Afford Anything - Pete the Planner, Comedian-Turned-Money-Columnist, on Millionaires and Mock Retirements

Episode Date: May 30, 2016

#27: Pete the Planner talks about why millionaire-dom is important and why it's important to try a "mock retirement". For more information, visit the show notes at https://affordanything.com/episode27 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Okay. I literally googled funny question generator. So these are like, I don't know what's your favorite color, how that's funny at all. But this one is, have you ever gone cow tipping? I'm Hindu. Welcome to the Money Show, a podcast about mastering your money and time so you can live your optimal life. This show features interviews with entrepreneurs, financial experts, and regular people who share amazing insight into investing, business, money. management and productivity. There are many roads to financial freedom.

This show explores them off. Grab a beer, kickback, and enjoy The Money Show. Welcome to The Money Show. This is Paula, your host. That sounds like a really weird thing to say because I miss my former co-host, this wacky, goofy, lovable guy named Jay Money, who will live on through the blooper reel and who will keep coming back for guest cameo appearances.

But in the meantime, I seem to be seeing somebody else on my Skype signal. Who is this? Hey, Paul. It's Steve, that guy who does stuff for you. I'm here to make sure that you turned everything on right. Dude, Steve, our editor and producer and the guy who I probably owe a bunch of money to. No, you're all caught up. Whoa, that's a relief. At least that's what my accountant says.

I'm not good with money. Hey, Steve, do you have any idea who I'm about to be interviewing? You know, I just saw you drop some files to me, and it's Pete the Planner, and I've been hearing some good things about this guy. So I'm really curious to see what is it that you guys talked about. Oh, well, Pete says that he's on a mission to make you a millionaire. And I want to know, first of all, is that even necessary? Do you need a million dollars to retire?

Well, gosh, I've always thought so. Pete seems to think so too. So we get into that. And we also kind of get into the earning versus saving battle a little bit because Pete, like my former co-host, Jay, Pete is also more on the saving side, whereas I'm more on the earning side. So we do get out. We spar. I was going to say, it doesn't sound like either one of you are wrong, so I'd like to see who wins that battle. Awesome. And one last thing, Pete also says that you should have a mock retirement, meaning that you should pretend to retire before you actually do, which is why I'm just not showing up to work anymore.

A mock retirement. Interesting. I can't wait to hear it. Well, great, we'll get into that now. So here he is Mr. Pete the planner. Hey, Pete, how's it going? I'm good, Paula. Thanks for having me. Absolutely. Thank you for coming on. Pete, you say that you want to make people millionaires. How do you do that? That's a little bit of an ambitious goal, isn't it? And sounds sketchy, too. I know. It really does.

It's a bit or something for saying that. Yeah, it is an ambitious goal. But if you think about what the whole. point of personal finance is. If you stop beating around the bush, it's actually to prepare people for their future. And like you know, because you've done the math, in many situations for people in their 20s, 30s and 40s, in order to actually be prepared, what do they have to be? A millionaire, right? So to me, for a long time, I would say, well, you got to be resourceful. In order to have resources, you have to be resourceful. And that's what I taught for a very long time. And I think I've just decided that let's just call a spade a spade.

You actually have to be a millionaire. So it's the same principles of resourcefulness, but we just sort of quantify the result. Okay. All right. And for the listeners who are wondering, because I'm sure there are some people right now who are thinking, wait a minute, what do you mean I have to be a millionaire? Can you walk them through that? Oh, yes. We'd love to.

And we can even use an example, right? So let's begin with the three streams of income that people have typically had. in retirement, traditionally. Now, of course, there are passive income streams, a lot of sort of things you talk about, real estate and the like. But beyond that, there were three primary streams. There was a pension,

which it's important to realize that only 10% of the private sector has a pension today, which is down from 88% in 1975. So that's gone. You've got Social Security, which I'm sure you and I could spend hours, boring people with...

of why we don't think it would be a viable core holding for someone in their 20s and 30s. Right. Yeah. I typically tell people, young people, to think of it as icing on the cake. Yeah, right. Rather than a leg of the stool. So the third stream is what you've done on your own and investments and savings.

So essentially we've got one leg of the stool trying to do the work of the three-legged stool, the pension, the Social Security, and their own investments and savings. And so if you look at inflation and you look at distribution rates and all those sorts of things at retirement, in order to generate the income someone needs 30 years from now, and like I said, we'll do an actual numbers example here in a second, would need a million and actually a lot more than a million dollars. And so that's what we're trying to get people to see is that you cannot sweep the need for a million dollars under the rug because it seems like a lot of money. In fact, you will fail miserably in retirement if you're in your 20s, 30s and 40s if you don't have at least a million dollars. So let's pick an example if you like.

Okay, yeah. Let's walk through the numbers. How old do you want our subject to be? Let's have a 37-year-old. All right. I didn't give you a nice round number just to throw you a curveball. Oh, that's no problem. 37 years old.

And how much do they have saved for retirement right now? Ooh, okay. Let's say that they have a rental property. Can I throw you this curveball? We'll see. Yeah, give me a shot and I'll see what we can do with it. Okay, let's say that their 401k balance is $150,000. All right.

And they have a rental property that is valued at $200,000. Their mortgage balance will just use a simple number as $100,000 remaining on the mortgage. And they are generating currently $2,000 in gross income. So once it's paid off free and clear, they'll get about 1,000 a month from that net. Okay. Very good. And then how much are they investing in their long-term investments over time? Ooh.

Okay. Let's go with 1,000 a month. We'll just keep it a simple number. All right. Very good. So at age 67, based on what you've just described. And I like to illustrate, and we could probably spend hours on this, I like to illustrate an 8% rate of return for long-term investments. Okay.

based on the fact that the market over the last 25 years has averaged 9.8%. And even over the same 25 year period, a 60% stock, 40% bond portfolio has average over 8%. So for a long-term situations, like we're talking 30 years, I like 8%. This person that we've just described, absent their rental property, which I'll get back to a second, would have $3.1 million at age 67, which is the age of retirement for someone that's 37 years old. that would only generate from an inflation-adjusted income number, $3,09 a month in retirement income. It's $7,300 of real money, $7,300 a month after tax. But because of inflation, it only feels like $3,000. I find it would be really challenging for someone that isn't a millionaire,

because, again, this person has $3 million, Paula. Yeah. They have $3 million. They will have $3,000 a month in income, and then $1,000. thousand dollars from the rental and some social security. Even under this scenario, we just illustrated, retirement's challenging. So that's the assertion. Let's take this person down to $50,000 in their 401k right now. They end up with $2 million at retirement. And their income is only $1,900 in terms of today's purchasing power. Exactly. So that's the concern. I mean,

no one can live on that. No one can live on that. I'm glad that you brought up what their retirement income will be as it relates to purchasing power today, because I think that conversation is sorely missing. Because when you go online, when you go to a retirement calculator, and this has for years been a source of frustration for me, you see how much, you know, you type your numbers into the calculator, you see how much money you'll have at retirement. I mean, even if you just wanted to use, for the listeners out there,

there's this very broad rule of thumb called like the 4% withdrawal rate, which means that, you know, and this is very general, but it's good for just a mental, not even a back of the envelope calculation, just a quick in-your-brain-your-brain-your-calculation, which means that whatever amount of money you have in your portfolio, you can withdraw 4% of that. So for every million in your portfolio, you have $40,000 per year that you could live on per million in there. The frustrating part about that is that that number in most retirement calculators, calculators is not adjusted for inflation. So if I have a million dollars 30 years from now,

and I'm withdrawing $40,000, 30 years from now, how much is that actually going to buy me in today's dollars? Yeah, that's a big issue because, number one, the 4% rule has sort of been our industries, one of our industries debate topics over the last five years or so. When I illustrated the numbers I just did, I used 3.5%. And then I show inflation at 3% despite the fact that inflation's been relatively flat in the last few years, but it won't be over a 30-year period.

You're right, Paul. I think that's where a lot of people fail the back of the napkin math is that, sure, I'm going to be able to produce $40,000 a year of income off my million dollars in assets, but $40,000 in income is nothing. It's nothing 30 years from now.

Right, right. The value of 40,000, 30 years from now is, I don't know what that would be in today's dollars, but it would be significantly less. Yeah, it would be, actually, I'll tell you right now. It would turn after tax, it's $2,600 a month. And then with inflation, well, hold on. What tax rate are you using? I generally like to use sort of a broad 20% tax rate. And here's why. And I know that seems, well, depending on who you ask, that seems high or low, right? The way I view it is that we have no idea with the tax rate. It's going to be 30 years from now. We probably understand, you're not looking

at Social Security taxes and some other factors. I think it's a reasonable assertion since you have to pick something that if you're in the $40,000 range, 20% could make sense. Or if you're any higher than that in income, we're going to be around the 25% rate. Okay. Let's talk about, because some people are going to have their assets in Roth accounts. So those will be tax exempt. So let's talk about the pre-tax numbers for the, you know, for the sake of. of keeping that even, given that so many of the listeners are going to be in different situations based on whether they're saving in traditional or Roth accounts and also what their tax bracket is. And also, if they move overseas and that changes their tax situation as well,

because, you know, if you decide to retire abroad. No, that's a great point. So $40,000 pre-tax is going to just break down into $3,333 a month in income. And there's a rough rule of thumb. I don't know if you've heard this one, where buying power gets cut. in half every 25 years because of inflation. Have you worked with that one before? I didn't know that rule of thumb. That's a new one. Well, there we go.

See, we're sharing today. So if you look at it that way, just roughly, that $3,300 becomes about $1,600 of buying power. And that's why it becomes so troublesome when you don't include inflation in long-term projections. Oh, wow. Okay. So a million dollar portfolio 30 years from now results in the purchasing power of about $1,600 a month before taxes.

Yeah, and I think the challenge when you're in front of someone or you're talking to them through their retirement situation, a million dollars still sounds like a heck of a lot of money. Right. And so no matter what they think is going to happen, they think it's plenty. Even people that retire today on a million dollars think, oh, we're set. Well, probably not, actually. And especially not if you have a million dollars, only a million dollars 30 years from now. Right, right. Because it's just a cognitive bias.

You tend to think in today's dollars. Oh, absolutely. Yeah. I mean, it's hard not to. Right, right. Okay, so how do you help people become millionaires? I mean, we've kind of established that this is an important go to set. How do you get from A to B, or really A to Z in this case? Yeah, so this goes back to what I've done over the last 10 years, which is really to get people to have a better relationship with money, to stop measuring their own view of success based on how much money they earn or how much money is even in their same. savings account that we need to drive net worth higher by both paying down debts and then, of course,

accumulating assets on a regular basis and then measuring how good you are at that. And I measure it based on, okay, I want your gross income. Let's say make five grand a month. How much of that five grand a month pushes your net worth higher, either paying down debts or depositing assets? And if it's 30% or more, I know if someone puts 30% or more of their gross income towards net worth increase, they're good to go. So 30% of what you're making before taxes? Absolutely, because then you can count in the 401k and the 401k match. And I like 30%.

If you're below 10%, I don't even know what to tell you. I mean, I don't know what people expect. You've seen the statistics the last couple weeks that something ridiculous. It's so ridiculous. Like 62% of people have 400 bucks or something? Oh, that's, I think the statistics. statistic was, yeah, this is a big story that came out. Approximately 47% of Americans would not be able to come up with $400 in case of an emergency.

You hear that. And the only conclusion you can draw is we're all in trouble. Like, I'm convinced the next, well, maybe the next meltdown will still probably be Wall Street driven. But I think beyond that for Xers, I think we're looking at a main street bubble collapse because people have not prepared for the inevitable, which is leaving the workforce. Okay, so again, how do you do that? I mean, yes, we need to save more, increase net worth, but how?

For the listener who is driving, commuting to work right now, they're in their car, or maybe they're cleaning their house or putting on makeup, and they're thinking, sounds great in theory, what does that look like in my day-to-day life? I think it's examining our consumption habits. And I know all of this sounds very abstract and wishy-washy, but I have a hard time thinking that the solution to our financial ills in this country is mathematics. You know, math is great. Math is never wrong, but math has never solved a single one of these problems because our money behaviors are what hold us back. So I think getting people to understand what they stink at is really important.

It is sort of a come-to-Jesus meeting in that particular sense. that you say, look, I dine out too much, which is always the classic cliche example, or I spend too much on housing, or when people spend more than 20% of their income on transportation, my head spends follow because I don't understand why people spend so much money to drive to work to earn money for the right to drive to work. It just doesn't resonate. Oh, okay, but that's a really good example. Let's say the homes near your workplace are more expensive and the homes further away from your workplace are cheaper. At that point, it becomes a trade-off, do you spend more on transportation or more on housing? What would a person do in a

situation like that? No, that's a great question. I think, you know, people throw around the word investment way too much. Yeah. You'll hear people say, well, my home's an investment. Right. But they don't treat it like an investment. They wouldn't react to it like it's an investment. They furnish it, not like anyone ever would furnish an investment. Right. You know, and so... You don't run profit and loss statements on it and you don't have balance sheets. created for it. Yeah, exactly. So that's what bothers me with this idea. You and I both know transportation, at least the vehicle itself, is a depreciating asset. Right. Right. So whatever you're going to sink into that is going to be fully consumed. Of course, fuel costs are the one factor in this

that per your example, we need to consider because it's the proximity of where you live to work. I have a hard time thinking that it doesn't make more sense to drive further in to then to buy more house based on how people structure their loans. It doesn't make more sense to drive further in than to buy more house. I'm totally confused. What does that mean? I think it was like triple negative. A triple negative.

That's right. Do you have a buzzer or something on your show? Actually, you know, totally random tangent, M&M, the rapper always speaks in triple negatives. Does he? He totally does. So is he not going to get sick on mom's spaghetti? I mean, he's fine. Maybe he is not nauseous.

Maybe he's not so angry. Maybe he's a happy guy, and he's not sort of misogynistic. Maybe after all he's fine. Okay, so live closer to work with a more expensive house or further out with a more expensive commute? Further out with a more expensive commute? Absolutely, in my opinion. Hmm. I don't know.

What do you think? I mean, geez. I mean, look at L.A. I mean, is that not what Los Angeles is? Yeah. Yeah, that is the question. I mean, you know, there's a, there's that, for that specific example, there are so many variables that go into it because a lot of times when people say housing in close to this particular area is expensive, what they mean is cost per square foot is more expensive, which means that you could live closer if you lived in fewer square feet. Yes, but then you're also because of how you finance that and because you are going to pay more in interest to buy a more expensive property.

Well, no, let's say that you bought exactly the same cost of property or a very similar cost of property. So it's sort of bigger house versus smaller house. Yeah, but you buy fewer square feet, you know, so you're getting fewer square feet for your money, but the amount, the outlay is still the same. I think that gets into an even deeper conversation back to consumption habits of Joshua Becker just released a book on minimalism. He's a great writer on minimalism. And I think his statistic was something like in the 1950s, how? houses were one-third of the size of the average house built today, and our families were bigger in the 1950s.

And so this goes back to my idea that our behavior and consumption habits are what is driving us away from the financial lives we want. So it's interesting. I hear you putting most of the emphasis on consumption rather than boosting your income. Is that an accurate characterization of your philosophy? Yeah. And actually, that's why I enjoy a lot of the things you put out, because your focus is increasing your income.

If I'm not mistaken, correct? Yes, it is. And I think that's a solution that I rarely rarely explore for people, and it's not because I disagree with it. I tend to think that our goal should be to be as resourceful with the resources we have because if you aren't, what do more resources do for someone that's not resourceful? What do more resources

do for someone that has poor consumption habits? I would argue it's negative ammunition. maybe triple negative ammunition for that matter. You know, it's... You mean you spend more if you make more? Yeah, lifestyle creep, right? Especially if you don't have an established way and philosophy and relationship with money.

That's why I think making more money is a good solution for those that have explored becoming resourceful. Looking for more money to solve your problems without exploring your habits? I don't know. I have a hard time thinking that you can outrun consumption. Interesting. Would you say that that's true across all income levels?

So let's say that you have someone who's making $50,000 a year with a family of four, and then someone who's making $150,000 a year with a family of four, living in the same geographic area, the same cost of living, and both of them have exactly the same savings rate. They're both saving, say, 10% of their income. Would you advise both of them to first start by focusing on consumption, or would you tell the lower income earner focus on boosting your income because you're making 50 grand for a family of four,

whereas the six-figure earner, you know, you might give them the opposite advice? I like this point. This is a great question. ultimately the person that you've just described with a family four making 50 grand will need to increase their income. That is their only chance to survive and succeed. I mean, there is no other solution because depending on where they live, a family four on 50 grand, that is near living wage, right? And if you're near living wage, you're not talking about financial success. You're talking about survival. So you're right. More income is the solution for them. But I've also

seen, depending on where someone lives geographically, I've seen that person, that family, waste quite a bit of money. So if they throw more money in the pot, money only magnifies you. I mean, an inheritance magnifies you, a raise magnifies you, in how you treat money. So I would still want to make sure that they're resourceful before they choose to gather more income, which, by the way, the only chance for survival is more income. Okay. So specifically, how can a person become more resourceful? We talked about thinking, critically about that trade-off between your commute and your housing, what else can a person do? There are three or four ways in which our consumption habits have changed so much, some that we can't

reverse, and others that are truly cultural phenomenon. I mean, you look at things like youth travel sports. You've got families on all levels of income, spending the family resources to play soccer against 12-year-olds, going hundreds of miles away. I mean, hundreds, if not thousands of dollars a year, People didn't use to do that. And there are ramifications. There are consequences to all our consumer decisions. Okay. What's another example?

You know, we look at technology. I mean, the idea that if you've got two smartphones in a household, you're likely to spend more on two smartphones than you do toward your number one financial priority. And if you've got teenagers, then you're talking about three or four smartphones and data plans. And frankly, those are expenses that did not exist in any capacity 30 years ago. So our consumption habits have continued to change.

Marketers have gotten slicker with the way that they induced spending via points and reward systems and gamification. So we are in a battle for our incomes to keep them and we're losing. It is impossible to say that modern society is as resourceful as it was 50 years ago. We make poor college decisions. Like we tend to make poor decisions. We take five years to get through school instead of four. We tend to live on campus at times when 30 years ago we would have lived off campus. And sure, college costs have gone up, but we make a lot of subpar decisions.

And it's because of those decisions as to why more money is going to magnify those decisions, not solve our problems. All right. How would a person go about becoming a better decision maker? Because it seems like there's two components to what we're talking about. There are specific actionable behaviors like, you know, reducing the number of smartphones in your household or maybe just cutting down your data plan or looking for a cheaper carrier. That is a line item tactic. But it sounds like you're talking about, we're touching on a broader topic as well, which is knowing how to make efficient resourceful decisions. Yeah.

So a lot of principles of minimalism sort of run through this. And I'm not a huge minimalist. I just think there are principles of minimalism. You look at how buying habits have changed, which is different than consumption habits. It used to be people didn't spend money as frequently as they spend them today. We did a study back in 2009. And at the time, we found that people spent money 22 times per week as a household. You're referring to everything from trip to the grocery store to trip to Starbucks to buying fuel for your car. Yep, exactly. So consumer-based decisions, not bills or car payments and things like that, 22 a week. Part of that study, we sort of, we tried to study what was the most efficient number of transactions in a week? Who were the people succeeding in terms of how much they were saving, what kind of debt they had? And the answer was 10 to 14. Yet it's not uncommon.

and we see it all the time. It's not uncommon for people to spend money 30 times a week. So we become so addicted to commerce. You've been there before. Everyone has where you're at a CVS or a Walgreens or something and you swipe your pin card. Or nowadays, I guess you insert it and wait for it to honk at you, the chip card. Right. And you don't know whether your transaction was $17 or $26. You just knew it was reasonable and you're good to go. And in my opinion, that's a product of becoming desensitized by how often we buy things. And so counting your transaction is the actionable step, by the way. I was getting there. So I like people to count their transactions in one week.

How often do you and whoever you live in your house with spend money? And I think a way to shift that behavior is to try to reduce it to a particular number. My wife and I at the time, she's still my wife, but I mean, this is when we're sort of like things didn't work out. And people were like, well, I can see that. He's kind of jerk. At the time, comma, my wife and I. Yeah, exactly.

So we went to five transactions for one week just to see what it'd feel like, just to test our metal. And Paula, it was so hard. Even though we knew we were going to do it, we knew why we were going to do it, it was hard. And then the next few weeks, we didn't even try to reduce our consumption habits or our purchasing habits. And they flew down.

It was nuts because you reset all of your behaviors. You did the financial equivalent of a juice cleanse. Oh, yeah. Yeah, I mean, people do it in different capacities in the financial world. You know, you've got like the, what do you call them, pantry weeks where you, instead of going to the grocery store, maybe you'll buy some milk and some salad or something. But otherwise, you're making all your meals out of your pantry just to sort of reset that line item in the budget, which is groceries. Right. That is such a uniquely first world issue.

Isn't it sad? Yeah, no, it's exactly right. I think another element to this too, and people don't like hearing this. But online banking has ended up being, in my opinion, a negative tool for us. Ooh, okay, do tell, do tell. I think people use it as a crutch. They log in to check their balance under the guise of awareness. But then they log in a couple days later to check their balance under the guise of awareness.

And if you were truly aware, you actually wouldn't have to look again. 91% of people check, this is a real statistic, by the way. Post are made up, but this one's real. 91% of people check their checking account balance while at work. And you think about that, and it seems natural. I'm saying it's like, well, yeah, but who cares? No, it actually really matters. Why?

You are thinking about money at work for no reason. Did people do this in 1985? Did people check their balance before they went to work and then midday at work? did they do that? I assume not. No, they didn't because they didn't feel the need for this information. What this information is doing is it's causing us to do something called balance spending. There's this idea that the more you look at your balance, the more you'll spend.

It's like toilet paper. When you're in the restroom and there's a full roll of TP, you will use more toilet paper. When you see cardboard, your behavior shifts. You will use less. And I think our banking accounts are the same. So then would you advocate checking your balance less often or automatically siphoning off some of that checking account balance into a different account so that it's out of sight, out of mind, or both, or something else? Yeah, both, actually. Like, I'm a check my balance twice a month guy.

And it's not because I keep so much money in there. I don't have to. I think that's the other element. People keep a giant cushion or a buffer or whatever they want to call it to make themselves feel good in their account. So they don't have to pay attention. And I think it's that sort of laziness of convenience. Some people call it practicality, but I call it laziness, which causes us to spend more. I'm Paul, I, we've all done this.

We've checked our checking account balance. And as we log in, we guess what we think our balance should be. And if it's higher than what we thought it should be, we go, yes. Because we somehow feel like we won a contest. But in fact, you lost. You had no idea how much money you had. And then your behaviors will take your balance. back down to what you think it should be.

Right. We have an internal baseline of what we're comfortable with and tend to hug that baseline. Totally. I'm a big fan of low check-it account balances, not for interest and all that garbage, but just because the idea that you can buy whatever you want whenever you want, we all feel like it's sort of the baller way to go. I just think it's sort of an unhealthy perspective. And it's unrealistic, especially if our retirement accounts are struggling. Interesting. Okay. What would you say about the amount of mental energy? Because a A big part of my focus is being efficient with not just your time, but also your focus, your energy, your attention.

How much mental space should a person devote to watching their spending like a hawk at, you know, at the potential expense of thinking about bigger wins? Whether those bigger wins are learning more about investments, finding ways to earn extra money, or even looking for ways to save money that don't relate to consumption. like refinancing a high-interest mortgage. Sure. No, I love this question. I love the point.

I think very little time. I think it's all about very little time for consumption habits because it's about habits. You don't think about brushing your teeth fall out because it's a habit. Right. Do it. You think very highly of me then. Does it consume? Don't talk to my dentist.

Well, he's hoping or she's hoping that you don't brush your teeth. They always act like, oh, I hope you're brushing, but they're really going, no, I hope this person doesn't brush because I want to do a Rukina. I think very little should be paid toward your budgeting habits. I like a once-a-month budget meeting as a household. And beyond that, you should be focused on maximizing your income and picking the right investments and making sure you have the right interest rates. But the only way you're going to achieve that realistically is if your consumption habits turn into good consumption habits. But if you've got bad consumption habits, then you're forced to care more than you should. That was a very good answer. Thank you.

I'll take it. Okay. So, Pete, one of your ideas that I think is fascinating is the notion of a mock retirement, you advocate practicing retirement before you go into it. Can you tell us about that? Yeah. So our incomes are going to change in retirement. Generally speaking.

I think most people's incomes are going to change because their core income for most folks is their work income. And when that goes away, it's either replaced by passive income, all the good things that you help folks with. Oh, thank you. Or replaced by Social Security or retirement investment income, those sorts of things. But anyway, your income's going to change. And we live a 40-year existence on our work incomes. They go up and down and generally up. But in retirement, it's usually a pretty big chunk down.

And I have a hard time thinking that people can cold turkey retire one. day and then be able to live on substantially less income for the rest of their life the next day. So I like people about 10 years out from retirement or their intended retirement to project forward their retirement income and then live on it for three months right now because what it will tell you is are you on course? Can you do it? If you can't, your retirement plan stinks. And it just takes all, I like saying this, it takes the hope out of it. Because I think there's no room for hope in the financial world. It's math. There's no hope. I mean, you can cross your fingers and say, I hope my income and expenses match, but you're dumb if you do that. Okay, I have two

questions for you then. Okay. Number one, how do you do this given the fact that for many people, they have work-related expenses that they won't have in retirement, such as commuting costs, dry cleaning, child care, an increased number of lunches and dinners out? How do you adjust for that? Yeah, well, Well, increased lunches and dinner's out. I don't account for, but I agree with child care. Well, first of all, 10 years out from retirement, that's what we're talking about. So there's no child care costs 10 years out for retirement. Depends on how old you are when you retire. That is a fair point. That is a fair point. I would say that you can cheat. You can cheat that way, right? It's like, well, hey, for me, specifically, my house will be paid off prior to me retiring.

It just will. Is it right now? No, it's not right now. So I can factor that into my income rejection and say, well, I'm not even going to have this expense. Okay. So in the mock retirement, you would factor out expenses that you wouldn't have? Absolutely. And you have to be very realistic. Because here's what people do, Paula, they say, well, I'm not going to shop as much then as I do now. It's like, well, you know what? If it's your habit, it's your habit. People actually dine out more in retirement than they do now. So we always think, well, we won't dine out as much because we're not as busy. Well, no, you have 168 hours a week to do whatever the heck you want. You're going to dine out more. Because it's fun.

It's because it's fun. It's nothing else to do. I mean, you can only fish so much. Okay. All right. So in the mock retirement, you subtract out necessary work-related costs, but you leave in the discretionary costs. Always leave in the discretionary costs.

I mean, again, unless they're kids related and the kids won't be in the house. But yeah, yeah, leave all the discretionary in because your discretionary spending is who you are. Okay. It is. And this is also, and maybe we differ here, I don't know, but. This is also, I think, in sort of modern retirement, why people should pay off their houses prior to retirement, because then you don't need as much income to support your house payment. I don't know. What do you think about that?

Well, I think that if you're referring to traditional retirement in which a person retires around roughly the age of, I'll say, 55 plus or 60 plus, then for that class of people, I agree. If we're talking about early retirement, people in their 30s who are creating enough passive income to become financially independent and retiring at that age, then no, I don't think paying off your house is necessary because there's still so much time and life ahead of you. I would agree with that assessment. I mean, I would say, though, the work I do is in the more traditional setting. I mean, I work with some of the largest retirement planning companies in the world to help them. get their participants to live smarter lives in the present so there can be a future. I mean, what do we call it, fire, a financial independence retire early movement, you know, which I think is fascinating.

There's no better word for me to say than that. I am fascinated by it. But I personally, I don't do a ton in that space. I think it's a completely different element. And I think, to your point, that's where increasing your income makes that possible. That's why I'm glad there are people like you that are interested. doing that to do that. Thank you. So Pete, thank you so much for all of this. This is very helpful. Where can people find you? Pete theplanter.com and of course Pete theplanar on Twitter. And I'm a

USA Today columnist. So open the most colorful newspaper in the world and there will be my face and my words. Oh, excellent. Thank you so much, Pete. I really appreciate you spending the time with us. My pleasure, Paula. Thanks for having me. You know what? Actually, I have a confession, Jay. What? The name on my birth certificate is not Paula. Is it Nepalese? A Nepalese word? It is.

Yeah. I had my name legally changed, or specifically my parents and I had my name legally changed when I was a child. Can I guess what it is? Sure. You want to not say. Take a guess. Paulina.

No, that's not Nepalese. Fala la la. It's still not Nepalese. Does it sound like Paula at all? It begins with a pee. Peruvia. I don't think Peruvia is Nepalese. Hey, this is my game.

You can answer guess or no. Okay. All right. Keep going. Petunia. Nope. Polette. Nope. Panunu.

Nope. Panini. Oh, no, but that is preferred food. Veronica. That doesn't begin with a P. F***. Wouldn't you ever guess your real name? If you were familiar with Nepalese or Indian names, you could guess it.

Indian. A da, yeah. Okay. Are you ready? I know what it is then. Okay. It's spah. I literally can't think of any more thing with the be Indian or not.

Pindar. Nope. I probably should not be guessing names. I'll probably come off really bad. Oh, yeah. Oh, yeah, that's right. You edit that out. What is your real name?

Pragya. Pragya. That's cute. I like that. Pragya pant. Or is pant shortened? The spelling is the same. regardless of whether it's in Nepalese or English.

But when you pronounce it in Nepalese, it's punth. So I was born as Pragya Panth. Pragya Panth. That would have been much easier to remember it if you were a blogger. I don't know why you changed it. I was born as Pragya Panth. And then I assimilated as Paula Pant. Assimilated.

Is that another word? Like, gave up, you quit. I assimilated.