RFP Process & Retirement Replacement Ratios | Retireholics #18

[0:05] JD: We're excited to have all of you here for retireaholics episode number 18. So let's kick it off. The first thing I want to do is say that we got some things going on. There's some fun stuff. [0:18] Chad: We have to address the elephant that's [0:20] JD: not in the room. [0:20] Chad: And I'm not calling you an elephant, Justin. But I am. We're missing a vital piece to our team right here, who I would usually have my own conversations with and not pay attention to you guys when you talk about fiduciaries and whatever that is. [0:36] Mark: But you said it right this time. [0:37] Chad: Yeah. So we have him on the line. Justin, say hello to everybody. [0:43] Justin: What's up, everybody? [0:44] JD: There's Justin on. [0:45] Mark: There he is. [0:46] JD: We'll hang up on him shortly. Okay. We had a contest back in the past where you name a beer and you can win. Okay. We could win a free beer delivered to your home for the rest of your life, as you put it. Well, we ran into a little bit of snag. We ended up having a winner, but then we realized that if you're a securities licensed person, you cannot accept gifts over $100. So there's a little bit of. [1:10] Mark: And alcohol might be slightly frowned. [1:12] JD: I don't know. [1:12] Chad: We should have just sent him Coors Light. [1:15] JD: Yes, a little bit of a snafu there. [1:19] Chad: Yeah. [1:20] Justin: Justin, is that $100 at a time [1:21] JD: or $100 overall for the year annually from one person. [1:25] Chad: How many gifts have you received, Justin? [1:28] JD: So let's stay on track, gentlemen. So what I would like is to have a really simple contest, okay? If you, as an advisor or a participant or a plan sponsor out there watching, can subscribe to our YouTube channel, we will put you into a drawing to win. Mark's scowling at me. For YouTube channel to win a retireholics swag bag, Hats, koozies, shirts worth $999.99. Actually, you cannot. It's not to exceed $100. But if you're not. If you're not on YouTube and that intimidates you in some fashion, get over it. If it does, figure out how to sign up. [2:10] Mark: You're not watching the show. [2:12] JD: Click the little subscribe button, and then you'll be entered to win this little swag bag. [2:16] Chad: And we can new subscribers only. [2:18] JD: And you can have no old subscribers, too. Yeah, old subscribers. [2:21] Chad: Let's not call them old. We'll just say current subscribers, and we'll [2:25] JD: cap it off when this episode releases. We'll probably do like the next 40, you know, that sign up, and then we'll cap it off and we'll. We'll pull for the winner. By the way, this bag could make a great gift for friends and family. Maybe it's your anniversary and you want to give something to your wife. I gave my wife a retireholic swag back for our anniversary. I mean, stoked. [2:46] Chad: Oh, I'm sure. [2:47] JD: Super stoked. [2:48] Chad: I really want to have her sitting here and answer that question. [2:51] JD: All right. [2:52] Chad: Staying at her sister. [2:55] JD: Every episode we have a beer. We call it the beer of the episode. I'm gonna let you talk a little bit about it, but I'm gonna let you know that this beer comes recommended. Thank you. For my master mug from two good partners of ours, Michael and Brett from UBS down in the la. Beverly Hills area. They're the ones that told us that we needed to check. You pointed it out. [3:20] Chad: I can't believe how full it is. [3:22] Mark: Yeah. [3:23] JD: And as usual, we have a super deep, dark porter beer. Thank you very much. [3:31] Chad: I think you need to chime in for 30 seconds at least. Like, what's. What's the story behind the beer? [3:38] Justin: It was actually a cool story. Went down to meet up with Brett and Mike for the first time, and Brett. Or Mike, I don't know. Brett really is. But Mike is a huge fan of the show, and Brett hates it. Showed up and he had a six pack of this lovely stuff waiting for us and said, hey, I want you guys to put this on the next show. Highly recommend it. I haven't had it yet, so I hope you guys enjoy it, And I know JD's gonna hate it. But more importantly, I thought Chad would have quite a bit to say about this. With the Viking, I figured you were wrong. [4:09] Chad: You should have shown your. I won't tell him about your tattoo. [4:12] Mark: I'm Norwegian, and I have Viking tattoo on me. [4:15] Chad: Yeah, his entire body is covered. [4:17] JD: Have we said what it's called? It's called einstock. Or is that German? Einstock. [4:26] Chad: What's that word? Chad, say this one. Is that where it was brewed? [4:30] Mark: Seraphram Lindur. [4:32] JD: Okay, let's give it a taste, guys. [4:34] Chad: Cheers. [4:34] Mark: Cheers, fellas. [4:35] Chad: Cheers, Justin. [4:36] Mark: Thank you. [4:37] Chad: Thanks, guys. [4:38] Justin: Thanks, buddy. [4:42] JD: It's not as. It's good portery as I thought. [4:44] Mark: It's not as heavy, Right? It's lighter than it. [4:48] Justin: I like that. [4:48] Chad: We all have significantly different types of. [4:50] JD: Let me put it in my very unfunctional drinking mug. And let's kick into our first subject. [4:59] Mark: I'm not worried about this, but I'm excited. [5:01] JD: Now, the RFP process, we're going to break it down, distinguish between an rfp and an RFI. Can you do me that? Pleasure, Mr. Johansen. [5:14] Mark: RFI Request for Information comes out, I'll say relatively often in the larger market where a plan sponsor or a business is going out and saying, we want information from different providers to see who we might align with better. Typically they're getting a series of 20, 50, 100 questions that have to do with size, scale, number of service people, website access, call center hours, things like that, where they want to get insight in the level. In the market that we typically work on. The RFIs that we would receive are pulled from Google, and they're usually very uninformative. Uninformative. And they don't accomplish a whole lot. [5:56] JD: I've always felt that way. That and I've seen several of these in my career where it's a dread when you get it right. It's this long list of questions. By the way, a lot of vendors have, like, created their own that they just pump out. Right? [6:09] Mark: Regardless of the questions, you're saying, but [6:11] JD: you look at all these questions and here's my problem, and then we'll shut up about the rfi. But is the questions the way you can answer them? They're fairly vague, believe it or not, or I should say, my answer can be partly truthful. So there's a lot of questions that I can say, ah, yeah, I do that, or I have a process for that where the reality is my process may be very, very slim to none. And the person I'm up against might have a very robust, very sort of [6:39] Chad: like writing a resume when you want a job. You're like, I can do Excel. I've just never used it before. [6:44] JD: There you go. Very perfect. So. So you check all the boxes on that thing and the person who's interpreting is like, oh, well, this is a very good candidate when the reality is the devil's in the details. [6:53] Mark: So rfp. So let's go the alternate route, which is probably more common. And RFP is a request for proposal where they're specifically looking for data regarding their plan and how a group or a provider may price out and service their specific plan. So not just information and questions, more specific to their needs. [7:13] JD: And what I think we want to break down is the kind of the why, the who and the how of this whole process. Right. So let's start with why. Why is someone requesting or getting into this RFP process? [7:30] Mark: Probably most common would be because they're unhappy with their current service provider, they [7:34] JD: could be unhappy with their current move, [7:36] Mark: transition, enhance, whatever it might be. [7:38] JD: And this RFP could be specific to a type of provider. Right. It could be one for a record paper, it could be one for your third party administrator, it could be one for your advisor. Right. You could be doing that process to fill one of those gaps because you're not happy with your current situation. It can. [7:55] Chad: Or you might be happy, but you're looking to benchmark. [7:57] Mark: You're planning to make sure that would be this. Yeah, that would be a different reason [8:00] Chad: entirely that your fees are reasonable because that just seems to be a thing [8:04] Mark: that's out there constantly. [8:05] Chad: Cost, cost, cost, cost, cost. So they want to make sure that they look good. [8:09] JD: Well, it's fairly common reason to go through an RFP is many people out there, and I would agree, believe that it's their fiduciary duty to do this on some type of regular basis. Chad says three. Every three years. [8:22] Mark: Every three to five years. See, I was saying that's in my mind, that's the third reason. [8:25] Justin: Right. [8:26] Mark: You're unhappy you're benchmarking or you believe it's your fiduciary duty, which might tie closely to what you were saying. Which is, which would be number two. Most look at the 2012 release for fee disclosure and say we have an obligation to determine if our fees are reasonable. How do we do that in rfp? Right. A benchmarking, it's not required, it's recommended at this point. But that's the route that most businesses [8:50] JD: and plans take and great documentation to have. If ever something comes up and they say to you, to a plan sponsor, you know, why is it that you remain with vendor xyz? Is this really in the best interest of your participants? And you say, yeah, we think it is. We've gone through some pretty regular reviews of it and we think it meets our needs and we think it's appropriately priced, et cetera, et cetera. Okay, so those are the kind of whys of the RFP process. Now who, who quarterbacks it? Who's really the driver behind this whole process? [9:27] Chad: Who or whom? I get those two confused a lot. [9:31] Mark: I think it depends on what they're trying to accomplish. Right. If it's an advisor rfp, then it's the plan sponsor running it from start to finish to determine which advisor fits. If it's a provider rfp, a TPA rfp, then often they've already settled on an advisor or they have an advisor they trust and the Advisor is quarterbacking that process now. So I think it depends on the type of RFP that they're doing. For the most part, what we see out there is, is it's the advisor working with a client to analyze the plan, to benchmark the plan, and they're the one quarterbacking the RFP and walking the client through. I think, personally, that's a huge sales technique. That's a service that you can tell the client you do when you're trying to win business, say, hey, one of the first things I do is take a look and analyze what you're currently doing and determine if it's still in the participants in your best interest. So we're going to do a benchmarking, we're going to document it, we're going to file it away in your fiduciary binder. It's a great tool that folks are not talking about often enough. [10:27] Chad: Well, I'd say too that a lot of advisors do that to get their foot in the door to say, I'm going to provide sort of an independent review. And that's really what it is. It's going out to say, here's what I'm going to do for you. And look at this. Even though I don't have your plan [10:40] JD: currently, I also think that a plan sponsor wants to feel as though the person that they've hired has a skill set in that area, not only for that initial thing, but for that ongoing process. [10:53] Chad: Are you saying that me, as, let's say, an HR manager, should be looking at it from that perspective to say, I want to learn more about you, Mr. Missive Advisor, and that you have what I need in order for us to be a prudent plan. Are you saying I need to be responsible for that? That's. [11:15] Mark: Hey, tell me this though. If you had done an RFI on an advisor, would that have been one of the questions you asked? I would certainly hope so. Right. [11:21] JD: I'm trying to get the. [11:24] Chad: By the way, did you know that from over here I can see into your shirt. [11:29] JD: That's on purpose. Nice. I like it. [11:31] Chad: Anyways, going back to that, I digress. [11:35] Mark: So that would be the who, right? That's who's quarterbacking it. I think there's significantly different value in who's quarterbacking it because the information could be rather misleading. [11:45] Chad: Could a partner quarterback it? I'm not saying that some do, but it's interesting. [11:51] Mark: It's not something we thought about when talking about this initially, I went head to head with a number of different TPAs and providers about a year and a half ago and they had hired an outside service or like an HR professional to quarterback. [12:04] JD: It's more upmarket thing is pretty that happens consistently and in the larger space where you have like an independent consultant that does nothing but quarterback the RFP process. But yeah, but that has no skin [12:17] Mark: in the game on the back end. See I hadn't ran into that prior to this. [12:20] JD: Skin in the game. That's a big market thing. No skin again, they charge a fee. Totally independent. But you don't see that in the under 20 million space that typically. So let's talk about how this stuff goes down. When you're looking at these different solutions or vendors, you're looking at multiple areas. Let's state the obvious. What you're trying to do is put things in a side by side so you can somehow kind of rank these options in some facet. Very difficult to do. [12:54] Chad: Yeah, but there are tools out there underlines. [12:57] Mark: Very, very, very difficult to do. [12:59] JD: And I think we should touch on a bit of that. But there are tools that can help you. And let's talk about the areas. I mean if you're looking at a record keeper, you're looking at investment options, you're looking at fees and potential share classes that are available to you, you're looking at service, you're looking at tools and widgets and tech that might fit. Any other things that stand out? You know, maybe you're looking at the guaranteed or you know, fixed rate investments. There's lots of things that you're trying to look at. [13:29] Mark: Most most are going to be kind of pushed into three areas. Right. Service, which is going to include education and tools and website access and so forth. The second would be investments which kind of ties to the third which would be cost. Usually you can kind of narrow everything into those three silos. [13:44] JD: You also heavy part of the decision making process is how cool the guy in the suit is that's talking. [13:50] Mark: Does he have a beard and really long hair? [13:52] JD: Well, I don't know about that. That might kill the deal. Probably won't want to do that. But so you're looking at those areas. If you're looking for an advisor, you're looking at what's their experience, how many clients do they have, what's their process, what's their support staff like. [14:05] Chad: You love that word process, don't you Prudence? [14:09] Mark: It's my eyes rolling to the back of my head. [14:11] JD: What's your expertise? [14:12] Mark: You know the question that I love, I've seen in a recent RFI for an Advis or was. What portion of your time is spent in the retirement Marketplace like the 401k Marketplace? [14:22] JD: Are you a dedicated retirement. [14:23] Mark: Yeah. Is this a offshoot of your private wealth business or is this a focal point for your practice? I think that's a good question to ask for sure. [14:30] Chad: That's a. I think that's a good question to ask. But that can also be a little misleading in some senses that what if it really, right now isn't the focal part of your business, but you have a lot of expertise in it, you have a couple of plans you're getting going, you're focusing in that area much [14:43] Mark: like you tied it to resumes. Hopefully it doesn't disqualify you from having an opportunity to chat with them. But if I'm talking with someone that all they do is retirement planning and I'm talking to somebody else that only does it 50% of their time. And as a provider, as a plan sponsor, I'm saying, hey, I have an advisor that works with our group for private wealth and I have a benefits advisor. I want someone that knows what they're doing on the 401k. I think that it's relevant to say, the person who dedicates all their time to it is probably a better resource for us. [15:08] JD: Now let's get back to the final conclusion of all this. In the end, you're using this RFP to try to make an educated decision that you feel confident about. [15:20] Chad: Right. [15:20] JD: That you feel like you've made the right choice in choosing from these potential vendors. The takeaway that I want for our audience, whether whether you're an advisor or whether you're a plan sponsor, is if you're a plan sponsor, make sure that the people that are taking you through that process are helping you understand and putting a microscope on the details of it. As an example, if you're trying to side by side, compare the investment options per se, and specifically like what share classes are available or how great are these funds. You may look at the investments and a plant sponsor may say, wow, well, these funds are way cheaper than the investments available in this product. But you're not taking into account all the areas. And maybe in your mind you're saying, well, they have better investments because they're cheaper. But that's not really the truth all in, is it? So you need an expert that's guiding you. [16:14] Chad: Well, that's why it's misleading and how they display that because some use different ways of averaging. [16:20] Mark: Are they waiting? Are they putting A bunch in the fixed. Good point. [16:23] Chad: And even so, that might be a part portion of it. But even early on when you look at a proposal, sometimes they put certain costs in certain ways and they mean different things. And basically the person laying their eyes on that has to understand how it's being represented to be able to. I like using the way you say to make it digestible to the person across the table. [16:44] Mark: Let me give you an example and then give you. Well, give you a comparison and an example. It's like me saying, I just want [16:50] Chad: you to do one of those two. [16:51] Mark: No, I'm doing both. It's like me saying these are two really good engines and I don't know anything about cars, but one's a four cylinder and one's a big block. Those are two very different engines. They're both engines, but they're two very different engines. [17:05] Chad: I just like the sound of big blocks better. There's not in the Chevy Camaro. [17:08] Mark: So here's the, here's an example I was trying to bridge out of my normal base. [17:13] JD: I'm just saying I know nothing about [17:14] Mark: engines, but here's, here's my example. So I was working with a group, it was a rather large rfp. We had eight different providers that they were asking me to lay my, my eyes on the cost to help digest it and give them an understanding of where everybody stacks up. I'm looking at that. They send me a big, big provider. I won't name their names, but I'll. What does it rhyme with? It starts with an Fidelity. What? [17:43] JD: Oh, sorry. [17:44] Mark: Are there any others to start with? Anyways, the long story short is Frankenstein the advisor writes in and says, hey look, Fidelity has no asset charge, so they're gonna be our best option, right? And I said, well, send me the investments. Let's look at the cost of the investments. The exact response is. He forwarded me their email. There was no investments listed. There was none. So then I said, okay, you need to request the investments from them. I get it. There's no billable and there's no asset charge. But we need to see what the cost of investments are. The investments come over and of course they're a share class that's generating significant revenue. And when we throw them side by side, yes, Fidelity looked to be way less expensive on the asset based charges. But then when you looked at the investment cost, it was all in around 1%. Whereas the other providers were using institutional were 20 to 25 basis points for a lineup. So when you stacked them and you taught Me this at the very beginning when I first stepped into this business. It's not about the individual line items. It's about the total cost for the service that you're going to get. And when you looked at the bottom line, it was very misconceiving and misleading as to who was actually the better cost. Not talking about services, but a better cost structure. And that. That happens all the time. All the time. [18:55] JD: It brings you back to the bottom line, which is if you're a plan sponsor, you really want to make sure that the person that's guiding you along that path really knows their stuff. [19:06] Chad: Right. [19:06] JD: And can help you understand it. [19:08] Chad: And then if you're could have used a different word. [19:10] JD: If you're an advisor, I try and cuss like a couple times. And if you're an advisor, it would really behoove you. [19:17] Chad: Ooh, I like that one. [19:19] JD: To know your stuff and be really good at this process. So you can handhold them. It is time for the wheel of ice. Insert the most beautiful voice you've ever heard. [19:32] Mark: Now. Oh, it's gonna be his first own spin. [19:35] JD: So what do we have here? Show the camera. [19:37] Chad: I don't understand. [19:38] JD: That way if it lands on you. Oh, it is drink. [19:40] Mark: It is a presidential election doesn't land on you. [19:44] JD: Then there'll be a vote amongst the people on the couch to see who drinks. Spin the wheel. [19:50] Chad: Wait, I count. And so does Free Holy. This is great. [19:53] Mark: Frijole has to talk. He can count as long as he talks. [19:56] JD: It's a vote. [19:56] Chad: It's a vote. [19:57] Mark: It's a vote. [19:57] JD: All right. So Mark, you can vote first. [20:01] Chad: I pick [20:04] JD: Free Holy's not in it, Chad. [20:07] Chad: I knew that was gonna happen. [20:09] JD: Well, I pick Mark. [20:11] Mark: Oh, okay, good. I pick Mark too. Then I figured you were gonna make me go and then you were gonna pick me and I was gonna end up Chad. [20:16] Chad: I picked Chad. I like this. All right, Mark. [20:20] JD: I seriously thought if Justin was here, [20:22] Chad: he would have been a 2, 2 tie. [20:24] JD: We'll have to find out. Justin can comment in the comment section. If he voted for. [20:28] Chad: He gets a vote, right? [20:29] JD: No, I mean absentee ballot after this goes to edit and is released and the whole nine. [20:33] Chad: Did he send his vote early? [20:35] Mark: Nope, nope, nope. [20:38] JD: While Mark works on this, this is actually part. We will dive into our. Our next subject matter which is the age old question of that participants ask and industry folk, I guess. How much? What percentage should I be deferring? What's the appropriate deferral rate? [21:02] Mark: Let me first ask, was this not fun? Geez, chatting about this topic. [21:07] JD: Oh, yeah. So we do prep for these shows. [21:10] Mark: The conversation we had. I wish that we could have recorded that whole thing because it was insightful. It was awesome. That was fun chatting about this topic. We don't get it covered all now for sake of time. [21:22] JD: Marco's like a different person after. [21:24] Chad: I have this bad allergy thing going on. So being able to drink and then try to breathe was very hard and that. [21:30] Mark: Well, and you are on Paleo, so you haven't had any, like, calories. [21:34] JD: The answer to this question is. Is more complex than it appears. And. And I also want to said it's not as complex as you think it is. But let's first start by. [21:45] Mark: That makes zero sense. [21:48] JD: What is the industry? What does the industry say? The industry will say things like 12%. The industry will say things like as much as you can. Right. People will argue that 12% say it should be more. Other people say, do as much as you can. You'll hear Suze Orman type say, well, at least get that match. You know, do enough to get the match. [22:09] Chad: Save that money. [22:10] JD: So there's a lot of advice out there, but the reality is that you kind of need to re engineer it. Right. It's not. Your percentage could be different from someone else's percentage or my percentage. Because there's lots of variables, just to name a few. It could be I could have my home paid off. You could be deep into your mortgage. [22:34] Chad: It's not the percentage of body fat that you have. [22:37] Justin: Right. [22:37] Chad: That's not what you. [22:38] JD: That could be a factor because your food cost could be more in retirement than. [22:44] Chad: And your health care expenses probably go up. [22:45] JD: You have to leave it to Mark to try to keep drilling me along this. You might have an inheritance, you might have a pension. You may have. [22:56] Mark: Your spouse may be contributing at a higher level. [22:59] JD: You may have 12 gold bars buried in your. All right, we get it. [23:03] Chad: There's a lot of variables. [23:05] JD: Geez. But what do you need to do? You got to figure out what your number is. Yeah. So we're kind of off to the voya. [23:12] Mark: Well, here's. Let me break something down first. So. And it was ing, by the way, [23:17] JD: at the time, [23:20] Mark: I believe we need to almost squash the concept for this conversation of deferral. [23:25] JD: Agreed. [23:26] Mark: Because the deferral alludes to what you're personally pushing out of your paycheck. Right. But what we're trying to say is what do you need to save to get to a replacement ratio? A number. What do you need in Return to [23:40] Chad: be successful flex anymore. You're gonna bust that shirt over, I [23:43] Mark: think the industry would say 75% replacement ratio, meaning you need 75% of your current day income each year in retirement in order to retire comfortably, assuming you're [23:55] JD: gonna die at 87.2 years old or whatever. [23:59] Mark: And the thought of saying what I need to defer to get. There is a point. But in order to determine what you need to defer, you have to look at all these middle factors that will dictate what you need as a total savings to get to this end number. So let's talk about that end number. I alluded earlier to the old ing which I'll date myself. I mean, I was a kid when those advertising advertisements came out where the guy's on top trimming hedges in his front yard. [24:27] JD: Those were not that long ago. Just a wee little boy. [24:29] Mark: Those were 25, 30 years ago. [24:31] JD: Really? [24:31] Chad: Yeah, it was not that long ago. [24:34] Mark: You were at least 20 years ago. You were. [24:37] Chad: You weren't even alive. [24:38] JD: Fact check that. [24:39] Mark: Okay, I'm not. I'm not 30. [24:41] JD: Our editor's gonna fact check that right here, right now. [24:44] Chad: Yeah. [24:45] JD: So anyways, the guy's got the number on his deal. He's trimming his hedges. I gotcha. [24:49] Mark: And what they're trying to define is what you need in retirement [24:54] JD: if you have hedges. Edward Scissorshand trims hedges. [24:57] Chad: That's who you hired. That's what I'm saying. Edward Scissorshand. [25:00] Mark: Oh, my gosh, Listen to this guy. What life are you living? [25:02] Chad: I don't do. [25:03] Mark: I trim my own hedges. [25:04] Chad: I don't even have a yard, so I can't do. [25:07] Mark: So the end result is you've got to determine what you need in retirement. And retirement is different for everybody. Mark Gonna travel the country eating food in a Winnebago. [25:16] JD: That's right. [25:16] Mark: Playing golf at different places and following the Raiders. [25:19] Chad: JD thankfully my wife doesn't watch the show because she's no clue that that's what we're watching. [25:25] JD: J.D. gonna live in a trailer by the river. And I live in a van down by the river. Yeah. [25:31] Mark: River. [25:32] Chad: Wait, so you're just going to live where you live right now? [25:35] Mark: Just going to stay, surf every day. [25:37] JD: Look like I live in a trailer. I don't actually live in one. [25:41] Mark: I'm going to live in a trailer. And I'm going to follow one of these guys each year and I'll just switch off because Brooke will sure left me by then. [25:48] JD: The point is, your. Your expenses in retirement can be very different from one person to the next. [25:55] Mark: And so this number is different, right? For sure. So getting to that number, and this goes back to the, to where we started the conversation. What do we need to put in to retire comfortably? 12%, 75% Replacement ratio when we hit that age. I think the better process, instead of trying to simplify this number of what you need to be saving right now should be what do we need in retirement? Back down those factors that you were discussing to come to a current day. What do I need to be saving [26:27] JD: to get to get to that number? And then you factor in my employer, match my inheritance, my gold bars in the backyard. You factor all that in. Yeah. [26:38] Mark: To make some thoughts. Simple, right. If the industry is telling you 12%, which by the way, why as an industry are we doing that is because clearly the people who are smarter than us are looking at behavioral finance and saying if we tell people to figure out what they need in retirement, it's too much of it, then they're not going to do it and it doesn't move the needle. But if we tell them you need to be saving 12%, then it moves the needle a little bit. [26:59] Chad: I think looking at the number sometimes for people can be feel unachievable. [27:03] Mark: I can imagine. What's the average deferral rate? [27:06] Chad: I mean, I would say it's 4%. Yeah. [27:08] Mark: Somewhere in that range. Right. So if we're saying you need 12 [27:11] JD: and it's 4.3.86 nationally. Nationally, if you exclude people making below $19,000 a year, he's totally making. [27:21] Chad: That's all. [27:22] Mark: You're so notorious. [27:23] Chad: That's all I get paid. [27:25] JD: Like I added the level to it though. I mean that's kind of. [27:27] Chad: Did you just Google that? [27:29] JD: No, I made it up. [27:30] Mark: We create those terms to keep the concept simple, to be able to look somebody in the middle of an enrollment meeting, look somebody in the eyes and saying a typical American should be saving 12% and that will get you to a 75% replacement ratio. Here's the thought though, number one, we do that to simplify. But if I start saving 12% at 20 years old, that's very different than if I start saving 12% at 40 years old. 12% starting to save at the age of 40 is not going to get me the same outcome that number than if I had started saving at 20. [28:01] JD: Can I bring up another which I think would be valuable for everyone watching and some of them probably heard of it, but a valuable kind of another industry guidance that's out there that's kind of different from the 12% and the what have you. Fidelity did a study and I'm reading from it here. [28:17] Chad: So I'm not making this Times Fidelity's been on our show. [28:20] JD: This is Fidelity's. Oh, geez. Yeah. [28:22] Chad: Did they pay us for that? [28:23] JD: No. Maybe they want to be a sponsor first. [28:26] Chad: We gotta get smeared off. [28:27] JD: This is some guidance from them that's a little different. It says, aim to save 1 times your income at 33x. Your income at 47x7 times. At 55, 10 times, it's 67. So again, doesn't fit for everybody. Same as a 12% revver. But an interesting. [28:50] Mark: So they're saying that that nut that number, that account balance should be one time at 33. [28:57] JD: Correct. [28:58] Mark: 40. [28:58] JD: I think of your income, and when I say income, I mean your current income because they're factoring in your income. Retirement. [29:04] Mark: I've never heard that. And that is awesome because it ties to age. I think that's kind of what we were beating around the bush at, is that everybody's percentage is going to vary depending upon your factors and when you start saving. So as an industry, we say 12%, which is good. I get it. We want to simplify. Fidelity's taking it a step further and saying, hey, I want to make this easy as well. But I'm going to say dependent upon where you're at in your working career, here's what you should have. One time, three times, seven times, ten times, depending on your age and where you're at in your career, that's what other tools are out there. Because there's more than just that. [29:34] JD: Oh, man, there's. There's, there's plenty. I think I'd go back to Paul Carlson's advice. I mean, if you g O O G L E it and say you want to look for a calculator, you'd use Yahoo too. [29:46] Chad: I mean, why is it always. [29:48] Mark: So I said that to Brandon at one point, maybe a year ago, and he goes, who uses Yahoo anymore? [29:54] Chad: I do. Yeah. [29:56] JD: So, yes, you can use the search engine of your choice and you can find ask.com stuff out there. Do you know ask.com used to be a client of ours? [30:06] Mark: I swear you guys just said ask.com and I'm like, where are we going now? I know why Paul's frustrated. [30:14] Chad: Ask Jeeves. [30:16] JD: Do you know what Ask.com's name was before they were asking? [30:20] Chad: Yeah, they were. [30:21] Mark: Oh, that's the name. [30:23] JD: Good, good, good. [30:23] Mark: Did you say they were a client? [30:25] JD: They were. [30:25] Mark: Ah, that's cool. [30:26] JD: Back in the day. So anyway, back when Chad was just [30:30] Chad: a wee little boy watching commercial. [30:33] Mark: So let's just wrap this thing up. Five years old, let's wrap this thing up. The thought is, I understand it, as an industry, we say deferral because that's what you're doing. We're trying to work in the 401k marketplace. You need to defer a portion of your money. We're trying to make it easy by giving them a percentage and saying that you need 75% replacement ratio. I get that. In order to do this well and perhaps, and I think we talked about this, I use a financial advisor and hopefully these employees out there do the same thing. Talk to the person who's running your plan. Financial advisors work with the employees to say, let's define what this is. Are you retiring in Missouri? You travel in the country? Are you sitting by a beach in Winnebago? What does your retirement look like? Spend some time defining that. Look at what building blocks you have to get the foundation that you need to get there and back into the number of what you should be saving today in order to reach that replacement ratio. Retirement readiness, big buzzword that you're going to want when you hit 65. So don't start at the beginning. Start at the end of the race. Work backwards. Would that be just like a maze? [31:41] Chad: That's what I always do. [31:42] Mark: If you could start back in a maze, I think that's good advice. [31:45] JD: I think that's good advice. And I think it's important for people to spend the time to figure that out. It's an important part of your life. It's not that complicated. It just takes a little bit of time, a little bit of energy, a little bit of effort. Lean on your advisor partner, you know, if that's something they can help you with. Lean on Mr. Google, if that's what you got to do. But carve out some time to come up with a strategic plan. [32:11] Mark: We spend time planning our vacations. Why not spend time planning the longest vacation? [32:16] JD: You've seen the stats. Apparently people spend more time choosing their washer and dryer, you know, than they do. [32:23] Mark: So. So if we're going to say that that path is the number one takeaway. And Shay makes fun of my curved finger, so I'm learning that is curved. I know I had surgery on. [32:30] Justin: It's bad. [32:31] Mark: But if. If that's our number one takeaway, our number two has to be at the very minimum, save enough to get the match right. [32:38] JD: Yeah, I Mean, every. [32:39] Mark: I would hope every single person will at least save enough to get the match. It's free money. Your employer is willing to offer it to you. [32:45] JD: I stole this analog. I stole this analogy from my dad. Back when you're a wee little child. If there was a bank down the street and one of their offers was. [32:56] Chad: I was gonna say. I've heard this before. [32:57] JD: Every dollar you deposit in this bank to open this checking account, we will put a dollar in to match you, you know, even up to a thousand. You'd have a line down the street. I mean, literally, [33:09] Chad: they actually do kind of do that because I get crap in the mail from Chase all the time. We'll put 200 in your savings account. Like, no. Does that mean I should open a savings account? [33:19] Mark: Well, you have a savings account. This is different. If they were already participating in 401k, it's relevant. [33:24] Chad: That money little Dicky has not. [33:26] Mark: I didn't say you were saving me. [33:28] Chad: Little Dicky. [33:28] JD: All right. [33:29] Mark: I love it. [33:29] JD: We're wrapping. Speaking of wrapping. [33:33] Mark: Boom. [33:35] JD: Wrapping up. [33:36] Chad: That might be the best segue you've [33:38] JD: ever done this episode. Thanks again for everybody tuning in. Don't be shy out there in the social media world. [33:48] Chad: We're not shy. [33:49] JD: Write those comments, man. [33:51] Chad: Give us some good or bad, please. Want to hear tell? Wear a different shirt once in a while. [33:58] JD: Yeah. Thank you for the beer. [34:01] Chad: That was actually really good beer. [34:02] JD: We did enjoy that beer. Thank you very much to the Beverly Hills UBS crew down there. Thank you, Brett and Michael. That was good stuff. [34:11] Chad: Thanks. Justin, you did well today, bud. [34:12] JD: Justin. [34:13] Mark: So most you talked in any episode. Good job, dude. [34:16] JD: They going to put someone there. You're making the editor do stuff now. [34:19] Chad: Oh, no, I'm not on purpose. [34:21] JD: He's. [34:21] Chad: He. It's like he's here right now. For reals. [34:24] JD: Mark. [34:25] Chad: Yeah. [34:26] JD: Do you know the reason why we do this show? [34:29] Chad: I. I literally don't. [34:31] JD: Because I get asked a lot at places like, what are you guys doing this for? [34:34] Chad: Oh, I do. For free beer. [34:36] JD: Yes. [34:36] Mark: Right. [34:36] Chad: Okay. [34:37] JD: So free beer is the reason why we're doing this. [34:39] Mark: Oh, that wasn't mine. [34:40] JD: So keep sending us a free beer. We love it. And we are the retireholics. [34:45] Chad: We are. [34:45] JD: And we are changing minus one. We're changing this retirement plan industry one alcoholic beverage called a beer. Called a beer. Sometimes drinking out of a very awkward mug at a time. [35:04] Chad: Boom. [35:05] Justin: Wrap. [35:06] Mark: Thank you. [35:07] Chad: See you next time.