back to index2022-01-14_Friday_QA
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I'm wondering if you have an objective or a formula to determine whether or not you 00:02:31.680 |
should do a project yourself or whether you should pay someone to do it. 00:02:38.640 |
It's a little bit of a fixer upper and I live in a high cost of living area. 00:02:43.640 |
And right now there's unfortunately a little bit of tension with me and my wife because 00:02:48.720 |
we're just trying to figure out how to get this stuff done here. 00:02:52.200 |
And of course, contractors come to the house, everything's very expensive. 00:02:57.560 |
But on the other hand, I don't have time really to do the work. 00:03:02.200 |
I guess it comes at the expense of relaxation. 00:03:04.960 |
So my question to you is, obviously I know it's more of a case by case basis question, 00:03:09.360 |
but is there an objective formula that we can start at whether or not to determine if 00:03:16.600 |
So the objective formula from a financial perspective is going to be your personal hourly 00:03:21.860 |
rate versus the hourly rate that you're paying for the work that you're commissioning. 00:03:30.100 |
So if your personal hourly rate is $20 per hour and the contractor is going to charge 00:03:36.320 |
you $50 per hour, then objectively speaking, it's going to be much better for you to go 00:03:42.880 |
ahead and do the work yourself because if you can do something close to the rate that 00:03:49.440 |
the contractor can do it at, then you're going to be earning a higher hourly rate. 00:03:53.500 |
On the other hand, if your personal hourly rate is $500 per hour and the contractor will 00:03:58.520 |
work for $50 per hour, then you're far better off going ahead and hiring the contractor 00:04:08.560 |
You want to look at the opportunity costs and ask yourself, what am I giving up in order 00:04:15.240 |
You have to ask yourself, what am I actually giving up? 00:04:18.840 |
So for example, if you have a job where you work 40 hours a week, Monday through Friday, 00:04:25.720 |
and your personal rate is $50, and let's drop it down. 00:04:34.160 |
Your personal rate is $50 and you're going to pay someone else $50, but you could otherwise 00:04:39.740 |
do it on a Saturday morning, then all of a sudden the financial considerations go out 00:04:45.960 |
Because if you were just going to sit around and do nothing on Saturday morning, or you're 00:04:49.120 |
going to do something productive with your Saturday morning, it doesn't matter that your 00:04:52.200 |
personal rate is the same as the contractor's. 00:04:55.580 |
It matters what is your alternative use of the time. 00:05:01.100 |
So I think here you would want to do an analysis and say, do I really enjoy the work? 00:05:06.240 |
Is the work something that I enjoy, that I want to do? 00:05:08.800 |
Is it something that inspires me, or is it something that I just want to get as far away 00:05:14.780 |
Some people come to DIY projects and they find them relaxing. 00:05:26.080 |
Many times this includes people who are knowledge workers. 00:05:28.440 |
I personally often get frustrated that most of my work is not tangible, and so it's nice 00:05:33.520 |
to do a project and build a deck on your house, and all of a sudden, look, I did that. 00:05:38.600 |
It feels good to get some of those things done. 00:05:40.880 |
On the other hand, some people find them very draining. 00:05:45.980 |
You ask an entrepreneur who gets turned on by his business, and you say, "Now you're 00:05:49.720 |
going to go home and work on a bathroom," a lot of times, for some people, that can 00:05:54.980 |
So I would analyze not only the financial ramifications, but I would analyze and say, 00:06:12.280 |
I'm more capable than many people, but I don't enjoy doing it. 00:06:15.680 |
And so I've learned that I would rather spend my time doing something that is a better fit 00:06:21.180 |
for me and then simply pay someone to do my DIY projects for me because the time that 00:06:26.760 |
I spend on the DIY project is quite draining for me personally. 00:06:34.320 |
I find it really frustrating a lot of times, and then that frustration kind of seeps over, 00:06:40.080 |
and it costs me my time and my mental energy in other aspects of my work. 00:06:45.240 |
I think another lens that you would look on is a lens with regard to safety and to, is 00:06:55.200 |
For example, if you are someone who earns, let's say you use your body and you're an 00:07:02.840 |
athlete, right, or you're a surgeon, something like this, it would be crazy for you to spend 00:07:07.200 |
a lot of time doing things around equipment and machinery and roofs and eaves and ladders 00:07:18.440 |
Because if your body is injured in some way, then that has a much higher cost for you than 00:07:23.920 |
it does to somebody whose body is not so highly paid. 00:07:30.160 |
I think finally, the big question is, what could you do with your energy and with your 00:07:36.440 |
If all of the projects were done around the house and your wife weren't as upset about 00:07:41.480 |
how long things were taking, would that give you more mental space to be more productive? 00:07:46.680 |
Some of us have very large opportunities for productivity. 00:07:50.400 |
We have high potential with our earnings, and if we could just put an extra 30 or 50 00:07:55.880 |
or 100 hours into a project, it could be an extra five, six, or seven figures to our income. 00:08:01.840 |
And so that's a big, it's a big cost if doing a DIY project to save a few pennies keeps 00:08:11.920 |
On the other hand, some people don't have such financial potential. 00:08:19.880 |
They don't have side work or they don't have projects that have exponential kind of financially 00:08:26.880 |
And for those people, I think the return on investment of time and money on DIY projects 00:08:33.920 |
But the absolute financial aspect is, how much would you be earning with the time that 00:08:42.440 |
How much is the DIY project going to cost you? 00:08:45.100 |
And is it a better use of your time to make money, pay taxes, deal with expenses associated 00:08:52.600 |
Or is it better for you to simply do it yourself? 00:08:58.480 |
The only minor complication, which obviously it's not a financial question, is that the 00:09:02.560 |
people around here, you get people, you pay people to do a job and unfortunately, it just 00:09:08.040 |
It seems that people don't really want to do a good job anymore. 00:09:13.920 |
But anyway, I really, really appreciate your time and thank you for answering that. 00:09:18.880 |
I think that's a very valid reason why you might want to spend time doing something yourself. 00:09:24.040 |
If you get shoddy work and it's going to annoy you to have crooked tile joints and poor trim 00:09:29.640 |
work and that's going to annoy you, then either you pony up and hire a very productive, highly 00:09:34.920 |
qualified craftsman or you go ahead and just make it a side project as well. 00:09:45.640 |
One way I've become better, if it helps the other guy, Vinny, one way I've felt better 00:09:57.960 |
about paying contractors in the past or more recently, it's come to me, if I hire them 00:10:03.720 |
and they show up with say three or four people to do a big job and they say it takes them 00:10:08.400 |
three full days, I'll calculate all those man hours off and then I'll double it because 00:10:12.200 |
my skill level probably isn't as good as theirs and I'll just calculate how many weeks that 00:10:16.280 |
would have taken me to do something and then I see the true value in it. 00:10:19.880 |
Sometimes it's hard to see it when you're just looking at a number on a contract but 00:10:23.560 |
shoddy quality is definitely something that makes you feel bad about paying contractors 00:10:30.120 |
I think that's a good point and I think that happens to a lot of us. 00:10:32.520 |
You look at a project and you say, "You know what? 00:10:36.080 |
And all of a sudden you get into it and you need new tools and all of a sudden the project 00:10:39.600 |
isn't simple and it takes you two or three times as long as it should have because of 00:10:46.080 |
And so I think the key is to recognize that we should all be grateful I think to live 00:10:52.280 |
in an economy that runs based upon specialization of labor. 00:10:57.160 |
And that's the underlying aspect of what makes us so wealthy in the modern world is highly 00:11:03.940 |
specialized economies and high specialization of labor. 00:11:08.160 |
As much as we appreciate I think sometimes the idea of a pastoral lifestyle and we think 00:11:16.840 |
about how wonderful it would be to have a homestead in the country, if we didn't have 00:11:21.600 |
a specialized workforce where we all worked with each other and collaborated based upon 00:11:27.960 |
some personal unique area of labor, we would live in absolute poverty. 00:11:33.040 |
The poorest places in the world and the poorest lifestyles are always the people who try to 00:11:39.960 |
You go out in the country, you go up to Alaska and find a homesteader who's really committed 00:11:50.200 |
And so if we reject that and we say, "I'm going to do it all myself," there's a good 00:11:58.560 |
And so I don't think that most of us when we look at a DIY project really want to go 00:12:03.200 |
and say, "I'm going to be an off-the-grid homesteader doing everything myself." 00:12:07.320 |
We just say, "I'm going to go ahead and redo my bathroom." 00:12:09.680 |
And that's where I say there are elements of enjoyment and satisfaction, making yourself 00:12:16.120 |
into a person of diverse skill sets, building up your... trying different things in the 00:12:22.680 |
comfort of your own home where there's not a lot of pressure to see, "Hey, do I like 00:12:27.960 |
Maybe this is an expression of my artistry and it brings me satisfaction to make my personal 00:12:33.360 |
abode something that reflects my individual taste." 00:12:38.600 |
But generally speaking, we want to work in our areas of specialty where we are the most 00:12:44.600 |
productive, where we are the most appreciated, and then we want to let other people work 00:12:48.720 |
in their areas of specialty and of genius because that's where we have the wealthiest 00:12:58.320 |
I'm certainly guilty of romanticizing the off-grid homesteading lifestyle myself, but 00:13:03.040 |
I know in the smarter part of my brain that's no way to live for me and I kind of shy away 00:13:10.440 |
The very best off-grid lifestyle comes when you have some form of work that you really 00:13:18.240 |
enjoy, be it doing scientific experiments or creating YouTube videos or writing the 00:13:24.200 |
next greatest American novel, and you have a few hundred thousand dollars a year coming 00:13:29.840 |
That way you can buy all your toys, you can have your tractors, you can have all the 00:13:32.840 |
people, and then you can give yourself the satisfaction of looking out over your flocks 00:13:36.960 |
and your herds that other people take care of, and your beautifully painted stables, 00:13:41.400 |
et cetera, but it's all based upon that side income that comes from where you actually 00:13:50.720 |
And one kind of argument, there is one good reason to do it yourself on a lot of jobs 00:13:55.720 |
is to know for sure you never want to do them again. 00:13:58.760 |
I refinished floors once and I was more than happy to pay for floor installation the next 00:14:04.120 |
time rather than refinishing them because it almost killed me. 00:14:07.200 |
>>Trevor: Every time I talk about how I don't love DIY projects, I feel like I'm betraying 00:14:12.040 |
my father a little bit, because one of the things that my dad worked hard when I was 00:14:15.480 |
younger was, in addition to education, he worked hard to give us opportunities to do 00:14:25.040 |
So I spent a summer when I was in middle school, I spent a summer working for a tile setter 00:14:33.560 |
I've spent time doing construction work, various kinds of carpentry and all kinds of different 00:14:40.320 |
I've done some electrical work here and there. 00:14:42.160 |
And so what I have learned from those things, every one of them is what I do not want to 00:14:48.880 |
And in hindsight, I appreciate that I'm actually pretty capable. 00:14:52.560 |
I remember when I was a senior in high school, we got together to build our senior class 00:14:59.520 |
And I was surprised, because I didn't think I was much of a carpenter, I was surprised 00:15:03.400 |
that I was one of just a handful of guys who had a concept of basic construction techniques 00:15:09.360 |
and how to drive a toenail into a piece of two by four and how to put something that's 00:15:14.200 |
not going to fall off, put together some random float that's going to actually hold together. 00:15:20.200 |
But I actually consider it a very good part of my experience that I've done enough of 00:15:25.320 |
those kinds of jobs to know that I do not want to do those things for the rest of my 00:15:29.720 |
And so it motivated me to not spend my time there, because I just found it so physically 00:15:43.520 |
So I hope to impart the same lessons to my children to either give them the chance to 00:15:47.680 |
say, "Hey, my children are good at working with their hands and they find great satisfaction 00:15:52.000 |
in it and they're good at it," or to learn the same lessons that I personally have learned. 00:16:00.360 |
I just run my kids a little house in the prairie and I felt very humbled by how much stuff 00:16:06.160 |
the father could do and build the house and everything and all the different skills he 00:16:13.240 |
But yeah, my question is kind of just a boring one about real estate. 00:16:21.400 |
My in-laws have a house that they bought from another family member about nine or 10 years 00:16:27.320 |
It wasn't bought because they intended to keep it for an investment. 00:16:32.160 |
It was just kind of a circumstance in the family that they ended up buying this house. 00:16:35.440 |
It's very close to where they live, right across the street, in fact. 00:16:41.320 |
And now they're getting to the point where they don't... 00:16:43.480 |
I don't think they ever really wanted to have a rental home, but it's appreciated quite 00:16:49.200 |
And some of the other factors, like having a person in the family to do all the repairs, 00:16:56.080 |
he's getting a bit older and not as nimble as he used to be to be able to get over and 00:17:00.640 |
So some things that made it attractive to be an unintended landlord are kind of falling 00:17:06.400 |
And I simply told them, "It's probably just time to sell it." 00:17:09.080 |
Some of the kids are talking about what they're missing out on there. 00:17:14.040 |
And the way I could describe it to them, I think I'm correct in saying that, well, they're 00:17:18.000 |
going to miss out rather than their parents keeping it until they die and passing it on 00:17:22.480 |
to the children to get the step-up value, which right now I think it has gained somewhere 00:17:29.360 |
That is significant and they could save a lot of taxes on that, but that's really the 00:17:35.400 |
And if you're talking about 15% capital gains tax, somewhere in the order of $50,000, I 00:17:41.600 |
said, "Is that really worth it for your parents to keep a house that they really don't necessarily 00:17:52.120 |
And I think no, but obviously it's their decision to make. 00:17:55.040 |
So I don't know if there's any other thoughts I need to bring to the table there to give 00:17:58.160 |
them a full breadth of the conversation or if I'm thinking about that correctly. 00:18:03.760 |
What do you think would happen to the money if the house were sold? 00:18:08.320 |
What do you think would happen with the money, the profits? 00:18:13.320 |
It would go to help the parents have a probably more secure retirement, although they're very 00:18:20.720 |
I don't think they're in any jeopardy of having a bad retirement. 00:18:24.360 |
They're just getting to retirement age, by the way. 00:18:26.800 |
And I think one of them is still working part-time just to have something to do. 00:18:30.280 |
The other one's in her first year of retirement and who knows if she'll go back to work or 00:18:36.520 |
But I think they're fairly good financially, so it might just go to a net thing. 00:18:41.360 |
Maybe it would go to some less desirable trades. 00:18:48.280 |
But I don't think it's necessary for their financial security if that's the case. 00:18:53.800 |
Well, here are the things that go through my mind. 00:18:56.920 |
Taxes are a question, but I think you're right to demote that to a relatively low importance 00:19:04.040 |
because you're talking about long-term capital gains, taxes. 00:19:10.040 |
Depending on how good their records are, yes, they may have some gain, but it's not going 00:19:16.760 |
My first question is what happens to the money? 00:19:18.680 |
The beautiful thing about real estate is, especially for normal people who aren't engaged 00:19:24.800 |
in just every couple of years borrowing every last penny of equity out of their property, 00:19:31.240 |
real estate allows people to have an asset that produces an income where they don't spend 00:19:37.680 |
That's a uniquely beneficial thing for many people. 00:19:43.820 |
You mentioned the children, which is why I wondered what the ownership here is. 00:19:48.240 |
It's really nice if you have an asset that can't be sold, especially when you're thinking 00:19:56.840 |
It's nice if you have an asset that is worth a lot of money but can't really be sold and 00:20:02.960 |
won't be sold because it has some kind of value to the family. 00:20:06.060 |
That allows the family to maintain wealth but not to fritter it away. 00:20:11.240 |
Cash is wonderful, but cash spends really easily. 00:20:17.720 |
So I ask myself, is this the kind of property that should be sold or is this because we 00:20:23.080 |
don't need it anymore and it was a good move but it's not useful now? 00:20:27.520 |
Or is this the kind of property that shouldn't be sold because it would be useful to have 00:20:32.440 |
in the family and to have as a piece of wealth that could continue to produce dividends down 00:20:38.440 |
This next question I ask myself is, could this real estate fill a unique role in the 00:20:44.000 |
retirement and financial planning of the parents who own it? 00:20:47.800 |
The nice thing, related to what I just said, the nice thing about real estate is in an 00:20:53.200 |
ideal scenario, if I could have every retirement planning client that I encounter have a handful 00:21:03.480 |
of houses and the bulk of their assets in mutual funds, stocks, etc., I would be tickled 00:21:12.440 |
pink because what happens is those houses balance people's concerns in a way that the 00:21:19.720 |
paper assets, which are non-tangible and feel risky to people, those houses are more familiar 00:21:28.200 |
And so when markets are down, as a financial planner, and you're talking to someone and 00:21:31.640 |
you're saying, "Listen, markets are down 30%, markets are down 40%, there's fear everywhere, 00:21:36.520 |
don't sell, don't sell," it's nice to say, "Look, you guys over here, you've got $4,000 00:21:41.680 |
coming in from your rental real estate portfolio, you're fine, right? 00:21:46.600 |
Just ignore the statements for the next year. 00:21:48.760 |
Let's let this market clear, let's just relax." 00:21:51.760 |
And so the fact that the houses are usually uncorrelated, and I don't want to misstate 00:21:58.600 |
that, let's just say less correlated to things like large equity markets, etc., and then 00:22:03.760 |
also the fact that they're tangible, that people understand them in a way that nobody 00:22:08.000 |
understands stocks and mutual funds, then I like that from a diversification perspective. 00:22:13.880 |
And so I think it's valuable to have, and for the reasons stated, that it's nice to 00:22:18.840 |
have that income that comes in, it's nice to know there's a bunch of gains sitting there, 00:22:23.080 |
it's nice to know we have a paid-off house that we could access if we needed it. 00:22:27.120 |
That said, I think people often find themselves to either be real estate people or not to 00:22:35.440 |
And it sounds like these people might not be real estate people. 00:22:40.720 |
Like, "Okay, well we bought it because it showed up and it's actually turned out to 00:22:43.720 |
be a good move, but we don't really want to be real estate people in the future." 00:22:48.880 |
In my experience, many people, once they buy a house, they quickly learn, meaning a rental 00:22:53.280 |
house, and they go through it for a couple of years, they quickly find out either, "Yeah, 00:22:57.040 |
I can handle this, I can learn these skills, and I'm good at it, I'm a real estate guy," 00:23:03.600 |
In that case, I say sell the house, put the money in mutual funds, and go on. 00:23:09.680 |
Because if they're looking for productive assets that don't require the difficulty, 00:23:15.400 |
don't require the time, don't require the trips to Home Depot, etc., then I think certainly 00:23:19.640 |
there's no question that mutual funds are superior, vastly superior, to that piece of 00:23:25.360 |
But those are the additional questions that I would ask. 00:23:27.520 |
Is this going to be a useful part of their portfolio, etc.? 00:23:32.920 |
I think that, as a financial planner, you recognize that people who just have one or 00:23:38.680 |
two houses often don't, they often significantly underperform capital markets, but I still 00:23:46.200 |
feel like it brings a good amount of mental security to people to know, "I have this house 00:23:52.880 |
here that's available for me that's creating rental income." 00:23:55.440 |
So I can't give you a clear yes or no, but that is what I think about. 00:24:02.880 |
It's a good thing to consider the realness of it. 00:24:05.320 |
While they're good savers, I wouldn't say they're financially savvy as far as anything 00:24:13.480 |
So having something real could help them mentally in the future. 00:24:20.040 |
Super dangerous for people to say it's all a mystery to me. 00:24:24.920 |
Because what happens is they can take advantage of it really easily, and they can do dumb 00:24:32.560 |
things because, "Oh, it's all a mystery to me." 00:24:35.200 |
And so this is one of the reasons why I think that real estate has been so productive at 00:24:44.960 |
People understand it intuitively because they've always lived in houses. 00:24:53.360 |
Houses are big dollar figure things, so they're hard to sell. 00:24:58.040 |
People don't just freak out when the market goes down 5%. 00:25:00.640 |
They don't get marked to the market every day. 00:25:02.400 |
You don't get a statement every day on your iPhone telling you, "Here's what your house 00:25:06.680 |
And so because of that benign neglect, real estate generally works out for people. 00:25:12.560 |
Whereas with stocks and mutual funds, for the unsophisticated, they often wind up making 00:25:19.140 |
these errors when they could be avoided if they would just apply that same principle 00:25:28.920 |
Peter T. Leeson, Jr.: Well, thank you for helping them to think it through clearly and 00:25:38.800 |
My name is Jim, and I have a, I hope, quick question for you. 00:25:44.360 |
The synopsis is my dad is trying to convert his SEP IRA to Roth, do a Roth conversion 00:25:57.340 |
The little background on him, 70-year-old single, only on Social Security, so he doesn't 00:26:03.820 |
Obviously, will when he has to start taking RMDs or he starts converting. 00:26:09.060 |
He's got a SEP IRA, all taxable, approximately a million dollars. 00:26:14.000 |
For him, RMDs will start at 72 instead of 70.5. 00:26:17.720 |
He's looking at doing the Roth conversion, and let's see, he's aware the Roth conversion 00:26:24.400 |
is going to count as income, and he's going to have to file tax returns. 00:26:27.640 |
Wants to stay in the no higher than 24% bracket, which is about 170 for a single person, because 00:26:35.360 |
when he takes his regular RMDs, which is going to be about $40,000 to $50,000 a year, that's 00:26:41.680 |
automatically going to put him in the 22% bracket. 00:26:43.680 |
He figures that the 24% bracket is marginal cost to get the benefits of a Roth. 00:26:52.120 |
The real question for you is, do you see, what downsides are there to this? 00:27:00.280 |
Before I answer that, what upside is he hoping to get? 00:27:03.880 |
Why does he think that he's served well by a Roth conversion? 00:27:09.760 |
My brothers and I are the beneficiaries of it. 00:27:16.640 |
I cannot convince him to take a dollar out of it, and he's basically looking to pass 00:27:22.640 |
All three of us are going to be in the 22% or higher bracket, and he figures if it can 00:27:28.720 |
grow tax free over the next, he's estimating 10 years, he just thinks that he's a very 00:27:38.120 |
anti-tax guy, and he just thinks that this is going to be a better option for him to 00:27:46.760 |
give to us, so we don't have to pay taxes on it later. 00:27:51.160 |
He hopes to start converting it now at about $150,000 a year, and then he can get it all 00:27:57.360 |
converted to Roth, it'll grow a bit, and then everything's tax free after that. 00:28:03.520 |
So I think that that answer that you gave is the answer that makes this a good move. 00:28:12.160 |
Meaning what he's trying to do is he's trying to pay taxes at a predictable rate that he 00:28:18.720 |
can control now based upon the amount of money that he converts, and he's trying to move 00:28:23.440 |
it into a Roth IRA where he won't have to take required minimum distributions with the 00:28:29.200 |
goal that he lives a long and healthy life for his entire lifetime. 00:28:34.200 |
He gets to enjoy that money being tax free, and then at his death, then you would be the 00:28:40.760 |
beneficiaries of the Roth IRA, and you would be able to maintain that tax free nature for 00:28:47.960 |
a significant amount of time depending on what the actual rules are at the time of his 00:28:53.560 |
death based upon the inheritance of a Roth IRA. 00:28:57.560 |
I say that because this is one of those areas where there's certain to be change, right? 00:29:01.920 |
Traditionally we would say, "Well, you could put it into a stretch IRA and take it out," 00:29:05.520 |
and then in the recent round of tax legislation, there were some new rules imposed, and so 00:29:09.920 |
we don't know what those rules are going to be 30 years from now. 00:29:13.120 |
All we know is that if he keeps it in the SEP IRA and then he dies, then you as the 00:29:19.920 |
beneficiaries will have to pay full income taxes on it as you take it out. 00:29:23.120 |
Of course, you can still do some stretch IRA calculations, et cetera, and also we know 00:29:32.040 |
that if he keeps it in the SEP IRA, he'll have to start doing required minimum distribution. 00:29:36.320 |
I think that here this is a good reason to do a distribution. 00:29:41.720 |
So now the question you asked me is what are the downsides? 00:29:44.400 |
I'd say number one downside would just be that you're going ahead and locking in the 00:29:50.960 |
taxes now, and is it possible that instead of taxes going up in the future, that taxes 00:30:00.220 |
go down in the future or that there's some other wrinkle that comes out? 00:30:05.480 |
That's unknowable, and so you always hate to pay taxes. 00:30:09.460 |
If there's ever a time when you can defer taxes to the future, you always try to do 00:30:14.720 |
So in this case, this is one of those questions where maybe something changes in the future, 00:30:23.440 |
He and I have spoken about that, the future risk, and he and I are both, as I think you've 00:30:31.760 |
said in the past time or two, that overall tax rates may go up and down and so on and 00:30:39.840 |
But in general, they generally don't fluctuate a dramatic amount to make a huge difference. 00:30:48.600 |
There's a time or two in history that it has, but over the last 20, 25 years, our tax bracket 00:30:53.480 |
has stayed fairly stable within reason for up to $150,000 to $200,000 a year. 00:31:03.120 |
Typically on those that make more, it fluctuates more, but for the middle class, it seems to 00:31:17.880 |
That is my personal analysis as well, that any changes have generally shown themselves 00:31:27.520 |
There are changes at the margin, and it seems to me that the taxing authorities feel like 00:31:34.200 |
they've pretty well dialed in their Laffer curve, that they're at the optimal amount 00:31:38.600 |
to get the most tax revenue out of the population with the least amount of noise. 00:31:43.080 |
And so taxes are a political tool that politicians press on, that we're going to raise taxes 00:31:49.680 |
on the rich, we're going to lower taxes on business people and on the middle class, et 00:31:54.480 |
And so when they actually have the opportunity to pass legislation, generally it seems like 00:31:58.800 |
they're unpersuaded to make any significant changes. 00:32:02.960 |
And so the changes are relatively small, and I think it's simply because they've honed 00:32:06.400 |
in on the fact that we've got a precisely very efficient tax code. 00:32:12.080 |
I think it's, I say from personal experience, that this is true. 00:32:16.040 |
I find the United States kind of maddening, because the taxes are not so low that you 00:32:22.980 |
just feel like, you know what, it's wonderful, I'm in the best place in the world because 00:32:28.600 |
On the other hand, they're not so high that they're so uncomfortable that they push you 00:32:32.760 |
There's some people, some people, not all, most people just live where they live because 00:32:40.280 |
But some people will leave Sweden or leave Holland to go somewhere else, leave the Netherlands 00:32:50.160 |
But very rarely does anybody leave the United States for tax planning. 00:32:54.260 |
And so they've kind of got this sweet middle zone success story where we're not too high, 00:32:59.160 |
we're not too low, and we get a lot of tax revenue out. 00:33:02.380 |
So I think that they've dialed in that they're happy with where things are at. 00:33:08.940 |
I think that this is an appropriate situation to do the conversion. 00:33:13.260 |
I think that your father's intention for you to inherit the money in the best way possible 00:33:23.580 |
The only thing that tickles at the back of my head is I would look to see if he's charitably 00:33:28.920 |
minded and ask myself, does he have any personal charitable goals that he would like to use 00:33:36.160 |
this SEP IRA to fund in addition to an inheritance for his children? 00:33:43.880 |
Because if he set up a charitable organization, even if that was his own fund or made some 00:33:49.080 |
kind of charitable transfer with a direct transfer of the SEP IRA, I think that would 00:33:54.960 |
But beyond that, I think your analysis is good, and I think this is a good situation 00:34:04.160 |
I've got one more question in relation to this. 00:34:12.040 |
He's got two years before he has to take RMD. 00:34:17.120 |
So assuming he does this at $150,000 a year over the next two years, that's going to reduce 00:34:23.400 |
the IRA without any growth or anything down to $700,000. 00:34:27.640 |
Now, from my understanding, if you can confirm this, I'd appreciate it. 00:34:34.000 |
After he's 72, he's going to take his RMD of about $28,000 to $30,000 a year based on 00:34:43.840 |
And he can still do, above that, he can still do Roth conversions after he has started his 00:34:54.680 |
You can do Roth conversions any time that you want. 00:35:00.400 |
But your RMD cannot count as part of that Roth conversion, is my understanding. 00:35:07.680 |
Yeah, the RMDs have to go into a taxable account. 00:35:11.160 |
And if he doesn't have earned income, then those RMDs would have to go into the taxable 00:35:19.200 |
And along those same lines, say in two years at $700,000, he starts his RMD, which is going 00:35:28.320 |
If he then does an extra $100,000 a year, will his RMDs from 72 to say 77, will his 00:35:37.120 |
RMDs go down because that's recalculated every year? 00:35:50.400 |
And I just wanted to, it's a big financial move for my dad. 00:35:55.080 |
He's worked in the oil field forever and he just had, he was looking for some maybe confirmation 00:36:02.840 |
But if nothing else, he was just looking to bounce some ideas and I figured I'd give you 00:36:09.000 |
And I want to say thank you for doing this for your Patreon people. 00:36:15.840 |
And I think that the Patreon cost is well worth, well underpaid for what the information 00:36:25.600 |
I tell people and sometimes it seems like they don't understand. 00:36:29.160 |
The cheapest way to talk to me, as long as you don't mind someone hearing the sound of 00:36:33.320 |
your voice and airing out and my choosing how long it is, the cheapest way to talk to 00:36:37.600 |
me is to jump on one of these Friday Q&A calls. 00:36:55.040 |
So my question is, I am thinking of buying a vacation home abroad somewhere in Central 00:37:02.640 |
America and my interest is peaked in El Salvador because my husband and I are Bitcoiners and 00:37:11.200 |
we love the idea of maybe a plan B residence over there. 00:37:16.160 |
The housing is affordable at this time and we might want to possibly retire there. 00:37:22.640 |
But most of all, it would just be a vacation home and hopefully something that we could 00:37:31.440 |
So we basically saved up $100,000 to put toward it so far, which is not enough, I think, to 00:37:43.160 |
So my question is, should we keep saving up and just wait for the right time or should 00:37:53.040 |
What's an appropriate amount of money to spend on something like this? 00:37:55.720 |
It does seem very luxurious purchase that we're not used to buying, but we are debt 00:38:08.960 |
Oh yeah, and we love it, but my husband does have a day job and we do hire people. 00:38:16.000 |
I just wrote a big fat check today for a fencer. 00:38:19.480 |
But anyway, just kind of wanting to get some advice from someone who's not trying to sell 00:38:24.120 |
us a home abroad and maybe a little pep talk about how to make this purchase appropriately 00:38:32.680 |
in a way that's not going to stress me out, in a way that's not going to make me regret 00:38:40.080 |
And another thing, because we are homesteaders, it's not really possible to spend a huge amount 00:38:47.840 |
We could probably get away for a couple weeks a year. 00:39:04.160 |
That's step one, because you want to make sure, if you're going to buy a vacation home, 00:39:10.240 |
you want to make sure that you buy somewhere that you like and that you're actually going 00:39:14.280 |
to go and do it, especially when you're thinking about doing it abroad. 00:39:18.960 |
Where in the United States is your primary homestead? 00:39:28.000 |
So just trying to think of flights in and out of Central America. 00:39:32.120 |
You would always have to connect through either LA or Texas or Florida from Arizona. 00:39:43.800 |
So here are some of the questions that I would raise. 00:39:50.640 |
And I'll give you some arguments as to why for you to consider. 00:39:55.440 |
The second question, do you speak Spanish or does your husband speak Spanish? 00:40:04.520 |
Third question, if you did buy a property, not having yet gone there, describe to me 00:40:23.160 |
That included a property manager, because I don't want to be a hands-on landlord. 00:40:28.440 |
It would be like a tiny house or a little surf cottage by the beach. 00:40:37.040 |
So something not in a condominium, not a big building, but some kind of freestanding structure. 00:40:46.360 |
And you want a freestanding house, but in a development that somebody is developing 00:40:57.240 |
I have my eye on one that's in development right now. 00:41:18.400 |
I would caution you and I would say that you want to be very clear on what you're actually 00:41:23.260 |
paying for, and I'll give you some insight into the Central American marketplace. 00:41:30.360 |
So to begin with, if you're going to choose a vacation home, you need to choose a place 00:41:37.080 |
And I would really want you to spend several significant vacations in this place before 00:41:47.660 |
And make sure that you actually like going there. 00:41:50.680 |
And that liking going there needs to be everything associated with liking going there. 00:41:56.520 |
Meaning, that's why I asked about airline connections, right? 00:42:01.200 |
It's kind of a hassle if you have to fly from Tucson to Houston and all of the connections 00:42:08.880 |
Or you fly from Tucson to Miami, there is probably a two and a half hour flight. 00:42:13.860 |
And then you sit in Miami for four hours, and then it's another two and a half hours 00:42:17.180 |
from Miami back west to El Salvador, and now to get back and forth is a whole day's travel 00:42:25.440 |
On the other hand, if you could find something that's a direct two hour shot, then that's 00:42:34.600 |
One of the things that you need to be very aware of when dealing with Central America 00:42:38.560 |
specifically, and this is true in many places outside the United States, not all, but it 00:42:45.720 |
Property does not move fast like you're accustomed to in the United States. 00:42:54.800 |
In the United States, especially right now, you can sell a property and you can know a 00:43:00.680 |
You can sell a property in a couple of weeks. 00:43:02.440 |
I don't know of anywhere in the United States that has a slow real estate market. 00:43:05.880 |
You can sell a property and the market is extremely efficient, so you know what the 00:43:09.960 |
price that you're getting in as and you know what the price that you can get out is. 00:43:15.240 |
You go and you say, "Hey, I bought this property. 00:43:16.800 |
It's $125,000 and now I can sell it and I can get out of it." 00:43:23.720 |
That is not true in any way, shape, or form in any place in Central America. 00:43:31.200 |
If it is true, the only place it would be true would be a place like Panama City with 00:43:36.360 |
downtown apartments in well-established high-rise apartment buildings. 00:43:43.640 |
There's nowhere else or Mexico City in very desirable neighborhoods and very established 00:43:51.400 |
That's where you could sell a property quickly. 00:43:53.840 |
Everywhere else in Central America, you would expect that if you wanted to sell a property, 00:43:58.640 |
minimum you should plan on a couple of years because there's no efficient marketing of 00:44:06.560 |
There's no central system and there's not a lot of demand, especially the kinds of properties 00:44:14.640 |
There's not a lot of local demand for those properties. 00:44:18.240 |
The reason I say there's not a lot of local demand, let me explain to you how Central 00:44:24.800 |
In Central America, you have a much greater wealth disparity than you have in the United 00:44:32.440 |
In the United States, there is a massive middle class where you have many, many people who 00:44:39.100 |
have the means to afford middle class lifestyle. 00:44:43.560 |
The United States has the strongest middle class of any country in the world. 00:44:49.440 |
In Central America, you have a very, very small middle class. 00:44:53.080 |
You rather have a small upper class and a very large lower class. 00:45:02.100 |
You have many, many very, very wealthy people all throughout Central America. 00:45:07.280 |
They live like wealthy people, which means they have nice houses, they have nice plantations, 00:45:12.400 |
they have nice apartments, they have nice cars, they have large estates with multiple 00:45:19.880 |
employees working for them on their estates, etc. 00:45:23.600 |
They're not interested in a beach shack somewhere. 00:45:27.880 |
They're not interested in some dinky little apartment. 00:45:30.400 |
They're interested in top level properties that are created for wealthy people and they 00:45:36.960 |
On the other hand, you have a huge lower class. 00:45:40.880 |
That lower class is not interested in buying any kind of property that you would actually 00:45:48.200 |
Because the lower class can build for itself an appropriate home. 00:45:52.400 |
Unlike in the United States where no poor person can build his own home, you can't afford 00:45:56.640 |
it because you can't afford to comply with code enforcement, you can't afford to do it 00:46:00.640 |
all at once, you can't afford to get your plans through city hall. 00:46:04.400 |
Poor people in the United States can't build their own houses, but in Central America you 00:46:09.400 |
You can go out and you can get some wood from the local rough cut lumber from the local 00:46:13.440 |
saw mill and you can save up and you can get a few pieces of tin and you can build a shack 00:46:19.360 |
Everywhere that you will go in El Salvador where somebody is building a community, there 00:46:24.400 |
are plenty of people who are already living there, but they built their house for $2,000, 00:46:33.200 |
So the kind of property that you're looking at is not the kind of property that you will 00:46:40.800 |
So you need to know that going in and be thoughtful and recognize, "Hey, if I buy this property, 00:46:46.080 |
I'm going to own this property for a very long time and/or I'm going to have to sell 00:46:54.880 |
So now let's talk about the foreign property market. 00:46:57.000 |
So the development that you're looking at is almost certainly, if it has a website and 00:47:01.600 |
if it's something that has crossed your computer screen, that development is almost certainly 00:47:08.360 |
a development that has been created for expats, for foreigners, be it for vacationing foreigners 00:47:16.440 |
or just expats living in El Salvador, which is great. 00:47:23.080 |
And in fact, you might find it to be a wonderful community. 00:47:27.560 |
There'll be a really fun international flair. 00:47:30.960 |
There's lots of other expats that you would be able to speak with in English. 00:47:37.440 |
It's not bad to live in an expat bubble in El Salvador. 00:47:43.080 |
And the kinds of people who would also be interested in a tiny house or a surf shack 00:47:46.880 |
on the beach might just be your perfect people that you really want to enjoy being with. 00:47:51.840 |
But you are paying a very significant financial premium for that property because you are 00:47:58.840 |
compensating the developer who had the vision and the foresight and took the financial risks 00:48:03.800 |
to put the land together to get the appropriate zoning permits, to get it all titled and marked 00:48:08.240 |
out and surveyed and to go ahead and build the structures, etc. 00:48:11.960 |
And that developer probably has a significant inventory. 00:48:16.640 |
And so let's say that you buy the property and five years from now you want to sell it, 00:48:21.600 |
the developer is still going to probably have a sales office where he's still building other 00:48:25.520 |
properties and selling those other properties. 00:48:27.280 |
And so why would somebody come and buy your five-year-old lived-in property and not simply 00:48:32.320 |
go and buy one of the brand new ones from the developer? 00:48:36.760 |
You might develop the place and it's beautiful. 00:48:41.400 |
And for me, if I could go in and buy a five-year-old house, but that five-year-old house is surrounded 00:48:46.280 |
by a food forest, whereas the brand new one has been, the ground has been raised and it's 00:48:50.560 |
just denuded earth and I've got to do it all, man, I'll take the five-year-old house with 00:48:58.320 |
So those should be some big warning flags to say to you that if you go into this type 00:49:03.920 |
of property, you want to make sure that you actually like it and that you like being there 00:49:09.380 |
and you're going to get good use out of it, that you're going to fly down and spend significant 00:49:13.840 |
amounts of time there, that your family is going to want to come and be with you there 00:49:20.980 |
Whereas the property markets in all of Central America are simply wildly different than everything 00:49:26.940 |
that you are accustomed to in the United States. 00:49:34.780 |
If you buy a property that you love and that you love going to and that you're going to 00:49:39.300 |
want to continue to go to for many years, then I say go for it. 00:49:45.980 |
Buy it, make use of it because you'll enjoy it. 00:49:48.560 |
If your family enjoys it, maybe it's got a wonderful surf break and you just love going 00:49:53.220 |
down there, your children love it or your friends love it, go for it. 00:49:58.340 |
Is there a good chance that these properties that are purchased today will be worth more 00:50:07.380 |
All of the economies in Central America are growing with the exception perhaps of Nicaragua. 00:50:17.700 |
El Salvador just elected a young forward-thinking president. 00:50:24.860 |
Many of these countries have made tremendous progress in reducing corruption, increasing 00:50:32.620 |
There's every reason to think that there's good potential for growth in the future. 00:50:37.700 |
I don't expect Central America to be the war-torn, violent place that it was during the 1980s. 00:50:50.020 |
I don't personally expect that to happen again, again with the big exception of Nicaragua 00:50:57.780 |
If you're looking at it from a financial perspective, I think you would find many, many markets 00:51:04.240 |
that seem much more attractive in terms of their growth potential than most places in 00:51:13.060 |
That would be my caution to say, don't buy a property because it looks good in the pictures. 00:51:21.460 |
First thing you do is go there, spend some time there, find some other Bitcoiners who 00:51:26.780 |
are also doing that, check out where they're going. 00:51:29.020 |
I think there is a good reason to think that El Salvador may indeed have some growth due 00:51:37.000 |
There are many people who are overnight Bitcoin millionaires who are going there and seeking 00:51:42.440 |
to encourage them for their forward-thinking stance on making Bitcoin a required currency 00:51:51.480 |
But having spent a good amount of time in Central America, I would caution you that 00:51:57.600 |
go and live it, spend several good vacations there before you actually go and pull the 00:52:05.040 |
One more piece of advice and then I'll await your response. 00:52:09.920 |
Before you go and you buy in a planned community, make sure that that planned community is going 00:52:16.360 |
to offer you something significant that is not available in the open market. 00:52:27.560 |
Here is where, since you don't speak fluent Spanish and you are a foreigner, I would strongly 00:52:33.720 |
urge you to find a local person, develop some local contacts. 00:52:42.400 |
You might meet some people who live there, meet some expats, you might meet a missionary 00:52:50.340 |
And then you probably want to find some professional contacts, right? 00:52:54.800 |
Probably a local lawyer is one of the best information brokers. 00:53:00.520 |
Hire the lawyer to be your representative and to look for some other properties. 00:53:04.760 |
Because if you're looking to spend your money well, for $100,000 without question, if you 00:53:12.480 |
could work with an appropriate local, you could get far more land and probably more 00:53:18.520 |
opportunity for a house than what the developer is offering you. 00:53:22.000 |
And go and see the development with your eyes and say, "Is this a place that I actually 00:53:28.480 |
First, all throughout Central America are all kinds of developments where somebody came 00:53:34.280 |
I'm going to make a buck developing property and selling it to rich Americans." 00:53:39.200 |
And they come in and they just never finish the development. 00:53:41.580 |
And you'll find that there's this big elaborate gate and then the road is just destroyed in 00:53:47.400 |
You're left with something that is totally, it's not worthless, but it's pretty much worthless. 00:53:58.000 |
And if the developer just takes the money and disappears, then everyone who actually 00:54:01.520 |
bought property in that development is left without recourse. 00:54:05.040 |
And many times, the development doesn't get finished. 00:54:08.000 |
And so you need to be very thoughtful and get good legal advice to make sure that you're 00:54:11.980 |
getting in at a phase in which it's appropriate. 00:54:14.800 |
There are some developments that are really special. 00:54:19.020 |
My favorite development in Central America is Rancho Santana, which is one that Mark 00:54:24.520 |
Ford was involved in developing in Nicaragua, San Juan del Sur, Nicaragua. 00:54:32.520 |
But it's amazing because Mark and his co-investors, they sank, it was a passion project for them, 00:54:42.280 |
They sank Rancho Santana, Rancho San Juan, and they decided to develop it. 00:54:45.320 |
And they have committed themselves to maintaining that standard of luxury. 00:54:49.520 |
And it's the kind of standard that there is a big market for because it's a luxury market. 00:54:54.520 |
Another good example would be in Costa Rica, right? 00:54:56.600 |
You've got Los Sueños, the development in Jaco. 00:55:03.280 |
And it's going to always have that luxury appeal because it's convenient, right? 00:55:10.320 |
In an hour, you can be at your door in Jaco, hour and a half, hour to hour and a half from 00:55:16.360 |
You can, you have the Marriott Hotel there, which is an attraction for many tourists. 00:55:24.000 |
You've got kind of this high-end stuff and it's a luxury development that's very proven. 00:55:28.880 |
And so I think these are the kinds of developments and they're all over Central America. 00:55:32.600 |
You can find them, but they're not at the low end, the low end side. 00:55:37.800 |
And I think there's a good, if you're looking for a luxury vacation home, there's a good 00:55:43.040 |
But I would be nervous myself, especially without having spent significant amount of 00:55:47.840 |
time there vacationing or without having a personal acquaintance. 00:55:53.560 |
There are expats developing all kinds of properties all throughout Central America. 00:56:01.080 |
Little eco-villages, little things like that. 00:56:03.600 |
And so if you can find a labor of love where there's somebody who's building something 00:56:06.880 |
because they're committed to it and they're living there, then yes, go all in. 00:56:09.960 |
Just make sure that this one that you're involved in does have that expression. 00:56:19.560 |
I think I was feeling like I needed to get in while prices were kind of still low in 00:56:27.280 |
the region before things blow up because of Bitcoin. 00:56:30.040 |
And I think I was kind of spiraling into an impulse buy, perhaps. 00:56:36.360 |
And I think I just need to chill out and I need to go there. 00:56:39.040 |
And I mean, if prices rise in the next few years, so be it. 00:56:45.640 |
You need to go there and you need to make sure. 00:56:47.160 |
I do not expect, I think that Bitcoin may have some influence on El Salvador. 00:56:53.920 |
But El Salvador is starting from a very position significantly at the rear. 00:57:01.440 |
El Salvador is known for having the highest murder rate in Central America. 00:57:05.960 |
I think the fear that people have of that is overblown. 00:57:09.240 |
Generally, virtually all of the violence that happens in Mexico, in anywhere in Central 00:57:15.520 |
America, virtually all of the violence is related to drugs. 00:57:18.840 |
Meaning people that are buying drugs, going and literally buying drugs on the beach in 00:57:24.240 |
Mexico and get targeted, or who are involved in the drug trade and the gang wars that are 00:57:31.360 |
But El Salvador has had its reputation significantly tarnished by that. 00:57:37.120 |
And it's one of those things where the reputation of El Salvador is the worst, in my opinion, 00:57:52.240 |
I would say I think their reputation is the worst. 00:57:54.640 |
And so again, I think oftentimes it's overblown. 00:57:57.400 |
But most people who don't have some confidence from traveling in the region are going to 00:58:07.100 |
And so you just want to be recognized that it's starting from a backwards position. 00:58:11.360 |
And it's going to take some time to work those things out. 00:58:13.800 |
So I say, yeah, get in early, but make sure that you go slow. 00:58:18.320 |
Because this is the kind of market where there's no clear and obvious wins. 00:58:25.120 |
I think that if you're looking from an investment perspective, there are many other places in 00:58:28.520 |
the world that are much more exciting from an investment perspective. 00:58:32.280 |
The reason you would go to El Salvador would be, hey, I've got some Bitcoin in this wallet 00:58:47.440 |
We got this little corner where some other Bitcoiners are also setting up shop, where 00:58:52.280 |
we're all going ahead and establishing our homes together. 00:58:57.680 |
Then I think that there's a good reason for you to do it. 00:58:59.520 |
But I wouldn't just jump in out of a fear that you're going to miss out. 00:59:11.840 |
I want to talk about European inheritance taxes. 00:59:26.640 |
I could do US inheritance taxes all day long, but I'm not good enough to do European. 00:59:35.800 |
I don't know if the exact specifics are really what I'm looking for. 00:59:39.080 |
I think I'm looking for more for just the general strategies to try to reduce them. 00:59:42.920 |
And obviously, there will be country-specific stuff. 00:59:45.800 |
But I've got friends who have family property in France. 00:59:52.120 |
And they're trying to figure out whether going through some maneuvers to try to equity strip 01:00:04.040 |
the property with a mortgage on it to reduce the value of the property for the tax basis 01:00:10.840 |
purpose is worth it versus just going ahead and paying the taxes. 01:00:15.720 |
But I was just sort of curious about just kind of what some of the strategies you can 01:00:20.480 |
have other than just straight out paying it in terms of trying to potentially reduce the 01:00:28.960 |
So, again, we're outside of my area of expertise. 01:00:37.000 |
This is definitely a question where you would want to retain a proper French financial planner 01:00:44.320 |
who understands the ins and outs of French taxation. 01:00:49.600 |
What I would point out is that there are a couple of options, things that are worth paying 01:00:58.400 |
Thing number one, it's important to note, especially when we're dealing with the difference 01:01:02.880 |
between Europe and the United States and especially France, that... 01:01:08.640 |
And let me just clarify, this is not you that you're working on this problem. 01:01:14.560 |
And you're just kind of meditating on their question, wondering if there are any options 01:01:22.400 |
And these friends, are they born and bred, raised native French or are they expats who 01:01:36.360 |
They're actually dual US French citizens, but they are straight up French. 01:01:42.040 |
So the dual citizenship thing is actually complex, but let's just give you a quick overview 01:01:48.600 |
and I won't be able to give you many details. 01:01:51.400 |
Number one, it's important to recognize that the attitude and the practice around taxation 01:01:56.440 |
and tax paying is exceedingly different between France and the United States. 01:02:02.960 |
In the United States, first of all, the United States has the highest rate of tax compliance 01:02:10.880 |
Regularly, when the surveys are done of people paying their taxes, people in the United States 01:02:16.720 |
pay their taxes as they are calculated and owed at a higher rate than any other country 01:02:24.080 |
Whereas other countries that rank very highly, such as Germany, still the United States comes 01:02:29.560 |
out with a higher payment rate of people actually paying their taxes as they are assessed and 01:02:39.900 |
This is often surprising to people because as US Americans, we like to gripe a lot about 01:02:52.060 |
We have lots of loud people who, these loud, crazy libertarians who believe that taxation 01:02:57.960 |
is theft and they get all grumpy when they think that they should pay any taxes. 01:03:02.680 |
But the truth is that there is a deep seated belief in the US American system that you 01:03:11.480 |
And thus, we have a system that's somewhat straightforward and people comply. 01:03:22.260 |
The French context is much more of a matter of a battle, an argument, and there's going 01:03:28.780 |
to be some negotiations involved between the tax authorities and the individual taxpayers. 01:03:35.060 |
You don't just, in the United States, if you get a bill from the IRS and they say, "You 01:03:38.700 |
owe us X amount of dollars," you pull out your checkbook and you write it. 01:03:44.320 |
If you get a bill from the tax authorities in France, you start working on it and you 01:03:47.380 |
think, "Well, okay, how are we going to do it?" 01:03:51.780 |
I know that that much is true and I wouldn't go beyond that in my personal analysis. 01:03:55.380 |
But I would say that here's where the local knowledge is so important. 01:03:59.740 |
That it's not like in the United States where there's a set of techniques and we can look 01:04:06.700 |
We need to actually go and say, "Who are the local taxing authorities? 01:04:16.980 |
Second thing is that unlike the United States, which has global taxation, the tax bill that 01:04:23.660 |
a French citizen can legally owe is based upon the behavior of that French citizen. 01:04:34.280 |
So as a US American, if you've got $150 million, you're going to have to go through the relevant 01:04:46.460 |
The actual taxes themselves are somewhat optional. 01:04:52.540 |
There is an abundant repertoire of techniques that can be applied to the reduction of those 01:05:01.820 |
But the whole estate itself is going to be taxed under the US system. 01:05:08.780 |
And this is where, for your French friends, they're going to have, if their wealth rises 01:05:15.000 |
to the level of where they're going to owe inheritance taxes, estate taxes, then they 01:05:22.900 |
will have to deal with the US system itself separate from the French system. 01:05:27.180 |
However, a French citizen always has the ability to move his affairs outside of France. 01:05:36.100 |
And so this is where, to some degree, some form of equity stripping or looking at the 01:05:41.580 |
estate and figuring out where are the assets and what the assets are, and could we move 01:05:45.700 |
some of those assets to a tax haven, that can be a very effective strategy. 01:05:50.980 |
It is not an effective strategy for US citizens. 01:05:54.500 |
Because you could take, let's say you've got $150 million in the US, and you say, "Oh, 01:05:58.700 |
I'm just going to move my $150 million from the US, I'm going to move myself outside of 01:06:03.900 |
I'm going to go down to my little beachfront resort in El Salvador that I bought with my 01:06:07.220 |
Bitcoin, and I'm going to move my $150 million just simply outside the United States and 01:06:12.980 |
That's not going to save you anything from an estate tax perspective. 01:06:17.140 |
You can do some sophisticated planning, and you can start to move some of the money, some 01:06:21.700 |
of the assets into irrevocable trusts, and you can freeze the assets. 01:06:25.980 |
You can bring it together under your gift tax exemptions, your estate tax exemptions. 01:06:30.860 |
There are techniques that you can do, but the whole offshore thing is not such a direct 01:06:35.780 |
However, for a French citizen, those things are possible. 01:06:39.500 |
The same French citizen could move to El Salvador or to some other place that's more tax-friendly, 01:06:46.500 |
could keep his property in France, but could escape over time the French taxation system, 01:06:53.500 |
even up to and including not owing inheritance taxes on the bulk of his estate. 01:07:00.940 |
Real estate is always going to be taxed by a local government, because that's what a 01:07:07.300 |
A government can control your real estate because they, using their martial power, they 01:07:14.460 |
That's our current definition of what a nation state is. 01:07:18.860 |
It's a military force that controls, by use of force, a specific area of land. 01:07:25.900 |
Because of that, the tax authorities, the tax agents of that government have massive 01:07:39.980 |
They can't keep your intellectual property from moving. 01:07:41.940 |
They can't keep yourself from moving, but they can control your land. 01:07:46.280 |
There is potentially a whole world of techniques that are available to your friends that are 01:07:52.100 |
not available to US citizens, where your friends can move themselves to a tax haven. 01:07:58.740 |
They may move some of the equity out of that property. 01:08:01.260 |
They may have some negotiations with the local taxing authorities. 01:08:06.620 |
They may move the property into trust in some way. 01:08:09.220 |
I can't articulate the specific techniques beyond what I've done, but they do have a 01:08:15.900 |
What they definitely would want to do is they would want to consult a proper professional 01:08:20.540 |
who is familiar with French law and custom and who could work in that area. 01:08:27.220 |
Then do a personalized assessment to figure out what needs to be done with their affairs. 01:08:42.620 |
I have spent a lot of money on tax planning materials for Europeans. 01:08:53.940 |
I just can't summon it to mind quickly enough to answer it specifically. 01:09:06.380 |
So interested in the subject of what I'm going to call baby prep hacking. 01:09:11.580 |
So I've been listening extensively to your series of podcasts about what to do with young 01:09:17.380 |
children and homeschooling and babies and diapers and everything and sharing it with 01:09:23.540 |
We're starting to talk about, okay, what can you do? 01:09:26.460 |
What strategically can you put in place financially ahead of or shortly after the birth of your 01:09:32.220 |
Things like 529 plans or whole life insurance policies for children. 01:09:36.540 |
I was wondering, is there anything new, anything that you haven't talked about yet that are 01:09:41.980 |
just kind of little niche fund strategies for giving yourself a financial advantage 01:09:46.260 |
by having a baby or giving them a financial advantage? 01:09:50.780 |
I encourage, so to be clear, are you currently expecting a baby or is this hypothetical at 01:09:57.180 |
>>Lucas: This is hypothetical at this point, but I don't think it will be too far off. 01:10:02.300 |
So I do like to always insert here the topic of birth tourism. 01:10:08.940 |
I think one of the biggest opportunities that you can give your child at the time of birth 01:10:15.300 |
is access, and I mean this financially speaking, is access to a country or a region or a set 01:10:27.140 |
There is a reason why there is a thriving birth tourism industry in the United States, 01:10:34.340 |
in Canada, etc., because for people who are not from these countries, they can achieve 01:10:40.540 |
for their children a whole new set of opportunities, a whole new set of advantages by virtue of 01:10:48.020 |
their child being born a citizen of that particular nation. 01:10:53.340 |
So Americans don't think a lot about this because we tend to not look outside of our 01:11:00.820 |
We know that we live in the land of opportunity, and so we're not accustomed to thinking I 01:11:05.180 |
should go and look somewhere else for opportunity. 01:11:08.300 |
But this is something that is well worth considering. 01:11:13.340 |
You could, I'm assuming you sound American, are you living in the United States and you 01:11:20.620 |
So right now you could go, and let's say you were having a child, you could go and you 01:11:27.540 |
And if you had your child born in Canada, your child would be from birth a Canadian 01:11:32.700 |
You can go to Canada, you can rent a nice house or find a nice hospital or birth center, 01:11:37.060 |
whatever you wind up doing when it comes time to dealing with the medical details of the 01:11:40.820 |
birth, and your child will be a Canadian citizen by virtue of being born on the soil of Canada, 01:11:49.980 |
which is a just solely country that offers citizenship to anybody born on its soil. 01:11:56.140 |
That won't do anything for you or for your wife, but what it would do for your child 01:12:01.180 |
would be, number one, give your child the right to be a Canadian citizen, which means 01:12:08.300 |
your child would always have the right to live in Canada. 01:12:14.840 |
Your child would have the right to be educated without cost to your child in Canada at every 01:12:22.400 |
Your child would have the right to the Canadian government healthcare system by virtue of 01:12:30.520 |
And so those four things right there from a financial perspective could be very significant 01:12:40.120 |
You could put money in a 529 account and save money for your child's education, or you could 01:12:44.660 |
just simply have your child be a Canadian citizen and have the plan be that your child 01:12:48.600 |
goes to Canada and simply goes to college in Canada, which is much more progressive 01:12:56.040 |
than the United States with regard to college funding, government healthcare programs, etc. 01:13:04.800 |
And so it's a significantly difficult thing to do, and I think that very few first-time 01:13:11.800 |
parents are going to be motivated enough to do it. 01:13:15.400 |
It's difficult for a first-time mother on top of all of the complications of having 01:13:26.480 |
It's difficult to imagine going to another country, but that is an opportunity. 01:13:32.040 |
So if you're looking for kind of benefits, government benefits, then that's a very, very 01:13:42.120 |
You could also look at this in terms of where is an opportunity zone, right? 01:13:46.800 |
Where is there an opportunity for significant financial growth? 01:13:50.120 |
Where would I want my child to be able to go and work and live, and where would there 01:13:57.220 |
So you could say, where are the places in the world where there's the highest rates 01:14:02.200 |
Now this is hard for birth tourism because most countries don't offer birthright citizenship, 01:14:14.100 |
If you had a child born in Brazil, as quite commonly talked about, then your child would 01:14:20.240 |
have the legal right to live and work virtually in all of South America as part of MERCOSUR, 01:14:25.920 |
which is an alliance of South American nations working together. 01:14:30.200 |
If you look forward over the next several decades, it's hard for me personally to believe 01:14:35.680 |
that Brazil, a nation of a couple hundred million people, plus Argentina, plus Chile, 01:14:42.280 |
plus Colombia, plus Venezuela, when it comes out of its nightmare, all these countries, 01:14:47.600 |
it's hard for me to believe that there's not more opportunities for a faster growth prospect 01:14:52.760 |
than there is in, say, the United States, which is a more mature and advanced economy. 01:14:59.120 |
So that would be another way of looking at it. 01:15:04.200 |
I won't go on more about birth tourism other than to say that you can look at the world 01:15:10.800 |
Let's say that you had an interest in Europe, right? 01:15:12.960 |
Many people have an affinity and an attraction to Europe. 01:15:17.040 |
It's hard to have a European citizen, but since you're not currently expecting a baby, 01:15:21.560 |
it could be possible for you to establish a residency, a legal residency for you and 01:15:27.240 |
your wife in Europe, and then have your child born in Europe. 01:15:30.160 |
And then your child, Portugal would be a good country to look at there, and see if you could 01:15:35.080 |
arrange for your child to be a Portuguese citizen from birth by virtue of you and your 01:15:50.600 |
I tend to think that she would be somewhat hesitant with a first child to do that, just 01:15:57.000 |
wanting some of the comforts and closeness of home and being around family for it. 01:16:02.520 |
But the idea is awesome, and I'm definitely attracted to it. 01:16:06.320 |
I think that virtually almost no US American first mother, first time mother would ever 01:16:16.720 |
And it's hard for me to imagine her saying yes. 01:16:20.460 |
My wife and I did it with our third child, and what I would say is- 01:16:24.480 |
Sorry, our fourth child, and what I would say is that it's doable. 01:16:30.000 |
Having done it, it's much harder than most people think, and most people are not going 01:16:34.520 |
to actually do it for all the reasons that you stated. 01:16:37.280 |
But I can't myself help but appreciate the elegance of it as a solution. 01:16:43.520 |
And there are, and I say that for my international audience, that there is a big difference between 01:16:48.360 |
you and your wife's situation versus our Afghani friends who are listening, or our Pakistani 01:16:57.040 |
friends who are listening, or our Iraqi friends, or our Haitian friends who are listening. 01:17:02.880 |
Because all of a sudden, you and I, you have no concept of how difficult it is to live 01:17:10.560 |
in the world as a citizen of Afghanistan only. 01:17:13.840 |
And so if there is a kind of a middle class or upper middle class Afghani couple who is 01:17:23.120 |
thinking about having a baby, the very best, most important thing that they could do with 01:17:29.080 |
their money, if they could in any way work it out, is to fix their paperwork problems. 01:17:38.380 |
There are paperwork problems that Afghanis and Pakistanis and Iraqis face. 01:17:45.220 |
And so it's a big deal, and it would without question be the best $20,000, $30,000, $40,000 01:17:51.200 |
spent for those people, for that they could invest into their children in order to solve 01:18:01.220 |
Now let's go back to your situation personally. 01:18:05.720 |
When you have a new child, I would say the first thing is I always buy a whole life insurance 01:18:11.860 |
I don't buy generally big ones, but if your financial situation allows you to, I think 01:18:24.220 |
And then what I do is I make sure that those policies have two things that are very important 01:18:29.940 |
So number one, I buy a small whole life policy, and I make sure that it has an additional 01:18:34.760 |
purchase benefit on it that allows the, where the policy has a guaranteed right to purchase 01:18:42.260 |
more life insurance in the future at a certain age. 01:18:47.040 |
And so generally, I think with the policies I own for my children, starting at the age 01:18:52.880 |
of 20, then I as the policy owner can purchase additional life insurance for them every three 01:19:01.580 |
And I usually start with either $25,000 or $50,000 policies, and I can put an additional 01:19:07.340 |
purchase benefit on the policy of $50,000 or $100,000 or $150,000. 01:19:12.220 |
What that means is, let's say I start with a $50,000 policy, and I have usually, I think 01:19:17.500 |
it's seven opportunities between 20 and 40 to add $150,000. 01:19:22.420 |
I can buy a $50,000 whole life policy when my child is 10 days old. 01:19:28.380 |
And I can't remember, I think the child does have to be at least five days old, seven days 01:19:34.780 |
But I can buy a policy within the first month of my child's life when the child has no medical 01:19:42.700 |
My children aren't scuba diving, they're not learning to fly airplanes, they're not doing 01:19:50.340 |
And then with that additional purchase benefit, I can increase it in the future without any 01:19:56.580 |
I can increase it without any hobby or avocation underwriting. 01:20:02.740 |
And so I have those options to increase it in the future for them. 01:20:06.660 |
Now most of the time, this is unnecessary, right? 01:20:10.020 |
Most of the time you're not going to need it. 01:20:12.580 |
You're just going to keep the policy and maybe you just gift it to your child when your child 01:20:21.620 |
If you have a child that takes up a major interest in racing cars, if you have a child 01:20:28.180 |
who takes up an interest in becoming an underwater welder or to get a pilot's license, or you 01:20:34.300 |
have a child that faces medical problems, heart defect, leukemia, is a drug addict, 01:20:42.900 |
very depressed, suicidal, like these are the kinds of things that can make a big, big difference 01:20:49.260 |
The fact that you can buy life insurance for your children in the future is a very nice 01:20:55.340 |
You've got to be careful because these policies are not term insurance policies. 01:21:00.100 |
And so to add on $150,000, you're buying $150,000 whole life policy for your children at every 01:21:08.620 |
But to know that I could turn my $50,000 policy into an excess of a million dollar policy 01:21:13.180 |
for each of my children, I really appreciate that. 01:21:17.140 |
These policies are terrible for cash accumulation. 01:21:21.180 |
The cost of the additional purchase benefit, and I also put a waiver of premium benefit 01:21:24.660 |
on there, where if the child is ever disabled, then the premiums get waived on the policy. 01:21:29.340 |
But on all my children's ones, there's a clause where I can still exercise the additional 01:21:35.060 |
purchase benefit and the premiums are included. 01:21:38.660 |
The cost of those benefits, while very modest on a monthly basis, I'm not sure, I don't 01:21:44.620 |
I think they're like $30 a month, $50 a month, something like that, I can't remember. 01:21:53.980 |
But most of the cost goes straight to insurance and to these additional purchase benefits, 01:22:00.340 |
And so the cash value in the policy is quite anemic. 01:22:05.020 |
They do grow and they do build cash value, but they're not great investments. 01:22:12.980 |
The next thing, 529 accounts, can a 529 account be a good idea? 01:22:18.060 |
If it's important to you to have money set aside for college funding, then the best time 01:22:22.660 |
to do that is when your child is one day old. 01:22:26.660 |
And the best way to do it is to make massive transfers into your child's 529 account up 01:22:36.020 |
And so if you're wealthy enough to do it, you can put up to five years of your annual 01:22:40.900 |
exclusion gifting amount into a 529 account on day one. 01:22:45.740 |
And then you can do that for a husband, you can do that for a wife, your parents can do 01:22:51.860 |
And so you can put in excess of six figures easily into a 529 account. 01:22:57.140 |
And the benefit of this is this immediately puts money aside that can grow for your children's 01:23:04.340 |
If it doesn't get used for college, you can get the money out either with a couple of 01:23:09.700 |
the escape options that we've talked about in the past. 01:23:13.020 |
More importantly, this is one of the very few assets that moves money out of your estate 01:23:23.700 |
So generally, just like we're talking about estate planning under US estate law, if you 01:23:27.460 |
move an asset out of your estate, it has to go into an irrevocable trust that you get 01:23:31.540 |
no interest in, you get no control of, et cetera. 01:23:34.920 |
But a 529 account allows you to move the money into the 529 account and you can still get 01:23:40.660 |
You can change the beneficiary, you control the money, but it's out of your estate. 01:23:45.500 |
It's also frequently an asset that's protected from the claims of creditors in many states. 01:23:51.380 |
It's also an asset that can be frequently protected in bankruptcy. 01:23:55.600 |
And so it's a very useful way that you could set aside a lot of money for your child's 01:24:00.940 |
future for his or her education and yet do it in a good way. 01:24:06.060 |
And then when you put a lot of money into those accounts up front and you have a long 01:24:09.680 |
time for them to grow with good investments, that's where from a tax perspective they really 01:24:23.260 |
Definitely a little better clarification than I had on the 529 and really how to maximize 01:24:29.060 |
value there by making a large upfront payment. 01:24:33.540 |
We've done some of the more niche stuff, just the kind of people we are. 01:24:40.060 |
I think we probably see eye to eye on several things. 01:24:42.540 |
We already bought used cloth diapers in bulk from a friend who was selling them. 01:24:49.500 |
Anything else like that that you haven't mentioned on the podcast before? 01:24:53.780 |
I think my wife would be willing to listen to an entire podcast of your wife talking 01:25:01.340 |
So used cloth diapers are wonderful because, so first of all, people who aren't familiar 01:25:09.340 |
with cloth diapering, they're like, "I don't do cloth diapering." 01:25:14.780 |
What's funny is that we've used cloth diapers with all of our children, but we use disposable 01:25:19.080 |
diapers when we travel because we don't have the facility to wash the diapers. 01:25:27.100 |
My wife can't stand disposable diapers because they always blow out. 01:25:30.620 |
They don't hold the things that they're supposed to hold, whereas cloth diapers, properly done, 01:25:38.900 |
And if you buy them early and if you get them in bulk, if you get them used from a friend, 01:25:43.740 |
etc., then they're fantastic because they're super expensive to buy. 01:25:48.140 |
Especially if you go and buy them new, they're really expensive to buy. 01:25:52.020 |
That's a good area where doing a bulk buy on the secondhand market is really, really 01:25:57.740 |
The other thing that you just want to be careful of is it takes a little time to figure out 01:26:02.060 |
So an example, with our first baby, we thought, I forget the brands now, but we thought we 01:26:17.020 |
But then, it's funny, a midwife said, "Just covers and inserts, covers and inserts." 01:26:22.500 |
And this brand, I think it may have been Fuzzy Buns or something, where you have to insert 01:26:28.660 |
It becomes super annoying over time because you always are doing this extra work. 01:26:37.740 |
That's her favorite, which is just a cover with inserts, but she likes the Buttons brand. 01:26:42.580 |
So that's what she would say if she were giving her cloth diaper spiel. 01:26:47.220 |
But it's really great and it's definitely the way to go. 01:26:56.860 |
Putting all the plastic into a landfill drives me nuts for something that can be so easily 01:27:02.340 |
You'll also want to think ahead about your washing machine. 01:27:04.720 |
If you're going to do cloth diapers, you want to have, if possible, you don't want to have 01:27:10.540 |
You want to have an upright washing machine with a center agitator. 01:27:16.980 |
You also want to be careful on the soap that you use and make sure that you have an appropriate 01:27:21.780 |
The big thing you can do is you can stockpile clothing pretty easily. 01:27:26.420 |
So what my wife did when we had children was whenever people said, "Hey, do you want baby 01:27:35.260 |
And so most people have one or two children and then they're looking to, they don't want 01:27:40.980 |
to have any more children and they need to free up their space and they need to get rid 01:27:45.260 |
And most people that have one or two children who are upwardly mobile, et cetera, they have 01:27:50.420 |
lots of nice clothes and the clothes barely ever get worn. 01:27:56.260 |
Anytime someone says, "Oh, do you want this certain thing?" 01:28:01.260 |
And what she would do is she would go through, organize them, sort them, take the ones that 01:28:05.240 |
she liked, make her outfits, et cetera, and then just line them up according to size. 01:28:10.660 |
She would clean them, get some of the spots off, et cetera. 01:28:15.740 |
I got some of just those standard shelving units at a home improvement store and I set 01:28:24.180 |
And for the first, she had I think 12 Tupperware bins of free clothes that she got or had them 01:28:29.860 |
all organized according to size, all organized in advance. 01:28:33.420 |
And basically for the first years of our three children life, she bought like three outfits 01:28:41.160 |
and it was three outfits because she just thought they were really cute and she'd never 01:28:51.620 |
And it's really a relief also for the parents who are just a little bit ahead of you. 01:28:57.240 |
They have a child that's a few years older because now once they have a repository for 01:29:01.780 |
their used clothing, then that solves their problem. 01:29:09.780 |
And then when you're done, you pass it along to others, et cetera. 01:29:14.200 |
Beyond that, with children, there's really not a lot of costs. 01:29:22.220 |
If you wipe out your diaper cost, depending on whether you're able to successfully breastfeed 01:29:31.100 |
But if you take that out, there are very few costs for babies. 01:29:33.300 |
And so my biggest encouragement is invest into your child as much as possible. 01:29:39.960 |
And so the big investments that I think pay off in spades is, if at all possible, make 01:29:46.740 |
sure that your child can have a full-time mother, most importantly, at least for the 01:29:51.300 |
first three to five years of his or her life. 01:29:54.900 |
And I say organize your finances in such a way that that is doable and affordable for 01:30:02.220 |
If you can make sure that your child has a full-time mother for at least those establishing 01:30:08.420 |
years, that can make such a difference for the rest of your child's life. 01:30:16.660 |
If you can avoid institutionalizing your children when they're very young, then that can pay 01:30:27.780 |
There are several good books on how to improve your baby's intelligence. 01:30:34.300 |
But there are a lot of things that you can do of stimulating your baby in different ways. 01:30:38.060 |
It's as simple as reading to your children, making sure your children get sunshine, and 01:30:44.820 |
But I think that your best investments are not financial in that case. 01:30:48.460 |
Just a matter of how can I invest into my children to make sure that my children have 01:30:53.980 |
You can deal with some of the stuff that I've talked about with multiple languages. 01:30:57.440 |
You can bring in tutors or nannies to help support you in that. 01:31:03.820 |
I think that it's interesting to look at, but some of it can be overwhelming. 01:31:08.060 |
A lot of it can just be simplified down to take time and spend time with your baby. 01:31:14.060 |
But yet those things can pay off in spades and largely obviate the need for all of the 01:31:21.660 |
To me, it's obvious that if you're thoughtful about what you do in the first few years of 01:31:26.980 |
life and you make sure that your children have a good, solid emotional grounding where 01:31:34.540 |
they're not traumatized in some way, and you work hard at those early years of education, 01:31:45.340 |
early years of vocabulary, early years of school, homeschooling is great for many families, 01:31:52.020 |
then you basically eliminate all of the things that are going to cost you money down the 01:31:58.100 |
People will throw money at your children for college. 01:32:01.300 |
People will throw opportunities at them, and all the stuff kind of takes care of itself. 01:32:05.580 |
And so the least efficient way to handle those things is through all of the financial stuff. 01:32:11.860 |
That's an industry that has been developed that allows we financial advisors to sell 01:32:17.460 |
But it's much more efficient for you if you handle it in the old way, and then the whole 01:32:23.380 |
system again will throw money at your children for the rest of their life if you get those 01:32:35.580 |
I think summarized, I think you said in the last Q&A call, it's quantity of time at work 01:32:42.220 |
and quality of time—I'm sorry, the reverse—quality of time at work and quantity of time at home. 01:32:46.780 |
So that'll be my guiding star when that time comes. 01:32:51.660 |
So think about it in terms of not having payments, not having big bills. 01:32:57.140 |
Or if you can't pay off a house, don't have a car payment. 01:32:59.960 |
Think about it in terms of, well, maybe you and your wife both have to work. 01:33:03.860 |
You both need jobs, but is grandma available? 01:33:06.960 |
Could we go ahead and move into a bigger house where grandma could be in the house? 01:33:13.700 |
Just think about it in terms of the infrastructure of your life because it pays off. 01:33:21.480 |
So keep me in the loop and then, hey, call back in the future and we'll see what happens. 01:33:25.580 |
All right, I had several callers drop off, but here we go. 01:33:39.660 |
So I have a main question and then a quicker second question if we have time, but I'll 01:33:52.060 |
I have a career as an IT specialist with a government defense contractor, and I'm considering 01:33:58.540 |
joining the reserves or the Air National Guard on a part-time basis. 01:34:03.580 |
And I was wondering what your thoughts were on whether you think the benefits of part-time 01:34:11.780 |
Thinking about it, like in my mind, the pros would be the potential to gain more experience 01:34:19.380 |
and different kinds of opportunities in my field, the education and healthcare benefits, 01:34:25.540 |
eligibility for VA home loans, eligibility to use commissaries and future retirement 01:34:32.180 |
But some of my concerns are the increasingly authoritarian kinds of rules being imposed 01:34:39.540 |
on military members and federal employees, like the vaccine mandates, as well as just 01:34:47.740 |
more limits on my freedom and free time, especially if I were to have a family in the next five 01:34:55.940 |
Adding another layer of bureaucracy to my life, like another person telling me where 01:35:00.580 |
I have to be and when I have to work or train, as well as it being more difficult to transfer 01:35:06.540 |
or move to a different state or part of the country if another opportunity came up, like 01:35:18.260 |
I will answer your question, and I will be as clear as I can. 01:35:25.100 |
This will be an extremely offensive answer to some of my listeners, and I don't enjoy 01:35:30.740 |
I especially don't enjoy offending people who have dedicated their lives to public service, 01:35:37.620 |
service to country, etc. because generally those are the kinds of people that I like. 01:35:43.060 |
But I believe in being honest, and so I'll give you my honest opinion, as if you were 01:35:52.220 |
I come from a family of people who served in the military. 01:35:57.700 |
My grandfather was in the army in World War II. 01:36:00.780 |
He was on the beaches of Normandy two days after D-Day. 01:36:07.340 |
My father was a lieutenant commander in the Navy and served in a submarine for many years. 01:36:20.060 |
So I come from a family of people who were in the military. 01:36:25.340 |
My father was in the reserves for many years, even after he left active service. 01:36:31.580 |
I cannot understand today why any intelligent, capable man or woman would ever join the U.S. 01:36:44.100 |
I cannot see an argument in which it makes any kind of sense. 01:36:49.860 |
The things that we honor, the arguments that we most honor are usually protecting freedom 01:37:00.940 |
or standing up a sense of patriotism, a love of country, etc. 01:37:08.900 |
We should honor people who want to defend their neighbors, etc. 01:37:13.660 |
But for people who have the most noble of ambitions to serve and to protect, etc., I 01:37:24.820 |
do not see how those noble ambitions can be achieved by serving in the U.S. military in 01:37:32.260 |
any capacity, especially even including the reserves. 01:37:36.780 |
The entire framework of the modern military system is utterly corrupt. 01:37:43.580 |
You cannot be honest and succeed in that system. 01:37:48.500 |
The only way that you succeed in the military system is by being dishonest. 01:37:55.980 |
I think the writer, who I would encourage you to read what he has written, who is the 01:38:04.580 |
I've never served in the military, and I was strongly discouraged by my father from ever 01:38:12.660 |
I grew up reading books, reading Tom Clancy books and other thrillers that imbued me with 01:38:32.540 |
But he strongly discouraged and sought very, very vigorously to dissuade us from going 01:38:39.780 |
I am today exceedingly grateful that he did, because I would have joined some form of the 01:38:46.420 |
military, some branch of the military out of a desire to have a sense of adventure, 01:38:52.300 |
out of a desire to have that sense of camaraderie, kind of that being with the boys, doing something 01:39:03.540 |
I could have literally lost my life for no good reason at all. 01:39:12.660 |
I'm grateful that I listened to him and his discouragement of going in the military and 01:39:22.740 |
First of all, read what John T. Reid writes on the subject. 01:39:25.860 |
John is known mostly in financial circles for being a real estate pundit, but he went 01:39:31.500 |
to West Point and he spent a good number of years in the military academy. 01:39:35.460 |
One of the things that I appreciate about him is he writes honestly on military issues. 01:39:43.420 |
For example, I find his article that he wrote years ago on military draft to be exceedingly 01:39:53.500 |
persuasive as to why he believes that all military members should be drafted, that having 01:39:59.940 |
an all-drafty army is actually one of the best ways that you could get a potentially 01:40:07.320 |
So I don't support a draft, but I find his arguments very, very persuasive. 01:40:13.180 |
Read some of his arguments about joining the military from the perspective of someone who 01:40:20.060 |
From my perspective, I would say that virtually everything that you want to get out of the 01:40:25.500 |
military you can get better in another circumstance. 01:40:32.760 |
The fact that you have paid me money to go and be on this Q&A call today tells me that 01:40:38.640 |
you're smarter than the person who needs the military for a college degree. 01:40:44.220 |
The training that you need, the specialization, even a sense of adventure, all of those things 01:40:49.560 |
can be accomplished better and more effectively than in the military. 01:40:55.500 |
The problem is if you join the military, you will face a significant series of ethical 01:41:00.700 |
conflicts combined with a set of very difficult personal conflicts in your own life. 01:41:11.180 |
The US government and the vast majority of military actions that the US government engages 01:41:17.380 |
in are immoral because they are not involved in defensive warfare. 01:41:23.340 |
I personally, this is kind of a joke that in today's world, I oppose a standing army. 01:41:28.100 |
The United States should not have a standing army. 01:41:31.100 |
There should not be an army that has military bases in a hundred and probably thirty or 01:41:40.740 |
All of those bases should be sold and all of the troops should be returned back home. 01:41:47.980 |
Or if there is a standing army, it should be a very, very small standing army. 01:41:51.940 |
But that is not the path that we have taken as a nation. 01:41:56.060 |
So if you get involved with the US military, you're not involved in serving and protecting. 01:42:00.580 |
You're involved in being in promoting military power around the world for the protection 01:42:09.500 |
and the advancement of military, of American business interests. 01:42:18.900 |
He was in Vietnam in a submarine spying through the periscope on Russia and other places. 01:42:29.060 |
And his commander told him, "Dave, listen, you need to understand the US military exists 01:42:34.780 |
for one reason and that is to protect American economic interests. 01:42:39.100 |
And so when you sign up for that, you are going into a moral conflict and you're putting 01:42:44.860 |
yourself in a situation in which you will be court-martialed if you follow your conscience. 01:42:51.260 |
And most of the time, people that come out of the military, they have to work very hard 01:42:55.900 |
to justify to themselves many of their actions. 01:43:07.020 |
So you go back and in my lifetime, the US military has been involved in undeclared war 01:43:17.060 |
And every single one of them has been a failure. 01:43:19.660 |
The US military has not won a war since World War II. 01:43:28.740 |
There was one spectacular victory in Desert Storm, which then of course resulted in Enduring 01:43:37.220 |
Freedom Operation to depose Saddam Hussein and then the quagmire that was Iraq. 01:43:44.060 |
And if you go and you look at the death toll of even just these recent conflicts, the war 01:43:51.300 |
in Afghanistan, the war in Iraq, and the military actions in Pakistan have cost the lives of 01:43:57.140 |
perhaps somewhere between 2 and 4 million people. 01:44:05.340 |
So you have to recognize that when you're joining an organization that exists to kill 01:44:10.260 |
people, that you are going to be in a situation in which you are going to be asked to kill 01:44:17.620 |
And that is something that should not be taken lightly. 01:44:20.420 |
That's something that if you kill someone, whether you kill someone straightforward at 01:44:26.940 |
the muzzle of your gun, or if you kill someone by you're sitting in a trailer and driving 01:44:32.320 |
a drone and dropping a bomb on someone, or whether you just simply do it in a supporting 01:44:37.620 |
role cooking for your mates on the ship, you are involved in an organization that exists 01:44:46.900 |
And virtually all of that killing in the modern context is absolutely immoral. 01:44:52.460 |
The only, only circumstance in which taking another man's life is morally justified is 01:45:04.660 |
That is the only context in which it is morally justified. 01:45:07.980 |
And so you can create these elaborate theories that somehow the United States of America 01:45:12.700 |
is safer because we have military bases in a hundred and whatever fifty countries around 01:45:19.020 |
the world, and we have all this stuff, and somehow that's a defensive warfare and we're 01:45:24.180 |
going to go into Afghanistan and we're going to get those nasty terrorists before they 01:45:33.380 |
And so I think that you run the risk of putting yourself into a moral conundrum. 01:45:41.340 |
And it's very difficult, again I gave my trigger warning up front, that this is very difficult 01:45:47.540 |
for most people because once you get into it, if you enlist, you are going to quickly 01:45:52.140 |
start to talk yourself into the moral appropriateness of your actions. 01:45:59.820 |
Because you'll see information and you will be conditioned into believing that what you 01:46:05.580 |
The reason why militaries all around the world enlist you at seventeen and eighteen and nineteen 01:46:13.620 |
and twenty and frankly twenty-five years old is because you are gullible. 01:46:24.300 |
I remember vividly my driving in my car, listening to right-wing talk radio talk about 01:46:33.140 |
"we've got to go ahead and we've got to go in and get those people who attacked us on 01:46:37.060 |
9/11 and we've got to go in and it's Operation, I forget, it was Enduring Freedom." 01:46:41.360 |
And I was so gullible that I was just enthusiastic about it. 01:46:46.380 |
Well now in my mid-thirties I'm less gullible than I was. 01:46:49.940 |
And so if you talk to young men, young men think that war is exciting. 01:46:57.620 |
And the only time at which you voluntarily walk into hell is when the people are literally 01:47:03.820 |
at your door and they're going to kill your children and rape your wife and steal your 01:47:10.660 |
In that sense, yes, you walk into hell and you defend your home. 01:47:15.540 |
But you don't do it voluntarily for any beyond that. 01:47:19.420 |
So it's almost, I would say impossible, although I haven't been in the military and I've known 01:47:27.900 |
I've had clients, I've had people I've served on boards, I've had good friends who've served 01:47:34.980 |
But I don't think you can walk in integrity in the military. 01:47:39.540 |
And I believe that you run the risk of signing yourself up for a great moral harm when you 01:47:44.180 |
put yourself in a situation where you are making a voluntary choice to go and enlist 01:47:50.420 |
in an organization that exists to kill people. 01:47:53.380 |
And that organization has proven itself to be lawless and the people that direct it, 01:48:01.180 |
A commander in chief who basically uses the organization with minimal to no congressional 01:48:06.940 |
oversight, no formal declaration of war, and just pops people into Kosovo, pops bombs, 01:48:13.380 |
sends missiles into Kosovo and sends troops in here and troops in there. 01:48:19.180 |
Now, if you got into it, you would see enough situations where you felt like you did good 01:48:22.420 |
that that's what those people, like I said, I like military guys, I always have. 01:48:27.540 |
The next thing, you are giving over control of your life. 01:48:35.500 |
And even if you do something seemingly as benign as joining the reserves, and they say, 01:48:42.180 |
listen, come out and spend a few weeks a year training with us and we'll give you some 01:48:46.900 |
cool gear, we'll let you drive some cool gadgets, we'll let you learn a little bit 01:48:53.800 |
You very well could be signing yourself up for a death sentence. 01:48:58.300 |
We've had too many people, I have a friend of mine recently who she lost her, not recently, 01:49:03.500 |
it was a number of years ago, but she lost her husband in Iraq, right? 01:49:06.840 |
How many people go and join the reserves and then all of a sudden they find themselves 01:49:17.260 |
How do you look, if I'm at your funeral and I'm talking to your widow, what do I 01:49:29.140 |
A few years ago, I spent some time with a guy who had flown, who was a marine helicopter 01:49:35.340 |
And again, the key is, as was the case with me as a financial planner. 01:49:40.700 |
A financial planner who is actively making his living as a financial planner has a very 01:49:48.260 |
hard time being honest with himself, honest enough with himself to speak honestly about 01:49:55.820 |
You have a very hard time convincing a man of something when his salary depends upon 01:50:04.620 |
And so I found it very difficult for years to separate myself from even the job of being 01:50:14.460 |
a financial planner to the point where I could look at it dispassionately and see the good 01:50:18.780 |
things, see the bad things and have some sense of personal honesty. 01:50:21.500 |
And the same thing in my experience with people in the military. 01:50:25.380 |
So anyway, I just remember a few years ago I met this marine helicopter pilot and we 01:50:36.380 |
And we spent time and he was camping with his family and we just talked about it. 01:50:40.180 |
And he of course didn't share much about his actual experiences on the battlefield, 01:50:46.580 |
And he's like, "I can't say that there was any point in being there." 01:50:50.500 |
And I think about a guy like that after the US withdrawal from Afghanistan last year. 01:50:58.260 |
Here you were at the front end of the spear inflicting bodily harm and death on other 01:51:06.860 |
What do you tell your children that you were fighting for? 01:51:10.140 |
It's difficult enough to defend things like World War II. 01:51:14.760 |
Very difficult to defend ethically things like World War II. 01:51:20.260 |
You can always point and say, "Look, we liberated the camps or we fought Hitler." 01:51:25.020 |
And so you think, "Okay, well there was some justification." 01:51:37.740 |
So number one, you're dealing with not an employer. 01:51:42.740 |
You're dealing with, I'm going to use this term, it's not quite the right term, but it 01:51:47.980 |
You're dealing with a slave master, meaning someone who controls your body and your time 01:51:55.740 |
You're voluntarily committing yourself to obey with virtually no questioning the orders 01:52:02.260 |
of unknown men and women who literally will use you as cannon fodder. 01:52:22.460 |
Number two, let's say that you survive your time in the military and you're sent off in 01:52:30.100 |
the reserves, you're sent off to war somewhere, but you survive. 01:52:37.740 |
And how many veterans commit suicide every day? 01:52:48.260 |
And because most of it is not morally defensible, the trauma just sticks with them. 01:52:54.620 |
And it literally drives men to put a gun in their mouth every single day and pull the 01:53:02.060 |
And that's what you're potentially signing yourself up for. 01:53:04.340 |
So you say, "Well, Joshua, that's unlikely, right? 01:53:07.860 |
We learned our lessons in Iraq and Afghanistan. 01:53:12.540 |
"Well, I'll go and I'll get some advanced training." 01:53:17.220 |
And here I would refer you to my best anecdote. 01:53:19.540 |
I remember years ago, I heard Joel Salatin talk about this. 01:53:22.300 |
Joel Salatin was invited by a local set of legislators. 01:53:31.900 |
And he was supposed to serve on some kind of board or whatever. 01:53:38.100 |
But he goes into this board and he was talking about something about farmers. 01:53:41.620 |
And he's like, "We need to do blah, blah, blah with farmers, blah, blah, blah, blah." 01:53:44.340 |
And a legislator said out loud what we all know is true. 01:53:49.180 |
But he says, "We need farmers because we need people to serve in the military." 01:53:57.020 |
And the basic idea was that instead of allowing farmers to actually build wealth, he was—I 01:54:04.100 |
But instead of—it was a shocking statement to come out of his local legislator's mouth. 01:54:08.780 |
But basically, you need to understand that government representatives view that they 01:54:16.340 |
need stupid poor people to sign up and serve in the military because they need bodies and 01:54:23.380 |
they need people who believe in the sense of patriotism. 01:54:26.140 |
They need people who believe in the sense of duty to country. 01:54:29.660 |
And the people who do this are poor people, they're country people, and they're farmers. 01:54:34.300 |
And so they waive things like they're people from poor backgrounds, inner city, and they 01:54:41.580 |
waive things like, "Oh, get a college education." 01:54:43.900 |
They waive all this stuff at them, "Get a VA loan," et cetera, because they're getting 01:54:49.140 |
You will never find in the modern world, you will never find a wealthy family, a sophisticated, 01:54:55.500 |
connected family that would send their child into the military. 01:54:58.360 |
It's all people who have no options, no opportunities, no intelligence, meaning that—what I mean 01:55:06.280 |
is they don't see the other options, they don't have enough mentors around them to show 01:55:11.960 |
And so then they go and they sign up for the military. 01:55:13.760 |
And so many of them wind up destroyed by the experience. 01:55:17.260 |
And so even if you come out the other side and you just went to reserve training and 01:55:20.560 |
you never got deployed and, "Yeah, I got a VA loan now," what is that really worth 01:55:31.440 |
Access to TRICARE is not going to change your life. 01:55:35.000 |
Access to the college funding, the GI Bill, is not going to change your life. 01:55:42.000 |
So if you got those things, they can be useful tools in the hands of a financial planner, 01:55:47.520 |
I've known multiple people, many veterans, they get their medical care from the VA, fine. 01:55:54.760 |
They got TRICARE, they got a disability benefit, go for it. 01:55:58.080 |
But the problem is that the risks are so high of it going another way that I think that 01:56:05.720 |
getting a VA loan, getting a GI Bill, et cetera, is very, very poor compensation for the risk 01:56:13.800 |
And if you're smart enough to ask the question of, "Should I do this?" 01:56:17.160 |
And if you're smart enough to already be working in that industry, I believe that joining the 01:56:21.200 |
military would be one of the most, at the very least, one of the most inefficient ways 01:56:27.520 |
And in the worst case scenario, potentially cost you your life, potentially cost your 01:56:33.840 |
soul, potentially cost you your sense of peace, et cetera. 01:56:37.420 |
And so I think that just in conclusion, a cold look at the pay, the benefits, et cetera, 01:56:48.920 |
as compared to what you can get without that, a cold look at that would say that there's 01:56:58.240 |
very little benefit for a person who has income, for someone who's not penniless. 01:57:06.360 |
I always want to be careful because there's no question that many people have had their 01:57:12.400 |
There are many stories of people who grew up in poverty, I didn't have a dad, and I 01:57:17.040 |
went into the military and I found my buddies and I found my father, my father figure in 01:57:24.800 |
I went on the straight and narrow and I went in and I did my four years and I got out and 01:57:34.120 |
There are those stories, but that same guy who did have that good experience is offset 01:57:39.840 |
by the guys every single day who are putting a gun in their mouth because they can't deal 01:57:49.920 |
From a practical perspective, I can't see why the military is a good move. 01:57:54.360 |
And then from a sense of honor and duty, this desire to love neighbors, protect and serve, 01:58:03.520 |
freedom, make sure that we live in a free world, most of those things just cannot be 01:58:12.680 |
I wrestle with this every Veterans Day and Fourth of July. 01:58:16.760 |
It's like, well, what do I tell my children about things like protecting freedom? 01:58:20.720 |
What freedom has the US military ever protected for Americans? 01:58:26.760 |
There's no question, okay, we liberated the camps of Jews that were going to be murdered. 01:58:31.800 |
Fine, but what freedom has the US military ever protected for Americans? 01:58:36.320 |
My entire lifetime and my entire reading of history has shown that we've gone from the 01:58:42.480 |
highest levels of freedom in the world in, say, 1750, to significantly lower levels of 01:58:52.480 |
And since then, the decline of freedom has been inexorable, and I can't find a military 01:58:58.340 |
conflict that has actually resulted in increased levels of freedom. 01:59:02.520 |
Rather, I find that almost every military conflict has resulted in decreased levels 01:59:08.360 |
And so most of the whole freedom thing is pablum, as best I can tell. 01:59:12.320 |
So if you want to defend freedom, I think your best solution is go become a lawyer and 01:59:17.360 |
If you want to defend your freedom and your neighbors, go and encourage people and teach 01:59:22.040 |
firearms training in your local community, encourage people to own weapons. 01:59:26.800 |
That's the best way to encourage freedom in the local area, et cetera. 01:59:30.080 |
So I went on a little bit long, but it's obviously a difficult thing and an emotionally laden 01:59:35.080 |
But if you were my younger brother, that's the speech I would give you to say, I can't 01:59:38.660 |
see how or why anybody would want to join the military, especially in the modern world. 01:59:49.680 |
Consider who your commanders in chief are, meaning who your commander in chief is and/or 01:59:57.880 |
Do you respect that man or that woman to the point where you would sign up to take the 02:00:06.760 |
And do you want to be used as a political tool for influence in the modern world? 02:00:13.720 |
So forgive me if that was a little bit strong, but that is my honest answer to your question. 02:00:24.680 |
I mean, I agree with you on all those points. 02:00:37.600 |
I was just going to bring up a second question that's unrelated. 02:00:45.960 |
You take every single one of the benefits, the reasons why you wanted to join the military 02:00:52.040 |
or want to join the military or are thinking about joining the military. 02:00:55.440 |
And then just call me back once a week, and we'll take one of them at a time. 02:00:59.400 |
And I'll give you a 20-minute speech on things you can do with your career. 02:01:02.520 |
And going to reserve training is never going to be on that list. 02:01:06.560 |
So again, it all comes down to opportunity cost. 02:01:13.160 |
I want to be honest, but I don't want to be hyperbolic. 02:01:18.400 |
There's no question that there have been many people whose lives have been improved by the 02:01:23.340 |
These were generally people with no network, no parents, no opportunities, nobody who reached 02:01:30.920 |
And so for them, the opportunity cost was, well, I'm going to be stuck in poverty, or 02:01:37.600 |
I'm going to be-- I'm going to have no friends or no opportunities. 02:01:41.440 |
The military was a better move for them if they survive it. 02:01:47.480 |
And so you can replace with the military with better strategies that don't have so many 02:02:02.160 |
And before you say your second question, I just want to say this. 02:02:04.280 |
I understand that this is an extremely inflammatory opinion. 02:02:07.640 |
I hope that those of you who are in my audience who are in the military and who are doing 02:02:15.600 |
it with the noblest of intentions, I hope that you understand that I respect your desires 02:02:28.000 |
And I've asked enough people and talked to enough people that I think that many of my 02:02:32.400 |
listeners who would agree with me ideologically and psychologically or who would share some 02:02:37.560 |
of the things that I care about would often agree with me. 02:02:41.320 |
But I don't intend to, I'm not saying that you as an individual have done wrong. 02:02:48.280 |
There's many people who think they can change it. 02:02:49.640 |
There's many people who serve for many reasons. 02:02:51.560 |
I think it's a lost cause at this point in time. 02:02:54.520 |
And I think that it's a lost cause and that one of the best things you can do if you're 02:03:00.980 |
in the military is get out as quickly and as reasonably as you can for the reasons stated. 02:03:06.240 |
So go ahead with your second question and we'll wrap up on hopefully a less potentially 02:03:18.000 |
So what is your opinion on using, like investing in treasury inflation protected securities 02:03:25.520 |
or inflation adjusted treasury bonds or whatever they're called, like for short term savings 02:03:31.320 |
such as to save for a down payment on a house? 02:03:34.880 |
I was looking at one of the Vanguard mutual funds, I think it's Vips, and it paid about 02:03:41.160 |
like 10% in interest, which depending on your inflation calculations, might have kind of 02:03:50.400 |
tracked the long inflation for the past year and is definitely way better than any bank 02:03:55.560 |
account while at the same time being far less risky than equities or any kind of like DeFi 02:04:05.400 |
But I don't really hear anybody recommending this avenue for short term savings. 02:04:12.160 |
I'm kind of missing or wondering if I'm missing anything there. 02:04:15.440 |
>>Tavis: I would never think of this avenue for short term savings, but I don't have a 02:04:24.400 |
So do me a favor, send me a link, either whatever brochure, whatever you're looking at, send 02:04:29.760 |
it to me at joshuatradicalpersonalfinance.com. 02:04:31.760 |
Let me look at it because this is not something that I have on my mental menu of options, 02:04:41.040 |
I don't think that tips are the greatest option of all time for retirees and protecting your 02:04:49.080 |
And I have some arguments there, but I need to think and consider from a short term perspective 02:04:57.880 |
So send it to me, joshuatradicalpersonalfinance.com. 02:05:08.160 |
>>Tavis: And with that, looks like my other two callers dropped off, which is probably 02:05:17.040 |
Thank you all so much for listening to today's show. 02:05:21.820 |
Quite stimulating and quite diverse and I love doing these shows. 02:05:25.760 |
It's hard for me to give answers that I know are offensive to people from whatever perspective, 02:05:31.600 |
but I do try to – I made myself a promise years ago. 02:05:37.160 |
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Remember that if you'd like to talk to me in private, I am currently accepting consulting 02:05:52.060 |
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Go to radicalpersonalfinance.com/consult, radicalpersonalfinance.com/consult if you would like to schedule an hour 02:06:03.520 |
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