Motley Fool Money - Retirement Tools and Affording Impulse Purchases

Episode Date: September 20, 2025

Retirement is largely a math game, and calculators can help you crunch the numbers. Sean Gates of Motley Fool Wealth Management joins Robert Brokamp to discuss what to look for in a high-quality retirement tool, and to offer some recommendations. Also in this episode:-How the Fed rate cut will affect your finances -REITs have similar long-term returns as the S&P 500 but dissimilar short-term returns, which can add diversification to your portfolio – whether you like it or not -How the 0.01% rule can help determine whether you can afford an impulse purchase -The job market is slowing down, so it might be time to bulk up your resume Investments discussed: VNQ Host: Robert BrokampGuest: Sean GatesEngineer: Bart Shannon Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit ⁠⁠⁠⁠⁠⁠⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

How to analyze your retirement plan with online tools and how the Fed will affect your finances. You're listening to the Saturday personal finance edition of Motley Full Money. I'm Robert Brokamp, and this week I speak with financial planner Sean Gates about how to choose a high-quality retirement calculator and a few to consider. But first up, let's talk about what happened last week in money. And we start, of course, with the widely anticipated interest rate cut from the Federal Reserve. the Fed saved 0.25% off the target for the Fed funds rate and suggested that two more cuts could be coming this year with maybe another in 2026. Now the Fed's in a tough spot, right, trying to prop up the job market while not stoking

inflation, which has been ticking up lately. In the press conference after the meeting, Chair Jerome Powell said, quote, we have two-sided risks, which means there is no risk-free path, end of quote. Still, I think it's likely that more cuts are coming, so what does that mean for your finances. Well, one interest rate that reacts almost immediately is the prime rate, which is generally three percentage points above the Fed funds rate. The prime rate is the rate that banks charge their most credit-worthy customers for things like home equity loans, auto loans, credit card balances. The prime rate could also affect other rates, such as those on 401K loans, which are kind of unique because you're actually borrowing money from yourself. Other rates that

may or may not come down, or at least come down as much and as soon, are the rates on things. like intermediates long-term bonds, which are determined largely by the buyers and sellers of bonds from all over the world. Bond rates, in turn, have a big influence on the 30-year mortgage rate, which has already come down quite a bit over the past year, currently sitting at 6.22%, so perhaps any influence the Fed may have had may already be factored in. Other rates that are likely to drop soon, and in fact already have been on the decline, is what we get on our cash and money markets. So given that more cuts are likely, it might make sense to lock in current rates with maybe some individual CDs or short-term treasuries with some of your cash that you don't need

in the near term. Moving on to our next item, happy 65th birthday to real estate investment trust, aka Reitz. They were created on September 14th, 1960, when President Eisenhower signed the cigar excise tax extension of 1960, which contained a provision that gave investors a way to buy shares of companies that own diversified portfolios of income-producing real estate. One thing the investors like about REITS is that they tend to have higher yields than the average stock because they generally pay out at least 90% of their income as dividends to maintain some tax advantages. So the yield on the Vanguard real estate ETF, ticker VNQ, is currently 3.8% compared to 1.2% for the S&B 500. And REITs invests in all kinds of real estate.

We're talking like offices, hospitals, apartments, malls, storage facilities, even data sites. centers and cell towers. The National Association of Real Estate Investment Trust maintains a data library on its site that goes back as far as 1972. And since then, equity reits have returned an average 11% per year, which is pretty much exactly the same return as the S&P 500. But they don't behave the same way as the S&P 500 from one year to next, which means they can add some diversification to your portfolio. Unfortunately, diversification is a double-edged sword, right? Investors loved reits when they made money while the S&P 500 plummeted during the dot-com crash, but not so much over the past several years when U.S. large-cap stocks have pretty much been the best game in town.

Reets have underperformed not only because they tend to fall more into the small and mid-cap category, but they can also be sensitive to changes in interest rates. So they've struggled since rates began to rise in 2022. But now, rates are likely heading the other way, which could be a tailwind for future reet returns. And now for the number of the week, which is zero 0.01%. That's a rule of thumb created by author Nick Majuli of Riddholz Wealth Management and discussed in his latest book, The Wealth Ladder, and also covered in a recent Walser Journal article. Here's how it works. So let's say you're debating about whether to make a purchase, such as going out to eat or buying a shirt you see in the store.

Majuli says that if the purchase is less than 0.01% of your net worth, don't sweat it. So for someone worth $100,000, that no sweat limit would be $10, whereas someone worth $500,000, could spend $50 guilt-free. The math behind the rule is that 0.01% a day is around 3.7% a year, and hopefully your portfolio is earning more than that, plus you may also be adding to it with regular contributions, so you're likely not jeopardizing your future finances with purchases that are 0.01% of your net worth.

That said, even small amounts can add up, which is why, as Mujuli says in the journal article, it's something to use maybe a few times a week. Now, obviously, most of us spend way more than 0.01% a day on things like housing, food, transportation, raising kids, and so on. So for me, the rule of thumb is most useful when you're in a situation where you're just debating about whether to make an impulse purchase. For some people, the rule will say no, you should instead keep your money.

Whereas for others, especially those who have been frugal for years and maybe have built up a good amount of savings, it'll give them permission to relax and, you know, maybe live a little. Up next, crunching your retirement numbers when Motley Fool Money continues. If you're early in your career and looking for insight, inspiration, and honest advice, listen to the Capital Ideas podcast, hear from Capital Group professionals about leaning into the differences that make you unique, making decisions that last, and what it means to lead with purpose. The Capital Ideas podcast from Capital Group, available wherever you listen, published by Capital Client Group, Inc.

Retirement is largely a math game, and calculators could help you crunch the numbers. Fortunately, the internet is full of retirement tools, but some are much better than others. Here to join us to discuss what to look for in a high-quality retirement calculator is Sean Gates, a financial planner with Botley Fool wealth management. Sean, welcome to the show. Good to see you again, my old friend. So Sean is, I should add that Sean not only is a financial planner with Motley Fool wealth management, but he's the first person I ever hired as a manager at the Botley Fool.

So I'm so proud of him. All right, let's get into the show here. Let's start with your take on why people should spend time with retirement calculators. Yeah, I think everyone has quite. about whether they will be successful in retirement, but they may not want to engage a paid professional to answer that question. And so a lot of people will look for calculators to try and give them a half measure answer. But I use all of these calculators. I've used probably 15 different calculators, some professionals, some DIY. And so I'm excited to talk about the topic.

And you kind of have to use something, right? Retirement's pretty complicated with all these moving parts, all these variables, you know, what your portfolio is going to earn, when you're going to claim Social Security, the taxation of different accounts. You can't do it in your head. You need some sort of tool to do it for you. Not only do you need a tool to help you do the math and the projections, I would argue being able to visualize and see the details of each year that you're projecting is super critical. And I also think the feedback mechanism of seeing how it has actually updated year by year matches those projections. I wish a lot of people do. don't always do.

All right. So those are the reasons to do it, and there are plenty of tools out there to do it with, but they're not all created equal. In fact, in 2018, a study looked at 41 retirement calculators and found that, quote, the majority of tools are inaccurate, making it dangerous for the public to trust tool outcomes, end of quote. So what do you think people should look for in a good retirement calculator? Yeah, I mean, I think that study is well-intention, but I would make one call out at the

top of our conversation, which is, I think retirement. projections are purposefully overly scary, meaning most of the calculators make many conservative assumptions to protect both the calculator creators or the person using that calculator. And then if you actually ran out the projections into the future, most people die with well more money than they need. And so I think it's doing a disservice to people who might want to live fully with a smaller set of resources perhaps. But with that out of the way, I think the biggest thing that you need to use inside the calculator is one that allows you to see the cash flows on a year by year basis.

Because these are just big calculators and the inputs dramatically affect the outputs. And so if you can't see what's happening from your inputs as a resolution on the outputs, how do you address like, how do you know to a course correct? Even if you're a DIY, like, or a, you're a, should say even if you have a professional, if they can't see it, they're probably guessing to some extent. And trusting a lot in the math going on in the background, right? There's no really a way to check whether everything is going according to what you expect. Totally. Yeah, which some of them will do cash flow year by year, inflows and outflow.

So this would be like traditional accounting, right, a cash flow statement where you see the income coming in for the year, the expenses, taxes going out for the year. and then the amount that might be left saved or spent, but being able to see that and say, hey, yeah, that looks very close to, like, my budget and my income as projected into each of these views in the future is really, really critical. I'll mention a few yellow or red flags that come to mind for me. When I look at a calculator, you let me know what you think and if there are other ones that you think are important to.

So, for example, if I pull up a calculator, if I see that it does not ask for the type of account I have, It's not asking whether it's Roth or traditional or taxable. That makes me a little suspicious. If it doesn't allow me to customize Social Security, whether I receive it or not, and whether I'm putting in the figure, if it has default investment returns that I can't customize, or if it doesn't assume a long enough life expectancy. And some of them, you don't even know what the life expectancy is.

Or I've seen them where your life expectancy is going to be average, which is about whatever, 85 or so. But of course, that means half people are going to live longer. I think those are all great flags. I would agree with most of those. I would say that there are a number of tools that have gotten much more sophisticated over the last three to four years. So I would almost bucket out the calculators

where there's like the one page input section that then you get a PDF for. And then there's another bucket that is much more interactive where you can add accounts that live in the tool and you can apply specific investment. returns and inflation returns to each component part and kind of play with the whole scenario generation. So I would say that's one good way to be evaluating the calculators, which bucket does this fall

into? And then as you start to look at those inputs, as you mentioned, a lot of the default ones, like default assumptions are probably incorrect. So one of the most common things that I see is the tool will auto-apply a home expense, It's like repairs of 5% of the value of the home each year because that's a easy rule of thumb. And the tool is trying to help guide the user to get the inputs in there. But that's just wrong for the vast majority of people. To your point with life expectancy, right?

85 is a good rule of thumb, but there's going to be a lot of people that that doesn't apply to. Like you, I hope you live to 150 so I can hang out. All right. He's going to talk about a tool that we like. I'm going to kick it off. And this is what I've mentioned on the show before. It's from Calc XML. They have a lot of retirement tools, so you got to make sure you get the right one.

You want to do an online search for the Calc XML, Comprehensive Retirement Planning module. You'll know you found the right one. It's got a long URL, but it's got 606 at the end. So if you get that one, you've got the one I'm talking about. And so here's why I like it. So first of all, it's free. I love that part of it.

It also allows you to break up retirement spending into three segments, right? Which was often called like the go-go years, the slow-go years, and the do-go years. But evidence is clear that for most retirees, they're spending declines as they age. But there might also be an issue where, like, you're entering retirement with your mortgage, but it's paid off in 10 years. So you want to be able to factor that into your spending.

I like that it does have, allow you to distinguish between Roth, traditional, and taxable brokerage accounts, allows a lot of customization in terms of what you want to assume about inflation or the raises you're going to get. So a lot of that type of stuff. And it does have that year-by-year cash flow

So you can sort of see the math as it goes throughout, and gives you an eye to your point earlier of you could, based on its assumptions, die with millions of dollars because it shows what you're going to have at the end of life. So you can say, oh, boy, maybe I'm playing it too safe. All right, so those are the good things. Here are the drawbacks, and then we'll move out of the one you like. First of all, there's not much explanation about how it works, right?

It's just a free calculator. There's no customer service. There's not really much explanation. So, for example, you should enter your retirement expenses after taxes, not pre-taxes. But you wouldn't know that unless you, like me, actually reached out to the company and asked that question. And probably the biggest drawback is it just assumes your portfolio

is going to earn the same thing each and every year, right? So you're going to assume it's going to return 6%. Well, it's going to turn 6% each and every year. And of course, nobody's portfolio does that. So I think it's very good as free tools go, but much more limited in terms of what you can get from some more sophisticated tools, So, for example, why did you tell us about one tool that you like? Yeah.

So I have really grown to love Projection Lab. I would say a very close competitor that you and I both know about is also Bolden, which used to be new retirement. And actually, I think if you follow Ron Berger, he has done a comparison between these two tools because I think they're rising to the top of DIY planning tools. But so Projection Lab is what I've gravitated to for a few reasons. So number one, it's very cheap. There's a free version with limited feature sets,

but even a larger or more robust version is only like 100 to 150 bucks a year. And the prices change right now again. But the customization is extremely robust. So to your point, a lot of default calculators will take an investment rate of return and just apply that into the future. And the default rate of return on a projection line

is often set to that, what they call a fixed rate return visualization of the plan, but you can then override that vis-a-vis a Monte Carlo simulation, where then we'll default to showing the historical rates of return and volatility applied to your individual circumstances. Can you explain what Moni-Carlo is real quick for the folks who don't know Moni-Carlo analysis? What does that mean real quick? Yeah, I mean, just a very simple explanation is it's a mathematical probability engine, So it'll take the historical rates of return and standard deviations, apply them to your asset base, and add that variability in a year-by-year fashion to your scenario, and give you a chance of success, an average chance of success that each of those individualized trials run out at.

And so you can use that as a rough rule of thumb. You know, a chance of success of 80%, let's say, is your output. Easy to digest. But so that Monte Carlo simulation is able to be applied. to the scenario with the historical rates of return. And because we only have a certain amount of history, you actually have to set a loopback year because some of these plans might last for 50, 60, 80 years.

And so there's not enough historical data to push it through, right? So that's kind of a cool feature too. And then the visualizations are very nice. It has an excellent UI. It has what's called a Sanky chart for the cash flow chart, which is sort of like, I'd like to think of it like Pac-Man, where your inflows are the big mouth, and then it kind of closes on the expenses

and then what squirts out on the other end is your savings. But it's just a very easy, clean way and you can kind of scroll through each of the Pac-Man visualizations to see, to gut-check it. You gut-check the math on a year-by-year basis. And so, yeah, and then you can set individualized

like expenses with certain start and stop dates. You can set the life expectancy. Everything is really customizable. that's probably leads into the biggest con, which is it can be overwhelming. So I mentioned a lot of these tools will develop sort of guided paths to help people get started. And because there's so many variables affecting this over a really long period of time, it can just cause analysis paralysis. And that's that fine to be true for the most part for Projection Lab is you just get overwhelmed.

Not to mention if you start creating scenarios, right? So all of these plans can be thought of as having like a base plan where there's these foundational inputs, but then you might want to say, okay, what if I only make $50,000 in retirement instead of $100,000? And these more sophisticated tools will let you say, okay, we'll compare that to the base case. And so that can then, right, so you have all the foundational inputs that you have to make sure are right. And then you have to make sure that you're tracking the changes that you're making and what we like to call the what if scenarios. And so it can just be very overwhelming, but that's a plus and a minus to projection lab with the ability to do that, but also cause

confusion. Yeah, you highlight a couple of interesting things, right? First of all, you want a tool that you're comfortable with and you want to interact with, right? So the design is important. I feel the same way about any budgeting tool or anything like that tool. I think that is good, right? They are fully aware that if they ask for everyone to input everything, there's some people who will never do it. So they try to simplify it, but then maybe they might be simplifying it at the cost of accuracy. Yeah, totally. And one thing I would be remiss to say as a positive of projection Lab is, and this is a unique feature set that not a lot of softwares that I've used or seen, is the ability to easily export the file.

So all of those inputs that we've been talking about, all the datasets, you can actually just download it into a very simple computer program, and then you can re-import that into a version that someone else might have. And so that's super beneficial because a lot of softwares don't allow for that. It's just a black box that you get a PDF report that's a stat. point in time. And so that's not super helpful to make changes to the assumption set. And I would argue the ability to do that arms a DIY investor really well if they're shopping for help from financial advisors or wealth managers because they could just give that to someone and say, hey, here's all my

inputs. And now that's good for the advisor and the consumer because you don't have to go through that work of recreating the data set that takes someone, you know, several weeks. Hey, do you have your tax return, you know, hey, where's your pay stuff? All that good stuff. Yeah. All right. So those are two to try. CalcXML Retirement Planning Module and Projection Lab want to name a couple others. You named one already. It's Bolden for a really new retirement created by Steve Chen, an impressive fellow who's been on the show before. It has a free version as well as a premium version, $144 a year. And a disclaimer, Motley Fool Ventures is an investor in Bolton. And then another tool is Maxify, M-A-X-I-F-I, created by economist Larry Kotlakov, also a bright fellow who's been on this show.

And that costs $109 to $149 a year depending on the version you sign up for. Like the more advanced one will let you do Roth conversion analyses, for example. Do you have another to suggest, Sean? I do, yeah. So this is maybe a disclosure is this person also used to work for Motley Fool or Motley Fool wealth management. but see fire sim long before they came aboard at the motley fool they no longer work for the motley fool but they are improving that tool and have built that tool from the ground up it's a fire namesake and so that's seafire sim from laura and bolden so those are a few to try and i do think

it makes sense to do more than one right none is perfect and using a few of them is a good way to get a second or third opinion about your retirement uh yes i mean if you're using you're using you're using using a few of these, it's going to cost you some money. But I think retirement is such an important decision, such an important goal, like it's worth the money to put in that extra investment. Yeah, and any dollars spent on something like this in an absolute value compared to having a money manager is going to be quite small in the grand scheme of things. Not saying it replaces that, but just trying to contextualize the cost of doing something like this for yourself and getting educated about what retirement could look like. Any final words for us, Sean, on using

retirement calculators? I think we can't make a rosy picture. So one of the things that I've done is I've helped in a pro bono fashion people who have projection lab plans. And there's always errors. I've seen some very well done DIY plans, which are probably 80% good. But the mistakes are such great that you're compounding this over a 30, 40 year timeline. Those small misinputs, can make huge outcome differences in something like the tool. So you do use these. They're cheap. They help you get informed.

But then enlist a community or a professional to help gut check your assumptions because there's going to be one that you missed. Well, that's been great, Sean. Thank you for being on the show. My pleasure. These days, I'm all about quality over quantity, especially in my closet. If it's not well made and versatile, it's just not worth it. That's honestly what I love Quince.

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Molly. It's time to get it done, fools. And this week, I encourage you to look for ways to to enhance your job skills. And it's highlighted by the Fed's rate cut, the job market is slowing down. According to Charlie Bellello of creative planning, the number of jobs in the U.S. has increased by less than 1% over the past year. That's the slowest growth rate since 2021. In the past 50 years, this type of weakness in the jobs market has preceded a recession and a spike in the unemployment rate 100% of the time, according to Belillo. So here's something I try to do. do. I aim to be able to update my resume every year with a new skill, a new designation, maybe a new degree, or just some sort of accomplishment of some kind. And you know, what that would be for you

and your profession is unique to you. And I'll tell you what I did this year. I recently passed the third exam I needed to be able to apply to be an enrolled agent. What's an enrolled agent? Well, it's a tax professional who has earned the highest credential offered by the IRS. Now, I don't plan on becoming a professional tax preparer. But I sure learned a lot, which ideally will make me a better personal finance podcaster, and it's a nice thing to add to my resume. And it will help me with some volunteer work that I do. Each tax season, I participate in the IRS's volunteer income tax assistance program, VITA, which offers free tax prep to lower income citizens. And, you know, volunteer work is another way to boost your resume. And if you're financially inclined and looking

for a way to help some people out, see if there's one of these programs in your area by visiting the IRS website and searching for VITA. No experience is necessary. They provide the the training in the software, and they're going to start looking for volunteers in the next few months. And that's the show. As always, people on the program may have interest in the investments they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell investments based solely of what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only.

To see our full advertising disclosure, please check out our show notes. I'm Robert Brok, Full on, everybody.