Hey parents, join the LA Kings on Saturday, November 25th for an unforgettable kids day presented by Pear Deck. Family fun, giveaways, and exciting Kings hockey awaits. Get your tickets now at lakings.com/promotions and create lasting memories with your little ones. It's Friday, that means it's time for another Q&A. I've got the phone lines queued up and five callers on the line.

Let's get after it. (upbeat music) Welcome to the Radical Personal Finance Podcast, the show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now, while building a plan for financial freedom in 10 years or less. My name is Joshua Sheets, and I am your host.

Welcome to Friday Q&A. (upbeat music) These Friday Q&A shows are my favorite shows of the week. These are the shows where I show up to a phone line and I get to talk to you. I love it. I get so much energy out of talking to people that I often don't get.

I have to manufacture the energy when I record the show by myself, but when I talk to people, real live people, it gives me just a ton of energy. The way it works is the callers have called into a conference line here, and so we're going to go to them one at a time as we go through.

These Friday Q&A calls are open primarily to patrons of the show. Although today I sent out the invitation for this call to subscribers to the Radical Personal Finance email list. I've been working hard to communicate more and more with you via email. As a reward for those who have given me their email address, then I am allowing the email list onto these calls.

If I had my perfect world, I probably would love to do a daily call-in radio show. I'd love to do that. I just haven't figured out how to make that work, nor have I particularly pursued it. The way the radio business works, it's... Anyway, I haven't decided to pursue that, but I do love doing these on Friday.

We've got some great questions. If you'd like to join a future call, please make sure that you sign up to become a patron of the show. That'll be the most consistent thing because sometimes I get too many callers off the email list, and so some of you guys get locked out.

Or you can take a chance if you're cheap and you don't want to send me any money, that's okay. Or if you're just working on other financial goals, that's okay too. Then what you can do is join the email list, and then you'll receive invitations to these calls, possibly from time to time.

We're going to start with Shaz in Tallahassee. Shaz, what's your question? How can I serve you today, please? So yes, I'm 48. My husband is 58. We're both late bloomers. We started retirement four years ago because we're busy doing other things in our 20s, 30s, and 40s. No children.

I've got a six figure job now because I went back to school, and we have student loans as a result, 100,000. Small house of 100,000 square feet, we owe about 155 on that. And we have possibilities of maxing out our retirement. We have a four, three B, 457, 18 can go into each.

So the question is, since we are older, what do we do? I mean, which sequence should we follow? Should we max out the retirement while paying off our debt, and then paying off our house, and then potentially thinking about buying a rental? How much does your husband earn at his job?

He earns 25,000. Okay. So you're at about 100, and he's at 25, give or take? So now I just got a raise. So I'm actually at about 150 with the overtime that I do. And so next year, it's going to be 175. This year, it was 150 together. Great.

So the point is you got a high income, and because both of those are all wages, is all of your compensation paid to you as wages? Yes. Okay. So you're in a high tax bracket. And that's a big, big deal in terms of figuring out the answer to this question.

You said that you started retirement four years ago. By that, do you mean you started saving for retirement four years ago? I just actually just maxed, just did the match, and just started paying off the debt, like throwing $2,000 a month at it. That's what I was saying. Yes.

Right. So before, yes. We have no savings. Yes, we have savings, and it's $10,000. So that's really everything in a nutshell. Very simple. Why didn't you save for retirement earlier in life, such that you weren't then, but now you've decided to start saving for retirement? What changed for you?

Well, I think it was just we had a lot of useful energy. We just wanted to live life. We only lived once. I came from a working class background, and I always vowed to myself when I was young, "I just want to buy whatever I want, live the way I want." And it was just not on my radar.

And so now I've become, I read this book, Money or Your Life, and I guess you just get older and you just become more mature. It's like, "Wow, what have I been doing?" And I've made financial mistakes, including bankruptcy 15 years ago. So it's just, I don't know. I just grew up.

Okay. Both of us. Real quick on the bankruptcy, was that a result of something catastrophic and unexpected, such as a medical expense or a lawsuit? Or was it just simply due to you had accumulated debt over time due to gradual overspending, and at some point it became too much for you?

Yeah, poor financial choices and a relationship that I was in as well. Got it. Okay. So when you and your husband just got out of, finished school, got this great job, earning a lot of money, when you guys talk about retirement now, what does that mean to you? What do you want to do?

So honestly, we don't really talk about it. I'm the only one thinking about it because my husband is still like, "Oh, it's going to work out." So when I think about retirement, I think about volunteering and pursuing things that really are non-monetarily, like going out to the third world, maybe working with Doctors Without Borders.

It's usually some kind of altruistic work. And my husband is interested as well, so that's not something I could pursue monetarily. Do you have any connection or attachment to this job or career that you're engaged in now, emotionally? Do you like doing it? I like it. I like it enough.

It's not, it pays well, and it's something that I can do with my volunteer work. And that's where I would be interested in. I'm a nurse anesthetist, so I could provide anesthesia to people in the third world who don't have access to surgery. And that's something where my heart would go out to.

That's what I would enjoy doing at some point. So yes, I would like to just do it part-time. I don't want to be in the operating room full-time with no windows for 30 years or so. So when you are talking about on your shows, like I could retire, but I would, if I did this job, I would only want to do it part-time.

If I have to do it for the next 40 years. If you did this job part-time, how much do you think you could earn in today's market? I could probably earn $80,000. And how much are your monthly living expenses right now, not including your student loan payments or extra payments?

Includes the mortgage? Yes. Okay. Then that would be, I also support my mom's about $3,500. Including the support for your mom, it's about $3,500 a month? Yeah. Okay. And how much of that is your mortgage payment? My mortgage is $1,040, and that includes everything tax and home insurance. Okay.

If you were to be a nurse, what would you do? If you were doing your job part-time, how long could you imagine your career? How long do you think you could keep working in your career? Until what age? Probably at least until 70. Okay. Well, the most important thing is going to be to clarify what is important to you and your husband in this second half of your life.

That's going to be the most important thing. If you look forward over the next 50 years and you imagine what a perfect life looks like, you've got to get very clear on that perspective. I don't know if you are accustomed to thinking in 50-year time blocks or not. Do you think of yourself as having another 50 years in front of you that you've got to plan for?

I don't think in 50 years, but I do think it's a good potential of being alive in 50 years, because all of my family in the German side, they're like 100 years old. But I could imagine that. Good. So a lot of people, the reason I'm using this is a lot of people, when they first come to an age where they're 50 years old, they might be thinking, "Oh, I'm going to die at 70 or 75." But realistically, you especially, because you're a woman and you're likely to outlive your husband, you need to be thinking in terms of a 50-year time block.

And that's going to be your planning. If you think in terms of 50 years, it should dramatically change and open up your horizons in terms of how many things you could do. You could spend the next 10 years working something and still have 40 years in front of you.

So don't think, don't start from the perspective of, "Oh, it's all lost. And I'm 48 years old. My husband's 58. And we've just haven't saved for retirement. And so therefore, we're all doomed." A lot of people think that way. I encourage you not to think that way. You've got a lot of time and you've got a lot of opportunities in front of you.

If you think in terms of 50 years and in the next 50 years, what you would imagine your life looking like, you've got to sketch out a future that is exciting to you. The most exciting thing to me in what you said is that you've built this career for yourself, that you could do part-time and earn $80,000 per year, that you like the work that you do, and you could do it part-time and earn $80,000 per year.

That is a lot of money to earn from a part-time career. That's because you've worked hard, you've gone to school, and you've chosen a career that has significant monetary value. That means that, especially if the part-time would allow you to do some of the other work that you care about, care deeply about, if it's going to go and work with Doctors Without Borders, if that opens you up to do that, if that's compelling to you, then that's going to be a really exciting thing to work towards.

Now, how do you get there? That's going to be the question. Well, you do need to square away a couple of things financially. You do want to square away the student loans, and you do want to square away, probably you want to square away the mortgage. Because if you are earning $80,000 and you are debt-free, that's going to allow you to feel much more comfortable with your volunteering and with your being flexible with your part-time income than if you are feeling like, "I only have $10,000 in the bank, and I'm not earning a lot of money, and I got a lot of debt still." So what would I do?

I think a few things. The house that you're living in, is that the house that you want to be in forever? Is that a forever house? Or do you need to change housing? Yes, it is. No, no, it's the forever. Okay. So this is a forever house? Like my relationship.

Good. All right. So if it's a forever house and it's a forever relationship, then you're in a situation where you got to look forward and say, "What makes sense?" Given your income bracket, I think contributing to retirement accounts makes a lot of sense. Possibly maxing out retirement accounts makes a lot of sense.

Just because it will have a dramatic difference on your impact and on your ability to lower your tax burden. And given your age, the fact that your husband is a year and is... I'm blanking on 59 and a half. Yeah, he's a year away. 10 years. He's 58, right?

Yeah. Yeah. Okay. So you're 48 and he's 58. So that means your husband is a year away from being able to take money out of retirement accounts without any penalties. And you are 10 years away from being able to take money out of retirement accounts without any penalties. Then your flexibility is not reduced very much by contributing to retirement accounts.

What is the interest rate on your student loans? I've done SoFi because of you. So overall, I've got different ones, but it's about 3.5, the highest at 3.99 from 8%, by the way. Great. Awesome. RadicalPersonalFinance.com/SoFi. Thank you very much for that, Shaz. RadicalPersonalFinance.com/SoFi. SoFi is a student loan that will-- they do other loans as well, the mortgage loans, etc.

But they have often dramatically cheaper prices that you can use to consolidate your student loans. What's the interest rate on your mortgage? 3.75. Great. Man, it's hard to tell you to pay down debt aggressively that that's low, that's at those low of an interest rates. Now you're putting me in a bind.

I am. I know. That's why I'm calling. Yeah, you're putting me in a bind. You can get back with me on that. I know you have all the callers. No, I've got to-- I need to give you an answer. It's just such a hard thing to say. I think I would-- if I woke up in your shoes, I would first max my retirement accounts across the board.

I would keep my expenses as low as possible. And I would probably get rid-- oh, man. The problem is if you get rid of the student loans, they're not inheritable. And you don't have children. This is not an easy decision for me. So let me just walk it through verbally so that the audience can find if I've got any problems.

Your interest rates on both of your mortgages are both low fixed interest rates, 3.5% and 3.75%. So low fixed interest mortgage rates. Both of the-- you're in a forever house that you're planning to stay in forever. There's not a huge benefit for you of paying that off early. And with your student loans, even just contrary to what I said earlier where I said I'd get debt free, with your student loans, if those are at a low fixed rate interest, there's not a huge benefit for you in paying those off particularly early either.

You have a high income. And so we want to prioritize the retirement savings. You don't have a lot of assets other than your-- potentially what is going to grow to be your retirement accounts. And you're going to be having Social Security income and income coming in out of your retirement accounts.

So even in a worst case scenario, you are basically creditor proof and judgment proof in that situation because Social Security income cannot be attached by your creditors and money that's in your retirement accounts cannot be attached by creditors as well. So I think if I were in your shoes, I would probably-- and the other reason I'm talking about this is that since you and your husband have no children, then there's not-- we're not worried about any inheritance of the house, nor are we worried about necessarily any major problems of passing on assets to children or worried about each other taking care of each other.

But we're not necessarily worried about assets to children. So if you have a big student-- all the student loan balance is yours. If you die, he doesn't inherit the student loan balance. He can sell the house and he doesn't have the mortgage there. So I don't see a lot of benefit of focusing heavily on getting these loans paid off unless it's a big, big deal to you for some reason.

So I think, Shaz, here's my answer. If I were in your shoes-- I feel like Dave Ramsey here because I hate debt, but I have to acknowledge kind of the-- I'm not necessarily as hardcore as he is. If I were in your shoes, I think I would prioritize retirement savings.

And I would focus on doing that as aggressively as possible. And I would save as much money, even possibly outside of that as well, to make sure that I had some flexibility and some consistency. I would build up a big stash of money in terms of emergency fund. I'd try to shoot for something like $100,000.

If you set aside $100,000 that is available to you, then that'll give you the freedom and the flexibility to start adjusting your work situation. You're probably not going to want to travel very much while your mother is alive. You'd probably want to wait until she dies to do much more travel.

So this is a really good time to focus on your earnings and working as much as you can. I would probably just keep the mortgage payments and the student loan payments at their minimums. I'd pay them off as scheduled. If you live a long life, that'll work out well for you because the inflation-- you basically have an interest rate that's at the rate of inflation.

And if you live a short life, if you die prematurely, then that'll work out well for you because you'll be able to leave more money in the 401(k) plan for your husband. I would, if I were you, I would buy some term life insurance for you to protect him because his future is tied to your awesome six-figure income.

I would buy at least a million bucks of term life insurance for you. And at 40 years-- I do have that. Great. OK, so just make sure that you have that and that you keep that because that protects him financially in case you die prematurely. And then I think I'd just pile off as much extra money as possible, and I would arrange my retirement plans to just factor in my student loan payments and my housing payments.

And then in the coming years, I would start volunteering and do the volunteer work with the plan of after you have more savings, after you've spent the next three, four, five, six, seven years really saving as much as you can, I would adjust and I would start moving towards a part-time work arrangement that would allow you to live your retirement lifestyle while living on your earned income.

If you can do your job from now through 70, that gives you 20 years of savings. If you max a retirement plan-- let's just do here-- let's just say you're not doing catch-up contributions. I'm just going to schedule this at $18,000 a year. So if you max a retirement plan for 20 years at-- let's just say you get 8% interest starting with nothing-- at the end of 20 years, we're talking a retirement plan balance of about $900,000, almost a million dollars.

If you do catch-up contributions as well of getting you up to the $22,500, that account should easily be in excess of a million, possibly a million and a half dollars, something like that. So that way, if you can just plan to work till 70, and if you've got a million and a half bucks in retirement plans, and you've got Social Security income, then you'd be in a really, really good situation.

And then just arrange your work life so that you can continue doing your part-time work at this highly compensated work, and also your part-time work with your volunteer work, and then hopefully you can do that for the next 40 years, something like that. So I think that's what I would do.

Is that clear reasons why I said that? Yes, absolutely. Thank you so much. I'm glad you called, because that is not an easy question. And I hope I didn't miss anything or get anything wrong there in my approach. But when you think about it, just somebody who's in the situation like yours, there's a really compelling reason.

I think that's a compelling scenario. So I feel good about that answer. Let's go to Grant in New Hampshire. Grant, how can I serve you today? Thanks a lot for taking my call, Joshua. I really, really appreciate it. I'm 48, and I was corporate-drawn up until about a year and a half ago.

So I was actually the white-collar guy from your podcast that came out today about the 401(k). Right. And I actually left my cushy job because of some extended family health issues about a year and a half ago. And that experience kind of opened my eyes, and I decided, hey, I don't want to be in the corporate world anymore, and I want to try this entrepreneurial thing.

So I'm still working on my business. It's not been profitable, but from a tax perspective, last year, that wasn't so bad. But doing that, I got into a lot of the entrepreneurial podcasts and books, and that led me to the Side Hustle Nation podcast, which led me to you.

And then I was like, wait a minute. And I really got into the financial, the personal finance hardcore stuff, and I started doing a lot of study on that, listening to tons of your podcasts. And I discovered that my family and I were pretty lucky. I mean, I kind of accidentally, you know, I've been very frugal my whole life.

My family's been careful with our money. I've maxed out 401(k)s, Roth IRAs, all of that, to have some cash and some stock. And I've even wondered right now, I'm like, I might be even able to be financially independent now, but that's another story. Now, the reason I'm calling is because when I look at my entire portfolio, and I hadn't done this for years.

I was just doing the corporate thing. I discovered, and I knew I had this, but I have a one stock that is in my total portfolio that accounts for about 25% of my total portfolio. Now, that's a really good thing. I mean, I'm very lucky to have it, but I also wonder what I should be doing with this.

Like, do I sell it off and pay off the house? Do I let it ride? Do I sell it off in little chunks? Because now I'm in this low. My wife's working full time now, but we've cut our income by like a third. So that's kind of what I'm looking at.

Like, I do like this kind of low income life we're leading from a tax perspective. It seems to be valuable, but my family's not totally comfortable when I talk about early retirement and things like that. So I just wanted to get your perspective on all of that stuff. - So let's focus on that stock, because that's kind of the core of the message here.

And it sounds like you're still working through the bigger aspects of the financial plan, which we can talk about in a future call. This stock, why would you sell it? - I would, you know, probably it's the fear it's going to go down is the reason. You know, it's just, I've held it for so, so long, and it was up very high initially.

You know, obviously it dropped to nothing, and I'm like, I'm not selling it now. It's not worth anything. And just by sheer holding onto that stock, it's gone through the roof. So part of the reason I've thought about selling it is that, you know, maybe we don't feel comfortable with our expenses versus how much we're right on the edge right now of, you know, we've always been savers before, but now we're on this teetering on this edge of where we're maybe spending a little more than we're bringing in because my business hasn't started going.

So it's like, hey, maybe I could sell a little bit of it. And I have, I will tell you, I sold for the first time a tiny chunk of it to cover, you know, my wife is putting, maxing out her 401(k) at work now, and I just wanted to cover that loss of income.

So, you know, I'm not sure if I do want to sell. I think in some ways, I think like this is a golden egg. And sometimes I don't even factor it into the equation because this could just could be the ticket if I just hold on to it. About what's the, about how much money is the value if you sold it all today, about how much money is the value of this stock?

About a quarter of a million. If you had a bank account with a quarter of a million dollars in it, and I offered you the opportunity to buy this stock at the current price, would you stroke me a check today? Would I buy that exact stock? At its current price?

Yeah, I couldn't do it. No. I mean, I'm waiting, I'm kind of in the way, you know, after listening to you, I'm looking forward to a bottoming out in the market so I can buy some more if it goes down. But no, I don't think I, I couldn't pay that much per share price.

No way. So that's probably your answer. And that's a good way to think about a lot of things. If you're doing something today that you wouldn't do again, if you had the opportunity to do it over again, you probably should quit doing it. If you're living in a house that you wouldn't buy again, if you had the opportunity, sell it and move.

If you're working in a job that you wouldn't, if you had the chance, knowing what you now know, if you had the chance to do it over again, to get that job, you should quit and go find something different. And if you own a stock or anything in your life that if you had the chance to do it over again, you wouldn't do, then do it over, then quit and go do it.

I've been selling my camper van. I sold it and then the deal fell apart. And so it's sitting in my driveway again right now. But I bought the camper van with all these details are profiled in a recent episode, probably 40 episodes ago about how to buy a motorhome or RV and not get taken.

But I bought the camper van very carefully thinking about everything that I wanted. I did a ton of research. I very carefully chose it. But after buying it and using it, one of the things that I learned was that I didn't have anywhere inside the camper van to put car seats at night when the beds are made up.

And I realized that as we add a third child to that camper van, there's just not room for me to be able to handle those car seats. So I realized that I needed to make a change. If I were given the chance to buy that camper van over again, I wouldn't have bought it.

And so because I wouldn't have bought it over again, I shouldn't keep it just because I've spent money fixing everything up and fixing everything or just because it now has sentimental value or just because I spent all kinds of time researching it. It's not right. And so I should get out of it.

So if you wouldn't quickly stroke me a check for $250,000 to buy the stock at its current price, then the answer is you should probably sell it. And you should probably sell it essentially today. Because if you're-- obviously, you're not going to do that. But meaning you got to think about it.

You got to make sure that you're really sure about it. But you should sell it as quickly as you can if you wouldn't buy it over again. Now, here are the caveats to that which would make the difference. Number one, you've owned the stock and you have a significant gain in the stock.

So therefore, you're going to incur tax. That cost needs to be calculated into your decision. So you need to calculate the cost of that tax and rework the numbers and ask yourself the question again. If I gave you-- if you had whatever the tax burden that's built in, if you had $200,000 sitting in a checking account, would you stroke me a check for $200,000 today?

Rework the question, understanding the tax implications. But if you've dropped to one income and if all of the stock is long-term capital gains and you've dropped to one income to where you may be in the lowest capital gains bracket, check what capital gains tax bracket you're in and see how you would qualify.

And maybe you should sell all of it. Maybe you should sell part of it. You do want to make a strategic decision with how you approach it. But-- - And that's kind of what I did already with the small chunk. I thought, you know, just figuring, hey, we're going to end up at this tax bracket where it's going to cost like zero.

Like, we're not going to pay any capital gain. But there may be-- I probably should go back and say, hey, if I sold even more and put us into the 15%-- because this is all-- I've held this for over almost 20 years. So it's all-- and it's all profit.

So yeah, I definitely get what you're saying. But, you know, I just, of course, have that seller's remorse. Like, if I sold it and I just saw it kept going up and up and up, you know, that's just something that, you know, I'm sure that's not totally-- that's not normal.

But it feels like, oh, I would just be kicking myself when, you know, when my kids are going to college and blah, blah, blah. So I don't know. - Right. But you don't believe that it's going to go up. Because if you did believe that it was going to go up, then you would have said, oh, I've got the chance to buy that for $250,000?

Man, I'd stroke a check today. - Yeah. - If I gave you-- if I were offering you a real estate deal and you knew-- you knew that the real estate deal that I was offering you was worth a million dollars, and I said, you've got a chance to buy this today for $250,000, and you knew it was worth a million dollars, you'd stroke that check in a heartbeat.

- Yeah. - So don't-- I mean, it's normal to have an emotional attachment to stuff like this. But don't let it confuse you as far as, you know, yes, anything can go up. Anything can go down. But you don't think it's going to go up. Otherwise, you wouldn't have answered as quickly as possible.

Now, if you do think it's going to go up, if you think you've got a good deal and you'd stroke a check for $250,000, then you should keep it. And the answer is really as simple as that. Also, given your considerations in terms of your career changes and things like that, when you are making changes like that, that changes your risk profile.

And you should adjust your investment portfolio to match. So if you're in a situation where you are-- where you've-- you are in a situation where you're trying to start a new business, when you were working and earning a high corporate salary, then if your stock moved up, down, et cetera, that probably wasn't a big deal for you.

You could fairly easily and comfortably make up the difference, and you wouldn't be too worried about it. But now when you're in this new situation-- now when you're in this new situation where you have the opportunity to start the business, that's going to change your risk profile. And because it's changing your risk profile, you should probably consider adjusting your portfolio.

All right, let's go to Aaron in Massachusetts. You're up next. How can I serve you today, please? Hi, Josh. Big fan of your show. Thank you. Thank you. My question is, I'm 38 years old, married, two little kids, third one on the way. Congratulations. My wife and I-- when we lived-- thank you very much.

When we were living in Massachusetts a couple years ago, we decided to hit the road, travel around the country. I'm a registered nurse, and you can take three-month travel assignments. So plan was bomb around the country till the kids started school and decide where we want to live. Ended up in Northern California, where I got a very high-paying job with a hospital here.

And now our question is, do we stay here, or do we move back to Massachusetts? And we can't figure out a good way to figure out how to make that decision. Here, I make about double what I would make in Massachusetts. It is more expensive to live out here, but not enough that it makes up the difference for the increase in pay.

Man, Northern California is such a beautiful place. Why would you go back to Massachusetts? I think the main reason is the feeling of guilt, because my father's stepmother lived there. Her parents and sister live in Maine. So it's kind of like, oh, we're taking away our kids from our parents, sort of thing.

And then, oh, I moved to California. And then we have lived there for a long time. So it does have some-- it feels like home in a way. But-- That's the main reason. Are your parents actively holding that over your head? Is this an active conflict, or is this just a vague feeling that you have?

More of a vague feeling. Yeah, I think if you-- We may have flown out here a couple times, visit the kids, and then we're going to fly back in September, stay for a couple weeks. But we're close, but not-- everybody's not super, super close. If you survey family, there are some people who would say, man, I really want to live next door to my parents and the kids' grandparents.

There's some people who would say, California to Massachusetts is an ideal distance. We can see each other once every couple of years, and it works out well. And I think there are considerations. Sometimes it's an advantage to live close to family. Sometimes it's a disadvantage to move close to family.

But I wouldn't-- if it's just a vague feeling, I wouldn't do a lot with that. There are all kinds of alternative ways to adjust the situation in a way that would fit better in terms of possibly-- maybe they're going to move to California. Maybe there's a state closer that they want to move to Nevada or something like that.

Or there are all kinds of different approaches of things that can be done. And if you're making double in California what you would be in Massachusetts, there should be some extra money to pay for plane tickets from time to time that could be valuable. Also, there are plenty of ways-- sometimes if you live far away from somebody, you can send the kids for a few weeks during the summer.

It could be a nice break for you and a nice break for the parents. There are lots of ways that things could be adjusted. Do you have any other compelling reason to go to Massachusetts? No, not really. Well, in absence of a compelling reason to move, I don't see much functional difference between California and Massachusetts with regard to anything financial.

They're both high tax, high cost of living states to some degree. But Northern California is different than Southern California, lower cost of living. And as long as you've calculated the tax burden and calculated its impact on your life, then I don't see any reason to go. If you were saying I should go to California and move to Texas, then it would be a financial calculation.

But I don't hear you asking any financial question. So I don't see any reason to leave. I don't think-- yeah, part of it was I didn't want to make-- and I can't tell in my mind-- a decision solely based off of finances as far as overall life planning goes.

Like here, I get-- if the pension stays-- like if I stayed out here, I get a pension at the end of the 20 years. I don't in Massachusetts. And then I make more money now so I can stay home more with the kids. And I was like, eh, you know, just try not to get stuck in the golden handcuffs sort of thing as far as reasoning goes.

But my initial-- our initial thought pattern was pretty much what you said. Well, I can have enough money to pay for tickets and fly back. - Yeah. I think you don't start with finance. You build ideal lifestyle. But finance is a component of that. And Northern California is a beautiful and tremendous place.

So I could see a lot of benefits of it. In absence of a compelling reason to change, I think you keep doing what's been-- you keep doing what's been working for you and keep going with it. All right. Mike in Colorado, you're up next. How can I serve you today, sir?

- Hi, Joshua. A longtime patron. My question is, how can I tell if it'd be beneficial to start some sort of tax advantage plan leaning toward maybe a 401(k) with or without profit sharing for a small business versus just taking the extra money and investing it in an after-tax brokerage account?

Just a little history. We used to have a 401(k) in this company, apparently, like seven years ago before I was there, but they dissolved it when they felt like they were getting ripped off with extra fees and just not great options where they were investing. And so they dissolved it before I got there.

But I'm kind of looking at maybe trying to get something going again here. We have like five doctors, 40 employees. So one consideration is the non-discrimination testing that we'll have to do and the matching that we have to do, profit sharing. So I'm kind of staring down 40 years old and haven't saved much for retirement, and we're all kind of in the highest tax bracket.

So yeah, what are your thoughts? - Are your employees asking for it? - No, not at all. In fact, I think if we did do like the matching and stuff, I think a lot of them would not do it. Yeah. - And are your fellow physicians, there are a total of five owners and you have an ownership stake in the firm?

- Yeah, 20%. We're all 20%. - And are the other physicians looking for something, trying to figure out how to establish some kind of plan? - Not really. Well, I think one of them is definitely. One of them's on the fence. One of them puts all his money in like a whole life plans and stuff.

And so he's resistant. And one of them's also kind of on the fence. And so, I mean, it's gonna come down to a vote. I gotta get three to two. So part of it, I need to present in a smart way, like, hey, mathematically, here we go. But yeah, that's kind of my burden here.

From me looking at it, I feel like it probably makes sense. And I did have like a fee-based advisor look at it and said he thinks it makes sense. Part of it comes down to whether you pay the tax, it goes to the government versus the money would go to your employees.

I'd rather benefit my employees than the government. - Of course. - But yeah. - I think you need a consultant. This is one where you need to calculate the numbers because instituting a plan is not free. It's not free to run the plan. There'll be administrative fees, third-party administrator fees, et cetera.

And it's not free to start to establish the profit sharing, the employer matching. If your employees are not clamoring for it, that means you may have some problems with the participation rate. So you'll need to make sure that either you may be doing a safe harbor plan, which is gonna, you have to calculate those costs.

You need to get some actual numbers here. Then you need to calculate in your own situation what the optimal advantage is and calculate, okay, if I have this plan just for me, just thinking selfishly and I contribute to it, how much is that actually going to save me in terms of taxation?

And you have to focus on the fact that putting money in a 401(k) doesn't mean that you're never gonna pay tax. So mentally, you're gonna pay tax at some point. You're just gonna pay it in the future. And so it's not 100% savings. It's not as though, okay, if I contribute $20,000, I'm getting this massive savings.

You're getting some savings, but you're gonna pay the tax at some point. - Yeah, I definitely think there'll be an arbitrage 'cause I won't make as much, maybe, in retirement. - Agreed, agreed. - At this rate now. - Right. I don't believe, I don't see how it's possible for people who are contributing and employees saving for retirement in the traditional way, I don't see how it's possible for them to have a higher income in retirement than during their working years.

The only exception to that would be people who sell large businesses. But for the average person, you're gonna have a lower income. So yes, it would be an arbitrage opportunity. My point is, if you calculate the actual cost, every year that you pay the TPA fees, every year that you make those contributions for your employees, that's money that you're not gonna get in actual profit for yourself.

So that's 100% money that's gone. If it's saving you an arbitrage of, say, 15%, 10% or 15% on your tax rates, then calculate what that number is and compare that to the cost of putting the plan in. My guess is it probably wouldn't make that big of an impact on your financial life.

And if your employees aren't clamoring for it, and if your fellow physicians aren't sure that they want it, it's probably not something I would pursue super aggressively. Now, I'm guessing. I haven't done any of that math. You need to do the math. But I'm just guessing. The biggest reason to put in place a profit-sharing plan and choosing one with 401(k) benefits is as a way of enhancing the compensation package for your employees.

That should be your primary reason, because you're gonna pay money for it. So if it's not helpful to your employees in terms of an extra benefit that they really want, that they're gonna value, if it's not gonna reduce employee turnover, if it's not gonna put those golden handcuffs on their wrists, my guess is it's gonna cost you more than it saves you personally.

That would be my guess. But you need to get math. You need to get a couple of proposals from a local employee benefits consultant with the cost baked in, have them look, calculate the cost of doing Safe Harbor and things like that, and then compare that with your tax accountants to see how much you could potentially save by participating.

Yeah, that's my biggest challenge has been finding someone that's impartial that can give me, just run the math for me. Because it gets very complex. Some of these things, the fees you're paying pre-tax, some of these fees are pre-tax, and some of these. And so it's just, it is extremely complex question.

Call a couple of local financial advisors, tell them you're looking for a specialist, call some of the big firms, call a couple of the big wire houses, and call a couple of the big insurance companies. So call a, just have your staff do it. Just call a couple of the firms and tell them, I'd like to talk to somebody in employee benefits and get a referral.

You'll be able to get a referral to somebody and they will come in and you get a few possible referrals and they'll make some suggestions for you and they'll give you a breakdown of the prices. And it won't cost you to have them quote you out a proposal and that'll give you better data to at least decide.

Now, whether or not any of them does a good enough job that they deserve the business, that's up to you. But at least you'll have an idea of whether it's something you should pursue heavily or not. Okay. That's where I would start. Yeah, I'll keep going on this and see what we come up with.

But I appreciate your thoughts on it. Absolutely. It's definitely not an easy decision. There is, I think employees often don't realize the costs that employers face when it comes to what they need to do and what they don't need to do and how much that they're actually going to pay for all of these decisions.

All right, Andy in California, you are up. Our last caller. Go ahead and shoot, sir. Let me know how I can serve you today, please. Hi, Joshua. I am a huge fan of both your podcasts. So thanks for taking my call. Thank you. Background for me, I'm 31. I work in the government school system and based on my current income, I'd receive about $120,000 a year for life beginning at age 62.

So obviously it's a large amount, but it's also three decades away. It's a long time for politicians potentially change the rules of the pension system. And so I just am trying to figure out how you would recommend I account for it in my long-term wealth planning or retirement planning.

If I act like it's going to be there and it's not, then obviously I have a huge gap. But one of the reasons that one of the benefits of working in a government system is the promised pension. So if I take a lower salary than the private sector may offer and I have to still save retirement the same way, then there's obviously challenges there as well.

If the retirement pension works as advertised, are you thrilled with the job? Are you thrilled with the work? Are you thrilled with the prospect of serving out your career in this area for the next 30 years? Absolutely. I'm absolutely passionate about my job. Okay. I think that should be the primary thing because a lot of the math, it's such a crapshoot.

I mean, how do you know? It's really hard to know. So would this be the CalPERS pension in California? That's correct. Exactly. Do you know anything about the financial strength of that pension program? I believe they're currently about 77% funded and the employer contribution requirement has gone from 10% as of two years ago of one's compensation to right now it's about 14% and they just released data that it'll go up to an employer match of employer contribution of 28% by 2021.

So they're requiring employers pay a lot more into the system. It's not an area of my expertise. You have researched it and started researching it. I would follow your instinct. Search out the opinions, search out the harshest critics you can find of the California pension system. Try to find what the harshest critics say and then try to find what the biggest promoters say and then study the actual numbers.

This is a guess, not having done that research. My guess is that it's probably going to be pretty safe. In terms of there's a big difference between a city pension, in my mind, there's a big difference between a local city pension versus a state pension and there's a big difference between the state of California and many other states.

So California has a massive economy and what the future of that economy is, what the future of these things is, it's hard to say. But if you are a government employee in the state of California, you are part of a very respected and honored voting bloc. You have a much stronger position as a part of that voting bloc than you do in many other states where government employees are not valued quite so highly, politically speaking and ideologically speaking.

Also, the CalPERS pension system is huge. It's absolutely huge. So if it doesn't work out, you're in with a lot of other people. You're in trouble with a lot of other people. I think what I would do is I would focus first and foremost on the career. And if it's a career that you're going to be thrilled with, I would stick with that.

Because even if it's 80%, 70%, it's my guess that I don't see any way that, given the demographics, given things, I don't see any way that a lot of these long-term pensions aren't going to take a slight haircut at least. But I don't think it'll be zero. So if you're thrilled with a career for another 30 years and then you retire and let's say what they're saying to you is going to be $120,000, but it's actually $100,000, I think you'd be pretty happy in that circumstance.

Yeah, absolutely. Great. Well, thank you. I do have one more question. Is it possible for me to ask that? Sure, go for it. Yep, go ahead. Interesting, perhaps, arbitrage opportunity with student loan debt. So unfortunately, I do have a lot of student loan debt in excess of $200,000. I'm repaying it under an income-based program, which requires I pay 10% of my discretionary income to the student loan.

And because I work in education, after 10 years of payments, they forgive the loan in a non-taxable event. And I've worked for four years, so I'm six years away from that. The way they calculate that payment is it's based off of your adjusted gross income and then some other complex calculations from there.

But given that's off your adjusted gross, payments into a 403(b) or 457 would not be calculated for the loan repayment. So in essence, every $10 that goes into a retirement vehicle or tax-deferred retirement vehicle would be saving me $1 in student loan repayment. And so I know that in general, you question the appropriateness of contributions to retirement accounts because of some of the restrictions and the limits on the types of investments that can be made.

But I want to know if under this situation, you would think that for at least the next six years, that I should stash as much as I can into that. Because worst-case scenario, if I need the money after the loan's been forgiven, and I have the 10% early withdrawal fee, it's really just the same as the 10% I would have had going towards the student loan.

Yes. I would. I would. I would put as much. I would. Obviously, you got to live. But given that opportunity with such a massive student loan and given the fact that it's on schedule to be forgiven in six years, I would max out those retirement accounts, no question. Go back and listen to the show that I did on even how investing in, even if you have to take, when I did the math on taking early withdrawals, even if you pay the penalty of how that's still superior to contributing after tax, go back and listen to that show if you missed it.

And when you take that plus the student loan arbitrage opportunity, I think that is definitely the decision that I would make. I would put as much. I would seek to get every dollar into those retirement accounts at this stage that I possibly could get. And also given your first question that you asked, I think that moves you.

That helps you as well in case of problems with your pension to where you additionally have some savings. So even if you don't do this forever, even if you do this as a strategy, something along the lines of for the next six years, we're just going to live on very little.

But we're going to put everything into these retirement accounts. If you have young children, then that'll probably – six years from now, it would probably be an ideal time to start spending more money on them. Then go ahead and feel free after the student loans are forgiven. Go ahead and just reduce your retirement account contributions.

And so on multiple levels, I see that as being a good plan. Saves you money on student loan interest and payments because of the debt forgiveness, allows you to set aside money that will be there for retirement. And even if you need to take it out before retirement, you would still be better off by using those retirement accounts than you would otherwise.

So I'll look up that show. I don't remember the title of the show that I'm referencing. But I'll look that up and put it in the show notes for other listeners. But it was a show where I calculated how it's still superior. If you're going to take money out for early retirement, even if you're going to pay the penalty, you still should use a retirement account if you have access to a good one.

Terrific. Thank you very much. Thanks for calling in, man. What a great situation. And work hard. You're in the middle of an important job. And if you like it and you work well in the government school system there, then I wish you all the best. I seriously considered being a government school teacher myself.

I thought it would be really, really great. I love to teach. I love to teach young men and women and children. I'm not a teacher. I'm a teacher. I love to teach young men and women and children. I'm not an elementary school guy, but I would love to do high school.

If I could teach high school history, that'd be a dream career for me. So I love to teach. And when you get all the benefits of the teaching system, if you can earn a good wage, and that depends on school district, but if you find a school district that can pay you a good wage, you get summers off, you get work that's constrained exclusively to basically the classroom hours.

You can do some other things, but my experience has been that if a teacher really, really focuses, a lot can be done during the school hours in terms of the grading requirements and things like that. You start putting these things together, it's a tremendous early retirement career in my opinion.

When you add to that a pension, you add to that student loan forgiveness, great work, meaningful work, you have the ability to impact students. For many young men and women, their teachers, a high school teacher is a bigger influence than practically anybody else oftentimes. Summers off to travel, it's a, who knows, maybe someday I will retire and go teach.

I probably, you never know. You never know what life brings at us. All right, thank you everybody for calling in. If you would like to call into a show like this in the future, please remember to sign up and become a patron, radicalpersonalfinance.com/patron. In addition, you can sign up for the email list.

That's how I'm doing these notifications right now, is via the email list. So feel free to sign up for the email list. You'll find that at radicalpersonalfinance.com. Thank you all so much for listening. If I have any other, oh, keep on sending me your episode 500 voicemails. Take out your phone, if you would, just do me a quick favor, do it today if you've been wanting to do it.

They say you got to ask people 10 times to do something. And so this is, consider this about your 10th ask. Take out your phone and pull over to the side of the road and do me just a quick favor, just record about two to three minutes telling me what you've done and what you've changed in your life and how you've gotten richer.

Rich life now while working towards financial freedom because of Radical Personal Finance. Send me that audio file, joshuaradicalpersonalfinance.com. I will play it for your fellow listeners in episode 500. Back with you Monday. This show is part of the Radical Life Media network of podcasts and resources. Find out more at radicallifemedia.com.

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