Friday_QA-Career_Retirement_College_Retirement

00:00:00.000 | Today on Radical Personal Finance, live Q&A.

00:00:19.680 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,

00:00:22.480 | skills, insight, and encouragement you need to live a rich and meaningful life now, while

00:00:26.640 | building a plan for financial freedom in 10 years or less.

00:00:29.920 | After a long time in the desert with no Friday Q&As, Friday Q&A is back.

00:00:35.040 | Been traveling and taking some vacation and trying to recover from events the last couple

00:00:39.720 | of months, but I'm ready to go.

00:00:41.560 | Got a microphone, got a line full of collars, and here we go.

00:00:51.760 | If you are new here at Radical Personal Finance, welcome.

00:00:54.080 | I am glad that you are here.

00:00:56.340 | Every Friday that I can arrange the technology to have an internet connection and be in front

00:00:59.480 | of a microphone, I record a live Q&A show.

00:01:02.480 | So this live Q&A show works just like a live radio call-in show.

00:01:05.680 | I have an open phone line with callers sitting on the line.

00:01:08.120 | Looks like right now we've got one, two, three, four callers sitting on the line.

00:01:11.000 | May have some more join here in the next few minutes.

00:01:13.240 | And you can call in and you can talk about anything that you want to talk about.

00:01:15.880 | You can ask me questions about anything that's related to your personal situation, any particular

00:01:20.320 | questions you have.

00:01:21.320 | You want to talk about your own financial plan, that's a good topic for conversation.

00:01:24.600 | If you want to talk about something I've said in the show, ask for clarification, debate

00:01:28.840 | with me on something, solicit an opinion, talk about current events, talk about anything

00:01:32.240 | in the world.

00:01:33.240 | It's open line Friday.

00:01:35.160 | So these shows are limited to patrons of the show.

00:01:37.920 | That's the way that I limit the access just a little bit, keep it down to a manageable

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00:01:45.040 | And so if you'd like to join the show as a patron, go to patreon.com/radicalpersonalfinance.

00:01:49.480 | Just go directly to that link, patreon.com/radicalpersonalfinance and you can sign up there to support the

00:01:55.080 | show and that will give you access to these Friday Q&A shows.

00:01:58.920 | I'd love to have you join as a patron of the show and I would love to talk to you next

00:02:02.960 | week.

00:02:03.960 | But for today we go to Greenville, Texas.

00:02:04.960 | Trey, welcome to the show.

00:02:05.960 | How can I serve you today, sir?

00:02:06.960 | Hey Joshua, thanks.

00:02:07.960 | I have a question that's really kind of about balance, I guess, and it's probably a question

00:02:08.960 | that's going to be different for each person.

00:02:09.960 | I wondered if you might have a framework to think through it.

00:02:10.960 | I'm 28 years old.

00:02:11.960 | My wife and I have two low six-figure salaries.

00:02:12.960 | We're both working at a company called Greenville, Texas.

00:02:13.960 | We're both working at a company called Greenville, Texas.

00:02:14.960 | We're both working at a company called Greenville, Texas.

00:02:15.960 | We're both working at a company called Greenville, Texas.

00:02:16.960 | We're both working at a company called Greenville, Texas.

00:02:42.320 | We just have a really good situation right now where we both like our jobs and I want

00:02:45.360 | to keep working, but there's also a lot of things I want to do and would like to have

00:02:48.960 | more free time.

00:02:49.960 | So I just wondered how you balance that for somebody like me who's young and has had some

00:02:55.920 | pretty good early success, doesn't want to mess that up, but also wants to enjoy my youngness.

00:03:01.660 | Do you have children?

00:03:04.040 | Not yet, but that's probably coming in the next year or two, board one.

00:03:08.360 | And do you, what are some of the kinds of things that you feel like you'd really love

00:03:11.600 | to do?

00:03:12.600 | If you won the lotto and had a couple million bucks sitting in the bank, what are some of

00:03:15.360 | the things that are on your list that you think would be really interesting to work

00:03:18.400 | on?

00:03:19.400 | Well, I would like to be more entrepreneurial and there's nothing about my current situation

00:03:24.720 | that's really keeping me from doing that other than in my spare time I like to go and play.

00:03:29.800 | So for example, right now, I just about 10 minutes ago left out of my small town in Texas,

00:03:35.600 | Panhandle, and I'm going to New Mexico on my motorcycle right now for the weekend just

00:03:39.120 | by myself.

00:03:40.120 | So I'd like to do more stuff like that, but more of a longer, slow travel where I could

00:03:44.800 | take, you know, bring my wife with me and the dog and just kind of explore more.

00:03:51.080 | What else?

00:03:52.520 | Well, I'd like to spend more time with my friends and family.

00:03:58.440 | We're all spread out kind of all across the state.

00:04:01.040 | Texas is a big state.

00:04:03.240 | Yeah, I like woodworking.

00:04:06.840 | I've got a lot of hobbies, playing music.

00:04:10.080 | I'm one of those guys that has broad interests and will probably never master any of those

00:04:14.640 | things, but I kind of like bouncing back and forth.

00:04:16.560 | I've always got something going on.

00:04:19.960 | Does your wife have ambitions or aspirations outside of her job that she would like to

00:04:24.880 | pursue?

00:04:27.720 | She's blessed with contentment.

00:04:28.880 | Don't you really wish for that sometimes?

00:04:34.320 | I really do.

00:04:35.320 | No matter what I'm doing, I always feel like I should be doing something else.

00:04:40.640 | Yep, understood.

00:04:43.280 | Well, let's talk it through.

00:04:45.240 | So as I see it, there's almost nothing wrong.

00:04:50.080 | There's almost never sitting down and earning money and saving money, especially if you

00:04:54.800 | guys can earn a couple hundred thousand dollars a year.

00:04:57.240 | I don't know how much you're spending a year, but if you're spending a small fraction of

00:05:00.880 | that and saving a lot of money, it's hard to find any 35-year-old who would look back

00:05:07.880 | and say, "Man, you should just walk away from that."

00:05:10.920 | It's hard to find a 45-year-old.

00:05:13.040 | I would encourage you.

00:05:14.040 | I don't know how much you open up with your money with other people, but take some personal

00:05:17.480 | friends and people that you admire, maybe somebody who's 35, somebody who's 45, somebody

00:05:21.920 | who's 55.

00:05:22.920 | You've got to have relationships of trust to do this, but ask them about some of the

00:05:29.160 | things that they appreciate and some of the things that they would miss.

00:05:35.320 | I would bet that if you were able to talk to a dozen people, I would guess that the

00:05:40.200 | majority, the consensus would be if you've got a spot where you can sit in, make a couple

00:05:46.120 | hundred thousand dollars a year.

00:05:47.560 | I don't know how much you guys are spending, but let's say $50,000 a year.

00:05:50.960 | You can live great on 50 grand if you don't have a bunch of debt, 50, 80 grand, something

00:05:55.320 | in that range.

00:05:56.320 | You could save $100,000 a year.

00:05:59.360 | I think it's hard to find somebody who would say that you shouldn't do that because what

00:06:03.880 | will happen if you'll do that for a few years and get to the point where you've got a half

00:06:09.640 | a million dollars in the bank, maybe a million dollars in the bank, and you can do that by

00:06:14.160 | the time you're in your early 30s, you can do that before you have children.

00:06:21.280 | As long as you're not stupid, you pretty much for the rest of your life will never have

00:06:26.160 | to make a decision based on money, which is a very compelling form of financial freedom,

00:06:34.240 | to not have to think about money.

00:06:37.040 | And so it's hard to walk away from something like that.

00:06:41.840 | And the challenge of being 28, you're more mature than, of course, you were at 18, but

00:06:49.360 | the challenge of being at 28 is you look around and you think, "Well, I got to go now."

00:06:54.840 | And most people who are 35 or 45 or 55 would say, "Bro, a couple of years.

00:07:00.040 | Keep that up for a couple of years and have a half a million bucks in the bank."

00:07:03.960 | And then from then on, everything is simpler.

00:07:07.840 | And I think that that's a good way to start.

00:07:10.440 | And so I would be very hesitant to recommend to somebody in your situation that you leave

00:07:17.640 | that.

00:07:18.640 | When you have an opportunity to earn as much money as you're earning, when you have an

00:07:22.080 | opportunity to save a lot of money, when you have an opportunity to live inexpensively

00:07:26.920 | and stabilize everything, it's hard to suggest walking away from that.

00:07:33.120 | Now, what are some other mitigating factors though that would be things that you would

00:07:37.080 | walk away from it?

00:07:38.080 | Well, a big one is going to have to do with what is your overall investment plan and your

00:07:42.040 | investment kind of picture.

00:07:44.620 | It's one thing to be doing what you're doing, working some jobs that take a good amount

00:07:49.960 | of time and to be stashing that money with a purpose.

00:07:53.320 | And that's really something that you're going to need to get pretty quickly as a purpose.

00:07:56.680 | What am I going to do with this money?

00:07:57.680 | All right, I got 150 grand in the bank.

00:07:59.240 | Great.

00:08:00.240 | What's this money for?

00:08:01.240 | Is this for opening a business?

00:08:03.680 | If so, then as soon as you've got the money set aside, then you start working on opening

00:08:06.680 | the business.

00:08:07.680 | Is this for investing in something, investing in stock or investing in real estate or investing

00:08:12.160 | in elephant hunting rifles?

00:08:16.680 | What am I going to do with the money?

00:08:17.920 | And then go for it.

00:08:19.120 | Let's say that you had a vision, that your plan for wealth is that your family is going

00:08:25.360 | to be involved in the automobile business.

00:08:28.680 | And you've discovered that your dream would be to build a chain of successful automobile

00:08:34.400 | dealerships in Texas.

00:08:36.120 | Well, you could do that and you could make a lot of money.

00:08:38.480 | Or maybe you're riding a motorcycle.

00:08:39.480 | So let's use a Harley Davidson, right?

00:08:41.080 | Your dream is to open a Harley Davidson franchise.

00:08:43.960 | Well, you could do that and that could be a very profitable business, could be a wonderful

00:08:48.640 | lifestyle business that you might really enjoy.

00:08:51.720 | But you should pursue it as soon as you have the money.

00:08:53.760 | And so then you would have a goal for the money.

00:08:56.000 | Now another example would be, let's say that you want to become an independent real estate

00:09:00.920 | investor.

00:09:01.920 | And so you do the math and you say, "You know what?

00:09:03.940 | If we had six or seven houses that we owned and if they were paid off, that would be enough

00:09:09.160 | money to make us financially free."

00:09:11.320 | And so now you have a clear goal that over the next five years, we're going to buy five

00:09:14.840 | houses.

00:09:15.840 | And so you need $50,000 a piece for down payments.

00:09:18.560 | Now you've got a clear goal and you can see how you could build it quickly.

00:09:21.920 | That gives you a sense of purpose when you're in that working period of just earning money

00:09:27.360 | and saving it.

00:09:28.840 | If you have a clear purpose that is driving you, then it doesn't feel like you're spinning

00:09:33.380 | your wheels.

00:09:34.380 | Where you do start to feel like you're spinning your wheels is if you just say, "These jobs

00:09:38.520 | are okay, but they're not a big dream of ours.

00:09:41.440 | They're okay.

00:09:43.000 | And we've got to wait until we have $2.5 million in the bank and then we're going to be financially

00:09:46.120 | independent and we're going to quit."

00:09:47.120 | That's a harder, much longer road to stick with.

00:09:51.640 | And so I would encourage you to lay out some clear goals, especially goals that include

00:09:56.440 | the money.

00:09:57.480 | Now what are some other extenuating factors?

00:09:59.520 | If you do have a clear entrepreneurial vision of something that you want to do, I would

00:10:04.240 | encourage you to do it sooner rather than later.

00:10:07.460 | There are a lot of businesses that you can build that are very, very profitable, very,

00:10:12.600 | very rewarding, very much worth your doing, but they take a lot of energy in the beginning.

00:10:19.520 | And sometimes they take money, sometimes they don't, but they usually take a lot of energy

00:10:24.080 | in the beginning.

00:10:25.080 | And it's going to be easier for you to invest that energy when you've got more fire in the

00:10:30.240 | belly in your late 20s, early 30s, than it will be in your late 30s, early 40s.

00:10:35.740 | It seems like many people start to lose some of that fire in the belly.

00:10:40.600 | It becomes harder to do the long hours necessary, and it's especially complicated when it comes

00:10:45.680 | to children.

00:10:47.200 | So what I would start with is an analysis of what do I think is going to be the best

00:10:52.120 | lifestyle for me?

00:10:53.120 | Do I think that entrepreneurship is going to be the best lifestyle for me?

00:10:56.440 | Do I think that employment is going to be the best lifestyle for me?

00:10:59.120 | And then really invest myself until, especially at this age where you're relatively unencumbered,

00:11:05.520 | into maximizing all of the opportunities.

00:11:08.840 | With what you said, wanting to do a little travel, wanting to spend time with family,

00:11:12.040 | et cetera, I don't see why you can't do that and keep a job and start a business on the

00:11:15.480 | side.

00:11:16.480 | And I think that if you really invest at this time, your 35-year-old self will thank you.

00:11:22.640 | Your 45-year-old self will thank you.

00:11:26.000 | I know that there's a sense in which many people would say, "Well, you only live once.

00:11:30.080 | You got to take advantage of it."

00:11:34.060 | I don't buy it so much.

00:11:35.160 | I've never regretted how hard I've worked when I was younger.

00:11:38.040 | And I think that if you were to go out and talk to people, I think a lot of people would

00:11:42.840 | say, "Bro, if you're making some money, buckle down to it and make and save as much as you

00:11:48.040 | can.

00:11:49.040 | It's hard to see why you would regret that at this phase of life."

00:11:50.840 | Yeah, that makes a lot of sense.

00:11:57.360 | We've got some sort of intermediate term goals and it doesn't take a lot of money.

00:12:05.000 | I've been shopping for a mobile home park because I flipped a house once.

00:12:08.880 | I've always been interested in real estate and took that money and didn't really make

00:12:12.960 | money, but I learned a lot.

00:12:13.960 | So that's part of that money that we've got set aside now.

00:12:17.280 | But I've been shopping for multifamily real estate for a while and have in the last 18

00:12:24.240 | months or so really decided that a mobile home park is what I want to own.

00:12:28.600 | And I've put in a couple of offers this year already.

00:12:30.760 | I haven't gotten one yet, but I hear what you're saying.

00:12:34.720 | I think that just a few hundred thousand dollars more really probably opens up a lot.

00:12:41.480 | What I would say is if you're feeling dissatisfied with your job, the great thing is you make

00:12:46.720 | a hundred thousand dollars.

00:12:48.720 | The great thing is also you can make a hundred something thousand dollars working in something

00:12:52.120 | that's closer to the direction you might want to go.

00:12:55.220 | So maybe you're working in the medical device field, but you're like, "This is not for me."

00:12:59.760 | Well, go get a job in the real estate field.

00:13:01.840 | Go become a real estate developer.

00:13:03.600 | And get yourself a job starting so you start to get some exposure and put yourself in a

00:13:08.160 | position where you can make a six-figure salary as a real estate developer while also simultaneously

00:13:14.480 | getting yourself closer to your area of investment focus.

00:13:18.160 | The other thing I would just encourage you not to waste is this time period where it's

00:13:23.700 | easy for you to maintain a dual income household without any or at least without many negative

00:13:31.720 | effects.

00:13:32.720 | If your wife is well employed and she's got a hundred thousand dollar income and she's

00:13:36.480 | content in her job, that gives you the ability to pivot to almost anything else without thinking

00:13:42.320 | much about the money, assuming that you can live on a hundred thousand dollars or less.

00:13:47.040 | So that's a freedom that you don't have at another phase of life.

00:13:51.080 | And so if you start having children and if she's home taking care of the children, that

00:13:55.320 | freedom goes right out the window and it's much more difficult to make those career moves.

00:13:59.640 | And so if you're interested in real estate, if you have an interest in getting closer

00:14:03.220 | to it and you feel like your current job is kind of a dead end, then I would do all of

00:14:07.960 | the above at the same time.

00:14:09.520 | So I would say my goal is to become an investor in mobile home parks.

00:14:14.300 | So how can I get a job that's going to get me closer to that and how can I get a job

00:14:17.480 | that's going to make me more money?

00:14:19.240 | And so if you're making a hundred thousand dollars now, what could I do that would move

00:14:22.440 | me into the real estate business with a hundred and fifty thousand dollar salary or more but

00:14:28.220 | also allow me to get closer to the business so I can start to make more connections, etc.

00:14:34.780 | And so I would try to maximize all of those.

00:14:37.260 | The point is there are times in life where you have things pretty easy and you're in

00:14:42.540 | one of those times right now.

00:14:44.000 | You have basically unlimited time.

00:14:46.740 | You have basically almost unlimited financial freedom, right?

00:14:50.720 | Not a lot you can't buy if you wanted to buy it.

00:14:53.740 | You don't have the ability to live on your investments for the rest of your life, but

00:14:56.560 | that's about it.

00:14:57.820 | And so you want to maximize those times.

00:15:00.980 | And I got to imagine that most of my listeners who are a little older are kind of nodding

00:15:05.320 | their head.

00:15:06.320 | I think there's a phrase that we have in English, "Youth is wasted on the young."

00:15:10.860 | And I look back and I just think about, "Man, why did I not do more when I was young?

00:15:16.160 | Why did I not read more?

00:15:17.440 | Why did I not learn more?

00:15:18.720 | Why did I not try more jobs?

00:15:20.420 | Why did I not try more businesses?

00:15:22.320 | Why did I waste so much time?"

00:15:24.260 | And I was more productive than almost anybody that I know.

00:15:27.040 | But still I look back and I just think, "I wasted so much time."

00:15:30.220 | And so what you want to do is not waste this time because it's precious to have the freedom

00:15:35.380 | that you have.

00:15:36.660 | And if you and your wife continue to pursue the path of having children, you go into a

00:15:41.720 | period, about a 20-year period, where you're much more constrained.

00:15:45.660 | Now it's not a bad thing.

00:15:46.860 | It's a wonderful constraint, right?

00:15:48.660 | I don't regret it a bit.

00:15:50.860 | But it is a constraint and it's a lot easier to manage that time period if you got more

00:15:56.180 | money in the bank, more investments, more businesses that you built during your 20s.

00:15:59.980 | Fair enough?

00:16:00.980 | Fair enough.

00:16:01.980 | I appreciate it.

00:16:02.980 | My pleasure.

00:16:03.980 | Thank you for calling in, Trey.

00:16:04.980 | All right, we'll go to Chuck in Georgia.

00:16:05.980 | Chuck, welcome to the show.

00:16:06.980 | How can I serve you today, sir?

00:16:07.980 | Hey, Joshua.

00:16:08.980 | Good evening or good day or whatever.

00:16:09.980 | I don't know where you're at, so I'm just going to keep it simple.

00:16:16.180 | Hey, unlike your other caller, I'm looking forward towards retirement.

00:16:24.140 | I see that light coming closer and closer as you age a little bit, right?

00:16:29.100 | So it's easier to save the money when you're younger and all that kind of stuff.

00:16:33.940 | But then when you start contemplating that you have to actually spend the money without

00:16:39.060 | an income, then you're thinking about how do you conserve the money, right?

00:16:43.980 | So one of the things that I came across was by a guy named Nelson Nash with a whole life

00:16:51.340 | infinite banking and all that kind of stuff.

00:16:53.380 | And I knew that you had some information because you were working in the insurance industry.

00:17:01.860 | And I'll explain.

00:17:03.300 | My understanding of it is that you basically create a contract, you have an account, and

00:17:09.220 | you treat it like a passbook savings account, and you're basically paying yourself back

00:17:13.660 | perpetually.

00:17:16.980 | So I didn't know what your take on it was and what's the actual pluses and minuses of

00:17:22.180 | this strategy or I don't know.

00:17:24.020 | How old are you?

00:17:25.020 | I'm going to be 52.

00:17:29.540 | And when you're thinking about, Nelson would call it an infinite banking concept.

00:17:35.340 | When you're thinking about applying the infinite banking or bank on yourself as another kind

00:17:38.780 | of brand name of the business concept, are you thinking about doing this on yourself,

00:17:42.900 | buying a bunch of whole life policies for you and then using them as a form of retirement

00:17:46.300 | income?

00:17:49.460 | More of a preservation and also to maybe possibly extend onto the rest of my family.

00:17:55.340 | How much money do you have saved?

00:18:00.900 | Probably about, well, it depends.

00:18:03.580 | You mean just strictly in retirement or in cash or what?

00:18:06.820 | Total net worth.

00:18:07.820 | We'll get to the distribution in just a minute.

00:18:10.220 | Total net, I'm guessing probably about 800.

00:18:16.780 | And how much of that is in retirement accounts?

00:18:20.180 | About 500.

00:18:21.180 | Well, it depends.

00:18:22.180 | It varies with the stock market.

00:18:24.500 | And then about $300,000 in cash savings accounts or other investments or is that in home equity?

00:18:29.060 | How much of that?

00:18:30.060 | What's the 300?

00:18:31.060 | Where's the other $300?

00:18:32.060 | That's towards rentals.

00:18:34.060 | Okay.

00:18:35.060 | Rentals and equity.

00:18:37.420 | So how much is your annual income?

00:18:40.660 | I'd rather not say.

00:18:44.860 | So here's basically my approach.

00:18:48.300 | I'm kind of a middle ground person.

00:18:50.780 | I believe that that's the accurate place to be is a middle ground person.

00:18:55.580 | Meaning that I'm not entirely opposed to whole life insurance, which is what the infinite

00:19:01.920 | banking concept is built on.

00:19:04.860 | It's built on overfunded cash value life insurance policies, whole life insurance policies.

00:19:09.660 | I'm not an anti whole life insurance person.

00:19:12.500 | I own whole life insurance.

00:19:13.580 | I like whole life insurance.

00:19:14.700 | I plan to buy more whole life insurance in the future.

00:19:17.300 | I believe that it's an extremely useful financial product.

00:19:21.780 | So I'm not entirely opposed to it.

00:19:24.820 | However, I think that those who are frustrated by whole life insurance are often right.

00:19:31.420 | From my experience as one who formerly sold life insurance, including whole life insurance,

00:19:36.260 | it's often oversold.

00:19:38.460 | And because it's such a complex financial product, it's very easy to misunderstand and

00:19:50.060 | to overstate.

00:19:51.540 | And the biggest problem that you face as a consumer, not being a life insurance agent,

00:19:57.140 | is that you don't know what you don't know.

00:19:59.620 | And so you might think that you understand with anything.

00:20:03.940 | The power comes in being able to ask the right questions.

00:20:07.020 | And so that's where an expert comes in.

00:20:08.980 | An expert knows the right questions to ask.

00:20:11.820 | So specifically with regard to you, if you said, "Joshua, I have some whole life insurance

00:20:18.220 | that I bought when I was younger," great.

00:20:20.860 | Go for it.

00:20:22.060 | If you said that, "I have a ton of money and I want to put some money into a whole life

00:20:27.580 | insurance policy," fine.

00:20:30.140 | That's also fine.

00:20:31.660 | But at your level of net worth, and unless you're – I'm going to assume that you're

00:20:35.380 | making something like a six-figure income, but unless it's multi, multi-six figures,

00:20:39.620 | at your age and at your level of net worth, I don't see much of a role at all for permanent

00:20:44.740 | life insurance.

00:20:45.740 | Where you need to start – are you employed or self-employed?

00:20:48.340 | I'm employed.

00:20:49.340 | Okay.

00:20:50.340 | So if you're employed, where you need to start is with the qualified plans that are

00:20:54.500 | available to you.

00:20:55.820 | You want to start with your 401(k)s and your IRAs.

00:20:59.500 | And so max those things out.

00:21:01.620 | Those – assuming any kind of normal performance in stock market returns, assuming that we're

00:21:07.300 | not in a catastrophic, you know, Mad Max zombie apocalypse scenario, which is exceedingly

00:21:12.700 | unlikely, then you're better off starting with your 401(k)s.

00:21:16.940 | And so you want to max your 401(k)s out.

00:21:19.020 | You don't want to start putting lots and lots of money into life insurance.

00:21:21.220 | You want to max your 401(k)s out.

00:21:23.300 | In addition, you don't want to take any money out of your 401(k)s.

00:21:25.980 | The money that's in your 401(k)s is far superior from a tax perspective than the money

00:21:30.740 | that you would put into some kind of infinite banking life insurance policy.

00:21:36.540 | So you keep the money in the 401(k)s.

00:21:38.220 | That takes care of half a million dollars of your $800,000 net worth.

00:21:41.940 | That leaves us with $300,000, but you said that money is invested in rentals.

00:21:46.020 | The rentals, assuming reasonable performance on your part as an investor, the rentals are

00:21:52.100 | a far superior asset for you than life insurance.

00:21:55.420 | The rentals are leverageable, very easily and safely leverageable.

00:22:00.900 | The rentals have the potential generally for a much higher return than you would get with

00:22:05.460 | a life insurance policy because of your ability to kind of mix the business side and the pure

00:22:12.380 | investment side into the mix.

00:22:15.380 | And it's just going to be a better all-around investment for you with more opportunities.

00:22:18.980 | And so that's going to take care of assuming that 200 of the 300 is invested in rentals

00:22:23.700 | and maybe you got $100,000 in cash.

00:22:25.580 | I don't see the place in your scenario for a whole life insurance policy.

00:22:30.540 | I'm not opposed to it in all scenarios, but if you were younger, if you had more money

00:22:35.100 | or if you were making more money and we had more excess cash flow, those would be signs

00:22:39.740 | where I'd say, "Okay, maybe some of it could go into whole life insurance."

00:22:43.180 | But the problem, biggest problem of whole life insurance policies are that you got to

00:22:48.820 | put money into them when you're young based upon the mortality tables.

00:22:53.620 | If you start a policy at 52, the numbers do not work until you're in your 80s and 90s.

00:22:59.260 | That's different than if you start one in your 40s or 30s.

00:23:01.780 | The numbers work a lot better the younger you are because it's life insurance.

00:23:05.120 | Other big thing is the expenses.

00:23:07.300 | All of the expenses come out in the early period, which makes them dramatically underperformed.

00:23:11.460 | So you need a very long time horizon on a policy.

00:23:14.940 | And then number three is you're going to have mediocre performance.

00:23:18.380 | It's going to model more what you would get in a fixed income portfolio than in any kind

00:23:23.300 | of more aggressive portfolio.

00:23:24.740 | And at 52 with an $800,000 net worth, you don't need to be investing in fixed income.

00:23:28.700 | You don't need safety and stability at this point in time.

00:23:31.940 | You need opportunity.

00:23:33.380 | And so if there's something that you're uncomfortable about, let's say you're uncomfortable with

00:23:37.020 | the stock market.

00:23:38.020 | Well, fine.

00:23:39.020 | That's a separate question.

00:23:40.020 | But I still wouldn't go to life insurance.

00:23:41.020 | I would go to another asset class.

00:23:42.460 | Or let's say you're uncomfortable with real estate.

00:23:44.300 | Fine.

00:23:45.300 | There are lots of things you can invest in.

00:23:46.980 | Life insurance locks you into a stable return, but it's generally going to be a return more

00:23:54.940 | analogous to fixed income.

00:23:56.740 | And you don't need that right now as I see it.

00:24:00.000 | So it's more like just like an annuity kind of like when people had their pensions, they

00:24:06.500 | were actually annuities.

00:24:09.140 | And you just get a fixed income.

00:24:11.140 | That's kind of, I don't know, boring.

00:24:12.840 | So when you buy a life insurance policy, quick explanation.

00:24:15.980 | When you buy a life insurance policy, you have two options.

00:24:18.460 | You can either invest into the, buy a policy that's value is driven from the company's

00:24:24.520 | general portfolio.

00:24:26.020 | And so usually when we use the term whole life insurance, that's usually what we are

00:24:30.320 | referring to is it's built on the company's general account.

00:24:33.980 | So let's say the company has $150 billion and they're investing this $150 billion.

00:24:38.700 | This is the money that they're depending on to pay claims with.

00:24:42.300 | That's called their general account.

00:24:44.100 | Well, because the life insurance company's investment managers have the legal and moral

00:24:50.620 | obligation to manage that portfolio for stability.

00:24:54.860 | What they've done is they've taken an actuarial expectation of their policyholders expected

00:24:59.480 | dates of death and they've modeled the returns of that portfolio so that it makes sure that

00:25:04.180 | they can always pay out death claims because the number one job of a life insurance company

00:25:08.700 | is not to build cash values, but to pay death claims.

00:25:11.900 | They've got to have money to pay death claims.

00:25:14.180 | And so they invest that money in a more stable way.

00:25:17.780 | The vast majority of it is usually invested into fixed income investments.

00:25:22.100 | Could be national debt, US treasuries.

00:25:26.100 | It could also be corporate treasuries, AAA corporate bonds, things like that.

00:25:31.940 | Then what they do is they usually play on the edges with some other types of investments

00:25:35.820 | where they think they have a competitive advantage.

00:25:37.820 | A big one that life insurance companies rely on is large commercial real estate investments.

00:25:42.420 | Maybe there's a local real estate developer who's going to come along and who is going

00:25:46.460 | to come and build a mall in your local area and they need a $250 million mortgage.

00:25:53.500 | Well, a natural fit for that is a life insurance company.

00:25:56.600 | Life insurance companies love to buy malls and write mortgages on malls and buy skyscrapers

00:26:01.100 | and things like that.

00:26:02.700 | But those mortgages are just around the edge.

00:26:05.900 | They still got to make sure they match the portfolio to fixed income.

00:26:09.060 | Now they also maybe have a small stock portfolio or a small private equity team, things like

00:26:15.140 | that that they're working with.

00:26:17.940 | But it's smaller because they have to pay death claims.

00:26:21.060 | And so what that means is if you're going to compare your returns in that portfolio

00:26:24.700 | in the company's general account, you would generally compare that not to the S&P 500.

00:26:31.260 | You compare it to a fixed income portfolio because that's what it is functionally.

00:26:35.940 | It's a fixed income portfolio with a little bit of real estate, with a little bit of private

00:26:39.500 | equity, maybe with a few stocks on the edge.

00:26:42.340 | Now that's investing into any kind of general account portfolio investment, a whole life

00:26:48.180 | insurance policy, something that's invested in the company's general account.

00:26:52.660 | Now the other side is you can purchase a life insurance policy that has some form of variable

00:26:59.180 | account.

00:27:00.180 | So you can, this is called a variable account or a sub account.

00:27:03.580 | And so the way this works is let's say you go to the life insurance company and you say,

00:27:07.740 | "I don't want your fixed income portfolio.

00:27:09.540 | What I want is a stock portfolio.

00:27:12.260 | And with my stock portfolio, I really want to be able to invest in mutual funds.

00:27:17.740 | But can I do that inside of a life insurance policy?"

00:27:19.780 | The answer is yes.

00:27:21.060 | You can buy a variable whole life insurance policy or a variable universal life insurance

00:27:28.380 | policy.

00:27:29.940 | All of these are possible for you.

00:27:31.420 | And then your money is segregated into a separate account.

00:27:34.980 | And when you segregate the money to a separate account, you become responsible for the returns.

00:27:39.980 | Problem is this, what can you invest the money into?

00:27:42.460 | Well, unless you've got tens of millions of dollars and you can set up your own life insurance

00:27:47.740 | company to run your own offshore life insurance policy with a fund manager managing it just

00:27:54.860 | for you, which you can do, but you don't have enough money to do that, then you're basically

00:27:58.660 | stuck investing in mutual funds.

00:28:00.520 | So what you do is you take mainstream mutual funds and then you add a life insurance policy

00:28:09.300 | on top of them and you own those mainstream mutual funds.

00:28:12.940 | Problem is it's an expensive way to do it.

00:28:14.340 | You've got the expenses of the funds and now you've got the expenses of the life insurance

00:28:18.020 | policy and now you have a less favorable tax situation because the tax situation in your

00:28:23.460 | 401(k) is much more favorable for your mutual fund portfolio than it would be in the life

00:28:28.940 | insurance policy.

00:28:29.980 | Because what you do is if you own stocks inside of a life insurance policy, you take a capital

00:28:35.300 | gain asset that could be deferred inside of a 401(k) and a 401(k) would still be an ordinary

00:28:40.420 | income asset or it could be owned as a capital gain asset, which is superior, and you transform

00:28:47.300 | this capital gain asset into an ordinary income asset.

00:28:50.300 | And that's where life insurance is very unfavorable.

00:28:52.900 | Because the values in the policy grow and if you take them out, not in the form of a

00:28:57.620 | return of premium and not in the form of a policy loan, but you actually take a distribution,

00:29:02.060 | now you have income tax as ordinary income.

00:29:05.140 | And so it just doesn't work in your scenario.

00:29:07.380 | All of the facts of your situation are wrong is the summary.

00:29:10.220 | Okay.

00:29:11.220 | Well, I appreciate your input there because like you said, you don't know what you don't

00:29:16.820 | know and I don't know too much about insurance.

00:29:18.980 | I know how to buy stocks and REITs and all that fun stuff, but I'm just looking at my

00:29:25.540 | options as I'm closing in on a traditional type retirement.

00:29:30.940 | So what I would recommend you start with is start with a business or job or form of income

00:29:37.300 | that you won't want to retire from.

00:29:39.380 | That's always your most powerful solution that you want to focus on first is can I have

00:29:43.540 | a job or a business or a form of income that I'm not going to want to retire from?

00:29:48.860 | And you can do that at 52 years old, you can completely transform your life and you can

00:29:53.180 | build any kind of business that you wouldn't want to retire from.

00:29:55.660 | You want to travel the world, get a job that either pays you to travel the world or build

00:29:59.780 | a business that allows you to travel the world.

00:30:02.600 | Have something that you don't have to quit, have something, build something that you're

00:30:06.260 | going to be excited to do when you're 80 years old and 90 years old and 100 years old.

00:30:10.540 | So start with that because that doesn't require a lot of money.

00:30:13.940 | Then back that up with an investment portfolio that is going to make you financially independent

00:30:18.660 | much more quickly and it's not going to be life insurance.

00:30:20.940 | If real estate is good to you, it might be real estate.

00:30:24.540 | If you have some other kind of thing that you like to invest in, there are many other

00:30:27.620 | things possible.

00:30:29.000 | But start with that low hanging fruit and then if in time you decide if you need life

00:30:33.700 | insurance, buy term life insurance.

00:30:35.100 | At 52 years old, you can buy very inexpensively level term insurance which is what you should

00:30:39.540 | be buying at 52, 10 year policies, 15 year policies maybe if you still have obligations

00:30:44.140 | to your family that you can't meet.

00:30:47.040 | And then if at some point in time you want to own a small whole life insurance policy

00:30:51.020 | for some reason, that's fine.

00:30:52.780 | As a burial policy or part of your estate plan, that's fine.

00:30:55.980 | But that should not be a high priority for you at this stage in your financial plan.

00:31:00.340 | Okay.

00:31:01.340 | I think you hit all the nails with the head of the hammer there.

00:31:06.100 | Good.

00:31:07.100 | So yeah, I appreciate your time there and it's kind of funny because your previous caller

00:31:12.140 | was on one end of the spectrum, I'm on the other.

00:31:14.980 | Was I right in my advice to him from your 52 years old?

00:31:18.640 | From my 52 years old, yeah, absolutely.

00:31:20.640 | The more you could plug away when you're younger, you build the momentum when you're older.

00:31:27.600 | And I was already thinking your advice anyway where I was like, "Hey, well maybe I need

00:31:31.560 | a different career."

00:31:32.560 | And I planned when I was in my 20s to say, "Hey, I'll change careers at 50."

00:31:36.840 | But I just haven't, kids happen and I haven't really decided what I want to do when I grow

00:31:41.280 | up.

00:31:42.280 | Yeah.

00:31:43.280 | I would tell you, I mean your most fruitful area of thinking and hard work right now is

00:31:48.180 | going to be with regard to your career.

00:31:50.140 | At 52 years old, you're young enough that you're not facing a lot of discrimination

00:31:54.140 | in the marketplace.

00:31:55.140 | That'll change when you're 62, right?

00:31:56.900 | In 10 more years, you start to go and apply for another job, you're going to start to

00:32:00.380 | face a much more significant age discrimination.

00:32:04.020 | It's tough for 60-year-olds and 70-year-olds in the marketplace.

00:32:07.460 | But at 50, you're still young enough that you're not facing much of that.

00:32:11.960 | So what you need to do, what I would encourage you to think about is number one, think about

00:32:15.680 | – and we don't have time to go into your career right now – but think about your

00:32:19.460 | career and make sure you're in a career where your age will be an asset, not a liability.

00:32:25.780 | So if you are a professional chairman of the board, right?

00:32:30.780 | Your job consists of being on the boards of publicly traded companies.

00:32:34.320 | Your age is not a liability.

00:32:36.280 | Your age because you need wisdom, right?

00:32:38.880 | You need insight.

00:32:40.020 | And that wisdom and insight often comes with age.

00:32:43.880 | If you are a senior architect over a large firm or you're a senior trial lawyer who

00:32:51.560 | has junior attorneys who are doing most of the day-to-day work but your brilliant legal

00:32:56.240 | mind can be applied, the age is not a bad thing.

00:32:58.840 | You can do that work when you're 85 years old.

00:33:02.120 | You're not just limited by that.

00:33:03.960 | On the other hand, if you are engaged in something that's dependent upon your physical body,

00:33:09.440 | you're a carpenter or you're a tile setter, you're a grave digger, well, that kind of

00:33:14.920 | work gets really hard to do when you get older.

00:33:16.840 | So you need to look at your career and say, "Am I going to be able to do this as I get

00:33:21.120 | older?"

00:33:22.120 | And if not, you need to adjust.

00:33:23.820 | Number two, you need to develop for yourself a reputation that will support you as you

00:33:29.600 | face increasing levels of age discrimination.

00:33:33.240 | What you want to make sure is you never get yourself in the situation where you're going

00:33:36.200 | in and applying for a job or you're trying to keep your job and they're looking down

00:33:39.120 | and saying, "This dude is 60-something years old and we got another guy over here that's

00:33:43.760 | 40 years old, has all the same qualifications.

00:33:46.080 | Why would we not hire the 40-year-old guy who at least has some chance of staying with

00:33:49.840 | us for 20 years and we could probably get cheaper than the 60-year-old guy?"

00:33:53.360 | And so you've got to transform yourself if you're not already.

00:33:56.640 | Again, if you've already done this stuff, great, but you've got to transform yourself

00:34:00.560 | from a commodity in the marketplace that gets more rusty as you get older to an extremely

00:34:07.500 | valuable gem that's getting shinier and brighter as you get older.

00:34:11.360 | So you've got to build a brand somehow, an appropriate way to your career where you become

00:34:15.920 | more sought after as you get older.

00:34:18.680 | Third thing to consider is you want to make sure that you don't put yourself in a situation

00:34:23.240 | where you're anxious to get out of your job and anxious to get out of your career because

00:34:27.280 | at 52 years old, you have almost no friends that are retiring early.

00:34:30.460 | But if you're 67 years old, many of your friends will have retired and then you're sitting

00:34:34.880 | down and looking at your job and saying, "Well, I don't want to do this job anymore," and

00:34:38.080 | all my friends are sitting out, they're stand-up paddleboarding and they're golfing and they're

00:34:41.600 | traveling the world and I'm doing this stupid job and I want to retire.

00:34:44.800 | Rather, what you want is you want to develop a job and a career that gives you an appropriate

00:34:50.000 | level of freedom and flexibility so you can go and stand-up paddleboard and you can go

00:34:53.440 | and travel to Europe and you can do the stuff that you want to do but within the context

00:34:57.800 | of something that's keeping you engaged.

00:34:59.720 | And I'm convinced that there are tons of these careers out there, things that you would really

00:35:02.920 | enjoy doing, things that engage you.

00:35:05.840 | And it could be as simple as teaching school.

00:35:08.880 | I've told the story many times about somebody who was so inspirational for me.

00:35:12.440 | He was a friend of mine, a client of mine when I was a financial advisor.

00:35:16.560 | He was a client of mine who was running a landscaping company but he decided he wanted

00:35:23.260 | to close his landscaping company.

00:35:24.880 | It was profitable but he closed his landscaping company, went back to college at night, he

00:35:29.560 | and his wife both, they went back to college, finished his college degree and got a job

00:35:34.120 | as a high school history teacher and he wanted to teach high school history.

00:35:38.680 | And in their situation, it was basically the perfect financial plan because he wanted to

00:35:43.120 | teach high school history, he wanted to have the opportunity to impact young people in

00:35:47.560 | a close way that a history teacher can do.

00:35:50.600 | He wanted to travel during the summers and so he had three months off to travel every

00:35:55.160 | year.

00:35:56.160 | He had his retirement taken care of with a government pension from the school board

00:35:59.920 | and it was the kind of thing where he and his wife had a great lifestyle.

00:36:02.520 | They would go to school together every morning, go to school at the end of the day.

00:36:05.840 | He didn't have the – he could leave at 3.30 every day, start at 7.30.

00:36:09.000 | It was a very agreeable schedule and it was a great plan.

00:36:12.520 | It's the kind of job that he didn't want to retire from but yet he did still have the

00:36:15.600 | retirement plan if he needed it because it provided enough benefits that he was excited

00:36:20.200 | about it.

00:36:21.200 | So that's at the kind of lower earning side but just to show that you can build a lifestyle

00:36:26.040 | that provides you with everything that you need.

00:36:28.640 | Now if you're an executive, your role may be different.

00:36:32.240 | So the key is build a career that's going to give you the freedom and the flexibility

00:36:35.960 | that you need and that you crave so that when your buddies who do retire from their jobs

00:36:40.360 | say let's go to Aspen for the weekend, well, you get on an airplane and go and make sure

00:36:44.680 | you have the financial ability to do that.

00:36:46.120 | But you'll have a lot more fun than them because then when they come back from their

00:36:49.280 | week in Aspen and they got to sit down and say, "Well, what's on CNN today?"

00:36:53.360 | You have the ability to say, "I don't care what's on CNN.

00:36:55.560 | I'm doing this thing that's important to me.

00:36:57.520 | I'm working on this major issue or I'm building this thing or I'm solving this problem or

00:37:02.480 | whatever it is."

00:37:03.800 | And so you want to build a career that you're engaged with and there are so many options

00:37:07.720 | out there.

00:37:08.720 | But if you do that, it will radically transform your life expectancy because people who are

00:37:14.720 | engaged with the future and have a vision of the future that's bigger than their past,

00:37:19.240 | they live longer and they're happier for that.

00:37:21.960 | It will also dramatically engage your finances.

00:37:24.680 | And I'm not being a smart aleck with this.

00:37:26.920 | I mean it.

00:37:27.920 | If you compare the financial impact, the legacy that you can – of money that you can – the

00:37:32.160 | amount of money you can spend and the amount of money that you can save, the amount of

00:37:36.200 | money that you can give, the amount of money you can give to your children, the amount

00:37:39.040 | of money that you can invest into something and you add another 15 years of happy work

00:37:44.360 | life onto your lifespan and you say instead of retiring at 65, I'm going to retire at

00:37:48.920 | 80, just run the financial calculations.

00:37:51.440 | That's stunning, the impact.

00:37:53.280 | And so there are some presuppositions, right?

00:37:56.040 | We're assuming that you could build a career that you would be excited about doing at 80.

00:37:59.960 | But I'm convinced that for the majority of people, that should be a primary plan.

00:38:04.920 | Some people really want to retire.

00:38:06.360 | Fine.

00:38:07.360 | You can do it.

00:38:08.360 | But I think that for the majority of people, if you can build and use your financial stability

00:38:12.840 | to move yourself into a phase where your future is bigger than your past and you're excited

00:38:17.320 | about the next few decades because of the impact you're going to have, the work you're

00:38:20.920 | going to have and as your responsibilities as a father fade into the distance and you

00:38:25.640 | start to just have more interaction with your grandchildren but it's much more relaxed and

00:38:30.120 | it's not such the day-to-day pressure, that's the secret to really winning in life and really

00:38:35.240 | winning with money in my opinion.

00:38:37.080 | So consider that.

00:38:38.080 | Chuck Liddell Thanks a lot there, Josh.

00:38:39.080 | All right, Chuck, have a great day.

00:38:42.640 | We move to Talmadge in Utah.

00:38:43.640 | Talmadge, welcome to the show.

00:38:44.640 | How can I serve you today, sir?

00:38:45.640 | Talmadge Hey, Joshua.

00:38:46.640 | Can you hear me okay?

00:38:47.640 | Chuck Liddell Yeah, sounds great.

00:38:50.880 | Go ahead.

00:38:51.880 | Talmadge Okay.

00:38:52.880 | So I guess just to give you a little background, 20 years old, graduated high school in 2018

00:38:58.560 | and I returned recently from a mission trip in Ecuador, had to come home early because

00:39:03.880 | of COVID-19 and so I have about six months that I wasn't planning on having just before

00:39:09.320 | school starts up.

00:39:10.320 | So I found a job through a friend and I've been working in a sales job in California.

00:39:17.240 | The awesome thing about it is the rent is paid for.

00:39:20.360 | So my own expenses are food and transportation and earning potential is pretty high.

00:39:26.680 | Just from the two months that I've been here already, I think this summer I can make upwards

00:39:30.880 | of $20,000.

00:39:32.960 | But I want to decide how I need to move forward with my education.

00:39:36.720 | I haven't taken any college classes yet.

00:39:39.880 | And my main question for you is maybe if we could walk through just some of the benefits

00:39:44.680 | and the drawbacks of moving away from the conventional college experience of just being

00:39:49.760 | on campus and going to a university versus online, like maybe through a community college,

00:39:54.640 | which would be a lot cheaper.

00:39:56.040 | That's kind of what I'm trying to think about right now.

00:39:59.040 | Pete Will you be funding your college classes?

00:40:01.720 | Talmadge Yes, I will.

00:40:04.360 | Pete Okay.

00:40:05.920 | So in a moment I'll give you an episode number and what you want to make sure to do is to

00:40:10.200 | go back and listen to the show that I did on the specific benefits of college.

00:40:17.280 | And I'll give you that episode number here in just a second.

00:40:19.840 | But in that previous podcast, which is probably an hour or so long, I talk about the various

00:40:27.640 | benefits of college.

00:40:29.600 | And this is a hard question to answer because there's so many different ways.

00:40:32.640 | Here it is.

00:40:33.640 | It's episode 227.

00:40:34.640 | So right down 227, initially released August 10, 2015 called the five benefits of college

00:40:41.180 | and radical ways to exploit them.

00:40:43.800 | And so let me go over those five benefits with about a few minute kind of intro for

00:40:47.640 | you and then give you some texture on this.

00:40:51.900 | As I see it, I see five major benefits of college.

00:40:56.280 | The first benefit is fun.

00:40:58.120 | College is fun, right?

00:40:59.200 | It can be super fun.

00:41:00.840 | About the college environment is, you know, many people, I don't think the most successful

00:41:06.760 | people but many people if you ask them, what is the most fun time period of your life?

00:41:11.360 | A lot of people will say college because you have a lot of people your age, many of whom

00:41:16.760 | are going to share your interests, maybe your perspective, your worldview, some of your

00:41:21.200 | life experience.

00:41:22.840 | Many of those people are thrust together in this interesting community environment with

00:41:27.680 | many of them have very little responsibility, right?

00:41:31.240 | My only job is to go to class for 15 hours a week and study.

00:41:35.280 | I mean that's an exceedingly tiny workload.

00:41:39.480 | And so it's a lot of fun.

00:41:41.280 | And you're in an environment where people have no responsibilities, they have no children,

00:41:44.880 | they have no jobs.

00:41:46.180 | And so it's super fun.

00:41:47.520 | Hey, you want to go to the beach today?

00:41:49.040 | Let's do it.

00:41:50.040 | You want to ditch class today and go skiing?

00:41:51.520 | Let's go.

00:41:52.520 | You want to go to Florida this weekend?

00:41:53.840 | Man, I'm ready.

00:41:54.840 | You know, it's fun.

00:41:56.560 | And then all of the college raunchy living is certainly available.

00:42:02.440 | And so it's fun.

00:42:04.040 | That's the first thing.

00:42:05.040 | It's fun.

00:42:06.040 | Number two perspective of college is personal growth.

00:42:08.640 | Second benefit of college is personal growth.

00:42:11.160 | And there are lots of ways that college can be a time of intense personal growth.

00:42:15.640 | You take classes that maybe you're not accustomed to.

00:42:18.680 | For some people, they go away from home for the first time and they have to learn how

00:42:21.520 | to adult.

00:42:23.080 | There are lots of benefits of personal growth.

00:42:24.580 | Number three is certification.

00:42:26.480 | The actual acquisition of a certificate that says you have a college degree.

00:42:30.600 | I think it's valuable, very valuable and important.

00:42:34.280 | I'm not convinced it's as valuable from an income perspective as many people think, although

00:42:38.640 | it is truly still valuable.

00:42:41.160 | If you were to look at the mass market out there and say, how do people, you know, what

00:42:47.400 | is the lifetime earnings?

00:42:48.960 | It still is the case that people who have a college degree earn more money.

00:42:54.520 | Where I think it is particularly benefit though, a college degree is particularly helpful is

00:42:59.180 | during hard times.

00:43:00.880 | And my observation is during times of high unemployment, during times of a weak economy,

00:43:06.960 | that's where you're really glad you can put on your resume if you're going applying for

00:43:10.320 | a job, I got a college degree.

00:43:12.560 | It's one of those things.

00:43:13.560 | If you were to go back and look at the data that we have from the Great Recession in 2009,

00:43:17.860 | you see that the people that were the hit the hardest in that period were people without

00:43:21.720 | a college degree.

00:43:23.060 | People with a college degree didn't have that bad of an unemployment rate, but people without

00:43:27.240 | a college degree had a really bad unemployment rate.

00:43:30.800 | And you see a similar thing happening right now in the United States as we're in this

00:43:35.760 | current recession.

00:43:37.640 | People who are at the lower levels of the job space, the income space, those are the

00:43:44.280 | people who are experiencing just a horrific unemployment rate right now.

00:43:48.160 | Now the pain of that has not yet set in in the United States because of the generous

00:43:53.360 | unemployment payments that many of those unemployed people are having.

00:43:57.760 | But if those extra unemployment payments stop, it's going to start to get really severe.

00:44:02.260 | But so certification matters and certification is a benefit of a college degree.

00:44:07.280 | Number four is education.

00:44:09.020 | And so I distinguish and disconnect education from certification.

00:44:14.000 | Certification is a credential, and apologies for the sniffing in your ears, friends, but

00:44:18.720 | that's where we are today.

00:44:21.800 | Education is the knowledge that you gain.

00:44:24.240 | The certification is the piece of paper.

00:44:28.100 | So just a simple example, right?

00:44:29.560 | I'm studying right now for a foreign language exam, and I have zero application for the

00:44:36.880 | certification.

00:44:37.880 | I don't need the certification.

00:44:38.880 | I'm trying to get a DELE C2 exam in Spanish.

00:44:43.440 | And so that's my goal is I want to get the certification.

00:44:45.440 | I have no need whatsoever for the certification.

00:44:47.480 | I'm not going applying for a job saying, "Hey, look, I'm a C2 Spanish speaker."

00:44:51.280 | I'm not doing anything.

00:44:52.280 | It's just a piece of paper.

00:44:54.000 | The education is what matters.

00:44:55.660 | And so I could be just as good with my grasp of the Spanish language as anybody else, whether

00:45:03.600 | I have the certification or not.

00:45:05.860 | But for me, the certification is something that I'm using to provide motivation for

00:45:09.840 | my education.

00:45:11.600 | And also then it gives me one more piece of paper that if I ever needed it, if I ever

00:45:15.880 | needed a backup plan, I can say, "Look, I'm a certified C2 Spanish speaker.

00:45:21.640 | I know what I'm doing."

00:45:22.640 | And so if I add that to all my other certifications, now I'm distinguished in the marketplace.

00:45:27.620 | But don't be confused.

00:45:31.080 | There's a big difference between certification and education.

00:45:34.500 | But in the college environment, you can often receive an education, and you can become well

00:45:39.660 | educated in the college environment.

00:45:41.280 | And for some things, there's really no substitute.

00:45:45.480 | There's really not.

00:45:46.960 | For some things, you've got to be in that college environment, that classroom environment,

00:45:52.000 | to make sure that you've got the holistic, well-rounded education, but not all.

00:45:56.280 | And then number five is connections.

00:45:57.780 | And so the big benefit of college is connections.

00:46:00.320 | Those connections can be social connections, just your social, your sphere of friendships

00:46:06.020 | and acquaintances.

00:46:07.400 | Those connections could be romantic, right?

00:46:09.320 | The thing that I appreciate the most about my undergraduate college degree is my wife.

00:46:13.920 | I met her in college.

00:46:14.980 | And that's a normal story, is that many people meet their spouse in college.

00:46:19.360 | And it's a wonderful benefit.

00:46:21.480 | And I'm not scared to recommend somebody go to college just for that.

00:46:25.760 | In the United States especially, college is a very important sorting mechanism for people,

00:46:34.920 | especially from a spousal perspective.

00:46:37.640 | And this is traditionally how college in the United States has functioned.

00:46:41.160 | It's functioned as a way of sorting society out, of separating a certain class of person

00:46:47.080 | out and distinguishing that these are the college folks.

00:46:51.220 | And what happens is, from a simple connection perspective of just simply propagation of

00:46:56.800 | your kind, that's an important thing.

00:47:00.800 | Because when people are in that environment, it's likely that a man and a woman who are

00:47:05.800 | both in this elite college, they're coming from a similar class.

00:47:10.120 | They're coming from similar intellectual experiences, similar intellectual ability, similar points

00:47:17.440 | of education, similar worldviews.

00:47:19.720 | And so those people come together, they marry, and they start to have children.

00:47:23.000 | Their children naturally will be part of that class.

00:47:25.480 | Their children naturally be part of that general functioning.

00:47:28.560 | The children will have a higher IQ because mom and dad have a higher IQ.

00:47:33.160 | And it just kind of sorts things down.

00:47:36.600 | And so throughout the American history, college has been a very important sorting mechanism

00:47:46.520 | in the society.

00:47:47.720 | And then when you think about the effects on just even your family tree, the term that

00:47:56.240 | a sociologist would use would be homogamy, which has to do with the inner breeding of

00:48:00.120 | people who have like characteristics, that's one of the most influential things that you

00:48:05.680 | see in American society right now, is that highly educated, very intelligent people meet

00:48:11.960 | in college.

00:48:12.960 | They're from the same social class.

00:48:14.160 | They make a connection, they marry, and then it starts to lead to these different societies

00:48:19.440 | because of just the homogamous effects of their marriage and of their procreation.

00:48:25.460 | And so that's a type of connection that's very, very important.

00:48:28.680 | So access to the dating pool can be helpful.

00:48:31.560 | And then of course there are career connections.

00:48:33.520 | There are colleges where you go there exclusively for the career connections.

00:48:37.600 | If you go to an elite level, you know, a Harvard University, Harvard Business School, you can't

00:48:44.120 | go to Harvard Business School, get accepted to Harvard Business School, do the minimum,

00:48:49.640 | and then come out and not expect to be offered many, many job offers in the upper level of

00:48:55.640 | the corporate environment.

00:48:57.000 | And many people reflect back on the relationships that they developed in college and those connections

00:49:02.760 | as being the most influential things for them in their career.

00:49:07.660 | Now this varies depending on the particular place, but there's a reason why every Supreme

00:49:12.360 | Court justice in the United States has a law degree from Yale or Harvard, right, or these

00:49:18.220 | elite level law schools.

00:49:21.780 | It's the connections that you build.

00:49:23.420 | And so those connections are indisputably important.

00:49:27.300 | And so what I talk about in that show, that was an overview, but what I talk about in

00:49:30.220 | those show is the fact that you can gain these benefits from college.

00:49:35.860 | You can also gain these benefits without college.

00:49:38.960 | And so a lot of the actual application is going to come down to what do you actually

00:49:43.640 | want and envision from your life?

00:49:45.780 | What career paths are you interested in?

00:49:48.460 | What types of work do you want?

00:49:50.580 | And what are the colleges that are on your radar?

00:49:52.940 | There is a world of difference between going to an unknown college versus a name brand

00:49:59.740 | college.

00:50:00.740 | Now I'm not convinced the name brand college is still worth it, but if you're going to

00:50:05.300 | compare – let's use three ones, okay?

00:50:09.220 | What's the name of a community college near where you live now?

00:50:12.180 | Salt Lake Community College.

00:50:14.420 | Salt Lake Community College.

00:50:16.260 | What's the name of a kind of a mid-tier state school or kind of just a mid-tier college

00:50:24.580 | there in the Salt Lake area that's not a community college, just kind of an average

00:50:28.740 | school where people go to college?

00:50:30.820 | Utah Valley University.

00:50:32.820 | Okay.

00:50:33.820 | Utah Valley University.

00:50:35.140 | So let's use that and let's use Harvard University or Stanford or one of these kind of big name

00:50:42.460 | brown – sorry, name brand, Brown University.

00:50:46.260 | So let's use Harvard, right?

00:50:47.260 | That kind of the creme de la creme, the upper class of society.

00:50:53.660 | I don't think there's much of a difference between your going to Salt Lake Community

00:50:57.700 | College and Utah Valley.

00:51:00.580 | There's just not, unless there's some special career that you're involved in and there's

00:51:05.100 | a professor at Utah Valley that has connection, that's active in there.

00:51:09.100 | Doesn't matter, right?

00:51:10.100 | Doesn't really matter.

00:51:11.300 | And for that matter, I would say there's not really much of a difference between going

00:51:15.980 | to Salt Lake Community College versus any random accredited online school where it's

00:51:21.620 | just all online.

00:51:23.500 | But there is a world of difference between going to Utah Valley and going to Harvard

00:51:28.900 | in terms of the overall experience.

00:51:32.260 | Those are very different experiences.

00:51:34.260 | Now they come with very different price tags, but a lot of the advisability of you're

00:51:40.340 | choosing one school or another is going to come down to what specific career are you

00:51:45.060 | interested in or what area of study do you care about.

00:51:49.620 | Those are the things that are going to make a big, big difference in your life.

00:51:53.140 | So go back and listen to episode 227.

00:51:56.820 | And what I'll tell you is basically this.

00:52:00.380 | I'm a little short on time.

00:52:01.540 | I welcome you to call back next week and we can talk more details, but I want to take

00:52:04.620 | the next caller before I run out of time today.

00:52:07.780 | But what I want to tell you is this.

00:52:10.200 | If I were in your shoes and I were self-funding college, what I would probably do is first

00:52:18.940 | I would have to start with my career.

00:52:21.300 | And let me ask, do you have a burning specific career ambition that drives you at night?

00:52:28.940 | No, I honestly don't.

00:52:31.020 | That's kind of what my goal for college is, is to find out what direction I need to take.

00:52:35.900 | Fair enough.

00:52:37.140 | I would not go to an expensive name brand university unless I had a specific driving

00:52:45.580 | ambition as to why I needed that university.

00:52:49.800 | If my goal in life is to be the next Supreme Court justice that's going to change the world

00:52:54.540 | of Supreme Court law in the United States and that's my career ambition, I'm going to

00:53:00.300 | go to Harvard Law or Yale Law, no question.

00:53:03.300 | I'm going to do whatever is necessary to get into that because that's where those people

00:53:07.340 | come from.

00:53:08.500 | I can't go to a random third tier law school and expect to actually do that.

00:53:15.660 | I'm going to go to Harvard or Yale Law and I'm not going to compromise.

00:53:19.500 | And if I got to go $200,000 in debt, I'm going to go $200,000 in debt because that's my clear

00:53:23.820 | ambition.

00:53:25.180 | Lacking that, I'm not going to be an idiot and go into tens of thousands of dollars of

00:53:29.060 | debt without a specific career ambition.

00:53:31.580 | And so here's what I say.

00:53:33.780 | Number one, if you listen to episode 227, you'll hear me talk about the fact that I

00:53:37.460 | believe the vast majority of those five benefits of college can also be achieved without college.

00:53:42.980 | If you're interested in fun, get yourself an apartment where there's lots of other college

00:53:47.900 | students where they're going to Salt Lake Community College or Utah Valley or wherever.

00:53:53.820 | Get yourself an apartment in the same apartment complex and start working out at the gym and

00:53:57.420 | you'll meet all the college students and you'll have access to all the social circles without

00:54:00.980 | the need to go to class every day.

00:54:02.340 | There's nothing special about it.

00:54:04.020 | You can get invited out to the bar.

00:54:05.540 | You can go to Florida for the weekend.

00:54:06.980 | You can go skiing on the weekend.

00:54:08.820 | All of that stuff happens just with having friends and fun.

00:54:11.460 | And frankly, you could probably have more fun because you don't have to show up at class

00:54:13.540 | at 8 a.m.

00:54:14.700 | For personal growth, when you're around a college environment, you could take advantage of a

00:54:19.380 | lot of the personal growth environments.

00:54:21.500 | You could audit the classes if you want to.

00:54:23.600 | You can go and you can go to the student meetings.

00:54:26.900 | I knew people when I was in college who weren't enrolled at the school, but you would never

00:54:30.480 | know that because they were always there and they were always around.

00:54:33.100 | They just didn't happen to be enrolled in any classes.

00:54:35.820 | Even to the point of being on sports teams, there was not the official sports team of

00:54:39.460 | the university, but there were some people who would go and would work out with one of

00:54:42.420 | the sports teams and whatnot.

00:54:44.620 | Certification.

00:54:45.620 | Certification of a college degree, I think, is where there's kind of an end run, a runabout.

00:54:51.220 | And education can happen, but there's plenty of education available, right?

00:54:54.700 | You can take college, you can take Harvard University school classes on iTunes U.

00:55:00.560 | And so if there's something special about that, you can do it on iTunes U.

00:55:03.200 | And connections, what I talk about on that show is you can build connections today better

00:55:07.080 | than at any time in history without the need to actually be at the school.

00:55:11.360 | So trying to balance the range of time and cost, what I would do, if you were my son,

00:55:17.380 | what I would encourage you to do is I would say, "I believe that it's worth it if you

00:55:21.040 | are cognitively competent, if academics are not a struggle for you, I believe that it's

00:55:25.720 | important and worth it for you to be able to check the box that, yes, I have a four-year

00:55:30.760 | college degree."

00:55:33.120 | Four-year college degree, check.

00:55:35.040 | I did a show on how to immigrate to Canada as a recent example.

00:55:39.640 | Well, it makes a huge difference if you can check a box on your express entry profile

00:55:45.160 | to Canada to say, "Look, I have a four-year college degree," or, "I have a master's degree."

00:55:50.600 | But it doesn't matter what university that's from.

00:55:54.160 | It just matters that you can check the box.

00:55:55.680 | So what I would do is I would use one of the low-cost online schools, and I would do classes

00:56:01.880 | online, and I would get the fastest, cheapest four-year college degree that I could possibly

00:56:07.880 | get.

00:56:08.960 | And depending on your level of cognitive ability, you can get that in probably a year and a

00:56:13.480 | half of work, a year, two years, something like that, and your total price tag would

00:56:17.600 | be under $10,000.

00:56:20.000 | Now I can check the box that I've got a four-year college degree.

00:56:23.200 | Now what?

00:56:24.200 | Well, what I would do with any of those schools, if I wanted a name-brand school or if I discovered

00:56:29.760 | an area of interest that I really wanted to pursue, I would do that for a master's degree.

00:56:34.360 | Because if you say, for example, "Look, I have a degree from Utah Valley College, but

00:56:41.560 | I have a Harvard MBA," no one thinks about the fact that you have Utah Valley.

00:56:47.440 | They just think about the fact that you have a Harvard MBA.

00:56:49.720 | This is why the community college strategy is so powerful.

00:56:52.720 | If you go to community college for two years, and then you go to Utah Valley, nobody looks

00:56:56.900 | down and says, "Oh, you went to Salt Lake Community College."

00:56:58.880 | They look down and say, "You went to Utah Valley."

00:57:00.200 | They just acknowledge the fact that it all builds.

00:57:02.640 | And so I would get a lot of the low-end classes done just as quickly and fast as possible.

00:57:08.320 | I would go ahead and just do a four-year college degree.

00:57:10.720 | Now while I'm doing that, I would be really investing deeply in my education, and I don't

00:57:17.160 | believe that going to college is in any way an efficient way to figure out what you want

00:57:21.960 | to do in life.

00:57:24.000 | A $15 book, a biography of a famous person, a book about a certain subject, a career book

00:57:31.780 | is a whole lot cheaper than enrolling in some class you got to go to three hours a week

00:57:36.820 | that you may or may not ever need.

00:57:38.760 | And so I would dedicate myself to reading.

00:57:41.240 | I would dedicate myself to career profiles.

00:57:43.320 | I would dedicate myself to exposure.

00:57:45.600 | I would spend time in online communities.

00:57:47.840 | I would do things like you're doing right now, calling me, chatting every week, "Hey,

00:57:52.560 | here's the things I'm thinking about."

00:57:54.040 | I would dedicate myself to these things until I figure out a specific area of interest.

00:57:58.680 | And then once you've figured out that specific area of interest, go from there.

00:58:02.160 | If you just want money and you're doing well in sales, go with it.

00:58:05.040 | You don't just get the college degree at night, so you've kind of covered that certification

00:58:08.320 | need, but do sales.

00:58:10.320 | And you can make hundreds of thousands of dollars a year in sales without a college

00:58:14.400 | degree.

00:58:15.400 | You can have the college degree sometimes just to get the job, but you don't need to

00:58:19.960 | go and spend waste tens and tens of hours in a college classroom is the point.

00:58:24.880 | So it's a complex answer because it's a complex issue.

00:58:29.120 | It's not either or, but I would not, if you were my son, I would encourage you get a degree,

00:58:36.520 | do an online school where you can do it all at night, do it on your schedule, get it done,

00:58:40.360 | year and a half, two years, you should be able to finish that bachelor's degree under

00:58:43.520 | 10 grand.

00:58:44.800 | Do that while you're working a full-time job, live somewhere with a fun environment

00:58:49.200 | around people that inspire you.

00:58:51.360 | And then while you're doing that, educate yourself in the areas where you might want

00:58:55.120 | to go.

00:58:56.120 | And if at some point the college degree seems like a really important piece of that, then

00:59:00.360 | go ahead and go to an expensive name brand school if it's really a crucial part of your

00:59:05.320 | career plans.

00:59:06.320 | >>Toby: Okay.

00:59:07.320 | Yeah, that definitely makes a lot of sense.

00:59:10.200 | And thanks for helping me think through that.

00:59:11.600 | Kind of a crazy time, lots of decisions to make, but...

00:59:14.200 | >>Joshua: It is.

00:59:15.200 | >>Toby: Thank you so much.

00:59:16.200 | >>Joshua: Cool.

00:59:17.200 | My pleasure.

00:59:18.200 | All right.

00:59:19.200 | For our last call of the day, we go back to Texas.

00:59:20.200 | Welcome to the show.

00:59:21.200 | How can I serve you today?

00:59:22.200 | >>Joshua: Hi, Josh.

00:59:23.200 | I've been taking your advice for a couple of years now and implementing that in different

00:59:28.440 | ways.

00:59:29.440 | Appreciate all you do.

00:59:30.440 | >>Toby: Thank you.

00:59:31.440 | >>Joshua: My question today is I'm working on helping my dad who is 79, retired, and

00:59:39.840 | has a portfolio with some...

00:59:43.040 | He's got about a half a million dollars right now in some municipal bond funds, and he's

00:59:49.520 | got about another $200,000 to $300,000 kind of in cash.

00:59:56.800 | The goal of all of this is to kind of just create income and try to maximize income,

01:00:02.600 | and so I'm looking to help him with a strategy to best do that and looking at how to diversify

01:00:13.800 | some of that income so that it's not all moving in tandem with the stock market, for instance,

01:00:21.560 | but dividend paying stocks may be a part of that.

01:00:26.120 | I'm thinking about...

01:00:27.120 | You've got me thinking about peer-to-peer lending a little bit.

01:00:31.240 | He's not crazy about real estate.

01:00:33.120 | He's sold a rent house.

01:00:34.760 | He still has a rental condo unit, but wanted to get your thoughts on how to approach this

01:00:41.920 | focusing on income primarily.

01:00:44.360 | >>Steve: How much are his living expenses?

01:00:47.600 | >>Joshua: Probably $50,000 a year.

01:00:52.640 | >>Steve: How much is his security income?

01:00:56.160 | >>Joshua: I don't know.

01:01:00.120 | >>Steve: Any guesses?

01:01:01.760 | $30,000 a year, $1,500 a month, something like that?

01:01:05.000 | >>Joshua: Yeah.

01:01:06.000 | Yeah.

01:01:07.000 | >>Steve: Okay.

01:01:08.000 | So the first thing to do...

01:01:09.000 | >>Joshua: He's got a pension.

01:01:10.000 | >>Steve: How much is the pension?

01:01:11.360 | Any idea?

01:01:12.360 | >>Joshua: I think it's about $2,000 a month.

01:01:15.480 | >>Steve: Okay.

01:01:16.480 | So that plus the Social Security should come close to covering his living expenses if your

01:01:21.040 | numbers are accurate.

01:01:22.040 | Do you think that's about the case?

01:01:23.960 | >>Joshua: Yeah.

01:01:25.720 | >>Steve: Okay.

01:01:27.280 | So the first step is you need to find out about his living expenses.

01:01:33.280 | Let's assume $50,000 a year for the sake of conversation, but you confirm those through

01:01:37.320 | whatever means you can find out.

01:01:39.280 | Number two is you find out about his current sources of income.

01:01:42.040 | If he's got a pension of $2,000 a month, that's $24,000 a year.

01:01:46.920 | If he's got Social Security of, I don't know, $1,500 a month, we're up to $3,500 a month.

01:01:54.240 | We're up to what, $38,000, $40,000 a year?

01:01:57.400 | So there's only about a $10,000 spread or a $10,000 lack if those numbers are accurate.

01:02:02.960 | So what you want to do is first analyze those numbers because those numbers are going to

01:02:07.600 | make all the difference in the world in terms of what he needs to do.

01:02:11.060 | If he didn't have a pension, if he didn't have Social Security, and he needed to spend

01:02:16.240 | $50,000 a year to maintain his lifestyle, that's a very different investment question

01:02:22.760 | than is him needing $10,000 a year from a $700,000 to $800,000 capital base.

01:02:30.200 | So you need to nail down those numbers and then ask this question, "What is my investment

01:02:36.600 | goal?"

01:02:37.720 | So what do I mean?

01:02:40.240 | Your dad might be the kind of person who's just steady, relaxed, has a great lifestyle,

01:02:45.840 | loves where he lives, loves how he lives.

01:02:49.000 | You said, "Dad, I'm going to make for you $10,000 of income a month."

01:02:52.120 | You'd say, "What would I do with the extra $5,000?

01:02:53.640 | I just need $5,000."

01:02:55.400 | He wouldn't spend the money.

01:02:56.400 | It would just sit in the bank account.

01:02:58.120 | On the other hand, maybe he would.

01:02:59.960 | Maybe if he had more money, it would totally transform his lifestyle.

01:03:03.400 | He'd buy a Winnebago.

01:03:05.720 | He'd start going back and forth all around the United States or he'd spend summers in

01:03:09.600 | Europe.

01:03:10.600 | Maybe he would spend the money.

01:03:11.600 | So you got to get clear on what do you need the money for?

01:03:14.800 | What's the goal of the money?

01:03:16.760 | And would you spend the money?

01:03:18.400 | So let me pause for a moment.

01:03:20.840 | If your dad had more income, would it affect his lifestyle?

01:03:23.840 | Is there anything that he would do that he's not currently doing if he had more money?

01:03:29.680 | Not dramatically.

01:03:30.680 | No.

01:03:31.680 | No, he would probably be more generous with his kids and grandkids and his church maybe,

01:03:39.920 | but no, he's not going to take off all around the world and change his lifestyle in any

01:03:46.960 | big way.

01:03:47.960 | He's pretty steady, conservative guy.

01:03:49.920 | So, the first thing to do is you want to look at the portfolio and you want to think about

01:03:56.800 | how do we meet this income?

01:03:58.560 | You said he has a rental condo that he also has?

01:04:01.040 | Yes.

01:04:02.040 | Okay.

01:04:03.040 | So, I'm going to guess, just an educated professional guess here.

01:04:07.840 | I'm going to guess that if you sit down with these numbers and you ask him, if he's got

01:04:11.240 | a $2,000 a month pension, if he's got social security from a normal working life span,

01:04:17.520 | which the reason I know that he's got that is because he's accumulated $800,000.

01:04:21.520 | That's very unusual for retirees to accumulate $800,000.

01:04:25.640 | That means that he earned a decent wage.

01:04:27.160 | He was frugal with his money.

01:04:29.400 | To your knowledge, is he debt free?

01:04:31.360 | Yes.

01:04:32.360 | Okay, debt free.

01:04:33.760 | So, he needs $50,000 a year.

01:04:36.200 | If he's got a rental condo, a pension, and a normal social security wage, he's probably

01:04:40.660 | got at least $40,000 if not $45,000 or $50,000.

01:04:44.160 | So, now the question doesn't become, how do we draw income from a $700,000 nest egg?

01:04:51.080 | The question becomes, what do we do with the $700,000 nest egg that's going to properly

01:04:56.600 | provide for our goals?

01:04:58.920 | If your dad needs income and he doesn't want to take investment risk, he could do something

01:05:03.040 | like buy an annuity.

01:05:05.280 | That's where if he wanted maximum income, he said, "I don't want risk."

01:05:10.440 | He's investing in municipal bonds because he's concerned about risk.

01:05:13.520 | I would sell him, if I still had a life insurance license, I would sell him a variable annuity.

01:05:19.240 | A variable annuity is an awesome solution to a situation like this.

01:05:23.880 | You say he wants more money, he's going to spend more money.

01:05:28.760 | An immediate variable annuity, he gives the insurance company, I don't know, $300,000,

01:05:33.800 | $500,000.

01:05:34.800 | The insurance company, they invest it into a portfolio of mutual funds.

01:05:39.000 | The insurance company will make a deal with him and they'll say, "Listen, we'll give you

01:05:43.340 | a check every single month for the rest of your life.

01:05:46.160 | You will never outlive that money.

01:05:48.400 | We'll put the money into a 60% or 80% stock fund, 40% bonds.

01:05:55.320 | He's got social security and a pension and he's debt free.

01:05:57.620 | That covers most of his living expenses so he can afford to do that."

01:06:00.520 | Your dad would be getting thousands of dollars every single month for the rest of his life

01:06:03.880 | and that would go up every single month basically for the rest of his life depending on the

01:06:08.160 | performance of the stock market, but he would never outlive the money.

01:06:11.780 | If his number one goal is to spend more money, that would be the way to do it because it

01:06:17.080 | eliminates the risk of him running out of money.

01:06:19.680 | There would be some investment risk depending on what specific investments he put into that

01:06:24.280 | variable annuity, but the annuity would elegantly solve an income problem like that.

01:06:29.240 | Doesn't get him involved in more real estate, very, very simple, just has lots of money.

01:06:33.840 | But in your situation, that's not the right solution because he doesn't need the money.

01:06:37.520 | He's not going to spend it.

01:06:39.080 | So now what does he want the money for?

01:06:41.320 | Well, you got some choices.

01:06:43.640 | If he's going to give the money away, then you want to ask him, "Does he want to give

01:06:47.280 | the money away now or does he want to give the money away when he's dead?

01:06:51.520 | And to whom is he going to give the money?"

01:06:53.600 | So if his goal is, "I want to give the money to a charity, to my church," something like

01:06:58.320 | that, I would encourage him not to do that.

01:07:01.040 | When he's dead, I mean.

01:07:02.240 | I would encourage him to start doing that while he's alive.

01:07:04.880 | One of the big dangers if someone doesn't need money is they start giving it away when

01:07:08.640 | they're dead.

01:07:10.080 | Better to give it away while you're alive and you can be sure that people are accountable

01:07:12.800 | for it.

01:07:13.800 | Now the balance, of course, is how much money does he need as an emergency fund?

01:07:17.360 | How much money can he give away?

01:07:19.080 | But if he's just going to keep this money and give it away, then maybe he gives away

01:07:23.320 | some of it now.

01:07:24.780 | Maybe he invests the money into people now.

01:07:26.920 | Maybe he's charitably inclined, but he says, "I'm going to do it now."

01:07:30.640 | He's going to have it invested into kids' experiences.

01:07:33.960 | He might invest it in, or sorry, his grandkids' experiences.

01:07:37.440 | Maybe he does go ahead and buy the RV so that he can take the grandkids around the country.

01:07:41.760 | Maybe he does.

01:07:42.960 | Maybe he buys a lake house so that you and all the children can have a place where we

01:07:49.760 | really want to do that.

01:07:50.760 | Maybe he buys a beach house.

01:07:51.760 | There are many options there depending on the vision.

01:07:54.600 | Now if we come back to the investment perspective, let's say he says, "All right, I don't need

01:07:59.960 | the money now.

01:08:01.400 | I want to give the money away when I'm dead.

01:08:03.640 | I'm not going to give it away now.

01:08:05.000 | I want to have the money as a backup fund.

01:08:07.000 | Maybe I need some kind of ongoing care and I need the money.

01:08:09.840 | I can't just get rid of the money and I don't need the income."

01:08:12.280 | Well, now we're going to go back and say, "What is the risk that you're concerned about?

01:08:18.240 | Are you concerned about the loss of principle or are you concerned about the loss of purchasing

01:08:22.520 | power?"

01:08:23.640 | The frustrating situation that we're in right now, especially and including with a muni

01:08:27.200 | bond portfolio, is the interest rates stink.

01:08:32.120 | Doesn't mean that there's no reason to buy bonds, but if interest rates go up, bond prices

01:08:37.480 | are going to fall.

01:08:39.000 | So we've got some significant risk there.

01:08:43.160 | Are interest rates going to go down?

01:08:45.920 | Basically what a bond portfolio can do for you right now is it can basically assure you

01:08:50.360 | the preservation of your capital so that you can take advantage of the next opportunity

01:08:55.080 | because the rate you're getting on your money stinks.

01:08:57.440 | And if rates go up, your bond values go down.

01:09:00.360 | So you kind of got a problem here, which moves us in the direction of a more aggressive investment

01:09:04.720 | portfolio that's actually going to have a return.

01:09:07.900 | And so the biggest thing that retirees, the biggest mistake retirees make is they're often

01:09:12.200 | concerned about the volatility of a portfolio rather than having income that actually keeps

01:09:18.300 | pace with inflation.

01:09:21.520 | And I'm more concerned about having income that keeps pace with inflation than I am about

01:09:24.440 | the volatility of a portfolio.

01:09:26.500 | My aunt called me up a couple months ago and she was worried about stock markets plummeting

01:09:31.460 | thousands of points every day.

01:09:34.380 | We're all, I'm not, we're all worrying, legitimately so, right?

01:09:39.820 | Our worries and our fears about the current economic situation, in my opinion, are well

01:09:44.300 | placed.

01:09:46.020 | Just because the stock market has come roaring back doesn't mean that our fears are not well

01:09:49.580 | placed.

01:09:50.660 | And she calls me up and says, "Joshua, what do I do, right?

01:09:52.820 | I've got X amount of dollars invested.

01:09:56.420 | It's in the stock market.

01:09:57.420 | I don't know what I should do."

01:09:58.860 | So I talked her through it, right?

01:10:00.140 | At the end of the day, I talked her through this analysis and it was exactly the same

01:10:03.700 | thing.

01:10:04.700 | Like a similar situation to what your father is in so many ways.

01:10:07.660 | And I said to her, I said, "Listen, you've got income.

01:10:11.000 | You don't have debt.

01:10:12.440 | You can be frugal and live on the income that you have, the income sources that are stable."

01:10:16.340 | I said, "Don't touch the money.

01:10:18.220 | Just leave it alone."

01:10:19.580 | But the benefit, if somebody stays in a stock portfolio that has a higher expectation of

01:10:24.180 | return, is they have the benefit of the potential of having far more money that can keep up

01:10:29.300 | with the pace of inflation and possibly leave a lot more money behind.

01:10:33.900 | So if your dad is 79 years old, and let's say we do a 20-year perspective, and let's

01:10:37.620 | say he doesn't spend the money, right?

01:10:39.580 | Put in 20 for our end.

01:10:42.620 | He keeps $200,000 to $300,000 on the side as his emergency fund, and we've just got

01:10:45.580 | a $500,000 portfolio.

01:10:47.100 | So we'll put $500,000 as our present value.

01:10:50.580 | Let's put no contributions, so no payments.

01:10:53.220 | And let's compare a 3% return to a 7% return.

01:10:59.300 | Well, 3% return in 20 years, he's got $903,000.

01:11:03.620 | A 7% return, he's got $1.9 million.

01:11:09.640 | That's a huge difference when you're talking about leaving money behind for a charity.

01:11:14.860 | Do you make a $900,000 bequest to a local church or a $1.9 million bequest to a local

01:11:20.020 | church?

01:11:21.020 | Do you make a $900,000 contribution to a trust fund for your grandchildren or a $1.9

01:11:26.500 | million trust fund for your grandchildren?

01:11:29.100 | And those kinds of differences are achievable if he moves in the direction of an aggressive

01:11:32.620 | portfolio.

01:11:34.180 | So I've complicated the answer to demonstrate what he needs is he needs a financial advisor.

01:11:40.180 | He needs to sit down with somebody and talk through and say, "What are your goals?

01:11:44.880 | What do you actually want to do with the money?"

01:11:46.880 | And then try to find, after you find out the goals, then try to find some kind of solution

01:11:52.380 | that will fit that.

01:11:54.060 | At the end of the day, maybe it is muni bonds and cash.

01:11:59.020 | Something wrong with it.

01:12:01.180 | But I want to make sure that he's really clear on why he's doing that because to me, there's

01:12:07.980 | a big cost to missing out potentially on that $1 million.

01:12:12.380 | If you're trying to give money away, again, it's valuable to give away that $1 million.

01:12:15.900 | I think it's easier to educate somebody and show them with math what I've just done, hopefully,

01:12:22.860 | here in public, to show them with math that they don't need to be worried about market

01:12:27.100 | volatility.

01:12:28.620 | If your dad's portfolio had been $500,000 of stocks and it had dropped down to $300,000

01:12:34.060 | of stocks, and if he had stuck with it, like I got my aunt to do, then the blip in the

01:12:41.460 | stock market over the last few months wouldn't have affected him because his pension would

01:12:45.660 | have still come in, his social security would have still come in, and maybe his rent would

01:12:48.420 | have still come in.

01:12:49.420 | He would have, of course, a couple hundred thousand dollars of cash on the side that

01:12:52.340 | he could still keep invested.

01:12:54.300 | Volatility is not something that someone in his situation should be concerned about.

01:12:58.380 | It's not.

01:12:59.380 | He shouldn't worry about it.

01:13:00.900 | What he should be concerned about is that his investments are actually going to help

01:13:05.340 | him achieve his financial goals, whatever they are.

01:13:07.980 | In conclusion, if he needs income, if he wants to spend money, I think a variable annuity

01:13:14.020 | would be a great solution to provide him with a little bit of excess income.

01:13:17.700 | I would probably do a hybrid.

01:13:19.380 | He sounds like he doesn't need a lot of income, but I would do a hybrid, maybe a couple hundred

01:13:23.900 | thousand dollars into a variable annuity.

01:13:25.740 | The reason it's got to be a variable annuity is you want that annuity payment to keep pace

01:13:29.260 | with inflation.

01:13:30.940 | Buying an annuity would give him the benefit of making sure that he has an income stream

01:13:35.700 | that he'll never outlive, but that income stream can participate in the performance

01:13:40.660 | of mutual fund investments, stock market investments, so that it can keep pace with inflation and

01:13:46.580 | it'll reflect what happens with the overall market performance.

01:13:50.540 | If he needs some more income and he doesn't want to buy more rental houses and whatnot,

01:13:54.820 | I would think that some amount of money, and at 79 years old, the mortality tables will

01:13:58.860 | work really well, I would think some amount of money into a variable annuity would be

01:14:02.780 | a good solution.

01:14:04.220 | Then I would keep a significant amount of money in cash, but he probably doesn't need

01:14:07.340 | 300 grand in cash.

01:14:08.340 | 100 or 150 would be more than enough for him to do whatever he needs to do.

01:14:12.780 | Then I would try to put the rest of it into some kind of longer term investment.

01:14:17.180 | Now that could be a couple of things.

01:14:18.180 | It could be the market, if you have a good thing.

01:14:20.460 | It'd be fine for him to buy an index fund.

01:14:22.740 | I'd be fine if the numbers that we said were true, and if he bought, let's say put $200,000

01:14:28.780 | into a variable annuity, so he has another $1,500 a month of income, whatever the numbers

01:14:33.500 | of the annuity company would come out to be.

01:14:35.580 | Now he's got plenty of income.

01:14:37.620 | I would be fine if he just put 300 grand in a stock market index fund.

01:14:42.380 | That would be a good tax efficient solution, very tax efficient to leave behind.

01:14:49.020 | If he doesn't want to invest in stocks, then I would think about some kind of long term

01:14:53.060 | speculative low maintenance real estate option.

01:14:57.020 | So maybe he buys farmland.

01:14:59.260 | Something like that could work out.

01:15:01.340 | Could have minimal management needs.

01:15:03.460 | He's not dealing with a lot of toilets and things like that.

01:15:07.020 | But if you invested the money strategically, maybe that could work out.

01:15:10.580 | And then if he's leaving it behind as an inheritance, then it would be a very tax efficient thing

01:15:15.360 | to do.

01:15:16.360 | If he invested $300,000 into raw land or farmland, again, I don't know if that's a good investment

01:15:20.780 | where you are, but let's say you could find $300,000 of farmland or raw land.

01:15:28.420 | The characteristics of that kind of investment would be really nice for his situation, because

01:15:33.140 | it wouldn't create income.

01:15:35.820 | Or if the income did come in, it would be modest.

01:15:39.020 | Most of the growth in it would be capital gains, because he doesn't need the income.

01:15:42.180 | Remember, in my kind of play scenario here, he doesn't need the income.

01:15:45.180 | So we don't want to create income if we don't need it.

01:15:48.060 | What we want is capital gains.

01:15:50.020 | And if he owns the farmland, he doesn't have this money in a 401ks, he just owns it.

01:15:55.020 | I'm assuming because he has muni bonds.

01:15:56.860 | Is that correct?

01:15:57.860 | That the $500,000 is not inside of a qualified account of some kind?

01:16:01.220 | Correct.

01:16:02.220 | Okay.

01:16:03.220 | So he buys farmland.

01:16:04.820 | It's a capital gain asset.

01:16:05.980 | He pays $300,000 of farmland.

01:16:08.460 | That farmland grows over the next 20 years, and it's worth $1.2 million.

01:16:13.740 | He dies 20 years from now, and he leaves that $1.2 million to somebody or something, family

01:16:21.900 | trust, children outright, grandchildren outright, local church, whatever.

01:16:25.820 | Now, that's going to be a step up in tax basis.

01:16:29.140 | And so all of the gain from the $300,000 to the $1.2 million, the $900,000 of gain is

01:16:33.420 | going to be received totally tax free.

01:16:35.700 | And yet the whole time, he's got that safe asset.

01:16:38.500 | So there are several investments that could work.

01:16:43.100 | Hopefully there are some creative ideas to get you thinking about the type of attributes

01:16:46.920 | of an investment that would be good for him that he would actually need.

01:16:50.060 | Okay.

01:16:51.060 | Where do you get pricing on variable annuities?

01:16:54.860 | Talk to an insurance agent.

01:16:55.860 | Yeah.

01:16:56.860 | You just want to talk to an insurance agent.

01:16:57.860 | So with a variable annuity, what you want to do is you want to talk to the high level

01:17:03.500 | companies, the A-ranked companies.

01:17:05.820 | And so my standard, I'm a little biased because I used to work for one of the big mutual insurance

01:17:11.100 | companies, but my standard is start with the big mutual insurance companies, call a New

01:17:15.140 | York Life agent, call a Northwestern Mutual agent, call a Mass Mutual agent, maybe a Guardian

01:17:21.340 | agent.

01:17:22.540 | The reason why those are important is unlike insurance that's largely brokered in the business,

01:17:30.380 | the insurance agents that work for those big traditional life insurance companies, they're

01:17:34.620 | trained a little bit better on insurance products.

01:17:37.420 | And so an annuity product like that is going to be better.

01:17:41.520 | All of those companies mentioned, New York Life and Northwestern Mutual are going to

01:17:45.100 | be the best.

01:17:46.100 | Mass Mutual, also good.

01:17:47.100 | Guardian, also probably pretty good.

01:17:48.780 | And all those insurance companies are going to have vanilla, simple, variable annuities

01:17:56.700 | that are available.

01:17:57.700 | And so what you can do is you can't get...

01:17:59.820 | So those you put in the principal and you don't get it back, right?

01:18:03.460 | They look at your mortality and they promise you income based on the principal you put

01:18:09.940 | in, your mortality, and a little bit of market fluctuation.

01:18:13.460 | Exactly.

01:18:14.460 | So you write a check for $250,000, you'll never see the $250,000 again, but the insurance

01:18:22.340 | company promises you that you're going to get a monthly payment every single month for

01:18:25.620 | the rest of your life.

01:18:26.620 | Now, there are about 70 different options that the insurance agent will go over with

01:18:31.620 | you as far as what those payments look like.

01:18:34.660 | So again, there's options of variable versus fixed.

01:18:38.220 | There are options of guarantees.

01:18:40.860 | Do you want a guaranteed return of your $250,000 over time, even to your beneficiaries?

01:18:45.340 | Or are you willing to give that up for a higher monthly payment?

01:18:48.240 | What portfolio do you want the money into?

01:18:50.060 | And so that's the insurance agent's job where they'll model those things and walk you through

01:18:53.100 | the options.

01:18:54.100 | But that's...

01:18:55.100 | Yeah, yeah.

01:18:56.100 | But correct.

01:18:57.100 | I would start with some phone calls there and then see what the insurance agents have

01:19:00.300 | to say.

01:19:01.300 | Okay.

01:19:02.300 | Cool.

01:19:03.300 | All right.

01:19:04.300 | Awesome.

01:19:05.300 | Very good.

01:19:06.300 | Thanks for helping your dad and I appreciate you doing that.

01:19:09.700 | It's one of the biggest things and just kind of last public service announcement that I

01:19:13.700 | would say is while you're doing that with your dad, make sure that you are facilitating

01:19:20.540 | this kind of open communication between you as a family.

01:19:26.740 | Because one of the things you want to take care of, be careful for is elderly people

01:19:31.900 | are often abused by scams in the financial business.

01:19:36.140 | And so it sounds like you've got a good open relationship.

01:19:38.820 | One of the most valuable things that you can do is cultivate that good open relationship.

01:19:43.220 | If possible, I would ask my dad to make a commitment to me and say, "Listen, please

01:19:47.700 | don't do anything with money that we don't talk about.

01:19:51.220 | Don't invest in anything.

01:19:52.220 | Don't do anything with money."

01:19:54.060 | You have to have a good relationship and mutual trust for him to do that.

01:19:57.580 | But that way you can help to protect him from being taken advantage of by the sharks that

01:20:03.280 | are out there in the financial business.

01:20:05.340 | In addition, while you're doing those things, think through account access, supervision,

01:20:10.940 | etc.

01:20:11.940 | Because it just becomes – it's generally demonstrated.

01:20:15.260 | It becomes more difficult for us to make good decisions with money as we get older.

01:20:18.800 | So in addition to what you're doing, just cultivate that open relationship and that

01:20:23.180 | way you'll be able to be an advocate for him.

01:20:25.580 | That's it for today's podcast.

01:20:27.100 | Thank you all for listening and I'm glad that you're here.

01:20:29.420 | If you'd like to join me on next week's Friday Q&A show, go to patreon.com/radicalpersonalfinance.

01:20:35.300 | Sign up there, patreon.com/radicalpersonalfinance.

01:20:36.300 | And I'm grateful for your being here.

01:20:37.300 | Have a great weekend.

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01:20:43.300 | and less debt after graduation.

01:20:44.300 | See what scholarships you may qualify for.

01:21:08.300 | Find your purpose at gcu.edu/myoffer.

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