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That's FijiAirways.com. From here to happy. Flying direct with Fiji Airways. Today on Radical Personal Finance, it's live Q&A. Welcome to Radical Personal Finance, a 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.

Today on the show, it's live Q&A, which means open phone lines. Today's callers are all from Patreon. If you'd like to join us for the next phone call, you can go to RadicalPersonalFinance.com/patron. That link doesn't work. Just search me on Patreon. Sorry. Search for Radical Personal Finance and you will find me.

Broken links all over the place these days on the website as I have transitioned out an old website into a new one. Just go to Patreon.com, search Radical Personal Finance, and I'm easy to find. That will get you guaranteed access to the next Q&A call where you can talk with me about anything as it relates to your personal situation, if you'd like to talk about that.

Any question that you have, comments on anything about a show, the current themes, etc., anything you like is available to you. We begin with Derek in Maine. Welcome to the show, Derek. How can I serve you today? Hey, Josh Ross. Thanks so much for taking the call. I appreciate it.

I've been listening to you for about a year, year and a half. I find you inspirational. I have one question and one thing I'd like you to expound upon based on the thing that you said in the past and I'd like to hear your opinion on. But first up, the question is, I was curious, I was going to give you whatever numbers you wanted for this, but am I spending too much on life insurance?

I know I got oversold. I do like the product as a whole, but I'm not sure if we're paying an amount commensurate to what we make versus what we potentially need. So I'm just curious on what your thoughts on that are. Okay. So can you talk a little bit about the insurance policies that you have, how much they're worth, how much the premiums are and your household income?

Sure. So starting off with the income situations right now, before taxes, we grossed about 205K last year. We are looking to potentially downsize that to shift our life situation a little bit. It might be very significantly downsized, but we're not really sure. Right now, the totality of the premiums that we pay is about $1,000 a month.

And that goes towards two term benefits, one for each of us. One has a $370,000 death benefit and one has a $1.1 million death benefit. And those are $150,000 and $563,000 per year. And the whole death benefits are $495K and $408K. And those add up to about $11,000 a year in premiums.

Okay. How old are the policies? We started that, we'll be getting into, I believe, the fourth anniversary of that in this year, so this spring. And how are the policies structured? Is it universal life insurance, whole life insurance, overfunded whole life? How are the policies structured? They are mostly whole life and they're augmented with the two term policies that I refer to as well.

Okay. So on the whole life policy, is this, describe the policy to me a little bit. How long are you scheduled to make premiums, et cetera? How long does it last? I mean, it obviously lasts forever, but how long are you scheduled to make premiums under your current schedule?

I think it's 65 is when we're supposed to be paying those premiums until. So if I say something like it's whole life paid up at 65, does that sound like probably about what it is? Yes. Okay. So then that kind of policy is a traditional whole life insurance policy.

It will last for your entire lifetime, but you are scheduled under the policy schedule to pay premiums until the age of 65. How old are you and your wife currently? We're both 31 later this year. Okay. And tell me about your general wealth plan. How do you plan to become wealthy?

I'm actually extremely comfortable with the current, we're very, very comfortable with our current income situation. And so I focus heavily on the invest wisely piece as well as living, like you say, I'm very comfortable with, I probably overspend, but we have a lot of fun doing it. And as far as getting wealthy, it's by putting a significant amount of funds into a different investment portfolio.

So how much are you investing outside of this life insurance policy? How much are you investing per year and what are you investing in? So I put about 7% or I put about 5% with a match to into my 401k. My wife has a fee that she puts in.

Those are already up to about a hundred thousand together. And I put about another, I'd say 12 grand into different ventures like Fundrise and Acorns and that kind of stuff. You mentioned, so you're putting 5% into your 401k and how much is your wife putting away? I believe she does 5% as well.

Okay. So hers is matched because it's a federal government. So right now then in general, excuse me a moment, I need to sneeze. In general then right now you are spending, sorry, you're saving about 15% of your income. And the way I got to that number is you're putting about 5% into whole life insurance on a $205,000 income, $11,000 of annual premiums is about 5%.

You're putting 5% into your 401k funds and you're putting $12,000 per year, which is again about 5% into your other investment pursuit, which is about 15%. Is that accurate? Yes, that sounds about right. So if your income goes down, how much do you think your income might go down?

So we're looking to potentially move back closer to family because our life situation has gotten a little chaotic with just where we live now because we live in Maryland. I'm trying to drag up to Maine and as you might imagine the employment opportunities are a little bit different up here.

And so it could go down as much as half, but hopefully we try to keep it up to around the 150, the joint $150,000 range. And if you were to move to Maine, what would you do, how much would it cost you to live? How would it be your annual living expenses?

Probably less, but I have not calculated that. It probably would be a little bit less, probably about two thirds of what ours is now. So to answer the question specifically, no, I don't think that you necessarily have too much whole life insurance. I don't think your current plan is unreasonable.

Although I can see how if your income goes down, it can become difficult. So let me get to how do I get to the point of reasonable or unreasonable. What I'm imagining your thinking was when you bought these policies, as you said, I like the idea of having some life insurance that lasts forever.

I like the idea of having some cash value that builds up. It's attractive to me perhaps because it's safe and it's stable. It may not do as well as some of my other investments do, but it's safe and it's stable and I know it's going to go up and it's accessible to me with all the benefits of a life insurance policy.

So hopefully that was kind of what you were thinking when you bought it. I would guess that's what you're thinking because you made a sizable commitment to your whole life insurance policies in terms of $11,000 a year is nothing to sneeze at, but you didn't put 30% of your income into those kinds of policies, which tells me you're not pursuing a bank on yourself, infinite banking type of concept.

You're just saying this is a useful pot of money. And under those constraints, I personally am very comfortable with that approach to whole life insurance. I would imagine this policy is probably with a decent company that's decently run. When people wind up owning traditional whole life insurance, especially life paid up at 65, that usually tells me there was one of the traditional mutual life insurance companies because most people who are working with some of the more aggressive companies, usually they'll wind up with some kind of universal life insurance contract versus a traditional whole life insurance contract.

So I like a traditional whole life insurance contract for young couples like you. I like a life paid up at 65. I think it's a very reasonable difference. It gets you a little bit better cash value than a traditional ordinary whole life paid up at 120. It's not quite as aggressive as an overfunded life insurance policy, which I sometimes would prefer, especially given this situation that you're in.

But I don't dislike your program. So the first thing is I don't think it's unreasonable in my assumptions, unless you need to correct any of those assumptions. I think you're not in a bad place. Now the second thing that I want to look for is do you have enough money invested in things that are going to really make you wealthy, which is why I asked what your wealth plan is because where I don't think life insurance works well is it doesn't work well as a primary investment solution.

The returns are simply too constrained. The potential returns are just too constrained by the market of what the life insurance companies are investing in that you're not going to get really wealthy just investing through whole life insurance contracts. So there I think you need some money that's much more aggressive.

And so when you told me that you've got 5% of your income invested in going into a life insurance contract and you've got upwards of 10% plus employer matches going into more aggressive investments, as long as you're still keeping that ratio, then I think that's a sensible ratio. Now the biggest problem is the affordability.

And so the big drawback of a traditional whole life insurance contract, such as the one that you have, is it's pretty inflexible. You can't just willy-nilly drop the premiums in half. You can always adjust a contract. So there are different things that you could do if you have to take it down.

And I would strongly encourage any listener who does need to adjust a life insurance program, then you need to make sure that you know all the options because you don't just have to cash it out and cancel it. There are lots and lots of options under the non-forfeiture benefits of a life insurance policy.

But the disadvantage of the structure that you've chosen is that it's not particularly flexible. And when I used to sell life insurance, one of the things that changed was when I was getting started, I was extremely aggressive to sell as much premium as I could into a situation like yours.

In time, I learned that I needed more flexibility because people's lifestyles and circumstances could change. And I learned that I could be very effective at selling life insurance and sell somebody too much and then they might not be able to afford it if they were going to go through some kind of life transition.

Now based upon what you're telling me, I wouldn't make any changes to my life insurance program at this point. There's no rush to it. Do you, Derek, additionally have cash savings, emergency funds, accessible liquid money that's not in a retirement account, that's not in a life insurance policy? Yes, sir.

Yeah, it's also been, it's come in handy twice already. We usually keep about a $20,000 cash reserve. Okay, good. So you've got plenty of money to move. You've got plenty of money to rent a new place, first, last security, that kind of thing. And you've got wiggle room while you find a new job.

So I guess in summary, I would not immediately try to change my life insurance policies. Rather what I would do is I would try to get very well employed in Maine. I would try to get settled in Maine because there's no reason why your income has to go down.

Yes, there are certain circumstances in which you move from one job market to a new job market and your income goes down. It's hard to move from New York City to Papua New Guinea and expect to make the same salary with that move. But in many circumstances, if you'll just spend a little more time looking, a little bit more time networking, a little bit more time doing a really intelligent job search, there's no reason why your income can't go up because there are jobs in Maine that are paying $250,000 or $300,000 per year.

So look for those. The second thing is your actual spendable income may not go down because of the tax changes from Maryland to Maine. I don't know exactly what those numbers would be, but I would encourage you to calculate that. And then also when you make a lifestyle transition, given that you now have some years of experience, you and your wife have a chance to make new decisions, you might choose less expensive housing.

You might have just costs go down because of lower taxes, lower car insurance rates, etc. You might sell a car. Who knows? And so it may be that your actual expenses are lower. So even if the percentage of income dedicated to a life insurance contract goes from 5% to 7%, that might be okay.

What I would be careful of is if you find after you move that you start to be very pinched and you're not having enough money exposed to investments with higher potential and all the money is going in the life insurance policy, that's when I think you might need to adjust it because it's just too conservative for someone as young as you to be putting huge percentages of income into a life insurance contract.

So as long as you still have other investments that are going to give you really big wins, I think the life insurance is fine. If it's becoming all-consuming, I get concerned about that and I'd like to see you have a little bit more risk and opportunity for growth. Great.

I never thought about it that way. Thank you very much. Yeah. Can we give you a couple of other tips as well? I don't want to go through everything that your life insurance agent will have to go through but if you need to adjust your life insurance program, there are many options and especially now that you're starting to get four years into it, you will be able to change options within the contract.

But the challenge with a traditional whole life insurance contract is you can't, the challenge with that contract is there aren't as many options as there are with some other kinds of insurance. So the first thing that I would do is check how your dividends are being credited. If you need to put less money into the contract, the first thing that you should do is redirect your dividends and instead of using those dividends to buy paid up additions, just use those dividends to reduce the premiums.

And in a traditional 65 life, traditional whole life insurance contract, that won't be a major problem. Have your insurance agent show you the projected values of it. But if you just simply redirect your dividends to reduce the premiums instead of to purchase paid up insurance, that will start to decrease and in time, the insurance policy will become less and less impactful.

The second thing is you may be able to take a small amount of the insurance paid up. It's a little bit early in terms of four years to do that. But in fact, I don't want to go into any more options than that. Just simply say that if you do adjust it, you can just make a minor adjustment if needed and still retain the policy.

Because at four years into the contract, if you just bail out of the whole thing, you will come out having had very expensive life insurance. So you always need to of course assess it. But the same reasons that you bought it for, unless something has substantially changed, they're probably the same reasons why you still want to have it.

So if it's just a temporary thing, you just change the dividends, readjust the dividends for a couple of years, and then maybe your income goes back up. In that case, you can go ahead and pick up those dividends. Next time you buy a life insurance contract though, what I would encourage you to do is try to make sure that at least some of your premiums are what are called additional premiums and make sure that at least some percentage of it is there with additional premium.

That gives you a lot more flexibility because with a policy that has additional premiums on it, let's say that 15% of it is 15 or 20% is additional premium, you can just simply drop those additional premiums without impacting the underlying contract and you get all the benefits of the whole life insurance contract over a universal life contract which has almost infinitely flexible premiums.

You still have the benefits of whole life, but you have the ability to lower your premiums if you need to and sometimes you can just do that temporarily. So next time you buy a whole life contract, try to make sure there's at least some additional premiums on it and I would encourage anybody who sells life insurance, try to always sell your contracts with at least some additional premiums so that if somebody goes through a life change like this and they need to reduce premiums, they have that chance to do it as well.

So that's my suggestion, Derek. Go ahead with your second question or comment, please. Thank you very much. So about a year and a half ago, during 2017, you were talking about preparation for storms because it was during the hurricane season and it was part of your avoiding catastrophe series.

You had started to make a comment that you stopped yourself from making because you considered that you were rambling, but you started saying something interesting about how, in your opinion, Walmart has done. I don't remember the exact quote, but you started to say that Walmart had done almost as much as the Catholic Church or whomever for lowering prices.

I don't really remember what you were saying, but I was hoping that you would expound upon that point. Do you know what I'm talking about? Sure. Yeah. So basically, the position that I hold and that I defend is that, so first for context, Walmart is an easy target for many people, especially in the political sphere.

When you are a big player, you're going to be targeted. And so whether it's Walmart or Amazon now taking on the brunt of that targeting, etc., large companies are targeted. And one of the most common attacks that is made against Walmart, there are a few of them. So the first one would be that Walmart has destroyed local businesses, local companies.

Mom and Pop franchise locally was run out of business by Walmart. And so that really is, Walmart's a bad influence there. Another thing is, well, Walmart's just a bunch of greedy capitalists and all they do is make money. And so as they start to pack up more money, then things are worse.

And so that was the primary one that I was identifying, is that many times people look and say, "Well, you need a charity, somebody that gives money away or gives things away, and that's going to be the most effective way to help people who are in need or who are poor." We'll come back to that in a moment.

In the modern world, of course, also, there are many other things such as Walmart. Walmart employees are being subsidized by Medicaid or by other government welfare benefits. That's what allows Walmart to pay the lowest price, to pay lower labor costs, etc. So there are many attacks that come against Walmart.

And I think there are legitimate lines of critique against a company like Walmart, just like with any other company. But the one that I was zeroing in on there was the idea that charity is better than business. And my contention, although I don't know how I would prove it, my argument is Walmart has done far more for poor people than almost any large, than the Red Cross has or any large charity.

And there, I think, there would be a number of lines of reasoning for that. So first, Walmart has revolutionized, single-handedly revolutionized retail sales in the United States and brought a tremendous diversity of low-cost products and made them available to anybody who wants to get them in the United States of America.

Now most of us who have a little bit more money and who are probably a little bit more hoity-toity, most of us don't love shopping at Walmart. Frequently I've avoided going to Walmart because I don't want to stand in line in the checkout just to save a few dollars.

I don't like a lot of the inventory that Walmart sells in terms of just junk, just Chinese junk. But at the end of the day, Walmart has made a world of incredible things available to people without much income all over the world, but especially in the United States. When you look at the selection that is available at a Walmart store, when you look at the products that are conveniently available, when you look at the prices, even just simple things like having those in one place.

Let's say that you're a poor person, you don't have a car and you've got to ride a bus to go to the grocery store. It is so much more efficient for you to go to Walmart and do all your shopping in one place and then go home on the bus or take a taxi home or ride a bike home than it is for you to go to seven or eight little mom-and-pop stores.

And the prices that Walmart brings are far lower than what any of the mom-and-pop stores that Walmart drove out of business were charging. And so for a poor person today who only has $1,000 a month to spend or $1,500 a month to spend, if they shop intelligently, they can have everything they need from one store at insanely low prices.

And if you travel a little bit around the world, you start to see how incredible that is. It is easier to live on a low income in the United States of America than almost anywhere else in the world, at least that I have been or observed or studied, because, largely because of the massive amount of inexpensive products that are available.

And it is nothing like where you go to a local convenience store in some neighborhood in another country and have a limited selection, high prices, whereas Walmart, low prices, ready to go. Now there are other benefits as well. If you look at the way that the number of jobs that Walmart has added and the jobs that are available to relatively unskilled people and the opportunities that are there for workers that simply were not there before, you can make this argument from the corporate opportunity.

And let's pick on that argument about what happened to mom and pop stores. Let's assume that you were going to go and you're a relatively unskilled person, you don't have a lot going for you in your earning ability, you can go and work at a mom and pop store, but what are you going to do?

It's basically a dead end job. You're not going to take over the store because the mom and pop store is going to be, they're not going to give over their store, it's their store. You're not going to have opportunity for advancement. If you're sweeping the floor and stocking the shelves, that's what you'll be doing for the next 30 years as you live there.

You're not going to have access to many of the benefits of a large company. But if you go to Walmart, I mean go back to my show, How I Became a Millionaire on a Minimum Wage Job at Walmart. Walmart offers a motivated, modestly intelligent, but unskilled entry-level worker an opportunity to completely transform their life.

So that would just basically be the basic component. And then if you look at just what the company has done in terms of the wealth that the company has created for its shareholders, how that wealth gets reinvested back into the economy and new enterprises and new businesses, how the wealthy owners of Walmart redirect their charitable funds into other things as well.

I don't think everything is a matter of this or that. I think there's a place for non-profit organizations and I think there's a place for for-profit companies. I think everything can be done well by one or the other. They have different roles. But if I had to choose between them, I would a whole lot rather have Walmart than just a non-profit organization in terms of the actual good.

Walmart doesn't talk about much good that it does. Of course they have their corporate PR arm, but in reality they spend more of their time trying to defend themselves than anything else. They don't talk about the good that they do. You and I as consumers just take it for granted.

Meanwhile you have most charitable organizations, non-for-profits, talk all day long about what they do and they actually do very little. But if I were poor, I want Walmart because Walmart is going to be my single-handed best source of the things that I need to keep my life going effectively and efficiently and Walmart is the most sensitive thing to my needs.

I appreciate and I'm sympathetic to the challenges that storekeepers have faced, independent mom and pop storekeepers in the United States as Walmart came in. I appreciate that. I'm sympathetic to them. But the fact is they were put out of business by Walmart because they did not serve their customers effectively as Walmart did.

And specifically for Walmart, I often wish that more people would spend time investigating. Sam Walton was an incredible guy and he went where no one else wanted to do business. The thing that people forget is there have always been large supermarkets and large big department stores across the United States.

But Walton went to the communities where other people didn't want to do business and he transformed those communities and brought his idea of retail service to there. And the customers are the ones who chose. The end of the day, as long as Walmart didn't engage in bribery, going into a local place and saying, "Hey, we'll give you some extra money, the politicians, to give us this prime location of government owned land," or things like that, as long as Walmart didn't engage in bribery and as long as they engaged in simple competition, I am happy to trust the market.

And the market has said that the mom and pop store owners did not serve their customers as effectively as Walmart and that's why Walmart has won. So that's just some of the lines of argument that I would present to say Walmart has helped more poor people and helps poor people in the United States to live better than any other organization I can think of or come up with.

And I need just clarity because it's such an abrasive argument in the modern world. I would just clarify, that doesn't mean that everything is perfect. But Walmart sells what people want. I don't buy, I don't want the majority of what Walmart sells. I don't want most of the stuff that Walmart sells in their food.

I spent, when my wife and I were traveling around the United States, we spent quite a bit of time in Walmart. I did a lot of shopping at Walmart because of sleeping in their parking lots. And Walmart is so kind to allow travelers to stay overnight in their parking lot and so they have a lot of loyalty of customers who say, "I want to support Walmart." I'm giving Walmart a pretty massive plug here because having enjoyed their parking lots.

But I basically skip all of the aisles of packaged foods in Walmart because I don't eat the stuff. But I can still go to Walmart and find what I need and what I want of high quality food. And what Walmart does is when they get into something, even let's say you're going to buy organic yogurt.

When Walmart started selling organic yogurt, it transformed the price of organic yogurt for everybody because they're so massive that when they bring their merchandising arm to something that you want, it transforms the market and brings the prices down and we all benefit from that. So I'm sure that there are many complaints that we could collaborate on against Walmart, but those are some of the arguments and I'll stand by them.

Walmart has done and does more for poor people across the United States and maybe the world than almost any organization I can come up with. >>JAMES: Thank you. Yeah, I was intrigued with what you were saying and I was really glad to hear you. >>ADAM: My pleasure. The big thing for me is just simply I always want to look for results.

I want to look for what actually happens, not for people who say nice words about what they think should happen. And so for me, if we measure by results, Walmart wins. We now go to Colorado. Welcome to the show. How can I serve you today? Okay, I can hear you now.

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>>COL. ADAM HICKS, COL. >>COL. ADAM HICKS, COL. >>COL. ADAM HICKS, COL. on your rents from your real estate? - No, not quite. We could live our normal lifestyle on the two Social Security incomes and our rental real estate. - You have already filed for Social Security. What's your plan as far as filing for Social Security?

- Yeah, I filed just last year and I've started receiving my benefit. She obviously won't file for a couple of years. - Okay. So one more question. What do you want to happen with your wealth that you don't spend during the next few decades of your life? What's your plan?

What are you trying to accomplish with that wealth? - So we'll probably leave a portion of it to our kids. We've got six kids between us, so it'll get divided up pretty easily there. And we will probably find a, through one of our mission organizations that we contribute to or our churches or whatever, we probably won't give it all to the kids, but we might.

- Okay. So first let me talk to you about what answers the financial planning industry provides on this question. And then let me talk to you about just some thoughts about that that I hope would be more useful. So answers to this question. So first, the standard approach that you will get if you sit down with a financial advisor, a licensed financial advisor, the way that that financial advisor will try to figure out your asset allocation strategy is basically one of two methods.

Method number one is to try to figure out what asset allocation you need in order to meet your goals. And this is the most common when you are trying to get a certain amount of money out of a portfolio. So you say, I've got $300,000 of, let me just say, I've got a million dollars of money sitting here in these assets.

And I'm trying to spend X number of dollars per month. How can we get there? And so the financial advisor will plop that into a computer program. And the computer program will spit out a portfolio and address, and that portfolio will have certain likelihood if historical indicators or any indication of what might happen in the future, that that portfolio will have a probability of success.

And by dialing up or dialing down the risk level of the portfolio, and risk is measured by percentage of money that's allocated to stocks, equities, as compared to fixed income, they'll find that either there's a possibility for you to have more money than you need, but yet have some lesser chances of running out of money, or there'll be a possibility of having a more certain future one way or the other.

And so that's how they address it when solving for need. To answer that one, that one doesn't apply to you. And it doesn't apply to you right now for two reasons. The first reason is the bulk of your money is currently invested in real estate. And financial advisors are generally very poorly equipped to deal with real estate.

It's not what they do, they deal with stocks. And so real estate doesn't fit neatly into the computer models. The real estate doesn't fit neatly into the asset allocation model. It can be modeled in terms of a portfolio, they can model what 5% of your portfolio invested in REITs would look like, but they can't model actual real estate income.

And it's not, all they do is they put it in as a cash flow for you. And since you don't need the income, that whole exercise is basically worthless for you. The computer program can't give you a useful answer. You don't need the income because between your real estate and your social security, you don't need any money.

You've got it taken care of. So the second way that they address this issue is they go with what's called a risk profile questionnaire. And so they'll give you a 10 or 15 question document. You can take one of these online and probably should if you haven't recently. And this document will go through different scenarios and it'll say, are you more comfortable with this outcome or that outcome?

And then they'll ask you questions about when you intend to use the money and et cetera. And then the computer will assign a score to you that's supposed to be your risk profile tolerance. Now that can be useful, but it's going to be minimally useful for you because number one, the bulk of your assets are not gonna be reflected in that questionnaire.

You have your real estate and it's not gonna be useful for you because you can't answer all the stuff accurately. So usually for example, where clients would get into trouble when I used to do this stuff, is you would answer something like, well, when are you gonna need the money?

And you're thinking, I'm gonna need the money for retirement because I'm 65 years old, but realistically you just told me you're not gonna need the money for retirement. So the risk profile questionnaire doesn't help you much. So the mainstream financial advisor approach in your situation is not gonna be particularly helpful, which I assume is why you're calling me.

So let me get to some things that will help you. So the first thing to think through is what you're trying to accomplish and what you're actually gonna need the money for. And in your case, I think you have to separate your pots of money into specific buckets and ask yourself, what am I gonna do with this money?

That's gonna be dependent on what happens with your wife's employment income. That's gonna be dependent on what happens with your startup. That's gonna be dependent upon what you actually want to spend and what you would wanna spend it on. From what you're describing to me, I'm kinda guessing that you actually aren't ever gonna spend this money.

Now, I think there could be exceptions to that, but most people who are in your situation don't wind up spending this money, or at least not for a long time. And here's why. First, you currently have employment income coming in from your wife. Now, if she's actually gonna quit a year from now, then you need to factor that in.

If she's not actually gonna quit, then that will make a big difference, but that adds to your life. You have social security income, and I'm projecting the fact that you're pretty restrained with your expenses. You live in Oklahoma. There aren't usually a lot of flashy people that are trying to spend all their money who choose to move to Oklahoma.

If you were calling me from Miami, that would be different, but most Oklahomans, that's not a big priority for them. So when you have your real estate income and your social security income, you probably don't ever need any more money. The additional thing is your startup might generate income.

Now, you would have to assess the likelihood of that, but if that starts generating income for you, you should spend that money before you wind up pulling money from your investment accounts. So then the real question comes down to what do we need the $300,000 for? If you think that there's going to be some kind of short-term expenses with it, such as, well, we wanna take all our children, grandchildren on a big, giant family vacation to Europe and it's gonna cost us $50,000.

Well, in that case, you should put $50,000 in the bank and not invest it at all. So your asset allocation is simple. If you have any short-term uses for the money, less than five years, less than 10 years even in your situation, you should take the money and basically not invest it.

Basically just simply have it available for those expenses. If you think you're gonna be doing something with it in the medium term, that's where things get difficult, is, well, I think I might wanna do something with this 10 years from now, but I'm not sure what. That's the hardest.

The easiest is if you think you're just gonna leave this behind as an inheritance, I think you should invest the money in the highest returning investments that you can find, whether that's an aggressive all stock or mostly stock portfolio in the stock market, whether that's in something that you think is better than that, that you have connections to.

I think you should invest the money in the most aggressive thing you have because if you don't wind up spending the money and you're just gonna leave it behind when you die, then the best thing you can do with it is grow it as big as possible. And in that case, aggression is your friend because you have now a 30-year time horizon and the difference of rate of return on the money or amount of money you have, if you can get 8% on your money versus 4% on your money is massive.

So in general, I would try to nudge you in the direction of saying, what is the best investment that you have access to and can you invest it into that? - Oh, all of that is actually really helpful. I hadn't thought about the fact that we might not have the fact that we might not actually ever need that money.

I'm afraid I'm gonna probably fall more in the medium term use of that money, but it sounds to me like it really doesn't really matter. Did I say really? So let's just wander around a bit. So when we moved out here, we kept our main house, turned it into rental property.

We got a mortgage on this house because I didn't wanna touch the investment accounts, 2% tax, I'm sorry, like a 2% interest rate on our home mortgage here. And certainly the investment accounts will do better than that. Would there be a point in time where you would say, cash it out and pay off the mortgage?

- I can't imagine the scenario in which I would say that, no, because you would be doing two things if you did that. First, so before I get to the two things, let me give just the background. What is the benefit of having a paid off mortgage on a house that you live in?

What's the benefit of that? - Just some security. - Right, some sense of security. Now, and I think that's valid, okay? But now what is the scenario that could happen to you in which you would not be able to pay your mortgage payment? - If we couldn't, if all my renters in Denver moved out and we didn't have that income, but that's not very likely.

- Yeah, it's not very likely. And I agree with you. In fact, that's what I would point to to say is one of your biggest risks. But that particular risk is not very likely. To have three individual properties all empty is very unlikely unless something catastrophic has happened in Denver.

Yellowstone is blown up or something like that and Denver just empties out. But in that situation, we've got big problems. It's just we're in the extreme scenario circumstance. So for you to have-- - Yeah, not likely. - Yeah, for you to have three properties in Denver emptied out is very unlikely.

And even if it did happen, you still are gonna have your social security income. - So you still could probably make a mortgage payment out of your social security income. What's your mortgage payment in Oklahoma and what will be your social security income when your wife also files for it?

- It's about $2,100. All of my houses in Denver are fully paid for and the rent on any one of those houses-- - So your social security income is $2,100. And how much is your mortgage payment? - No, mortgage payment is 2,100. My social security income is more like 25.

- Okay, perfect. So we can confirm that you could at least pay your mortgage payment on your social security income. And since your social security income is as guaranteed as anything else we can have, then we know that you're gonna have income. And since your mortgage payment is a fixed rate low interest debt, we know that it's going to be able to be paid.

So you may have to sweep some floors to have enough money to buy food if all of your properties are empty, but you can still pay your mortgage payment. So with that in mind, I don't see any risk for you in having the mortgage. Now that's different than if you were 20 years old, but you're not 20 years old.

I'd like to have 20-year-olds have debt-free houses because their risk is losing their income. You don't have any income risk at this stage of your lifestyle. So what's the point of having a paid off home mortgage? Now, what would actually happen if you cashed out investments and put it into real estate?

Well, you would make a big difference in your asset allocation. 'Cause right now, 3/4 of your income, or 3/4 of your assets are in real estate. If you cash out 1/4 of your asset to put it into real estate, now you move in a direction of 100% of your money being in real estate.

And now I don't like that from an asset allocation perspective. I would much rather you keep less money in real estate and more money in stocks so that if real estate falls apart, especially Colorado real estate falls apart, new governor is elected and the governor imposes a 50% state income tax and all of a sudden your houses have in value, at least if you have a portfolio of stocks, you have another pot of money.

So I think paying off your mortgage in Oklahoma would be exactly the wrong move from an asset allocation perspective because it puts too much money in real estate. And then finally, I think if you're gonna have a mortgage, it's much more sensible for you to have that mortgage on your home in Oklahoma than on your rental properties in Colorado because you're gonna get a lower rate on your home in, in Oklahoma, you're gonna, sorry, you're gonna get a lower rate on your home in, on your home mortgage because it's your residence than you are on a rental property.

And if you can't pay it, you're going to get better treatment being just a normal homeowner who's going through foreclosure than is, than you are if you're a greedy real estate investor who's just losing another property. So I'd rather have, in your situation, I'd rather have the rental property paid off and have the mortgage on my home residence.

And then final piece of data in favor of my argument here would be in Oklahoma, my understanding of your asset protection laws is that you don't have any significant homestead exemption from asset protection. I think you only have a few thousand dollars. Is that right for Oklahoma? - Right, right.

Yeah, I believe that's correct. - So then you being a rich person, which is a problem because you're a millionaire and you've got all this real estate which exposes you to certain risks there, then you want to equity strip any asset that's not protected. And so in this situation, a good home mortgage at a low rate is your best and simplest way for you to equity strip your house in Oklahoma rather than having it paid off and exposed to the claims of creditors.

- Yeah, yeah, cool, cool. All right, all that's good confirmation 'cause that's where I am and it's where I want to stay. Things, if I've got midterm use for that money, I'd like to build a barn. I'd like to spend 100 grand, but I don't want to waste that money to do that.

But I might need it for this business and so I might get to build a barn anyway. So would you, if it's fairly short term, like three to 10 years, would you put a bunch of this money in bonds so that it'll be there in five years? - Yes, I would.

- Okay. - And any particular kind of bonds? I don't know anything about the bond market. I've got a few T-bills and I don't know what kind of government bonds, but can you help me out there? - Yeah, so let me explain. Probably your safest move is to put money that you think you might need to spend, your safest move is to put it into a cash fund.

So it could be a money market, could be cash account, could be some kind of CD structure, et cetera. Bonds would be fairly safe, but you do still face some risk with bonds. Your biggest risk with bond mutual funds, and let me just ask one question as I get to the answer.

This all $300,000, this is all within an IRA at this point, a traditional IRA because it was a 401k rollover, is that right? - Yeah, there's some traditional IRA, 1K, like 200 grand of this is in my wife's 401k and 403b accounts. And I tend toward permanent portfolio 'cause I can set it and forget it, but I'm not very good at the balance thing and actually sticking to an asset allocation.

So some of it is a money market, and some of it, there's a few bonds. Most of it is in total market index funds. - Okay, when you say permanent portfolio, are you actively pursuing the permanent portfolio with all of your investment structure, the 25% portfolio, or are you just using that in the sense of I'd like to buy an index fund and leave it alone?

- Well, I'm only using that for the stuff that's in the market. The fact that I've got so much real estate really hurts my brain when I start thinking about permanent portfolio 'cause there's not actually a real estate 25% in there. Real estate is outside of the traditional permanent portfolio structure.

So the traditional, original permanent portfolio is to have 25% in stocks, 25% in long-term treasury bonds, 25% in gold, and 25% in cash, money market. And the idea of the permanent portfolio is that it withstands the various macroeconomic risks that you face. And so therefore, because it withstands the macroeconomic risks, when fiscal policy or monetary policy is changing, you always have one asset that is adjusted, that it's an appropriate solution there.

Now, it's hard with real estate 'cause real estate doesn't fit into that. So if you're actually pursuing permanent portfolio, then you should adjust your, you'll have to start moving in that direction. And just to be clear, I think it's reasonable for you to move in that direction, to reallocate your portfolio, to make sure that you minimize the amount of real estate that you own in time.

So as an example, you could go ahead and, and there are pros and cons to this. I just want, I don't wanna get too deep. You'll have to make this decision. But you could go ahead and just even with your current portfolio of real estate, if you don't, if there's a property that you don't like, maybe at some point you go ahead and sell it.

If the market, you should always be analyzing your market to see if it's a good time to sell. And if you see that prices start to become overvalued, sell a house or two and take that money and then readjust that into your other, to your permanent portfolio approach. Or go ahead and take out a mortgage on one of your rental properties.

And so that mortgage, so you can refinance some money out of real estate and into some of these other asset classes and I think you could do that very, very safely. So for example, let's say that you're concerned and you decide, I'm gonna go ahead and refinance property number one.

Go ahead and take out a mortgage on property number one, then use those funds to go and buy gold for your 25% in gold or something like that. So that way you minimize your exposure to real estate. You still own the property. In time, your tenants may pay off that debt for you, but now you have another asset class that is set aside.

So there are some ways to readjust. Back on target. If you are pursuing the permanent portfolio, then you need to make sure that you have those long-term treasury bonds in your portfolio. That's different than the money that you might wanna spend though. So the benefit of long-term treasuries is they will provide that smoothing effect in your asset allocation strategy.

The downside to bonds, to answer the question you said of what you should do with it, is you face a risk on bonds that if interest rates rise, bond values will decrease. And especially when you're investing in bond mutual funds, that risk, especially for long-term bonds, that risk can be significant.

And so if you think that interest rates will rise, then that means that the values, especially for long-term bond funds, those values will decline. And because a mutual fund of bonds has, it never matures, you have a duration, you can measure the duration of the portfolio, but because the bonds never mature, because they're always being sold out and traded, then that's a very high risk.

And so if you look forward and you said, well, five years from now, I think I might be using this money to build a barn, but I'm also thinking that in five years, interest rates might rise substantially, then you definitely wouldn't wanna have that money in a long-term bond fund, because if interest rates rise, those portfolio values will drop, and then you won't have the money to build the barn.

So cash is much safer. Cash does, of course, obviously expose you to inflation, but that's a little bit easier for you to watch. And if you're gonna use it to buy a barn, to build a barn, if you see inflation start to tick up, well, you would go ahead and start to move it out of cash anyway and build the barn fast, where you can get cheaper prices on your durable goods, then you would just keep it all in cash.

- Right, right. All right, that helps. That discussion helps. I have one more question on my list here, and that is, I listened to one of your podcasts a couple of years ago, I think, and you were talking to a man in the South at some church, and they had some program where they, they invited young people, from the umbrella of their church, to meet with entrepreneurs and businessmen in their church, and they taught those guys how to build a business, how to start up a business, how to become a one-trucker, plumber, or HVAC guy.

And do you remember that show? - I do, I do. Yes, and it's, I absolutely do. Now, that episode was episode 398, and it's called How to Invest in Your Local Community, How to Invest in Your Local Community for Financial Profit and Community Gain, Interview with Businessman and Investor Tim Yarborough.

So, if you look it up there, you'll find it. And right now, it's off the website. I need to transition that one onto the new website. But if you just go back in your RSS feed on your podcast player, you'll be able to find episode 398, and it's still there in the feed.

You'll just have to flip back quite a ways 'til you get to it. But yes. - All right, so. - Yeah. - Yeah, I wanna play that for our group at church who invest in that sort of thing. We do a Jobs for Life thing, and I participate in that.

But this thing that you talked about, I think would be much more in line with my skills and resources. - And I would, you're punching my buttons. I'm so glad you brought that up. Earlier, when you were asking me a question about what to invest it in, here's what I would love to see.

I would love to see guys like you take the money that you've had and stop investing in stocks of big companies that don't need your money, and figure out how to invest it in your local community. And I think guys like you have a huge opportunity to do far more good and potentially profit as well, but you don't need the profit.

That doesn't matter at this point in time. I mean, obviously you wanna profit, but in terms of the impact of the money, I would much rather see guys like you take that $300,000 and commit to investing that into the young men in your community. And you gotta think through how to do that, which is so difficult.

It's far easier to buy a total stock market index fund than it is to figure out, how do I invest 300,000 bucks into the guys here in my community? But that is a-- - No kidding. - But I mean, it's really hard, but I have been working and working and working on solutions of how that can be done and what to do.

I don't have many good answers, but here's what I would say to start with. First, go see, so Tim Yarborough, he's in Alabama. I'd encourage you, get in touch with him, find him online. He's not easy to find, but he's not hard to find. Go find him and go visit him in Alabama, reach out to him and go and see what they're actually doing and check it out.

Don't just stick with the podcast, but go and check it out and see what lessons they would have. The biggest problem with investing in that way is it's hard to make use of big amounts of money. But the great thing is, if you have the time, and this is what men like you have, if you have the time and the freedom, you can invest small amounts of money into many other people and then start to see how is it gonna pay off, how's it gonna pay off.

And especially if you're part of a local church where you can start to work together, I think what Tim is doing is the most important thing for guys like you to be doing with your money is finding people who need some resources and who need some wisdom and who need some mentoring and starting to develop those systems and investing alongside in them where you put up some capital and you gotta be careful because you can't give too much.

You gotta keep people hungry. But you put in capital, you partner in their business with them, you help connect them, you help mentor them, you help them in the community. And the great thing is I think that those profits could be far more than whatever Coca-Cola pays out in their dividend.

Because if you are, like Tim, if you're a minority stakeholder or a 50% stakeholder in dozens and dozens of businesses, I mean that flow of cash is pretty significant. So I'm glad that you heard that. It's one of the things that I would dearly love to figure out more people who are doing that, learn from what they're doing and try to get guys in your stage of life to stop putting money into stocks and start putting money into your local community and investing alongside people who need it.

Now I'm rambling on that one, but I love it. So yeah, episode 398. And I would just say reach out to Tim, get in touch with him. - Yeah, that's great. That was one of my all-time favorite podcasts of yours. And I'm definitely resonating. - Good, good. Well, for the last few years-- - I could ramble forever, but I think I'm done.

- Good. For the last few years, I've been working hard to try to figure out how it can be done. I think just a couple things that I have come up with. Number one, I think it's important to be established in an area that you're gonna work in because geographic stability, I think, is really important.

You have to be in a place. Tim's advantage, one of his big advantages, is he is stable in a local, stable community. He lives in the same place he grew up in. He's been there all of his life. He's in his, I don't know, 60s at this point, I would guess, but he's stable in that community.

And so he knows the people. He's been very active. He's stable in terms of the local church that he's involved in. You've gotta have people. You've gotta have a network. And so you need that stable local body to be behind you. You can't just go to wherever the latest, which doesn't sound like you are, but many people, they just go to whatever the latest fad church is, where it's a nice church meeting, but there's no stable body of people working together.

So you need that. Then in addition, you need local businesses that are tangible, where you can find people who are experienced and pass them along. So it's one thing to, it's easier to help somebody who's gonna learn to be a fence installer to say, let's go work with a senior fencing person, versus just, with technology, it's not changing that much.

And so it's stable. And I think those local businesses are important, and especially if you're trying to change in the local community. I think for very smart, high IQ, high cognitive ability, high technological ability, I think that demographic is really well served right now. For somebody who has those basic abilities, there's enough available online to find that.

But the people that I see who are really hurting are the people who are more tactile. Their skills are not in digital everything. Their skills are personal up front. And they don't have somebody to come along and pave the way for them. And so if that's a lawn maintenance company, or if that's an oil change shop, or if that's a tile installer, those kinds of things, those things are more important, and provide more opportunities for the, especially the men who are getting left behind in today's world.

So I think it has to be done locally, and it takes time. It can't be done, you can punch a few buttons on the computer and buy stocks, that's great. But you can't figure out how to work with somebody and invest $10,000 in their lawn equipment business to get them going.

It takes time, and so you gotta be willing to invest time and money. That's not a complete list, but those are some of the constraints that I've seen. That if those things fit, and I'd love to see thousands of men like you working all over the country. And if you get in touch with Tim, what I would say is, try to develop more connections with people.

Find out who he would recommend you to, and try to develop some best practices for those of us who are younger. I can't dedicate time to this, but help guys like me figure out how guys like you can make that happen. So thank you for calling in, great questions today, I really appreciate it.

All right, before we wrap up today's show, I'm gonna take one more question from a patron who couldn't call in, but asked this question, and who writes in and says this. Joshua, have you ever discussed using private foundations or a family foundation for wealth planning? As someone who donates a lot anyway, they seem to have the added benefit of compounding wealth tax-free for future giving, and even the possibility of taking a salary for managing it someday, should the growth be sufficient.

The money is also completely separated from the founder, and protected from things like bankruptcy, lawsuit, et cetera. A family making $300,000 per year could donate, tax-free, $90,000 per year. An optimistic look on stock returns could compound this to over $6 million in 30 years, at which point, the foundation could have donations and expenses, for example, a management salary, office, et cetera, totaling as much as $300,000 per year, and only be at the 5% annual minimum requirement.

So Andrew, in short, no, I have not talked, at least that I can remember on Radical Personal Finance, about using private foundations or family foundations. I have very modest exposure to them in my previous professional life, but I do think they can be an effective, they can be an effective use of funds for somebody who is wealthy.

Now, the biggest challenge, I think, is figuring out the proper scale at which establishing a private foundation, or a family foundation, makes sense. The big trend has been in the direction of investing in donor-advised funds through a local community foundation, and the reason is it's just a much more cost-effective way for most normal people who are putting aside tens of thousands of dollars per year.

The costs to properly establish a family foundation and run one are not insubstantial, and so you gotta be careful and say, what's my actual goal here in establishing one? What are my actual, what benefits am I getting, and what are the costs that are being incurred? And when you actually go through that list, I think you can find substantial benefits, but you're gonna be paying significant amounts of money, and legal fees, you're gonna be spending significant amounts of money.

Now, for somebody who is at the higher end of wealth, and I don't know that number, I probably need to start talking to some attorneys and try to figure out that number. I just know it's more than, it's higher end. If you can make those donations, then yes, a family foundation does provide you with the ultimate flexibility, and it does provide you with some potential for benefits.

So yes, if you are making a lot of money, you have a lot of money, and you want to have your, to figure out how to transfer money to a family member or a friend, absolutely, start a private foundation, donate money to that, take the income tax deduction, hire the family member to work for the private foundation, they get paid by the private foundation, and you've accomplished effectively a very decent wealth transfer.

And you can do that, you can amp up the retirement benefits, you can amp up all kinds of things, you can do it. Now, what I always try to be very careful of is I think the general, you always need to follow the general thrust of the law. So I get nervous when things are abused, and I don't want to see people abuse private foundations or family foundations.

Yes, you could set one up, and you could put in some massive retirement programs, make massive contributions to them, is it possible? Maybe. But I'm not confident enough to recommend that. Maybe if there's an attorney who's actually studied what the bright line tests are and what the case law is, maybe they would be much more confident.

I don't have the knowledge in that area. I just think that the best thing is to, the best thing is you have to look at it and say, am I at the right stage for this? Now, where I do think it's really powerful is even just for the previous caller who was talking about what they're trying to do.

I do think that in general, we need to become much more familiar with using private foundations, et cetera, to accomplish change in our communities. So to your point, let's go with the facts outlined with that previous caller. If that previous caller is seeking to establish a local community organization that is going to be helping young men in the community to establish businesses, et cetera, I see no reason at all not to take advantage of the tax structure and do that through a family foundation.

When you establish a private not-for-profit organization or a foundation, you have the ability to direct that document exactly as you want. And so you can establish the purpose just how you want it to be. And that's exactly what you should be doing in that circumstance. And so even in that previous caller, what I would do is sit down and figure out if he's got a team of people that can work as a board of directors, does he have the willingness to do it, but establish the foundation.

And in his situation, I would keep the money in the ERAs or the 401ks for the asset protection standpoint but I would refinance one of the rental properties and then put that money into the private foundation. That gives additional asset protection, gives him a nice tax deduction on the contributions, gives him the ability, maybe he goes ahead and hires his wife inside the private foundation, works together there, maybe there are other people in the community.

Absolutely, that is the way to go. Now, beyond the concept, I'm not confident enough in all the details to give good advice on that. So I would need to become much more competent on the details. If any of you are attorneys who are actively practicing in this or if you wanna recommend a good attorney, this is one that I would enjoy having a conversation with an interview person.

So go ahead and email me, joshua@radicalpersonalfinance.com and put me in touch with somebody. And as soon as I can schedule some more interviews, I would be happy to do that. But we need to take advantage of these things. And it's a good example of just, I say all the time, there's not two tax codes, there's one tax code.

There's not a tax code for the rich and a tax code for the poor, there's one tax code. And you can align your activities in such a way that it works for whatever you're trying to do. And definitely, this is something that I should give more discussion to, more research to.

I should think through exploiting it more. It's not been at the stage of my own wealth where it has made sense, given the other opportunities that I have, which is why I haven't dedicated as much time to it. But I definitely think I will in the future. Thank you for listening to today's show.

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