RPF0196-Friday

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00:00:26.140 | Ralph's, fresh for everyone.

00:00:28.640 | Friday Q&A on today's show. A few follow-up comments on my inadequacy with a previous student loan question.

00:00:38.000 | How do we help kids actually without making them dependent?

00:00:42.500 | A question about consolidating investment accounts.

00:00:45.500 | Can I max out a retirement plan for my stay-at-home spouse?

00:00:51.500 | And how do I work through retirement distribution strategies as well as a quick question on goal planning?

00:00:59.500 | Welcome to the Radical Personal Finance Podcast.

00:01:17.500 | My name is Joshua Sheets. This is episode 196.

00:01:21.500 | Friday Q&A today and we're going to do all voicemail questions.

00:01:25.500 | Try to clear out the voicemail inbox.

00:01:27.500 | After today's show, all of the voicemail questions will be answered.

00:01:31.500 | But I have dozens and dozens of written questions.

00:01:34.500 | So if you want to get your question answered on a future show, call into the voicemail. It's wide open.

00:01:39.500 | [Music]

00:01:47.500 | I do enjoy doing these shows and I enjoy doing them because of the variety.

00:01:51.500 | But I'm telling you, it makes a better experience for the audience to be able to hear your questions.

00:01:54.500 | So I always give priority to the voicemail questions on shows like this.

00:01:58.500 | If you'd like me to answer your question, just go to the website and you can find the website.

00:02:03.500 | Right on the website, you'll see a little note that says, "Send us a voice message," and you can click that on your phone.

00:02:11.500 | You can click it on your computer and you can send a voice message.

00:02:13.500 | Just realize I do still have one additional voicemail question that a listener emailed me on estate planning.

00:02:18.500 | I'm not going to answer that today.

00:02:20.500 | But to that listener, I have your question.

00:02:22.500 | I know it's been a while, but I want to do a good job on the answer.

00:02:25.500 | So you can also email me an attachment of an MP3 file.

00:02:29.500 | So just pull out your phone. Use the voice recorder function on that.

00:02:32.500 | You can record a question and email that to Joshua@RadicalPersonalFinance if you'd like to get your question on a show like today.

00:02:39.500 | So let's kick it off with a comment here on last Friday's show.

00:02:43.500 | Joshua, this is one of your patrons, and I love your show.

00:02:45.500 | I'm just going to tease you a little bit because your approach to a recent question and answer related to someone having $100,000 in student loans was quite conservative for Radical Personal Finance.

00:02:57.500 | For example, we didn't factor in the idea of student loan interest being an above-the-line deduction.

00:03:04.500 | And I believe you get up to $2,500 in a deduction above the line, which makes the 7% interest that he was paying go down by -- I don't have the math in front of me, but it does change that interest rate.

00:03:16.500 | In addition, there's so many repayment plans, such as the public loan forgiveness plan and the Obama Pay As You Earn repayment plan, which I'm taking advantage of for a very substantial student loan debt that I have.

00:03:32.500 | And I'm only paying a couple hundred dollars a month right now.

00:03:35.500 | And if I stay the course and work in the public sector after another eight years, that substantial student loan debt should be forgiven.

00:03:43.500 | In addition, if I decide to go into the private sector, I can continue with the Pay As You Earn plan and after 20 years have it forgiven.

00:03:50.500 | So the key is to keep that payment as low as possible throughout that 20 years, and you do that by playing with your adjusted gross income, which you've covered in additional topics related to tax.

00:04:01.500 | I would say that it's not as straightforward as you laid out. There are a lot of radical ways to do this, especially if somebody has some investments already in the bank.

00:04:12.500 | All right. Thanks, Josh. Keep up the good work.

00:04:15.500 | I love this response. We'll call this listener Mike.

00:04:18.500 | And Mike, thank you for calling in and giving some additional ideas.

00:04:22.500 | You're right. I didn't even think in this circumstance. I didn't even think of going into that stuff.

00:04:27.500 | And I'm glad that I've got smart listeners like you to come on by and help.

00:04:32.500 | Truly, it is incredibly challenging to keep all the ideas straight.

00:04:37.500 | And I believe that one of the benefits that we have – and disclaimer if you ever listen to it at the end of the show where it says, "If you find a mistake in something I've made, come by and comment."

00:04:46.500 | I believe that's truly one of the best things that we can do is create – and we've already created – but build together a community of intelligent people who are always looking at issues from different perspectives.

00:04:56.500 | What often happens in our own lives is we get focused. We get tunnel vision of a certain way of looking at the world and a certain way of looking at things.

00:05:05.500 | And I get this even with answering questions.

00:05:08.500 | And as a financial planner, you often get into a certain way of thinking and then it's hard to get out of that.

00:05:14.500 | And so that's one of the reasons why I try so hard to stimulate your thinking with the content that I create on the show and create different ways, never hoping to give a full and complete answer but hoping to stimulate your creative thinking.

00:05:25.500 | And I love this. I love this approach to the student loan question.

00:05:30.500 | I think, Mike, you laid it out I think in a good way so that I could actually – I don't need to expound on it any further other than to say that the key that I was focusing on was the recent bankruptcy.

00:05:43.500 | And you're right about the student loans, but I think in this case what was standing out to me was the behavioral modification and kind of just a different approach of answering the question.

00:05:52.500 | So I thank you for those additional contributions.

00:05:55.500 | If any of you have additional contributions like that to a question, please come by the show page and comment.

00:06:02.500 | And I hope that many times if I'm answering a question for you that you'll go and check the show notes on that day's content and see if there might be some ideas that would be helpful to you because together we'll come up with better answers.

00:06:15.500 | It's such a balance to me. I've learned so much and been stretched in creating media and podcasts to know when to simplify and when to go deep and how to create a show and media content that's interesting and that's intricate.

00:06:30.500 | And knowing where that balance is I find incredibly challenging.

00:06:34.500 | So I missed those strategies on the answer to that question, and I thank you for going ahead and bringing them.

00:06:39.500 | And if any of you have additional strategies on future shows, please do exactly – well, come to the show notes and comment or do exactly like Mike did and call it in.

00:06:49.500 | Next question.

00:06:50.500 | Hey, Joshua. This is Brandon from South Carolina.

00:06:54.500 | I have a question about my kids.

00:06:57.500 | They're still pretty young.

00:06:58.500 | They're two and three years old.

00:07:00.500 | But I've been trying to think of how I could help them as they grow and learn and whatever path they choose that interests them, I would love to be able to help them on that path and maybe give them a leg up that some other people don't have.

00:07:14.500 | But I don't want that to turn into an environment of enablement or of dependence on their part.

00:07:20.500 | And so I'm wondering what are your thoughts about how do you balance that?

00:07:24.500 | How do you balance teaching them the skills and the tools they need so they can be independent one day also with actually maybe helping them to get there?

00:07:35.500 | I appreciate the show, and I'm really enjoying it.

00:07:38.500 | Thanks for your thoughts. Bye.

00:07:40.500 | I love this question, and it's something that I think about constantly because it sounds – I mean, Brandon, you're a couple years ahead of me.

00:07:48.500 | But I think about this obsessively.

00:07:51.500 | And I'll give you just some thoughts, but I do need you to understand the tone in which I'm going to answer the question.

00:07:57.500 | I am not an experienced parent, and so you can't take my answer as coming from somebody who has 25 years of experience, and I can't point to all these children that I've raised and say, "Look at how well things have turned out."

00:08:11.500 | So I have some ideas, but please take this thought – or excuse me, take my answer in the spirit of a friend to a friend just trying to think some things through.

00:08:21.500 | And I do look for older, experienced parents who've been able to successfully do that, and I try to bring them in to discuss this because I think it's a tremendously important topic.

00:08:35.500 | All of us who are parents, which is a majority of us, one of our biggest expenses, areas of expense and investment is in our children.

00:08:45.500 | And so we want to make sure that we're investing wisely, but it's a little bit harder to actually figure out what are the criteria and what's the framework for investing in them wisely in a way that it's going to do an excellent job.

00:08:57.500 | And that very much comes down to a worldview question. It very much comes down to all different just approaches, depending on what people's goals are.

00:09:06.500 | So I'll just give you a few answers that I have in a very simple way.

00:09:09.500 | At some point, I think I'd like to create a standalone comprehensive show with the ideas that I have, but there'll be a big, bold disclaimer at the beginning of that show.

00:09:18.500 | These are my ideas. No plan, as the military people say, no plan survives contact with the enemy.

00:09:23.500 | And I think no plan or idea really when you actually start looking at it and watching the results, children are individual people.

00:09:30.500 | They're human beings, and we've got to be very – I think we have to be very careful not to take a one-size-fits-all approach but to individually look and consider is what we're doing working according to the goals.

00:09:45.500 | With regard to the difference between helping and enabling, in my mind, there's a balance to be struck here of what does it mean to help.

00:09:53.500 | All of us have been helped by others, period. None of us have gotten to where we are on our own effort alone.

00:10:01.500 | In the US-American culture, we have an ideal of the concept of pulling yourself up by your bootstraps.

00:10:09.500 | And I believe that's an incredibly useful ideal. It's an incredibly useful vision to have.

00:10:16.500 | But I think we also need to recognize the fact that somebody probably helped us get the boots in the first place.

00:10:21.500 | And although we may be pulling them up, somebody else was there and helped us.

00:10:26.500 | And in my mind, the proper balance between these two things leads to the most ideal outcome.

00:10:33.500 | With regard to our children, I think that it is our responsibility to help them.

00:10:40.500 | And we do that in different ways depending on their age.

00:10:46.500 | In my mind, the number one way that we can help our kids and not enable them is to carefully train them in a proactive way.

00:10:55.500 | And that is hard. At least I find it to be hard. Maybe you don't, but I find it to be hard.

00:11:01.500 | But what I mean is children naturally have a desire to do things on their own and have a desire to be independent.

00:11:07.500 | Watch the average three-year-old. I'm sure your kid is saying, "Leave it alone, Daddy. I can do it. I can do it."

00:11:14.500 | Well, what do we usually often do in that case?

00:11:17.500 | My own natural inclination is to quickly give in to impatience and frustration and, "Yeah, you can do it, but you can't do it fast enough. So here, I'm just going to do it for you."

00:11:26.500 | Well, what happens when you do that over time?

00:11:31.500 | What happens when we always do it for them because we've got to get out the door or we always do it for them because you're going to get dirt on your dress or we always do it for them because you're going to mess up your hair?

00:11:44.500 | Well, over time, we start to squelch that desire.

00:11:48.500 | So the key, I think, is to train proactively.

00:11:54.500 | In my mind, this starts with thinking through what are your goals for your kids?

00:12:00.500 | What does an ideal outcome look like?

00:12:03.500 | I would challenge you as a parent, and I would challenge any parent who's listening, to create a written vision for what your ideal outcome is for your children because you have a vision, and that vision will vary depending on what you're trying to accomplish.

00:12:20.500 | But many of us have a vision that we haven't tested, that we haven't actually thought through and said, "Yes, this is what we want."

00:12:29.500 | For example, it seems—I'll pick on the men—it seems that oftentimes as men, many of us have doomed hopes of athletic superiority from when we were kids.

00:12:40.500 | And we wanted to have a certain level of accomplishment and achievement, but for whatever reason, we didn't actually hit it.

00:12:47.500 | My evidence for this, if you just look on the sideline of many youth sports games and just watch it how some parents react versus others, some parents take their kids' athletic success personally.

00:13:01.500 | They have a vision of their child being great, and they press their child towards that direction.

00:13:05.500 | Other parents take a different approach, and they have a different vision.

00:13:09.500 | For example, perhaps the character of simply playing and doing your best, all of these ideals will influence our actual actions and behaviors.

00:13:17.500 | Some people have a vision for their children to be academically superior, and so they press them in the direction of academics.

00:13:24.500 | Others have a vision for their children to be socially superior, and so they pressure them and move them in the direction of social superiority.

00:13:33.500 | Here's what you need to do to be the most popular child in school. Here's how we're going to invest in this.

00:13:39.500 | And whatever it is that we think is important, that's what we generally will press on to our kids.

00:13:45.500 | Now, just like in life, few of us have sat down and thought about what our vision is for what our life is going to look like.

00:13:54.500 | But when we do, we have the chance to sit down and actually question, "Okay, is what I'm doing in line with this vision?"

00:14:03.500 | Well, same thing with kids. So in my mind, one of the keys is to sit down and write down, "What am I trying to accomplish for my children?

00:14:15.500 | What are the goals that I have for them?" And again, your goals might be very different than mine.

00:14:23.500 | But once you know what your goals are for them, what you want them to look like – and what I mean by look like, meaning what aspects of their character do you wish to be strengthened, what things do you think are important.

00:14:36.500 | This is incredibly subjective, and it's very much based upon our worldview.

00:14:41.500 | But once you have those goals, then you build a plan, and you try to think about, "What can I do that's going to result in accomplishing these goals?"

00:14:49.500 | And then obviously, you'll want to adjust probably the goals as time goes on, and maybe your goals might have changed, and then adjust the plan as time goes on.

00:14:56.500 | It's no different than any other aspect of life.

00:14:58.500 | In my mind, some of the things that we can do though that would help to build their ability to stand on their own and build responsibility is to focus on character education over and above even.

00:15:13.500 | I was going to say combined with because other types of education are important, but in my mind, for me, based upon my worldview, it's character education over and above most other types of education.

00:15:25.500 | I believe this is one of the biggest ways that I can help my children.

00:15:30.500 | Now, for me, this is a Christian worldview thing because I need to help my child have a character and a capacity so that in the future when they enter into a relationship with God, that they're able to be molded and shaped and more easily led by him rather than having to undo all kinds of problems.

00:15:51.500 | So that's a worldview question.

00:15:53.500 | But for other people, it's just simply also a worldview question.

00:15:56.500 | It could be applied – they might have exactly the same goal that I have just for different reasons.

00:16:02.500 | So if you have a character quality of perseverance, then the chances of success in your field of study or the chances of success in your field of work are much higher.

00:16:14.500 | And so we can perceive these things from various worldviews in this specific application.

00:16:19.500 | But in my mind, character education is key.

00:16:23.500 | If a person has character and there are different qualities to that, but let's – again, let's just keep it simple and let's say – let's restrict character to some simple character qualities like perseverance, self-discipline, being a self-starter, things like that.

00:16:42.500 | Then they'll be able to go and apply those skills to whatever their chosen field of study.

00:16:51.500 | Now, if we were to compare and contrast character education to, as a simple example, intellectual education, knowledge, they're both important.

00:17:01.500 | But in my mind, the person with a strong character can easily acquire the knowledge and academic education that they need.

00:17:13.500 | But the person with a little bit of academic education who doesn't have strong character probably isn't going to live up to their capacity to be able to fully engage with the educational opportunities that are in front of them.

00:17:29.500 | As parents, this is something that we're uniquely qualified and uniquely equipped to be able to do.

00:17:37.500 | Perhaps there are some people who might come into our children's lives at certain points in time.

00:17:43.500 | There may be a teacher who takes a very great interest in them and is able to help them, inspire them to develop their character, perhaps a sports coach or maybe a drill instructor in the army or there are people that have come along.

00:17:56.500 | But that type of thing is very hit or miss, whereas we as parents, we can focus and we can outline what are the character qualities that our children need and how can we help them to achieve them.

00:18:10.500 | Man, is that a big task and it's a long task.

00:18:15.500 | Another area that I think we can help them with specifically is to help them focus on developing the ability and the desire to learn over giving specific knowledge.

00:18:27.500 | Think about if you were looking at your 22-year-old son or daughter and they're coming to you and they're trying to accomplish something.

00:18:34.500 | And you are trying to figure out, am I truly helping them do something or am I enabling something that I don't think is a good plan?

00:18:44.500 | One of the clues I would look for at that age would be, are they invested in the process and they just need a little bit of help, a little bit of guidance or are they just looking for the answer?

00:18:56.500 | When I was a kid I was super lazy with certain things, especially with looking up words that I didn't understand.

00:19:04.500 | I was always so frustrated at my mother and my grandmother who I would primarily go to ask them about a word because they wouldn't tell me what the word meant.

00:19:11.500 | They would always say, "Go and look it up in the dictionary."

00:19:14.500 | I didn't like looking up words in the dictionary. I hated it.

00:19:17.500 | It just was so annoying to go through and flip through all the pages in the dictionary to find the word.

00:19:23.500 | But looking back on it, I'm glad they did it because then it forced in me a character quality of knowing that I need to go and find the answer.

00:19:34.500 | And if I needed help looking in the dictionary, they were willing to help.

00:19:37.500 | But they weren't just going to tell me what the word meant.

00:19:41.500 | They were going to help me with developing the ability to learn rather than just giving to me the specific knowledge.

00:19:48.500 | So think about your 22-year-old son or daughter who's starting a business.

00:19:51.500 | At that point in time, you would be helping them start their business.

00:19:56.500 | And if they needed a place to stay for free so they could bootstrap that business, if they're working on the business, in my mind, that would be a very appropriate way to help them.

00:20:04.500 | Or if they needed a knowledge or connections, you would help them make connections.

00:20:10.500 | You would help them meet the people.

00:20:12.500 | But you're helping them do the work at that stage and you're not trying to do the work yourself.

00:20:18.500 | You're not just trying to give the money. You're trying to help them earn the money.

00:20:23.500 | Another area that I think we can do a good job with in the early years of parenting is to always focus on modeling the behaviors that we think are ideal and training our children in those behaviors.

00:20:38.500 | Our kids copy us.

00:20:40.500 | In the beginning especially, they want to be exactly like us.

00:20:44.500 | So my son is going to want to be exactly like me in the early years.

00:20:48.500 | So he's going to imitate me.

00:20:50.500 | I always love seeing the pictures oftentimes.

00:20:53.500 | I just had a friend of mine post on Instagram some pictures of her son and daughter with their toy lawnmowers following their dad around the yard mowing.

00:21:02.500 | It's just such a perfect picture of how kids love to be exactly like their parents when they're little.

00:21:09.500 | The question I ask myself constantly is am I modeling the behavior that I wish for them to acquire?

00:21:18.500 | I need to be very careful how I live because most training is caught and not taught.

00:21:24.500 | In my mind though, the key to this question with a specific focus on financial approaches is the development of a sense of responsibility.

00:21:38.500 | In my mind, one of our primary focuses should be on early training and the addition of steady, progressive increase of responsibility in our children's lives.

00:21:52.500 | I'm going to overgeneralize a little bit, but just to make the point, if you look at how many households around us run, how do many households run?

00:22:00.500 | Usually what happens is kids are not involved in the lives of the household.

00:22:06.500 | They're not generally involved in many of the situations.

00:22:09.500 | They're not involved in many of the household decisions.

00:22:12.500 | They kind of run oftentimes separate lives.

00:22:15.500 | Now, many times perhaps this might be a good thing.

00:22:18.500 | Maybe the parents' finances are a mess, but even if the parents' finances aren't a mess, how many kids are actually involved in understanding how much money comes in and how much money goes out?

00:22:28.500 | In many households, it seems to me from my observation that the way the parents train their kids is simply by buying everything for the kids and then giving money up to a point.

00:22:41.500 | Then all of a sudden at some point, there might be a cutoff.

00:22:45.500 | With no progressive advancement from helplessness and total dependence, which is the state of a baby, to autonomy and independence, which should be the state of an adult.

00:22:59.500 | We often don't think about this, but if we start proactively training our children, then I think we'll get better results.

00:23:08.500 | So how do we train children?

00:23:12.500 | Well, a big one, this is a bit of a passion of mine, and again, I obviously can't point to it and say, "Well, look how well it's been affected."

00:23:21.500 | But one of the areas that I aspire to is to be careful and consistent with actually training.

00:23:28.500 | By training, I don't just mean telling a child what to do and then getting mad at them for not doing it.

00:23:33.500 | That's not training.

00:23:34.500 | That's child abuse.

00:23:36.500 | It's probably a little bit strong.

00:23:38.500 | I mean it strong just for effect, but I think it's really a mistake.

00:23:41.500 | In the same way that you wouldn't take an employee and just tell them what to do in something that they're unfamiliar with and then get mad at them for not doing it, we shouldn't do that with children.

00:23:49.500 | We shouldn't just bark commands at them, telling them what to do, and then get mad at them when they don't do it according to our standards.

00:23:55.500 | We have to train them.

00:23:56.500 | It's unjust to hold somebody accountable for a standard unless they've been trained to that standard.

00:24:02.500 | So in my mind, this is a process.

00:24:04.500 | This is an approach.

00:24:05.500 | So let's say that there's something that we want our children to do.

00:24:08.500 | Well, there are some stages to this, and this has to be done in an age-appropriate manner, but there's some stages to it.

00:24:14.500 | Number one, we start by explaining to them the process and showing them exactly what we want them to do.

00:24:21.500 | That requires our involvement.

00:24:24.500 | We explain to them the standard of performance.

00:24:27.500 | What does done mean?

00:24:29.500 | We explain that to them verbally and explain it to them visually, showing them whatever the task is.

00:24:34.500 | Then we do it with them at least a time or two, again, as is age-appropriate, maybe many times, especially at the younger years.

00:24:43.500 | Maybe we do it with them many times.

00:24:45.500 | Then once we perceive that they're ready to bear the responsibility, then we send them to do the task, but we send them with the instruction to come when they're finished and come and get our approval on the final result.

00:24:58.500 | We've already made sure that they understand what done means, and so now they're going to come and get us when they're done and we're going to go and we're going to approve the result, part of the training process.

00:25:10.500 | And then and only then do we go ahead and transfer the responsibility for having the result on a continual basis.

00:25:17.500 | We hold them accountable for doing the task properly.

00:25:20.500 | And what's the problem with this?

00:25:23.500 | It's incredibly time-consuming.

00:25:25.500 | It's incredibly time-intensive.

00:25:27.500 | And it takes a lot of proactive, focused parenting and training.

00:25:33.500 | I'm convinced, though, that it brings results.

00:25:36.500 | Now, time will tell.

00:25:38.500 | At this stage with my son, we're in the stage of putting away blocks and books.

00:25:43.500 | And he's not yet capable of doing it on his own, so I wouldn't expect him to.

00:25:48.500 | But he's certainly capable of doing it, and he can do it with us.

00:25:52.500 | So my wife and I are working with him at this very young stage to try to work with him and explaining to him but primarily showing him what it means.

00:25:59.500 | So what I'm working to do is every day before dinner we go around, we pick up all the books and put them away.

00:26:05.500 | I do it with him, and there's lots of encouragement, lots of joy, and lots of affirmations and lots of attaboys for the tiniest little thing.

00:26:12.500 | And I pick up about three-fourths of the books and he picks up about a fourth of them.

00:26:17.500 | But it's that process of training.

00:26:20.500 | But, man, it takes time.

00:26:22.500 | It's a lot easier for me just to put him to bed and go ahead and put all the books away myself.

00:26:26.500 | Or the other day I was watching my wife work with him with putting away his blocks.

00:26:30.500 | It took him an hour to put away just a simple bag of blocks, but sitting with him, patiently working with him, keeping him focused on the task, keeping him focused on going and getting the next thing.

00:26:40.500 | But why is it worth it?

00:26:42.500 | Well, if I'm right, and time will tell, but if I'm right, it's worth it.

00:26:47.500 | Because it builds that character quality.

00:26:51.500 | It builds that determination.

00:26:53.500 | And as we transfer steadily, as he's able to handle the responsibility, as we steadily transfer more and more responsibility over to him, there'll be a time when he's ready to put the blocks away on his own, he understands what the verbal command means, and he's able to complete it without hand-holding, that we just say, "Go do it and let us know when he's done."

00:27:14.500 | And there'll be a time when he's just responsible for keeping the blocks picked up.

00:27:18.500 | But the vision that I have is – this is going to be a little bit silly, but the vision I have is the application of that in real life is something as simple as picking up the paper towels in the bathroom.

00:27:31.500 | I don't know about you all, but many times when you go to a public restroom, at least the men's restroom, maybe women are cleaner, I don't know, but at least the men's restroom, there's always just paper towels slung all over the place.

00:27:43.500 | And usually this is because people don't want to touch the door as they're going out of it, so they take a paper towel and they just drop it by the door.

00:27:50.500 | And I can't stand it.

00:27:52.500 | Now, it's not my job to keep all the bathrooms in the world picked up, but it's one of those simple little things that you can do is just pick up the paper towels.

00:28:03.500 | And it makes a world of difference, and especially if it's your own building.

00:28:07.500 | So for a long time, I always would get so frustrated that in our office, in a fancy class A office space, very fancy quarters for financial planning offices, that there would be all these paper towels on the ground in our bathrooms, in the public bathrooms.

00:28:22.500 | It's like, what are we, running a barn?

00:28:25.500 | I sound like my dad.

00:28:27.500 | But it's like just pick up the paper towels, and it's a simple thing that any one of us can do.

00:28:33.500 | And so I always try to – I hate trying to promote something.

00:28:38.500 | It sounds like I'm trying to bring attention to the good things I do.

00:28:40.500 | I'm not.

00:28:41.500 | But I always just try to pick them up.

00:28:42.500 | But one day I was picking up all the towels and picking up one underneath the bathroom vanity, and my boss walked in and he caught me doing it.

00:28:52.500 | And he just said, "Thank you.

00:28:54.500 | I thought I was the only one that picked up the paper towels."

00:28:58.500 | And we started talking about it, and he said, "Here he is, the managing director.

00:29:03.500 | He's a multimillionaire, very successful, long-term.

00:29:06.500 | Everybody loves him.

00:29:07.500 | And what is it that he always tried to do?

00:29:11.500 | Pick up the paper towels in the bathroom."

00:29:14.500 | Now, as I read CEO biographies and read stories of people that are very financially successful and running companies, I find often they have that same attention to detail.

00:29:25.500 | Where they walk into some place and they say, "Wait, this needs to be fixed."

00:29:29.500 | But I don't find that same attention to detail among many of my peers.

00:29:33.500 | Time will tell, but I'm convinced we can train our children, help them to have that character quality by helping them learn to pick up the blocks.

00:29:43.500 | Not just yelling at them when they don't pick up the blocks, but training them.

00:29:46.500 | But it takes time, and what do we not have in modern society?

00:29:49.500 | Time.

00:29:51.500 | What else do we not have in modern society?

00:29:54.500 | Patience.

00:29:55.500 | What gets in the way of doing this?

00:29:58.500 | Our lack of patience.

00:30:00.500 | It takes time to teach something.

00:30:02.500 | Teaching slows us down.

00:30:03.500 | It's always much more time-consuming to do a task and teach as we do it, teach someone else to do it, than just to do it.

00:30:10.500 | And so, as a father, I find myself just often wanting to be impatient.

00:30:16.500 | "No, I'm not going to teach you how to put your shoes on because I just want to do it because you're too slow.

00:30:21.500 | But I need to slow down and be patient and teach."

00:30:25.500 | We also – I don't know about if – I'm sure moms do too, but at least for dads, we tend to get impatient at all the questions.

00:30:33.500 | My son isn't at the question stage yet, but a couple of my nephews and nieces are.

00:30:38.500 | And you guys know what I'm talking about.

00:30:40.500 | I mean the kids ask questions about everything.

00:30:42.500 | Well, I'm determined to be patient because what is that character quality and that character trait that they are learning?

00:30:52.500 | Curiosity.

00:30:54.500 | That's an important thing down the road.

00:30:56.500 | I don't want to squelch that.

00:30:59.500 | So, I find my own character being strengthened and stretched in being a father.

00:31:06.500 | So, if we apply this, I think we can apply this to finance.

00:31:10.500 | And integrate children and train them in the activities of finance.

00:31:16.500 | Much of the environments that many kids spend their time in are very artificial.

00:31:21.500 | Many of the childhood activities that we as a culture promote are artificial.

00:31:27.500 | They're childhood opportunities.

00:31:28.500 | But real life is full of teaching opportunities.

00:31:31.500 | So, by integrating children in our lives and not completely separating our lives, then we can have lots of opportunities to teach them.

00:31:40.500 | Here's what I'm doing.

00:31:42.500 | Here's why I'm doing it.

00:31:43.500 | Here's what I'm considering as I do the task.

00:31:45.500 | Asking for their input.

00:31:47.500 | Do you see a way to do it better?

00:31:48.500 | Do you see a way that we can do this more efficiently, more quickly?

00:31:52.500 | So, whether it's raking the leaves or weeding the garden or something like that, every time that they want to flake out and say, "Oh, I've got to go," pull them back, finish the task.

00:32:03.500 | When we see the value of teaching, it should adjust our priorities.

00:32:08.500 | And I think we should, as much as possible, be looking for real world application of education.

00:32:18.500 | Academic education, I believe, is very important.

00:32:22.500 | But it's less important than real world education.

00:32:25.500 | A real world education and seeing the application of it will, in my opinion, make the educational process much more exciting.

00:32:37.500 | What does it matter to get an A on a science test?

00:32:40.500 | Not a lot.

00:32:41.500 | But if you can teach a child to cook and they can start to study and understand the science of cooking, what's actually happening at a chemical level, then you can see the application.

00:32:52.500 | And then when they can transfer over, not just learning to cook in an artificial academic environment, but learning to cook a meal for the family that the family is going to enjoy and they can see the satisfied faces and the time and the fellowship and the enjoyment that can come out of that meal, then the work actually means something.

00:33:10.500 | Then you bring finance into it and you say, "Okay, here's what we're going to cook and here's what we need to do.

00:33:16.500 | How are we going to get these ingredients?

00:33:18.500 | How are we going to manage our time?"

00:33:20.500 | Then we start to transfer that responsibility over to them.

00:33:24.500 | "Okay, now that you're capable of doing this, now son, now daughter, you're going to be responsible for one meal per week on this day or you're going to be responsible for one meal every day.

00:33:34.500 | So let's transfer these skills over and over time with training, then the adult, I believe, will be an autonomous independent adult without the need for enabling contributions.

00:33:49.500 | Why not teach children to plan the next family vacation or trip?

00:33:53.500 | Why shouldn't the children be involved in researching the next washing machine that we need to buy?

00:33:58.500 | These are all training opportunities if we slow down and engage them."

00:34:03.500 | Finally, in my mind, the key distinction that will make the difference between helping and enabling is the sense of responsibility that the child has.

00:34:17.500 | The sense of responsibility has to be trained.

00:34:21.500 | It's trained by the steady, progressive transference of responsibility onto them.

00:34:27.500 | In my mind, my own parenting philosophy, we need to be very focused on this.

00:34:33.500 | We have the cultural perspective that childhood is supposed to be all about fun and lack of responsibility and enjoyment.

00:34:41.500 | This is partly due to the fact that many of us as adults have the idea that life is supposed to be all about fun and personal happiness and personal enjoyment.

00:34:51.500 | I don't buy that.

00:34:54.500 | What happens is we train that in our children and then we look at all the stories around decrying the boomerang generation or decrying the lack of work ethic that people have and we wonder and we think it's an accident.

00:35:09.500 | It's not an accident.

00:35:10.500 | It's a natural result of the way that we train children.

00:35:13.500 | Now, I agree that childhood is an incredibly important time and it should not and does not need to be all about work.

00:35:20.500 | If you look at the history of humanity, there have been some times when children were just flat out abused.

00:35:26.500 | Overall, child labor laws have been overall a good thing.

00:35:30.500 | The catalyst for their creation, if you look at the conditions that some of the young children faced, it was hell on earth.

00:35:38.500 | I think it's important that we as parents provide lots of hours of unstructured free time to play and to explore interests and to develop as a person.

00:35:49.500 | I personally look back very fondly at those hours of mine.

00:35:52.500 | But if we take that too far and childhood is all about play, then children are not prepared for adulthood.

00:35:59.500 | And then they're not capable of surviving in an adult world.

00:36:05.500 | I have a lot of friends in my peer group who are children trapped in an adult's body, trying to get along in an adult's world when they've never been equipped for it.

00:36:15.500 | We've got to avoid that in our own families by steadily adding more and more responsibility in an age and ability appropriate manner.

00:36:25.500 | My own personal life has grown steadily more and more challenging.

00:36:31.500 | And I've needed to become more and more responsible for more and more things.

00:36:36.500 | That's good.

00:36:39.500 | I expect that to continue for the rest of my life.

00:36:42.500 | You'll see this played out in many parts of the world, but just look at the business world or look at the military.

00:36:48.500 | What does career advancement mean?

00:36:51.500 | The application and the bearing of more responsibility.

00:36:55.500 | The president of the United States bears a tremendous amount of responsibility.

00:37:00.500 | The leader of an organization or the CEO of an organization bears a tremendous amount of responsibility.

00:37:06.500 | A general or an admiral bears a tremendous amount of responsibility.

00:37:10.500 | A father or a mother bears a tremendous amount of responsibility.

00:37:14.500 | And life gets steadily, progressively more and more difficult and you have to bear more and more responsibility.

00:37:21.500 | That's normal.

00:37:22.500 | The only way out of that is if we withdraw and completely serve our own self-pleasure and run away from responsibility.

00:37:28.500 | And that has disastrous consequences because that growth and that progression and that development is good.

00:37:34.500 | So we need to help our children by getting them accustomed to that.

00:37:38.500 | And steadily transferring more and more responsibility onto them.

00:37:43.500 | Training them very carefully to make sure that they're able to handle it.

00:37:47.500 | We don't want to put too much responsibility on them that they can't handle.

00:37:51.500 | But as soon as we see that they can handle something, we need to transfer more responsibility, more responsibility, more responsibility.

00:37:57.500 | And assuming a normal child with normal mental ability, with normal physical ability, in my mind there should be no reason why that child wouldn't naturally completely want to do things on their own.

00:38:15.500 | They shouldn't want the help.

00:38:18.500 | It's only the little boy or the little girl who stays trapped in a little boy or a little girl body when they're an adult that looks for every bit of help they can get.

00:38:26.500 | Mature men and women should feel a responsibility for their lives.

00:38:32.500 | And then you can help freely and they can appreciate and benefit from the help without your enabling them.

00:38:41.500 | To this day, my dad and mom still help me tremendously.

00:38:45.500 | And I'm so thankful for that.

00:38:47.500 | And I want to help them.

00:38:49.500 | And if you've got the character and the capacity and you've trained that character and capacity, then the help can be a real blessing.

00:38:56.500 | So I hope that helps you.

00:38:58.500 | That was a more in-depth answer than I intended, but I hope it was at least thought-provoking.

00:39:02.500 | And again, as I close this question and move on to the next one, just recognize that these are my ideas and my philosophy.

00:39:11.500 | And I believe that they will be able to be worked out.

00:39:16.500 | I guarantee you, 10 years from now, I'll see the flaws in these ideas and philosophies.

00:39:21.500 | Some of you more advanced parents are probably sitting there and already know all the areas where I've got it wrong.

00:39:27.500 | So, Brandon, young father to young father, take my words and advice with a grain of salt.

00:39:33.500 | But that's my vision for this stage of my life.

00:39:35.500 | Next question.

00:39:37.500 | Here we go.

00:39:40.500 | Hi, Joshua. My name is Guy.

00:39:43.500 | And just the other day, you actually helped me run 19 laps on an outdoor track.

00:39:48.500 | It was exhausting, but you helped me keep my focus off the pain.

00:39:53.500 | Well, my question is about consolidating my investment portfolio.

00:39:59.500 | My wife and I -- my wife is 25. I'm 30.

00:40:03.500 | And we are debt-free.

00:40:05.500 | And we're investing and saving as rapidly as we can.

00:40:08.500 | Although we are about to take an income cut by moving into the full-time pastoral ministry.

00:40:15.500 | But here's my situation.

00:40:17.500 | At the moment, my wife and I have a Fidelity Advisor account made up of five mutual funds.

00:40:23.500 | One fund is a C-share used strictly for house savings with a four-year plan.

00:40:28.500 | The other four are an automatic investment designed for future car purchases at $400 a month so that we never have a car payment.

00:40:36.500 | And my Roth is also through the same Fidelity Advisor.

00:40:40.500 | I also have an SEP from a previous employer, which happens to be my father.

00:40:45.500 | And it will get one more distribution in 2016.

00:40:49.500 | My wife has a Roth IRA through American Funds, a mutual fund from another company that her grandfather started for her as a baby.

00:40:58.500 | And she has a super small retirement account through a previous employer, which also happens to be her father.

00:41:06.500 | And what I'm considering doing is moving everything except for probably the SEP to a company like Edwards Jones with a long-term conservative strategy.

00:41:16.500 | So I can kind of have everything housed through one company just to simplify everything, even though certain things I know will have to wait.

00:41:24.500 | So what I'm really looking for is just some advice as we make this move.

00:41:28.500 | I'd really like to take that and kind of consolidate it because right now we have a lot of car parts, but a lot of them kind of look the same and they're spread out.

00:41:35.500 | And I'd like to get them all into one place so I can manage it a little bit better.

00:41:39.500 | And I wanted to hear your opinion on that and see what kind of suggestions that you had.

00:41:44.500 | But thank you in advance for your answer, and thank you for the podcast. I appreciate it.

00:41:49.500 | Have a great day, Joshua.

00:41:51.500 | I'll start branding the podcast as Joshua's Fitness Show.

00:41:58.500 | I had a couple of listeners that have emailed me and said they get a lot more exercise with my behemoth podcasts.

00:42:04.500 | Guy, it's a great question, and I think you're thinking in the right direction as far as consolidating.

00:42:09.500 | And that'll be primarily where my comments are.

00:42:11.500 | I'm not going to comment on any specific funds or specific companies, but rather just simply focus on the value of consolidating everything together.

00:42:19.500 | It's hard to maintain a far-flung empire.

00:42:23.500 | If you've got little bits here and little bits there, it's really hard to do those things efficiently.

00:42:30.500 | It's hard to have 13 bank accounts and 14 investment accounts.

00:42:35.500 | And although it's possible, you're probably not going to be using them as efficiently.

00:42:40.500 | So I think that whenever possible, you should be functioning with a minimum number of accounts in a minimum number of places.

00:42:49.500 | And there are some specific reasons for that, especially in the investment space.

00:42:53.500 | There are legitimate reasons for a diversity of accounts, but it should be done when it's being done as part of your strategy of diversification.

00:43:06.500 | So if you are running bank accounts and you're trying to make sure that all of your money falls under FDIC guarantees of $250,000, then yes, you need to put multiple accounts with multiple names so that they are properly covered.

00:43:20.500 | If you are pursuing an investment strategy that has a certain type of diversification needed and you want to make sure that that's spread around a little bit in case somebody steals your money, that's a good plan.

00:43:30.500 | But in general, simpler is better.

00:43:32.500 | We want to keep our lives simpler and that way you're going to get better results.

00:43:36.500 | In the financial business, this helps for a couple of reasons.

00:43:38.500 | It helps to reduce costs and it helps you to know who to hold accountable for performance.

00:43:43.500 | In investment management, you want to make sure that if possible, you're the biggest fish possible.

00:43:50.500 | And if you've got say $20,000 at four different places, you're not a very big fish in four different places.

00:43:59.500 | But if you can start to bring your money together, you can be a big fish in one place and you'll get much better service.

00:44:05.500 | The investment industry as it stands today is all about the big fish and you want to be the big fish if possible.

00:44:12.500 | You'll get better service.

00:44:14.500 | You'll get better support.

00:44:15.500 | And more importantly, the second aspect, not only to be the big fish, but you'll get lower costs.

00:44:20.500 | Depending on how the accounts are structured, if you are, for example, purchasing commission-based products,

00:44:26.500 | which it may be with the mutual funds that you've purchased and are purchasing, you want to take advantage of breakpoints.

00:44:32.500 | And breakpoints are a reduction in sales charges based upon a larger amount of money.

00:44:37.500 | So with mutual fund companies, if you're buying mutual funds that are being sold with a sales commission by the advisor,

00:44:44.500 | the more money you put in one place, the lower those sales commissions are as a percentage of the purchase.

00:44:50.500 | You get over a certain amount of money and those sales commissions are gone entirely.

00:44:54.500 | So you want to take advantage of breakpoints.

00:44:56.500 | Or if you're paying compensation based upon fees, whether those are advisor fees or whether they are mutual fund fees,

00:45:05.500 | you're also going to be able to take advantage of a reduction of fees by having more money in the account.

00:45:12.500 | The more money you have with an advisor, the lower his or her fees will be as an expression of percentage of assets.

00:45:19.500 | And this is good business sense because as an advisor, if I were managing your accounts, the more money you have with me,

00:45:26.500 | I have more of an incentive to do more work for you, but I don't have an exponentially higher amount of work managing $2 million versus managing a $500,000 account.

00:45:34.500 | Yeah, maybe there's a little bit more work, but it's not four times as much work.

00:45:38.500 | So I have an incentive to reduce my fees as a percentage of the account value, which is what most advisors will do.

00:45:43.500 | Or if you're just working with a mutual fund company directly, many mutual fund companies will have different share programs that are cheaper the more money you have.

00:45:53.500 | So let's see. A simple example, like Vanguard, their Admiral shares I think have lower expenses if you have enough money to get into the program.

00:46:00.500 | Different mutual fund companies have different programs like this.

00:46:03.500 | So in general, you want to have your accounts consolidated.

00:46:06.500 | It's also important because the level of homework and due diligence that's needed on investment accounts is quite a bit.

00:46:14.500 | So if you're going to sit down and you're going to investigate all your accounts and you're going to figure out what are the fees that I'm paying, what are the costs that I'm paying,

00:46:20.500 | a lot of times you're going to be reading the fine print and you're going to be talking with people and you're going to be writing things down and figuring that out.

00:46:26.500 | If you've got money at four different places and in four different companies, then you've got to do that four times over.

00:46:32.500 | If you're doing it in one place with one company, then you can do it more effectively.

00:46:38.500 | Finally, the reason I think this is important to do is so that your advisor, if you're working with an advisor, can see things holistically.

00:46:47.500 | If you're serving as your own advisor, then you need to be able to see things holistically.

00:46:52.500 | So you need to create a digital dashboard of some sort to be able to see everything in one place.

00:46:57.500 | But your advisor needs to be able to see things holistically.

00:47:00.500 | There are many things that you might be planning for with investment approaches that if your advisor isn't aware of all of the assets, they can't properly prepare for them.

00:47:09.500 | So you might have a certain amount of money in cash, but if all of your advisors are keeping a certain amount of money in cash to fund their trades or to keep on the back burner in case of a liquidity need, then you're going to have too much money in cash.

00:47:21.500 | But if one advisor has the stewardship of all the assets, they'll be able to more effectively serve you.

00:47:29.500 | So those would be my comments and advice on the situation that you outlined.

00:47:34.500 | You're moving in the right direction.

00:47:36.500 | The last thing is make sure that you are working towards specific goals and that all of your energy is focused on those goals.

00:47:45.500 | This is something I never fully appreciated in my own life in the past.

00:47:49.500 | I did a little bit here and a little bit there, put a little bit of focus here and a little bit of focus there.

00:47:55.500 | And now I see more and more the value of an intense level of focus on the next goal.

00:48:01.500 | So if you're going to college and you're getting a college degree, then you should be 100% focused on that.

00:48:06.500 | Or if you're building an investment plan, make sure that you're pursuing that investment plan because that focus at an early age can make a big difference.

00:48:15.500 | And yes, focus is going to lead to the possibility of you getting wiped out with poor diversification, but it's also going to lead to the possibility of much higher rates of return.

00:48:24.500 | If you're going to start buying rental houses, it doesn't make a lot of sense for you to put a little bit of money in an IRA and put a little bit of money in a Roth IRA and put a little bit of money in a rental house and put a little bit of money in gold coins.

00:48:35.500 | You need the leverage behind you to buy rental houses.

00:48:39.500 | Now, if you're using paper assets, it's a little bit simpler and you say, "Okay, I'm going to put all my money into IRAs and Roth IRAs."

00:48:45.500 | Well, in that case, focus on funding the accounts with the best investments for your goals.

00:48:52.500 | And you can't choose the best investments if you're choosing from four different fund companies and three different advisors and reading all these prospectuses.

00:49:00.500 | So all of those reasons put together are the reasons why I would encourage you just to do exactly like you said.

00:49:06.500 | Find an advisor or find a company that will appropriately serve your needs and focus everything with that specific person.

00:49:18.500 | Then you'll be able to hold them accountable.

00:49:20.500 | You can hold the advisor accountable.

00:49:22.500 | You can hold the company accountable for their performance and their stewardship of your funds.

00:49:26.500 | Thanks for the question.

00:49:27.500 | Good luck.

00:49:28.500 | Hello, Josh.

00:49:29.500 | Thanks so much for your show.

00:49:30.500 | My question pertains to maxing out tax-deferred retirement accounts when one spouse works and the other one stays at home.

00:49:41.500 | Is it possible for the stay-at-home spouse to max out the tax-deferred retirement accounts up to the $52,000-ish limit that the IRS dictates?

00:49:56.500 | Or can that spouse only put in the IRA max of $5,500 a year?

00:50:05.500 | Thanks so much for any answer.

00:50:08.500 | Tom, it's a good question, and you're mixing up two different things, which I'll isolate here.

00:50:13.500 | The first thing is the $52,000 number, and the second thing is an IRA.

00:50:19.500 | The $52,000 number is the total amount that you can contribute to certain types of employer-based plans.

00:50:27.500 | So if your spouse has a company or has a business or is self-employed in some way, then they would be able to contribute to some of these plans that would have that higher amount.

00:50:41.500 | A very simple idea would be something like the SEP IRA, and if they made a couple hundred thousand dollars, they could contribute up to $52,000 into the SEP IRA.

00:50:49.500 | Or if they had a solo 401(k) and they structured the paperwork appropriately, they could contribute a high amount of money into that plan.

00:50:56.500 | So the key question would be there, does your spouse have a business or have earned income or business income of some type to be able to contribute to that type of plan?

00:51:07.500 | Assuming that stay-at-home spouse by definition means not self-employed and not having any kind of earned income, then in that scenario, they would be limited to an IRA contribution.

00:51:19.500 | Anybody of any income can contribute to an IRA, to a traditional IRA.

00:51:24.500 | The 2015 limit to that is $5,500.

00:51:29.500 | But only certain people of certain income under certain situations can fully deduct the amount of their contribution or partially deduct the amount of their contribution.

00:51:38.500 | In this case, if you are working and your spouse is at home, then the question is whether or not you are covered by an employer plan at work and then what your income is.

00:51:51.500 | If you are not covered by a plan at work, then regardless of your income, both of you can make a contribution to the account and can take a deduction of any amount.

00:52:05.500 | Excuse me, not of any amount, but you could take the appropriate deduction for the full amount of your contribution.

00:52:10.500 | So you put in $5,500 plus the catch-up contribution and you can fully deduct that amount for both of you.

00:52:17.500 | If you are covered by a plan at work, some type of 401(k) plan, other type of plan that's been established for you, then the question comes down to what your modified adjusted gross income is.

00:52:29.500 | If your modified adjusted gross income is $183,000 or less, then your stay-at-home spouse can make a contribution to a traditional IRA and can take a full deduction up to the amount of the contribution limit.

00:52:46.500 | If your income is between $183,000 and $193,000, they can make a full contribution, but they can only take a partial deduction.

00:52:57.500 | And if your income is more than $193,000, then they can make a contribution, but they can't take any type of deduction.

00:53:04.500 | So the key question here is are you covered by an employer plan at work? And if so, what is the level of your income?

00:53:13.500 | Hope that makes sense. Thanks for the question.

00:53:15.500 | Next.

00:53:17.500 | I have a question regarding withdrawal of funds from your retirement account.

00:53:22.500 | I remember when I got my draft card.

00:53:24.500 | Well, now I have a Medicare card and I'll soon be depleting my retirement nest egg.

00:53:30.500 | I found at least three contradictory plans for withdrawing funds.

00:53:34.500 | The first put forward by Rick Edelman is the systematic withdrawal plan.

00:53:38.500 | The criticism of this plan is reverse dollar cost averaging and sequence of returns risk.

00:53:44.500 | The second plan is put forward by Ray Lucia is a time weighted buckets plan.

00:53:48.500 | Put 15 years of safe money in a bucket and live on that.

00:53:52.500 | Put the other money in volatile buckets and use those to refill the safe bucket in 15 years.

00:53:58.500 | The major criticism is that your portfolio will not grow as fast with so much of your money in low earning safe money.

00:54:05.500 | The third I heard from Arthur Stein in D.C.

00:54:08.500 | He says take funds from all your portfolio investments.

00:54:12.500 | But if securities are down, then take more funds from the less volatile until the market returns.

00:54:18.500 | It sounds big to me and seems to require market timing.

00:54:22.500 | Can you provide some critical thinking analysis of these plans as well as any other that you might prefer?

00:54:29.500 | So I'll call this listener Max.

00:54:31.500 | And, Max, I've sat on this question for a little while because I haven't – I've wanted to answer it, but it's not a simple answer.

00:54:41.500 | And so I'm just going to give you a quick overview here by reading a portion of an article from the Journal of Financial Planning to you.

00:54:49.500 | But as preamble to that, I do plan to cover this and go through in detail the pros and cons of different approaches.

00:54:57.500 | But this is something that all the financial planners argue about among themselves.

00:55:01.500 | And so I couldn't for an instant sit here and say here's what the best thing is because regardless of which of those ideas and approaches I were to go with, there are various disadvantages and advantages of each of them.

00:55:13.500 | And I would be arguing with a portion of the financial planning industry of excellent academic professionals who look at this and study these things.

00:55:21.500 | What usually happens is there is – in my observation, what usually happens is there's going to be a best fit with either one of these plans for you yourself.

00:55:33.500 | You sound like a do-it-yourselfer.

00:55:35.500 | You're going to find one of these approaches to be the most appealing as compared to a different approach.

00:55:40.500 | And if so, you'll go ahead and go with the one that you find to be the most appealing.

00:55:44.500 | Or you're going to find a planner and a firm that uses one of these approaches primarily and has developed the capability of actually tracking them.

00:55:55.500 | That's the big challenge here.

00:55:57.500 | All of these approaches need to be actively managed and tracked.

00:56:00.500 | And by actively managed, I'm not saying they need to be funded with actively invested mutual funds.

00:56:05.500 | I'm saying that you have to actually proactively figure out these numbers, focus on your distribution strategy, adjust to the market conditions at the time, and replenish the accounts and replenish the income plan.

00:56:18.500 | And that requires a proactive approach.

00:56:22.500 | And so the firm has to be committed to that, has to have the capabilities and resources to actually service you as a client.

00:56:30.500 | And they're going to have a bias or a bent in one direction or another based upon what they feel they can effectively do.

00:56:38.500 | What I am going to do here is read to you a portion of an article from the October 2011 Journal of Financial Planning.

00:56:46.500 | And this is an article that is entitled Mirror, Mirror on the Wall by a financial planner named Jonathan Guyton.

00:56:54.500 | And in the latter part of this article, every year the Financial Planning Association does this study.

00:57:00.500 | I think it's every year.

00:57:01.500 | And they have a survey where they're trying to figure out how different financial planners handle this retirement income question.

00:57:09.500 | And he wrote about this and it's concise enough that I'm going to read it and have it serve as a few useful thoughts.

00:57:17.500 | And then in the future when I'm able to get to it, I will prepare a series of shows on the background.

00:57:22.500 | I might be able to do this in an interview format with different financial planners.

00:57:26.500 | We'll see as time goes forward.

00:57:28.500 | But reading from the second part of the article here, income distribution strategies.

00:57:32.500 | The survey also asked planners to choose the income distribution strategy they most frequently employ.

00:57:38.500 | Ninety-two percent of respondents picked one of the following three approaches as their primary strategy.

00:57:44.500 | Structured systematic withdrawals, 50 percent up from 40 percent in 2009.

00:57:50.500 | A total return policy-based approach that draws a percentage of the portfolio periodically for income.

00:57:56.500 | Time-based segmentation, 28 percent down from 32 percent in 2009, which establishes separate pools of investments with the lowest risk pool drawn down for income in the nearest time horizon with the higher risk pools then drawn down for income in later periods.

00:58:13.500 | Essential versus discretionary income, 14 percent unchanged from 2009.

00:58:20.500 | Low-risk investments or annuity guarantees fund essential expenses and moderate higher-risk investments fund discretionary expenses.

00:58:27.500 | Several points relating to these three approaches strike me as noteworthy.

00:58:31.500 | The first concerns the essential versus discretionary approach, typically preferred because it insulates the funding of essential lifestyle expenses via very low-risk or annuity-guaranteed products and applies a more growth-oriented asset allocation with the assets assigned to fund discretionary lifestyle components.

00:58:50.500 | As noted earlier, only 17 percent of planner clients in or near retirement had to significantly alter their lifestyle following the financial crisis.

00:58:59.500 | However, an average of 25 percent of clients whose planners primarily employ the essential versus discretionary approach suffered a significant lifestyle adjustment, the highest percentage of any strategy, and a correlation that proved statistically significant.

00:59:15.500 | How could this be?

00:59:16.500 | It is likely that the assets earmarked for essential expenses in fact generated their income as anticipated without any unpleasant surprises.

00:59:24.500 | However, these assets require a larger initial investment to generate a given income than the other approaches.

00:59:31.500 | A client with $1 million seeking to fund $30,000 of inflation-adjusted essential expenses may need to put $800,000 or more in such low-risk assets, whereas even in a highly-valued market, a static safe withdrawal strategy of 4.5 percent would require only $667,000.

00:59:51.500 | And a dynamic rate of 5.5 percent would claim just $550,000.

00:59:57.500 | If the remaining $200,000 were invested more aggressively for growth as a counterbalance, this discretionary fund may well have declined 35 percent or more to less than $130,000.

01:00:11.500 | Experiencing this situation in 2008 and 2009, it is easy to imagine some retirees at least partially delaying or canceling planned expenses that were to be funded with these assets.

01:00:24.500 | Unfortunately, retirees are rarely ambivalent about their planned discretionary expenses.

01:00:30.500 | In fact, some of these may be essential to their retirement being a fulfilling time of life, even if not essential for basic food, clothing, or shelter.

01:00:38.500 | Income from these assets funds activities that actually help to define their quality of life, at least for that year.

01:00:45.500 | Even a partial delay is a significant adjustment.

01:00:49.500 | With a smaller share of assets available for such activities to begin with, the reduced discretionary fund balance early in 2010 may have been even more alarming.

01:00:58.500 | Sadly, an unintended consequence of this approach suggests itself.

01:01:03.500 | Be they clients or practitioners, some of those who most desire to shelter themselves from the inevitable economic storms appear to have been the most vulnerable to their fury.

01:01:14.500 | I'm going to interrupt the article here with saying this was the approach that I used at Northwestern Mutual was this allocation of some expenses to the essential approach, some expenses to the discretionary approach.

01:01:25.500 | In 2008-2009, I had not yet been in the business to the point of having clients who were following this plan, so I didn't personally experience this.

01:01:34.500 | But I do still think it's a strong strategy and it's still one of my preferences, but as indicated in the article here, a lot of planners disagree with that.

01:01:43.500 | The time-based segmentation or bucket approach used primarily by about 30% of planners sounds highly rational and feels quite secure, at least initially.

01:01:55.500 | After all, knowing that the first three or five years of portfolio withdrawals are safely tucked away in the most stable of fixed income assets with funds that will provide the income needed further down the road invested in more growth-oriented holdings is surely comforting.

01:02:10.500 | This, however, begs the question, what happens next?

01:02:14.500 | Depending on the answer, the bucket approach is then revealed as a thoughtful policy-based methodology, which places it neatly in the structured systematic withdrawals category or a rigid formula at risk of breaking in times when flexibility is required or a well-intentioned but vacuous strategy about which Gertrude Stein might have said, "There is no there there."

01:02:38.500 | Let me explain. Various articles have explored this concept, including actual empirical research that has attempted to quantify the sustainable withdrawals it can make available to retirees.

01:02:48.500 | There is no result that ascribes an increased safe withdrawal rate to its use.

01:02:53.500 | The sum of its parts, buckets, is no greater than its whole.

01:02:57.500 | In other words, a series of buckets that in total puts 40% of assets in fixed income generates the same outcome as a balanced portfolio with a 60/40 allocation.

01:03:06.500 | This is by no means a criticism of the bucket approach.

01:03:10.500 | However, any contention that it can produce higher sustainable withdrawals because of its structure is not borne out by the evidence.

01:03:17.500 | Still, practitioners using this approach face the same implementation issues as under the structured systematic withdrawal method.

01:03:25.500 | What is the source of this year's withdrawals?

01:03:27.500 | How will interest and dividend payments be handled?

01:03:30.500 | How do I rebalance the overall portfolio in light of current conditions?

01:03:34.500 | How do I handle a sustained equity bear or bull market?

01:03:37.500 | What, if anything, would trigger something other than an inflation-based withdrawal increase from one year to the next?

01:03:43.500 | Policy-based questions, all of them.

01:03:46.500 | Descriptions of the bucket approach frequently treat these matters almost as though they were afterthoughts when they often determine the very sustainability of a retiree's portfolio income.

01:03:57.500 | My concern is that placing three or five years of expenses in highly stable, short-term securities offers a false sense of security or worse.

01:04:06.500 | Undoubtedly, a cushion of this size or length is not only comforting, it is also sufficient to outlast most equity bear markets.

01:04:14.500 | Most, but not all.

01:04:16.500 | The reason portfolios with 60 to 70 percent equities consistently produce the maximum safe withdrawal rates at 99 to 100 percent success rates is because they contain and need to contain a big enough cushion to get through a far longer part of the distribution period when selling equities to fund withdrawals may be off the table.

01:04:35.500 | A balanced portfolio with 35 percent in short-term and U.S. government bonds can use these assets to sustain a 5 percent withdrawal rate for 8 to 10 years depending on its overall yield.

01:04:46.500 | Isolating three or five years of safe money may not be enough.

01:04:50.500 | Thus, maintaining a safe income bucket of that size does not offer a bulletproof sense of security absent a thoughtful integration with the other portfolio assets.

01:04:59.500 | If it did, portfolios with 80 percent equities would have higher safe withdrawal rates at a given confidence level than those with 60 to 70 percent.

01:05:09.500 | They do not.

01:05:11.500 | A larger potential problem comes if the buckets are established under a set-it-and-forget-it approach in which they are left to be drawn down in a predetermined sequence.

01:05:20.500 | What happens when an extended equity bear market ensues just as the safe bucket for the initial years is largely exhausted?

01:05:27.500 | Of course, a thoughtful policy-based rebalancing method would easily mitigate this risk.

01:05:32.500 | However, a literal and sequential drawdown of the buckets will periodically expose clients to the very market risks and consequences they would obviously rather avoid.

01:05:42.500 | So I probably lost 50 percent of the audience by using financial planner lingo, but frankly, that's the answer to the question.

01:05:49.500 | It depends.

01:05:51.500 | It's not an easy question to answer.

01:05:53.500 | We as financial planners have been working hard to come up with answers, but there's still a lot of debate in theory and in practice about how to do this.

01:06:02.500 | The key thing I do wish to close with for you, Max, is that you should consider that you do need to be active at least to some extent in retirement.

01:06:15.500 | This is different than in the accumulation phase.

01:06:18.500 | In the accumulation phase, the concern that you expressed about, "Well, then I'm trying to time the market."

01:06:22.500 | In the accumulation phase, generally, you're accumulating for a long period of time and you're accumulating over a long period of time.

01:06:29.500 | And you're systematically transferring income, a steady source of income, into investments.

01:06:35.500 | And generally, the best approach is just going to be to dollar-cost average in and consistently tuck money away.

01:06:42.500 | But once you get into the distribution phase, I think you have to be a little bit active and you have to be proactive.

01:06:48.500 | You have to follow your gut a little bit and you have to work with your planners.

01:06:53.500 | Now, the level of that active, proactive approach is going to depend on the strategy.

01:06:58.500 | If you're funding buckets of money, you've got to actually sell the funds and move them over.

01:07:02.500 | And you should be able, I think, and the challenge here is my own youth and inexperience of sitting through and working through decades and decades of stewardship of client assets.

01:07:16.500 | So I can't speak to this from personal experience.

01:07:18.500 | But for me, personally, friend to friend, I'm convinced that you can be a little bit proactive and you can just get a sense.

01:07:26.500 | And once you reach the point of retiring, generally, you're not trying to squeeze out the maximum return.

01:07:34.500 | You're not trying to say, "We've got to make the absolute maximum return in order to keep my job as a fund manager."

01:07:40.500 | That's a different question.

01:07:41.500 | You're just saying, "I need to be pretty big right on the general momentum of the markets."

01:07:47.500 | And you should be able to smell when all the papers are filled with gloom and doom the fact, "You know what?

01:07:51.500 | I'm just going to draw off my safe assets, however those are structured here, and try not to sell right now."

01:07:56.500 | And when there's new highs, that might be a good time to go ahead and transfer money into cash.

01:08:02.500 | At some point, I'll try to create these shows and present it in a structured way.

01:08:07.500 | It's a big task.

01:08:09.500 | It's a challenging thing to work through because there's a lot of science behind it.

01:08:14.500 | And then the question is, "How do I do it in a way that's interesting but that's also technically accurate?"

01:08:18.500 | But at some point, I will try to do that.

01:08:21.500 | Final question for the day here.

01:08:23.500 | Good morning, Joshua.

01:08:26.500 | I have a question for you.

01:08:28.500 | I'm trying to figure out if you have other services you offer like coaching through goals.

01:08:34.500 | Sorry, that's my son.

01:08:37.500 | Coaching to help resolve how to achieve certain goals.

01:08:42.500 | So I've listened to a number of your podcasts, probably like over a dozen.

01:08:45.500 | I'm working my way through them, and the content is fantastic.

01:08:49.500 | I really appreciate it.

01:08:51.500 | But what I'm trying to figure out is if you have other things you offer.

01:08:55.500 | For example, I have an idea of a goal, but I'm not sure how to get there.

01:09:02.500 | Essentially, it would be moving, relocating to another country and trying to set up something online

01:09:09.500 | where it would essentially replace my income and my current income.

01:09:15.500 | I would be able to pretty much live anywhere.

01:09:18.500 | Essentially, that would be one of my more short-term goals.

01:09:22.500 | I have a number of other long-term goals, and I'm trying to balance.

01:09:26.500 | Essentially, trying to do that with a longer-term goal where I have a really stable job.

01:09:33.500 | They never fire anybody unless you do something terribly wrong.

01:09:40.500 | Once you're hired on, you're in.

01:09:43.500 | My salary is good, and I have pretty good working conditions.

01:09:49.500 | That's my question, is if you offer any kind of coaching,

01:09:54.500 | or if you'd be able to work through a structure of saying, "Oh, yeah, here's your goal.

01:10:00.500 | I remember the Shelby car," or something that you talked about,

01:10:03.500 | and here's how you would get there, and here's the options of getting there,

01:10:06.500 | and maybe also doing an assessment of my current situation to see how my current plan is laid out,

01:10:13.500 | and give it a ranking 1 to 10 and say, "Oh, you're an 8, and you could improve here and here and here."

01:10:18.500 | Do an assessment like that.

01:10:20.500 | That's what I'm looking for.

01:10:21.500 | If you wouldn't mind commenting on it, that would be great.

01:10:24.500 | I appreciate it.

01:10:25.500 | Thank you very much.

01:10:26.500 | We'll call this -- everyone's got secret names today.

01:10:28.500 | If you call me and leave me a voicemail, by the way, make up a name.

01:10:31.500 | Give me something so I don't have to make them up.

01:10:33.500 | We'll call this person Lloyd.

01:10:36.500 | Lloyd, answer your question is no.

01:10:39.500 | At the moment, I'm not offering any individual coaching other than what I'm offering through the Patreon page.

01:10:45.500 | That will probably be your best option.

01:10:48.500 | On the Patreon page, there are a total of four slots available for basically a kind of a small -- I hate the word,

01:10:58.500 | but a small mastermind group where there are -- right now there are three patrons who are using this service,

01:11:04.500 | and we meet together once a month.

01:11:06.500 | We have a group chat with just us, and I connect with them, and we talk about their questions.

01:11:13.500 | I know all of their situations, their personal situations pretty closely,

01:11:16.500 | and we spend time on that just talking about their questions and kind of giving some big-picture coaching.

01:11:22.500 | I don't go into the realm of financial advice on that as far as giving specific suggestions of sell this fund, buy that.

01:11:29.500 | I don't cross over into the world of financial advice and primarily coaching.

01:11:33.500 | And also one of the benefits of that is that in response to that with that group, you can suggest a show topic,

01:11:40.500 | and that show topic could be something like your life if you wanted to give me a lot of details,

01:11:44.500 | and I'll make a show out of it, or it could be a specific topic.

01:11:47.500 | So I've got a show coming next week -- next week, yeah, it should be sometime in the next few weeks

01:11:54.500 | on the topic of caring for older parents and what do you need to do when doing that.

01:11:59.500 | That's a specific service that is for one of the patrons of the show at that level.

01:12:04.500 | So you might check that out.

01:12:06.500 | Overall, I think in the future I will offer some coaching, but what I've been doing as far as my own approach to this business

01:12:12.500 | is trying to build things in a stable way and trying to build things in a way that fits my lifestyle goals.

01:12:19.500 | I'm trying to lead by example.

01:12:20.500 | And so one of my lifestyle goals is I prefer to have control over my schedule,

01:12:24.500 | and I prefer to have a minimum of calendar appointments that are at specific times.

01:12:30.500 | And I'm also trying to focus on my own personal strengths.

01:12:35.500 | And so what I think my personal strengths are is the ability to --

01:12:39.500 | and the strengths that I'm most interested in developing is the ability to put this type of information and content

01:12:45.500 | into a show that can serve a lot of people.

01:12:47.500 | And although I think I can be an effective coach, I think other people are probably more effective at that.

01:12:53.500 | But I think I can learn to be the most effective at this.

01:12:58.500 | And so I'm trying to focus on my number one core strength, which is creating the verbal content.

01:13:03.500 | Now the question comes in as far as how do I make money off of that, which is the challenge that we all face.

01:13:08.500 | It's nice to want to go and live in a foreign country, but how do you make an income?

01:13:12.500 | So that's the challenge we all face, and I've got my ideas and my ways of working on it.

01:13:16.500 | I may offer more to that in the future.

01:13:21.500 | The other thing I would say is that if you don't want to join the Patreon page at the $250 level,

01:13:27.500 | at least consider joining the Irregulars program at the $25 level,

01:13:31.500 | because in exchange for that, you get access to the private Facebook group.

01:13:35.500 | And there's really a great community of Irregulars that is drawing together.

01:13:40.500 | There are at least 100 of us now in there, most of which are – some of which are in the Facebook group.

01:13:47.500 | Not everyone's in the Facebook group, but some of which are in the Facebook group.

01:13:51.500 | And there are some people in there that are much smarter than I am.

01:13:54.500 | And that's where what I love seeing happening is people are starting to list out their questions,

01:14:00.500 | their life goals, their approaches, and then other people more than me are able to bring those things together

01:14:07.500 | and are able to give some specific ideas.

01:14:10.500 | And so I would suggest to you that both if you do the Patreon at $250, that would give you access to that,

01:14:17.500 | plus me personally, plus me doing shows, or at least join as an Irregular at the $25 a month.

01:14:23.500 | So I'm sharing this question here with the audience so that many of you –

01:14:28.500 | hopefully I try to strike a balance with the Patreon stuff of sharing it with you

01:14:34.500 | but also just recognizing that it's up to you to investigate.

01:14:38.500 | But there are some real benefits, and I think the best benefits are going to come at those levels.

01:14:43.500 | The other thing is if you join as a Patron on at least $10 a month,

01:14:47.500 | then you get access to the once-a-month video Google Hangout that I'm doing,

01:14:51.500 | which I need to schedule the next one over the next couple of weeks.

01:14:54.500 | And in that situation, you can ask me questions and I'll respond directly to your question live.

01:14:58.500 | And you can clarify and you can follow up with that.

01:15:01.500 | So I'm working to provide value in those ways.

01:15:05.500 | And so for you, Lloyd, or for any other member of the audience,

01:15:08.500 | if you'd like a little bit more contact with me or you'd like a little bit more time with –

01:15:15.500 | or you'd like access to some other people who are just as – are more radical than I am,

01:15:20.500 | then consider joining as a Patron of the show at some of those levels and getting involved,

01:15:25.500 | especially at least at the $25 a month level in the Irregulars program.

01:15:29.500 | Many of you will notice that I'm less active in the comments on the show page than I have been in the past.

01:15:34.500 | I thank each of you who comments. I read all the comments.

01:15:37.500 | But as far as me practicing what I preach and focusing my time on the most useful areas,

01:15:44.500 | I spend more time in the Facebook group trying to engage with listeners there

01:15:49.500 | rather than on the comments page.

01:15:51.500 | So I thank you for being a listener of the show regardless of whether you support the show financially or not.

01:15:56.500 | I really do. I thank each and every one of you for listening.

01:16:00.500 | And if you are in the stages of just building your – if you're in the stage of building your life

01:16:07.500 | and you're working your way through the challenges,

01:16:09.500 | I want you to take and consume all of this content for free and use it to change your life.

01:16:15.500 | I really do.

01:16:16.500 | For those of you who are able to support the show financially, I thank each and every one of you who is doing it.

01:16:22.500 | If you haven't done that – this is kind of a long Patreon commercial here –

01:16:27.500 | but if you haven't done that, I'd love for you to consider doing that.

01:16:29.500 | I'm in the process of figuring out what the next transition is going to be for me in funding the show.

01:16:35.500 | If you benefit from the show and you'd like to see me continuing to focus on the crowdfunded approach,

01:16:42.500 | I'd be thrilled if you'd become a patron and go to RadicalPersonalFinance.com/patron.

01:16:47.500 | You can do it at a buck a month and I thank each and every one of you who does it for a buck a month.

01:16:51.500 | You can do it for three bucks a month, five bucks a month. There are different benefits there.

01:16:54.500 | And those things are really meaningful to me.

01:16:57.500 | It helps me to know that you value the content.

01:17:01.500 | It helps me to continue to keep my allegiance only to you as a listener.

01:17:06.500 | And as I work through over the next few weeks exactly what some of the changes I'm going to make

01:17:10.500 | and I'm going to earn a little bit more money off the show, I'm keeping those things in mind.

01:17:13.500 | If you would like a little bit of help, join that Irregulars program at the $25 a month level.

01:17:20.500 | You can cancel any time you don't want, but if you take advantage of it and you ask questions

01:17:24.500 | and you engage with the people, I think there can be some real benefit there to you.

01:17:28.500 | And I'll do my best to give you benefit and give you ideas.

01:17:31.500 | But in the same way that we kicked it off with the initial question from the listener who said,

01:17:34.500 | "Well, you didn't think about this and this and this and you didn't answer that,"

01:17:38.500 | that happens every single day.

01:17:40.500 | There's always multiple ways of looking at questions.

01:17:43.500 | Everyone that we know is always smarter than we are in some way.

01:17:47.500 | And so by building this community and building the group behind it, you can get the most benefit from it.

01:17:54.500 | So for you, Lloyd, and for any of the rest of you, if you'd like a little bit of help

01:17:57.500 | and a little bit of personalized coaching, a little bit of personalized involvement,

01:18:01.500 | go on over to RadicalPersonalFinance.com/patron.

01:18:05.500 | Consider signing up at the Irregulars level, $25 a month, and get access to the Facebook group.

01:18:10.500 | That's where I'm spending my time, like I said, and there are some very smart people in there.

01:18:14.500 | So thank you all for listening. Hope you've enjoyed the show. Be back with you soon.

01:18:18.500 | [Music]

01:18:20.500 | Thank you for listening to today's show.

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01:18:43.500 | You can support the show with as little as $1 a month or as much as you feel the content is worth.

01:18:48.500 | Details are at RadicalPersonalFinance.com/patron.

01:18:53.500 | If you'd like to contact me personally, my email address is Joshua@RadicalPersonalFinance.com

01:18:58.500 | or connect with the show on Twitter @RadicalPF and at Facebook.com/RadicalPersonalFinance.

01:19:04.500 | This show is intended to provide entertainment, education, and financial enlightenment,

01:19:10.500 | but your situation is unique and I cannot deliver any actionable advice without knowing anything about you.

01:19:17.500 | Please, develop a team of professional advisors who you find to be caring, competent, and trustworthy

01:19:24.500 | and consult them because they are the ones who can understand your specific needs,

01:19:29.500 | your specific goals, and provide specific answers to your questions.

01:19:34.500 | I've done my absolute best to be clear and accurate in today's show, but I'm one person and I make mistakes.

01:19:40.500 | If you spot a mistake in something I've said, please come by the show page and comment so we can all learn together.

01:19:46.500 | Until tomorrow, thanks for being here.

01:19:49.500 | The holidays start here at Ralph's with a variety of options to celebrate traditions old and new.

01:19:55.500 | Whether you're making a traditional roasted turkey or spicy turkey tacos,

01:19:59.500 | your go-to shrimp cocktail, or your first Cajun risotto,

01:20:03.500 | Ralph's has all the freshest ingredients to embrace your traditions.

01:20:07.500 | Ralph's. Fresh for Everyone.

01:20:09.500 | We've locked in low prices to help you save big store-wide.

01:20:13.500 | Look for the locked in low prices tags and enjoy extra savings throughout the store.

01:20:17.500 | Ralphs, fresh for everyone.

RPF0196-Friday_QandA