RPF0144-Friday_QandA
00:00:00.000 | Hey parents join the LA Kings on Saturday, November 25th for an unforgettable kids day presented by Pear Deck family fun giveaways and exciting Kings hockey awaits
00:00:09.160 | Get your tickets now at LA Kings comm slash promotions and create lasting memories with your little ones
00:00:14.580 | Friday Q&A and I have three
00:00:17.760 | Straightforward financial planning questions selected for you. They'll be interesting, but they're straightforward
00:00:23.360 | Vincent says I got a bunch of money. Can I afford to retire?
00:00:27.200 | Kip says I got too much cash. What do I do? And Joe says do I put money in my traditional 401k or a
00:00:33.920 | Roth 401k, please help
00:00:53.280 | Welcome to the radical personal finance podcast. My name is Joshua sheets and today is Friday, January 30
00:00:58.600 | 2015 this is the show where you get to ask me anything and I get to tell you what I think
00:01:05.000 | It's kind of nice to be asked for your opinion. Sometimes actually a lot of times people don't like to hear it, but
00:01:09.880 | Please I'll give you a few ideas of the way I think and hopefully give you a little bit of clarity and understanding and
00:01:16.160 | topic financial stuff
00:01:18.500 | This
00:01:20.500 | Is the show where each and every day I help you unpack and
00:01:28.240 | understand the wild woolly world of financial planning and financial advice and
00:01:34.340 | What to do with your money and I can't think of a more fun thing to talk about on a more fun job to have
00:01:39.040 | Than mine. So thank you for giving me the opportunity to do this for you for at least a number of fairly lengthy shows this
00:01:46.180 | Week, so I've decided to just answer three questions today, and they're fairly straightforward
00:01:51.900 | just some simple financial planning questions and
00:01:54.940 | We'll see how long it takes but I just picked three and decided to do a quick short quick and short Q&A
00:02:00.620 | After all, I think I've probably released
00:02:02.900 | Like 11 hours of content already this week. So hopefully this one will be 30 45 minutes 50 minutes something like that
00:02:09.680 | Hopefully it'll be less than an hour
00:02:11.680 | so let's kick it off with an email from Vincent and
00:02:16.020 | The subject line of Vincent's email was I think something like please save us from our financial planner
00:02:22.540 | So that's a good way to warm my heart. So let's start with this dear Joshua
00:02:27.300 | My wife and I are well read in the areas of index fund investing frugal living
00:02:32.820 | Early retirement and financial independence including your podcasts
00:02:36.940 | We have been on the path to early retirement for many years and we think we are there
00:02:42.180 | We both have high stress jobs and want to quit to raise a child and do whatever interest interests us
00:02:48.860 | Whether it brings additional income or not
00:02:51.700 | We want to have a significant financial cushion, but also don't want to be so conservative that we work years longer than necessary
00:02:59.300 | We are worriers and are very conservative in our estimates
00:03:03.700 | Although we are fairly confident in our calculations for early retirement timing
00:03:08.780 | We hired a fee only financial planner for an outside opinion and the experience was positive
00:03:14.420 | But we believe the timing recommended was extremely conservative four years from now without a child
00:03:20.260 | Five to six years from now with a child
00:03:22.860 | We have a very good handle on our spending as we have been tracking it closely for several years
00:03:27.980 | the financial planner did not seem to understand our frugal lifestyle and rather than reducing our current spending by the
00:03:35.380 | Cost of working that we clearly communicated. He added
00:03:38.940 | $15,000 per year to our current spending which significantly changes the projections for retirement
00:03:45.380 | the explanation given was to account for
00:03:48.500 | Unexpected expenses, but that amounts to approximately
00:03:51.780 | $20,000 per year in excess of our retirement spending estimate below
00:03:56.900 | We would be very grateful for your opinion of our plan to retire now
00:04:01.420 | Given the following data, which we have abbreviated to the most important points
00:04:05.300 | ages him 45 her 37 debts none own a house and two cars free and clear
00:04:14.220 | assets 1 million three hundred thousand six hundred and forty six dollars of
00:04:19.540 | Which about seven hundred thousand boxes in a TSP, which is the federal?
00:04:24.380 | Savings program thrift thrift savings plan for federal employees
00:04:30.380 | 350 grand in Vanguard index funds and a taxable account little over two hundred thousand in cash and I bonds
00:04:36.860 | 22,000 and Roth IRA is
00:04:39.660 | $31,000 his pension starting at age 60 and six grand her pension starting at age 62
00:04:45.100 | There will be a minimum of one hundred thousand dollars net after moving and downsizing our house not included in the assets above
00:04:52.340 | So we have about 1.4 million dollars of cash to play with right now
00:04:55.940 | We're invested 40% of the total US stock market fund 12% in the total international stock market fund
00:05:01.420 | 33% bonds in the G fund which is in the thrift savings plan and 15% in cash and we're currently spending
00:05:08.740 | $45,000 and we estimate that our retirement spending will be
00:05:13.280 | $37,000 per year
00:05:15.340 | This is after removing the easily calculated
00:05:17.980 | so-called costs of working about ten thousand dollars in property tax and three thousand dollars in gas and
00:05:23.640 | Adding estimated cost of health insurance about five thousand dollars per year
00:05:27.280 | Note, we'll be moving from a very high cost area suburban Chicago to a very low cost area rural, Florida
00:05:34.200 | Isn't that awesome Vincent
00:05:38.060 | How awesome?
00:05:39.860 | Congratulations, dude, you guys are rocking it. I love love love getting emails like this. How exciting is that?
00:05:45.620 | I mean you're 45 years old. You got a million and a half bucks, basically
00:05:51.000 | You know by the time it sounds like you're gonna you're gonna net a hundred thousand dollars after you buy a smaller house is what?
00:05:57.440 | It sounded like from your email
00:05:59.140 | so you've got at least you know, you've got at least a
00:06:01.780 | Million and a half bucks man, that is exciting
00:06:06.460 | Congratulations. So to answer your question
00:06:09.500 | Yes, you can afford to retire and
00:06:12.940 | Yes, you can afford to do it now if you are confident in your spending numbers
00:06:19.820 | So one of the challenges here, and I think you're you're probably being
00:06:24.340 | You are probably being a little bit
00:06:27.300 | You're being conservative
00:06:30.100 | and I think being conservative is awesome. I
00:06:33.220 | Applaud you for sending me a note and I applaud you for going and talking to the financial planner
00:06:38.740 | I'll talk a little bit about that experience and why it probably was the way that you do to help you understand
00:06:44.740 | Excuse me why it was the way that it was to help you understand a little bit more
00:06:50.100 | about what your planner was thinking but
00:06:53.020 | The biggest challenge you're gonna have to face is your fear of the future and I think that a few years after you retire
00:07:02.020 | You're gonna have this well in hand. What I would do if I were you is I would figure out how to call
00:07:09.500 | Doug Nordman from the military guide.com. He did an interview on the show
00:07:15.820 | I'll post a link to that interview in the show notes if you haven't heard it and he's gonna come back on the show
00:07:21.180 | It's quite popular and he's gonna come back. He's out of town. He's traveling for a bit right now. He's retired
00:07:25.820 | So why does he have to work?
00:07:27.420 | But I'm going to have him on we're gonna talk about a few things
00:07:31.020 | But I'm gonna talk about we're gonna talk about fear of retiring
00:07:33.940 | Because that's what I hear in your message and I'll give you the financial numbers in just a minute
00:07:38.580 | but the biggest thing you're gonna have to face is the fear of
00:07:42.100 | crossing the chasm and
00:07:45.020 | Basically just simply making the decision
00:07:47.020 | to quit
00:07:49.860 | Now I
00:07:52.180 | Haven't experienced this with being financially independent
00:07:55.540 | I am not yet financially independent and able to live off of purely off of the the dividends and growth of my portfolio
00:08:01.780 | but Doug has and he's gone through some tough times and but I have experienced this with striking out into
00:08:10.940 | Entrepreneurship. The biggest challenge is simply making the decision that you're gonna do it and
00:08:16.420 | As soon as you make that decision that you're gonna do it and now's the time
00:08:20.620 | Guaranteed you'll figure out a way and there's not a doubt in my mind that you're able to retire
00:08:27.820 | It's not a doubt in my mind
00:08:30.660 | everything in your
00:08:32.580 | Email that you wrote to me
00:08:34.580 | Indicates that you're careful that you're thoughtful that you're a planner that you are expert
00:08:39.700 | even if I look and I breeze through this when describing your portfolio for the radio, but if I look at how your portfolio is structured and
00:08:46.180 | Where you've chosen it's clear that you know what you're doing with running your own finances
00:08:51.940 | and
00:08:53.060 | It's clear that you've planned for this you've worked for this you have focused on this you have a clear plan
00:08:59.060 | You have a clear budget
00:09:00.580 | So you're a planner and you're there
00:09:04.580 | Now there's nothing I can say that's gonna take away that that little nagging fear that's at the back of your mind though until you do it
00:09:12.400 | There's nothing I can say because the reality is can I guarantee you that you're going to be financially independent?
00:09:18.300 | And you're never gonna ever face the problem of ever having to work again
00:09:23.020 | I would never make that guarantee and I and it is anybody who could there's no way to guarantee it
00:09:28.580 | No matter how conservative your portfolio is there's always some scenario that we could make up that could be a problem
00:09:35.140 | So let's say that your scenario is beautifully allocated in your plan works
00:09:39.220 | And in that case the 4% rule the 3% rule or whatever works awesome for you. Well, you're set
00:09:44.040 | but what if
00:09:46.620 | We're coming off of a 30-year bubble and bonds and your bond portion of your portfolio doesn't work
00:09:52.380 | and what if all of the growth in the stock market is completely fake because it's completely subject to
00:09:58.380 | You know
00:10:00.300 | Quantitative easing by the Federal Reserve pumping up the market and that's why the market is pumped up
00:10:04.460 | And so now for the next 20 years stock stands still and nothing works the way that is supposed to what if what if we're in?
00:10:11.540 | a new norm
00:10:13.260 | Well, are you gonna be okay?
00:10:15.260 | and
00:10:16.300 | I'm telling you you're gonna be okay, even if your portfolio is not
00:10:20.460 | What if you take all your money and you put it into a guaranteed annuity payment split among four or five really well run
00:10:27.080 | Insurance companies and you know that no matter what you've got your 40 grand coming in that you need coming in
00:10:33.980 | Was it possible that the insurance company could go out of business?
00:10:37.100 | It's a possible that the dollar could lose its value. Is it possible that we could enter into a you know a wacky time of
00:10:47.580 | Global economy, it's a possible we could go into a world war. All of these things are possible
00:10:52.500 | They're improbable. They're highly improbable, but anything is possible
00:10:56.900 | So if you spend all of your time focusing on here's what's possible man
00:11:01.500 | I could go read zero hedge for a few minutes and you'll be convinced that you you know
00:11:06.380 | you need to cash out every single one of your
00:11:08.380 | Investment accounts from right today and you got to sell everything and you're just doomed
00:11:14.580 | So the major thing you've got to learn to deal with is you got to learn to figure out how are you gonna handle your
00:11:19.540 | fear
00:11:21.540 | and
00:11:22.620 | I think the way you're gonna handle is by being confident in yourself and in your confidence and your ability to make things happen
00:11:28.500 | I think you probably already are I'm just making the point to encourage you a little bit
00:11:32.700 | I don't think frankly that you're sitting around waiting for me
00:11:35.500 | You know desperate for me to answer your question to give you that
00:11:38.420 | That attaboy go ahead and then you're gonna do it and pull the team
00:11:41.740 | You're gonna march in tomorrow after you hear this and tell your boss
00:11:44.700 | I think you've already got the plan and you're just taking advantage of
00:11:47.620 | Of an opportunity to get a double-checked a double-checked opinion
00:11:51.900 | And I think that's great and I don't think you really care or needed to know what the fee-only financial planner
00:11:57.020 | But you're a prudent person and you never know what you don't know and I applaud you for that
00:12:00.420 | But the key is you've got to learn how to manage your fear
00:12:04.020 | I think the only way to manage your fear at least that I can come up with is
00:12:08.180 | to be confident in yourself and in your ability and
00:12:11.460 | If you had a worst-case scenario
00:12:13.780 | Let's say that you and your wife retire and she's diagnosed with cancer next year and all of a sudden your insurance is
00:12:21.220 | Insufficient and you spend you know a million dollars out of pocket on her treatment
00:12:26.980 | You're going to places that aren't covered and you're working like crazy to get her treatment. You know what?
00:12:31.300 | You would be okay
00:12:33.700 | Because you'd get another job
00:12:35.620 | You're not gonna lose your ability to work
00:12:38.420 | You're not gonna lose your ability to be financially productive
00:12:41.860 | You didn't list your salaries on here, but I guarantee they're pretty good
00:12:45.340 | Both of you said you have high stress jobs and they bring in high income
00:12:48.940 | So you're not gonna lose that you're not gonna lose that ability
00:12:52.900 | even if something happened and you were found liable for
00:12:57.980 | Something and you lost all your money. All your money were stolen from you invested with Bernie Madoff and it's all gone
00:13:04.180 | You know what you'd make it back
00:13:06.940 | Because you're the kind of person who becomes wealthy
00:13:09.540 | You are wealthy because of the kind of person you've become and you don't cease becoming you not don't cease being that person
00:13:16.980 | If you lose your money
00:13:18.980 | You're gonna be fine
00:13:22.060 | Now let's run some quick numbers and here's the only number you need to worry about for this simple math
00:13:27.020 | You do need to figure out how to structure a portfolio
00:13:29.980 | But just look at the look at the rate of return that you need from your portfolio in order for you to
00:13:35.340 | In order for you to make this work, and here's a couple ways. I'll put this into into
00:13:38.740 | into
00:13:40.620 | Focus so you have one point four million dollars of assets here
00:13:44.660 | And you say that you estimate your retirement spending to be thirty seven thousand dollars
00:13:49.820 | Well, if we go by the much-proclaimed
00:13:53.060 | Four percent rule four percent of one point four million dollars would be fifty six thousand dollars
00:13:59.200 | Substantially more than thirty seven thousand dollars
00:14:04.260 | If we go three percent of one point four million would be forty two thousand dollars
00:14:07.900 | Three percent it's pretty conservative estimate
00:14:12.880 | If we flip it around and we say let's figure out what percentages of it of your net nest egg is thirty seven thousand dollars
00:14:21.980 | Divide thirty seven thousand dollars by one point four million and what you wind up with is you wind up with two point six percent
00:14:29.820 | That's your current withdrawal rate from your portfolio at a spending level of thirty seven thousand dollars
00:14:34.980 | That is the safest of the safe when it comes to safe withdrawal rates of a balanced portfolio and all of the research that we can
00:14:44.380 | Look at now remember all that we can do as financial planners is go based upon the research
00:14:48.400 | And you can read and probably have read all the same studies that we've read
00:14:52.060 | And I don't know anyone that would say that two point six percent wisely invested
00:14:56.580 | It couldn't be maintained a two percent two point six percent withdrawal rate couldn't be maintained into perpetuity
00:15:01.860 | So if your retirement spending is actually thirty seven thousand dollars
00:15:06.060 | It doesn't get safer than that
00:15:08.780 | You can hit two point six percent off of dividends. You're gonna hit two point six percent off of income if you build an income portfolio
00:15:15.940 | You can bet you can hit two point six percent on all kinds of things
00:15:20.020 | So
00:15:23.100 | Things are good. Let me give you another way to look at this
00:15:26.040 | Let's assume that you just put all your money in the bank. You split it up into a
00:15:30.860 | bunch of six different
00:15:33.660 | Individual accounts all of which have FDIC insurance and the question is how long will one point four million dollars last you if
00:15:42.820 | You spend thirty seven thousand dollars per year
00:15:45.820 | That is thirty eight years of income
00:15:49.380 | It's thirty seven point eight four thirty eight years of income if you don't make any
00:15:53.820 | interest on your money and
00:15:56.820 | You didn't include although you did mention your pension. You didn't include Social Security payments
00:16:01.340 | We're not factoring that into the two point six percent
00:16:03.700 | You didn't include any kind of side income and I know that you don't want to plan on that
00:16:07.340 | But I'm telling you you're gonna find a way to make some money doing something
00:16:10.660 | I just
00:16:12.700 | Maybe there are people who don't but I've never seen them
00:16:14.860 | You're gonna find a way to do something make you know, five hundred bucks here and a couple thousand bucks there
00:16:20.260 | So it doesn't get any safer than your scenario if your numbers are accurate
00:16:25.700 | And this is why you ran into my I bet you ran into problems with your planner
00:16:30.860 | There I don't know any financial planner that specializes in working with the early retirement financial independent
00:16:39.420 | Independence community. I really don't and although I love the community. I
00:16:45.300 | Probably myself wouldn't actually specialize in that area if it were a planner and the reason is purely selfish
00:16:52.140 | The early retirement financial independence community is made up of a massive number of awesome people
00:16:58.580 | who are very very frugal and very very cost-conscious and
00:17:03.060 | it's a good business decision usually to serve people who like to pay you money and who are less cost-conscious and
00:17:11.540 | I personally believe that most businesses that are working in luxury business instead of a necessary business instead of in
00:17:18.460 | What's the opposite of luxury necessity?
00:17:21.180 | Necessity businesses that are gonna be more well served
00:17:25.700 | so if I were ever building a business, I would want to work in the luxury market because the money flows more quickly and
00:17:31.300 | So the early retirement financial independent community is awesome extremely frugal. That's who I am
00:17:38.500 | But as a business person, I would focus more on serving me personally
00:17:43.060 | I would focus on serving the Palm Beach crowd
00:17:44.980 | You know serving them in a multi-family office or a single-family office or serving like the people who value
00:17:50.880 | Things and it's not just about where can I get the best deal now? This is not an insult in any way
00:17:56.660 | I'm just illustrating why I think there aren't more planners serving
00:18:00.260 | Serving this community there may be a couple out there and I think that if those one or two can identify themselves
00:18:05.940 | They'll have more business than they know what to do with because there's such an active online presence in the various early retirement
00:18:12.540 | Forums, but the active online presence is very much made up of
00:18:17.020 | Also do-it-yourself errs
00:18:19.620 | Like you you know what you're talking about
00:18:21.820 | And so I compare this to if I'm a chef starting a restaurant
00:18:25.620 | Should I start a restaurant specialized in selling high-end food to other chefs?
00:18:29.420 | That's what's tough
00:18:31.900 | That's my best gut feeling on why more people aren't serving the early retirement community with financial planning
00:18:37.740 | I wouldn't start a business trying to serve high-end meals to chefs. Not the chefs won't go and do it
00:18:43.340 | but it's a whole lot easier for me to serve high-end meals to consumers who just love to eat and don't know how to cook and
00:18:50.180 | So the media in the financial independent space things like I'm doing things like bloggers are doing things like where people create maybe
00:18:57.620 | Products of some kind those are great
00:19:00.500 | And the reason they're great the reason my show has such a wide audience of early retirement financial independence community is I'm serving up
00:19:08.220 | Information on the subject that people who are hungry for information are hungry for so this is why if you go out in the mass market
00:19:16.180 | I'm not serving up information necessarily to people in the mass market
00:19:20.980 | Although I'd love to but they're just most people aren't out there interested in saying how can I learn about personal finance?
00:19:26.220 | It's a different type of person so I can serve this community with information
00:19:29.740 | That's helpful, and maybe I can build a business on that, but it's hard to serve with high-priced financial planning
00:19:35.380 | So most financial planners my point in all that was to give a little insight most financial planners have never dealt with
00:19:41.500 | Somebody from the early retirement community and in fact most financial planners based upon my experience
00:19:47.340 | I would say have zero interest in the early retirement
00:19:51.660 | themselves
00:19:54.340 | Yes, they're building towards early retirement
00:19:56.420 | But most of us that get into this business were attracted by the large
00:19:59.580 | Dollar figures that can be made and so therefore it's much more likely that we're gonna live and want to live a high lifestyle
00:20:06.860 | Than to build a frugal lifestyle of early retirement
00:20:10.660 | I was the only person that I ever knew as a financial planner who was actually
00:20:14.220 | working toward that
00:20:16.660 | Most many financial advisors love to spend and they it doesn't the concept of yes savings
00:20:23.700 | I'm not saying they're that they're that they're dumb they save money
00:20:26.780 | But the idea of just trying to get done as quick as you can is not that's not normal
00:20:32.620 | So they're not used to thinking about it. They don't spend time reading it
00:20:35.980 | You know most people don't spend time and most people who are financial advisors don't spend time in early retirement forums
00:20:41.260 | It's not something that's of interest to them
00:20:43.260 | The other thing is this is important that you understand with the structure of their business when you go into a financial advisory business
00:20:49.940 | Everything in your business is deferred compensation
00:20:53.460 | So the idea if I were to say how could I build a business where I can you know in five years?
00:20:58.980 | let's say I'm gonna how can I make as much money as I can in five years and
00:21:02.580 | quit
00:21:04.220 | It would be foolish to try to approach the financial advice business with that with that mentality
00:21:09.500 | Because everything is based on the long run
00:21:12.260 | Everything is built on that long tail and you where you get rich is a really rich as a financial advisor is if you start at
00:21:18.260 | 25 you're hustling from 25 to 30 and you are broke
00:21:22.940 | Then from 30 to 40 you're kind of making it but then it's from 40 to 70
00:21:27.300 | That you really make money and so I can't think of anybody
00:21:31.180 | I know who would do what you're doing and walk away and if any financial advisor
00:21:35.580 | I know who would do what you're doing and walk away because the cost of walking away is simply too high
00:21:40.900 | It's you've put too much time and too much sweat into building your business. It's just simply too high
00:21:47.260 | I hope you can understand that. It's not I don't think it's right or wrong
00:21:50.540 | It's just a little bit of insight the other thing to recognize because financial advisors don't know don't deal with people who like you
00:21:57.340 | Usually people are coming to us either who oftentimes who have problems or who are just simply not so not so tight
00:22:03.940 | It's very rare to meet somebody who actually knows consistently how much they're spending
00:22:08.500 | in the years that I worked as a financial advisor and in the over a thousand clients that I
00:22:14.380 | Perspective clients that I worked with face to face. I could probably say off of that number a
00:22:20.620 | Dozen to a dozen or two that actually knew what they were spending a
00:22:30.260 | Very small portion of those dozen maybe a handful were kind of really focused
00:22:37.460 | Like Dave Ramsey budgeters where they just say oh, here's my monthly budget for last month. That is
00:22:42.580 | Conceivably rare to find someone who knows that
00:22:45.060 | The other ones just simply would you know?
00:22:48.100 | The type of people who know exactly is they just ask their bookkeeper or their accountant and they prepare annual financial statements
00:22:55.340 | And they just okay. I we spent two hundred eighty thousand dollars last year. That's that's basically it
00:22:59.580 | Almost nobody in our society tracks their money and if they do track it, it's not actual
00:23:08.340 | Detailed data and so we as me as a planner. I almost never use a client's numbers
00:23:14.740 | What I try to do when I'm calculating how much a client needs to spend is back into it. I take their gross income
00:23:22.300 | I estimate their taxes
00:23:24.300 | Then I pull out any
00:23:26.500 | Any ongoing payments that I know of so what's the principal and interest payment on their mortgage?
00:23:30.220 | How much is going to the car payment and then I back out any retirement contributions
00:23:34.680 | And I usually tell them what they're spending and I know more what they're spending than they are because I can look at the numbers
00:23:41.000 | Most people don't have any money in savings so I can look at the retirement accounts
00:23:45.180 | I can find out how much is going into that account and now I know what the actual number is of what they're spending
00:23:50.420 | And so as a planner, especially if you only met with this person one time
00:23:55.280 | It's very likely that as he yeah, you said it's a he it's very likely that he just simply has never met anybody like you
00:24:02.380 | and so to add a fifteen thousand dollars per year of a slush fund is
00:24:06.140 | very
00:24:08.220 | Is very prudent on his part
00:24:10.220 | But if you don't need that fifteen thousand dollars a slush fund then then you're okay and
00:24:17.660 | I doubt that you do because I doubt I bet you that you know exactly what you spend in each category
00:24:23.580 | I mean you've calculated your cost of working that means you've read your money or your life
00:24:28.100 | that means you have a chart sitting there with your categories and you know exactly what's gonna change and
00:24:33.140 | so
00:24:35.340 | You got to understand that I think that would explain kind of the disconnect
00:24:38.660 | There is nothing I could that you could do at this point. There's gonna make you safer and more ready to retire
00:24:44.360 | Pull the plug go
00:24:48.260 | It's what I say and
00:24:50.460 | a year or two or three from now
00:24:53.940 | You're gonna have a totally different feeling and if you feel like it's stressing you out and you're spending too much money
00:25:00.020 | Just do something part-time build a financial advice business consulting to early early retirement community
00:25:07.580 | Because you could do that and you know
00:25:10.260 | I mean that that that's your three-year project and do it virtually like with that business model that I described the other day
00:25:16.980 | show before last
00:25:20.020 | You've got this man go for it. There's nothing you can do check on your insurance. Make sure your insurance is lined up
00:25:25.340 | The only thing that could sink the one the one thing that could sink you would be something like long-term care
00:25:30.100 | Maybe you've considered long-term care insurance
00:25:33.460 | If you haven't consider make sure you plan for it
00:25:35.860 | If you don't have long-term care insurance
00:25:37.860 | Or think about getting long-term care insurance research that topic and just consider what you're gonna do. It's it's highly improbable
00:25:44.820 | That you're gonna need it
00:25:47.660 | You're young. You're probably very healthy. You're probably gonna be even healthier
00:25:50.740 | but that's one of those things that we as planners worry about so at least consider it and make a decision because that's one of
00:25:57.180 | those things that you know
00:25:59.180 | You turn 52 and you get early onset Alzheimer's and now you know
00:26:03.940 | Your wife has to spend the next 15 years caring for you that can that can scramble a million-dollar nest egg pretty quickly
00:26:10.580 | You know, she's got a higher care
00:26:12.580 | now that's not what you're that's clearly not what you're planning for your your
00:26:16.580 | Your retirement and you've got to figure out the risk factor. You've got to figure out. Are you worried about that risk?
00:26:21.100 | Are you okay with that risk?
00:26:22.900 | But work out your long-term care planning figure out your health insurance planning, but there's nothing you can come up with
00:26:29.140 | That's gonna be safer for you today
00:26:31.140 | Pull the trigger go for it. That's my answer
00:26:34.540 | Next question Kip says Joshua came across your podcast and I dig the advice in the honesty
00:26:41.580 | I've read numerous articles encouraging the use of fee-based financial advisors, but haven't had a lot of luck finding the right person
00:26:48.080 | Discouragement set in after numerous canned responses and what seemed like aggressive sales tactics
00:26:54.100 | I
00:26:54.740 | made somewhat of a half-baked attempt in my early 20s with regularly maxing out a Roth and always
00:27:00.460 | Contributing enough to various company 401ks to get the contribution match
00:27:04.100 | I've not paid a lot of attention and I recently realized that I'm holding
00:27:09.500 | 50% of my total assets in a standard savings account yielding only 1%
00:27:14.740 | Without pulling the actual figures, that'd be about 90,000 bucks in retirement accounts Roth traditional rollover and about
00:27:22.700 | $90,000 in straight-up cash
00:27:25.140 | Terrible, I know
00:27:27.100 | My question is this
00:27:28.980 | How do I fix or prevent this? I currently have one investment property with a mortgage
00:27:34.660 | That's less than what it's leasing for. I see a couple of fix-it options
00:27:39.260 | I could buy another house. I could pay down my existing mortgage. I could invest outside of a retirement account. I
00:27:47.140 | Believe adjusting my 401k contribution may be a start to preventing it. But what about after I max it out?
00:27:53.900 | I don't mind paying for advice
00:27:56.260 | But what I really want is someone that's hands-on and up-to-date who's helping me get the most out of my money
00:28:01.380 | Kip a lot of people in the audience are screaming at you right now
00:28:06.900 | Here's what I'd say very simply what on earth are you trying to do?
00:28:10.260 | And I mean that not in a snide way or a snotty way. I just mean like what what are you trying to do?
00:28:16.340 | What are your goals?
00:28:18.820 | And that's where it all starts and that's where it all ends
00:28:21.220 | Clearly, it's clear to me by your statement and by the way that you wrote your email
00:28:26.340 | That you simply don't have any specific financial goals. You might have a general idea of a goal
00:28:32.660 | You might ask someday. I want to be rich someday
00:28:34.580 | I want to retire but you don't have any specific financial goals and
00:28:38.180 | That's okay. I'm not mad at you at most people don't
00:28:41.100 | The reality is almost nobody has specific financial goals. But my answer to you is what do you want to do?
00:28:47.700 | if for example
00:28:49.740 | you're like me and you want to travel with your kids and you want to buy an RV and cruise the world and and you know,
00:28:56.180 | Take a year and drive down to Argentina
00:29:00.220 | Then that $90,000 would be deployed into fixing up the house selling it so that you're free going and buying the RV
00:29:07.620 | Loading everything up and you would just simply use it to fund your trip
00:29:11.180 | If on the other hand you have a goal of starting a
00:29:16.820 | snowboard design business and this has always been a real passion of yours and you love snowboarding and for you the most
00:29:23.700 | You know fun thing you can think of is to figure out how to do that
00:29:27.480 | Then that $90,000 should be put into
00:29:30.440 | R&D and buying the equipment that you need maybe getting a 3d printer and and and taking two years off
00:29:38.420 | So you can develop the newest way to print carbon fiber for snowboards with a 3d printer
00:29:43.500 | Which you can you know sell the technology to the around the world and people can print snowboards on demand and they don't have to pay
00:29:50.820 | Baggage claim fees, you know for carrying the big snowboard bag
00:29:54.980 | Silly example, but it really is true
00:29:57.920 | Now if your goal is you know what I don't like my job and I want to be retired early and
00:30:05.400 | You know, then the next question is well, what's the better investment for you? What's the best investment for you?
00:30:10.920 | Maybe it's going ahead and buying a realist a house or maybe it's buying nine houses and putting
00:30:14.760 | 10,000 bucks down on each of them because you're gonna build ten a real estate portfolio of ten rental houses and
00:30:21.360 | that's gonna be your ticket to financial independence so that you know, you work ten hours a week and and
00:30:27.040 | Play golf the rest of the time
00:30:29.640 | Or you're satisfied with life and you like your job and everything's pretty good and you just want to minimize some stress
00:30:35.720 | So in that case, you know pay off your mortgage
00:30:38.440 | So you don't ever have to worry about anything going wrong in the world
00:30:40.820 | You always have a paid-for house and just toss the money in a 401k and be done with it
00:30:45.160 | And I'm not being flippant
00:30:47.200 | What I'm illustrating is that the way to answer your question is simply decide what you want
00:30:52.280 | This is why working from a list of written goals is so important
00:30:57.480 | Especially personal goals, which are always funded with finance and then working with those financial goals and having them ordered
00:31:04.720 | What is my biggest opportunity right now? What is the thing that I'm trying to do?
00:31:09.680 | If you know that then the answer is very clear
00:31:14.000 | so at all times
00:31:16.880 | Practically, we should have a list of here's what's the next most important thing. Do you want to give the money away?
00:31:22.880 | you know, would you like to go and actually make a difference and give the money and you have a
00:31:28.240 | Way to do that that for you is a big deal
00:31:31.000 | You know, I know I know people all over the world and you know
00:31:35.160 | I'd love to give ninety thousand dollars and and there's little businesses. I'd love to start that would help people and
00:31:40.400 | little ways that that can you know, really contribute and I
00:31:45.200 | Won't get into more detail than that from my perspective, but maybe that's what you want to do
00:31:49.480 | maybe you want to do like
00:31:52.680 | You know the urban farming guys did and quit your job and move into the inner city and that ninety thousand dollars
00:31:59.000 | You're gonna use to buy three little houses
00:32:01.480 | You know for five thousand bucks each and you're gonna invest the rest of it and the mission of your life is going to be
00:32:06.480 | to transform an inner city neighborhood
00:32:09.480 | Maybe that's what you should do
00:32:14.120 | What do you want out of life?
00:32:16.120 | And I'm not being the least bit flippant, but when you answer that question
00:32:20.200 | Then it will be very apparent to you
00:32:24.000 | What you should put the cash into
00:32:27.200 | Until you know the answer to that question you probably should just leave it sitting in the bank
00:32:33.320 | No matter what, you know because if you if you wait six months
00:32:39.520 | What are you gonna lose out on you know an extra six hundred and eighty two dollars?
00:32:44.240 | Till you know the answer to that question. It should probably sit in the bank, but you should answer that question
00:32:48.800 | Once you answer it, you're gonna know
00:32:51.560 | Now I'm gonna make an additional comment. I replied back to Kip when he email me. I said, hey, thanks for the answer
00:32:57.320 | I put it on my queue for the Friday Q&A shows. I just said short answer start with your goals
00:33:01.360 | Why are you investing at all? What's the goal? You know when you know the goal? What is the optimal investment plan?
00:33:05.720 | It'll just work out and then you put the cash in let me slow down. I said then when you know the goal
00:33:10.280 | What is the optimal investment plan to hit your goals based on your unique skills and situation?
00:33:15.080 | then put all of the cash to work on that investment plan and he wrote back with this answer and
00:33:20.560 | The reason why this answer is important because it illustrates what most people think about their goals are
00:33:26.440 | When it comes to investing and it's good, but it's not good enough
00:33:31.840 | My primary motivation is passively capitalizing on my savings
00:33:35.800 | Ideally, I'd like a set it and forget it strategy
00:33:39.680 | modest gains with modest risk
00:33:42.400 | Maybe I need a portfolio manager early on an advisor put me in loaded funds
00:33:47.480 | I've had a hard time trusting since if I went with a portfolio manager, my main concern would be performance and cost
00:33:53.680 | I don't mind paying a fee, but I'd like it to be competitive and comparable
00:33:58.280 | So I'll answer this directly number one. My primary motivation is passively capitalizing on my savings. Why?
00:34:06.000 | Again I'm not being flippant why?
00:34:11.080 | If it's okay, I like I just kind of like doing what I'm doing gonna toss some money here
00:34:16.400 | I'm really happy with life. Then that's then that's a good answer. And now we understand I want to set it and forget it strategy
00:34:23.040 | modest gains with modest risk
00:34:26.040 | I don't know what modest gains are and I don't know what modest risk is
00:34:28.960 | As far as I'm concerned everything is risky and everything has some gains and and you just got to figure out what risks
00:34:36.520 | Are you willing to bear?
00:34:38.120 | but
00:34:39.600 | Investing with just a generalized. Oh, this would be nice
00:34:42.360 | Man, you're doomed. You're doomed with that kind of plan
00:34:45.920 | Even if it's this long-range thing with retirement what you need to know is you need to know
00:34:50.600 | How much gains do you need to hit your goal? And if you don't have a goal, that's okay
00:34:55.560 | But you know, you're not gonna know what is modest and what is modest
00:34:58.760 | So the way that I would do that is back into it. So let me assume a mainstream scenario
00:35:03.920 | Let me assume Kip you're happy with life. You love, you know, you love what you do. You love where you live
00:35:09.320 | You just love everything that's going on with life
00:35:12.480 | Well, then still at what age would you like to be in a position to not to have to work if you didn't want to?
00:35:18.400 | calculate that
00:35:20.280 | Everything's great. I want to be a 75 perfect. Now we know
00:35:24.480 | Or 65 or 55 or 62 or 71?
00:35:27.360 | Whatever
00:35:29.160 | Okay, how much income would you like coming in at that point in time? That's the next question about what I have now
00:35:34.380 | All right. What do you have now?
00:35:36.380 | We calculate that out. How much can you save and afford afford to save and invest every month right now and
00:35:42.440 | That's gonna give you the rate of return and then calculate back and ask yourself
00:35:46.480 | What's the rate of return that I need from my portfolio?
00:35:48.480 | For me to hit this on an inflation adjusted basis
00:35:54.240 | And
00:35:55.480 | Then that'll let you know what you need now if you need a 1% return
00:35:58.880 | Then your answer is probably 1% nominal not real but 1% nominal which this you would never need this
00:36:05.360 | But if you need a 1% rate nominal rate of term meaning the stated rate of return
00:36:08.880 | Even after you've adjusted your calculations for inflation, you're just saving so much money every month that you can get there
00:36:14.440 | Well now you why take any more risk?
00:36:16.560 | You just trot down to the bank and you buy CDs and now you have modest gains and there's practically no risk. It's modest risk
00:36:23.640 | At least it's modest market risk. It's not necessarily modest dollar risk. It's not necessarily modest inflation risk
00:36:29.080 | It's not necessarily modest any of those risks just modest market risk
00:36:32.860 | But that's not gonna be the answer to that calculation and so
00:36:37.500 | You do another calculation and the answer is I need a 6% rate of return. Okay. Well, how can you get that?
00:36:43.180 | Well this you might trot down and you know
00:36:46.140 | But do what Vincent did in the last the last question earned by a Vanguard, you know
00:36:51.480 | Total stock market index fund modest risk. It's got some market risk, but it's pretty deferred
00:36:56.480 | You know also modest gain not gonna be anything spectacular, but it's probably gonna deliver, you know, five six percent
00:37:02.960 | Probably a little bit more but who knows
00:37:04.960 | Modest gain modest risk set it and forget it
00:37:08.760 | That's my answer and you've got to answer every investment question with what's my goal for this investment
00:37:18.760 | What's my goal for this investment? Why am I investing?
00:37:22.260 | because remember every dollar that you invest is a dollar that you can't consume and
00:37:26.520 | We don't invest for any purpose other than future consumption. That's it
00:37:32.000 | You invest so that you have more money in the future for you to consume. That's rational. So if you don't need to invest
00:37:40.200 | Then go ahead and consume it now and you can consume it in any way that aligns with your values
00:37:45.520 | You can consume it on fancy stuff. You can consume it on fancy trips
00:37:49.040 | You can consume it on a trip around the world
00:37:50.960 | You can consume it by giving it away because that brings you pleasure and you're the what's that the guy that goes out at Christmas
00:37:56.600 | Time you're mr. Santa Claus or whatever and you've given out hundred dollar bills
00:37:59.020 | That's consumption and that's in line with I suppose his values. I mean, of course, it's in line. He wouldn't do it if it weren't
00:38:06.360 | It's pretty simple but you got to know your goals you got to know what you're trying to do
00:38:13.520 | When you get clear on that
00:38:15.520 | The investment will make sense then then the best will will return it'll emerge
00:38:21.520 | One comment on the portfolio manager at this state. I wouldn't say what you need is a portfolio manager at this stage
00:38:27.400 | What I would say is you need a financial planner someone who can help you figure out what you want out of life
00:38:31.640 | And in that scenario, you've got to figure out, you know, who can you find that's gonna do that?
00:38:36.800 | One thing that concerns me well two things that concern me in your email here
00:38:41.360 | You said maybe I need a portfolio manager early on an investor an advisor put me in loaded funds
00:38:46.720 | I've had a hard time trusting since if I went with a portfolio manager, my main concern would be performance and cost
00:38:53.080 | I don't mind paying a fee, but I'd like it to be competitive or comparable. I
00:38:57.520 | Don't know what your experience was with the advisor who put you in loaded funds. I would say I disagree with many people
00:39:04.360 | There is nothing inherently unethical about selling or buying loaded mutual funds
00:39:09.520 | If that's the way that you've agreed with your financial advisor that they're gonna be
00:39:13.160 | Compensated is based upon the commission from the sale of a mutual fund
00:39:16.480 | Then that's the agreement that you've made
00:39:19.080 | So unless that was done in secret or unless the advisor didn't disclose that that was the case
00:39:24.300 | Then what was it that caused you to not trust that person?
00:39:28.200 | Just because a fund is a loaded fund again. I've sold plenty of loaded funds
00:39:33.480 | in the right context with full disclosure
00:39:37.640 | clearly showing my client what their options were and
00:39:40.240 | Clearly demonstrating the cost and the benefit. I
00:39:44.560 | Don't see the ethical problem with selling loaded funds
00:39:48.520 | If you want the advisor services
00:39:51.240 | They've got to be paid somewhow and that could be paid with an hourly fee
00:39:54.560 | With a check that you write out of your paycheck on some kind of monthly or annual retainer fee
00:39:59.480 | They can be paid on commission or they can be paid based upon
00:40:04.040 | A fee for assets under management. So I don't say I wouldn't say that you have a
00:40:09.880 | that there's necessarily something that you can't trust unless the advisor was deceptive and
00:40:15.960 | Where probably I think people might feel deceived is if they don't know that you can go out and buy unloaded funds
00:40:24.440 | but you know, do I
00:40:27.400 | Consider my my real estate agent to have deceived me because they get a commission when I bought a house with them when I could
00:40:34.680 | Have gone out and bought a house without a commission
00:40:36.680 | That's where it's questionable. And so my only solution to that is full disclosure and careful conversations
00:40:43.240 | I always tried to make sure that every client knew all of their investing options and that if they wanted to work with me
00:40:49.680 | They did so because they needed and wanted my advice and then I presented to them the different ways that they that I'm
00:40:56.040 | Compensated and they could choose if they match certain scenarios
00:40:59.520 | they could choose and some of the times I was compensated with the sale of a loaded mutual fund and
00:41:04.120 | I believe my clients received far more value from me in that scenario than not and I've also had multiple clients
00:41:13.880 | Where they looked at the commissions and they looked at the fees and they said, you know what Joshua?
00:41:20.160 | I just can't I'm just not willing to pay this. I said I understand in that case. Here's what you can do
00:41:25.520 | Here's an online brokerage account. Here's an online mutual fund account. Here's an online this here's a this
00:41:30.960 | Here's where you can go and you can get this service for free
00:41:33.480 | And you know what to the best of my knowledge the two clients that I'm thinking of the money continues to sit in a savings account
00:41:40.520 | Because nobody has got they didn't want to pay my fees the money sits in the savings account
00:41:45.960 | They're no closer to their goals than they were when they met me and I hate that
00:41:49.920 | They would have been better off
00:41:52.800 | This wasn't what I proposed, but they would have been better off buying all loaded mutual funds
00:41:57.440 | Than they are right now because they missed out
00:42:01.480 | On a massive increase because their money was sitting in cash. So it's very tricky
00:42:06.640 | It's I mean the ethics of that I think are tricky and the only way I know how to deal with it
00:42:10.040 | It's to let each person make sure everyone is fully educated on all of their options that they understand what they're giving
00:42:15.520 | The second thing I will all comment on here is you said here if I went with a portfolio manager
00:42:20.240 | My main concern would be performance or cost. I don't mind paying a fee, but I'd like to be competitive or
00:42:25.400 | Comparable. I would recommend to you that you really understand what you what you expect an advisor to do for you
00:42:31.540 | You might find some advisors who will promise out performance. I have never seen any
00:42:38.600 | statistically reliable
00:42:41.280 | Indication that I can predict in advance who's going to outperform. I've never made that claim in my life
00:42:47.040 | To me that is not the primary service of an advisor. The primary service and of an advisor is
00:42:52.820 | Wrapped up in excellent financial planning and by that I'm referring in this context to
00:42:58.120 | Helping you with to save money on taxes helping you to make intelligent choices with your overall performance
00:43:05.160 | some excellent excellent financial coaching in the sense of
00:43:09.040 | Helping you to figure out what you want
00:43:12.680 | That's what you need is you need a life coach to help you figure out what you want
00:43:16.360 | And then number three helping you make sure you don't shoot yourself in the foot
00:43:21.720 | Because if you say I need modest gains and modest risk if it were appropriate and over time if I were working with you
00:43:30.160 | I could get you into something with great gains and almost no risk and
00:43:33.320 | Coach you through those times that you need coaching
00:43:36.540 | Which is when you're about to bail when the market is at the bottom when you're about to jump into the latest greatest hot tip
00:43:41.920 | That you got when the market is at the top
00:43:44.880 | so that is
00:43:46.880 | You got to understand the services different advisors are gonna deliver different services
00:43:52.160 | If you just want a portfolio manager
00:43:54.160 | Who's gonna do a good job go buy an active mutual fund and you can hire a perfectly good portfolio manager. You can find one
00:44:00.780 | If you don't need a portfolio managers go buy an index fund if you need an advisor
00:44:05.040 | So my point is and I hope this is helpful
00:44:07.760 | But you got to understand what you want what you need and that's the thing that we all need to do
00:44:11.800 | What do we want? What do we need at this stage in life now who can serve what we need?
00:44:15.520 | Hope this is helpful for you, but in I hope it's instructive for other people in the audience
00:44:21.720 | But you need to understand what you want what you need what you're trying to accomplish when you bring those things together
00:44:26.280 | Then you'll be able to create a plan
00:44:29.080 | You might be a new listener if you are go ahead and keep listening or listen to the archives
00:44:33.000 | This show is meant to be consumed in a cumulative manner
00:44:35.880 | So go back through the archives if you haven't and listen to past episodes
00:44:40.320 | But hopefully you'll come up with some ideas so that then you have a more specific question. I think it was
00:44:45.560 | Leave you with two comments. I think it two quotes. I think it was
00:44:49.520 | Tony Robbins who popularized the saying or at least that's I think who I heard it from if you want a better answer ask a
00:44:57.040 | Better question and I think that is the specific thing
00:45:00.600 | That that you need you and I both need to learn is always to ask better questions questions that are better
00:45:07.320 | Formulated because depending on the question that we ask that's the answer that we get
00:45:11.480 | So especially in finance, we need to ask more specific questions
00:45:16.000 | I can't possibly answer a question as general as yours because I don't know what the constraints are
00:45:20.520 | But with a set of very specific constraints then the answer becomes apparent
00:45:25.280 | So the key is to understand what the the question is the other quote from years ago
00:45:30.740 | I used to love listening to Zig Ziglar. I just loved his southern accent and his kind of down-home homespun
00:45:36.520 | You know thing and he used to say, you know, you got to become a meaningful specific and not a wandering generality. That's the fix here
00:45:43.680 | Every dollar should have a name and every dollar should have a goal
00:45:47.460 | and once you become a meaningful specific and you have goals that are specific and
00:45:52.160 | Here's what I'm trying to accomplish then all these financial questions are
00:45:56.360 | Simple and they're easy
00:45:59.200 | But as long as you're sitting here with a general question and a general goal
00:46:02.960 | Then you're gonna be batted around the financial advice industry. You're gonna be batted around from one person to another
00:46:07.920 | You're gonna be batted around from one
00:46:10.160 | You know from one
00:46:11.760 | Theory and philosophy and one person's gonna say buy CDs and the other person's gonna say buy index funds and the third person is gonna
00:46:17.520 | Say invest in real estate and the fourth person is gonna say buy fixed index annuities and the fifth person is gonna say
00:46:22.440 | Some other variation and there's a thousand more
00:46:25.320 | But once you know what you want
00:46:28.520 | The question becomes simple. Excuse me. The answer becomes simple in
00:46:31.960 | many ways
00:46:33.360 | this is all the financial planners do is we take data in and we give data out and
00:46:38.000 | All we work out is essentially a computer and then the soft skill is being able to help you understand what you want and then provide
00:46:45.520 | solutions, so I
00:46:47.560 | Wish you luck man, write back to me and let me know what you come up with. I'd be love to hear
00:46:52.280 | Last question comes from Joe. He says hey Joshua. My name is Joe and I'm 24 years old
00:46:58.600 | I've been listening to your show for a while now and I really enjoy it
00:47:01.400 | Keep up the good work. My question has to do with whether or not a Roth 401k is the right move for me
00:47:07.560 | Currently, my gross income is fifty eight thousand six hundred and sixteen dollars
00:47:12.120 | this year I've contributed six percent of my adjusted gross income into a
00:47:17.840 | Regular 401k and my employer matches 80 cents on the dollar up to the first 5% of my pay
00:47:24.440 | I also contribute to my Roth IRA and will max it out at five thousand five hundred dollars
00:47:30.400 | My employer just recently began offering a Roth 401k option
00:47:35.280 | And my question is whether or not it is the best move for me to make to begin contributing to the Roth
00:47:40.440 | versus the regular 401k
00:47:42.520 | I understand the tax benefits on the front end at my young age and do believe taxes will rise in the future and
00:47:48.440 | Also that I will hopefully be in a higher tax bracket in retirement than I am now
00:47:53.080 | In my mind the advantage of the Roth is the higher contribution limit eighteen thousand dollars instead of five thousand five hundred dollars
00:48:00.240 | But the advantage of the Roth IRA, I think you meant the Roth 401k
00:48:04.600 | I mean he did mean the Roth 401k
00:48:06.280 | But the advantage of the Roth IRA is that I have it at Schwab and I have lower fees and more investment options than inside
00:48:12.120 | My 401k I would like to keep my net take-home pay the same and I've tried and I'm having trouble running the math to figure
00:48:19.120 | Out which would be the better option in addition. I have the option to do a Roth 401k conversion on the twelve thousand dollars
00:48:26.280 | That's in my regular 401k your advice would be much appreciated
00:48:28.840 | About me. I've got twenty seven thousand in the Roth twelve thousand a 401k three thousand a taxable account
00:48:35.200 | Investment account six thousand a savings account and two grand and a checking account
00:48:39.040 | I owe forty one thousand on federal parent plus student loans at seven point six five percent and sixteen thousand five hundred dollars at
00:48:46.560 | Five point two five percent. I currently am on the standard repayment plan and make an extra one hundred dollar payment each month on top of that
00:48:53.720 | No credit card debt or any other type of loan. I own a 2005 Camry that's paid off Joe
00:48:58.760 | Joe this is uh, this is
00:49:01.520 | The question that I don't like getting more than anything else
00:49:05.080 | Because it's impossible for me to give a complete answer on it because I don't know enough facts
00:49:10.600 | And even if I did know enough facts, I still have to make a gut call on the Roth versus the non Roth scenario
00:49:16.780 | The reality is that if you've ever heard that this is a simple decision
00:49:21.240 | You've heard from someone that doesn't understand how complex this is. There are so many different variables that impact
00:49:29.080 | The the decision of what is right or not right in the Roth versus the traditional approach
00:49:37.020 | There are so many variables that the best we can do is just simply make a guess
00:49:41.340 | And I could toss out a dozen variables, but I'm not gonna right now
00:49:45.100 | and I mean it's everything from
00:49:47.100 | It's not good of me for just me to say I'm gonna I could toss out but I'm not going and then just start tossing
00:49:52.580 | out
00:49:53.420 | There are a lot of variables including income now income in the future tax brackets now tax bracket brackets in the future
00:50:00.060 | Marginal tax rates compression of the tax rates other taxes. Not all taxes are raised just by increasing the brackets
00:50:06.660 | So it's possible the brackets could be exactly the same but you know
00:50:10.100 | The the the the money the subject Social Security could be different
00:50:13.900 | I mean, there's so many answers to this and at some point here
00:50:17.300 | I've got to get the show done on this which is gonna be the comprehensive guide to Roth versus individual
00:50:22.580 | but the reality is it's gonna leave you at the end of it just more confused than ever and
00:50:26.680 | Just the fact that and less confident than ever because I've given you more data and you're gonna sit there and say, huh?
00:50:32.620 | Now I really don't know what to do
00:50:36.340 | The end of the day we're all just guessing and we're guessing making educated guesses
00:50:41.860 | But when you're 24 years old, and I'm basically got and I basically have a 76 year time horizon
00:50:48.820 | You know to get you out to age a hundred and then I've got to figure out
00:50:52.220 | Well, what what income are your kids gonna be making?
00:50:54.420 | I mean if I'm working with someone who's 60 years old and they're doing a Roth conversion and I got asked
00:51:00.260 | Well, you know your kids are your kids making a high income or a low income?
00:51:03.620 | Because then what assets you're gonna leave are you gonna leave behind and it's an impossible question to answer
00:51:08.620 | So all we do is we give some guidelines and we make some guesses and unless you know more specifics about your scenario
00:51:15.660 | So, you know, okay
00:51:17.940 | I'm in a business that it's unlikely that I'm ever gonna make a lot of money
00:51:20.900 | So now I can know that or I'm in a business
00:51:22.900 | What I mean is is your income gonna go up at 3% per year with cost of inflation
00:51:27.180 | Raises or is it gonna go up at 23% per year because you're in a highly compensated
00:51:31.900 | Field where you can improve your sales skill
00:51:34.420 | That's a big factor because that you know, depending on how I calculate your contributions to be that's tough
00:51:40.820 | I got to figure that out or are you gonna be doing any kind of early retirement strategy where I can follow some of the
00:51:47.860 | plans that that
00:51:49.060 | You know
00:51:49.620 | I've brought people on the show to demonstrate this where you're gonna work for 20 years and then you're gonna retire and then I can
00:51:53.540 | Do 0% tax Roth conversions. So anybody who says is just simple
00:51:58.980 | I think doesn't understand all the all the inner workings of it
00:52:03.860 | but at the end of the day just because I go round and round in circles and and
00:52:07.380 | You know make you think I'm smart because I give you all these different variables that doesn't help you
00:52:11.620 | and so at the end of the day, we just got to stick a thumb in the air and make a guess and
00:52:15.140 | My answer is yeah at your age 24 years old making 60 grand man. I just toss it into the Roth
00:52:22.380 | And I could be wrong
00:52:24.820 | But that would be my guess
00:52:26.940 | Hopefully you're gonna make more money. I'm a 24 years old. This should be the least you'll ever make
00:52:30.620 | Hopefully if you're listening to the show, you're gonna make a lot more money in the future
00:52:34.260 | 60 grand brackets, you know, you don't say anything about family or other scenarios
00:52:40.700 | So reality is 60 grand of an individual. You're not married. You don't have dependents. You don't have anything like this
00:52:46.220 | You're gonna be you know, fairly highly taxed
00:52:48.300 | But it's probably gonna be less than it is in the future. So my best guess yeah go with Roth
00:52:53.300 | and
00:52:55.380 | It's just an educated guess and and a thumb in the air now whether you go traditional
00:53:01.180 | Excuse me put the money into the Roth 401k instead of the Roth IRA
00:53:04.940 | As long as you're taking as you're long as you are taking advantage of the Mac of the match
00:53:10.500 | Then I would
00:53:14.900 | So you've got to make sure you take advantage of the match first
00:53:17.860 | Going into the Roth 401k and then I would go back from that and put it in the Roth IRA
00:53:24.540 | And my reasoning for that is both what you said as far as okay. I've got lower fees and more investment options. That's true
00:53:30.540 | but also
00:53:33.100 | That you can get the money out more easily if you have need of it. I
00:53:37.620 | Don't know if you're married. I doubt it. You don't mention anything about that and you're 24 years old
00:53:42.660 | So let's say that all of a sudden you meet the girl of your dreams and you decide you're gonna buy an engagement ring
00:53:48.340 | But you don't have the money and savings you didn't plan for it
00:53:51.220 | Well if the money's in the Roth IRA
00:53:53.140 | You can take two you can take two grand of your contributions out and go buy the ring
00:53:56.940 | So something like that is just gonna be more flexible in the Roth IRA
00:54:00.340 | It's and by having it in the Roth 401k
00:54:04.040 | You're gonna be subject to whatever the 401k rules whatever the rules that are written on the plan are
00:54:09.380 | Into the raw in the Roth 401k system, so they may or may not allow a loan
00:54:15.180 | But it'd be nice to avoid it. They may or may not allow
00:54:19.380 | Contributions and so you just you're just gonna be more flexible if you keep it in your individual Roth IRA
00:54:24.660 | And I think that will help you. I'll tell you what I would do man. Get rid of that that that student loan
00:54:30.900 | Make sure in this what I do more in the Roth more or not and get rid of the student loan
00:54:38.220 | Man, I would want to get rid of this student loan you owe
00:54:42.340 | $41,200 on a federal student loan at
00:54:47.540 | 7.65 percent interest you can get a guaranteed
00:54:51.020 | 7.65 percent rate of return by paying that thing off
00:54:55.480 | Guaranteed
00:54:58.460 | 7.65% that is healthy that is strong and
00:55:01.740 | Also, you can free up the cash flow which may as you're young in your career might be helpful for you
00:55:07.380 | You might want to transition from the career where you are now to a different career
00:55:11.440 | You might want to start a business
00:55:12.660 | So if you can free up the cash flow, that'll be beneficial and if you can just knock that out
00:55:17.860 | Remember you can't get rid of student loans
00:55:19.860 | They're creditor proof and excuse me. They are you can't bankrupt your way out
00:55:23.980 | You're always gonna have it and seven point six or five percent even five point two five percent
00:55:29.140 | I
00:55:30.660 | Mean if you had one of these loans that was at one and a half percent interest or two and a half percent interest
00:55:35.260 | I'd have to run some, you know, I'd have to think more about that. But for me my two cents
00:55:41.020 | Get that thing out of here seven point six five percent guaranteed rate of return
00:55:45.140 | Also increasing your flexibility
00:55:48.340 | You know with lower cash flow get rid of that thing
00:55:52.220 | That'd be what I would do and I would personally prioritize that probably over and above a bunch of money in the Roth
00:55:57.420 | Although I would have to think that through and you know your situation. So think that through I
00:56:02.580 | Think a key variable in financial planning. We don't talk about enough is flexibility and I tell you this
00:56:08.620 | I couldn't be doing the business that I am doing right now and taking the entrepreneurial, you know jump if I had a bunch of student loans
00:56:16.140 | Simply couldn't do it
00:56:18.580 | and
00:56:19.580 | So I'll take flexibility myself at a little bit of financial cost
00:56:24.820 | Because flexibility is life and that's the thing is is that we're doing life not math and math needs to contribute to life
00:56:31.780 | But at the end of the day these lifestyle goals and lifestyle
00:56:35.700 | Decisions have to have to be counted heavily
00:56:38.660 | So hope that helps I will to get this show done on at some point here soon
00:56:43.580 | I will get this show done on Roth versus traditional and it will leave every one of you as can more confused than you were before
00:56:50.900 | That's my promise, but at least you'll feel like you're a little bit more educated in a confused
00:56:56.300 | That's the best I could do for you how on earth do I predict political winds of change how on earth do I predict
00:57:05.460 | I
00:57:06.580 | Can't I have no idea?
00:57:08.220 | So we'll just go through a bunch of questions and then you at the end of the day
00:57:11.340 | You'll have to figure it out for yourself
00:57:12.500 | So that's it for my Friday show and I just thank each one every one of you for being here. I've had a great week
00:57:18.340 | It's been a fun week. It's been a challenging week. I've engaged
00:57:21.420 | I've enjoyed very much have enjoyed interacting with all of you who have emailed me all of you who have commented on on the shows
00:57:28.220 | Including on Monday's show. I have enjoyed very much. I love I've got the best job in the world because
00:57:34.100 | when I get to do this, I mean just think about how much you get to learn from people and
00:57:38.420 | Think about how amazing this is the more people that you're that you're in that
00:57:42.820 | You know and that you meet in your life the more you learn because you get to learn from them. Well, I
00:57:48.380 | Get to do something like this where I've got thousands of listeners
00:57:52.100 | some I mean some of you guys are so you're 50 times brighter than I am and
00:57:56.740 | And I mean, I can't lose
00:58:00.220 | That's why I take the track that I do either I either either I'm right in something
00:58:05.020 | I say and I help some of you
00:58:07.020 | Or I'm wrong in which case I get to learn that I'm wrong and then I get to become right and so I win
00:58:12.340 | So I can't lose it's it's a beautiful beautiful thing. I love doing this. Thank you all so much for your support
00:58:19.140 | Shutting down the membership program this weekend. So if you're hearing this it'll be gone by Monday
00:58:26.120 | it'll come back in the future, but it's gonna come back looking differently and
00:58:29.900 | If any of you want to get in while it's on sale
00:58:31.900 | I will never forget the initial round of the irregulars. I'll explain next week as soon as I can get it done
00:58:37.500 | I'll explain what I'm doing and what I've learned with it
00:58:40.100 | but I'm never gonna forget you guys speak and gals because you've supported me from the beginning and I'll make sure that I
00:58:46.260 | Always honor that and remember that it's a big deal to me
00:58:51.380 | But if any of you want a discount I haven't fully figured out what you're gonna get but jump in and grab the irregulars this weekend
00:58:58.140 | At the $99 level that'll be a steal for you
00:59:00.740 | Have a great weekend everybody. I wish you a lovely lovely weekend Cheers. See you on Monday
00:59:06.780 | Thank you for listening to today's show if you'd like to contact me personally
00:59:17.660 | My email address is Joshua at radical personal finance comm
00:59:23.460 | You can also connect with the show on twitter at radical PF and at facebook.com slash radical personal finance
00:59:30.140 | This show is intended to provide entertainment
00:59:33.440 | education and
00:59:35.940 | financial enlightenment
00:59:37.700 | But your situation is unique and I cannot deliver any actionable advice without knowing anything about you
00:59:44.940 | please
00:59:46.820 | Develop a team of professional advisors who you find to be caring
00:59:52.220 | competent and
00:59:53.620 | Trustworthy and consult them because they are the ones who can understand your specific needs
00:59:59.860 | your specific goals and provide specific answers to your questions
01:00:05.700 | I've done my absolute best to be clear and accurate in today's show
01:00:10.300 | But I'm one person and I make mistakes if you spot a mistake in something
01:00:14.980 | I've said please help me by coming to the show page and commenting so we can all learn together
01:00:21.220 | Until tomorrow. Thanks for being here
01:00:23.460 | Hey parents join the LA Kings on Saturday, November 25th for an unforgettable kids day presented by Pear Deck
01:00:29.940 | Family fun giveaways and exciting Kings hockey awaits
01:00:32.900 | Get your tickets now at LA Kings comm slash promotions and create lasting memories with your little ones