RPF0454-Friday_QA
00:00:00.000 | Hey parents, join the LA Kings on Saturday, November 25th for an unforgettable kids day
00:00:04.960 | presented by Pear Deck. Family fun, giveaways, and exciting Kings hockey awaits. Get your tickets
00:00:10.240 | now at lakings.com/promotions and create lasting memories with your little ones.
00:00:14.720 | It's Friday, that means it's time for another Q&A. I've got the phone lines queued up
00:00:19.920 | and five callers on the line. Let's get after it.
00:00:22.880 | (upbeat music)
00:00:39.280 | Welcome to the Radical Personal Finance Podcast, the show dedicated to providing you with the
00:00:43.120 | knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now,
00:00:48.640 | while building a plan for financial freedom in 10 years or less. My name is Joshua Sheets,
00:00:52.640 | and I am your host. Welcome to Friday Q&A.
00:00:56.880 | (upbeat music)
00:01:11.520 | These Friday Q&A shows are my favorite shows of the week. These are the shows where I show up to
00:01:16.400 | a phone line and I get to talk to you. I love it. I get so much energy out of talking to people
00:01:24.320 | that I often don't get. I have to manufacture the energy when I record the show by myself,
00:01:28.160 | but when I talk to people, real live people, it gives me just a ton of energy. The way it works
00:01:33.920 | is the callers have called into a conference line here, and so we're going to go to them one at a
00:01:38.400 | time as we go through. These Friday Q&A calls are open primarily to patrons of the show. Although
00:01:44.960 | today I sent out the invitation for this call to subscribers to the Radical Personal Finance email
00:01:51.360 | list. I've been working hard to communicate more and more with you via email. As a reward for those
00:01:57.680 | who have given me their email address, then I am allowing the email list onto these calls.
00:02:04.560 | If I had my perfect world, I probably would love to do a daily call-in radio show. I'd love to do
00:02:11.200 | that. I just haven't figured out how to make that work, nor have I particularly pursued it. The way
00:02:15.920 | the radio business works, it's... Anyway, I haven't decided to pursue that, but I do love doing these
00:02:23.440 | on Friday. We've got some great questions. If you'd like to join a future call,
00:02:27.280 | please make sure that you sign up to become a patron of the show. That'll be the most consistent
00:02:32.960 | thing because sometimes I get too many callers off the email list, and so some of you guys get
00:02:37.040 | locked out. Or you can take a chance if you're cheap and you don't want to send me any money,
00:02:41.360 | that's okay. Or if you're just working on other financial goals, that's okay too.
00:02:44.320 | Then what you can do is join the email list, and then you'll receive invitations to these calls,
00:02:50.720 | possibly from time to time. We're going to start with Shaz in Tallahassee. Shaz,
00:02:55.680 | what's your question? How can I serve you today, please?
00:02:57.680 | So yes, I'm 48. My husband is 58. We're both late bloomers. We started retirement four years
00:03:06.800 | ago because we're busy doing other things in our 20s, 30s, and 40s. No children. I've got a six
00:03:15.760 | figure job now because I went back to school, and we have student loans as a result, 100,000.
00:03:23.040 | Small house of 100,000 square feet, we owe about 155 on that. And we have possibilities of maxing
00:03:34.240 | out our retirement. We have a four, three B, 457, 18 can go into each. So the question is,
00:03:42.240 | since we are older, what do we do? I mean, which sequence should we follow? Should we max out the
00:03:52.800 | retirement while paying off our debt, and then paying off our house, and then potentially thinking
00:03:58.400 | about buying a rental? How much does your husband earn at his job?
00:04:04.000 | He earns 25,000.
00:04:06.000 | Okay. So you're at about 100, and he's at 25, give or take?
00:04:09.680 | So now I just got a raise. So I'm actually at about 150 with the overtime that I do.
00:04:17.600 | And so next year, it's going to be 175. This year, it was 150 together.
00:04:22.000 | Great. So the point is you got a high income, and because both of those are all wages,
00:04:28.240 | is all of your compensation paid to you as wages?
00:04:32.880 | Yes.
00:04:33.360 | Okay. So you're in a high tax bracket. And that's a big, big deal in terms of
00:04:38.640 | figuring out the answer to this question. You said that you started retirement four years ago. By
00:04:43.520 | that, do you mean you started saving for retirement four years ago?
00:04:47.760 | I just actually just maxed, just did the match, and just started paying off the debt,
00:04:56.640 | like throwing $2,000 a month at it. That's what I was saying. Yes.
00:05:00.560 | Right.
00:05:01.120 | So before, yes. We have no savings. Yes, we have savings, and it's $10,000. So that's
00:05:06.800 | really everything in a nutshell. Very simple.
00:05:09.520 | Why didn't you save for retirement earlier in life, such that you weren't then,
00:05:16.160 | but now you've decided to start saving for retirement? What changed for you?
00:05:19.680 | Well, I think it was just we had a lot of useful energy. We just wanted to live life.
00:05:29.120 | We only lived once. I came from a working class background, and I always vowed to myself when I
00:05:35.600 | was young, "I just want to buy whatever I want, live the way I want." And it was just not on my
00:05:40.880 | radar. And so now I've become, I read this book, Money or Your Life, and I guess you just get
00:05:48.400 | older and you just become more mature. It's like, "Wow, what have I been doing?" And I've made
00:05:52.960 | financial mistakes, including bankruptcy 15 years ago. So it's just, I don't know. I just grew up.
00:06:00.720 | Okay.
00:06:02.320 | Both of us.
00:06:03.200 | Real quick on the bankruptcy, was that a result of something catastrophic and unexpected,
00:06:08.000 | such as a medical expense or a lawsuit? Or was it just simply due to you had accumulated debt over
00:06:13.600 | time due to gradual overspending, and at some point it became too much for you?
00:06:19.280 | Yeah, poor financial choices and a relationship that I was in as well.
00:06:24.160 | Got it. Okay. So when you and your husband just got out of, finished school, got this great job,
00:06:31.920 | earning a lot of money, when you guys talk about retirement now, what does that mean to you? What
00:06:37.040 | do you want to do?
00:06:37.680 | So honestly, we don't really talk about it. I'm the only one thinking about it because my husband
00:06:45.360 | is still like, "Oh, it's going to work out." So when I think about retirement, I think about
00:06:51.520 | volunteering and pursuing things that really are non-monetarily, like going out to the third world,
00:07:01.200 | maybe working with Doctors Without Borders. It's usually some kind of altruistic work. And my
00:07:08.640 | husband is interested as well, so that's not something I could pursue monetarily.
00:07:15.520 | Do you have any connection or attachment to this job or career that you're engaged in now,
00:07:20.240 | emotionally? Do you like doing it?
00:07:21.840 | I like it. I like it enough. It's not, it pays well, and it's something that I can do with my
00:07:31.360 | volunteer work. And that's where I would be interested in. I'm a nurse anesthetist, so I
00:07:37.280 | could provide anesthesia to people in the third world who don't have access to surgery. And that's
00:07:42.960 | something where my heart would go out to. That's what I would enjoy doing at some point. So yes,
00:07:49.520 | I would like to just do it part-time. I don't want to be in the operating room full-time with no
00:07:53.920 | windows for 30 years or so. So when you are talking about on your shows, like I could retire,
00:08:02.240 | but I would, if I did this job, I would only want to do it part-time.
00:08:05.600 | If I have to do it for the next 40 years.
00:08:07.920 | If you did this job part-time, how much do you think you could earn in today's market?
00:08:12.720 | I could probably earn $80,000.
00:08:20.320 | And how much are your monthly living expenses right now,
00:08:24.640 | not including your student loan payments or extra payments?
00:08:27.920 | Includes the mortgage?
00:08:29.280 | Yes.
00:08:30.580 | Okay. Then that would be, I also support my mom's about $3,500.
00:08:37.200 | Including the support for your mom, it's about $3,500 a month?
00:08:41.120 | Yeah.
00:08:43.200 | Okay. And how much of that is your mortgage payment?
00:08:45.040 | My mortgage is $1,040, and that includes everything tax and home insurance.
00:08:52.160 | Okay. If you were to be a nurse, what would you do?
00:08:57.200 | If you were doing your job part-time, how long could you imagine your career?
00:09:08.000 | How long do you think you could keep working in your career?
00:09:11.440 | Until what age?
00:09:13.200 | Probably at least until 70.
00:09:17.280 | Okay. Well, the most important thing is going to be
00:09:26.080 | to clarify what is important to you and your husband in this second half of your life.
00:09:33.920 | That's going to be the most important thing.
00:09:36.720 | If you look forward over the next 50 years and you imagine what a perfect life looks like,
00:09:44.000 | you've got to get very clear on that perspective.
00:09:47.200 | I don't know if you are accustomed to thinking in 50-year time blocks or not.
00:09:53.920 | Do you think of yourself as having another 50 years in front of you that you've got to plan for?
00:10:00.240 | I don't think in 50 years, but I do think it's a good potential of being alive in 50 years,
00:10:08.240 | because all of my family in the German side, they're like 100 years old.
00:10:13.280 | But I could imagine that.
00:10:16.720 | Good. So a lot of people, the reason I'm using this is a lot of people,
00:10:20.800 | when they first come to an age where they're 50 years old,
00:10:27.600 | they might be thinking, "Oh, I'm going to die at 70 or 75."
00:10:30.320 | But realistically, you especially, because you're a woman and you're likely to outlive your husband,
00:10:36.800 | you need to be thinking in terms of a 50-year time block.
00:10:42.240 | And that's going to be your planning.
00:10:45.040 | If you think in terms of 50 years, it should dramatically change and open up your horizons
00:10:52.240 | in terms of how many things you could do.
00:10:54.400 | You could spend the next 10 years working something and still have 40 years in front of you.
00:11:00.320 | So don't think, don't start from the perspective of, "Oh, it's all lost.
00:11:04.480 | And I'm 48 years old. My husband's 58.
00:11:07.360 | And we've just haven't saved for retirement.
00:11:09.920 | And so therefore, we're all doomed."
00:11:11.280 | A lot of people think that way.
00:11:13.840 | I encourage you not to think that way.
00:11:15.600 | You've got a lot of time and you've got a lot of opportunities in front of you.
00:11:19.280 | If you think in terms of 50 years and in the next 50 years,
00:11:23.600 | what you would imagine your life looking like,
00:11:26.080 | you've got to sketch out a future that is exciting to you.
00:11:29.920 | The most exciting thing to me in what you said is that you've built this career for yourself,
00:11:36.480 | that you could do part-time and earn $80,000 per year,
00:11:41.120 | that you like the work that you do,
00:11:43.280 | and you could do it part-time and earn $80,000 per year.
00:11:46.640 | That is a lot of money to earn from a part-time career.
00:11:50.560 | That's because you've worked hard, you've gone to school,
00:11:52.880 | and you've chosen a career that has significant monetary value.
00:11:58.560 | That means that, especially if the part-time would allow you to do some of the other work
00:12:04.960 | that you care about, care deeply about,
00:12:06.880 | if it's going to go and work with Doctors Without Borders,
00:12:09.360 | if that opens you up to do that,
00:12:11.280 | if that's compelling to you,
00:12:13.120 | then that's going to be a really exciting thing to work towards.
00:12:16.000 | Now, how do you get there?
00:12:17.760 | That's going to be the question.
00:12:20.400 | Well, you do need to square away a couple of things financially.
00:12:25.120 | You do want to square away the student loans,
00:12:27.200 | and you do want to square away,
00:12:28.480 | probably you want to square away the mortgage.
00:12:30.560 | Because if you are earning $80,000 and you are debt-free,
00:12:37.680 | that's going to allow you to feel much more comfortable
00:12:40.080 | with your volunteering and with your being flexible with your part-time income
00:12:46.800 | than if you are feeling like,
00:12:48.400 | "I only have $10,000 in the bank,
00:12:50.240 | and I'm not earning a lot of money, and I got a lot of debt still."
00:12:52.400 | So what would I do?
00:12:54.160 | I think a few things.
00:12:55.760 | The house that you're living in,
00:12:57.520 | is that the house that you want to be in forever?
00:12:59.600 | Is that a forever house?
00:13:00.880 | Or do you need to change housing?
00:13:02.000 | Yes, it is.
00:13:02.960 | No, no, it's the forever.
00:13:04.640 | Okay.
00:13:05.040 | So this is a forever house?
00:13:05.760 | Like my relationship.
00:13:06.880 | Good.
00:13:07.760 | All right.
00:13:08.080 | So if it's a forever house and it's a forever relationship,
00:13:11.440 | then you're in a situation where you got to look forward and say,
00:13:14.160 | "What makes sense?"
00:13:15.600 | Given your income bracket,
00:13:17.200 | I think contributing to retirement accounts makes a lot of sense.
00:13:21.440 | Possibly maxing out retirement accounts makes a lot of sense.
00:13:25.200 | Just because it will have a dramatic difference on your impact
00:13:29.600 | and on your ability to lower your tax burden.
00:13:36.080 | And given your age, the fact that your husband is a year and is...
00:13:41.280 | I'm blanking on 59 and a half.
00:13:43.280 | Yeah, he's a year away.
00:13:44.080 | 10 years.
00:13:44.480 | He's 58, right?
00:13:46.160 | Yeah.
00:13:46.400 | Yeah.
00:13:47.440 | Okay.
00:13:48.000 | So you're 48 and he's 58.
00:13:49.440 | So that means your husband is a year away from being able to take money
00:13:53.680 | out of retirement accounts without any penalties.
00:13:56.720 | And you are 10 years away from being able to take money
00:13:59.440 | out of retirement accounts without any penalties.
00:14:01.760 | Then your flexibility is not reduced very much by contributing to retirement accounts.
00:14:07.200 | What is the interest rate on your student loans?
00:14:10.000 | I've done SoFi because of you.
00:14:14.240 | So overall, I've got different ones, but it's about 3.5,
00:14:20.160 | the highest at 3.99 from 8%, by the way.
00:14:23.760 | Great.
00:14:24.240 | Awesome.
00:14:24.880 | RadicalPersonalFinance.com/SoFi.
00:14:27.440 | Thank you very much for that, Shaz.
00:14:29.200 | RadicalPersonalFinance.com/SoFi.
00:14:31.040 | SoFi is a student loan that will-- they do other loans as well, the mortgage loans, etc.
00:14:35.280 | But they have often dramatically cheaper prices that you can use to consolidate your student loans.
00:14:39.840 | What's the interest rate on your mortgage?
00:14:41.920 | 3.75.
00:14:45.360 | Great.
00:14:45.600 | Man, it's hard to tell you to pay down debt aggressively that that's low,
00:14:50.720 | that's at those low of an interest rates.
00:14:53.360 | Now you're putting me in a bind.
00:14:57.360 | I am.
00:15:00.640 | I know.
00:15:01.040 | That's why I'm calling.
00:15:05.440 | Yeah, you're putting me in a bind.
00:15:06.720 | You can get back with me on that.
00:15:15.120 | I know you have all the callers.
00:15:16.320 | No, I've got to-- I need to give you an answer.
00:15:18.480 | It's just such a hard thing to say.
00:15:25.840 | I think I would-- if I woke up in your shoes, I would first max my retirement accounts across
00:15:31.120 | the board.
00:15:31.600 | I would keep my expenses as low as possible.
00:15:34.800 | And I would probably get rid-- oh, man.
00:15:37.040 | The problem is if you get rid of the student loans, they're not inheritable.
00:15:40.560 | And you don't have children.
00:15:43.120 | This is not an easy decision for me.
00:15:48.320 | So let me just walk it through verbally so that the audience can find if I've got any
00:15:54.320 | problems.
00:15:54.960 | Your interest rates on both of your mortgages are both low fixed interest rates, 3.5% and
00:16:01.360 | 3.75%.
00:16:02.320 | So low fixed interest mortgage rates.
00:16:05.600 | Both of the-- you're in a forever house that you're planning to stay in forever.
00:16:10.080 | There's not a huge benefit for you of paying that off early.
00:16:14.160 | And with your student loans, even just contrary to what I said earlier where I said I'd get
00:16:18.480 | debt free, with your student loans, if those are at a low fixed rate interest, there's
00:16:22.880 | not a huge benefit for you in paying those off particularly early either.
00:16:28.240 | You have a high income.
00:16:32.560 | And so we want to prioritize the retirement savings.
00:16:35.360 | You don't have a lot of assets other than your-- potentially what is going to grow to
00:16:39.680 | be your retirement accounts.
00:16:40.960 | And you're going to be having Social Security income and income coming in out of your
00:16:47.440 | retirement accounts.
00:16:48.480 | So even in a worst case scenario, you are basically creditor proof and judgment proof
00:16:53.280 | in that situation because Social Security income cannot be attached by your creditors
00:16:58.720 | and money that's in your retirement accounts cannot be attached by creditors as well.
00:17:04.320 | So I think if I were in your shoes, I would probably-- and the other reason I'm talking
00:17:12.560 | about this is that since you and your husband have no children, then there's not-- we're
00:17:17.120 | not worried about any inheritance of the house, nor are we worried about necessarily any
00:17:23.120 | major problems of passing on assets to children or worried about each other taking care
00:17:29.760 | of each other.
00:17:30.560 | But we're not necessarily worried about assets to children.
00:17:33.040 | So if you have a big student-- all the student loan balance is yours.
00:17:38.640 | If you die, he doesn't inherit the student loan balance.
00:17:41.440 | He can sell the house and he doesn't have the mortgage there.
00:17:46.480 | So I don't see a lot of benefit of focusing heavily on getting these loans paid off unless
00:17:54.480 | it's a big, big deal to you for some reason.
00:17:57.600 | So I think, Shaz, here's my answer.
00:18:00.960 | If I were in your shoes-- I feel like Dave Ramsey here because I hate debt, but I have
00:18:07.600 | to acknowledge kind of the-- I'm not necessarily as hardcore as he is.
00:18:11.360 | If I were in your shoes, I think I would prioritize retirement savings.
00:18:16.000 | And I would focus on doing that as aggressively as possible.
00:18:19.360 | And I would save as much money, even possibly outside of that as well, to make sure that
00:18:24.400 | I had some flexibility and some consistency.
00:18:27.360 | I would build up a big stash of money in terms of emergency fund.
00:18:32.000 | I'd try to shoot for something like $100,000.
00:18:34.080 | If you set aside $100,000 that is available to you, then that'll give you the freedom
00:18:40.800 | and the flexibility to start adjusting your work situation.
00:18:43.680 | You're probably not going to want to travel very much while your mother is alive.
00:18:47.040 | You'd probably want to wait until she dies to do much more travel.
00:18:51.680 | So this is a really good time to focus on your earnings and working as much as you can.
00:18:58.880 | I would probably just keep the mortgage payments and the student loan payments at their minimums.
00:19:04.240 | I'd pay them off as scheduled.
00:19:05.920 | If you live a long life, that'll work out well for you because the inflation-- you basically
00:19:11.360 | have an interest rate that's at the rate of inflation.
00:19:13.440 | And if you live a short life, if you die prematurely, then that'll work out well for you because
00:19:19.040 | you'll be able to leave more money in the 401(k) plan for your husband.
00:19:23.760 | I would, if I were you, I would buy some term life insurance for you to protect him because
00:19:29.360 | his future is tied to your awesome six-figure income.
00:19:33.040 | I would buy at least a million bucks of term life insurance for you.
00:19:37.360 | And at 40 years--
00:19:38.880 | I do have that.
00:19:40.800 | Great.
00:19:41.120 | OK, so just make sure that you have that and that you keep that because that protects him
00:19:44.320 | financially in case you die prematurely.
00:19:47.280 | And then I think I'd just pile off as much extra money as possible, and I would arrange
00:19:51.520 | my retirement plans to just factor in my student loan payments and my housing payments.
00:19:57.920 | And then in the coming years, I would start volunteering and do the volunteer work with
00:20:02.160 | the plan of after you have more savings, after you've spent the next three, four, five, six,
00:20:07.120 | seven years really saving as much as you can, I would adjust and I would start moving towards
00:20:11.840 | a part-time work arrangement that would allow you to live your retirement lifestyle while
00:20:18.560 | living on your earned income.
00:20:19.840 | If you can do your job from now through 70, that gives you 20 years of savings.
00:20:24.480 | If you max a retirement plan-- let's just do here-- let's just say you're not doing
00:20:33.360 | catch-up contributions.
00:20:34.400 | I'm just going to schedule this at $18,000 a year.
00:20:37.280 | So if you max a retirement plan for 20 years at-- let's just say you get 8% interest starting
00:20:44.240 | with nothing-- at the end of 20 years, we're talking a retirement plan balance of about
00:20:48.320 | $900,000, almost a million dollars.
00:20:50.640 | If you do catch-up contributions as well of getting you up to the $22,500, that account
00:20:57.920 | should easily be in excess of a million, possibly a million and a half dollars, something like
00:21:02.480 | that.
00:21:03.120 | So that way, if you can just plan to work till 70, and if you've got a million and a
00:21:06.400 | half bucks in retirement plans, and you've got Social Security income, then you'd be
00:21:13.200 | in a really, really good situation.
00:21:15.520 | And then just arrange your work life so that you can continue doing your part-time work
00:21:20.640 | at this highly compensated work, and also your part-time work with your volunteer work,
00:21:25.040 | and then hopefully you can do that for the next 40 years, something like that.
00:21:28.080 | So I think that's what I would do.
00:21:29.440 | Is that clear reasons why I said that?
00:21:32.560 | Yes, absolutely.
00:21:33.600 | Thank you so much.
00:21:34.640 | I'm glad you called, because that is not an easy question.
00:21:37.200 | And I hope I didn't miss anything or get anything wrong there in my approach.
00:21:40.480 | But when you think about it, just somebody who's in the situation like yours, there's
00:21:46.560 | a really compelling reason.
00:21:47.600 | I think that's a compelling scenario.
00:21:50.400 | So I feel good about that answer.
00:21:51.920 | Let's go to Grant in New Hampshire.
00:21:53.840 | Grant, how can I serve you today?
00:21:55.680 | Thanks a lot for taking my call, Joshua.
00:21:58.320 | I really, really appreciate it.
00:22:00.640 | I'm 48, and I was corporate-drawn up until about a year and a half ago.
00:22:04.800 | So I was actually the white-collar guy from your podcast that came out today about the
00:22:09.520 | 401(k).
00:22:10.080 | Right.
00:22:10.580 | And I actually left my cushy job because of some extended family health issues about a
00:22:17.280 | year and a half ago.
00:22:18.080 | And that experience kind of opened my eyes, and I decided, hey, I don't want to be in
00:22:21.600 | the corporate world anymore, and I want to try this entrepreneurial thing.
00:22:24.640 | So I'm still working on my business.
00:22:27.120 | It's not been profitable, but from a tax perspective, last year, that wasn't so bad.
00:22:31.520 | But doing that, I got into a lot of the entrepreneurial podcasts and books, and that led me to the
00:22:37.680 | Side Hustle Nation podcast, which led me to you.
00:22:40.160 | And then I was like, wait a minute.
00:22:42.480 | And I really got into the financial, the personal finance hardcore stuff, and I started doing
00:22:48.400 | a lot of study on that, listening to tons of your podcasts.
00:22:51.840 | And I discovered that my family and I were pretty lucky.
00:22:55.040 | I mean, I kind of accidentally, you know, I've been very frugal my whole life.
00:23:00.960 | My family's been careful with our money.
00:23:04.240 | I've maxed out 401(k)s, Roth IRAs, all of that, to have some cash and some stock.
00:23:11.120 | And I've even wondered right now, I'm like, I might be even able to be financially independent
00:23:15.360 | now, but that's another story.
00:23:17.440 | Now, the reason I'm calling is because when I look at my entire portfolio, and I hadn't
00:23:22.400 | done this for years.
00:23:23.440 | I was just doing the corporate thing.
00:23:25.360 | I discovered, and I knew I had this, but I have a one stock that is in my total portfolio
00:23:32.000 | that accounts for about 25% of my total portfolio.
00:23:35.680 | Now, that's a really good thing.
00:23:37.440 | I mean, I'm very lucky to have it, but I also wonder what I should be doing with this.
00:23:42.720 | Like, do I sell it off and pay off the house?
00:23:45.200 | Do I let it ride?
00:23:46.400 | Do I sell it off in little chunks?
00:23:48.720 | Because now I'm in this low.
00:23:52.000 | My wife's working full time now, but we've cut our income by like a third.
00:23:56.720 | So that's kind of what I'm looking at.
00:23:59.520 | Like, I do like this kind of low income life we're leading from a tax perspective.
00:24:04.800 | It seems to be valuable, but my family's not totally comfortable when I talk about early
00:24:09.920 | retirement and things like that.
00:24:11.120 | So I just wanted to get your perspective on all of that stuff.
00:24:15.520 | - So let's focus on that stock, because that's kind of the core of the message here.
00:24:20.000 | And it sounds like you're still working through the bigger aspects of the financial plan,
00:24:25.200 | which we can talk about in a future call.
00:24:27.360 | This stock, why would you sell it?
00:24:30.880 | - I would, you know, probably it's the fear it's going to go down is the reason.
00:24:39.040 | You know, it's just, I've held it for so, so long, and it was up very high initially.
00:24:44.480 | You know, obviously it dropped to nothing, and I'm like, I'm not selling it now.
00:24:47.600 | It's not worth anything.
00:24:49.120 | And just by sheer holding onto that stock, it's gone through the roof.
00:24:54.720 | So part of the reason I've thought about selling it is that, you know, maybe we don't feel
00:25:00.800 | comfortable with our expenses versus how much we're right on the edge right now of, you
00:25:07.680 | know, we've always been savers before, but now we're on this teetering on this edge of
00:25:12.640 | where we're maybe spending a little more than we're bringing in because my business hasn't
00:25:16.560 | started going.
00:25:17.200 | So it's like, hey, maybe I could sell a little bit of it.
00:25:20.560 | And I have, I will tell you, I sold for the first time a tiny chunk of it to cover, you
00:25:25.600 | know, my wife is putting, maxing out her 401(k) at work now, and I just wanted to cover that
00:25:31.840 | loss of income.
00:25:33.200 | So, you know, I'm not sure if I do want to sell.
00:25:36.960 | I think in some ways, I think like this is a golden egg.
00:25:40.400 | And sometimes I don't even factor it into the equation because this could just could
00:25:44.800 | be the ticket if I just hold on to it.
00:25:47.520 | About what's the, about how much money is the value if you sold it all today, about
00:25:57.120 | how much money is the value of this stock?
00:25:58.560 | About a quarter of a million.
00:26:00.320 | If you had a bank account with a quarter of a million dollars in it, and I offered you
00:26:04.720 | the opportunity to buy this stock at the current price, would you stroke me a check today?
00:26:09.920 | Would I buy that exact stock?
00:26:12.960 | At its current price?
00:26:15.600 | Yeah, I couldn't do it.
00:26:18.240 | No.
00:26:18.480 | I mean, I'm waiting, I'm kind of in the way, you know, after listening to you, I'm
00:26:23.200 | looking forward to a bottoming out in the market so I can buy some more if it goes down.
00:26:28.080 | But no, I don't think I, I couldn't pay that much per share price.
00:26:33.600 | No way.
00:26:34.080 | So that's probably your answer.
00:26:36.800 | And that's a good way to think about a lot of things.
00:26:39.040 | If you're doing something today that you wouldn't do again, if you had the opportunity to do
00:26:44.320 | it over again, you probably should quit doing it.
00:26:46.480 | If you're living in a house that you wouldn't buy again, if you had the opportunity, sell
00:26:51.200 | it and move.
00:26:52.080 | If you're working in a job that you wouldn't, if you had the chance, knowing what you now
00:26:55.360 | know, if you had the chance to do it over again, to get that job, you should quit and
00:27:00.000 | go find something different.
00:27:01.520 | And if you own a stock or anything in your life that if you had the chance to do it over
00:27:07.360 | again, you wouldn't do, then do it over, then quit and go do it.
00:27:12.560 | I've been selling my camper van.
00:27:13.920 | I sold it and then the deal fell apart.
00:27:15.680 | And so it's sitting in my driveway again right now.
00:27:18.000 | But I bought the camper van with all these details are profiled in a recent episode,
00:27:24.160 | probably 40 episodes ago about how to buy a motorhome or RV and not get taken.
00:27:29.600 | But I bought the camper van very carefully thinking about everything that I wanted.
00:27:33.760 | I did a ton of research.
00:27:34.960 | I very carefully chose it.
00:27:36.880 | But after buying it and using it, one of the things that I learned was that I didn't have
00:27:42.720 | anywhere inside the camper van to put car seats at night when the beds are made up.
00:27:48.240 | And I realized that as we add a third child to that camper van, there's just not room
00:27:53.520 | for me to be able to handle those car seats.
00:27:56.480 | So I realized that I needed to make a change.
00:28:00.480 | If I were given the chance to buy that camper van over again, I wouldn't have bought it.
00:28:06.720 | And so because I wouldn't have bought it over again, I shouldn't keep it just because I've
00:28:11.280 | spent money fixing everything up and fixing everything or just because it now has sentimental
00:28:15.520 | value or just because I spent all kinds of time researching it.
00:28:18.640 | It's not right.
00:28:19.520 | And so I should get out of it.
00:28:21.040 | So if you wouldn't quickly stroke me a check for $250,000 to buy the stock at its current
00:28:28.720 | price, then the answer is you should probably sell it.
00:28:33.120 | And you should probably sell it essentially today.
00:28:37.280 | Because if you're-- obviously, you're not going to do that.
00:28:39.760 | But meaning you got to think about it.
00:28:41.680 | You got to make sure that you're really sure about it.
00:28:43.200 | But you should sell it as quickly as you can if you wouldn't buy it over again.
00:28:47.120 | Now, here are the caveats to that which would make the difference.
00:28:49.920 | Number one, you've owned the stock and you have a significant gain in the stock.
00:28:54.160 | So therefore, you're going to incur tax.
00:28:58.000 | That cost needs to be calculated into your decision.
00:29:03.040 | So you need to calculate the cost of that tax and rework the numbers and ask yourself
00:29:08.400 | the question again.
00:29:09.200 | If I gave you-- if you had whatever the tax burden that's built in, if you had $200,000
00:29:14.960 | sitting in a checking account, would you stroke me a check for $200,000 today?
00:29:19.760 | Rework the question, understanding the tax implications.
00:29:23.440 | But if you've dropped to one income and if all of the stock is long-term capital gains
00:29:28.560 | and you've dropped to one income to where you may be in the lowest capital gains bracket,
00:29:33.040 | check what capital gains tax bracket you're in and see how you would qualify.
00:29:39.200 | And maybe you should sell all of it.
00:29:41.120 | Maybe you should sell part of it.
00:29:42.720 | You do want to make a strategic decision with how you approach it.
00:29:46.880 | But--
00:29:48.080 | - And that's kind of what I did already with the small chunk.
00:29:52.000 | I thought, you know, just figuring, hey, we're going to end up at this tax bracket where
00:29:56.000 | it's going to cost like zero.
00:29:57.520 | Like, we're not going to pay any capital gain.
00:29:59.760 | But there may be-- I probably should go back and say, hey, if I sold even more and put
00:30:03.520 | us into the 15%-- because this is all-- I've held this for over almost 20 years.
00:30:08.400 | So it's all-- and it's all profit.
00:30:12.240 | So yeah, I definitely get what you're saying.
00:30:16.000 | But, you know, I just, of course, have that seller's remorse.
00:30:19.680 | Like, if I sold it and I just saw it kept going up and up and up, you know, that's just
00:30:24.480 | something that, you know, I'm sure that's not totally-- that's not normal.
00:30:30.160 | But it feels like, oh, I would just be kicking myself when, you know, when my kids are going
00:30:34.720 | to college and blah, blah, blah.
00:30:36.160 | So I don't know.
00:30:37.520 | - Right.
00:30:38.000 | But you don't believe that it's going to go up.
00:30:39.920 | Because if you did believe that it was going to go up, then you would have said, oh, I've
00:30:43.600 | got the chance to buy that for $250,000?
00:30:45.760 | Man, I'd stroke a check today.
00:30:46.960 | - Yeah.
00:30:47.840 | - If I gave you-- if I were offering you a real estate deal and you knew-- you knew
00:30:54.960 | that the real estate deal that I was offering you was worth a million dollars, and I said,
00:31:00.320 | you've got a chance to buy this today for $250,000, and you knew it was worth a million
00:31:04.560 | dollars, you'd stroke that check in a heartbeat.
00:31:07.040 | - Yeah.
00:31:10.240 | - So don't-- I mean, it's normal to have an emotional attachment to stuff like this.
00:31:16.000 | But don't let it confuse you as far as, you know, yes, anything can go up.
00:31:23.600 | Anything can go down.
00:31:24.560 | But you don't think it's going to go up.
00:31:26.560 | Otherwise, you wouldn't have answered as quickly as possible.
00:31:28.880 | Now, if you do think it's going to go up, if you think you've got a good deal and you'd
00:31:32.400 | stroke a check for $250,000, then you should keep it.
00:31:35.120 | And the answer is really as simple as that.
00:31:37.520 | Also, given your considerations in terms of your career changes and things like that,
00:31:43.200 | when you are making changes like that, that changes your risk profile.
00:31:48.800 | And you should adjust your investment portfolio to match.
00:31:52.320 | So if you're in a situation where you are-- where you've-- you are in a situation where
00:31:59.200 | you're trying to start a new business, when you were working and earning a high corporate
00:32:03.440 | salary, then if your stock moved up, down, et cetera, that probably wasn't a big deal
00:32:09.440 | for you.
00:32:10.080 | You could fairly easily and comfortably make up the difference, and you wouldn't be too
00:32:14.400 | worried about it.
00:32:15.280 | But now when you're in this new situation-- now when you're in this new situation where
00:32:20.480 | you have the opportunity to start the business, that's going to change your risk profile.
00:32:26.720 | And because it's changing your risk profile, you should probably consider adjusting your
00:32:31.200 | portfolio.
00:32:32.240 | All right, let's go to Aaron in Massachusetts.
00:32:34.720 | You're up next.
00:32:35.280 | How can I serve you today, please?
00:32:36.400 | Hi, Josh.
00:32:38.720 | Big fan of your show.
00:32:39.600 | Thank you.
00:32:40.000 | Thank you.
00:32:40.800 | My question is, I'm 38 years old, married, two little kids, third one on the way.
00:32:47.440 | Congratulations.
00:32:48.000 | My wife and I-- when we lived-- thank you very much.
00:32:50.640 | When we were living in Massachusetts a couple years ago, we decided to hit the road, travel
00:32:56.960 | around the country.
00:32:57.520 | I'm a registered nurse, and you can take three-month travel assignments.
00:33:00.960 | So plan was bomb around the country till the kids started school and decide where we want
00:33:05.360 | to live.
00:33:06.080 | Ended up in Northern California, where I got a very high-paying job with a hospital here.
00:33:11.520 | And now our question is, do we stay here, or do we move back to Massachusetts?
00:33:17.760 | And we can't figure out a good way to figure out how to make that decision.
00:33:23.120 | Here, I make about double what I would make in Massachusetts.
00:33:26.160 | It is more expensive to live out here, but not enough that it makes up the difference
00:33:32.240 | for the increase in pay.
00:33:33.520 | Man, Northern California is such a beautiful place.
00:33:36.800 | Why would you go back to Massachusetts?
00:33:42.880 | I think the main reason is the feeling of guilt, because my father's stepmother lived
00:33:48.640 | there.
00:33:49.120 | Her parents and sister live in Maine.
00:33:52.160 | So it's kind of like, oh, we're taking away our kids from our parents, sort of thing.
00:33:58.160 | And then, oh, I moved to California.
00:33:59.680 | And then we have lived there for a long time.
00:34:01.120 | So it does have some-- it feels like home in a way.
00:34:04.960 | But--
00:34:05.280 | That's the main reason.
00:34:08.240 | Are your parents actively holding that over your head?
00:34:13.360 | Is this an active conflict, or is this just a vague feeling that you have?
00:34:16.400 | More of a vague feeling.
00:34:19.520 | Yeah, I think if you--
00:34:21.520 | We may have flown out here a couple times, visit the kids, and then we're going to fly
00:34:25.440 | back in September, stay for a couple weeks.
00:34:27.520 | But we're close, but not-- everybody's not super, super close.
00:34:34.880 | If you survey family, there are some people who would say, man, I really want to live
00:34:39.440 | next door to my parents and the kids' grandparents.
00:34:42.480 | There's some people who would say, California to Massachusetts is an ideal distance.
00:34:46.080 | We can see each other once every couple of years, and it works out well.
00:34:48.640 | And I think there are considerations.
00:34:50.800 | Sometimes it's an advantage to live close to family.
00:34:53.360 | Sometimes it's a disadvantage to move close to family.
00:34:56.160 | But I wouldn't-- if it's just a vague feeling, I wouldn't do a lot with that.
00:35:02.640 | There are all kinds of alternative ways to adjust the situation in a way that would fit
00:35:10.560 | better in terms of possibly-- maybe they're going to move to California.
00:35:15.440 | Maybe there's a state closer that they want to move to Nevada or something like that.
00:35:21.680 | Or there are all kinds of different approaches of things that can be done.
00:35:25.200 | And if you're making double in California what you would be in Massachusetts, there
00:35:29.360 | should be some extra money to pay for plane tickets from time to time that could be valuable.
00:35:34.080 | Also, there are plenty of ways-- sometimes if you live far away from somebody, you can
00:35:39.120 | send the kids for a few weeks during the summer.
00:35:40.960 | It could be a nice break for you and a nice break for the parents.
00:35:44.160 | There are lots of ways that things could be adjusted.
00:35:46.640 | Do you have any other compelling reason to go to Massachusetts?
00:35:49.120 | No, not really.
00:35:52.880 | Well, in absence of a compelling reason to move, I don't see much functional difference
00:35:57.520 | between California and Massachusetts with regard to anything financial.
00:36:01.280 | They're both high tax, high cost of living states to some degree.
00:36:06.800 | But Northern California is different than Southern California, lower cost of living.
00:36:11.360 | And as long as you've calculated the tax burden and calculated its impact on your life,
00:36:18.000 | then I don't see any reason to go.
00:36:21.200 | If you were saying I should go to California and move to Texas, then it would be a financial
00:36:26.400 | calculation.
00:36:26.960 | But I don't hear you asking any financial question.
00:36:29.440 | So I don't see any reason to leave.
00:36:30.880 | I don't think-- yeah, part of it was I didn't want to make-- and I can't tell in my mind--
00:36:36.480 | a decision solely based off of finances as far as overall life planning goes.
00:36:46.160 | Like here, I get-- if the pension stays-- like if I stayed out here, I get a pension
00:36:50.560 | at the end of the 20 years.
00:36:52.960 | I don't in Massachusetts.
00:36:55.040 | And then I make more money now so I can stay home more with the kids.
00:36:59.200 | And I was like, eh, you know, just try not to get stuck in the golden handcuffs sort
00:37:04.720 | of thing as far as reasoning goes.
00:37:07.680 | But my initial-- our initial thought pattern was pretty much what you said.
00:37:11.760 | Well, I can have enough money to pay for tickets and fly back.
00:37:16.800 | [LAUGHS]
00:37:17.300 | - Yeah.
00:37:18.240 | I think you don't start with finance.
00:37:20.560 | You build ideal lifestyle.
00:37:22.000 | But finance is a component of that.
00:37:24.240 | And Northern California is a beautiful and tremendous place.
00:37:30.240 | So I could see a lot of benefits of it.
00:37:33.840 | In absence of a compelling reason to change, I think you keep doing what's been-- you keep
00:37:38.640 | doing what's been working for you and keep going with it.
00:37:41.920 | All right.
00:37:42.320 | Mike in Colorado, you're up next.
00:37:44.080 | How can I serve you today, sir?
00:37:45.200 | - Hi, Joshua.
00:37:48.160 | A longtime patron.
00:37:50.640 | My question is, how can I tell if it'd be beneficial to start some sort of tax advantage
00:37:56.720 | plan leaning toward maybe a 401(k) with or without profit sharing for a small business
00:38:03.840 | versus just taking the extra money and investing it in an after-tax brokerage account?
00:38:09.440 | Just a little history.
00:38:11.520 | We used to have a 401(k) in this company, apparently, like seven years ago before I
00:38:16.240 | was there, but they dissolved it when they felt like they were getting ripped off with
00:38:20.720 | extra fees and just not great options where they were investing.
00:38:25.760 | And so they dissolved it before I got there.
00:38:27.600 | But I'm kind of looking at maybe trying to get something going again here.
00:38:32.880 | We have like five doctors, 40 employees.
00:38:36.240 | So one consideration is the non-discrimination testing that we'll have to do and the matching
00:38:44.560 | that we have to do, profit sharing.
00:38:46.880 | So I'm kind of staring down 40 years old and haven't saved much for retirement, and we're
00:38:52.000 | all kind of in the highest tax bracket.
00:38:53.920 | So yeah, what are your thoughts?
00:38:56.400 | - Are your employees asking for it?
00:38:57.840 | - No, not at all.
00:39:00.000 | In fact, I think if we did do like the matching and stuff, I think a lot of them would not
00:39:05.600 | do it.
00:39:06.000 | Yeah.
00:39:08.640 | - And are your fellow physicians, there are a total of five owners and you have an ownership
00:39:16.000 | stake in the firm?
00:39:16.960 | - Yeah, 20%.
00:39:19.040 | We're all 20%.
00:39:19.600 | - And are the other physicians looking for something, trying to figure out how to establish
00:39:25.840 | some kind of plan?
00:39:26.640 | - Not really.
00:39:28.560 | Well, I think one of them is definitely.
00:39:31.360 | One of them's on the fence.
00:39:33.600 | One of them puts all his money in like a whole life plans and stuff.
00:39:38.480 | And so he's resistant.
00:39:40.080 | And one of them's also kind of on the fence.
00:39:42.080 | And so, I mean, it's gonna come down to a vote.
00:39:46.800 | I gotta get three to two.
00:39:48.880 | So part of it, I need to present in a smart way, like, hey, mathematically, here we go.
00:39:54.320 | But yeah, that's kind of my burden here.
00:39:57.520 | From me looking at it, I feel like it probably makes sense.
00:40:03.280 | And I did have like a fee-based advisor look at it and said he thinks it makes sense.
00:40:09.120 | Part of it comes down to whether you pay the tax, it goes to the government versus the
00:40:15.520 | money would go to your employees.
00:40:16.880 | I'd rather benefit my employees than the government.
00:40:19.120 | - Of course.
00:40:19.840 | - But yeah.
00:40:21.440 | - I think you need a consultant.
00:40:23.360 | This is one where you need to calculate the numbers because instituting a plan is not
00:40:28.800 | free.
00:40:29.280 | It's not free to run the plan.
00:40:31.120 | There'll be administrative fees, third-party administrator fees, et cetera.
00:40:34.800 | And it's not free to start to establish the profit sharing, the employer matching.
00:40:40.080 | If your employees are not clamoring for it, that means you may have some problems with
00:40:44.960 | the participation rate.
00:40:46.080 | So you'll need to make sure that either you may be doing a safe harbor plan, which is
00:40:54.400 | gonna, you have to calculate those costs.
00:40:56.560 | You need to get some actual numbers here.
00:40:59.120 | Then you need to calculate in your own situation what the optimal advantage is and calculate,
00:41:05.360 | okay, if I have this plan just for me, just thinking selfishly and I contribute to it,
00:41:11.520 | how much is that actually going to save me in terms of taxation?
00:41:17.840 | And you have to focus on the fact that putting money in a 401(k) doesn't mean that you're
00:41:24.400 | never gonna pay tax.
00:41:27.120 | So mentally, you're gonna pay tax at some point.
00:41:29.600 | You're just gonna pay it in the future.
00:41:31.840 | And so it's not 100% savings.
00:41:34.000 | It's not as though, okay, if I contribute $20,000, I'm getting this massive savings.
00:41:37.920 | You're getting some savings, but you're gonna pay the tax at some point.
00:41:41.600 | - Yeah, I definitely think there'll be an arbitrage 'cause I won't make as much, maybe,
00:41:47.200 | in retirement.
00:41:47.920 | - Agreed, agreed.
00:41:48.480 | - At this rate now.
00:41:49.040 | - Right.
00:41:49.920 | I don't believe, I don't see how it's possible for people who are contributing and employees
00:41:56.880 | saving for retirement in the traditional way, I don't see how it's possible for them to
00:42:01.360 | have a higher income in retirement than during their working years.
00:42:07.120 | The only exception to that would be people who sell large businesses.
00:42:10.880 | But for the average person, you're gonna have a lower income.
00:42:13.120 | So yes, it would be an arbitrage opportunity.
00:42:15.680 | My point is, if you calculate the actual cost, every year that you pay the TPA fees, every
00:42:21.120 | year that you make those contributions for your employees, that's money that you're not
00:42:25.200 | gonna get in actual profit for yourself.
00:42:28.720 | So that's 100% money that's gone.
00:42:32.560 | If it's saving you an arbitrage of, say, 15%, 10% or 15% on your tax rates, then calculate
00:42:39.920 | what that number is and compare that to the cost of putting the plan in.
00:42:43.040 | My guess is it probably wouldn't make that big of an impact on your financial life.
00:42:50.880 | And if your employees aren't clamoring for it, and if your fellow physicians aren't sure
00:42:55.440 | that they want it, it's probably not something I would pursue super aggressively.
00:43:00.240 | Now, I'm guessing.
00:43:00.880 | I haven't done any of that math.
00:43:02.000 | You need to do the math.
00:43:03.360 | But I'm just guessing.
00:43:05.040 | The biggest reason to put in place a profit-sharing plan and choosing one with 401(k) benefits
00:43:14.640 | is as a way of enhancing the compensation package for your employees.
00:43:19.040 | That should be your primary reason, because you're gonna pay money for it.
00:43:23.360 | So if it's not helpful to your employees in terms of an extra benefit that they really
00:43:30.560 | want, that they're gonna value, if it's not gonna reduce employee turnover, if it's not
00:43:35.120 | gonna put those golden handcuffs on their wrists, my guess is it's gonna cost you more
00:43:39.680 | than it saves you personally.
00:43:41.040 | That would be my guess.
00:43:42.640 | But you need to get math.
00:43:44.240 | You need to get a couple of proposals from a local employee benefits consultant with
00:43:48.480 | the cost baked in, have them look, calculate the cost of doing Safe Harbor and things like
00:43:53.120 | that, and then compare that with your tax accountants to see how much you could potentially
00:43:58.720 | save by participating.
00:43:59.840 | Yeah, that's my biggest challenge has been finding someone that's impartial that can
00:44:05.280 | give me, just run the math for me.
00:44:08.000 | Because it gets very complex.
00:44:09.600 | Some of these things, the fees you're paying pre-tax, some of these fees are pre-tax,
00:44:13.760 | and some of these.
00:44:15.120 | And so it's just, it is extremely complex question.
00:44:19.280 | Call a couple of local financial advisors, tell them you're looking for a specialist,
00:44:24.160 | call some of the big firms, call a couple of the big wire houses, and call a couple
00:44:29.840 | of the big insurance companies.
00:44:32.080 | So call a, just have your staff do it.
00:44:36.160 | Just call a couple of the firms and tell them, I'd like to talk to somebody in employee
00:44:41.520 | benefits and get a referral.
00:44:44.240 | You'll be able to get a referral to somebody and they will come in and you get a few possible
00:44:49.280 | referrals and they'll make some suggestions for you and they'll give you a breakdown
00:44:53.600 | of the prices.
00:44:55.120 | And it won't cost you to have them quote you out a proposal and that'll give you better
00:44:59.440 | data to at least decide.
00:45:00.640 | Now, whether or not any of them does a good enough job that they deserve the business,
00:45:03.760 | that's up to you.
00:45:04.800 | But at least you'll have an idea of whether it's something you should pursue heavily or
00:45:08.160 | not.
00:45:08.400 | Okay.
00:45:08.900 | That's where I would start.
00:45:11.280 | Yeah, I'll keep going on this and see what we come up with.
00:45:15.040 | But I appreciate your thoughts on it.
00:45:16.800 | Absolutely.
00:45:17.600 | It's definitely not an easy decision.
00:45:19.200 | There is, I think employees often don't realize the costs that employers face when it comes
00:45:26.240 | to what they need to do and what they don't need to do and how much that they're actually
00:45:30.880 | going to pay for all of these decisions.
00:45:34.560 | All right, Andy in California, you are up.
00:45:36.880 | Our last caller.
00:45:38.000 | Go ahead and shoot, sir.
00:45:38.960 | Let me know how I can serve you today, please.
00:45:41.520 | Hi, Joshua.
00:45:42.400 | I am a huge fan of both your podcasts.
00:45:44.400 | So thanks for taking my call.
00:45:45.520 | Thank you.
00:45:46.020 | Background for me, I'm 31.
00:45:49.280 | I work in the government school system and based on my current income, I'd receive about
00:45:53.840 | $120,000 a year for life beginning at age 62.
00:45:57.200 | So obviously it's a large amount, but it's also three decades away.
00:46:01.840 | It's a long time for politicians potentially change the rules of the pension system.
00:46:07.120 | And so I just am trying to figure out how you would recommend I account for it in my
00:46:11.040 | long-term wealth planning or retirement planning.
00:46:14.400 | If I act like it's going to be there and it's not, then obviously I have a huge gap.
00:46:17.520 | But one of the reasons that one of the benefits of working in a government system is the promised
00:46:23.520 | pension.
00:46:24.080 | So if I take a lower salary than the private sector may offer and I have to still save
00:46:31.200 | retirement the same way, then there's obviously challenges there as well.
00:46:36.400 | If the retirement pension works as advertised, are you thrilled with the job?
00:46:46.720 | Are you thrilled with the work?
00:46:48.480 | Are you thrilled with the prospect of serving out your career in this area for the next
00:46:53.680 | 30 years?
00:46:54.180 | Absolutely.
00:46:55.840 | I'm absolutely passionate about my job.
00:46:57.920 | Okay.
00:46:59.600 | I think that should be the primary thing because a lot of the math, it's such a crapshoot.
00:47:07.600 | I mean, how do you know?
00:47:11.520 | It's really hard to know.
00:47:14.160 | So would this be the CalPERS pension in California?
00:47:18.720 | That's correct.
00:47:19.220 | Exactly.
00:47:20.400 | Do you know anything about the financial strength of that pension program?
00:47:25.040 | I believe they're currently about 77% funded and the employer contribution requirement
00:47:31.440 | has gone from 10% as of two years ago of one's compensation to right now it's about 14% and
00:47:38.720 | they just released data that it'll go up to an employer match of employer contribution
00:47:43.520 | of 28% by 2021.
00:47:46.240 | So they're requiring employers pay a lot more into the system.
00:47:53.040 | It's not an area of my expertise.
00:47:54.640 | You have researched it and started researching it.
00:47:58.720 | I would follow your instinct.
00:48:01.760 | Search out the opinions, search out the harshest critics you can find of the California pension
00:48:08.560 | system.
00:48:09.440 | Try to find what the harshest critics say and then try to find what the biggest promoters
00:48:14.560 | say and then study the actual numbers.
00:48:16.400 | This is a guess, not having done that research.
00:48:20.320 | My guess is that it's probably going to be pretty safe.
00:48:31.520 | In terms of there's a big difference between a city pension, in my mind, there's a big
00:48:36.160 | difference between a local city pension versus a state pension and there's a big difference
00:48:42.160 | between the state of California and many other states.
00:48:45.200 | So California has a massive economy and what the future of that economy is, what the future
00:48:51.440 | of these things is, it's hard to say.
00:48:53.760 | But if you are a government employee in the state of California, you are part of a very
00:48:58.800 | respected and honored voting bloc.
00:49:03.280 | You have a much stronger position as a part of that voting bloc than you do in many other
00:49:08.960 | states where government employees are not valued quite so highly, politically speaking
00:49:13.680 | and ideologically speaking.
00:49:15.040 | Also, the CalPERS pension system is huge.
00:49:18.400 | It's absolutely huge.
00:49:19.840 | So if it doesn't work out, you're in with a lot of other people.
00:49:23.360 | You're in trouble with a lot of other people.
00:49:26.080 | I think what I would do is I would focus first and foremost on the career.
00:49:30.800 | And if it's a career that you're going to be thrilled with, I would stick with that.
00:49:34.720 | Because even if it's 80%, 70%, it's my guess that I don't see any way that, given the
00:49:42.400 | demographics, given things, I don't see any way that a lot of these long-term pensions
00:49:46.080 | aren't going to take a slight haircut at least.
00:49:49.040 | But I don't think it'll be zero.
00:49:50.480 | So if you're thrilled with a career for another 30 years and then you retire and let's say
00:49:55.200 | what they're saying to you is going to be $120,000, but it's actually $100,000, I think
00:49:59.680 | you'd be pretty happy in that circumstance.
00:50:01.360 | Yeah, absolutely.
00:50:03.120 | Great.
00:50:05.520 | Well, thank you.
00:50:06.000 | I do have one more question.
00:50:07.040 | Is it possible for me to ask that?
00:50:07.920 | Sure, go for it.
00:50:08.400 | Yep, go ahead.
00:50:11.120 | Interesting, perhaps, arbitrage opportunity with student loan debt.
00:50:15.280 | So unfortunately, I do have a lot of student loan debt in excess of $200,000.
00:50:18.880 | I'm repaying it under an income-based program, which requires I pay 10% of my discretionary
00:50:27.040 | income to the student loan.
00:50:28.240 | And because I work in education, after 10 years of payments, they forgive the loan in
00:50:33.200 | a non-taxable event.
00:50:34.400 | And I've worked for four years, so I'm six years away from that.
00:50:38.240 | The way they calculate that payment is it's based off of your adjusted gross income and
00:50:42.480 | then some other complex calculations from there.
00:50:44.800 | But given that's off your adjusted gross, payments into a 403(b) or 457 would not be
00:50:53.280 | calculated for the loan repayment.
00:50:55.280 | So in essence, every $10 that goes into a retirement vehicle or tax-deferred retirement
00:51:00.240 | vehicle would be saving me $1 in student loan repayment.
00:51:04.640 | And so I know that in general, you question the appropriateness of contributions to retirement
00:51:09.920 | accounts because of some of the restrictions and the limits on the types of investments
00:51:15.120 | that can be made.
00:51:15.760 | But I want to know if under this situation, you would think that for at least the next
00:51:20.320 | six years, that I should stash as much as I can into that.
00:51:23.120 | Because worst-case scenario, if I need the money after the loan's been forgiven, and
00:51:27.440 | I have the 10% early withdrawal fee, it's really just the same as the 10% I would have
00:51:32.400 | had going towards the student loan.
00:51:33.840 | Yes.
00:51:34.340 | I would.
00:51:36.340 | I would.
00:51:37.460 | I would put as much.
00:51:38.480 | I would.
00:51:38.980 | Obviously, you got to live.
00:51:40.480 | But given that opportunity with such a massive student loan and given the fact that it's
00:51:45.520 | on schedule to be forgiven in six years, I would max out those retirement accounts, no
00:51:51.840 | question.
00:51:52.640 | Go back and listen to the show that I did on even how investing in, even if you have
00:51:58.240 | to take, when I did the math on taking early withdrawals, even if you pay the penalty of
00:52:03.760 | how that's still superior to contributing after tax, go back and listen to that show
00:52:10.320 | if you missed it.
00:52:11.360 | And when you take that plus the student loan arbitrage opportunity, I think that is definitely
00:52:18.800 | the decision that I would make.
00:52:19.840 | I would put as much.
00:52:21.200 | I would seek to get every dollar into those retirement accounts at this stage that I possibly
00:52:26.080 | could get.
00:52:26.640 | And also given your first question that you asked, I think that moves you.
00:52:32.880 | That helps you as well in case of problems with your pension to where you additionally
00:52:38.320 | have some savings.
00:52:40.800 | So even if you don't do this forever, even if you do this as a strategy, something along
00:52:44.800 | the lines of for the next six years, we're just going to live on very little.
00:52:50.000 | But we're going to put everything into these retirement accounts.
00:52:54.400 | If you have young children, then that'll probably – six years from now, it would
00:52:57.920 | probably be an ideal time to start spending more money on them.
00:53:00.960 | Then go ahead and feel free after the student loans are forgiven.
00:53:04.080 | Go ahead and just reduce your retirement account contributions.
00:53:07.520 | And so on multiple levels, I see that as being a good plan.
00:53:10.960 | Saves you money on student loan interest and payments because of the debt forgiveness,
00:53:16.240 | allows you to set aside money that will be there for retirement.
00:53:20.080 | And even if you need to take it out before retirement, you would still be better off
00:53:24.880 | by using those retirement accounts than you would otherwise.
00:53:29.520 | So I'll look up that show.
00:53:31.120 | I don't remember the title of the show that I'm referencing.
00:53:33.040 | But I'll look that up and put it in the show notes for other listeners.
00:53:36.080 | But it was a show where I calculated how it's still superior.
00:53:40.400 | If you're going to take money out for early retirement, even if you're going to pay
00:53:43.280 | the penalty, you still should use a retirement account if you have access to a good one.
00:53:47.840 | Terrific.
00:53:48.640 | Thank you very much.
00:53:49.280 | Thanks for calling in, man.
00:53:50.400 | What a great situation.
00:53:52.640 | And work hard.
00:53:53.440 | You're in the middle of an important job.
00:53:56.800 | And if you like it and you work well in the government school system there, then I wish
00:54:01.840 | you all the best.
00:54:03.920 | I seriously considered being a government school teacher myself.
00:54:07.840 | I thought it would be really, really great.
00:54:10.080 | I love to teach.
00:54:11.120 | I love to teach young men and women and children.
00:54:13.920 | I'm not a teacher.
00:54:14.880 | I'm a teacher.
00:54:15.680 | I love to teach young men and women and children.
00:54:18.720 | I'm not an elementary school guy, but I would love to do high school.
00:54:21.120 | If I could teach high school history, that'd be a dream career for me.
00:54:26.000 | So I love to teach.
00:54:27.040 | And when you get all the benefits of the teaching system, if you can earn a good wage, and that
00:54:33.760 | depends on school district, but if you find a school district that can pay you a good
00:54:37.760 | wage, you get summers off, you get work that's constrained exclusively to basically the classroom
00:54:43.360 | hours.
00:54:43.920 | You can do some other things, but my experience has been that if a teacher really, really
00:54:49.040 | focuses, a lot can be done during the school hours in terms of the grading requirements
00:54:53.040 | and things like that.
00:54:54.560 | You start putting these things together, it's a tremendous early retirement career in my
00:55:00.160 | opinion.
00:55:00.880 | When you add to that a pension, you add to that student loan forgiveness, great work,
00:55:06.320 | meaningful work, you have the ability to impact students.
00:55:10.080 | For many young men and women, their teachers, a high school teacher is a bigger influence
00:55:14.160 | than practically anybody else oftentimes.
00:55:18.800 | Summers off to travel, it's a, who knows, maybe someday I will retire and go teach.
00:55:24.320 | I probably, you never know.
00:55:26.640 | You never know what life brings at us.
00:55:28.240 | All right, thank you everybody for calling in.
00:55:29.760 | If you would like to call into a show like this in the future, please remember to sign
00:55:32.800 | up and become a patron, radicalpersonalfinance.com/patron.
00:55:36.880 | In addition, you can sign up for the email list.
00:55:39.440 | That's how I'm doing these notifications right now, is via the email list.
00:55:43.600 | So feel free to sign up for the email list.
00:55:45.440 | You'll find that at radicalpersonalfinance.com.
00:55:48.480 | Thank you all so much for listening.
00:55:50.000 | If I have any other, oh, keep on sending me your episode 500 voicemails.
00:55:55.920 | Take out your phone, if you would, just do me a quick favor, do it today if you've been
00:55:59.200 | wanting to do it.
00:56:00.240 | They say you got to ask people 10 times to do something.
00:56:02.480 | And so this is, consider this about your 10th ask.
00:56:05.600 | Take out your phone and pull over to the side of the road and do me just a quick favor,
00:56:09.600 | just record about two to three minutes telling me what you've done and what you've changed
00:56:15.360 | in your life and how you've gotten richer.
00:56:17.440 | Rich life now while working towards financial freedom because of Radical Personal Finance.
00:56:21.200 | Send me that audio file, joshuaradicalpersonalfinance.com.
00:56:24.560 | I will play it for your fellow listeners in episode 500.
00:56:28.640 | Back with you Monday.
00:56:30.160 | This show is part of the Radical Life Media network of podcasts and resources.
00:56:36.000 | Find out more at radicallifemedia.com.
00:56:40.160 | Companies that hire skills first find top talent faster and more efficiently, which
00:56:44.560 | makes those companies more likely to succeed.
00:56:46.880 | 110 connects companies and black talent with the skills to do the job.
00:56:51.920 | No four-year degree required.
00:56:53.520 | IT experts who make systems more secure, project managers who increase efficiency and cut costs,
00:57:00.240 | and thousands more who can help your company thrive.
00:57:02.720 | Hire skills with 110.
00:57:05.520 | Hire returns for your business.
00:57:07.440 | Higher returns for your business.
00:57:09.440 | Learn more at 110.org.