RPF-0075-QA_on_Life_Ins_Special_Needs

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00:00:29.640 | Radical Personal Finance episode 75.

00:00:32.640 | Today, we have some awesome questions, a couple of compliments, a few clarifications, and one important correction.

00:00:43.640 | I got something wrong yet again.

00:00:46.640 | [Music]

00:01:02.640 | Welcome to the Radical Personal Finance podcast. My name is Joshua Sheets. I'm your host.

00:01:07.640 | Today is Friday, October the 3rd, 2014, and today I have an amazing and packed Friday Q&A show lined up for you.

00:01:18.640 | I think you're going to have a lot to think about after today's show. I hope you enjoy it.

00:01:23.640 | [Music]

00:01:34.640 | In case you're wondering, the reason why I always play that music there is they say that when you start broadcasting, you're supposed to have high energy and be enthusiastic, and sometimes I'm not.

00:01:44.640 | So, my music, my intro music, and my theme music always gets me dancing.

00:01:48.640 | And so, that gets the show started off well as far as on a high energy.

00:01:51.640 | So, I hope you enjoy it like I do. Even though I hear it every single day, I still dance to it and I enjoy it.

00:01:56.640 | It's going to sound even better next week, and I'll let you know why when I get it sounding better.

00:02:01.640 | Today, Friday Q&A show, and I've got a good one lined up for you.

00:02:05.640 | And let me tell you right now, this show is going to be long, and I think it's going to be great.

00:02:11.640 | But, those of you who complain about the length of the shows, this show will be long.

00:02:15.640 | But let me tell you how to make it shorter, and let me tell you what the topics are that we're going to cover.

00:02:19.640 | So, I'm going to answer a number of questions.

00:02:21.640 | So, on my outline here, I'm going to answer a question from Beth about how to plan an appropriate amount of life insurance to plan for her 14-year-old son who has autism.

00:02:30.640 | How do you do that? How do you do life insurance planning when you know you're going to have a need that goes on forever?

00:02:36.640 | We have a question from Bobby Joe, who is interested in what it's like to actually be a financial planner.

00:02:43.640 | We have a question from Julian about what software or what tools to use when doing your own planning.

00:02:50.640 | Should you do it with paper and a pen, or should you purchase a software package?

00:02:55.640 | I'm going to correct an error that I made while correcting a previous error in the 401(k) show.

00:03:01.640 | I've got just a nice self-serving compliment from Derek in Canada that left a voicemail and sounded really good.

00:03:07.640 | I'm going to play that for you. That's about a minute.

00:03:09.640 | I've got a question from Alejandro, who says, "What do you do when you can't do anything more about your financial plan right now?"

00:03:15.640 | I've got a voicemail question about ethical investing.

00:03:18.640 | I've got some comments on the 4% Rule podcast.

00:03:21.640 | I've got a question on how did I keep from smelling like a pig when I was living in my car for two weeks?

00:03:27.640 | That one will be fun.

00:03:28.640 | And then I'm just going to close out with a comment on the impact of hobbies.

00:03:31.640 | Some of these questions are going to be in-depth and technical.

00:03:34.640 | Some of them are going to be short and a little bit fun, but they're all important.

00:03:39.640 | I will make sure on today's show that I go through and put some time stamps in.

00:03:44.640 | I don't usually make the time to do that, but today, since I expect this to be a lengthy show,

00:03:48.640 | I will make sure that in the show notes, if you're interested in just one of those questions,

00:03:52.640 | in the show notes, I will put the time stamp to the question so that you can navigate right to that amount of time.

00:03:58.640 | But give it a chance, because I think you will enjoy--I think you'll find all of these questions useful.

00:04:02.640 | And since I've been out of town, I haven't done one of these Q&A shows for at least two to three weeks.

00:04:07.640 | These are all the questions that have piled up while I've been gone.

00:04:10.640 | And I've done a lot of work as far as just preparing my thoughts, so I think it'll be good.

00:04:15.640 | So also, this is going to be the first time I'm playing on the show some of these voicemail questions that I've been receiving,

00:04:20.640 | so I am excited about doing that.

00:04:22.640 | Thank you for those of you who have left me voicemails.

00:04:25.640 | I think that adds something to the show, to be able to kind of hear your voice.

00:04:28.640 | I think it adds something.

00:04:30.640 | If you would like to leave me a voicemail with a question for the show, then go to the site, RadicalPersonalFinance.com.

00:04:36.640 | You can go on your phone or on the computer.

00:04:38.640 | Click the "Send Us a Voice Message" button.

00:04:41.640 | Leave me a voicemail.

00:04:42.640 | You can feel free to leave me a question.

00:04:43.640 | Leave me a comment.

00:04:44.640 | I like the questions because then I can answer them on these Friday shows,

00:04:47.640 | and I'll be happy to have any question you can think of.

00:04:50.640 | I'm also happy to answer questions via email as well, so sometimes a couple of these you'll hear me just reference in email.

00:04:56.640 | So let's kick things off with Beth.

00:04:59.640 | Beth, here you go.

00:05:00.640 | Hi, Joshua.

00:05:02.640 | My 14-year-old son has autism,

00:05:06.640 | and I need help determining how much money we need to save

00:05:11.640 | to make sure he's well taken care of when my husband and I are gone.

00:05:17.640 | So far I have in place a last-to-die survivorship life insurance policy for $250,000

00:05:26.640 | and over $1 million of term life in place for my husband and I combined

00:05:36.640 | to carry us through until around age 67.

00:05:41.640 | So we feel like he's covered if we both die before the life insurance runs out.

00:05:48.640 | But assuming we live past 67,

00:05:51.640 | my question is how much money should we have saved to make sure he's well taken care of?

00:05:58.640 | I'm calculating his Social Security benefits to be approximately $460.

00:06:07.640 | I'm figuring $700 reduced by one-third because he would be living with others who care for him.

00:06:15.640 | He has two sisters and loads of cousins who we would like to properly compensate for room, board, and companionship.

00:06:24.640 | We would love to stop traditional 9-to-5 jobs as soon as possible,

00:06:30.640 | but we really want to make sure all three of us are covered.

00:06:35.640 | And by the way, I especially liked your recent episode, "55."

00:06:40.640 | You really got me thinking, and I've recommended that show in particular to a couple of friends.

00:06:49.640 | Thanks for all you're doing.

00:06:52.640 | So Beth, thank you for the question.

00:06:54.640 | And Beth was actually the first question that I received, so that was exciting.

00:06:58.640 | It took me forever to set up the voicemail line,

00:07:01.640 | and then once I had it set up, then it was a week or two before someone finally called in.

00:07:06.640 | So I was excited for that. Thank you, Beth.

00:07:08.640 | This is a question that is increasingly important.

00:07:13.640 | It seems--I can't quote statistics, I'm not sure about this--

00:07:17.640 | but it certainly seems as though we have an increasing number of special needs cases,

00:07:22.640 | and it's a very important area of financial planning.

00:07:25.640 | And there are many planners who really completely specialize in special needs planning.

00:07:32.640 | To begin with--I'm going to talk you through this in detail, Beth, and also for the audience.

00:07:36.640 | If you don't have someone with special needs, don't tune this out,

00:07:38.640 | because you'll find this to be a valuable input on how to do financial planning.

00:07:44.640 | But if you do know someone with special needs, this, I think--my goal is to give you a framework for how to think of.

00:07:50.640 | I've got to start with a slight disclaimer, though.

00:07:52.640 | I'm not an expert in special needs planning.

00:07:55.640 | I have thought about really working at it, and in some ways I'd really like to be.

00:08:00.640 | I would encourage you in your planning to find somebody who's an expert.

00:08:05.640 | Now, I don't know how to tell you how to find somebody who's an expert in financial planning for special needs.

00:08:11.640 | When I thought about doing it, I first started thinking about it, because I thought,

00:08:15.640 | "Well, you know, I can just do this great job, and then I can sell big life insurance policies,

00:08:22.640 | and I'll make lots of money, because people need lots of life insurance when they're doing special needs planning."

00:08:26.640 | And then I started studying it, and I realized it was far more complicated than I knew.

00:08:30.640 | And I don't know anybody in my family or have a very close connection to anybody who has special needs,

00:08:35.640 | so I don't have that kind of personal connection to it.

00:08:39.640 | I have met some planners who do, and let me tell you, this is an incredibly important area of planning.

00:08:45.640 | If you are a financial planner, and I believe if you're interested in learning and working in an area

00:08:52.640 | where you can have an amazing impact, consider working in special needs planning.

00:08:56.640 | I think it would be a great specialty, and if I were to specialize, it would be one area I would seriously consider specializing in again.

00:09:03.640 | But I would need to work a lot on my knowledge of some of the specifics.

00:09:08.640 | I'm simply not competent in the specifics for each state and all of the little things that you have to make sure that you get done.

00:09:17.640 | I'm competent with the big picture, but not with the details.

00:09:20.640 | And then, as I just mentioned, state-specific means a big deal.

00:09:24.640 | So I don't know what state Beth is in, and I'm actually glad I don't know,

00:09:28.640 | because if she were in Florida, then I would go where I shouldn't go on the radio.

00:09:34.640 | So let me encourage you, find somebody in your state who is an expert in this area.

00:09:38.640 | State law matters. It makes a big difference.

00:09:41.640 | So I'm going to answer your question in two lines of thinking.

00:09:43.640 | I'm going to give you the simple answer, and then I'm also going to give you some of the complicated answers.

00:09:48.640 | So in many ways, the answer to your question is very, very simple. It really is.

00:09:53.640 | And so let's start with, what do you mean simple?

00:09:58.640 | Well, if I go away from the complications of the special needs, and I just say, "What is actually our problem?

00:10:06.640 | Here's the financial planning problem that we have."

00:10:09.640 | Basically, for your son, for your 14-year-old son, we need to provide for him an income for his entire expected lifespan.

00:10:18.640 | And you didn't tell me that we have any reason to expect that that would be less than an average person.

00:10:25.640 | So I don't know anything about autism that would cause somebody to have a shorter than expected lifespan.

00:10:30.640 | So if he's 14 years old, we may be planning from, who knows, to age 70, to age 50, to age 70, to age 90.

00:10:37.640 | I don't know. I'm going to basically just plan for an entire lifetime would be my idea.

00:10:42.640 | And so essentially what you need to do is provide for him the income that he needs to take care of his support,

00:10:49.640 | which he's not able to provide for himself.

00:10:51.640 | I don't know where he is on the autism spectrum. I'm going to assume that he needs full support,

00:10:56.640 | just simply because that would be the worst-case scenario.

00:11:01.640 | But the planning is no different, the process, just the numbers are different, if he's able to provide some of his own support.

00:11:08.640 | So let's assume that we need to provide an income for him and provide cash flow for his entire lifetime.

00:11:15.640 | Well, what we need to do is we need to figure out what is the cash flow that we need on a monthly basis for the rest of his life,

00:11:24.640 | subtract out what is the cash flow that's available on a monthly basis for the rest of his life,

00:11:30.640 | and that will leave us with the cash flow that we need to provide for him to cover the lack, the difference,

00:11:38.640 | to cover with life insurance in your example.

00:11:41.640 | Now, while you and your husband are alive, then clearly you have your income, which you're using to provide for his needs.

00:11:48.640 | So now it sounds like that's earned income. You're working.

00:11:51.640 | It may be in the future. It may be investment income. It may be retirement income.

00:11:55.640 | It may be pensions or Social Security that you have for yourself,

00:11:58.640 | and you have your investment income from your own investment portfolio, whatever that is.

00:12:02.640 | So while you're alive, you're providing the income for him.

00:12:06.640 | And then when you die, you have an asset base that will be available for him.

00:12:12.640 | Now, the way that you calculate the amount of life insurance need is always going to be the same,

00:12:17.640 | no matter whether it's special needs or not.

00:12:19.640 | The only thing that's different with special needs is that the amount of time that you need to provide the income for is a much longer period of time,

00:12:27.640 | because instead of being something like, let's say, as an example, I'm doing life insurance planning for your husband.

00:12:33.640 | You're saying, what happens if my husband dies? I'm 10 years from retirement.

00:12:38.640 | I need to cover the 10 years of income from retirement.

00:12:41.640 | I'm going to be short $50,000 a year.

00:12:44.640 | So because I'm going to be short $50,000 a year for 10 years, then basically I need something like $500,000 of cash.

00:12:52.640 | And then you factor in whatever the investment return is.

00:12:55.640 | For the sake of simplicity, let's assume for a moment that we don't need to worry about investment return over those 10 years.

00:13:02.640 | We just have that $500,000 of cash.

00:13:04.640 | So that's how we calculate it for your husband.

00:13:06.640 | And to calculate it for your son, it's no different, except that we have a much longer period of time.

00:13:10.640 | We basically have 70 years of time.

00:13:12.640 | That would take him to 84 years old.

00:13:15.640 | And I frankly don't know what life expectancy to use.

00:13:17.640 | I'm going to use that 70 years just because it makes sense to me, and I think life spans are increasing.

00:13:22.640 | But I could be completely wrong on that.

00:13:25.640 | So all you do is just simply do a needs analysis and say, "What's the total amount of assets that we would need to have invested in order to provide him with an income for 70 years?"

00:13:38.640 | Now, when you get to the point of 70 years, it's far longer than the point where we're going to normally plan to use it up.

00:13:46.640 | So we're not going to really do an annuity calculation.

00:13:48.640 | We're probably going to plan on just simply what percentage of a portfolio could we provide into perpetuity without invading the principle of the portfolio.

00:13:57.640 | Now, what number to use in that situation, it's going to depend on your investment portfolio.

00:14:02.640 | It really is.

00:14:03.640 | And I don't know anything about your investment portfolio.

00:14:05.640 | For the sake of this example, I'm going to use a 3% withdrawal from a portfolio.

00:14:11.640 | And I think that 3% would be a fairly decent number to use as a conservative number to say that if we had an investment portfolio that was well invested, that's providing for an income, then we could take a 3% real return and use that on our numbers.

00:14:29.640 | So the word "real return" means 3% net of inflation and net of taxes.

00:14:34.640 | That's what I'm going to use it as in this scenario.

00:14:36.640 | So our actual annual return from the portfolio may be higher, and it will be higher, but we're going to adjust for taxes and for inflation.

00:14:47.640 | And so we're going to use a 3% real return.

00:14:49.640 | Now, you need to sit with your investment advisor if you have one, and I would encourage you to consider consulting a few.

00:14:56.640 | You need to sit with your investment advisor and make sure that you have a portfolio that can reliably provide that return.

00:15:03.640 | If you choose to do this yourself, you need to make sure that your portfolio that you've selected for yourself is going to reliably provide that return.

00:15:11.640 | You can do this yourself.

00:15:12.640 | I am more comfortable having people talk with professionals because I think there are a lot of -- especially in special needs planning.

00:15:18.640 | But you can do this yourself.

00:15:20.640 | You can figure out if you're skilled with portfolio managing.

00:15:22.640 | You decide the type of portfolio that you need.

00:15:24.640 | You can set this up.

00:15:25.640 | So let's say that your son needs $3,000 per month to provide for his support.

00:15:30.640 | I don't know what the number is.

00:15:32.640 | You can plug in your own calculations.

00:15:33.640 | So if he needs $3,000 a month times 12 months, that would be $36,000 a year.

00:15:38.640 | So if you take $36,000 a year and the way you do this calculation is you take $36,000 and you divide it by .03, and that will give you $1,200,000.

00:15:52.640 | So if you have a portfolio of $1,200,000, that portfolio could reliably provide for you $3,000 a month of income essentially into perpetuity.

00:16:02.640 | So you know that no matter how long he lives, he's going to be taken care of.

00:16:07.640 | If you can plan on the $500 a month from Social Security, then that lowers your need to be $2,500 a month.

00:16:15.640 | So you take $2,500, multiply that times 12, that equals $30,000, and divide that by .03, and you find out that you need a portfolio of $1,000,000.

00:16:27.640 | So that's our target goal is a portfolio of $1,000,000.

00:16:32.640 | Now here's the trick, and here's where it gets a little bit tricky.

00:16:35.640 | The fact is that you're planning for your lifetime and also for his.

00:16:40.640 | So this cash flow that we need for your son is in addition to the cash flow that you and your husband would need to provide for your retirement.

00:16:51.640 | So you're going to need to budget the money for your retirement, but instead of being able to have the luxury of saying, "My goal is to die with $0 of net worth,"

00:17:01.640 | your actual goal is that you can't die with anything less than $1,000,000 of net worth, in my example.

00:17:09.640 | So you've got to make sure that whatever your retirement plan looks like, that you have a high degree of confidence that when you die, you die with a portfolio of $1,000,000.

00:17:24.640 | Now I don't know what your expenses are. I don't know what your income is. I don't know what your savings are, and I'm glad I don't,

00:17:31.640 | because this is not meant to give you a specific answer to your question.

00:17:35.640 | I want to talk to you about how to think it through.

00:17:38.640 | But when you are doing your financial planning calculations for your retirement, you're figuring out how much of a portfolio you need,

00:17:44.640 | you need to make sure that you plan to have a terminal value of $1,000,000.

00:17:50.640 | And that $1,000,000 will also just need to make sure that's adjusted for inflation, the $3,000.

00:17:57.640 | So that's the key. Now there's a bunch of ways that you could do this.

00:18:00.640 | For example, you already own a life insurance policy.

00:18:04.640 | So you already own a $250,000 second-to-die life insurance policy.

00:18:09.640 | For those in the audience who are not familiar with a second-to-die life insurance policy, if you've never heard that,

00:18:14.640 | what this policy is, is this is a whole-life policy, and it could be either a whole life or a universal life.

00:18:20.640 | Let's call it a permanent life insurance policy.

00:18:22.640 | So this is a permanent life insurance policy, and the policy is based upon two lives,

00:18:28.640 | the lives of Beth and the life of her husband.

00:18:32.640 | And so the policy will pay out upon the second death.

00:18:36.640 | So if Beth's husband dies first, there's no policy payment.

00:18:40.640 | But then when Beth dies at the second death, then that life insurance policy will pay out the $250,000 benefit.

00:18:47.640 | So life insurance is a really useful tool for financial planning for people with special needs.

00:18:55.640 | So for example, if the goal was, "I need a $1,000,000 life insurance policy,"

00:18:59.640 | you and your husband could buy a $1,000,000 second-to-die life insurance policy,

00:19:04.640 | and then you would have the confidence of knowing that whenever you die, no matter when,

00:19:09.640 | there's always going to be a million dollars of cash available.

00:19:13.640 | That million dollars of cash can fund his special needs trust, which we'll talk about in just a minute.

00:19:18.640 | That million dollars could go in there, and then that could provide for him an income of a 3% real income

00:19:24.640 | over time adjusted for inflation over his lifetime.

00:19:28.640 | Now, it's probably unlikely that you need to do the whole thing with life insurance.

00:19:33.640 | The prices on a second-to-die life insurance policy are pretty good compared to on an individual.

00:19:40.640 | Because of the two lifespans, they're a lot easier to afford those premiums.

00:19:44.640 | But it's probably unnecessary simply because I'm sure you have other investments and you have other assets.

00:19:50.640 | You probably own a home, and you would have other retirement assets.

00:19:54.640 | You'd have other 401(k) assets, things like that.

00:19:57.640 | And so the way that you would do this is you would look at those other assets,

00:20:01.640 | and you would figure out how much of these other assets are going to be around.

00:20:06.640 | So maybe you have a home that is worth $500,000, and you say,

00:20:11.640 | "Realistically speaking, we're always going to live in this home, so we're going to count on that."

00:20:16.640 | And conservatively, it's worth $500,000. We're going to be here until we die,

00:20:21.640 | and then when we die, we're going to direct the executor of our estate to sell the house,

00:20:26.640 | and then to put this money into the trust for your son.

00:20:30.640 | Well, that gives us $500,000. Many things that could go wrong with that.

00:20:33.640 | I'm not going to pick it all apart, but that would give you the $500,000.

00:20:37.640 | You may have a substantial investment portfolio, and you may run the projections and say,

00:20:42.640 | "With a high margin of safety, we're going to be able to save and invest,

00:20:47.640 | and given a reasonable rate of return on our investments with a high margin of safety,

00:20:50.640 | we're going to be well on track for our retirement.

00:20:53.640 | And so we think that we're going to make sure that we're going to have at least a couple million bucks left

00:21:00.640 | in our investment accounts when we die. We feel pretty good about that."

00:21:04.640 | So you could do this entirely with investments.

00:21:07.640 | The trick is that it's probably going to be a balance of them, because there are many things that can go wrong.

00:21:12.640 | The problem with doing it all with life insurance is that the returns on the death benefit of your life insurance policy

00:21:18.640 | are probably not going to be as high, just simply due to the nature of the life insurance policies,

00:21:22.640 | as the returns you might be able to get in an investment account, in your 401(k) and off of your portfolio.

00:21:29.640 | In general, a portfolio of all stocks is going to have a higher average ending balance than is your life insurance policy.

00:21:36.640 | But the returns on that stock portfolio are going to be fairly volatile,

00:21:40.640 | and depending on your distribution strategy, you may wind up into a time where at your death,

00:21:45.640 | that portfolio may be diminished in value.

00:21:47.640 | And so the life insurance would be an important component.

00:21:50.640 | I would probably do a combination of these.

00:21:53.640 | And where that combination would be, I don't know. It depends on your financial situation.

00:21:58.640 | If your financial situation is tight, you don't have millions of dollars set aside for retirement,

00:22:04.640 | you're working and you're funding for it, but you're going to have to keep on working longer,

00:22:09.640 | you're going to be doing other sources of income, then that's going to affect it.

00:22:13.640 | It's going to be very different planning, depending on what your actual situation is.

00:22:17.640 | So the answer to your question of how to calculate it is essentially that simple.

00:22:24.640 | And how you structure the portfolio is going to be up to you.

00:22:29.640 | You could do this with a portfolio of stock investments.

00:22:33.640 | Maybe you and your husband own a portfolio of rental houses, and you have, say, five rental houses.

00:22:39.640 | And you could direct those rental houses to be transferred into a trust.

00:22:42.640 | You could designate a trustee who will take care of the property management,

00:22:47.640 | and then that portfolio of rental houses could provide the stream of income for your kids.

00:22:52.640 | You could do something like when you and your husband retire,

00:22:56.640 | you could have a million-dollar second-to-die life insurance policy.

00:22:59.640 | You could have all of your money coming in in annuity streams,

00:23:02.640 | and you know that you have income that will last you as long as you live.

00:23:07.640 | And you could have a life insurance policy that guarantees for your son's needs.

00:23:10.640 | It's up to you. So that's the big picture.

00:23:13.640 | That's the long-term goal.

00:23:15.640 | But now we've got to look and say, "Well, where are we at?"

00:23:18.640 | And so for the purpose of this analysis, I'm going to assume that you're still in the building stage.

00:23:24.640 | So you're still in the stage of we're working, we're saving money, we're figuring out these numbers,

00:23:30.640 | and we're trying to fund a portfolio that's big enough to provide for me and for my husband at our current lifestyle,

00:23:39.640 | and we've got to make sure that it ends with a million dollars.

00:23:42.640 | So we want to stress test that.

00:23:44.640 | We've figured out what would be an appropriate lifestyle for you to live in retirement.

00:23:48.640 | We've figured out how much you're earning, how much you're making, what your rates of return are,

00:23:51.640 | with just some very simple calculations.

00:23:53.640 | It's very simple for your planner to do.

00:23:55.640 | And you figure out, are we on track?

00:23:57.640 | And if we're on track, what could happen to us that could knock us off track?

00:24:00.640 | So you could die early, and that's where the life insurance comes in.

00:24:05.640 | So that's why you have the term insurance.

00:24:07.640 | So in general, term insurance is going to be your best bang for the buck for a temporary life insurance need.

00:24:12.640 | So you mentioned that your policies go forward through the age of 64.

00:24:16.640 | Well, you need to make sure that you sit down and calculate or have your planner calculate for you

00:24:21.640 | how likely is it that you're going to be on track up through the age of 64.

00:24:24.640 | So that's where your life insurance comes in.

00:24:26.640 | Here's another big risk.

00:24:28.640 | You could get disabled.

00:24:30.640 | So you need to make sure that you have a plan if you or your husband were to get sick or hurt

00:24:34.640 | and not be able to work, but not die.

00:24:37.640 | This could be a big deal. Disability derails many, many financial plans.

00:24:41.640 | And this could keep you from being able to leave the million-dollar portfolio that you need to leave for your son.

00:24:50.640 | I would encourage you to make sure that if you stress test that.

00:24:54.640 | If not, you need to make sure that you have disability income insurance in force.

00:24:58.640 | You or your husband could have the normal costs of care for individuals without special needs.

00:25:05.640 | You or your husband might need long-term care help, help with long-term care.

00:25:10.640 | You may get older. You may become frail. You may need some help.

00:25:13.640 | Well, that could be really challenging.

00:25:15.640 | Let's say that your husband were to need some care around the house, and your son also is in need of care.

00:25:22.640 | That could be very, very burdensome on you, especially if that were to happen when you're 85 years old.

00:25:28.640 | So I would recommend considering that and investigating your options for long-term care.

00:25:32.640 | You may purchase some long-term care insurance.

00:25:34.640 | You may set aside an additional fund for that.

00:25:36.640 | You may talk with your daughters, and they may agree that we're willing to provide the care

00:25:41.640 | so that if you get in that situation, we're willing to take the steps necessary to make sure that both you,

00:25:48.640 | our parents, and also their brother is taken care of.

00:25:53.640 | You could have higher than expected health costs in retirement.

00:25:57.640 | Most retirees have higher than expected health costs, so you need to make sure that you have adequate health insurance.

00:26:03.640 | You could simply lose your jobs, so that's where you would need to make sure that you have savings accounts set aside.

00:26:08.640 | You could get sued, and so if you get sued and you were to lose a lawsuit, that could be devastating,

00:26:14.640 | so you need to make sure that you do prudent planning.

00:26:16.640 | Your house could burn down, so you plan for that, et cetera.

00:26:19.640 | So the key is all those scenarios that I just said are the normal scenarios that we would stress test in any financial plan.

00:26:26.640 | It's just that the stakes are a little bit higher for you,

00:26:29.640 | and because you have to wind up with that ending balance of the million dollars,

00:26:34.640 | the costs are going to be a little bit higher for you.

00:26:37.640 | The costs of you have to save enough that you have the extra million dollars,

00:26:40.640 | when some people could spend that down,

00:26:42.640 | or you have to cover the costs of the life insurance policy throughout your retirement,

00:26:47.640 | and that's a monthly cost, so that has to be covered with additional assets.

00:26:51.640 | But in many ways, it's no different than what other people do.

00:26:54.640 | That's just the normal financial planning process.

00:26:56.640 | We figure those numbers out, and then we come back and stress test it.

00:27:00.640 | It's just we have higher stakes.

00:27:02.640 | I hope that helps as far as how to calculate the amount of insurance.

00:27:06.640 | The key summary point that I would make is I would focus on making sure that you have an amount of insurance

00:27:12.640 | that will be in force without your needing to invade the principle,

00:27:17.640 | and so I would look at something like a 3% distribution off the portfolio,

00:27:21.640 | as long as that portfolio is invested wisely in such a way that it's allocated in such a way that that's a reasonable expectation.

00:27:30.640 | Now, a couple quick things to get a little bit complicated and give you some specific things to think about.

00:27:36.640 | You need to think carefully about how you structure your life insurance.

00:27:39.640 | So I think for right now, I would make sure if I were in your shoes, I'd make sure that you have a lot of term insurance.

00:27:45.640 | I don't know if a million is a lot or a little in your situation.

00:27:49.640 | If that were your only asset that you had, a million bucks, if you didn't have substantial savings in addition to that,

00:27:56.640 | I would feel a little bit, me personally, if I had the responsibility of a son with special needs,

00:28:01.640 | I'd feel like that weren't quite enough.

00:28:03.640 | Term life insurance is so relatively cheap in the grand scheme of things.

00:28:08.640 | I might have a little bit more, but if you have other assets, that could be a perfectly reasonable amount.

00:28:13.640 | Make sure that your term insurance policies are convertible policies,

00:28:18.640 | meaning convertible means that you can change them from term insurance policies to whole life insurance policies

00:28:25.640 | without requiring medical exams.

00:28:28.640 | So what could be devastating is if you were to find that you and your husband are working, doing well,

00:28:35.640 | but the reality is you're not going to be in a position to be able to retire at the age of 60,

00:28:40.640 | and rather it looks like based upon your situation, you're going to be working until maybe you're 70 or you're mid-70s

00:28:46.640 | because you've got to make sure that your son is cared for.

00:28:49.640 | Well, it could be devastating if you were counting on that last 10 years of earnings to fund the account for your son,

00:28:57.640 | and then you were to be diagnosed with something that would affect your ability to get life insurance.

00:29:03.640 | So if your policies would take you to 64, that's probably enough time,

00:29:07.640 | but I would go back and check to make sure those policies are convertible for a long period of time.

00:29:13.640 | And I would consider, as time goes on, in case you were to become uninsurable,

00:29:17.640 | I'd just consider extending that out, maybe making sure that some of your policies could go for a longer period of time.

00:29:24.640 | You could also accomplish that with some sort of minimally funded universal life insurance policy.

00:29:29.640 | Too complicated to explain on the podcast, but that could be an option.

00:29:33.640 | Most universal life insurance policies blow up before the end of life,

00:29:38.640 | but that could give you an option with your insurance planner, that could give you an option where,

00:29:42.640 | if you funded it at a minimal level, it could be slightly more expensive than term insurance,

00:29:47.640 | and you know that it's going to run out, maybe at 70 or something like that.

00:29:52.640 | You know that it's going to ultimately blow up, so it's less costly than--excuse me,

00:29:57.640 | it's not as costly as whole life insurance, but it's more costly than term insurance.

00:30:01.640 | But it gives you the option of continuing it for a longer period of time by increasing premium payments.

00:30:06.640 | So you would want to think that through.

00:30:08.640 | Make sure that whatever companies you're using for your life insurance have good permanent life insurance products.

00:30:13.640 | Many companies, their permanent life insurance products are so inordinately expensive,

00:30:19.640 | and they're just--I would never want to own them.

00:30:22.640 | And so the problem is that those are the companies that usually have the cheapest term insurance policies.

00:30:27.640 | So make sure that whatever company you have your term insurance policies with,

00:30:31.640 | that that's a company that has reasonably cost-effective permanent products in case you needed it.

00:30:37.640 | So in case you needed to convert, your--and I would check on something like this.

00:30:43.640 | If you were to go to your company and you were to say, "Listen, my husband and I have just found out that we don't--

00:30:49.640 | we're not going--you know, each of us was diagnosed--my husband was diagnosed with Alzheimer's and diabetes,

00:30:54.640 | and he's going to die early, and I was just diagnosed with cancer.

00:30:57.640 | We have these term insurance policies that are going to expire."

00:31:00.640 | Well, if you have a company that has good permanent insurance products,

00:31:03.640 | you should be able to take that death benefit that's already issued on the term insurance

00:31:07.640 | and turn that into joint insurability on a second-to-die life policy.

00:31:14.640 | And so that would put you in a situation if you expected not to die within the period of the term,

00:31:19.640 | but to die before you were able to get--before you were able to save the money that you needed

00:31:26.640 | so that you were self-insured, that would be a good option.

00:31:29.640 | So I would be careful about what companies I have my term insurance with,

00:31:33.640 | and if it costs me an extra $40 a month to have them with a good company that has quality permanent products

00:31:41.640 | instead of term products, I would consider that.

00:31:43.640 | Make sure that you have a competent life insurance agent.

00:31:47.640 | Don't buy this stuff online.

00:31:48.640 | Don't try to do this kind of life insurance planning with, you know, term.com

00:31:53.640 | or whatever the latest term insurance advertising company is online.

00:31:57.640 | There's a place for that.

00:31:58.640 | That works great for the 30-year-old couple that, you know, knows exactly what they need

00:32:02.640 | and the guy who writes the financial blog.

00:32:04.640 | That doesn't work well for someone in your situation.

00:32:06.640 | Make sure that your life insurance advisor--I'd say make sure they're a CLU.

00:32:10.640 | If they're not a CLU, find a new one, or at least they can prove to you that they know what they're doing

00:32:15.640 | and that they've thought this through from a coherent perspective because the stakes are simply too high.

00:32:22.640 | I'm scared that I got too deep in the weeds there.

00:32:26.640 | I hope that stuff made sense.

00:32:28.640 | You may need to listen to it a couple of times.

00:32:30.640 | I know I got kind of tricky there on life insurance planning, but that stuff is important.

00:32:35.640 | And again, that would be important, especially if you don't have millions of dollars of extra,

00:32:40.640 | which I'd be surprised if you did.

00:32:43.640 | You've probably spent quite a bit of money over the years, an expense that many people don't have,

00:32:48.640 | in making sure that your son has the best education and the best care possible.

00:32:53.640 | So that, at least in some of the special needs families that I have worked with,

00:32:57.640 | I've seen that has been a major challenge.

00:33:00.640 | Make sure you get your special needs trust set up properly.

00:33:03.640 | Just for the audience who may not be familiar with it, in special needs planning,

00:33:08.640 | you want to make sure that you establish something called a special needs trust,

00:33:12.640 | or actually more accurately called a supplemental needs trust, depends on where you are in the world.

00:33:19.640 | Basically, simplifying completely, what this is, this is a trust that has certain provisions written into it

00:33:27.640 | that they'll allow your son to receive income as long as that income does not affect his eligibility for government benefits.

00:33:34.640 | So when you're doing planning for special needs cases, the government benefits that you receive,

00:33:41.640 | whether that's from Social Security or government health benefits, they may be local, they may be national,

00:33:46.640 | they're often a major source of income for your situation.

00:33:51.640 | And so you want to make sure that if your son were to inherit a million dollars directly,

00:33:56.640 | that may disqualify him for the government benefits.

00:33:59.640 | So that's why you would establish a special needs trust.

00:34:03.640 | Make sure that that's done properly.

00:34:05.640 | Make sure that you have sought out competent help on that.

00:34:08.640 | It's too important to not have competent help.

00:34:12.640 | Make sure that all of your documents are in order.

00:34:14.640 | So the documents for the guardianship, if that's going to be passed to your daughters.

00:34:18.640 | Make sure that if your daughters are minors currently, make sure that you have established another guardian,

00:34:24.640 | somebody that you trust, a family friend, until they're able to serve.

00:34:27.640 | Make sure that they understand what they're getting into.

00:34:30.640 | You will probably want to make sure that they have some education on the financial aspects of planning for special needs.

00:34:36.640 | So if your daughter were the guardian but didn't understand, let's say she's ditzy and just doesn't,

00:34:42.640 | I don't care about money, I don't pay any attention to that stuff, that would be a problem.

00:34:46.640 | She needs to make sure that she understands the basics to make sure that, you know,

00:34:50.640 | if you have an investment advisor, is that advisor doing a good job managing the portfolio?

00:34:53.640 | If you don't have an investment advisor, is she competent to manage the portfolio?

00:34:57.640 | Those are the types of things that you want to make sure that you think through.

00:35:00.640 | Make sure that every beneficiary document is in proper order.

00:35:04.640 | It's too important to make sure that that trust is properly funded,

00:35:08.640 | and you want to make sure that there's not some, you know, your husband's 401(k) lists, for example,

00:35:14.640 | let's say your husband's 401(k), you know, he set it up 10 years ago before you knew that your son had autism

00:35:19.640 | and before you had any exposure to any of this aspect of financial planning.

00:35:23.640 | And so he sets this up, you're the beneficiary, and his contingent beneficiary is children, you know, all my children.

00:35:30.640 | Well, then you guys are out on date night, you die, and then the money is distributed to, A, your minor children,

00:35:35.640 | and then, B, your legally -- your son, who's disabled, he's legally incompetent from the scenario that you described to me.

00:35:42.640 | That would be a disaster, especially because he's going to inherit it directly, and now it's not in the trust.

00:35:46.640 | So make sure that your beneficiaries are in proper order.

00:35:50.640 | I would encourage you, you probably have, get books and read them.

00:35:53.640 | The key in this scenario is I think that you -- I would -- I think that you need a good advisor,

00:35:58.640 | but you also need to be educated yourself because you're not going to know who's a good advisor and who's not

00:36:03.640 | if you're not educated yourself.

00:36:05.640 | I want to do some shows on this topic in the future and bring on some people who practice in this area

00:36:09.640 | to talk it through with specifics.

00:36:12.640 | I haven't found the person yet.

00:36:14.640 | There's one attorney here in Florida that I've considered bringing on the show, and I may do that.

00:36:18.640 | It's on my topics list, so I will do more shows on that in the future.

00:36:23.640 | One final thing, and I mention this just for your benefit, just in case,

00:36:27.640 | and also for the benefit of the audience, of the other audience.

00:36:30.640 | I am sure that you have spent an incredible amount of time researching options for his help,

00:36:39.640 | and so I bet you have already researched this.

00:36:42.640 | Recently, over the last six months, I first came across the work of Glenn Doman,

00:36:49.640 | a man named Glenn Doman with -- he has an institute.

00:36:51.640 | He's dead now.

00:36:52.640 | He died, I think, a year ago.

00:36:54.640 | He's continued his work with an institute called the Institutes for the Advancement of Human Potential.

00:37:00.640 | I found them randomly through some weird YouTube surfing,

00:37:04.640 | and I came across their work with children, with teaching tiny children,

00:37:11.640 | is what they call babies, their lingo,

00:37:13.640 | teaching babies to read, teaching babies to swim, teaching babies to do math,

00:37:19.640 | teaching babies all of these certain things.

00:37:21.640 | I became fascinated with it and read a couple of his books.

00:37:24.640 | He's written like six books on working with kids,

00:37:27.640 | but he started by working with brain-injured children --

00:37:30.640 | or excuse me, brain-injured adults, and then moved into working with brain-injured children.

00:37:33.640 | But if you haven't, I'll put one quick link in the show notes to information that he has

00:37:38.640 | as far as hurt kids who have autism.

00:37:41.640 | I've watched some of his videos where he talks about the programs that he's done with autism

00:37:47.640 | and some of the successes that they've had in the work that they've done.

00:37:51.640 | I'm sure you've done those things.

00:37:54.640 | Don't take this as offensive. Of course I have.

00:37:57.640 | I'm just saying I thought it was pretty cool.

00:37:59.640 | I don't know much about autism from the perspective of what it can be done,

00:38:02.640 | but it seems from reading his philosophy -- and he worked in this area for 40, 50 years --

00:38:06.640 | he didn't view much of a difference between the source of the brain injury.

00:38:10.640 | He just simply viewed it as an injured brain, a hurt brain, a hurt kid that needed some help.

00:38:16.640 | And so he's developed quite an extensive amount of resources to help enhance things.

00:38:23.640 | And I read some of his testimonials of children that he's worked with with autism.

00:38:27.640 | Pretty amazing.

00:38:28.640 | So I just passed that along in case there may be somebody else in the audience

00:38:31.640 | who would be interested in resources like that.

00:38:34.640 | And I'm sure if you were to go into the autism boards and things like that,

00:38:38.640 | that there would be much, much more information.

00:38:41.640 | So, Beth, I hope that helps.

00:38:43.640 | Thank you for being the inaugural caller into the show.

00:38:47.640 | It was really great to have your question.

00:38:49.640 | And for the rest of you, I hope that that helped.

00:38:52.640 | I know I gave a lot of information quickly there, but it's really a unique planning opportunity,

00:38:57.640 | and you can see how, even what I shared, how everything works together.

00:39:00.640 | Hopefully. That's what I hope in the way that I answer these questions.

00:39:03.640 | Next question is via email, and this question is from Bobby Joe.

00:39:10.640 | And Bobby Joe sent me an email. I'm going to cover just a couple of her points.

00:39:15.640 | And as a way, because I think this will be something that will be interesting to more of the audience.

00:39:21.640 | So here's a question.

00:39:23.640 | He says, "Hi, Joshua. I'm a distance trail runner and enjoyed listening to your show during my long runs.

00:39:27.640 | I'm so glad I found you, and thanks for keeping me company.

00:39:30.640 | I am currently a legal assistant and have been recruited by an acquaintance who is also a CFP

00:39:35.640 | who owns her own company to become a CFP and work at her advisory firm.

00:39:40.640 | It's all still tentative and pending, and I've been trying to do some research about what exactly CFPs do

00:39:46.640 | and if it's something I'd be interested in before taking the plunge and signing up for courses.

00:39:51.640 | I was hoping you could help point me in some worthy directions.

00:39:54.640 | There doesn't seem to be a really clear-cut career path for brand-new financial planners,

00:39:58.640 | and it seems easy to get lost in the wealth" -- pun intended -- "of information.

00:40:04.640 | Number one, I'm thinking that the DePaul online course would be a good fit.

00:40:08.640 | All online, it finishes in about 11 months for around $7,000.

00:40:11.640 | Seems like a reasonable investment.

00:40:13.640 | Do you have an opinion on whether getting a master's versus the regular CFP is better or worse?"

00:40:18.640 | So I'm going to answer these.

00:40:20.640 | Instead of going through all the questions and coming back, I'm going to do them one by one.

00:40:23.640 | So Bobby Joe, and also for the audience, in my opinion, the master's degree and the CFP are very, very different.

00:40:30.640 | In many ways, if you're going to work as a financial advisor or financial planner,

00:40:34.640 | the certified financial planner designation is and is quickly becoming -- it's not technically this way --

00:40:40.640 | but it's quickly becoming in the industry almost a minimum standard.

00:40:44.640 | And it is very different, however, than working through a master's degree.

00:40:48.640 | The CFP course, there are -- what is it?

00:40:51.640 | I don't remember the number of courses that are required.

00:40:53.640 | You're required to take some courses and pass an examination,

00:40:56.640 | and it largely is going to be a minimum standard.

00:41:01.640 | The master's degree, I would view, is advanced education on top of that, and it has its place.

00:41:07.640 | But, yes, if you're getting started, you don't need to worry about a master's degree.

00:41:10.640 | You need to start with the CFP exam.

00:41:14.640 | Now, one thing that you need to be aware of is that even though you may start working

00:41:18.640 | and you may start studying and working,

00:41:21.640 | the CFP designation requires you to have at least three years of experience

00:41:26.640 | and also a bachelor's degree before you can begin using the designation.

00:41:31.640 | So you will need to work your way through the courses,

00:41:34.640 | but you cannot actually become a CFP certificate, which they get mad if you call yourself a CFP.

00:41:40.640 | You can't become a CFP professional or a CFP certificate without at least three years of experience.

00:41:45.640 | So this is the kind of thing that you really should be doing this concurrently with other education instead of --

00:41:52.640 | with your other work as you're working and getting experience in the industry

00:41:57.640 | instead of trying to do it in advance so then you can go and get experience in the industry.

00:42:02.640 | One of those weird things, those are the rules as they are.

00:42:05.640 | Maybe they'll change in the future, but that's the deal.

00:42:07.640 | Now, as far as the DePaul online course, I don't have a clue about it.

00:42:11.640 | And so 11 months for seven grand, that's fine, I'm sure.

00:42:14.640 | I looked real quick at their website.

00:42:16.640 | It sounds fine. I don't have any problem with it.

00:42:18.640 | I did all of my courses with the American College simply because my firm paid for them all.

00:42:22.640 | And so my company paid 100% for all of my American College education,

00:42:26.640 | and I didn't come out of pocket for a dime.

00:42:28.640 | That was a really, really nice benefit of it.

00:42:31.640 | It was a really, really nice benefit, and so that's why I chose the American College.

00:42:35.640 | I haven't studied with any of the other colleges.

00:42:37.640 | You can go directly to the American College,

00:42:40.640 | and you can see their tuition on their website for the coursework.

00:42:43.640 | So if any of you are interested in financial planning education, you can do that.

00:42:46.640 | I had a good experience there. It was cheaper than 7,000 bucks.

00:42:49.640 | I also did my CFP review course with a man named Ken Zahn,

00:42:55.640 | and he also does education all online.

00:42:58.640 | His website is KenZahn.com.

00:43:02.640 | He does a great job, and his review course was awesome.

00:43:07.640 | I learned more in four days than I felt like I'd ever learned.

00:43:12.640 | And so I have the books that he uses for his actual courses,

00:43:17.640 | and those books are excellent.

00:43:19.640 | So I would encourage you to consider his as well.

00:43:21.640 | The advantage to doing it with the American College is that the education that you have there

00:43:26.640 | would also count toward your other designations,

00:43:30.640 | so designations like the CLU and the CHFC and maybe even the CASEL designation,

00:43:36.640 | but there is some overlap.

00:43:38.640 | So if there were a choice between them, I would choose the American College

00:43:41.640 | just so that you could continue on with them and not have to retake their classes.

00:43:45.640 | They may have a transfer credit, but I'm not sure about that.

00:43:48.640 | Now, continuing with education, I would say that the biggest thing that you need to have a question on

00:43:56.640 | is how you're actually going to learn the job.

00:43:58.640 | Let's go into question number two.

00:43:59.640 | You said, "My friend said I would start in 'operations' until I were certified.

00:44:05.640 | What does this mean, and is it the appropriate place to start while I'm in school?"

00:44:09.640 | So I'll just describe, and if any of you guys are financial advisors, financial planners,

00:44:14.640 | feel free to disagree with me.

00:44:15.640 | I'll just describe my industry experience, and feel free to come by the show notes

00:44:19.640 | and comment on your own, and you can tell me what I missed, what I'm crazy about.

00:44:23.640 | It doesn't bother me a bit to help Bobby Joe out with your experience.

00:44:26.640 | Basically, I've come up with--there are a few different ways to get started in financial planning,

00:44:34.640 | and it depends very much on how you actually--it depends on how you actually--

00:44:44.640 | what your practice is going to be structured like.

00:44:46.640 | So your additional questions--and I'm going to bring all of these together--

00:44:49.640 | your additional questions are, "What does a day in the life of a CFP look like?

00:44:53.640 | What are some various career paths for CFPs to take?

00:44:55.640 | It seems like there are areas for sales, not interested.

00:44:58.640 | More client-based approaches?"

00:45:01.640 | And it says, "Any other advice or resources I should check out to get a better idea

00:45:04.640 | of what being a financial planner means so I can decide if it's a good fit?"

00:45:07.640 | So I'm going to bring these all together into one question, just give you some thoughts.

00:45:11.640 | There are many ways to get started in the financial planning industry,

00:45:13.640 | but you have to understand them and understand the different models

00:45:17.640 | to really figure out what's going to work for you.

00:45:20.640 | So the harsh reality of starting as a financial planner is, in the beginning,

00:45:24.640 | you know very little.

00:45:26.640 | Even if you've gone through, and if you're one of the very few--

00:45:29.640 | and I think there will be many more in the future--but if you're one of the few

00:45:31.640 | who has an undergraduate degree in financial planning,

00:45:33.640 | even knowledge that's required for an undergraduate degree in financial planning

00:45:37.640 | is going to be not that much.

00:45:40.640 | Even if you're a CFP certificate, it's really not that much

00:45:43.640 | because most of it is academic.

00:45:45.640 | And the major skills of financial planning are not necessarily academic

00:45:49.640 | but rather experiential.

00:45:52.640 | The major skills of working with clients are not academic.

00:45:55.640 | And this is one of the biggest problems.

00:45:57.640 | I don't know of any way to gain those skills other than to get experience.

00:46:00.640 | And there are many people who think, "Okay, if I just have the knowledge,

00:46:05.640 | that the knowledge is going to make a difference."

00:46:09.640 | Here's the thing--the knowledge is all available for free on the Internet.

00:46:12.640 | Here I am giving away the knowledge every day.

00:46:15.640 | So you've got to look and say, "What are my actual skills?"

00:46:21.640 | The great skills of a financial planner have little to do with tax law,

00:46:26.640 | have little to do with how investments work,

00:46:28.640 | and have everything to do with how you work with clients.

00:46:31.640 | And so I would like people to quickly see, "Do I like working with clients?"

00:46:36.640 | That's my personal preference.

00:46:39.640 | The arrangement that you described is common in the industry.

00:46:43.640 | So what is very common is you may have a financial advisor.

00:46:47.640 | This financial advisor has worked hard.

00:46:49.640 | They built up a book of business.

00:46:51.640 | That would be the industry lingo, which means that you are managing assets.

00:46:54.640 | So you have investment accounts that you're managing,

00:46:59.640 | which may be $10 million, maybe $50 million, maybe $100 million,

00:47:04.640 | if you are starting to get towards the upper levels of success.

00:47:08.640 | Let's say you're managing $50 million.

00:47:10.640 | So you've got $50 million of client assets that you're managing.

00:47:13.640 | You have a couple hundred clients.

00:47:15.640 | Now, this financial advisor--it's hard to do.

00:47:17.640 | There's a lot of work to be done.

00:47:18.640 | So this financial advisor is going to need staff.

00:47:20.640 | So usually the structure you'll see--you may see a financial advisor,

00:47:23.640 | and then you may see some unlicensed staff.

00:47:27.640 | So this staff might be secretarial staff.

00:47:29.640 | It may be client communications staff, prepping, answering client questions,

00:47:33.640 | things like that.

00:47:34.640 | And this financial advisor will need licensed staff people.

00:47:37.640 | So they'll hire an associate financial advisor.

00:47:40.640 | And this would be a licensed person.

00:47:42.640 | So you've gone out.

00:47:44.640 | You don't need a CFP to get started in the financial advice business.

00:47:46.640 | You need a series--to pass your series exams.

00:47:49.640 | You need a series 7 and a 63 or a 65 or a 66, depending on what you get.

00:47:53.640 | And so you're going to start this work in the--working as staff.

00:47:58.640 | So when you're working as staff, you're working with this financial advisor.

00:48:01.640 | You may be meeting with their clients.

00:48:02.640 | You may be placing a trade for them.

00:48:04.640 | You may be servicing them in some capacity.

00:48:07.640 | And then what's expected is that as an associate advisor,

00:48:10.640 | you're going to go out and you're going to build up your own client base.

00:48:13.640 | And so what's common is it's uncommon for people to charge planning fees

00:48:18.640 | directly for planning.

00:48:20.640 | And what's more common is that the compensation comes from either commissions

00:48:25.640 | earned on the sale of investments or on fees earned on the management of

00:48:30.640 | investments or on the commissions earned from the sale of insurance.

00:48:34.640 | So this is where most of your compensation is going to come from.

00:48:37.640 | So the challenge with being an associate financial advisor is you have to be

00:48:41.640 | in the business, and you're learning in the business.

00:48:43.640 | You're getting to meet with clients.

00:48:44.640 | You're getting to have a chance to do it.

00:48:46.640 | But in order to be paid, to go past the salary that the financial advisor is

00:48:50.640 | paying you, you're going to need to go on and build up your own sales skills.

00:48:54.640 | And so you're going to need to go on and build up your own insurance sales,

00:48:58.640 | your own investment sales, and to build up your portfolio that you're managing

00:49:01.640 | and have your fees off of that.

00:49:04.640 | So that's how the business works.

00:49:06.640 | The challenge is that you're an employee.

00:49:08.640 | You're not really a business owner.

00:49:10.640 | You are an employee of the advanced advisor.

00:49:12.640 | There are many great advisors who will bring a young advisor on.

00:49:16.640 | You serve that advisor in exchange for the salary.

00:49:19.640 | That allows you to get started, and you can build your business.

00:49:23.640 | And then that advisor may sell you part of their book.

00:49:25.640 | So this is often common is that the advisor may, as part of your comp package,

00:49:30.640 | they may sell you part of their book, or you may just be able to build up

00:49:34.640 | your own book.

00:49:35.640 | It takes time, especially if you're focused on managing investments.

00:49:38.640 | It takes time to really build up competency to be able to sell investment accounts,

00:49:47.640 | basically, and sell your services in managing investments.

00:49:50.640 | By the way, as I tell you this information, all of the -- I can just hear half the

00:49:55.640 | audience cringing in disgust at the idea of paying fees to financial advisors

00:50:00.640 | of the BOGO heads are cringing.

00:50:03.640 | But this is how the industry works.

00:50:05.640 | Now, how else can you do it?

00:50:08.640 | It takes time to build up investment assets.

00:50:10.640 | If you don't have any knowledge, if you're working as a legal assistant,

00:50:12.640 | you probably know nothing about investing, or what you do know is what you've

00:50:16.640 | gained from, like me when I started, just from some personal finance books

00:50:19.640 | and some things like that.

00:50:21.640 | Nothing wrong with starting there, but you don't know much.

00:50:24.640 | It's going to be a little bit hard if you're young to walk up to someone

00:50:27.640 | and say, "Listen, here's why you really should hire me.

00:50:29.640 | You really should hire me to manage your $400,000 portfolio."

00:50:36.640 | That's a challenging sale to make, especially if you're new.

00:50:40.640 | So that's one model.

00:50:42.640 | Another model is to work and start with a primary focus on insurance.

00:50:47.640 | And so I'm going to give you three models, and then you'll have to figure out

00:50:50.640 | what works in your world.

00:50:52.640 | So the second model would be to start with a primary focus on insurance.

00:50:56.640 | The thing about insurance is there are two advantages--well, there are three

00:50:59.640 | advantages to insurance that I can think of off the top of my head.

00:51:02.640 | Number one is the market of people that actually need insurance is much larger

00:51:07.640 | than the market of people who have substantial assets to invest,

00:51:11.640 | if you're getting your fees being paid to you off of assets.

00:51:16.640 | So your actual potential client base is much larger.

00:51:21.640 | Number two, the way insurance works--so let's say that you're selling life

00:51:24.640 | insurance, disability insurance, long-term care insurance--number two is the way

00:51:28.640 | that insurance works is that your commissions are paid to you up front.

00:51:32.640 | So instead of the fees on an investment portfolio, let's say that you're

00:51:36.640 | managing $400,000 of investments, and let's say that you are billing a 1% fee.

00:51:41.640 | Well, that's $4,000 of gross income to your practice, and that $4,000 is going

00:51:46.640 | to be billed quarterly.

00:51:48.640 | So you're going to get $1,000 the first quarter, but oh, by the way,

00:51:51.640 | I'll give you some more industry lingo.

00:51:53.640 | $4,000 is going to go through the grid, is what it's called.

00:51:57.640 | It's going to go through the grid, and you're going to only receive a portion

00:52:01.640 | of that.

00:52:03.640 | So what going through the grid means is that your broker-dealer retains a

00:52:06.640 | portion of those fees to compensate them, and you get a balance of it.

00:52:11.640 | So maybe it's 50/50, depends on the firm.

00:52:13.640 | Maybe it's 90/10, just depends on the firm.

00:52:16.640 | So that's the challenge.

00:52:18.640 | So it's tough.

00:52:19.640 | If it's really tough for you to build a $400,000 portfolio, so A, to bring in

00:52:23.640 | a $400,000 portfolio, to bill a 1% fee on that, you don't have a lot of

00:52:28.640 | knowledge, you don't have a lot to offer, it's a tough thing to get going.

00:52:32.640 | Whereas if somebody needs a life insurance policy, let's say that you're

00:52:36.640 | talking with Beth, who I just did a life insurance plan for you, and Beth needs

00:52:40.640 | a life insurance policy, and she needs another million bucks of term insurance

00:52:44.640 | for her, and let's say her premiums are -- for easy math, let's just say her

00:52:48.640 | premiums are $100 a month, so $1,200 a year, and then her husband also needs

00:52:53.640 | a million bucks of term insurance, and that's $1,200 a year.

00:52:56.640 | So then the commissions on life insurance, they vary from companies, but

00:53:01.640 | anywhere from 50% to 120% of the first-year premium.

00:53:05.640 | So let's say that you're working with a company, maybe one of the cheap term

00:53:08.640 | companies, where their rates are 90% of the first-year premium.

00:53:11.640 | So let's just -- I can't do 90% math in my head, so let's just say $1,200.

00:53:14.640 | So you make $1,000 on the sale of the life insurance policy to Beth, to fund

00:53:19.640 | her special needs trust with a 20-year term policy.

00:53:22.640 | So that's a really good way for you to get started and be able to eat while

00:53:28.640 | you're studying and while you're learning and while you're building knowledge.

00:53:32.640 | So that's what I did, is when I started, I started with Northwestern Mutual,

00:53:36.640 | and I didn't want to go and work for somebody.

00:53:38.640 | I wanted to work for myself, and I wanted to learn how to be a financial

00:53:43.640 | advisor.

00:53:44.640 | I didn't know how to be a financial advisor, so I wanted to learn how to be

00:53:47.640 | a financial advisor.

00:53:48.640 | And with that knowledge then, I wanted to take it and go on and be able to

00:53:54.640 | build, but I needed to eat.

00:53:56.640 | Like, how do you make money?

00:53:58.640 | I knew I couldn't -- I didn't have anything to offer to somebody.

00:54:00.640 | Say, "Joshua, why should I choose you to manage my $500,000?

00:54:04.640 | You're 23 years old.

00:54:05.640 | You don't have a clue what you're doing."

00:54:07.640 | I don't know.

00:54:08.640 | You probably shouldn't, would have been my answer.

00:54:10.640 | But I could do life insurance planning, and I could go read a book on special

00:54:14.640 | needs planning, and I could go sit down with Beth, and I could help her solve

00:54:18.640 | her problem, and she needs to buy life insurance.

00:54:21.640 | There's no non-commissioned life insurance companies, so why wouldn't she

00:54:24.640 | choose to buy it from me?

00:54:25.640 | And I'll make $2,000 on her 20-year term for her and her husband, and that

00:54:30.640 | allows me to eat.

00:54:32.640 | And here's the cool thing about that approach, is that the process of helping

00:54:36.640 | somebody do simple life insurance planning is no different than the process of

00:54:43.640 | helping somebody plan for their $150 million estate and how to avoid estate

00:54:48.640 | taxes.

00:54:49.640 | It's the same process.

00:54:51.640 | Now, there's a major difference in knowledge, but there's the same process.

00:54:56.640 | So I chose to go and work with a life insurance company.

00:55:00.640 | I chose Northwestern Mutual.

00:55:01.640 | I chose to go work with a life insurance company because that would allow me to

00:55:06.640 | sell insurance.

00:55:07.640 | I could sell life insurance, disability insurance, long-term care insurance,

00:55:11.640 | and health insurance.

00:55:12.640 | And my clients didn't have to put their trust in me to deliver on something like

00:55:17.640 | they did with investment management.

00:55:20.640 | They only simply had to put their trust in the insurance company, and the

00:55:23.640 | insurance company was going to be around, and then I had to help them find the

00:55:27.640 | solution, understand their needs, and then help them understand how I designed

00:55:32.640 | the solution that would fit their needs, and I got paid my commission.

00:55:35.640 | So I liked that better because that put me in the position, instead of having to

00:55:39.640 | go and work 40 hours a week, 50 hours a week for somebody else, and then somehow

00:55:43.640 | prospect for clients at night, I said, "I want to run my own business."

00:55:47.640 | And so I ran my own business right from day one, focused mainly on insurance

00:55:50.640 | planning, studied, studied, studied, learned, learned, learned, took exams,

00:55:53.640 | took exams, took exams, then started bringing in investment clients, and that

00:55:57.640 | was kind of how I built my practice up.

00:55:59.640 | Now, that's the second model, the major model.

00:56:02.640 | Now, the third model that is currently existing in the financial planning

00:56:08.640 | business is the model of the prospect of hourly fees, okay, hourly fees or

00:56:15.640 | project fees.

00:56:16.640 | So some fees that are not connected to the management of an investment account

00:56:20.640 | and no commissions.

00:56:21.640 | So this is the third model.

00:56:23.640 | So if you hear people say and talk about, "Go and consult a fee-based planner

00:56:27.640 | or a fee-only planner," and I'll ignore that for right now, explaining that

00:56:30.640 | because this show is already going to go long.

00:56:32.640 | But if you say, "Okay, how do I charge fees?"

00:56:34.640 | Well, to charge financial planning fees, there are a few models that you could

00:56:38.640 | take.

00:56:39.640 | You can bill for them on an hourly basis.

00:56:41.640 | So you could say, "Listen, my planning fees are $150 an hour or $400 an hour,

00:56:46.640 | whatever your fee is," and then clients can come.

00:56:48.640 | They can consult you on the basis of an hourly fee.

00:56:51.640 | Or you can charge on a project basis.

00:56:53.640 | So I'm going to put together a retirement plan for you.

00:56:56.640 | I'm going to bill you $1,600 for this retirement plan.

00:56:59.640 | Or you can charge on some other basis.

00:57:02.640 | So whether that's the basis of an annual retainer, this is a model that many

00:57:05.640 | planners are doing, or a monthly retainer is a newer model that some people

00:57:09.640 | are doing.

00:57:11.640 | You could charge with some kind of fees.

00:57:13.640 | Now, the problem with fees and fees only is you have a problem of getting

00:57:17.640 | people to pay the fees because you have a marketing problem.

00:57:21.640 | So let's say that you're going to do planning for an hourly fee.

00:57:27.640 | This is the simplest thing to understand.

00:57:32.640 | So if you're going to bill $150 an hour and you're going to do planning on the

00:57:36.640 | basis of an hourly fee, then how many clients do you need to make a living wage?

00:57:42.640 | So let's assume you've got a 33% expense ratio for your rent, for your office,

00:57:47.640 | for your staff, for, you know, go and take your exams and get your CFP and all

00:57:50.640 | that stuff.

00:57:52.640 | So let's say you're going to profit $100 an hour.

00:57:54.640 | Well, if you need to make, say, $4,000 a month at $100 an hour, that's a total of

00:57:59.640 | 40 billable hours that you need to bill every month in order for you to make

00:58:03.640 | $4,000 to cover your personal expenses.

00:58:06.640 | So if you're going to bill for 40 hours, the question is how many people do you

00:58:10.640 | need to reach to be able to pay you for services?

00:58:16.640 | A lot.

00:58:18.640 | To bill 40 hours means you've got to do a lot of prospecting or you've got to be

00:58:22.640 | in a situation where somebody has a steady flow of clients, a steady flow of

00:58:29.640 | leads through some sort of lead generation system flowing in your door where

00:58:34.640 | you'll be able to help them out.

00:58:37.640 | That would be -- that's the problem with doing the hourly fees.

00:58:45.640 | So to give you some guidance, okay, all of these models can work.

00:58:50.640 | The biggest thing that I would be concerned about if I were going to work with

00:58:53.640 | somebody, and so if I were going to work with a friend of yours, so you said,

00:58:57.640 | "Hey, my friend, she has a firm," the biggest concern I would have is, is this a

00:59:02.640 | training firm or is this a doing firm?

00:59:05.640 | And there are different kinds of firms.

00:59:07.640 | Some firms will be excellent at training you, teaching you, "Here's what you need

00:59:11.640 | to do.

00:59:12.640 | Here's how you need to go out and develop clients.

00:59:14.640 | Here's where you go to learn the information."

00:59:18.640 | Some practitioners are just really great practitioners, and it's likely if your

00:59:24.640 | friend is the kind of person who is -- she's running her own shop, she has maybe

00:59:29.640 | a couple of staff people that are supporting her, maybe she's in business with

00:59:32.640 | another planner, something like that, she might be an awesome financial planner,

00:59:37.640 | and she may have a stable of clients, a client base that just loves her, that she

00:59:41.640 | does an amazing job for, and she may be a terrible trainer.

00:59:46.640 | There are people who are able to build their own firms, who can go to take

00:59:51.640 | college classes, they can go learn financial planning, they can open the doors

00:59:54.640 | on their own firm, they have enough experience with running business that they

00:59:58.640 | can sign the lease on their office, they can do something else.

01:00:01.640 | There are people who can run their own firms, and who can succeed right from the

01:00:06.640 | beginning without the need to ever work with anybody else.

01:00:09.640 | But the number of people that are able to do that in this business, I would say,

01:00:13.640 | are very few and far between.

01:00:15.640 | And many people who are running their own firms are not good at training you.

01:00:18.640 | So you need to do an accurate assessment of, "Do I need training?"

01:00:22.640 | What I would encourage you to do is that I would encourage you to go out and

01:00:27.640 | interview.

01:00:29.640 | It's not a nasty secret.

01:00:32.640 | Here's the secret to the financial planning business.

01:00:34.640 | The most difficult thing that financial planning firms have to do is to recruit

01:00:37.640 | new people to work within them.

01:00:39.640 | So whether this is traditional insurance companies, traditional investment

01:00:42.640 | companies, traditional wire houses, the most challenging thing to do is to find

01:00:48.640 | people that are going to be working for them.

01:00:50.640 | And the firms that are in the business of training people, it's easy to get an

01:00:55.640 | interview.

01:00:56.640 | What I would do is I would go and interview with a minimum of a dozen, ten,

01:00:59.640 | or a minimum of a dozen different firms.

01:01:02.640 | And I would interview with some of the big insurance companies.

01:01:06.640 | So I would interview with -- I had a great experience at Northwestern Mutual,

01:01:11.640 | New York Life, Guardian, MetLife, Prudential, things like that.

01:01:15.640 | I would interview with the wire houses.

01:01:18.640 | I would interview with Merrill Lynch, Morgan Stanley, Smith Barney, Merrill

01:01:23.640 | Prize, Lincoln.

01:01:26.640 | I would interview with some of these companies.

01:01:28.640 | I would find some local small financial planning boutique firms.

01:01:31.640 | So you'll see wherever you are -- I don't know where you are -- West Palm Beach

01:01:37.640 | planners or Palm Beach financial advisors would be where I am.

01:01:41.640 | And I would just go in and I would ask them for an interview.

01:01:44.640 | I would interview -- I would look online.

01:01:46.640 | I would go in forums.

01:01:47.640 | I would try to figure out where different things -- and I would figure out what's

01:01:50.640 | the best fit for you.

01:01:52.640 | I was not a good fit for the wire houses because I didn't like their model.

01:01:55.640 | I didn't want to do it.

01:01:56.640 | And I didn't think that it would work for me.

01:01:58.640 | I had a great experience with the insurance companies, and I learned a lot.

01:02:02.640 | And I felt like I was able to stay true to my ethics and my integrity, and I was

01:02:07.640 | able to work on my own terms, which was important to me.

01:02:11.640 | And I felt like I had the training background that I needed.

01:02:15.640 | I had the support that I needed.

01:02:17.640 | I had the training.

01:02:18.640 | I had the influence put into me.

01:02:20.640 | But I'll tell you this, my office was unique.

01:02:23.640 | And there are other offices in the same company that did not have that culture.

01:02:27.640 | So even within one company, you may go to one AXA advisor's company, and you may

01:02:32.640 | go to another AXA advisor -- excuse me, one AXA office, and you may go to another

01:02:35.640 | AXA office, and you may find that they are a dramatically different culture.

01:02:39.640 | So there is no one answer to it that I'm aware of that's going to solve your

01:02:46.640 | problem.

01:02:47.640 | But by going out and interviewing, you'll figure out kind of what is working for

01:02:55.640 | you.

01:02:56.640 | Three other quick comments.

01:02:58.640 | Number one is also check out an organization that I'm involved in, and I'm

01:03:02.640 | actually a member of it, called the XY Planning Network.

01:03:05.640 | And so the XY Planning Network is actually a group of us who are fairly young

01:03:10.640 | who have recognized this problem and the problem of access.

01:03:14.640 | And if it sounds like it's hard for a young person to get started, that's

01:03:18.640 | because it is.

01:03:19.640 | And if you want to be a fee-only planner or something like that, if that's

01:03:24.640 | important to you, the problem is how do you get started.

01:03:27.640 | So check out XY Planning Network.

01:03:29.640 | And I really don't think it's a good place for people to start with no industry

01:03:33.640 | experience.

01:03:34.640 | I really think you need to go work somewhere and get some industry experience.

01:03:37.640 | I mean, you can't even get listed on the front page of XY unless you're a CFP

01:03:42.640 | certificate, and you're not going to be a CFP certificate without three years of

01:03:45.640 | experience.

01:03:46.640 | So you can't start there.

01:03:48.640 | You've got to go get trained somewhere.

01:03:50.640 | And that training may be working as an associate FA, financial advisor, with

01:03:53.640 | your friend, helping her with her client base, and you'll get enough industry

01:03:57.640 | exposure to see if you like it.

01:03:59.640 | I do want to tell you just one -- I do want to comment on -- well, so that's

01:04:03.640 | thing one.

01:04:04.640 | Also check out XY Planning Network.

01:04:06.640 | Number two, check out -- go and read everything that Michael Kitsis writes on

01:04:10.640 | his blog at kitsis.com.

01:04:15.640 | He writes primarily to a financial advisor audience, and he will go through

01:04:19.640 | some of the theoretical constructs and problems of the financial planning

01:04:23.640 | business.

01:04:24.640 | And he'll go through things like, how are you going to do your marketing?

01:04:27.640 | I don't see any way -- if you want to do hourly planning, go research the

01:04:30.640 | Garrett Planning Network.

01:04:31.640 | That's what they do.

01:04:33.640 | I don't see any way that a new young person could ever have any hope of getting

01:04:37.640 | started as an hourly financial planner with no other source of income.

01:04:41.640 | I don't see any way to do it.

01:04:43.640 | Unless you were working and you had a tax practice, like let's say that you're

01:04:46.640 | a CPA and you have a tax practice and you want to expand into financial

01:04:49.640 | planning, maybe that would work.

01:04:50.640 | But I just don't see any way that it could be started from scratch.

01:04:53.640 | Not if you're planning on that as your primary source of income.

01:04:56.640 | If you have another job and you're doing it part-time, maybe.

01:04:59.640 | But I would direct you in the direction of his information.

01:05:03.640 | And then I forgot to say -- and I'm getting to the third thing in a minute.

01:05:07.640 | But I forgot to say also, check out some of the banks.

01:05:10.640 | So you might start in one of the banks.

01:05:12.640 | You might start with JPMorgan Chase.

01:05:14.640 | You might start there.

01:05:15.640 | I know there are several people who have emailed me who listen to the show

01:05:18.640 | who work as advisors at the banks.

01:05:20.640 | And once you get into the business and you start to get a little bit of

01:05:23.640 | familiarity with the business, you'll start to understand kind of the lay of

01:05:27.640 | the landscape as far as companies and firms and practice structures and

01:05:30.640 | things like that.

01:05:31.640 | It's really hard from the outside to get it.

01:05:33.640 | So that's why I've tried to give you the lay of the land.

01:05:35.640 | Here would be the biggest thing I would caution you on.

01:05:37.640 | You said specifically here, "It seems like there are areas for sales,

01:05:42.640 | not interested, more client-based approaches, or..."

01:05:50.640 | I'm going to challenge you on that line of thinking.

01:05:54.640 | I am a salesperson.

01:05:56.640 | And I am a darn good salesperson.

01:05:58.640 | I'm very proud to be a salesperson.

01:06:00.640 | I'm also a very ethical salesperson.

01:06:03.640 | And I'm a man of integrity.

01:06:04.640 | And those two things are not conflicting.

01:06:07.640 | Now, there are a lot of schmoes in our business that have sold people

01:06:11.640 | inappropriate products, inappropriate stuff, and I'm not a fan of that.

01:06:15.640 | But sales and client-based approaches are not antithetical.

01:06:20.640 | They're not opposite.

01:06:22.640 | They're not opposite in any way.

01:06:24.640 | And the sale of products is not in any way, in my opinion,

01:06:27.640 | is not in any way unethical.

01:06:29.640 | I have many times gone to seek out somebody when I'm going to go buy a product,

01:06:33.640 | and I want the person to receive a commission from the sale of a product

01:06:37.640 | simply because they did a good job.

01:06:39.640 | I've specifically gone and sought out people,

01:06:42.640 | people who have been solicited online or some things.

01:06:45.640 | I've specifically gone and said, "I want to make sure that you get the commission on this

01:06:49.640 | because I value the input that you've given to me."

01:06:54.640 | If you have the mindset that you do not want to be a salesperson,

01:06:57.640 | I don't see any way that the financial planning business is for you

01:07:00.640 | because the financial planning business is fundamentally 100% through and through sales.

01:07:06.640 | Now, it's not always the sale of product.

01:07:09.640 | So it's not always the sale of insurance or it's not always the sale of investments,

01:07:13.640 | but it's always the sale.

01:07:14.640 | I'm selling to you right now on this show.

01:07:16.640 | I'm selling information.

01:07:17.640 | I'm selling ideas.

01:07:19.640 | I'm selling inspiration.

01:07:20.640 | I'm selling myself.

01:07:21.640 | I'm trying to sell you on why you might want to consider listening to me.

01:07:28.640 | So I'm selling you right now, but I'm doing it in a very honest and straightforward way.

01:07:34.640 | I'm going to guess that you are probably not yet rich.

01:07:37.640 | I do not know a rich person who does not value sales

01:07:41.640 | because every rich person got there by valuing sales.

01:07:46.640 | You want to know why all companies fail?

01:07:48.640 | Because they don't sell enough.

01:07:50.640 | If the company is selling enough, the company is not going to fail.

01:07:53.640 | If your company is selling like crazy and your expenses are out of whack,

01:07:57.640 | you might be able to figure out how to cut your expenses and continue the company.

01:08:01.640 | If your company is selling like crazy and you hit legal battles or you hit problems,

01:08:04.640 | things like that, as long as sales are good and you've got cash flow, you're good.

01:08:07.640 | So the number one role of everyone in the company is sales.

01:08:11.640 | And I would encourage you, even as a legal assistant, your job is sales.

01:08:15.640 | Sales and selling is one of the most highly compensated,

01:08:18.640 | highly sought-after skill sets you could possibly have.

01:08:21.640 | The attorneys in your firm, the ones who make the most money, are the best salespeople.

01:08:27.640 | If you are an attorney--again, you're working in a legal environment--

01:08:30.640 | if you're an attorney and you can't sell your services and you can't sell your advice

01:08:33.640 | and you can't sell why somebody should choose to work with your firm,

01:08:37.640 | you're going to be stuck in a back office 60 hours a week pushing paper

01:08:40.640 | because they can hire that all day long at a law school,

01:08:44.640 | some guy with too much in student debt to be able to go and take a risk on something.

01:08:48.640 | And so he's stuck at one of the big law firms, and this guy can write the papers.

01:08:52.640 | But the guy or gal who can sell is out there bringing a business.

01:08:56.640 | And every single one of the partners in your firm,

01:08:58.640 | their compensation is tied to how much business they brought in.

01:09:01.640 | And that's as it should be.

01:09:03.640 | Because the mark of effective sales is the mark of the value that you give.

01:09:07.640 | Do you think that somebody--you're going to manage a million-dollar portfolio--

01:09:10.640 | do you think that person doesn't have other prospects?

01:09:13.640 | Do you think they don't know that they can call Vanguard

01:09:16.640 | and get their portfolio managed for 15 basis points and toss it at an index fund?

01:09:21.640 | Do you think that they don't know that they could call any--

01:09:24.640 | if you're at Merrill Lynch, do you think they don't know they can call JPMorgan Chase

01:09:29.640 | and they'll have an appointment with 15 advisors in an instant?

01:09:33.640 | They know.

01:09:35.640 | So you've got to provide service commensurate with what you're earning.

01:09:39.640 | Do you think if you're managing money and you're billing--

01:09:46.640 | on a million bucks you're billing $10,000 of annual fees--

01:09:49.640 | that your client doesn't get that statement and look at it and say,

01:09:51.640 | "Why am I paying you this money?"

01:09:53.640 | You've got to sell.

01:09:55.640 | Again, even if you're doing--I don't know what a non-client-based approach is,

01:10:00.640 | but if you're selling somebody a life insurance policy

01:10:04.640 | or let's say you're selling someone hourly planning,

01:10:07.640 | do you think that if you don't sell them on why they should spend hundreds of dollars with you

01:10:12.640 | that you're not going to have the sale?

01:10:14.640 | You've got to sell.

01:10:16.640 | So I would encourage you--study what good sales is.

01:10:19.640 | And I'll tell you, at the top of every industry are the best salespeople,

01:10:23.640 | and the best salespeople are always the most client-focused people,

01:10:29.640 | are always the most client-centered people.

01:10:31.640 | I'll tell you a secret I learned.

01:10:34.640 | I learned that the better a job I did for the client, the more I would sell.

01:10:40.640 | And I learned to take my time with every single client--

01:10:43.640 | and there were people who tried to push past because they didn't see they could take the sale--

01:10:46.640 | I learned if I took my time and actually tried to help somebody

01:10:50.640 | and focused exclusively on the client and ignored the commission,

01:10:55.640 | that every single time that client would send me dozens of other clients.

01:10:59.640 | And I promise you, you go and you interview with a dozen people

01:11:02.640 | and you will find at every firm the most effective,

01:11:06.640 | the most highly compensated financial advisors are always the ones that are the best salespeople.

01:11:16.640 | And they're always the ones that are the most client-centric and the most client-focused.

01:11:22.640 | So I apologize. It's a big passion for me.

01:11:25.640 | I wish--frankly, I wish that we sold sales--I wish we taught sales in high school.

01:11:31.640 | That would be a much more valuable course of study than would be many of the things that we teach.

01:11:44.640 | Because ethical sales is the key to business success.

01:11:48.640 | And there is not--I was going to say there shouldn't be.

01:11:51.640 | If you find any difference between your ability to serve your client and sales,

01:11:56.640 | you're in the wrong business.

01:11:58.640 | So be careful because you're going to be shut down because your clients are going to be so unhappy with you.

01:12:02.640 | It will come out and you're going to be destroyed.

01:12:04.640 | And there are--man, there are some scumburgers in the financial business.

01:12:09.640 | And they go from firm to firm because their firm gets shut down.

01:12:11.640 | And there are a few people that I can't stand in this business.

01:12:14.640 | But I'm telling you, they're not successful, and they're not successful in the long term as big producers

01:12:19.640 | unless they are the best salespeople.

01:12:22.640 | And the best salespeople are the people that are the most filled with integrity.

01:12:28.640 | I hope that helps.

01:12:30.640 | All right.

01:12:32.640 | Hour 12 minutes.

01:12:34.640 | We're going to go.

01:12:35.640 | If you are done with the show for today, just hit pause.

01:12:37.640 | It will still be here for you tomorrow.

01:12:39.640 | But I want to make sure that I make up for lost time with not doing some of these questions.

01:12:44.640 | Next, we have a voicemail question from Julian.

01:12:49.640 | Hi, Josh. This is Julian calling from Chicago, Illinois.

01:12:52.640 | What would you recommend for someone who wanted to do their own financial planning at home

01:12:56.640 | other than, of course, listening to all your shows?

01:13:00.640 | Would you recommend software, pen and paper, Excel, a financial calculator, all of the above?

01:13:07.640 | How would someone begin doing this?

01:13:09.640 | And how could they continually update this on their own?

01:13:13.640 | I love the show, and I look forward to hearing the rest of your podcasts.

01:13:18.640 | Julian, great question.

01:13:19.640 | Thank you for the question.

01:13:20.640 | This one is tough for me, so I'll answer it specifically.

01:13:23.640 | I would start with a pen and a paper.

01:13:25.640 | I would start with a financial calculator, and I'd start with Excel.

01:13:28.640 | There are a lot of software options, and if you go online, you'll find many, many calculators.

01:13:32.640 | Many of them are useful, and I think the calculators are useful.

01:13:36.640 | I have not found any friendly, consumer-friendly financial planning software.

01:13:41.640 | Now, I also haven't done a complete survey of the marketplace.

01:13:45.640 | That's on my list of things to do.

01:13:47.640 | But the problem with most of the software options--and I don't know, there's dozens of them targeted towards financial planners.

01:13:54.640 | You've got MoneyGuide Pro. You've got eMoney.

01:13:56.640 | I didn't look up a list of them, but those are just two that are popular off the top of my head.

01:14:01.640 | The problem with the financial planning software is the software is built with a lot of underlying assumptions,

01:14:05.640 | and those assumptions are very valuable, but you need to be familiar with them.

01:14:10.640 | And so the skill for a good planner is to know, "Wait a second. Is this passing the sniff test?"

01:14:16.640 | I know that many times when I was with Northwestern, we had a proprietary software program that was exclusive to our company.

01:14:24.640 | It's not available publicly. It was different than many other plans.

01:14:27.640 | But in the beginning, I would go and I would create a plan, and I was more likely to get the plan wrong than I was to actually get it right.

01:14:36.640 | And so you get the plan wrong, and it takes a while until you figure out how to spot the wrong plans.

01:14:41.640 | And I don't see any way that an individual could actually get past the learning curve of the software programs,

01:14:48.640 | at least with the ones that exist, in a timely enough manner to work with themselves.

01:14:53.640 | So I take your question as for an individual.

01:14:58.640 | I think it's much simpler, and I know this sounds self-serving, but I think it's much simpler to learn how to just run a financial calculator,

01:15:05.640 | do simple plans, grasp them conceptually, and hire a planner for a couple hours of a planner's time.

01:15:13.640 | It'll save the time and learning curve on most of the software packages.

01:15:17.640 | Now, there are some consumer-friendly packages that help.

01:15:23.640 | For example, what's a good example? FireCalc.

01:15:26.640 | Okay, so FireCalc. If you want to run a Monte Carlo analysis, FireCalc.com is going to help you do that.

01:15:32.640 | But the number of people listening that are going to know what Monte Carlo analysis is and be able to be competent with it,

01:15:38.640 | you've got to understand what's actually going on under the hood.

01:15:42.640 | So I think it's better just to stick with big-picture rules and think about concepts,

01:15:47.640 | rather than to worry too much about running software.

01:15:54.640 | Now, I plan at some point -- it's on my list. I don't know when I can actually get the bandwidth to be able to do this,

01:16:01.640 | but I plan to go out and try to bring you guys a complete survey of the marketplace.

01:16:05.640 | So it's the kind of thing I'd love to do with a series of YouTube videos.

01:16:08.640 | I'd love to do some reviews, and instead of some silly review of personal capital or some consumer-facing thing,

01:16:15.640 | I'd love to bring you some reviews of some of the software and see if any of it could be applied to an individual.

01:16:21.640 | But frankly, just learning how to run a financial calculator, you can solve most of the things that you need.

01:16:26.640 | The reality is that as complicated as I can make things sound sometimes, the numbers are pretty simple.

01:16:33.640 | Let's say you're going to do a simple life insurance calculation for yourself.

01:16:37.640 | Let's say you calculate you need $920,000 of life insurance. Just buy a million bucks.

01:16:41.640 | I mean, it's a difference of $3 a month. Who cares?

01:16:44.640 | Just get your million bucks and overshoot it a little bit.

01:16:47.640 | Most people are not going to be sitting there, and most of the real financial planning stuff is not going to make that big a difference.

01:16:55.640 | I feel like I've answered that going in circles.

01:17:00.640 | But I would say start with a pen and a paper. Start with a financial calculator.

01:17:04.640 | By the way, you don't need to go out and buy one. You can get one online.

01:17:07.640 | I'll link to one that I've used a lot of times online.

01:17:10.640 | I use the HP-12C simply because I thought it'd be cool if I used the same thing my dad did.

01:17:16.640 | But I have one online that I use sometimes if I'm at a computer and I want to show a screen to a client on a virtual meeting, something like that.

01:17:23.640 | And then also you can download an app for your phone, so if you are doing stuff for yourself.

01:17:28.640 | In reality, the actual using of a financial planning calculator, all you need to know for most calculations is N, I, PV, payment, and future value.

01:17:38.640 | And if you know how to do those, then you're good to go.

01:17:40.640 | Someday when I can build the bandwidth, I want to do a series of YouTube videos showing people how to actually do it for themselves, explain how to do it.

01:17:49.640 | I don't think I can do it in audio in a way that's compelling or complete.

01:17:53.640 | I think it's the kind of thing I need to do in video with a screen capture and talk through so you can do it.

01:17:58.640 | I also think we should train financial planners to do it on paper and pen.

01:18:04.640 | I'm young and I'm all into technology, but there's a reason why you learn what 2+2 is and 8x8 is, and then later you get introduced to the calculator.

01:18:13.640 | What happens is that today what I've seen is a lot of young advisors, they don't know how to do things manually.

01:18:19.640 | And so because you don't know how to do things manually, you can't spot the mistakes in a financial plan.

01:18:23.640 | And if you can't spot the mistakes in the financial plan, you can't figure it out, then the software is useless.

01:18:29.640 | And the thing is that the software, as I've tried to point out, there are assumptions inherent in everything.

01:18:36.640 | Financial planning as a science, you can be precise, but you're built on so many assumptions that if those assumptions change, then your whole plan falls apart.

01:18:43.640 | So it's much less about actually what the right answer is, "Here's the right answer for this situation,"

01:18:50.640 | and much more about understanding the assumptions and playing within those assumptions.

01:18:54.640 | And there are many fewer right answers in financial planning than there are right ranges, so to speak.

01:19:02.640 | So that's how I would answer.

01:19:04.640 | I would start with pen and a paper and a financial calculator.

01:19:07.640 | And with that, and then also I would move on to a spreadsheet, some simple spreadsheets.

01:19:12.640 | And then I would just simply, if I were an individual, I would just simply...

01:19:18.640 | The people who do it yourself first, I want to equip you as do-it-yourselfers.

01:19:21.640 | You probably don't, you already can go and do it yourself.

01:19:24.640 | But for the majority of people, it's simpler just to buy an hour or two of somebody's time and pay them.

01:19:33.640 | And they'll take care of, you know, they'll run your analysis for you.

01:19:37.640 | They'll stress test your stuff for you.

01:19:39.640 | I'll give you one example.

01:19:40.640 | I can't use--there's a major difference between TurboTax or, you know, tax--what's the other one from--anyway, TurboTax.

01:19:48.640 | We'll pick on them.

01:19:50.640 | And the software that accountants use.

01:19:52.640 | I can't use the software that accountants use.

01:19:54.640 | I was trying to solve some tax stuff the other day.

01:19:56.640 | And, like, I was trying to do something, and it's not important what.

01:20:03.640 | And I signed up for a free trial version of one of the pro versions of the tax planning prep.

01:20:11.640 | And I tried to go in and put my figures in because I was trying to do a calculation that was, you know, 30 years out, something like that.

01:20:19.640 | And I couldn't figure out how to make the software work.

01:20:21.640 | It just didn't work.

01:20:23.640 | So I can use TurboTax, but my ability to actually do good planning with TurboTax is not very much.

01:20:29.640 | I mean, yeah, there's some stuff, but I don't ever--with TurboTax, the problem is you're just putting stuff in.

01:20:35.640 | You're not actually understanding what's going on.

01:20:37.640 | So if I were--so that's how--if it were me trying to do taxes, I would start by trying to do them by hand.

01:20:43.640 | And once I've done them by hand, worked through the worksheets, that's going to take some time,

01:20:46.640 | but that's going to teach me more about how the tax return actually works.

01:20:50.640 | Then I would go to TurboTax, and I would just go to TurboTax and use that to help me--

01:20:54.640 | or whatever the equivalent of it is--and use that to help me run the calculations a little bit easier.

01:21:01.640 | But now that I understand what's going on underneath the hood, I can use it a little bit better, and I can spy the problems.

01:21:06.640 | And then for really good tax planning, I'd call a competent advisor, and it's going to be a lot cheaper for me to--for most of us, not for everyone.

01:21:14.640 | It's going to be a lot cheaper for most of us to actually sit down and just buy an hour of somebody's time,

01:21:20.640 | or two hours of somebody's time, and say, "Here's my situation," with as much detail as possible.

01:21:25.640 | "Can you see something that I'm missing?"

01:21:27.640 | And then you can take that information and go back and do it yourself.

01:21:30.640 | You don't necessarily have to hire the person to do it for you, but you need the planning.

01:21:34.640 | But if I were a professional--and this is how I view financial planning software--

01:21:39.640 | if I were a professional accountant, a CPA, then I would be able to do everything far faster with the same professional program that I signed up for and couldn't make heads or tails of.

01:21:50.640 | And so a lot of times when I'm helping new advisors or something in the past with a plan, I'm flying around the software,

01:21:57.640 | but it didn't happen that way when I was a beginner, so I think software gets in the way a lot of times.

01:22:02.640 | Not to say there's not a lot of value in the calculators, not to say there's not a lot of value in maybe a simpler program.

01:22:08.640 | I talk with my brother sometimes who's a web programmer about trying to figure out if he could create something better, but we'll see when time comes.

01:22:16.640 | Next, going to correct an error that is important.

01:22:22.640 | And this is something that I got wrong as a mistake.

01:22:25.640 | So in Show 55, which Beth so kindly complimented me on--and in fact, Derek was about to compliment me on, so let me play Derek's compliment.

01:22:33.640 | Hey, Joshua, how are you doing? It's Derek from Moncton, New Brunswick, Canada. I'm a regular podcast listener,

01:22:39.640 | and I just finished listening to Radical Personal Finance #55 with John, your 35-year-old almost millionaire who's looking at his early retirement.

01:22:50.640 | I just wanted to say I really enjoyed the way you worked through the various scenarios and laid it all out.

01:22:57.640 | I actually took five pages of notes as I was going through, and it certainly gives you a lot to think about.

01:23:03.640 | I'm not quite in John's situation, but working close towards that and also looking at an early retirement situation for myself.

01:23:12.640 | So thanks again for the good work.

01:23:14.640 | Hopefully John learned something because I know I certainly did, and I'm sure a lot of your other podcast listeners did as well.

01:23:21.640 | Keep up the great work. I'll keep listening, and we'll listen to you next time.

01:23:26.640 | Thanks again.

01:23:27.640 | Very cool, Derek. Thank you so much for the comment. It's cool to have listeners in Canada,

01:23:32.640 | or as I like to bug my best friend who's Canadian, in Canadia. That's my word for it.

01:23:40.640 | So I actually – thank you. I felt really good about that show, and I really enjoyed answering that show, but I actually made a mistake.

01:23:48.640 | So in that show, I talked about 401(k)s, and I talked about making a distribution from the 401(k),

01:23:54.640 | and this is at the end in a series of equal periodic payments under the 72(t) rules to avoid the age 59 and a half problem.

01:24:03.640 | And if you're a new listener and this is your first show, I'm sorry if that was too much too fast.

01:24:08.640 | So I went back, and a listener commented on that show and reminded me that you can make a distribution if you separate from service after the age of 55.

01:24:18.640 | You can make a distribution from a 401(k) plan and not have to pay the 10% early distribution penalty on that.

01:24:25.640 | So in show 60, I actually went back and corrected my error.

01:24:29.640 | And then last week, I was listening to something, and I learned something, and I found out that I screwed something up in correcting my own error.

01:24:37.640 | So I need to go back and add a little note to that in show 60 about this,

01:24:43.640 | but I wanted to make sure that you who are listening and already listened to that show get a chance to hear it.

01:24:49.640 | But also I think it'll be interesting and important, but also I just wanted to point it out as how frequently, you know, how easy it is for me to get stuff wrong.

01:24:57.640 | And there are so many little rules about planning.

01:25:02.640 | There's so many little rules that you can get wrong that I really don't think it's possible for anyone to get it right all the time.

01:25:08.640 | So when I put this little disclaimer in that I recorded and put in, and I say, "Please correct me," I mean that.

01:25:13.640 | I need you as an audience to correct me.

01:25:16.640 | And if you find something I'm wrong in, I need that input.

01:25:20.640 | So in this case, I discovered it myself, but I need that input.

01:25:23.640 | So just for your knowledge, very quickly, the 401(k), if you are going to utilize that one exception,

01:25:31.640 | and there are a few exceptions, which I'll go through in a future show,

01:25:34.640 | but there's one exception that we talked about under Section 72(t) of the Internal Revenue Code.

01:25:40.640 | If you are going to use that exception to take your distribution from your account after 55 but before 59 and a half,

01:25:49.640 | you must be leaving the job that you're taking the 401(k) from,

01:25:54.640 | and you must be leaving the job after 55 and then starting your distribution.

01:26:00.640 | So there was a court case on this.

01:26:02.640 | Was it a court case or -- yeah, it was a tax court opinion.

01:26:06.640 | So from September 28, 2011, and I will link to it in the show notes.

01:26:11.640 | I've got the tax court opinion here.

01:26:13.640 | It was Gail Marie Watson, who was the petitioner versus the commissioner of the Internal Revenue Service.

01:26:19.640 | So Watson v. Commissioner.

01:26:21.640 | And this is a -- this is not a -- it was an opinion that was issued by the tax court on this subject.

01:26:30.640 | And so what happened is that this lady, Ms. Watson, she left her job at the age of -- I think it was 52.

01:26:39.640 | I'm just going to go close enough.

01:26:41.640 | You go read it if you're interested.

01:26:43.640 | I have the material facts are correct enough.

01:26:45.640 | So she left her job, something like the age of 52, and then -- okay, so respondent contends --

01:26:52.640 | so she separated from service with her employer at the age of 53.

01:26:56.640 | And then at the age -- after reaching age 55, she wished to make a distribution from her 401(k).

01:27:03.640 | And at that point in time, she made the distribution from the 401(k), but she did not include the 10% penalty tax.

01:27:11.640 | And what the tax court found is that the payment made from the plan --

01:27:16.640 | that you have to be at least 55 after you separate from service.

01:27:20.640 | And so here is one quote from the case that was actually quoting a previous piece of legislation.

01:27:26.640 | It says, "In all cases, the exception applies only if the participant has attained age 55 on or before separation from service.

01:27:35.640 | Thus, for example, the exception does not apply to a participant who separates from service at age 52

01:27:41.640 | and, pursuant to the early retirement provisions of the plan, begins receiving benefits at or after age 55."

01:27:48.640 | So I'm reading directly from the tax court opinion.

01:27:51.640 | This is important, because one of the things that I thought I had thought up in my head, which would be wrong --

01:27:56.640 | I was wrong about it -- is I said, "Well, you know, that might be one reason to leave your money in a 401(k)

01:28:02.640 | instead of rolling it over into an IRA, with the idea that, let's say, that you are an early retiree,

01:28:07.640 | and you retire at 40, and you leave the money in the 401(k) so that you can access it at 55

01:28:14.640 | instead of waiting until 59 and a half."

01:28:16.640 | I was flat-out wrong. So my idea completely didn't go, and I want to make sure you're aware, and that is my error.

01:28:24.640 | So I have to go back and do a show trying to correct an error, and I find out that my actual correction is an error itself.

01:28:34.640 | Hopefully you find that interesting, and I find it humbling.

01:28:39.640 | Next, question from Alejandro, and this was part of an email thread that he had emailed me.

01:28:45.640 | I want to read his question because I think it's a useful question, and I have some thoughts that I want to help him with.

01:28:52.640 | He didn't specifically ask for this to be included as a Friday Q&A show, but I want to include it.

01:28:57.640 | So Alejandro emailed me, and as part of an email exchange, he said,

01:29:00.640 | "I recently heard an archived episode where you and the person you interviewed agreed that increasing income

01:29:05.640 | was usually the first step in the road to wealth.

01:29:08.640 | I'm currently in a PhD program, and I don't really have the opportunity to increase my income.

01:29:15.640 | My wife already works full-time and may actually need to go back to school to meet certification requirements, more expenses.

01:29:22.640 | Increasing our income substantially is almost without a doubt simply impossible for the next two years.

01:29:28.640 | We have some savings and emergency reserve cash, but we also have a lot of debt, maybe $20,000 if you include student loans.

01:29:36.640 | We try to keep our expenses low by monitoring cash flow and eliminating anything that is unnecessary.

01:29:41.640 | What else can we do? I realize we will hit a point where we are doing everything we can.

01:29:46.640 | Maybe we are there already, maybe not. Aside from couponing, I heard that episode today,

01:29:51.640 | I'm not sure what else there is left for us to do except plan what and when our next move is.

01:29:57.640 | What are your thoughts?"

01:29:59.640 | So I thought this was an interesting question, and I do have some thoughts.

01:30:03.640 | I hope you will find them useful.

01:30:07.640 | I think there absolutely is a time when you have hit all you can do.

01:30:12.640 | Sometimes all you can do is all you can do, and it sounds silly to say it, but it really is.

01:30:17.640 | If you are doing all of the right things at something, and you are on track, but you can't do any more, that's fine.

01:30:24.640 | In that case, just keep doing what you are doing.

01:30:26.640 | You very well may have a plan, and simply be working your way through that plan.

01:30:31.640 | You might actually be going backward financially.

01:30:34.640 | Let me give you an example. People do this all the time when they start a business.

01:30:38.640 | Many times when you start a business, you are going to invest in that business,

01:30:42.640 | especially the bigger the business, the more likely it is that you are going to invest.

01:30:45.640 | It is probably going to take time for there to be cash flow from the business,

01:30:49.640 | and you are going to invest a lot of money before you expect to receive a payoff.

01:30:53.640 | That's not bad.

01:30:55.640 | If Bobbie Jo, from the earlier question, were to go and become a financial planner,

01:30:59.640 | it is likely that her income would go down from being a legal assistant to working as a producer.

01:31:05.640 | It is likely that her income would go down.

01:31:07.640 | That's not bad, because the potential income of her working as an excellent financial advisor

01:31:12.640 | is far higher than it would be as a legal assistant.

01:31:16.640 | You may be in that situation with school.

01:31:20.640 | If you have a plan, and it sounds like you do, you are fine. Just go for it.

01:31:23.640 | When you are getting a Ph.D., you are voluntarily sacrificing years of earnings that you could have

01:31:30.640 | in order to get that Ph.D.

01:31:32.640 | This is what medical students do.

01:31:34.640 | If you are going to go through 10 years of medical school, specialties, residencies, etc.,

01:31:39.640 | you are sacrificing what you could be earning if you went out to another job for those 10 years.

01:31:45.640 | You are going to be behind at the beginning, and that's fine.

01:31:49.640 | It may be that this is the stage in life that you are at.

01:31:53.640 | If so, cool. Fine.

01:31:56.640 | I would, however, give you a few additional ideas.

01:31:59.640 | One thing that you could really focus on doing is developing and practicing skills of living cheaply.

01:32:07.640 | What occurred to me when I was thinking through your question is an example from a website

01:32:13.640 | that I used to read, and I still read there every now and then. I hadn't been there in months

01:32:17.640 | until I went to find the article I wanted to find, called Cash Cow Couple.

01:32:22.640 | It's kind of a funny name, but I like it.

01:32:24.640 | The Cash Cow Couple is a young couple.

01:32:27.640 | I can't remember the names. It's Vanessa, and I think Jacob is the husband's name.

01:32:31.640 | They started writing this financial blog for themselves when they got married.

01:32:36.640 | They are newlyweds. They have been married for fewer than two years.

01:32:39.640 | They started writing this financial blog.

01:32:41.640 | From what I understand from their writing, Jacob is actually in a Ph.D. program out in Texas,

01:32:46.640 | actually in a Ph.D. in financial planning program, and they blog about finance.

01:32:51.640 | What's cool about their blog and what made me think of it is they don't spend much money.

01:32:56.640 | They are pretty hardcore with their frugality, and they write on their blog a lot about saving money.

01:33:03.640 | They bought a mobile home. They figured out that would be the cheapest way for them to live out in Texas.

01:33:10.640 | I think he rides the bus, or she rides the bus, and they have an old Saturn that they drive.

01:33:16.640 | They hyper-mile the car to get the maximum amount of mileage from it.

01:33:24.640 | They save on groceries with all these coupon hacks.

01:33:28.640 | They do their travel with credit card hacks.

01:33:31.640 | He posted their expenses for their first year of marriage.

01:33:35.640 | It's kind of amazing. Their total expenses for their first year of marriage were $10,336 for this young couple,

01:33:41.640 | which is probably in a similar situation to you.

01:33:44.640 | I can't remember for sure, but I think she has a job and he's in a Ph.D. program.

01:33:48.640 | Their annual cost for rent and utilities is $660.

01:33:52.640 | They rented for a couple of months, and they had utilities.

01:33:54.640 | No mortgage payments. They're self-insured. No homeowner's insurance.

01:33:58.640 | Mobile home taxes are $30 annually.

01:34:01.640 | Land cost was $2,200 for the year. Water and sewer, $310 for the year.

01:34:06.640 | $410 for the year for electricity. $90 for natural gas. $100 for trash service.

01:34:12.640 | $171 for household maintenance. $1,400 on transportation, which includes his Ph.D. program.

01:34:20.640 | Pays for unlimited bus usage. $312 for car insurance. $100 for registration and taxes.

01:34:27.640 | $500 on gasoline. So Jacob rides the bus. Vanessa has a short commute.

01:34:31.640 | So $500 for the year on gasoline. $405 on traveling for three different vacations.

01:34:37.640 | And then some other miscellaneous living expenses.

01:34:39.640 | A total of $2,640 for the year for groceries. $624 for the year for restaurants.

01:34:47.640 | And a few more, some gifts and some miscellaneous expenses.

01:34:50.640 | $10,336 for a couple of two who are in a similar situation.

01:34:54.640 | Now, if this is your first time, you the listener, or you Alejandro,

01:34:58.640 | if this is you the first time hearing people who are just amazingly frugal,

01:35:03.640 | don't get upset. Before you get upset about, "That's a crazy lifestyle,"

01:35:08.640 | consider how they frame it.

01:35:09.640 | So for them, in their worldview, this is not deprivation.

01:35:13.640 | This is not living a deprived lifestyle. It's fun for them.

01:35:16.640 | They enjoy the challenge of figuring out how to get all of the modern standard of living

01:35:21.640 | for an inexpensive price. And by the way, Alejandro, if this is your first time with this stuff,

01:35:29.640 | I don't know if you and your wife talk about it, but be careful before you tell her,

01:35:32.640 | "We're going to live on $10,000. $10,336 a year."

01:35:36.640 | She might not react well. You might want to work into that a little bit.

01:35:39.640 | A lot of times that causes problems in couples.

01:35:42.640 | But the cool thing is that they're living a lifestyle, and they learn how to do it

01:35:45.640 | with skills on $10,000--let's call it $11,000 a year.

01:35:50.640 | I think that's pretty awesome. I'm pretty impressed by that.

01:35:53.640 | I don't have those skills as much as they do. I'd like to have them, but I don't have them.

01:35:56.640 | And I think it's pretty cool.

01:35:58.640 | So what you could do is you could consider, "Are there some skills that I could learn?"

01:36:02.640 | Go read their blog and just do some of what they do.

01:36:05.640 | You're going to have a different situation. I know you're in South Florida,

01:36:07.640 | which is more expensive than Texas, where they are.

01:36:10.640 | But you might have a similar situation.

01:36:13.640 | So remember that you can be learning skills of saving money and living cheaply

01:36:17.640 | all through that point in time.

01:36:20.640 | Now, the cool thing about what they're actually doing is they're actually probably making some extra money.

01:36:24.640 | And so I don't know how popular this blog is.

01:36:26.640 | They've got at least a few thousand subscribers and a few thousand Facebook fans.

01:36:30.640 | That tells me that it's starting to grow.

01:36:33.640 | And they're basically doing what most personal finance bloggers are doing now.

01:36:37.640 | They're doing 5,500 Facebook likes.

01:36:39.640 | So this is a decent-sized blog, I guess, from this point in time.

01:36:42.640 | They're doing, it looks like, primarily affiliate income.

01:36:45.640 | They've got some credit card affiliates.

01:36:47.640 | They've got personal capital reviews.

01:36:49.640 | So that'll be an affiliate link.

01:36:51.640 | They've got Motif Investing Reviews.

01:36:52.640 | That'll be an affiliate link.

01:36:53.640 | Republic Wireless, affiliate link.

01:36:55.640 | Betterment Options House.

01:36:57.640 | So he's got some reviews on here, and he's getting affiliate commissions.

01:37:00.640 | So I assume he's making some extra money from that.

01:37:02.640 | So you might consider, is there some way that you could replicate that?

01:37:05.640 | Now, it may be that your PhD program is in something completely unrelated to finance.

01:37:10.640 | But there may be some way for you to do something similar

01:37:14.640 | and build a little bit of extra money with something like that.

01:37:17.640 | He's going through a PhD in financial planning,

01:37:19.640 | and he's writing about personal finance.

01:37:22.640 | And I'm sure he's making, I don't know, some money with his affiliate income.

01:37:28.640 | So there might be something like that that you could do.

01:37:32.640 | Now, one other question is, are you doing your PhD program in the most efficient way?

01:37:37.640 | Are you paying for it, or do you have a fellowship where they're sponsoring it?

01:37:40.640 | I thought of him as an example.

01:37:43.640 | He's clearly doing a fellowship where they're paying him for--

01:37:47.640 | they're paying for his PhD program while he goes through

01:37:50.640 | and teaches some classes and things like that.

01:37:52.640 | So are you paying for the PhD program, or are you doing a fellowship?

01:37:55.640 | Are you early enough that if you don't have a fellowship that you could do it?

01:37:59.640 | That would be one thing that you could consider.

01:38:02.640 | If you need income but you don't have time, it's an interesting puzzle.

01:38:07.640 | And if you ask yourself the question, I bet you could come up with some answers.

01:38:10.640 | So I thought to myself, and I said, "What would I do for income

01:38:13.640 | if I didn't have any time to do some kind of a side hustle?"

01:38:16.640 | is the popular word for it now.

01:38:19.640 | And the best thought I had was, "Could you take on roommates?

01:38:24.640 | Could you rent a three-bedroom apartment for--

01:38:29.640 | let's see, you're in South Florida--

01:38:31.640 | so could you rent a three-bedroom apartment for $2,400 a month

01:38:34.640 | and rent out each of the bedrooms for $800 a month?"

01:38:37.640 | And that would cut your own expenses cheaper than you and your wife

01:38:40.640 | living in a studio apartment.

01:38:43.640 | Or could you--I would be slow to do this, but could you buy a house?

01:38:47.640 | Could you buy a big house and rent parts out?

01:38:51.640 | Or could you just rent out some of your rooms on Airbnb?

01:38:54.640 | I know some people that pay for their whole rent

01:38:57.640 | renting out a couple extra rooms on Airbnb.

01:38:59.640 | So are you in a place where you would be a popular Airbnb host?

01:39:03.640 | So that's the type of thing that you could use an asset that you already have--

01:39:07.640 | maybe it's an apartment, maybe it's a house, maybe something like that--

01:39:10.640 | and you could make extra money with only a little extra time.

01:39:13.640 | Sub-leasing, all that stuff, check your lease,

01:39:16.640 | but conceptually that's an option.

01:39:20.640 | What I would really spend a lot of time thinking about is,

01:39:23.640 | am I really investing in a way that has nothing to do with money?

01:39:27.640 | It may be that you need three more years to finish your PhD program,

01:39:31.640 | and in those next three years you're just going to let this $20,000 of debt just sit there.

01:39:36.640 | Refinance it if you can, defer the student loans if you can,

01:39:39.640 | keep the rates at the lowest rate, but maybe you can't make any progress on that.

01:39:43.640 | But are you investing into things that will make you more money in the future?

01:39:48.640 | So when you're done with your PhD,

01:39:51.640 | will you have an established social network

01:39:54.640 | that will open up for you a really nice job?

01:39:58.640 | Don't forget that.

01:40:01.640 | Don't graduate with a PhD and then sit there and say,

01:40:04.640 | "Oh, I'm just going to go and start sending out resumes."

01:40:07.640 | Make sure that you've got people bidding on you by the time you finish your dissertation.

01:40:11.640 | That's doable, but you've got to do it.

01:40:14.640 | You've got to go out and you've got to put in the work.

01:40:17.640 | It takes work and planning to actually make that happen.

01:40:20.640 | Are you maintaining a blog in your field that's going to build your reputation?

01:40:24.640 | If you don't have a website that is in your field that you're writing to,

01:40:29.640 | maybe you're doing book reviews, maybe you're discussing your personal process,

01:40:33.640 | maybe you're just talking about what you're learning as you're doing it,

01:40:36.640 | I would submit to you that that's short-sighted and that you should be doing that.

01:40:41.640 | Is your dissertation on a subject that's actually interesting and important?

01:40:46.640 | So maybe you're working on your dissertation topic.

01:40:49.640 | Are you really picking something that's going to be valuable?

01:40:53.640 | Are you pouring everything into it and are you giving it full effort

01:40:56.640 | so it can actually be something useful?

01:40:58.640 | Can you actually do some groundbreaking research?

01:41:01.640 | Or did you just pick a topic that said, "Well, I'm going to do this topic

01:41:04.640 | and I'm sort of interested in it, and this is a topic that's going to disappear into the--

01:41:08.640 | What are those websites? I don't remember which one.

01:41:11.640 | The vault of academic papers where you go into these academic websites

01:41:14.640 | and there are millions of papers in there that no one ever reads.

01:41:18.640 | Consider it.

01:41:20.640 | I'm not judging you on what is right or wrong.

01:41:22.640 | I'm just trying to give you ideas about how I would think about it.

01:41:24.640 | I would think a little bit uniquely about the opportunity that you have

01:41:28.640 | to invest that.

01:41:32.640 | I would think about it that way.

01:41:37.640 | And I'd make sure that if you're going to put the time into doing a dissertation,

01:41:40.640 | make sure it's something that's interesting to people.

01:41:44.640 | Do some groundbreaking research.

01:41:46.640 | It'll take you more effort, but it'll actually be worth it,

01:41:49.640 | and it'll help to build that social network.

01:41:52.640 | Maybe you do the kind of thing where it's important enough that you get on--

01:41:55.640 | you're on TV somewhere being interviewed because of the groundbreaking research

01:41:58.640 | that you've done.

01:42:00.640 | So consider that.

01:42:01.640 | If your wife is working--

01:42:02.640 | Question, is she working at the highest-paying job?

01:42:04.640 | Most people don't.

01:42:06.640 | The most inefficient area in most people's lives is their job.

01:42:09.640 | Most of us, we find some place, we pick it, we like it, and we don't do anything.

01:42:13.640 | Now, I'm cool with that.

01:42:15.640 | That's totally fine.

01:42:16.640 | If that's what you want to do, great.

01:42:18.640 | There are dramatic options to every three years or so going and upgrading your job,

01:42:23.640 | upgrading your skills, upgrading your job.

01:42:25.640 | And you can take some lateral moves, and sometimes it's far easier

01:42:29.640 | when you're making $60,000 to go and interview for the $100,000 job

01:42:33.640 | than it is to get promoted within the same company from the $60,000 job

01:42:38.640 | to the $100,000 job.

01:42:40.640 | Is there a way that--you mentioned she needs more education.

01:42:43.640 | So maybe she's--I don't know, she might be an educator, it sounds like to me,

01:42:46.640 | from that.

01:42:47.640 | Is there a way she can work somewhere where they're going to pay for the cost

01:42:50.640 | of the classes?

01:42:51.640 | I finished a master's degree myself.

01:42:54.640 | I didn't pay for any of those classes.

01:42:56.640 | My firm did.

01:42:58.640 | And I really valued that.

01:43:00.640 | But I would have had to earn a lot of extra money in order for me to do that.

01:43:04.640 | So can she go work at a college somewhere part-time?

01:43:07.640 | I've done planning for families who worked for--both of them worked for a college

01:43:11.640 | so that they could live in subsidized on-campus housing, even with children,

01:43:15.640 | and get tuition rebates.

01:43:17.640 | That may be a very efficient way to accomplish your goals.

01:43:21.640 | So those are some ideas that I had for you.

01:43:24.640 | I hope that maybe something in there might spark something.

01:43:27.640 | I would just simply say in summary, don't worry about it if you're in a stage

01:43:32.640 | of life where you're spending more than you're making.

01:43:36.640 | That's called investment.

01:43:38.640 | But make sure that if you're investing in something like your education,

01:43:41.640 | make sure that you're investing wisely and you're doing everything

01:43:44.640 | that you can to make it valuable.

01:43:48.640 | Hope that helps.

01:43:49.640 | All right, next, Dave.

01:43:52.640 | Hi, Joshua.

01:43:53.640 | I've been enjoying the podcast.

01:43:54.640 | I was hoping you'd do a primer on ethical investing.

01:43:57.640 | I've reached a point where the basics are squared away,

01:43:59.640 | and I want to start having my money work for me.

01:44:02.640 | And while the idea of a Vanguard TSMX seems appealing and just keep my hands

01:44:07.640 | off of it, I've looked at a lot of the organizations in their portfolio,

01:44:11.640 | and there's a few that I don't want to support with my money

01:44:14.640 | because they violate my values.

01:44:16.640 | I've also looked at SRIs, and more often than not,

01:44:20.640 | they may have screens in place that are really not concerns of mine,

01:44:24.640 | or they may still invest in organizations that I have issues with.

01:44:29.640 | So I was kind of hoping if you could provide a starting point for how I can

01:44:33.640 | identify SRIs that not only aligned with my values as closely as reasonable,

01:44:40.640 | but also do perform.

01:44:43.640 | Any other thing I haven't thought of, I'd very much appreciate it.

01:44:46.640 | So thanks so much, and I'm looking forward to hearing your answer.

01:44:49.640 | Good question, Dave, and I thank you for asking me.

01:44:53.640 | By the way, if you are new to the concept of socially responsible investing,

01:44:57.640 | when Dave references SRI, that is what he means,

01:45:01.640 | socially responsible investing.

01:45:04.640 | And so basically, in summary, how I would say is this is basically

01:45:09.640 | how can I combine my investment strategy with the purpose of returning a return

01:45:15.640 | on capital with something that's going to do also some social good.

01:45:20.640 | So how can I marry earning investment returns from something that's going to do

01:45:25.640 | social good?

01:45:27.640 | Now, I've got two ways I'm going to answer the question, Dave,

01:45:30.640 | is that I've looked at some of these SRIs.

01:45:34.640 | I used to get pitched on them from the wholesalers about some of the funds,

01:45:39.640 | and I'm interested in them.

01:45:41.640 | I'm very interested in this area of finance.

01:45:45.640 | I'm pretty ignorant, however, on the different funds,

01:45:50.640 | so I'm not going to spend much time on those funds.

01:45:53.640 | I would point you toward the Wikipedia article on socially responsible investing.

01:45:59.640 | They actually have a decent chart in it that will show the different funds

01:46:03.640 | that they've listed out, various funds, and they've listed out the different

01:46:08.640 | topics, the different--what would these be called?

01:46:13.640 | The different--excuse me, I don't know what to call these areas.

01:46:17.640 | Do we invest in alcohol?

01:46:20.640 | Do we invest in tobacco?

01:46:21.640 | That kind of thing.

01:46:22.640 | They've invested in different screens.

01:46:23.640 | There we go.

01:46:24.640 | That would be the word for it, screens.

01:46:25.640 | So I would point you to the Wikipedia article on socially responsible investing.

01:46:29.640 | I linked it in the show notes for you.

01:46:32.640 | The problem that I face with this--I'm going to have some experts on.

01:46:36.640 | I've been looking for somebody who works in this area, maybe a wholesaler,

01:46:39.640 | maybe somebody who's in the business, who I can talk through this area

01:46:44.640 | because it's a growing area and there's a lot of interest in this area.

01:46:47.640 | My problem is I've got some weird stuff that to me is--how do you define

01:46:55.640 | socially responsible?

01:46:57.640 | You even mentioned in your question, you said, "There's some things that I'm

01:47:00.640 | not really concerned about that other people are."

01:47:03.640 | I'll just give you an example.

01:47:04.640 | In this Wikipedia chart, here are the screens that they talk about.

01:47:08.640 | Alcohol, tobacco, gambling, defense or weapons, animal testing,

01:47:15.640 | products or services, environment, human rights, labor relations,

01:47:20.640 | employment or equality, community investment, and proxy voting.

01:47:25.640 | Here would be these scenarios that they've got listed out for how to do

01:47:32.640 | social screens.

01:47:34.640 | But the screens that bother me, most of them aren't even on there.

01:47:38.640 | A couple of them are and a couple of them fit.

01:47:40.640 | But the things that really bother me are pretty non-mainstream.

01:47:45.640 | I actually don't get how many people are bothered by some of the things

01:47:48.640 | that they list here because I'm not bothered by them.

01:47:51.640 | But I'm very--and before I give you some ideas of some of the things that

01:47:55.640 | I'm bothered by, I'll just mention this is something that really affects me

01:47:59.640 | more and more now.

01:48:00.640 | I never used to have a problem with some of this stuff.

01:48:02.640 | I've always invested through mutual funds in the past myself, and I've never

01:48:07.640 | worried too much about what the companies that my mutual funds owned.

01:48:11.640 | I never worried too much about what they were.

01:48:13.640 | But lately, over the last about a year, this bothers me more and more.

01:48:17.640 | I haven't done anything about it myself yet.

01:48:19.640 | I haven't sold my funds, but I think about it, and I'm moving in that direction

01:48:23.640 | just because I find that this is a bigger deal to me than not.

01:48:27.640 | But I'll give you an example.

01:48:28.640 | Here are some of the things that bother me.

01:48:31.640 | Something that doesn't appear on here anywhere on this list is financial.

01:48:34.640 | I just finished--when I was on my trip, I just finished the book.

01:48:36.640 | I listened to the audio book called "The Big Short" by Michael Lewis.

01:48:41.640 | This is about the 2008 financial meltdown.

01:48:46.640 | I'm in the process of reading the official financial crisis inquiry report.

01:48:50.640 | It's sitting here on my desk, and this is the official government report

01:48:54.640 | that was issued by the team that was commissioned to investigate the financial

01:48:59.640 | crisis of 2008.

01:49:01.640 | The Big Short, by the way, is an awesome book.

01:49:05.640 | This financial crisis inquiry report book is interesting, but it is horrible.

01:49:09.640 | These government reports are awful to read through--not my kind of deal.

01:49:12.640 | But it's valuable, and I want to have it.

01:49:15.640 | I'm not okay--especially after listening to "The Big Short"--I'm simply not okay

01:49:20.640 | with profiting from some of these big investment banks.

01:49:26.640 | I don't want Goldman Sachs in my portfolio.

01:49:28.640 | I really don't.

01:49:30.640 | I'm not okay with making money on AIG.

01:49:34.640 | Are all the people that work there bad? No.

01:49:36.640 | The people that committed--did these literally, I would say, criminal--

01:49:42.640 | could be criminal actions, but are they all bad people? No.

01:49:46.640 | I have a friend of mine who's the former head of Goldman Sachs.

01:49:49.640 | I have a friend who I've met--the former head of Lehman Brothers.

01:49:54.640 | And they're not bad guys, but I don't want to profit from some of the stuff

01:49:57.640 | that they're doing.

01:49:59.640 | Not very many people went to jail, and I'm not really okay with that

01:50:02.640 | because there was some crazy stuff going on.

01:50:05.640 | Another example--banks.

01:50:07.640 | I'm not okay with the fact that the big five banks basically have a cartel in place,

01:50:14.640 | and I'm not okay with how they treat their customers.

01:50:16.640 | I think some of the work that they do and some of the stuff that they do is nuts.

01:50:19.640 | It's just--it's not right, and it should be changed.

01:50:23.640 | But the thing is that they're continuing their own interests,

01:50:27.640 | and they're trying to continue their own interests,

01:50:31.640 | and they're trying to advance that for their stockholders,

01:50:36.640 | and so they're going to keep doing it, but I don't want anything to do with that.

01:50:39.640 | I'll read you one quote here from--this is from the introduction

01:50:43.640 | to the Financial Crisis Inquiry Report.

01:50:46.640 | It says, "By 2005, the ten largest U.S. commercial banks

01:50:52.640 | held 55% of the industry's assets, more than double the level held in 1990.

01:50:58.640 | On the eve of the crisis in 2006, financial sector profits

01:51:02.640 | constituted 27% of all corporate profits in the United States,

01:51:07.640 | up from 15% in 1980."

01:51:09.640 | That's not okay.

01:51:10.640 | In my opinion, it's not okay for those ten banks to do that.

01:51:14.640 | Now, do I want to go and just say, "You've got to get rid of this"?

01:51:16.640 | No, but I don't want to own them.

01:51:18.640 | I don't want to profit from it.

01:51:19.640 | I want to encourage the smaller local banks.

01:51:22.640 | And the problem is there's this cycle of--what do you call it--crony capitalism

01:51:27.640 | where there's not a chance that those banks are going to give up their right,

01:51:30.640 | their hold on the market, and there's not a chance that the government's going to do anything about it.

01:51:33.640 | So we're stuck in this, and you're left with the standpoint of,

01:51:37.640 | "Am I going to profit from what Bank of America does?"

01:51:40.640 | I don't want to profit from it.

01:51:42.640 | I'm not okay with some of the work of the major media companies.

01:51:45.640 | I don't like some of what they do.

01:51:48.640 | I support their right to produce their content.

01:51:52.640 | I don't want to stop them from doing it, but I don't really--

01:51:55.640 | I've got some pretty strong moral convictions about some of the filth they put out,

01:51:59.640 | and I don't want to make money from it.

01:52:02.640 | I'm really interested in green energy.

01:52:07.640 | I'm really interested in sustainable development and sustainable energy

01:52:11.640 | because it just makes sense to me.

01:52:13.640 | But I don't want to invest in green energy if investing in green energy

01:52:17.640 | means destroying people's rights and freedoms.

01:52:20.640 | I don't have any interest in the government stepping in to redistribute people's tax dollars

01:52:25.640 | to benefit some company versus another.

01:52:28.640 | All this global warming crap has so much politics involved with it,

01:52:31.640 | and so we're going to do a carbon tax, and we're going to have all this stuff.

01:52:34.640 | And there are some really simple, really effective solutions

01:52:38.640 | that can make a dramatic difference in the health of the global ecosystem

01:52:46.640 | that could be pursued, but there's no money in that.

01:52:49.640 | So we just pursue the crap we can tax.

01:52:53.640 | I'm not okay with owning some of the big bio companies.

01:52:56.640 | I'm really not cool with what they do.

01:52:58.640 | I don't want to own Tyson Chicken stock and drive past the hell holes

01:53:05.640 | that they call a chicken house.

01:53:07.640 | I was driving across the country, and I passed a bunch of these things

01:53:10.640 | on my way up to Pennsylvania, and I don't want to make money from that.

01:53:14.640 | Those things are hell holes.

01:53:16.640 | Go look at how they treat their animals.

01:53:18.640 | I don't want to own it.

01:53:20.640 | And if I can figure out--try to cut back on the stuff,

01:53:23.640 | and I'm supporting it with my dollars,

01:53:25.640 | I can't find any good local suppliers of pastured poultry,

01:53:29.640 | so I'm kind of stuck, and it bothers me.

01:53:32.640 | I don't want to own it.

01:53:34.640 | I don't want to give them my money,

01:53:36.640 | and I don't want to make any money off of that business.

01:53:39.640 | I don't want to give any of my money to some of these--

01:53:42.640 | I drive past the feedlots.

01:53:44.640 | I mean, that is completely inhumane, the way we treat these cows.

01:53:48.640 | I don't want to own that, the companies that make money off that.

01:53:52.640 | I'll give you the worst example of how conflicted I get about it.

01:53:57.640 | I don't want to profit money from the global war machine

01:54:01.640 | and from the war economy.

01:54:03.640 | Increasingly, as days go by, I'm becoming increasingly convinced

01:54:07.640 | that war is--to borrow the terms of who was that guy,

01:54:11.640 | the general who wrote the book back in--I think it was like the 1950s.

01:54:17.640 | I'm going to Google it.

01:54:19.640 | The guy who wrote the book, "War is a Racket."

01:54:21.640 | It was General--or General Major--

01:54:25.640 | United States Marine Corps Major General,

01:54:28.640 | two-time Medal of Honor recipient, Smedley Butler.

01:54:31.640 | And so he wrote--he had a speech in a booklet called "War is a Racket."

01:54:36.640 | And so in the 1930s, after he retired from the Marine Corps,

01:54:40.640 | he went around and did that.

01:54:42.640 | I mean, "War is a Racket."

01:54:44.640 | War props up our economy.

01:54:46.640 | The problem is you actually start studying history

01:54:49.640 | on the textbook you were given in eighth grade.

01:54:52.640 | And yes, I passed AP U.S. History, and no, no one ever told me.

01:54:55.640 | I got a five on the history exam in AP U.S. History,

01:54:57.640 | and no one ever told me any of the history

01:54:59.640 | until I actually went and started looking it up.

01:55:01.640 | You find that basically in every single war,

01:55:04.640 | the major people that get rich off of the total destruction of human life

01:55:08.640 | are the guys that are making the guns and the tanks and the ships.

01:55:12.640 | So what do I do with this?

01:55:14.640 | Here's the conflict that I face.

01:55:16.640 | Personally, I would love it if every single company in the United States--

01:55:20.640 | and I don't know about the world--I assume the world, too--

01:55:22.640 | but I would love it if some of the gun companies

01:55:25.640 | would just sell millions more weapons.

01:55:28.640 | And they make lots of money doing it.

01:55:32.640 | That really appeals to me, and I fiercely support each and every individual,

01:55:38.640 | no matter where in the world they are,

01:55:40.640 | their right to defend themselves from their aggressors.

01:55:43.640 | Frankly, I would prefer to fly on an airline

01:55:46.640 | where every passenger on the airline were required to have a Colt 45 on their hip.

01:55:51.640 | Now, is it ever going to happen? Not a chance.

01:55:53.640 | But I would prefer to fly on that airplane.

01:55:55.640 | I feel a lot safer there than I do when I'm out on the streets

01:55:58.640 | in Pennsylvania or Philadelphia or Chicago or wherever.

01:56:03.640 | New York City--I was in Washington, D.C.

01:56:05.640 | Not a gun allowed forever.

01:56:08.640 | I would much rather be on that because I would feel a lot safer

01:56:11.640 | if I knew that the good people had the guns

01:56:13.640 | instead of the good people not doing that.

01:56:15.640 | So from that perspective--so let's say that I have that philosophical perspective--

01:56:19.640 | and so now I would love it maybe to own some shares of Colt Defense, Inc.

01:56:24.640 | or Sturm Ruger and Company--those are Ruger firearms.

01:56:28.640 | But what do I do with the fact that some of the same companies

01:56:31.640 | who manufacture weapons for the private market

01:56:35.640 | also supply and make a lot of money from the military-industrial complex,

01:56:40.640 | as Eisenhower called it, and basically the military war machine?

01:56:44.640 | What do I do with that?

01:56:47.640 | I'm not okay with the fact that if a mutual fund has a defense or weapons screen on it

01:56:54.640 | that it screens out the companies that serve private individuals

01:56:59.640 | and provide arms for private individuals

01:57:02.640 | and the companies that make arms for global governments.

01:57:04.640 | Those things to me are very, very different.

01:57:07.640 | So from their perspective, they wrap up a fund

01:57:10.640 | and they say this fund doesn't invest in defense or weapons.

01:57:13.640 | But to me, the U.S.--here's a little example for you.

01:57:19.640 | Did you know that U.S. companies supplied the vast majority of technology

01:57:23.640 | to the Soviet Union over about a 50-year period

01:57:27.640 | to actually build the Soviet Union?

01:57:30.640 | So who got rich from the Cold War?

01:57:33.640 | Who had an incentive to do that?

01:57:35.640 | The arms companies.

01:57:37.640 | So there's an environment fostered that winds up with billions and billions of dollars

01:57:44.640 | of arms contracts that make the companies that make the weapons safe,

01:57:50.640 | and the rest of the world pays for it.

01:57:53.640 | So I'm not okay with that.

01:57:56.640 | But I'm very okay with the fact that if a company produces a better rifle

01:58:01.640 | and they can get that rifle into the hand of an individual,

01:58:04.640 | that builds freedom because that puts fear of the populace into the government,

01:58:09.640 | which is how it should be.

01:58:11.640 | So how do I deal with that dichotomy, that dramatic difference

01:58:17.640 | of something that--something would be?

01:58:20.640 | That's a fairly nuanced view.

01:58:22.640 | I would imagine that very few people hold the kind of view that I do

01:58:26.640 | of seeing those differences.

01:58:27.640 | By the way, if you doubt my facts on the Soviet Union,

01:58:29.640 | I would encourage you to go and read the books written by Antony Sutton.

01:58:33.640 | The name of the one is Antony Sutton, S-U-T-T-O-N,

01:58:36.640 | one of the most careful researchers ever that wrote a number of books.

01:58:42.640 | I'll find a link to kind of a summary of him.

01:58:44.640 | But he was a college professor, and he is one of the most careful researchers.

01:58:50.640 | And if you're interested in the Soviet Union and the Cold War,

01:58:53.640 | I would encourage you to read his books.

01:58:54.640 | It's very interesting.

01:58:56.640 | Now, so I've just destroyed basically in my mind the companies that I'm not okay with

01:59:01.640 | in something like the Fortune 500.

01:59:05.640 | Even things--let me give you an example.

01:59:07.640 | So I would consider--let's say that I'm going to talk about maybe

01:59:10.640 | a home-building company.

01:59:12.640 | Is there anything really controversial about a home-building company,

01:59:15.640 | as D.R. Horton or one of these companies?

01:59:18.640 | Really, frankly, I think they're pretty uncontroversial.

01:59:21.640 | I don't know of anything that a home-building company,

01:59:24.640 | a house-building company is really doing that around the world

01:59:27.640 | that's destructive, that violates my personal ethical considerations.

01:59:33.640 | I don't know anything evil about that they do.

01:59:37.640 | But you know what?

01:59:38.640 | I guarantee you they're lobbying Congress to keep the tax incentive

01:59:41.640 | for the ownership of houses there and the reduction of mortgage interest.

01:59:46.640 | And you've got the--who is it?--the National Association of Realtors

01:59:52.640 | constantly lobbying Congress to keep their little perks.

01:59:56.640 | That's all a bunch of crap. Get rid of all of it.

01:59:59.640 | So I would say, from a moral perspective, get rid of that stuff.

02:00:02.640 | Clean up the tax code. I'd get rid of income taxes if I could.

02:00:05.640 | I'd go to a head tax model, but that's just me.

02:00:07.640 | Never going to happen, so whatever.

02:00:09.640 | It's one of those weird things--views I hold that never happen.

02:00:12.640 | So I'm not okay with these companies doing this stuff.

02:00:16.640 | I'm not okay with the insurance companies lobbying Congress

02:00:19.640 | to keep their little perks, and I'm not cool with that.

02:00:22.640 | So I basically throw out the whole system.

02:00:24.640 | So what do I do with that? It brings me in a bind.

02:00:27.640 | And I could go on and on and on.

02:00:29.640 | I could go--racism. Do I want to--community building.

02:00:33.640 | Human rights. I can't stand half of the non-profit organizations.

02:00:37.640 | So in case you can't tell, I'm probably the most skeptical guy

02:00:40.640 | you're ever going to meet.

02:00:42.640 | And also in case you can't tell, I find the world a very challenging place to live

02:00:48.640 | with all of my oddball issues and my points of view

02:00:52.640 | that I've never met anyone that shared half of them.

02:00:56.640 | So how do I deal with this?

02:01:00.640 | Well, I'm beginning to think that the only thing that I can do, really,

02:01:03.640 | that's going to make a difference is just simply to take charge

02:01:06.640 | of the things that I know I can affect.

02:01:08.640 | And I can't affect the whole world, but I know I can affect a few things.

02:01:13.640 | And whether that's big or small, I don't know.

02:01:16.640 | I personally have an opinion.

02:01:18.640 | I think Sam Walton has helped millions more people

02:01:20.640 | than the biggest non-profit foundation ever did

02:01:23.640 | simply because what he did brought a higher quality of life

02:01:28.640 | and a higher standard of living to more people than anything else.

02:01:32.640 | And he completely revolutionized the retail industry.

02:01:36.640 | And all of us today benefit from that.

02:01:39.640 | So if I could have had the--if I could have been alive

02:01:43.640 | and had the prescience to go back and invest with Sam Walton,

02:01:47.640 | man, that would be awesome.

02:01:48.640 | Now, is the Walmart today the same thing?

02:01:50.640 | Probably not.

02:01:52.640 | You get to the point where you get so big

02:01:55.640 | and you've got to support your stockholders,

02:01:57.640 | and it probably changes.

02:01:59.640 | But, man, if I could have profited off of what he did,

02:02:02.640 | I would love that because look at the amazing amount of good

02:02:06.640 | that he did for millions of people all around the world.

02:02:10.640 | So here's how I'm dealing with it right now.

02:02:12.640 | A, I'm just investing in what I know and what I care about.

02:02:15.640 | So I started this podcast, and I'm investing in it.

02:02:17.640 | I'm investing my time.

02:02:18.640 | I'm investing my money.

02:02:20.640 | I think I can make a difference in this part of the world.

02:02:23.640 | I think I can help people make better decisions,

02:02:26.640 | and I think I can help people choose things more carefully

02:02:30.640 | that are helpful for them.

02:02:31.640 | I really do.

02:02:33.640 | And so I'm doing this show.

02:02:35.640 | I've got some side projects that I'm working on

02:02:37.640 | that I'd like to invest in.

02:02:38.640 | You know, I'd love to see local agriculture build up in my area.

02:02:43.640 | It's horribly weak.

02:02:44.640 | So if I could invest in that, and I would.

02:02:48.640 | I haven't figured out how yet, but I will.

02:02:51.640 | I'd like to invest in guys like the urban farming guys

02:02:54.640 | out in Kansas City.

02:02:55.640 | You know, they're doing some real work.

02:02:57.640 | You want to conquer inner city--I think they're still doing it.

02:03:01.640 | I haven't checked on their projects in at least a year.

02:03:03.640 | But you want to conquer inner city problems.

02:03:06.640 | I mean, there are some guys that actually went and did something.

02:03:09.640 | Instead of talking about it

02:03:10.640 | and forming some stupid, massive organization,

02:03:12.640 | they just put their money where their mouth was and moved there

02:03:15.640 | and started working on projects and started actually helping.

02:03:18.640 | You know, I'd love to--me personally--I'd love to invest in an education company

02:03:23.640 | that's transforming how education is delivered on a global basis

02:03:30.640 | and getting it out where it can't be usurped for political gain.

02:03:37.640 | I don't know how to deal with some of this stuff,

02:03:39.640 | so I'm not really giving you an answer to it,

02:03:40.640 | but I'm telling you I think a lot about it, and I don't know the answers.

02:03:42.640 | But here are my answers.

02:03:43.640 | Frankly, sometimes I wish I could--

02:03:45.640 | it really bothers me how so much of our money is kept beyond--

02:03:49.640 | in 401(k)s and IRAs, and we can't really touch it.

02:03:53.640 | And so then you're forced to basically invest in publicly traded companies

02:03:57.640 | because the ability to do something different is very difficult.

02:04:00.640 | And so if you're investing through your 401(k),

02:04:03.640 | it's kind of hard to take the money out

02:04:05.640 | and help a guy get started with a pastured poultry operation in his local backyard.

02:04:10.640 | It really is.

02:04:11.640 | So sometimes I wish I could tell people to cash out their 401(k)s

02:04:15.640 | and just go start businesses that change the world.

02:04:18.640 | You know, more farmers and--I may not pick on them.

02:04:24.640 | I don't know.

02:04:25.640 | I was going to say more farmers, fewer attorneys,

02:04:27.640 | but I just feel bad about that because I like attorneys and I like law.

02:04:32.640 | But I can't.

02:04:33.640 | I could never tell--I mean, that's bad advice,

02:04:35.640 | but frankly I think of it sometimes.

02:04:37.640 | So sorry, buddy.

02:04:40.640 | Don't have a better question--better answer for you than that.

02:04:43.640 | But I would say probably where I would start, at least where I go in my mind,

02:04:47.640 | is I don't start with socially responsible mutual funds.

02:04:52.640 | I start with what can I invest in

02:04:55.640 | and who can I touch on an individual basis that's going to make a difference.

02:04:59.640 | And I walk away from politics and I just want to start doing stuff.

02:05:03.640 | I'm tired of it, so that's why I'm doing this,

02:05:05.640 | and I've got some other projects as well.

02:05:07.640 | A couple of more things and a couple quick--two quick comments

02:05:13.640 | and one comment and we're done for the day.

02:05:16.640 | So really going to be--we'll see what I hear from this one.

02:05:19.640 | How about a long show, two hours?

02:05:22.640 | I got a comment on the 4% show, and the comment was from Fabian.

02:05:27.640 | And he said, "Joshua, I found this podcast more puzzling than anything else."

02:05:34.640 | He said, "So far I was relying on the idea of the 4% rule,

02:05:38.640 | but now I'm not sure if it's a good idea.

02:05:40.640 | Your interview was very theoretical and had no practical element.

02:05:44.640 | It was more discouraging because the element I was relying on was devalued.

02:05:49.640 | So now how can I plan my retirement?

02:05:51.640 | I know you're saying it should be an individual matter, and that's right,

02:05:54.640 | but that doesn't help the individual who is not a financial advisor.

02:05:57.640 | How can I build my own plan?

02:05:59.640 | The more I read, the more I get the expression, 'It's a gamble, Fabian.'"

02:06:03.640 | And you can see this comment.

02:06:04.640 | It was a public comment on the show, and you can see my response to him.

02:06:08.640 | "But I thought this was valuable, and I wanted to bring it up and touch on it,"

02:06:11.640 | and part of the things that I wrote in the comment

02:06:13.640 | and a couple of additional things.

02:06:15.640 | So I understand that feeling, and I actually--if Fabian had that

02:06:22.640 | and he was willing to write on the comment on the show,

02:06:24.640 | I'm sure there are at least a dozen or two other people that had that same feeling,

02:06:26.640 | maybe even you.

02:06:28.640 | And I didn't intend to kind of take the 4% rule out because--

02:06:33.640 | and I'm going to emphasize in a minute--the 4% rule is entirely valid.

02:06:40.640 | It's kind of tough when something that you rely on highly is kind of taken apart.

02:06:48.640 | That really hits you.

02:06:49.640 | I've had a lot of things that I used to think these were sure things

02:06:52.640 | that they fell apart under closer examination,

02:06:55.640 | and I really didn't intend to do that with the 4% show, but I get it.

02:06:58.640 | I get why that might have happened.

02:07:00.640 | And so what I told Fabian is I said, "Just keep learning your way through it,

02:07:03.640 | and fact-check me and fact-check yourself."

02:07:06.640 | And then I hope as you move through things, you actually will get more confident

02:07:11.640 | in your understanding of the 4% rule and how it applies and how it's limited.

02:07:16.640 | And I'm going to give a little bit of nuance to it,

02:07:18.640 | but I think this happens a lot in financial planning,

02:07:21.640 | and that's actually why I'm starting the show is because I had to go through

02:07:24.640 | this process of having some of the things that I thought I got to be popped.

02:07:30.640 | So, for example, you'll notice I have yet to do a single show on insurance

02:07:34.640 | on this podcast, and we're at episode 75.

02:07:37.640 | I haven't done a single show on insurance, and I've sold a lot of insurance.

02:07:40.640 | Frankly, it's just because I'm bored and don't like talking about insurance.

02:07:43.640 | I'm just tired of it.

02:07:45.640 | But I'm going to talk about insurance and death.

02:07:47.640 | I used to feel like I used to be a buy term insurance and invest the difference guy.

02:07:51.640 | I used to say, "Well, what you should always do is buy term life insurance

02:07:55.640 | and invest the difference in mutual funds."

02:07:57.640 | That was my go-to situation.

02:08:00.640 | But if you go back and you--or if you think back to how I answered Beth's question

02:08:03.640 | earlier in this show, you're going to find a little bit of a different,

02:08:06.640 | more nuanced answer.

02:08:08.640 | And so I had to learn that maybe there were other situations

02:08:11.640 | where my buy term and invest the difference kind of had to get adjusted.

02:08:18.640 | And then I had to learn, "Okay, well, maybe then it's term insurance

02:08:21.640 | and whole life insurance."

02:08:23.640 | I didn't like universal life insurance because I always found these policies

02:08:25.640 | falling apart.

02:08:27.640 | And then I had to have that challenge, and I had to go back and figure out,

02:08:29.640 | "Oh, wait a second. How could I use a universal life insurance policy

02:08:32.640 | to solve this problem?"

02:08:34.640 | So each one of those things was I had a rule that I had in my mind that I said,

02:08:38.640 | "Here's a rule that I can stand on."

02:08:41.640 | And now somebody brought something else, and I have to learn my way through it.

02:08:46.640 | So this is going to happen.

02:08:48.640 | And, Fabian, you can't fall on one thing just like the 4% rule

02:08:53.640 | because the 4% rule has a bunch of assumptions built into it

02:08:57.640 | that if those assumptions were to stop being true,

02:09:00.640 | then the entire thing would fall apart.

02:09:04.640 | Now, if you don't know those assumptions--and most people don't--

02:09:08.640 | but if you don't understand those assumptions,

02:09:10.640 | then when somebody comes and says, "Do something like I did with my show,"

02:09:15.640 | then you can feel like, "What do I depend on?"

02:09:20.640 | But my goal is not to break the 4% rule.

02:09:22.640 | My goal is just to illustrate the assumptions that are under it.

02:09:25.640 | And then you can feel confident about how you would actually approach it.

02:09:33.640 | And then you can feel good about knowing where the margins of safety is

02:09:36.640 | and how to do it.

02:09:37.640 | And here's the metaphor that occurs to me.

02:09:39.640 | I live in Florida, so we don't get snow and it doesn't ice here.

02:09:44.640 | And I see sometimes people walking on ponds, and I've--

02:09:48.640 | let me think to make sure this is true. Right.

02:09:50.640 | So I've never walked on a frozen pond or a frozen lake

02:09:53.640 | that I can have any recollection of.

02:09:55.640 | I've been in snow, but I've never walked on a frozen pond or a frozen lake.

02:09:58.640 | And frankly, I probably wouldn't,

02:10:00.640 | because I would be scared that the ice were going to fall through.

02:10:03.640 | Because I'm not comfortable--all I've seen is I've seen movies

02:10:06.640 | where people fell through the ice, and I don't know how thick does ice have to be.

02:10:10.640 | If I can see the water, is that too thick or is that too thin?

02:10:13.640 | So I would be worried about not knowing how to make that judgment.

02:10:17.640 | But for somebody who grew up in Minnesota or in Canada--

02:10:21.640 | my friend Derek, who called from Canada,

02:10:25.640 | he knows how to walk on an icy pond.

02:10:29.640 | So he knows when it's safe and when it's not.

02:10:32.640 | So that's what it is I would say with things like the 4% rule,

02:10:35.640 | is that it's an entirely valid rule, but once you're familiar with it,

02:10:38.640 | once you understand it, you can know where that margin of safety is.

02:10:42.640 | And then you can feel confident about sometimes pushing your withdrawals

02:10:45.640 | from 4% to 8% in the times where it's that,

02:10:48.640 | and you can figure out how to work that plan.

02:10:50.640 | So that's the best example that I can encourage you with.

02:10:55.640 | Keep learning your way through.

02:10:57.640 | Even just last week, I had one of my bubbles popped.

02:11:01.640 | The bubble that popped for me was I've never been a fan of equity indexed annuities

02:11:06.640 | because the internal expenses of them are generally quite high,

02:11:11.640 | and when you understand the limitations on the product,

02:11:14.640 | on the annuity product and the insurance product,

02:11:16.640 | I've just never really been a fan, and I've never seen how they could fit.

02:11:19.640 | But I sat down and I had that really challenged.

02:11:22.640 | So my advice to clients in the past was, "No, don't buy an equity indexed annuity."

02:11:25.640 | I had some guys in my master's degree class, very competent, very knowledgeable guys,

02:11:29.640 | that were talking about some features of it,

02:11:31.640 | and we were talking it through that even with the disadvantages,

02:11:34.640 | I could see some places where I could use that product in the financial plan

02:11:38.640 | in a positive way.

02:11:40.640 | So I'm no different.

02:11:42.640 | Here was the thing I thought I knew, don't buy equity indexed annuities,

02:11:45.640 | and here I was having something added to that and saying,

02:11:48.640 | "Wow, wait a second. How did I get that wrong?

02:11:50.640 | Maybe I need to keep learning."

02:11:52.640 | Keep learning.

02:11:55.640 | The 4% rule is an entirely valid and extremely useful planning concept.

02:12:03.640 | So like I said in the interview, or like Dr. Fowle said in the interview,

02:12:06.640 | remember, many advisors view the 4% rule as like the absolute safe floor

02:12:11.640 | and would actually feel comfortable with a higher distribution number.

02:12:14.640 | So Fabian, if for your retirement you're shooting for 25 times your annual expenses,

02:12:20.640 | that's your goal for your retirement fund,

02:12:22.640 | you're going to be well on track and you're going to be in great shape.

02:12:27.640 | But you do need to understand there are a lot of assumptions in that 4% rule.

02:12:30.640 | So the example that occurred to me is, we talked about it with Dr. Fowle,

02:12:35.640 | are you in a market where the 4% rule is valid?

02:12:39.640 | So in the U.S. the 4% rule would work, but what if you live in Japan

02:12:44.640 | and your money were in the Japanese stock market?

02:12:48.640 | Or what if you're in Europe and your money is in your local market?

02:12:51.640 | Does the rule hold up in that situation?

02:12:54.640 | I don't know. I actually don't know that answer.

02:12:57.640 | So that would be an important assumption, is that where is your money invested?

02:13:02.640 | It's also possible that a market like the U.S. market could change.

02:13:08.640 | And that's what I tried to point out with Dr. Fowle,

02:13:10.640 | is that every investment prospectus for every investment says

02:13:15.640 | there's no guarantee that the future will be like the past,

02:13:18.640 | but yet sometimes we still assume that the future is going to be like the past.

02:13:23.640 | And there's no guarantee of that.

02:13:26.640 | Is it likely? I think so.

02:13:28.640 | I don't think the future will be like the past,

02:13:33.640 | but I think it will probably be better.

02:13:35.640 | But better may be defined in different ways.

02:13:39.640 | Back to my Walmart example, Walmart I believe has done major good for millions of people,

02:13:44.640 | but there were a lot of people that got hurt along the way.

02:13:47.640 | There are a lot of businesses that are closed today because Walmart came to town.

02:13:50.640 | That's tough.

02:13:52.640 | So we don't have any guarantees that the future will be like the past,

02:13:55.640 | so you need to understand that.

02:13:58.640 | What about the U.S. market?

02:14:00.640 | The U.S. market right now, the U.S. business climate,

02:14:03.640 | is really pretty unfriendly toward entrepreneurship. It really is.

02:14:08.640 | So you see that in the corporate inversions that are happening.

02:14:11.640 | Many companies are wishing to move to other places.

02:14:13.640 | Many companies are moving major important subsidiaries there,

02:14:17.640 | whether this is the famous ones over the last couple of months,

02:14:20.640 | whether it was Walgreens or whether it was Burger King moving to Canada.

02:14:23.640 | This happened--remember when--what's that company that did all the contracting stuff that Dick Cheney--Halliburton.

02:14:32.640 | When Halliburton moved to Dubai, they moved to Dubai a few years ago.

02:14:35.640 | There are companies all over the place that are moving abroad.

02:14:38.640 | So where are those companies going to want their stocks to be traded?

02:14:41.640 | Are they going to be traded on the U.S. exchange, or are they going to move to another exchange?

02:14:46.640 | As some of the Asian companies--there seems to be major growth in Asia--

02:14:50.640 | as some of the Asian companies and some of the business environment

02:14:53.640 | becomes more transparent and more structured, that could affect the investment markets.

02:15:03.640 | So I don't know what those things are going to be, but those are important.

02:15:07.640 | Probably the biggest problem with the 4% rule--Dr. Fallon and I didn't talk about this,

02:15:10.640 | but the biggest problem I have with it is that the actual return of the average investor

02:15:15.640 | is less than half of the return of their average investment.

02:15:19.640 | So all of this research that we have is based upon index returns,

02:15:23.640 | but we know that the average investor gets less than half of the return of the average investment.

02:15:30.640 | And that's a major deal. That's a major deal that we've got to control for.

02:15:36.640 | So let's say that we control for that with hiring an investment advisor.

02:15:40.640 | Well, now the 4% rule becomes the 3% rule, because if you're taking 1% off for fees,

02:15:45.640 | you can't count on the 4% rule because that's money that's lost to fees.

02:15:49.640 | So again, half the audience would say, "Why would you ever do that?"

02:15:54.640 | Well, because the average investor doesn't actually invest successfully without good investment--

02:16:00.640 | without a good--I will use Nick Murray's words--behavioral investment counselor.

02:16:05.640 | So how do you fix that? You can fix it in a variety of ways, but it's a problem that has to be fixed.

02:16:10.640 | And then another good example--and we'll talk in detail about some of the ideas

02:16:13.640 | that the financial planning community has come up with about how to actually do these distributions--

02:16:17.640 | but I wrote in the comment to Fabian, and I'll read it here, is Dr. Fowle wrote a paper

02:16:22.640 | in the May 2011 Journal of Financial Planning, and his paper was entitled

02:16:26.640 | "Safe Savings Rates--A New Approach to Retirement Planning Over the Life Cycle."

02:16:30.640 | And I'll read one paragraph from that paper where he talks about something called

02:16:35.640 | the safe withdrawal rate paradox, and we didn't mention this in our interview either.

02:16:40.640 | But he says, "This study can be interpreted as providing a resolution to the safe withdrawal rate paradox,

02:16:46.640 | which David Jacobs, 2006, and Michael Kitsis, 2008, developed independently.

02:16:51.640 | Consider the following. At the start of 2008, person A and person B each have accumulated $1 million.

02:16:59.640 | Person A retires, and with the 4% rule is permitted to withdraw an inflation-adjusted $40,000

02:17:05.640 | for the entirety of her retirement. In 2008, both person A and person B experience a drop

02:17:11.640 | in their portfolio to $600,000. Person B retires in 2009, and the 4% rule suggests

02:17:18.640 | he can withdraw an inflation-adjusted $24,000. The paradox is that these seemingly similar

02:17:25.640 | individuals experience such different retirement outcomes."

02:17:30.640 | So if you grasp that, these seem to be two very similar cases, and yet the one has $40,000

02:17:37.640 | to live on for retirement, and the other has $24,000 to live on for retirement.

02:17:43.640 | But do they really? So you can see that sometimes the problem with the 4% rule is not actually the rule,

02:17:49.640 | but actually how do you implement it? So if you retire today in 2014, do you feel comfortable

02:17:55.640 | withdrawing 4% of your portfolio for the rest of your life? What if in 2015 we have a 35% market

02:18:03.640 | decline, and your portfolio goes from--well, 40% market decline, so your portfolio goes from

02:18:08.640 | $1 million to $600,000? Do you still feel comfortable withdrawing the 4% off of your portfolio

02:18:15.640 | that you calculated in 2014? It's a question that you have to answer.

02:18:21.640 | So the 4% rule, in my opinion, is a very useful strategy, but do we choose 4% in 2008?

02:18:30.640 | Do we choose 4% in 2014 at market highs? I don't have the answers to those questions except

02:18:36.640 | in an individual situation and in talking about strategies, but hopefully that will help you

02:18:41.640 | to understand some of the ways that you can add additional information to it and think it through

02:18:51.640 | and how my issue is not with the rule, but actually there's some actual challenges of implementing

02:18:57.640 | the results of the rule. So Fabian, I hope that helps, and for the rest of you who may have had

02:19:03.640 | that reaction, I don't wish--that was not the reaction I desired. The reaction was just to help

02:19:09.640 | impart a little bit of knowledge and a little bit of thinking to help you challenge that and learn

02:19:13.640 | your way through it. One more question, one more comment. Other question. Comment from--I didn't

02:19:21.640 | write the name down here. It was a comment on my show where I talked about my history at FinCon.

02:19:29.640 | It says, "Joshua, enjoyed your podcast. Thanks for all the hard work I know you put into it.

02:19:33.640 | Quick question. Regarding your two-week trip living out of your car, what did you do for showering?"

02:19:38.640 | I've always liked the idea of traveling for a period of time living out of my car. My only experience

02:19:43.640 | was back in college road tripping around Greece where my buddy and I lived out of a subcompact

02:19:48.640 | Hyundai Gets for a few days. We bathed in rivers and in sinks for the week, which worked okay as we

02:19:53.640 | could dress pretty casual as a tourist, but imagine it would be more difficult in a conference setting

02:19:58.640 | where you need to be a little bit more presentable. Thanks again and look forward to listening to

02:20:01.640 | more of your podcasts. I apologize that I didn't mention that, and I figured some more people would

02:20:06.640 | have that question as well. It was actually different. My easy solution to that was either, A,

02:20:11.640 | to shower at a gym. That's what it seems like most of these people who live in their cars do. Or, B,

02:20:16.640 | simply just to get a hotel room every few days if I needed one. What I actually wound up doing was

02:20:21.640 | in New Orleans I couldn't find a convenient gym, but I wound up swimming in the pool at the hotel

02:20:27.640 | where the conference was. I didn't need a room key to access the pool, so every night I just went up

02:20:33.640 | and went swimming in the pool. It was kind of a pain because I didn't use soap in the pool or

02:20:37.640 | anything like that. Don't worry. It was kind of a pain because I had the chlorine on me and I

02:20:43.640 | couldn't get the chlorine off because there was nowhere to shower. Was there a shower at the pool?

02:20:50.640 | I didn't actually shower at the pool, but that would be my other answer to it. That was going to be

02:20:55.640 | the next thing. The way I would handle that, though, in the future would be most pools would have a

02:21:01.640 | shower, and I didn't even think of that until just now. I did that when I was in New Orleans. The

02:21:06.640 | second week when I was in Pennsylvania I just went to a local gym and just told them, "Hey, I'm in

02:21:12.640 | town. Could I borrow a shower? I don't have a place to take a shower." They let me do it. That was

02:21:18.640 | super nice. I didn't even have to buy a day pass, but that was my other plan was to buy a day pass.

02:21:22.640 | I encourage you to try it out. The thing about traveling in the car, the biggest expense of road

02:21:27.640 | tripping is usually gas. If you can cut that expense by a massive amount by going with the car

02:21:32.640 | instead of an RV, that can be huge. The second biggest expense is accommodation. I would want to

02:21:39.640 | make sure I had a tent and stay at some campgrounds or stay out in the woods, but I thought you might

02:21:43.640 | enjoy the answer to that question. Finally, I close with this comment, which was a very

02:21:48.640 | perceptive comment, I thought, from Dave when I was out of town. He said it was a comment on the

02:21:56.640 | short show that I released on the impact of hobbies. He said, "Hi, Joshua. Thanks for all the

02:22:01.640 | work you've put into making your podcast. While I really enjoy your lengthy interviews and

02:22:06.640 | detailed analyses and considerations, this short little piece on hobbies was quite insightful and

02:22:11.640 | worthwhile too. Per your comment at the end of the episode, I thought I'd write a short message

02:22:15.640 | describing to you how my hobby has helped out my personal finance adventure. I'm a 32-year-old

02:22:21.640 | white-collar type in accounting and audit, and just now, with the help of this episode, realized

02:22:26.640 | that my single major hobby has contributed more towards my upcoming financial independence than I

02:22:32.640 | had ever considered. Since I was in junior high school, I've been a dedicated martial artist,

02:22:37.640 | training three to four nights per week, going on about 20 years now. After listening to this

02:22:42.640 | podcast, it's fascinating to consider that for about $75 per month, martial arts has helped me to

02:22:49.640 | stay very fit, avoid, and hopefully continue to avoid, expensive health costs, keep my home-cooked

02:22:56.640 | diet healthy and rather low-cost, keep my social drinking in check, and has given me a great

02:23:01.640 | social circus--circle at a very low cost--circus. That's going to be my new saying. It's given me a

02:23:08.640 | great social circus. Excuse me. Has given me a great social circle at a very low cost of $75 per

02:23:16.640 | month, 15 nights per month, equals $5 for a night out kicking and punching my friends. Since I live

02:23:23.640 | in a major city, I can easily walk or ride my bike to this hobby and work, and so I don't have

02:23:29.640 | need of a car. This hobby, without my ever really thinking about it, has helped me to construct a

02:23:34.640 | lifestyle that is healthy, challenging, social, and rewarding, and all while keeping things on

02:23:40.640 | the cheap. So thanks again for the podcast. It's given me a great aha moment this morning.

02:23:46.640 | Whenever I feel lazy in the future about getting up and training martial arts, I'm sure I can find

02:23:51.640 | a little extra motivation by thinking about how this specific hobby fits into the broader picture

02:23:56.640 | of personal finance. Yes, yes, it's all coming together now. Hope you're enjoying your weeks away.

02:24:01.640 | Dave." I just thought that was the coolest comment. I really did. And I had another comment from

02:24:09.640 | a listener who said, "I gave up triathlon for the same point at the expense of the hobby, Ironman

02:24:14.640 | triathlon." And I just thought, what a great two things to compare, the low cost and all those

02:24:21.640 | benefits that Dave talked about with his hobby, as well as an expensive hobby like triathlon,

02:24:27.640 | which is awesome. I think it's cool. I know a few people who are Ironmen. But consider that

02:24:32.640 | yourself. Consider the things that you give your time and attention to. And as we go into a

02:24:36.640 | weekend here, although I'd be surprised, it's 4.37 as I finish recording this. I'd be surprised if

02:24:42.640 | you listen to this on Friday. But as we're going through a weekend or it's the start of a week,

02:24:46.640 | consider is there a way where you can integrate some of these things together? Can you think of a

02:24:50.640 | hobby that's going to enhance your health and also your finances and keep your social drinking in

02:24:57.640 | check, as Dave said, allow you to have time with your family? Can you stack those functions?

02:25:05.640 | Because if you can, it can open up a great deal of margin in your life. And maybe that's the type

02:25:10.640 | of thing that could help out in your specific situation. So thank you for listening. I

02:25:16.640 | appreciate it very much. I hope you enjoyed today's show. I wanted to make sure that I got you

02:25:20.640 | the answers to these questions. And even though it looks like we're at about two and a half hours

02:25:24.640 | here, that's the point of podcasting. Hit pause if you don't like this kind of stuff. But I wanted

02:25:28.640 | to make sure I answered these questions. That concludes all of the questions that I wanted to

02:25:32.640 | answer for next Friday's Q&A. So if you would like to get your questions on next Friday's Q&A,

02:25:37.640 | please call it in or email it in and I will handle that next Friday. I love doing these questions

02:25:42.640 | because it gives me a chance to share with you some thoughts and concepts in a more succinct way

02:25:47.640 | than my creating an entire show on it. So if you've got a question for me, email me, Joshua@radicalpersonalfinance.com

02:25:54.640 | is my email address. Or come by the show on the website and leave me a voicemail. Thank you for

02:26:01.640 | being here. I want to thank each and every one of you for listening. I really do value all of the

02:26:05.640 | comments and all of the feedback. Have a great day, everybody.

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