you want to hire the contractor to renovate your kitchen, it's gonna be 30 grand. But if you are gonna help me do it as the homeowner, it's gonna be 40 grand. Like it's harder. It's you know, the contractor
Steve Chen
Yeah. Yeah, totally.
Jesse Cramer
finds it more annoying because they're stopping, they're answering questions, they're quibbling, they're they're arguing, et cetera, et cetera. And I think some of that analogy actually does apply here, where sometimes when someone has wanted to hire me as their flight instructor. instructor, it actually ends up being more time and effort on my end, a little more painful, a little more friction. And and they want to pay less because they feel like they're still doing a lot of the work in their driver's seat. So that that's my personal
Steve Chen
Yeah.
Jesse Cramer
thought on it.
Steve Chen
Yeah, I think it's interesting that like I've thought a lot about this because I do feel like it's all about outcomes, right? And how do you help someone get to better outcomes? And a lot of better outcomes are are knowing yourself. And, you know, and I've told this story a lot, but like I I, you know, am a DIY person, but I actually think I probably would have done better. If I had advisor earlier, or at least for certain stages of my life, because I couldn't get out of my own way. I had my own psychological, behavioral challenges and risk things in my
Jesse Cramer
Mm-hmm.
Steve Chen
life where get and it'd have to be the right advisor. It would help you see this. But like so much of this is just like taking action and making sure it happens, right? And so that's where and then and then doing the math between, well, okay, you would do it all yourself, but if you don't actually do it, like
Jesse Cramer
Yeah.
Steve Chen
You know, you could end up he you your your trajectory's like this versus if you actually did it, it might be up here and that difference might be millions of dollars, frankly. So
Jesse Cramer
Right, right. Yeah. I impl implementation. We talk about that word implementation a lot too, which is, you know, I I want my advice to be implemented. There are some planners out there. There's there's one gentleman in particular who I think is more of that flight instructor, and I've heard him speak before, and he's like, I do not care if my clients decide to implement my advice or not. I gave them advice, I did exactly the right thing by them. What they do with it from here, I don't care. And I I respect what he says, but that's just not how I feel. I I want it to be implemented.
Steve Chen
Yeah, yeah.
Jesse Cramer
Yeah.
Steve Chen
For sure. Well, it's like if you know what works and how big a difference. Yeah, I I I think it's like you don't want to look back and I mean it like people always do this, right? man, I could have invested in Tesla or
Jesse Cramer
Mm-hmm.
Steve Chen
which I I knew about NVIDIA, like I you know, I knew about Bitcoin, right? And they're like, why didn't I do that? Well, some of this is like if you know, like th those are all speculative things that worked out, survivorship, all that stuff, but like we do know that like low fee index investing, you know, the appropriate portfolio allocation and time works. Like that's what works. So just do that, you know. anyway.
Jesse Cramer
Yeah. Yeah. Right. Or or or you know, good tax planning, right? Like we know that planning decisions you don't have to depend on a market to to behave for you. It's like if you actually just implement the good planning decision, you're gonna end up in a better spot for it. But you've gotta go and push the buttons. You've gotta go do it. so right, yeah.
Steve Chen
Hundred percent. So, so what are some of the big things that you see people getting wrong and like getting tripped up on as especially as they kind of get in get ready for retirement? Or maybe make the transition into retirement. That whole transition period I feel like is a very complex, fraught area and if and it's
Jesse Cramer
Yeah.
Steve Chen
easy to make mistakes.
Jesse Cramer
Yeah, well th there there's probably a a nuts and bolts answer to this question and then there's also maybe a softer a softer answer to the question. and so when I think for example the softer answer to the question, so like some of the mindset changes. I think about I was I put together a podcast a couple months ago and I talked about identity, relationships, and structure. So a lot of people in general, a lot of people are you have structured your life in some way, shape, or form around your career. Maybe it's not the most important thing, maybe family is, but either way, your career provides structure for 30 or 40 years where you show up to the same place and you spend fifty hours a week there. You've got a lot of social relationships through work, you tie your identity to what you did career-wise. it's just how you plan your year. It's how you plan your weeks and months. And when that ends, you you need to think about that fact and you need to replace it with something. And and for some people, they say, Well, I don't need to worry about my identity. I I know exactly who I am. And fine, but maybe those people really need to think about how they're gonna fill their days. They need to think about the schedule, the structure. Other people may the structure sign, but it's that, you know, the 20 best friends in your life are the people that you work with, and they're all still working. You're retired now, you can't bug them. They're working during the days. And so I would encourage people to actually think through that. And there's a gentleman, Fritz Gilbert, who writes a blog, The Retirement Manifesto. Many of us have heard of know Fritz. And he put together a really interesting study from his audience that found, and I think it was it was his audience, but anyway, that the study was one of the most compelling results was that the number one concern for pre-retirees was financial in nature. The number one concern was financial in nature, and yet. Yet when you looked at the post-retirees, the people already retired, finances were like sixth or seventh on the list. And so if there's any takeaway there, it's that, hey, if you're not retired yet, learn some lessons from the people who are and realize that your finances aren't as important as you think and there are other things that you ought to be focused on.
Steve Chen
Yeah, that's super interesting. But do you remember what the number one thing was post It's it just fell. Yeah, yeah.
Jesse Cramer
Don't I I just know it was it was so it was like soft. It was like soft in nature, right? It was the soft stuff.
Steve Chen
I mean, I would say that my general take after working in this space for a while is that, well, one, anticipatory anxiety is the biggest form of anxiety. Everyone worries about what's coming.
Jesse Cramer
Hmm. Mm-hmm.
Steve Chen
and they always worst case scenario it. And then that leads to people like, one more year syndrome and then just not wanting to pull the trigger or or I mean it's good for us, it drives like usage of bold. and then once they people retire, they're like, Why didn't I do this sooner? Like, I'm okay. This is fantastic. You know, for a lot
Jesse Cramer
Right. Right, exactly.
Steve Chen
now, we are living in a yeah, great, and the market's still going up to the right. Like, you know, when people are faced, I mean, and you know, it's you know, we have this will happen at some point. There will be corrections and people need to be ready. psychologically for like, hey, what if there's a twenty percent drawdown? What's if the thirty percent drawdown, you know? are you ready to kind of weather do you feel like you've prepared? People people do do that, but yeah, no, it's I think it's interesting framing kind of the mindset versus the mechanical side of like doing it. and and how about some of the mechanical things that do you see people getting blown up on certain
Jesse Cramer
Yeah, may maybe some of my answer here might be skewed by the audience itself. Like there might be a sampling issue at play here. But I I see a lot of people who still are, you know, they they're six months from retirement. Good for them. You look at their portfolio and it's like, yep, it's 70% S P five hundred index fund and thirty percent my own company stock. And it's like, hey, let's talk about this thing called the sequence of returns risk. Let's talk about, let's just talk about a typical retiree's balanced portfolio. And your portfolio is 100% stocks and has this huge concentration risk at play. So I I see that
Steve Chen
Yeah. Yeah.
Jesse Cramer
more often than I thought I would. I think that's one. I think another one, and this second mistake maybe comes from. less from our crowd. I I would say this second mistake is not as common in our crowd, but is common in the general population. And that mistake is the day I retire is the day I turn on Social Security, right? I was like, well, not necessarily. You know, the
Steve Chen
Mm-hmm. Yeah. Right.
Jesse Cramer
let's let's look what the numbers say. So that's a pretty common one. I think it's weird. I I know may maybe we'll talk about Roth conversions here today. It is a A topic de jour for sure. And I just think in some circles it is overemphasized to to s it's so much. And and yet in other circles, people have never heard of a Roth conversion and and it it's like, well that you're a great candidate for it and you just didn't know it. So that's just one where it's it's a little bit of a wild card. but but that's another big topic that I just see people th they'll they'll come at it and be like, Day one of retirement, I convert my entire IRA to Roth, don't I? It's like, well, not necessarily.
Steve Chen
Yeah. Yeah.
Jesse Cramer
So
Steve Chen
I think it's interesting, like the stocks versus bonds thing. I mean, I have become a so for a while I wasn't fully invested, then I got fully invested, but it's pretty much mostly equities and which has worked out, you know, but I don't know. Like I
Jesse Cramer
Mm-hmm. Yeah, correct. It's worked out great for you.
Steve Chen
think the arg the thing about bonds, it's like well, we we there's inflation is real, right?
Jesse Cramer
Yes, sure.
Steve Chen
The the debt problem is real. I don't know. It's i i well I think the other thing that that is I feel and maybe probably more people like, I mean, hopefully we stay healthy, but like what if we live a lot longer?
Jesse Cramer
Yeah.
Steve Chen
Like a lot l like longer than we think, you know,
Jesse Cramer
Yeah.
Steve Chen
maybe that we should change our how does that change our risk profile? 'Cause you need to get the returns. Like you need returns, right? So you
Jesse Cramer
Yeah. Correct. Correct. Correct. And yeah, my
Steve Chen
can't be kinda s you know, playing it too safe.
Jesse Cramer
My my contention for for ownership of bonds is I I I approach a lot of planning through what what I call asset liability matching. That's generally what banks call it too. And it's becoming more and more popular in the retirement planning community as a an approach to thinking about portfolio construction. And the idea is that here it is, it's 2026. Let's say I retire today. I know I'm gonna be spending money in 2027, 2028, 2029, et cetera. I need to pull out of my portfolio for that. Do I those are future liabilities? That's so let's get back to the name asset liability match. Those are future liabilities that my portfolio needs to support. And the the philosophical question is, if it's two years from now, if it's 2028 and my portfolio needs to give me $100,000 to spend, should that $100,000 be invested in stocks for a two-year timeline? You know, I say no, but at the same time I I get why other people might disagree with me, but so so my bond exposures are associated with timelines. It's not about, you know, risk adjusted this, risk adjusted that, or it's not just diversification for the sake of diversification. It's that, you know, ten years out from now, yeah, stocks, stocks, stocks, that's fine. But for some of these near term timelines in in a financial plan, I need to allocate to something safer than stocks.
Steve Chen
For folks that aren't familiar with asset liability matching, I will try to explain it a bit. pensions have used this forever because pensions have obligations to pay paychecks to or you know, provide their pension checks to their pension holders. And so they have bigger piles of money, but it's the same idea. And they would
Jesse Cramer
Mm-hmm.
Steve Chen
have to essentially build their portfolio to deliver these cash flows on time. And so you can apply that as an individual. You don't have the same mutualization number of of lives at stake out there, but it's the same same principle. I I think a lot of
Jesse Cramer
Yeah, exactly.
Steve Chen
our users d do the bucket strategy, which is kind of along those lines. I know Fritz does this, right?
Jesse Cramer
Okay. Yep. It is. It is, yeah.
Steve Chen
And I could see the psychology of it like, hey, I'm approaching retirement. Okay, I'm gonna retire at 60. I'm not gonna claim social security till 67 or something, right? Or full retirement age, maybe later.
Jesse Cramer
Mm-hmm.
Steve Chen
Right. So I need to bridge that and that's a way of buying lifetime income. But so I'm gonna need certain cash flows and I don't want those so they'll roll around with like three years of cash or
Jesse Cramer
Mm-hmm.
Steve Chen
th or three years of highly liquid investments, I would say. And then they're replenishing it. So they'll like, okay, I lived in I'm living in twenty twenty six, I'm using that money. But if the market stays high, I'm kind of filling the bucket up. So they're kind of continual and if the market tanks,
Jesse Cramer
Mm-hmm.
Steve Chen
then I'm depleting the battery. And I'm waiting to recharge it until the sun comes out if you have solar panels. I have solar in my house and I charge my my car. And it's like Yeah. I mean, I think that's like an anal I don't know, but that's one
Jesse Cramer
Yes. Right, right, right, right. This bucket has solar panels on it. Yeah, yeah. It w no that works.
Steve Chen
way. But then just managing that and being on top of it, being comfortable with it. and that's how much visibility do you want and like doing the math. This is something we're working on. Like, how do you make that math easy to see? Like, what's the trade-off? Because if you're not fully invested, you're also giving up return.
Jesse Cramer
this is a side topic that's probably too big for for one conversation, but you just talked about giving up returns. And I think a really important question that every retiree needs to think about is hey, okay, if we go back to nerdy math here for a second, it's it's you know, what exactly are we trying to maximize? Like what what equation do we have at play here and what are we trying to maximize? Meaning Am I trying to maximize r my returns? Or or put another way, am I trying to maximize my net worth at death? Or am I trying to, for lack of a better term, minimize the probability that I die with zero dollars? Am I trying to am I trying to minimize retirement failure? Those are two separate things. And I think some people approach retirement, especially I think if they are the engineering type. They're like, I just you know, if if the Monte Carlo tells me that I'm gonna die with twenty eight million dollars and that's the highest number I can get, that's good. I'm not sure if it is. I I think I
Steve Chen
Yeah. Yeah.
Jesse Cramer
approach it more from a minimize the the chance of failure and sometimes that does mean sacrificing a little bit of return along the way.
Steve Chen
Well, this is back to the the human side of this, you know,
Jesse Cramer
Yeah.
Steve Chen
you know, as we people live longer, it we we're all like hopeful I'm gonna be gr you know, I wanna have lots of money when I'm ninety. They don't really envision, like go hang out with some ninety year olds. That's another thing that's really helpful too. Eighty and ninety year olds. Kind of like, okay, I should invest in my health a lot. One, be alive.
Jesse Cramer
Yeah, yeah. Exactly. Yeah. I'm I'm right, right.
Steve Chen
Can I be alive then? And two, be can I be functional? at that point. That's super important.
Jesse Cramer
I'm gonna be playing thousand dollar bingo at age eighty-eight.
Steve Chen
Yeah, exactly. Crush all you guys.
Jesse Cramer
Yeah.
Steve Chen
Yeah, totally. th I think our our population our community is full of people that are gonna be pretty wealthy in their nineties and really they could but they they could be having better lives earlier. it it it's tough to balance though. And and I think this is where do you talk about like annuities or lifetime income at all? Do you do you think about this?
Jesse Cramer
I so I I yeah, I have yet to advise an annuity in my practice. I've published a couple podcast episodes where I dove really deep into annuities, and I'll tell you what, you know, I I've tried to play devil's advocate, or at the very least, I tried to like show both sides of the coin. because for those who don't know There are annuities out there that are very low fee and very simple in nature. The problem is that the annuity industry, the insurance industry, have they've kind of like bastardized the idea of an annuity and like stapled on, they've Frankenstein's on like an investment product and extra risk, and here's this delay, and here are all these high fees. And like that ultimately is the quote unquote problem with annuities, at it in its simplest form. a S P I A, single premium immediate annuity, is Steve, I'm gonna give you a million dollars today, and then you're going to immediately turn around and start paying me $65,000 to $70,000 a year. That that that rate, that 6.5 to 7% rate is probably more applicable to someone who's like 60. But the idea is that that is a it might not be perfect. It's certainly not I would consider mathematically ideal. But it's much better than some of the other annuities out there. And for the right person, that income floor provides them a huge psychological benefit. so
Steve Chen
Yeah.
Jesse Cramer
yeah.
Steve Chen
It's it's interesting. Like the whole insurance, we we know some insurance players and stuff, and everybody sees this problem. Like decumulation is harder than accumulation. This whole th like like retirement is complicated, healthcare, inflation, market returns, sequence of returns, drawdown, risk, all that stuff. and there's a place for insurance, but Agreed. The insurance industry, and this is a I think back to the incentives, right? So insurance people are typically paid on commission. So guess, you know, more complicated products might have higher commissions, right? And so let's complexify this thing and and it and it can it be simple. And and then on the flip side, like advisors are paid on assets in many cases. And so
Jesse Cramer
Mm-hmm.
Steve Chen
I don't necessarily want to take out a million bucks and throw it into an an annuity because then I'm getting paid less fees on that. So there are all these problems that exist. People
Jesse Cramer
Yeah.
Steve Chen
need to understand them. And this is where back to just like aligning your folks that are advising you with you and your goals is is what matters a ton here. But just yeah, people have to get smart and you know, be you know, be very aware.
Jesse Cramer
Yeah. Yeah.
Steve Chen
okay. One of the things you talk about is like the crushing costs of conservatism. Will you kind of dive
Jesse Cramer
Sure,
Steve Chen
into that?
Jesse Cramer
sure. so this this this idea goes back to my engineering days where we would, you know, as part of a design, you have these factors of safety, right? And so each little component, you you think about some of the risks at play and and you just try to you make sure that you design your your product strong enough so that it doesn't fail, but then even stronger than that, so there's an additional factor of safety on it. And this is true in the engineering world, which is that your your factors of safety often multiply together. They don't they don't add, they they multiply. And similar in retirement planning, you know, this thing that we love in the idea of retirement planning is the idea of compounding. You know, these positive forces are all compounding and working in favor. That is multiplication at work. And so If I have here's a very simple example. Let's say I have these three little dials to turn in my retirement plan, A, B, and C, and they're all dialed in at one. They all multiply together. So A is one, B is one, C is one, one times one times one. It's one. That's easy math. But now let's say I'm like, okay, I need to be conservative here. I'm trying to be really conservative. So just to be safe, I'm gonna take each dial and I'm just gonna, I'm gonna dial it down to point five to one half. And and you might say, well, that's 50% conservative right there. Well, one half times one half times one half, it's actually one eighth.
Steve Chen
Yeah.
Jesse Cramer
You're not 50% conservative, you're 87.5% conservative, whatever the math is. And a lot
Steve Chen
Yeah. So yeah. Yeah.
Jesse Cramer
of people don't realize that the conservative assumptions they're making, where they say, I know the market supposedly returns 10, I'm only going to assume eight. I know inflation historically has been three, I'm going to assume five. I'm going to assume my tax rates go up, I'm going to assume Social Security disappears. Yada, yada, yada. These things are multiplying. And In this article I put together on the topic, I painted a very reasonable, realistic retirement scenario. And I think this person using simple realistic assumptions could retire at like 55. And yet if I made every assumption conservative, conservative in a way that your audience might look at it right now and be like, Well, I I get that. I get that conservatism. The same person retires at like 76. It's ridiculous. So that is the crushing
Steve Chen
Yeah. Yeah.
Jesse Cramer
cost. It's it's time that you can never get back.
Steve Chen
It's time. That's super interesting. Yeah, we were looking at this for some of our data and just the assumptions people make, and we're we're getting more granular about this. they do want to be conservative, but their market, their returns exceed their plans. So basically when we look at the longitudinal data, people everyone's like assuming, you know, five or six percent or something, but the market's beating that.
Jesse Cramer
Yeah, yeah yeah.
Steve Chen
significantly. So you look three years later, they're like, they have way more money, or they have more money, materially more money than they thought.
Jesse Cramer
Yeah.
Steve Chen
and I think it's really good for us to try to help people see that and
Jesse Cramer
Yeah.
Steve Chen
help them make more accurate predictions about what could happen. And so we're trying to do that with some of like we're getting into investments. We're letting people like really dive into their portfolios and their positions and like to understand the risk and volatility of all those things and stuff like that.
Jesse Cramer
Hmm. Hmm.
Steve Chen
Yeah, well actually on this topic, you know, I you do talk about and the fourteen risks. I was looking at your four some of your blog posts on your fourteen risks, and obviously that's a lot, but probably too many for us to cover. But it's like I
Jesse Cramer
Yeah.
Steve Chen
think maybe if you could dive in a little bit and kind explain how these things impact people's thinking and planning and how you address them.
Jesse Cramer
Yeah. Yeah. Sure. that was a fun, it was a little two part podcast series I put out, seven and seven, fourteen risks. And the idea came from Charlie Munger, right? Warren Buffett's right hand man and his his problem solving technique, the the principle of inversion. Let me try to turn this problem inside out. And so I was kind of thinking to myself, what are some of the biggest ways that someone could blow up their retirement? What are some of the biggest ways that a retirement could fail? And then let me kind of turn those around and and and fourteen risks kind of fell out of that that line of thinking. because I guess one of the big takeaways is that Retirement planning is kind of like you know, think back to your college days and you you were sleeping over at your friend's house and they let you sleep on the couch and they just happen to have like this extra blanket they could throw to you. And and that blanket, of course, is too small. It always was. It was always too small of a blanket. Or maybe I'm just too big. I don't know. But the point is I pull the blanket up over my shoulders and now my feet are really cold. And then I cover my feet and now my whole torso is cold. You don't have enough of a resource, you don't have enough blanket to adequately cover all 14 of these risks. And in fact, when you look at some of them in particular, so here's one. So it's like if I really want to cover sequence of returns risk, let's say, and I introduce some extra bonds into my portfolio, well, I just increased my exposure to inflation risk. Right? It's a trade-off. And and you have to be
Steve Chen
Yep. Yeah.
Jesse Cramer
able to find that trade-off. If I'm a really hardcore DIYer and I do everything myself, it's like, yeah, on one hand, you you're certainly checking a lot of boxes there, but like, is your spouse on board? So like I would call that stakeholder risk or household risk.
Steve Chen
Mm-hmm. Mm-hmm.
Jesse Cramer
There some of these risks are competing with each other and you have to accept the fact that you're never going to you're never going to optimize your retirement plan perfectly across all fourteen. Instead you have to make trade offs that you can accept. And I think that's probably one of the biggest takeaways from it.
Steve Chen
I can see why you're good at podcasting. I really like your analogy here about the blanket. And like it's
Jesse Cramer
Ha ha.
Steve Chen
a total it's a really good one and it it does illustrate the idea. And I think that's right. It's like we try to solve this for people too. Like we're I I think one of the big aha's with Boldin is like, yeah, everything affects everything else. So you're like, claim social security earlier. Okay, that changes
Jesse Cramer
Yes.
Steve Chen
this. So you might have a work penalty, you know, whatever, dial up your risk here. This happens, move to this state, the taxes change, but then this moves and it's like You know, I think a big part of one of the things that we're thinking about a lot is like really understanding the person and what this is what humans do, right? Human advisors, understand the person and what they want and their goals. And then through that help them make these trade-offs. Cause you're right. There are like you list these, you know, yeah. Long term care risk, cognitive decline risk, behavioral risks, assumptions risk, policy and tax risks, identity and purpose risk, deep you know, whatever. There's a million things. There are shock spending risks, right? And that's like Yeah, see another seven on one, but I totally they all resonate, right?
Jesse Cramer
Yeah, I know. I know that's yeah, yeah.
Steve Chen
Yeah, which ones stack rank your risks, stack rank your capabilities. Then you got this big multivariate problem, you know.
Jesse Cramer
Yeah, yeah, exactly. Exactly right. And it's it's hard to think about it, especially from that technical point of view of like, can I put fourteen variables into one equation and then try to solve this thing? I that's hard. but but something you just pointed out there, Steve, as you were talking is Right. The blanket problem, the analogy problem. I sometimes I I think of my podcast my listeners must think they're having like a fever dream sometimes with some of my analogies and metaphors. It's off the wall. But you know, something that came up the other day was a this was a Boldin user actually. So one of my listeners, a very happy Boldin user, he's like, Jesse, can you help me understand this? I'm assuming that I'm you know, he's in his mid sixties and he's like, I'm assuming I'm gonna die at seventy. I assume my wife is gonna live till ninety-five. Boldin's telling me I should do huge Roth conversions over the next few years. And he's like, I don't get it. And it's like, well, yeah,
Steve Chen
Hmm. Yeah. Yeah.
Jesse Cramer
man, if you assume that you're gonna die in five years, your wife's gonna live another 25, she's gonna have 25
Steve Chen
Yeah. Yeah. Yeah.
Jesse Cramer
years as a single filer, she's gonna have every single RMD for both of your IRAs as on her
Steve Chen
Yeah. Right.
Jesse Cramer
as a single filer. Like, of course it's gonna tell you to do Roth conversions
Steve Chen
Yeah.
Jesse Cramer
right now.
Steve Chen
Right.
Jesse Cramer
And and what he did there was like he pulled the blanket really far in one direction by assuming he's about to die and assuming his wife's gonna live till 95. He j he just didn't know it, right? And so the important
Steve Chen
Right. Right. Yeah. Yeah. Right.
Jesse Cramer
realization is like, sometimes emBoldined, sometimes whatever you're doing, you're you could do it in a spreadsheet and you just toggle one particular number and and your answers shift. And and what you might not realize is you just yanked that blanket up over your head and you don't realize what's exposed, you know? Maybe that metaphor goes too far.
Steve Chen
Yeah. I no, it's good. I mean, I th it's making me think of like I remember talking to Joe Kuhn, he's another, you know, kind of influencer and
Jesse Cramer
Okay.
Steve Chen
like YouTuber. And one of his big aha's was he had a pension and he would talk to his users, or users would have pensions, but it was a single life pension, right, tied to the person. And
Jesse Cramer
Mm-hmm. Mm-hmm.
Steve Chen
they're they they like their plan look gold, right? They're good. And he's like, Well, what happens if you, Mr. Primary Pension holder, die at sixty, right, or
Jesse Cramer
Yeah.
Steve Chen
sixty five? And they're they do that, they build a scenario and they're wait a sec, now you're toast. You know, your your whole plan falls apart. And they're Wait
Jesse Cramer
Yeah. Yeah.
Steve Chen
a sec, I didn't re So surfacing like seeing those things before this is what I think this is the value of planning. Like you see those things or you see around the corner and you anticipate it and you hedge the risk. by you know, you changing your pension elections or whatever, hedging other ways. But first
Jesse Cramer
Yeah. Yeah.
Steve Chen
it's understanding what could what it what what is the probability of something happening and then acting accordingly. And this is where it's gets so complicated because people don't they're not necessarily financially literate. They don't really understand all this long term risk in a better way, you know, in a great way. I mean many people do, but not everybody does.
Jesse Cramer
Yeah. It it's it's easy to it's easy to accidentally fall into the trap when you're planning of just saying like, yeah, like you know, things are gonna go well. Here's my ideal retirement plan. So let me plug in the numbers of my ideal plan. If the numbers look good, if the results look good, then I'm good. And instead it's it's a little maybe pessimistic feeling or borderline even cynical, but the question, a powerful question to eventually ask yourself when you're using a bold. any tool. When you're just thinking through it, you don't even have to be using a tool. The powerful question is what could go wrong? Right? And the idea that you just outlined of what if spouse A dies? What if spouse B dies? What if both spouses live a really long time? Those questions are really worth thinking through.
Steve Chen
Hundred percent. all right, well look, as we get closer to kind of wrapping this up, I I know you wanted to chat about Roths a bit and it sounds like it's a big topic for it's a big topic for us, big topic for your users. Like what do you do you have kind of general guidance, things to watch out for, how how to think about this?
Jesse Cramer
Yeah, yeah. And and specifically see I mean you're talking Roth conversions, is that right? Just Roth contributions in general. Yeah. it's
Steve Chen
Yep. Yep. Roth conversions. Yeah.
Jesse Cramer
a great topic. It's a helpful topic. I guess I have a few thoughts on it. And and the first one is, you know, some of this is not gonna rock anyone's world. It it probably starts with a tax rate analysis, right? You have to convince yourself that there's some positive tax arbitrage in your favor, that you're gonna pay a lower tax rate now than you otherwise would pay, and and that the Roth conversion is gonna pull in taxes into some low tax years. So, like, okay, that's cool. But then, you know, some things, I think especially maybe with the early retirees, is they're like, Well, I'm gonna do Roth conversions here at age forty. Instead of paying a higher tax rate when my RMDs kick in at age 75. You're like, well, that's a 27-year gap. And you have to be accepting of the fact that a lot can change over 27 years. And whatever assumptions you're making right now today, there's a uncertainty around those assumptions. And you just have to accept the fact that eventually you might come to regret this decision. So I think that's a big one. Is it's one thing for a 71-year-old to make a Roth conversion that seems to pay off in the next four years. Like that is a lot more concrete than than someone who's in early retirement. Okay, there's that. and and then there are Some other interesting things worth thinking about, especially for the older listeners, there's estate planning concerns, meaning like, so you're you're doing these Roth conversions and it's like, on the one hand, sure, you're you're leaving behind so here's here's actually a really interesting one. I'm not sure I can explain it perfectly, but I'm gonna do my best. so someone who maybe is quite wealthy and they would be leaving behind their IRA assets to an heir who's maybe not earning a lot of money. It The best thing you might do for that heir is leave them traditional assets and a bigger taxable account. That might be the best thing you can do rather than
Steve Chen
Mm-hmm.
Jesse Cramer
here you are, Mr. Elderly Person, rather than spending your taxable dollars to convert something to Roth. Like no, they're they're in a lower tax rate than you. Just give them give them the traditional assets. They'll pay taxes in a low tax rate, and you can you can bequest them your taxable account so that they can then pay the taxes. Point being is it's it's more complicated than you think. it's not uncommon. It's yeah, it's always sad when you see it, but you'll see an early retiree who, you know, does Roth conversions and therefore forfeits their right to an ACA premium, those kind of things, or someone
Steve Chen
Yeah. Right.
Jesse Cramer
who you know, does enough Roth conversions that they enter a the capital gains bump zone. There's some complexity here and you just you
Steve Chen
Yeah. For sure.
Jesse Cramer
just wanna make sure you know what you're doing, that's all.
Steve Chen
Hundred percent. Yeah. This stuff gets complicated. They're big bets. Yeah,
Jesse Cramer
Yeah, yeah.
Steve Chen
back to Joe Q and he did a video about this. He's Yeah, I just I think it was like, I just struck to check the government for like forty thousand bucks because I did a bunch of raw conversions. But
Jesse Cramer
Yeah.
Steve Chen
he's like, he's like, that didn't feel that good, but I also believe that like I'm doing the math that that's the right move to make at this point in my life. And yeah, I think that I think the big takeaway here is like it's it's so interesting how we're getting more sophisticated, right? So first it's like, okay. Save and invest, and then it's like, okay, be diversified, right?
Jesse Cramer
Mm-hmm.
Steve Chen
Now it's be tax diversified. have money in taxable, tax deferred like a four one K and tax exempt like a Roth.
Jesse Cramer
Mm-hmm.
Steve Chen
And not just everything in one place, but like balance that because you can those are levers you can pull too. like if you Roth conversions, you might need to pay taxes out of s where's the money gonna come from, right? For the tax consequence. Is it gonna come from the conversion or are you gonna take it from something else and like S thinking that all through, I it does such become such a tax optimization thing year by year as you go through this. Yeah.
Jesse Cramer
Yeah. Correct. Correct. And and you know, no At least not that I know it. You can tell me if Boldin's working on something, but like imagine this module in Boldin that's like the the Monte Carlo of tax policy. Hey, we're gonna randomize the future federal administrations and adjust tax policy accordingly. Like, you know, when you talk about having the money in different buckets, that that's a great dial to have as a retiree, I want to have some money in some different buckets so that if tax rates go down, I can adjust. If tax rates go up, I can adjust accordingly and anyway.
Steve Chen
Yeah. No, it's I mean, what's what's fascinating is watching what users do. I mean, I think one
Jesse Cramer
Yeah.
Steve Chen
thing that's we've learned that we are we love is just like these users get into this stuff and they do things you do not anticipate. So they're like, hey, I'm thinking through not just my tax situation but my errors. I'm like, Okay, I'm you know what? I'm gonna facing high taxes, I gotta get in the rots, and then I'm gonna give it to my kids through the estate, you know, because I'm doing thinking about estate planning and then and then I I'm thinking about their tax situation when they might get the money. You know, they're it they're pretty sophisticated. And, you know, we're just watching them use AI, they're dumping stuff out of our tool and like doing their own analysis and Claude and like, you know, we threw out an MCP server just like we're watching what what users kind of do here.
Jesse Cramer
That's awesome.
Steve Chen
Jesse, this has been great. Anything any last things you want to share with our audience before we wrap it up?
Jesse Cramer
No, I I think maybe my my big takeaway is that you know my my blog is called The Best Interest because I think an investment in knowledge pays the best interest, right? Benjamin Franklin famously said that. And the idea that folks are out here listening, they're they're DIYing it, they're they're getting into the weeds of their own retirement plan, I think is a wonderful, wonderful thing. And and the more you learn and apply that knowledge to your own retirement plan, the better off you'll be for it.
Steve Chen
Awesome. Well, Jesse, this has been great. I appreciate your talent as a podcaster and explainer of things. So it's been super clarifying. And so yeah, for folks listening, definitely check out Jesse's work at personal finance for long-term investors and the best interest blog. We'll put links in there. We'll link to some of the podcasts that like the big risks that we talked about. And for everyone else, you know, check out Boldin if you haven't tried it out. all reviews of this podcast and liking and sharing. And Jesse's are welcome and all feedback is super welcome and appreciated. So with that, thank you very much.
