May 6, 2024 • 49 mins
Let’s dive into the week with some fresh listener questions we have lined up for you! And don't just stand on the sidelines- if you have a question you’d like us to answer, toss your voice memo our way. It only takes about 90 seconds to record and you can find a step by step guide over at HowToMoney.com/ask . Regardless of how random or bizarre you might think it is, we want to hear it!
1 - Should I cut ties with my financial advisor and how should I go about doing that?
2 - Does the 4% Rule still apply as my portfolio allocation shifts towards less aggressive investments?
3 - Is the mortgage tax deduction worth claiming?
4 - A financial goldilocks dilemma: am I investing too much, too little, or just the right amount?
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to How to Money. I'm Joel and I am
Matt and today we're answering your listener questions.
Speaker 2 (00:24):
Yeah, thank you everyone out there for listening to the
How to Money podcast. Joel, you get to say that
every single week, multiple times a week.
Speaker 3 (00:31):
I never get to say that. We can trade How
to Money.
Speaker 1 (00:34):
Anytime you want.
Speaker 3 (00:35):
That's the name of our show.
Speaker 2 (00:37):
Now, we do have some great listener questions to get to.
Listener is wondering if some of these tax deductions that
he hears about whether or.
Speaker 3 (00:45):
Not they're overblown. We'll get to that.
Speaker 2 (00:47):
Another listener is asking about the four percent rule. He's
looking ahead to the future and wanting to make sure
he's planning properly, and we'll speaking of planning. Another listener
he's wondering if he should ditch his financial advisor.
Speaker 3 (00:59):
We've got the questions plus more to get to during
our episode today. Buddy, what if you.
Speaker 1 (01:03):
Just ghosted your financial advisor like they're they're like sending
emails and you just never respond and you just pretend
you didn't you never met them in the first place.
Speaker 3 (01:10):
They have access to your money.
Speaker 1 (01:11):
Yes, yeah, it's good, Okay, Well that's yeah. That happens
in like relationships. I've heard it. It sounds like the weirdest,
saddest thing when someone like literally stops replying to your text.
You're like, we've been dating for months and you just
stopped replying. But that happens these days, Matt, any clear
lines of communication. If it's over, just let them know exactly,
all right. That's our relationship advice for the day, before
we get to these wonderful, incredible listening questions about I
(01:33):
just want to mention one thing I met. I made
it a friend, and I also got some free stuff.
And this happened fun fun on the Lovely Connecting website
of Facebook Facebook Marketplace. To be specific. We have said
for a long time now that there are only two
good facets of social media.
Speaker 3 (01:48):
I can get you more friends.
Speaker 2 (01:49):
If you're looking for more friends, you don't have to
go to this neinitsarily have to look to Facebook.
Speaker 1 (01:54):
It's like a new version of Breakfast Personal story, Matt. Uh,
it was I was not looking for a friend, misconnection.
Speaker 2 (02:00):
I found one loves.
Speaker 1 (02:02):
Craft beer, That's right. So I was someone was giving
away free firewood and I was like really low and
I was like, I'm don't eat any right now, but
why might as well stock up let a season for
another year, and I'll just go pick this stuff up,
toss it in the back of my car and that
way I'm loaded up. And it's always a good idea
to keep your eyes peeled. First off, I know you
are always as well. Like just a tree that fell down,
(02:25):
especially firewood in particular, Yeah, yeah, because you want to
give it some time and then you cut it up later.
So but this was like pre cut and everything. I
was like, oh great, I'm gonna get this stuff. So
this is already split. This wasn't even just rounds that
they're going to have you split yours? What on the
world already split?
Speaker 4 (02:39):
Yeah?
Speaker 1 (02:39):
Right, And he wasn't far away, so I was like, cool,
I'll drive down there and get it. And uh and
seventy nine year old dude named Jim sweetest guy, ended
up talking for like thirty minutes and I show this
number he's been texting me. I mean like it's I
don't know, not that I suggest finding all your friends
on Facebook marketplace, but uh, it's kind of like it's
kind of nice to do that kind of stuff. And
I think that when you're a part of the buy
(03:01):
nothing groups. Matt like that that facilitates not just the
reduction of consumption, but it also I think incentivizes relationship
building too, because you're doing something so like you want
something that you have that you don't need any longer
to go to a good home where someone else is
gonna derive a lot of joy from it. And I
think in that kind of mutually beneficial crossover, there is
(03:21):
a place to say, like, hey, we kind of have
similar ways of viewing the world. Let's be friends.
Speaker 3 (03:26):
Absolutely.
Speaker 2 (03:27):
Okay, Well, why was he divesting himself of split firewood,
which is kind of like the holy grail of it's
already ready to go.
Speaker 1 (03:34):
That's a good question. He said he thought it was
too old and what Yeah, And I was like, I
think this is perfectly usable.
Speaker 4 (03:39):
Man.
Speaker 2 (03:39):
He has a very very high standard for what qualifies
as good firewood.
Speaker 1 (03:43):
I guess, yeah, I guess.
Speaker 3 (03:45):
Was he only using it inside?
Speaker 1 (03:47):
Did he have like a wind of Yeah, I'm using
it outside.
Speaker 3 (03:50):
So see that's the difference.
Speaker 2 (03:51):
If you're using it outside around a fire pit, you
can burn anything, burn your trash, that's right, Yeah, don't
do that. Because we used to have a wood burning
wood burning stove at our old house, and I quickly
learn based on the amount of creosote, I guess that
built up on it, the difference between higher quality would
and low grade stuff. So okay, all right, that makes
(04:11):
that makes a bit more sense. Just a plug for
Facebook market place. Facebook doesn't need any plugs for me.
And if you don't want to spend any time on
Facebook or the internets, just keep your ears open because
you can always hear a tree coming down, like like
when there is a tree felling company that shows up
in your neighborhood or through nearby, Like you hear the chainsaws.
You know what this chain saw sound like? That happened
all the time in my and last time that a
(04:32):
neighbor took down a couple of trees, I've just walked
up there. I was like, hey, guys, if y'all stop
by my house on the way out of the neighborhood,
I'll help you unload as many of those rounds that
were sized appropriately and totally just threw those in the sideyard.
I took the next three or four months to split
that in nice little workout. But on top of that, yeah,
more free firewood and sorry having it already split.
Speaker 3 (04:53):
That's nice, So there you go. I dig it.
Speaker 2 (04:54):
Let's introduce the beer you and I are going to
enjoy today. It is a Memory Farm and this is
a beer by Inner Voice out in Decatur, Georgia, where
we actually had our one of our how to money
listener Hanks.
Speaker 1 (05:06):
Most trucfully so last year. We need to do another
one this year. We'll get it on the books, we'll
let everybody know when it's going to happen, and we'll
let you know what we think of this beer at
the end of the episode.
Speaker 3 (05:15):
We will.
Speaker 1 (05:16):
But Matt, let's move on. Let's take listener questions and
if you have a money question you want Matt and
I to tackle on an upcoming episode, we'd love to
hear it. Just got to have money dot com slash
ask for details on how to submit yours, basically just
recording a voice memo and sending it to us VI
an email and hopefully we can take it next week
on the show. This first one comes from a listener
who's wondering about the value proposition of some money that
(05:37):
he's spending.
Speaker 5 (05:38):
Hi, Joel in Matt. My name's Peter. I'm twenty four
and I'm currently stationed in Apostle, Texas with the Army.
I've been hooked on your podcast for about seven months now,
and your Gutus has been a game changer in my
financial journey. Thanks to you guys, I've paid off a
seventy two month carloan prematurely, shaving GoF fifty three gruelling
months of interest, have been budgeting with ry Nab, and
have hit money gear five. Back in college, I grasped
(06:01):
the idea of compound interest in how roth irays work
a great vehicle for financial freedom. I'm a natural saver,
but I lack confidence in investing at the time, so
I turned to an Edwards Jones advisor for assistance. My
advisor puts my deposits into an investment savings account consisting
of mutual funds to grow my money, and pulls money
out of that account to max out in my roth
(06:23):
IRA each year. My wroth account consists of mutual funds
as well. From the beginning of twenty twenty until now,
I've contributed a total of forty two K to the
investment savings account. Its current value sits at nineteen K
and my roth IRA sits at forty three point six
k I've noticed that you guys referenced Vanguard and Fidelity
for wroth iras and also lean towards index funds. Should
(06:46):
I switch my portfolio to index funds for better returns
in this wealth building phase? Or should I consider shifting
to Vanguard or Fidelity? If so, how would I navigate
this switch? Thank you both for your priceless guidance. Take care.
Speaker 2 (07:00):
All right, We've got a lot to talk about here
with Peter. First of all, he said he's stationed out
in El Passa, which means he's in the military. So Peter,
thank you so much for your service. The next thing
I want to cover is the fact that you said
that you paid off your your car loaned prematurely. And
I don't want to be nitpicking here, but let's not
use that word, because what do you think of, Joel.
When you hear something is premature, it's normally a negative thing.
Speaker 1 (07:22):
You're thinking about a baby coming early, yes, and like
or other medical conditions.
Speaker 2 (07:26):
Use your imagination like this. It's not normally a good
thing for things to be premature premature.
Speaker 1 (07:30):
Baldy, No, I know you weren't referring to.
Speaker 2 (07:33):
That, but instead just thinking about using the term early,
because like if you're early for work or you're early for.
Speaker 3 (07:40):
A meeting, like that's always a good thing.
Speaker 2 (07:42):
And we want to totally paint paying off this car
note in the best light possible. And so I know
it's just a small thing, but Peter, yeah, you are
totally on the ball. You are knocking out debt like this,
and yes, you have saved yourself a tremendous amount of
interest by eliminating that.
Speaker 1 (07:57):
Fifty three months early something like that, and not just
got it done in fifty three months, but like I
paid it off fifty three months early, which means he
paid it off in was it less than two years
or just over two years? I mean, the inn a rapid.
It goes to show that when you have a singular focus,
you can get rid of something pretty quickly. But he,
on top of having that singular focus, he's also doing
a lot of good stuff with other dollars too, So
(08:18):
it's not like he said I'm just going to do
this one thing. But he did make it a ridiculously
high priority to get rid of the car loan after
listening to the show, and my guess is, Peter's the
kind of guy who's never going to have a car
loan again for the rest of his life. So mad
props to you on that. Okay, let's talk about the
financial advisor side of your question. The reason we're not
typically enthusiastic about you having an advisor, especially at your age, Peter.
(08:40):
Let's mention that, like you're twenty four, and they eat
up a good bit of the money you could be investing.
That's going to line the pockets of the advisor that
you've hired, right, And so fees that might seem insignificant
in the moment, they add up as they eat into
your ability for those dollars to compound. Right, So a
one percent fee, for instance, every single year could cost
(09:01):
you hundreds of thousands of dollars down the line. Most
people don't think of it like that, Matt, because of
one percent fee, it sounds like not that big of
a deal though.
Speaker 3 (09:09):
That's trivial.
Speaker 1 (09:10):
Oh cool, Wait that we just got an extra one
percent sales tax increase locally where we live. Great, everything's
going to cost a tiny bit more. I'll barely recognize it.
But the problem with when we're talking about it on
the advisor front, the one percent over the years because
of the way compounding works, it's severely handicaps and kneecaps
your ability for those dollars to grow on your behalf,
(09:32):
and so it adds up to being a whole lot
more than it seems like it would be on the face.
And so I get why Peter went in this direction.
Starting out like he didn't feel like he knew what
he was doing, and he thought he needed expert help.
But at this point he said, he's been listening for
something like seven months. He's received I would say, a
reasonable financial education listening to the show and doing some
of the other things that he's doing. So I think
(09:52):
that it's time to mosy on down the road and
take the DIY approach. That's that's what I would do
if I was Peter totally, and we actually talked about
this on a recent Friday flight. But fee advisors, they
are becoming more common, which is great news, But those
fees can actually be a lot of money as well,
in some cases thousands of dollars, like higher than the
maximum Roth contribution that you're allowed to make, Peter, and
(10:14):
that money would be better off working for you inside
of tax advantage accounts. And plus you can pick the funds,
pick the brokerage firm that you like and that you
feel most comfortable with. And I think pretty high on
the list of things that I'm going to be looking
at are overall costs. And you mentioned Vanguarden often, I
guess because we talk about Vanguard and Fidelity so often,
which would be an excellent choice. But then you're going
(10:35):
to be with one of the low cost grates and
a much bigger chunk of your investment dollars are working
for you, and they're not going to pay someone who's
actually doing something that you could actually do for yourself,
especially at this point in the game. Like you said,
in this wealth building stage of personal finance for you,
there's not a whole lot of complexity in it. It
makes me think of what Paul Merriman said when he
joined us a while back on the show. He said
(10:57):
that it takes the average person forty hours to learn
how to invent with confidence, and I think that's about right.
I mean, I think if you're just starting out, maybe
you feel like you need someone to hold your hand
and show you how and to basically make some of
those decisions for you. But I would say for most folks,
just a little bit of effort to understand what to
do and why they're doing it is going to save
(11:17):
them boohoos of dollars down the road, and it's worth
the time. Considering how much time those dollars have to
compound on your behalf. I think that's where you're paying
the advisor.
Speaker 2 (11:25):
That's the biggest thing too, the fact that he's so young,
and all of those fees that he's going to be
paying over time are going to.
Speaker 3 (11:31):
Just add up.
Speaker 2 (11:32):
They're going to compound. And here today it doesn't seem
like a big deal, but especially over the years, and
so some people might say.
Speaker 1 (11:38):
Oh, Matt Joel, does this mean that you guys are
completely against hiring a financial advisor. Ever, No, the answer
is no to that. I mean, I think that can
make sense for some folks, depending on kind of your
specific financial situation, the kind of questions you're dealing with,
the kind of tax scenarios you might have in front
of you, and what sort of retirement you're planning for.
(11:58):
Like XY Planning, network Work and NAPFA, those can be
great places to turn if you're looking to establish an
ongoing fiduciary relationship to get that expert advice especially as
your network grows, right and those decisions become more complicated,
I think you might want some help from somebody who
has a lot of expertise. But for most folks Matt
and a lot of folks who listen to Hot of Money,
(12:19):
including Peter, it can become an impediment to what you're
trying to achieve because of how much it costs, especially
in those early years and every dollar you're able to
stock away in those early years. Like, once you get
past a certain level of complexity, you might need additional help,
But right now we're in kind of the the one
oh one section of investing. Right Maybe maybe once you
get a mosy on down the line of three oh
one or four oh one, you might want to be
(12:39):
able to talk to somebody, But in those beginning years,
it's all about how many dollars can you set aside
in those tax advantaged accounts in low cost diversified funds.
Speaker 3 (12:48):
Totally. Yeah, And you mentioned xy Planning Network and nap fab.
Speaker 2 (12:50):
Newer models actually make it easier to get advice or
ask questions for a low hourly rate.
Speaker 3 (12:55):
And so if you are looking for.
Speaker 2 (12:57):
Just a really quick check in, then head of over
to a site like Hello Nectarine, and I'm sure what
they're charging is going to be a far cry from
what you are currently paying with your advisory. And then
if you build a massive chunk of wealth and things
do get complicated with your finances down the road, at
that point, I think it would certainly make sense to
bring this person back on board and hopefully they're somebody
(13:19):
who's still around and not even like checking in with
them like once, like every few years, every five years
or something like that. I think that would be a
much better move than having a money man, like having
a guy that handles all of your investments for you.
And by the way, I'd be curious to know which
fund is your advisor puts you in, because, like, it
might not just be their fee that you're paying, it
(13:39):
could also be higher fund fees where there's a load
and you are paying much more in expenses than what
you would get, say over at Vanguard or Fidelity.
Speaker 1 (13:48):
Then you're getting hit on multiple fronts. Yeah, far more
expensive than even you think it is, because maybe some
of those fees are a little opake and you don't
even really know how much you're being charged. So how
do you break up? If you agree with us, and
you don't think that maybe having a relationship with advisor
in perpetuity is going to be the best thing for
you and your ability to build wealth. We've got an
(14:08):
article up on the site with helpful scripts, like we
literally script some of these things out so you can
know how to approach your advisor in hopefully a comfortable way.
I guess basically, I would say it's starting with a
simple email outlining your growing confidence and your desire to
self manage your assets. I would say it's more of
a it's me, not you approach that the breakup. It's
not because you suck. It's because I'm feeling confident, I'm
(14:30):
growing in my skills and this is something I want
to diy because I think I can rock it. So yeah,
that's the first thing, and then I would request any
important documents and then contact Vanguard or Fidelity or whoever
it is that you want to migrate your accounts over
to get the ball moving and have them help you out.
The formula typically need to fill out is called an ACAT,
an Automated Customer Account Transfer form. This should make it
(14:53):
clean and easy, no need to sell assets and rebuy.
You're really just transferring those assets from one custodian to another.
So it's really not as hard as it might seem.
I know the emotional component can be tough for some folks,
like but I've known them for so long. But in
your case, this is a relatively new relationship. It's not
like they came to your kid's high school graduation or
(15:14):
something like that.
Speaker 2 (15:15):
So and either way, even if this had been somebody
who you'd known for that long, Peter like, I feel
like that's the other part of it, Like, you can
give reasons, but you can also just say sorry, I
no longer want to do business with you, because guess what,
it's your money. Also, we're talking a whole lot about
Vanguard don't sleep on Robinhood. We've talked about their ability
to provide a match, which no other investment brokerage is
(15:37):
doing out there. So the ability to pay what fifty
dollars a year you're paying for that gold membership, but hey,
there's also this ongoing match and if you are dedicated
to investing within your roth ira, you're gonna more than
make up.
Speaker 3 (15:50):
For that as you allow your funds to grow over
the years.
Speaker 1 (15:53):
Just read the fine print first, because there are some
details on there that are you gotta know about it.
Speaker 2 (15:57):
But overall, Peter, it sounds like you're doing great And
I know it might seem daunting, but you are. You're
doing an awesome job in this move is going to
help you to build an even bigger pile of wealth
for the future. Just yeah, keep learning, keep it simple.
You got this, man. But Joe, we've got more to
get to, including we're gonna hear from a listener who's
looking to make the most of his home what it
is that he can deduct against his taxes. We'll get
(16:18):
to that more right after this.
Speaker 1 (16:27):
All right, Matt, we're back, and before we get to
overblown tax parks, let's get to a question about kind
of a tried and true rule of personal finance and
withdrawal rates.
Speaker 4 (16:36):
Hey, Matt and Joel, this is Eric from Evanston, Illinois.
I got a quick question for you all about the
four percent rule. It assumes you're making a seven percent
return four percent you get to spend three percent for inflation,
which is totally fine. Right now, my wife and I
are forty and almost all of our investment dollars are
in stocks. But in retirement, when we're assuming to be
(17:00):
more like a thirty seventy split or a sixty forty split,
you know, mostly stocks, but some bonds. What would our
returns most likely be at that point? So, say, if
we're getting a five or six percent return, three percent
goes to inflation, does that mean we only can account
for you know, two three four percent maybe withdrawal. So yeah,
(17:22):
that's the question I had, just trying to, you know,
kind of hammer that out. Side note, I know y'all
are more into the VU which we have a lot of,
but Jeremy from Personal Finance Club loves the target date funds.
One thing he suggested that we're doing is we're looking
to retire around twenty forty five, but we are using
(17:45):
a twenty fifty five target date fund to keep the
stock to bond ratio higher in the early part of retirement.
Just thought that was a fun idea. Hope y'all have
a great day, and thanks for the show.
Speaker 3 (17:58):
Keep it up.
Speaker 2 (17:58):
Eric, We appreciate you setting us a question, and let's
start off by talking about that target date fund hack.
And I'm pretty sure we've talked about this before. I
think it's been a while. I recall doing this with
my wife a while ago. But this is a solid
option choosing a target date fund that's further off into
the future than when you are looking to retire. Generally speaking,
(18:19):
one of the biggest problems we have with target date
funds is that they are typically two conservative for folks
at the beginning of their investing journey. Oftentimes they're more
heavily invested in bonds and we like to see more stocks.
Speaker 1 (18:33):
And that's like, oh, this is a way essentially to
rectify that with just a click of your mouth. Yeah.
Speaker 2 (18:38):
Yeah, So basically, a target date fund, like if you
are in your twenties, if you are in that wealth
building phase of your life, like we just talked about
with Peter, I think if that's you going with a
one hundred percent equity route like that would typically be better.
Speaker 3 (18:50):
But then as you get closer.
Speaker 2 (18:51):
To the wealth preservation phase of life, that's when a
target date fund I think can make a whole lot
of sense. And opting for a less conservative target date
fund by picking one that's further out, that's likely a
way for you to be able to have your cake
and eat it too. And this is of course assuming
that the target date fund the funds that you're looking
at that they all have lower costs, lower expense ratios
(19:14):
associated with them, because oftentimes it's difficult now that Fidelity
rolled out the totally free index funds, and so bytn't mind.
Anything that's over like point zero three percent to me
feels even point one two feels agreed to. That to
me almost feels like that the top end of what
I'm willing to pay, because beyond that it's just like,
well what am I what am I paying for?
Speaker 1 (19:31):
Yeah?
Speaker 2 (19:32):
And but oftentimes you can find some of these target
date funds that are at point five percent or less.
You want to avoid the ones that are closer to
one percent for sure, because then you go back to
the same problem that we talked about with Peter in
the last question, where you are losing a lot of
your potential earnings to expenses.
Speaker 1 (19:47):
And we've talked about this before, how any fund you
can imagine has variations depending on who's serving that fund
up whose fund it is. We've talked about how some
s and P five hundred funds are charging like twenty
x a really really low cost s and P five
hundred fund is charging. The same is true with target
date funds. So if you're with the target date fund
in Vanguard, the low cost one, great, But if you're
(20:08):
with maybe like an insurance company, you might be getting
charged a heck of a lot more than you and suspected.
It makes me think of even at Fidelity, Matt. Fidelity
has two different kinds of target date funds. One is
really really cheap, the other is really really expensive, and
so you have to even be careful inside of that
brokerage to choose the right low cost one. I choose
the right products, yes, But I think you're right. I
think this is a reasonable hack to just be a
(20:30):
little more generous with that retirement age, push it off
a little bit further, and then you're going to have
a slightly riskier version of a target date fund, a
more stock intensive version of a target date fund for longer,
which is likely going to be to your benefit, because,
let's be honest, even in those retirement years, you need
a decent amount of stock exposure, and eric most advice
doesn't allow folks much wiggle room with the target date fund.
(20:51):
It's kind of it's supposed to be a set it
and forget it vehicle. But I think these kinds of
ways of thinking about it can help increase your returns
and just ensure that you're more properly invested at the
right time of your life. And like, it makes me
think again, missioning Paul Merriman again on this episode, he
suggests having most of your investment dollars in a target
date fund, but also having a portion in a small
(21:13):
cap value fund, and that gives you added diversity and
the potential for higher overall returns, at least based on
historical returns, which he mapped out quite well in that episode,
episode seven thirty four. Basically, some people do use them incorrectly.
They own like ten funds. A target date fund is
just one of them. That doesn't make much sense, But
it also doesn't have to be the only thing you own.
(21:33):
And taking the Personal Finance Club approach that Jeremy kind
of spits out, I think makes a lot of sense
to us.
Speaker 2 (21:39):
Yeah, So let's talk about the four percent rule, because
the last time we brought this up, we had to
talk some smack about Dave Ramsey's take on it. Instead
of advocating for withdrawing a safe, reasonable four percent, he
was saying eight percent is what you shouldn't really be
considering frightening. But the four percent rule is important to
know because it dictates fairly reliably what you can take
from your retirement counts without running out of money during retirement.
(22:03):
Front of the show Allison Schreeger, she wrote about the
problem of trying to figure out how much you can spend.
She wrote about this fairly eloquently over in Bloomberg recently.
But the bottom line, nobody is actually doing a great
job solving this problem because annuities try, but they're expensive
as all get out. The four percent rule that helps,
but because of market moves, because of volatility in the market,
(22:24):
it's also not perfect. It's not a guaranteed. You're just
not promised to be able to have that money last
for thirty or thirty plus years. And then when some
folks are telling you that you can take out a
whole lot more like Dave, well, yeah, that sounds great.
It makes you think that, all right, it's time to
start living life a little bit here. But then it
can lead to big trouble, especially if you live a
really long life, which is I mean, is that not
(22:45):
the goal for most folks to live beyond ninety years old? Perhaps,
And if you're looking at retiring at age sixty, and
I mean, like, do you want to run out of
money at age ninety one?
Speaker 1 (22:54):
And we're talking about sequence of returns risk here too,
because let's say you would draw eight percent in the
first three years of your retirement and we experience a
severe bear market during those times, you're taking out more
and more money from that portfolio that can't grow back,
that can't recover, and so be a part of the
reason an eight percent withdraw rate is so stinking bad
(23:15):
is And whether or not your portfolio survives an eight
percent with draw rate largely depends on what happens with
the market. But if you do it at the wrong time, man,
it can crater your retirement and you could be penniless
really in farless than thirty years. Sure, so, yeah, definitely
not something you want to mess with. So does your
allocation dictate whether the four percent rule works or not?
You kind of were asking about that, Yeah, it kind
(23:37):
of does. I mean, let's say you had all of
your money in cash earning two percent. Granted you wouldn't
be doing that right now, hopefully, and then let's say
you're taking out four percent of your portfolio every single
year you're gonna run out of money much sooner than
if that money was invested. And so when the rule
was devised, it was looking at a balanced portfolio, by
the way, at half stocks and half bonds. The reason
(23:58):
is because you can still get solid returns with greatly
reduced volatility having that half and half match. The four
percent rule was not built on a one hundred percent
stock assumption, so don't think that you have to be
one hundred percent equities in order for the four percent
rule to make sense. Eric, you were mentioning, well, if
we have like a sixty forty portfolio, well that puts
you in perfect company with the four percent role. Right
(24:18):
when you start drawing money from your retirement accounts, the
four percent rule should be more than okay, as the
average return of your particular allocation that you're looking at
over the past thirty years has been eight point four
to two percent. That is, Matt, what a sixty to
forty portfolio has returned for investors, which isn't bad. That's
pretty good, and it, you know, means that a four
percent rule is actually looking a little conservative if that's
(24:40):
your mix.
Speaker 2 (24:41):
Yeah, well, I think another problem too, or maybe a
potential problem that Eric is posing here as he you know,
mentions like so he's talking about having like earning seven
percent right on average in the market, basically gaining seven
percent and then losing seven percent, losing seven percent through
spending or through inflation. But the four percent rule or
what the the study that the four percent rule is
(25:01):
based on, the Trinity study, it's just not that straightforward
as earning seven percent of the market and then spending
down seven percent, because if that were the case, you're
looking at a wash like literally you're not spending down
your money at all. And the Trinity study seeks to
prove that you're gonna not run out of money within
thirty years, and so it's just not quite as straightforward.
And so that's another reason why you can't just look
at market returns as opposed to all the countless what
(25:25):
are they like the Monty Carlo scenarios or just all
the nuances that went into that study. But it is
important to note that the within that study that they
were accounting for a reasonable amount of inflation. So that's good,
you don't it's not like you've got to do an
additional calculation for that. But bottom line, I think what's
worth reiterating here is that the four percent rule, that it's.
Speaker 3 (25:46):
More like a rule of thumb.
Speaker 2 (25:48):
And one of the authors of the Trinity study, who
was the one who coined the four percent rule, he
said that that is a reasonable withdrawal rate for most folks,
and if you take out too little, yeah, there's gonna
be an overwhelming likelihood that you're gonna die with lots
of money left over. It's not the worst thing, but
it's also it's also a good idea to make a
plan to enjoy that money and not necessarily to pass
(26:10):
it on to future generations, unless that's just a massively
important goal of yours. I think for most folks a
reasonable goal would be to spend most of their money
while they're living. But at the same time, the eight
percent Dave Ramsey approach, that recommendation is a terrible idea,
too risky. Yeah, but Eric mentioned like two to three percent,
which I think personally would be pretty pretty low. Basically right, like,
(26:33):
it's gonna ensure demoralizing.
Speaker 1 (26:34):
It makes you feel like you probably have to work
longer than you actually do, makes you have to save
up a larger nest egg than you actually need.
Speaker 2 (26:39):
And it feels like it's based out of fear as
opposed to like, well, like what do the numbers actually show?
And that would ensure that you never run out of money,
but it would also just be too cautious. So for you, Eric,
I think a four to five percent withdrawal rate it
makes sense for forty five.
Speaker 1 (26:52):
That's what Matt's going with.
Speaker 2 (26:53):
Okay, wow, four to two five, Okay, it's gonna make
sense for most.
Speaker 1 (26:56):
It's gonna say, Man, you're making Dave Ramsey look like
a geek.
Speaker 3 (26:59):
Yeah.
Speaker 6 (27:00):
Well.
Speaker 2 (27:00):
The other thing, too, is Eric, how much flexibility that
you have? And honestly, the older I get, the less
word I am about retirement because I'm just thinking about
some of the different ways that I can be flexible
when I am a quote unquote entering into my retirement
years and whether that's okay, oh, maybe we're not going
to take as much money out of the market to
reduce that sequence of returns risk. Oh okay, well, Marcus
(27:21):
not doing so great. Maybe I'll just pick up a
part time job or some money on the side, just
other ways to be creative when it comes to your finances,
especially too.
Speaker 3 (27:28):
Just as I don't know I.
Speaker 2 (27:29):
Think Joe, both of our opinions. It's not that we've
completely changed our minds.
Speaker 3 (27:34):
Of our view of work.
Speaker 2 (27:36):
But the older I get, the more I realize that
I mean, I mean, I'd be doing exactly or what
I'm doing now, or working nearly as many hours as
I am now. But there's a good chance I'm going
to do something I.
Speaker 1 (27:45):
See Walmart greater in your future.
Speaker 2 (27:46):
Hey, or we talked about this, like pulling shots at
the local coffee shop or or working at a gym.
Just something that aligns with however it is that you
want to spend your time in some of those later
years and guess what they will reward you for that
time that you spend and that business with a paycheck.
Speaker 1 (28:02):
Yeah, I know. I think that the flexibility thing is key,
And I think if Eric wanted to be as conservative
as possible, guess what a zero percent withdrawal rate means.
Your porfolio can keep growing and you never need to
spend that money. But I think when you say two percent,
like you're almost thinking along those same lines, and you
have to be willing to spend the money that you've accrued.
Although I know it's kind of it's a muscle that
you've never had to develop, and you have to kind
(28:23):
of learn how to be cool with that. But you
also have to learn to be flexible at the same
time and willing to reduce that maybe in a down
year by just a little bit, and then guess what,
in a fat year you might have be able to
increase that a little bit too. So that flexibility is
kind of, I think a hard thing to come to
grips with because it's not some set in stone four
percent no matter what. But I think it's the best
way to approach it. Kind of like you were talking about.
Speaker 2 (28:44):
Bottom line, there's not any sort of guarantee, and folks
are willing to pay a lot of money for those guarantees.
And even those guarantees aren't necessarily guaranteed unless you're willing
to pay tremendously out the nose and fees.
Speaker 1 (28:54):
Is there a Tommy Boy clip about guarantees? There's got
to be oh guarantee by taking the car parts. Yeah,
but Eric, we appreciate.
Speaker 3 (29:04):
Your question, Jill.
Speaker 2 (29:04):
Let's get to a listener who has a clarifying question
about the standard deduction.
Speaker 6 (29:10):
Hi, met Joel, this is Damon from Utah. I've been
a listener. Since The Poor Not Poor Days, A lot
of your device is spot on and you deliver it well.
One thing I struggle and understand is how owning a
home is a tax advantage. Since the twenty seventeen tax
cuts significantly raised the standard deduction, the right offs of
my house have not been high enough to allow me
to itemize. Therefore, whether I own a rent the right
(29:33):
off is the same. My CPA and I were talking
about this last night and she said she hasn't seen
an advantage in the last two to three years. Do
the two of you have some insight on how it
is a tax advantage. Just for a little insight, I
own a primary and a rental, and in the last
few years, with expense right offs for my rentals and
(29:54):
then the standard right offs for my primary, I've still
taken the standard deduction I would say for the last
three to four years. Thanks for your insight. I'd look
forward to your response.
Speaker 1 (30:08):
Damon massive, Thanks man for listening for as long as
you have the Yeah, there are probably some people listening
who are like The Poor Not Poor Days. What are
you talking about? We used to actually started this podcast
with a different name, Poor not Poor, And because we
drink beer. Poor a beer, don't be poor, right, that
was the reason behind it. We changed it to how
the money. It's a little easy to understand them. Yeah,
but if you've been listening that long, you're an OG listener.
(30:30):
So damon, thank you for that. And you raise a
great question here. So many folks think that owning their
home is this tax have and it's a bashion of savings.
That is one of the reasons people get pushed into
buying a home is because wait, to think there are
all these other things that are going to save me money.
Renting is just throwing away money, and there's so it's
just this cultivate home ownership that we've bought into as
a country here in the United States. But alas, so
(30:52):
many of the things that we say about owning homes
are wrong or maybe they have some basis in reality
that just doesn't pan out for most folks, right, And
some people in the real estate industry will hold this
out as another reason to buy a primary residence. Basically,
buy the house because there are tax perks that you're
not factoring in, and if you did, you'd realize that
it was no brainer, right, And so they artificially inflate
(31:14):
the potential tax savings. It's false advertising, and you're letting
the tail wag the dog. And so you are right
in this conversation with your CPA that this isn't a
benefit you're seeing, and so like the fact that you've
heard so much about it. It's kind of mind boggling, really,
it's true.
Speaker 2 (31:29):
Yeah, And this is coming from Damon, and he owns
two properties, right. They come with extra mortgage interests, they
come with extra property taxes. Even Damon isn't seeing any.
Speaker 3 (31:38):
Tax relief here.
Speaker 2 (31:39):
And the truth is, only about eight percent of folks
get a mortgage interest deduction these days. And it's largely
a perk that wealthy Americans are able to snag. And
the main reason is because of the more generous standard
deduction because it jumps so much under the Tax Cuts
and Jobs Act, You've got to typically pay a lot
of interest. And in addition to that, you need to
be giving way a substantial chunk of money to nonprofits
(32:02):
in order to be itemizing your deductions and coming out ahead.
Speaker 3 (32:05):
The average couple.
Speaker 2 (32:06):
They're just not going to have more than twenty nine
two hundred dollars in deductions and it makes that mortgage
interest deduction inconsequential.
Speaker 1 (32:14):
Honestly, Felko, It's in the tax code, but sorry, almost
nobody gets to utilize it. But we still talk about
it like everybody is utilizing it, or that most people
have access to this deduction, and even still like I
wouldn't let the even if I did qualify for the
mortgage interest deduction. It's not the reason to buy a home.
It is this tiny little bitty cherry on top if
you qualify, but again, most people don't.
Speaker 2 (32:35):
So honestly feels it just feels like a holdover from
the number of years leading up to twenty seventeen. It's
a narrative that continues even though the facts of the
ground have changed.
Speaker 1 (32:44):
That's exactly right.
Speaker 3 (32:45):
Yeah.
Speaker 1 (32:45):
One thing you can do, potentially, by the way, damon
this specifically for you and for other people out there,
to snag the mortgage interest tax deduction maybe in at
least some years, is to batch your giving. We've talked
about this on giving episodes before. We've talked about this.
We talk about donor and advised funds.
Speaker 3 (33:00):
That's right.
Speaker 1 (33:01):
Well, let's say you typically give away something like fourteen
grand each year. I don't know that might be a lot,
might be a little compared to depending on who you are.
What if you gave away twenty eight thousand dollars and
one lump sum, let's say in December of one year,
and zero dollars the next year, you're still still giving
away the equivalent of fourteen thousand bucks in each year,
but you're just doing it in one defined calendar period instead. Well,
(33:21):
it's easier said than done because it involves saving and planning.
But that way, you're still giving away the amount you
intended to. And in the year that you give away
the twenty eight grand, your mortgage interest and then your
property taxes would put you over the top, allowing you
to idomize in that given year. See a bigger tax
break in that year. Then you take the standard deduction
again the following year when you give it away next
(33:41):
to nothing. Right, it's a hypothetical scenario, but these are
the kinds of levers that some folks are pulling. Given
kind of the way the tax code is currently written,
it benefits some of that bunching of donations in order
to give yourself the biggest tax break.
Speaker 3 (33:56):
Totally.
Speaker 2 (33:56):
Yeah, and this is where donors advised funds I think
solve this, Like when we had the founder of Daffy on,
I feel like that's the best argument to be made
is the fact that oftentimes when you have a lot
of money like this, there is a disconnect between the
money that you have on hand that you want to
give away versus the organizations and the need that they
(34:16):
have in the moment. Right, So it's like basically they're
what do you call it, like they supplying the demand
of your charitable giving is asynchronous to some of the
organizations that you want to give to, which is why
the ability to put money within a donor advice fund
and have it sit there.
Speaker 3 (34:29):
Yes, you get the tax BIK for the year that
you make that.
Speaker 2 (34:31):
Contribution, but then you don't have to give that money
away until later the next year or years down the road,
even yeah, even after it's it's sat there and actually grown.
Speaker 1 (34:40):
Can release the funds in a steady stream if you want, yeah, yeah,
which means like, yeah, you're right, it doesn't have to
hit the accounts of your favorite charities.
Speaker 2 (34:45):
And the moment you don't, you don't have to decide, okay,
well twenty eight thousand dollars, Well, like that's a big
decision who am I going to give that money to.
We don't have to decide all at once. That's something
that you can figure out over time. And then by
itemizing well, your state, your local taxes, including property taxes,
they can be included in those itemized deductions as well,
up to a max of ten thousand dollars, And so
(35:06):
that might be a way to with your charitable giving,
have that kind of push you over the top. If
you've got higher medical or dental bills as well, that's
something that you can you can deduct. So currently I
think current years it's if it's over seven point five
percent of your adjusted gross income, but it's actually better. So,
like I know, when we had our first daughter, it
was something like ten percent, and so the threshold of
(35:28):
what qualifies as an itemized medical deduction that you can
take has actually gone down, so there's more that you
can actually itemize.
Speaker 1 (35:35):
This is why I'm opting to get a lot of
cosmetic work done this day as you consider it brand
new nos coming your way.
Speaker 2 (35:39):
Bottom line, I mean that the nice thing about the
higher standard deduction though, is that it saves a lot
of folks time. It saves them hassle when they're filing
their taxes. But folks who are on that edge, folks
who you know could come close to itemizing, they can
likely find some different ways to itemize in certain years,
mind shifting and moving things around like that where they're
able to optimize their tax bill. But still the mortgage
interest tax deduction, it's massively overblown. And so if you
(36:03):
hear someone out there talking about it a lot, especially
if they're in the real estate field, especially if they're
an agent or a lender, this check and see if
it would actually make a difference in your situation, because
I think unless you are giving away a substantial amount
of money, then I think the chances are that it
likely wouldn't do a whole lot for.
Speaker 3 (36:23):
You in your tax situation.
Speaker 1 (36:25):
This still resides on all of our collective consciousness because
of all those years where it did make a difference,
and even then it was overblown. It was like, buy
a home because you'll get the tax deduction, and it's like, well,
you don't buy it, kind of like we've talked about
with small businesses, Matt buying items you just because you
can just write it off exactly, and it's like, well,
you still pay for the thing, and you might get
(36:46):
some tax savings on the back end. But it doesn't
mean that you buy all those things just for the
tax break, because you're probably running an inefficient business and
you don't want to go in too hard in that direction.
All right, We've got more to get to on this episode,
including like how much should you be investing what percentage
of your income? We'll tackle that question right after this.
Speaker 2 (37:12):
All right, man, we are back from the break and
we've got our Facebook question of the week, and this
one is from an anonymous poster who writes and needs
some thoughts on investing percentage. My husband and I are forty.
He brings home the majority of our money and would
like to retire at sixty five. We were not able
to invest much until the past few years. Our investments
sit at one hundred and seventy eight thousand. He started
(37:35):
a new job which brings home about one hundred and
twenty thousand a year, and we'll soon receive a raise
of twenty three percent based on union negotiations. Is investing
twenty five percent of his pay too much? Our fixed
costs are around one hundred and sixty dollars a month.
We are saving for a new computer, vehicles renovations, so
that totals three hundred and twenty five dollars a month.
(37:56):
Discretionary spending is nine hundred and sixty dollars a month,
in donations are at six hundred and twenty dollars a month.
We have no debt besides a thirty year mortgage at
two point seventy five percent interest. First thing, right out
of the gate, Hang on to that mortgage as long
as humanly possible, the anonymous poster, because that.
Speaker 3 (38:14):
Yeah, you can't beat that, My.
Speaker 1 (38:16):
Goddess humble bragging the game right now, two seven five.
It's bragging about your low interest rate mortgage. And if
you're in the twos, you make everybody yeh a thirty
year yeah, Like.
Speaker 3 (38:23):
That's that's the other part here.
Speaker 2 (38:24):
It's not like they needed to jump to a fifteen
years sorder to get to that two percent.
Speaker 1 (38:28):
Just don't tell someone who's trying to buy their first
house right now. They'll punch in the face. It's so
frustrating to hear that. I know for people who bought
five six years ago, and it's like, yeah, my home
equity has doubled since I bought it, and guess what
I got this locked in low mortgage rate and people
who are like I would like to buy a home.
I'm so mad that I wasn't like at proper home
buying age back then at that point in time.
Speaker 2 (38:50):
Makes it makes it difficult, It does, okay, But what
do you think twenty five percent of his overall paycheck?
Speaker 3 (38:55):
Is that too much or too little?
Speaker 1 (38:56):
That okay? So my knee jerk reaction is like, no way,
is that too much? But I also don't necessarily want
to you'd say that, but I also don't want to say, oh,
you should really be doing a whole lot more than that,
and you should all because like the truth is, you
don't always need to be aiming higher. You don't always
need to be trying to save and invest a much
larger chunk of your income if you're already crushing it, right,
And so this anonymous poster, Matt, has clearly been a
(39:20):
diligent investor over those past few years. They said they've
just been investing for a few years, but they've got
almost two hundred K, which is pretty impressive. That's amazing
for a couple of years. Yes, that means that they've
been like Max and everything out invest in investing wisely,
and the market has done well for them in those
years as well. And so you've still got twenty five
more years that you'll be able to invest with the
goal of retiring at sixty five. I would say that
(39:41):
with the known quantity of this raise coming soon, being
able to up your investing game funneling a higher percentage
into your retirement accounts is awesome. Like twenty five percent,
in my mind is is a great goal for most
people to have. We usually set fifteen percent as kind
of the floor of what you should be trying to
go for. If you're in twenty five, that means you've
made some more frugal decisions in your life and you've
been able to increase your pay and guess what, why
(40:03):
not invest even more than money, especially because Matt they
started later. I mean, our first listener of the day
is twenty four starting them. And if you just say
fifteen percent your whole life when you started twenty four,
you'll be just fine. But if you start, you know,
in your late thirties, you might want to say closer
to twenty five percent to be able to get where
you want to go.
Speaker 2 (40:20):
All right, Yeah, so this is where the details matter.
And so I just realized too, we didn't when we
were talking about the four percent rule. We should have
talked about the twenty five x rule, the twenty five
times your annual expenses rule, because for me, like the
four percent rule can get confusing because it's just like, well,
four percent of what and don't there's just a whole
lot of variables. And then folks are like, well, maybe
it's three point five, or oh, you could do five
(40:41):
point five or as I love the clarity that you
get with twenty five times your expenses and.
Speaker 1 (40:45):
It's a simple way to understand.
Speaker 2 (40:46):
Yeah, And so what's great about this poster is that
they have all their expenses listed out, and if you
follow the rule of twenty five, you add up all
of their annual expenses, you take that number and you
multiply it by twenty five. Well, that spits out two
point one something million dollars that this individual needs by.
Speaker 3 (41:05):
The time they hit retirement.
Speaker 2 (41:06):
And it seems like that that's an incredibly large amount
of money. It is that being said, you already have
one hundred and seventy eight thousand dollars, and so if
you assume that you're going to earn eight percent returns
in the market were you to invest twenty five percent
of your current salary, this isn't even accounting for this
twenty three percent raise. You're looking at at least investing
(41:28):
twenty five hundred dollars a month, which if were you
to do that, you're going to end up way way
beyond that two point one. So I ran the numbers,
and technically, if you're looking to land around the two
point one million dollar mark, you're only looking at investing
eleven hundred dollars a month, which is less than half
of twenty five percent of your of his current income,
(41:50):
and that doesn't even account for this raise that he's
looking at.
Speaker 3 (41:52):
Getting as well.
Speaker 2 (41:53):
And so I guess what I'm highlighting here is that
when you crunch the numbers and look at and again
this is there's a few assumptions here. Assuming that you're
you know that you are going to see eight percent returns,
and the S and P has averaged over the since
like the fifties, over ten percent, and so this accounts
for a degree of inflation. Of course, assuming the Fed's
able to get that down closer to two percent, perhaps
(42:16):
well we'll see whether or not that happens.
Speaker 1 (42:17):
Good luck, guys.
Speaker 2 (42:19):
But all that to say, the reason I'm taking this
approach is because I want to relieve some pressure from
this listener to feel like that they have to invest
twenty five percent or even more of their overall salary
because they're thinking, man, gosh, I haven't. We haven't been
investing at all. But because of the massive amounts of
money that they would be able to invest for the future,
(42:40):
that just puts some like head and shoulders above other
folks who might be in a similar situation. And so
I present this information to relieve a little bit of
pressure because man, you're talking about saving up for like
a new vehicle. Okay, maybe you spend an extra five
thousand dollars on that vehicle, and maybe that's, yes, that
enlarges that savings budget every single month of the at
that you have to set aside. But what I'm pointing
(43:02):
out here is that it's okay because you are most
likely going to have enough. And that doesn't even account
for some like additional streams of income as well, right,
Like we're not even talking about Social Security as well.
Speaker 1 (43:11):
That's true, okay, And what it made me think, Matt,
somebody in the Facebook group responded to this poster and
they said, I don't know that I've ever heard anyone
regret investing too much, and to a certain extent, I
kind of agree with that. But then on the other
flip side, when you talk about the regrets of the dying,
what are the typical regrets of the dying?
Speaker 3 (43:27):
That's what I'm thinking.
Speaker 1 (43:28):
It's like, oh, I didn't spend enough time with my
friends or family. Oh I didn't spend enough time like
doing volunteer work in the organizations in my community that
I cared about, because guess what, I was so focused
on work income investing. And that's also the like exception
that's like not the normal American. But this poster doesn't
sound like the normal American anyway. They sound like they're
being pretty thoughtful about what they invest and how they
(43:50):
think about the financial future. So you have to also
be thoughtful about today. And so it's not that most
people say, oh, man, I'm really bummed I invested too
much and I've got three million dollars in my retirement account.
But what did it take to get there?
Speaker 3 (44:02):
What sacrifices will you have made in order to have
that nest egg?
Speaker 1 (44:05):
And so for some people at least it requires such
a sacrifice that they're not mad about how much money
they've been able to accrue, but they do have regrets
about the things that they had to sacrifice in order
to get to that point. And I do think it
is worth pointing out to be cautious, to be careful,
and to be thoughtful about, well, cool, do I have
to take on more responsibilities at work? Do I have
to like maybe work more hours. Do I have to
be away from my home? Do I have to be
(44:26):
traveling more for my job in order to earn this
increase salary? Like what is it taking to get there?
And are those trade offs worth it? And for everybody's
going to have like a different answer on that, but
I guess it is just worth in a similar vein
Matt kind of pushing back, like you are saying, well,
what does it take to get to that point? And
do you actually need that much? And it doesn't mean
that you should take your investments from twenty percent down
(44:48):
to zero, but it also it also means that hey,
maybe you don't need to like continue to ramp things
up in definitely either totally.
Speaker 2 (44:55):
Yeah, this is again why I love the clarity of
the twenty five x RO which is based on the
four per rule. But this also assumes that your expenses
are looking at staying the same as well, because guess
what if there are some fancier things that you want
to do off in the future because maybe you have
sacrificed in the meantime.
Speaker 3 (45:11):
Oh really, as I think about retirement, I do.
Speaker 2 (45:14):
Envision us taking more vacations, maybe eating nicer cuts of meat, Joel,
I know that's something that that's been on your mind
reason or just.
Speaker 1 (45:20):
The reality of inflation that things are going to cost
more us no matter what you do in your life.
Speaker 2 (45:24):
And so with that in mind, I could see where
you're like, Okay, well maybe we don't maybe we don't
need to invest that full twenty five percent. But again, yeah,
based on the numbers that this poster left us with,
I mean you are looking at something closer to eleven hundred,
which just frees up money in the meantime to be
able to live your life in the here now and
not just bank on those future years where you're thinking, oh,
(45:46):
one day, at some point, I'll take that nicer vacation. Now, well,
there are ways you can start integrating that into your
life now, which I think is even that's just a healthier.
Speaker 3 (45:54):
Way to approach life too.
Speaker 2 (45:55):
Right where you are, it's just a more gradual, healthy
transition into those retirement years as opposed to there being
sort of like this hard switch, right, like this hard
cut off where it feels like all of a sudden
you have to completely change. How does that you view
money and how you how you view your time?
Speaker 1 (46:12):
Yeah, finding that balance, finding that happy medium never easy.
That's not always what you and I are trying to
achieve on you know, in our lives, and that's what
we want listeners of out of money to be doing
at the same time. That's why I mean, if this
anonymous poster to come in and said we're thinking about
trying to ramp up like sixty to seventy percent savings rate,
throwing all that money in investments, we would be like
that sounds that's yeah, pretty intense. And unless you're the
(46:35):
kind of person who's like, sorry, it's fire or die
for me. I want to retire at forty four and
not look back and never have to work again. Well,
if that's your goal, like, who am I to tell
you that that's a bad goal? But that's not really
our approach on this show. And so what we want
you to do is live an awesome life in the
here and now, spending money in ways that move the
happiness meter for you in a meaningful way, cutting back
in ways that don't, and investing a decent chunk of
(46:56):
your income so you don't have to have financial worries
in the future. But it's possible to overdo it on
any one of those fronts, and we're all kind of
like that pendulum swing and trying to find the center,
and it's it's hard to find it exactly.
Speaker 2 (47:07):
Yeah, it's important to keep your craft beer equivalent in mind.
He's got to keep that forefront because it helps to
remind you what it is that you're saving up for
off in the future, what you're also enjoying in the
here and now.
Speaker 3 (47:17):
And Jel, that's literally what you and I have.
Speaker 2 (47:19):
Been doing during this episode as you and I have
been enjoying a memory farm by Inner Voice Brewing.
Speaker 3 (47:24):
What are your thoughts you've.
Speaker 1 (47:25):
Had this beer before they're at the brewery before, right, Yeah, Yeah,
it's like probably it's top three Atlanta breweries now for sure,
it's so.
Speaker 2 (47:31):
Good, so good, like the combination not only of amazing beer,
but the fact that they have that collab there with
I think some of the best pizza. I mean literally,
I think be the best pizza place in all of
Atlanta indicators not they are their own city, but it's yeah,
it's within reach of Atlanta exactly.
Speaker 1 (47:46):
So this one, in particular was I thought, soft and juicy,
zero harsh vibes. I think usually when you're getting an ipa,
at least there's some of that like bitterness. There was
like no bitterness in this one at all. It was
only the juice. But it also wasn't like overly potent
and in your face. This was like a nice, reserved, juicy,
hazy ip So I liked it.
Speaker 2 (48:05):
It didn't have like that like the West Coast bitterness
like you're talking about, but it did have that bite
hop in my opinion, Like, I don't know how else
to describe it except that I can just there's a
difference between the bitterness that you get from Hops versus
the flavor bite that you get from from Hops. I
don't I don't know how to necessarily distinguish between the two,
but I don't know there's a difference there where it
(48:26):
feels like a flavor attack on my tongue versus sort
of like this chemical attack, which is what the bitterness,
That's what I think of like when I like when
I enjoy the West Coast, ipa, the West Coast.
Speaker 1 (48:36):
Usually tastes more piny, bitter, resiny, and this is, yeah,
just more vegetable.
Speaker 2 (48:42):
I feel like this is a perfect example of a
New England hazy and so glad that we've got one
here locally that we get to enjoy.
Speaker 1 (48:48):
For sure, this is a good one, and thanks for
picking it up at the brewery. By the way. Oh sure,
all right, that's gonna do it for this episode. If
you have a money question of your own that you
want Matt and I to tackle on an upcoming episode,
please do record it, send it our way. We'd love
to take it, and Matt, that's going to do it
for this one. Until next time, Best Friends Out, Best
Friends Out.
Welcome to How to Money. I'm Joel and I am
Matt and today we're answering your listener questions.
Speaker 2 (00:24):
Yeah, thank you everyone out there for listening to the
How to Money podcast. Joel, you get to say that
every single week, multiple times a week.
Speaker 3 (00:31):
I never get to say that. We can trade How
to Money.
Speaker 1 (00:34):
Anytime you want.
Speaker 3 (00:35):
That's the name of our show.
Speaker 2 (00:37):
Now, we do have some great listener questions to get to.
Listener is wondering if some of these tax deductions that
he hears about whether or.
Speaker 3 (00:45):
Not they're overblown. We'll get to that.
Speaker 2 (00:47):
Another listener is asking about the four percent rule. He's
looking ahead to the future and wanting to make sure
he's planning properly, and we'll speaking of planning. Another listener
he's wondering if he should ditch his financial advisor.
Speaker 3 (00:59):
We've got the questions plus more to get to during
our episode today. Buddy, what if you.
Speaker 1 (01:03):
Just ghosted your financial advisor like they're they're like sending
emails and you just never respond and you just pretend
you didn't you never met them in the first place.
Speaker 3 (01:10):
They have access to your money.
Speaker 1 (01:11):
Yes, yeah, it's good, Okay, Well that's yeah. That happens
in like relationships. I've heard it. It sounds like the weirdest,
saddest thing when someone like literally stops replying to your text.
You're like, we've been dating for months and you just
stopped replying. But that happens these days, Matt, any clear
lines of communication. If it's over, just let them know exactly,
all right. That's our relationship advice for the day, before
we get to these wonderful, incredible listening questions about I
(01:33):
just want to mention one thing I met. I made
it a friend, and I also got some free stuff.
And this happened fun fun on the Lovely Connecting website
of Facebook Facebook Marketplace. To be specific. We have said
for a long time now that there are only two
good facets of social media.
Speaker 3 (01:48):
I can get you more friends.
Speaker 2 (01:49):
If you're looking for more friends, you don't have to
go to this neinitsarily have to look to Facebook.
Speaker 1 (01:54):
It's like a new version of Breakfast Personal story, Matt. Uh,
it was I was not looking for a friend, misconnection.
Speaker 2 (02:00):
I found one loves.
Speaker 1 (02:02):
Craft beer, That's right. So I was someone was giving
away free firewood and I was like really low and
I was like, I'm don't eat any right now, but
why might as well stock up let a season for
another year, and I'll just go pick this stuff up,
toss it in the back of my car and that
way I'm loaded up. And it's always a good idea
to keep your eyes peeled. First off, I know you
are always as well. Like just a tree that fell down,
(02:25):
especially firewood in particular, Yeah, yeah, because you want to
give it some time and then you cut it up later.
So but this was like pre cut and everything. I
was like, oh great, I'm gonna get this stuff. So
this is already split. This wasn't even just rounds that
they're going to have you split yours? What on the
world already split?
Speaker 4 (02:39):
Yeah?
Speaker 1 (02:39):
Right, And he wasn't far away, so I was like, cool,
I'll drive down there and get it. And uh and
seventy nine year old dude named Jim sweetest guy, ended
up talking for like thirty minutes and I show this
number he's been texting me. I mean like it's I
don't know, not that I suggest finding all your friends
on Facebook marketplace, but uh, it's kind of like it's
kind of nice to do that kind of stuff. And
I think that when you're a part of the buy
(03:01):
nothing groups. Matt like that that facilitates not just the
reduction of consumption, but it also I think incentivizes relationship
building too, because you're doing something so like you want
something that you have that you don't need any longer
to go to a good home where someone else is
gonna derive a lot of joy from it. And I
think in that kind of mutually beneficial crossover, there is
(03:21):
a place to say, like, hey, we kind of have
similar ways of viewing the world. Let's be friends.
Speaker 3 (03:26):
Absolutely.
Speaker 2 (03:27):
Okay, Well, why was he divesting himself of split firewood,
which is kind of like the holy grail of it's
already ready to go.
Speaker 1 (03:34):
That's a good question. He said he thought it was
too old and what Yeah, And I was like, I
think this is perfectly usable.
Speaker 4 (03:39):
Man.
Speaker 2 (03:39):
He has a very very high standard for what qualifies
as good firewood.
Speaker 1 (03:43):
I guess, yeah, I guess.
Speaker 3 (03:45):
Was he only using it inside?
Speaker 1 (03:47):
Did he have like a wind of Yeah, I'm using
it outside.
Speaker 3 (03:50):
So see that's the difference.
Speaker 2 (03:51):
If you're using it outside around a fire pit, you
can burn anything, burn your trash, that's right, Yeah, don't
do that. Because we used to have a wood burning
wood burning stove at our old house, and I quickly
learn based on the amount of creosote, I guess that
built up on it, the difference between higher quality would
and low grade stuff. So okay, all right, that makes
(04:11):
that makes a bit more sense. Just a plug for
Facebook market place. Facebook doesn't need any plugs for me.
And if you don't want to spend any time on
Facebook or the internets, just keep your ears open because
you can always hear a tree coming down, like like
when there is a tree felling company that shows up
in your neighborhood or through nearby, Like you hear the chainsaws.
You know what this chain saw sound like? That happened
all the time in my and last time that a
(04:32):
neighbor took down a couple of trees, I've just walked
up there. I was like, hey, guys, if y'all stop
by my house on the way out of the neighborhood,
I'll help you unload as many of those rounds that
were sized appropriately and totally just threw those in the sideyard.
I took the next three or four months to split
that in nice little workout. But on top of that, yeah,
more free firewood and sorry having it already split.
Speaker 3 (04:53):
That's nice, So there you go. I dig it.
Speaker 2 (04:54):
Let's introduce the beer you and I are going to
enjoy today. It is a Memory Farm and this is
a beer by Inner Voice out in Decatur, Georgia, where
we actually had our one of our how to money
listener Hanks.
Speaker 1 (05:06):
Most trucfully so last year. We need to do another
one this year. We'll get it on the books, we'll
let everybody know when it's going to happen, and we'll
let you know what we think of this beer at
the end of the episode.
Speaker 3 (05:15):
We will.
Speaker 1 (05:16):
But Matt, let's move on. Let's take listener questions and
if you have a money question you want Matt and
I to tackle on an upcoming episode, we'd love to
hear it. Just got to have money dot com slash
ask for details on how to submit yours, basically just
recording a voice memo and sending it to us VI
an email and hopefully we can take it next week
on the show. This first one comes from a listener
who's wondering about the value proposition of some money that
(05:37):
he's spending.
Speaker 5 (05:38):
Hi, Joel in Matt. My name's Peter. I'm twenty four
and I'm currently stationed in Apostle, Texas with the Army.
I've been hooked on your podcast for about seven months now,
and your Gutus has been a game changer in my
financial journey. Thanks to you guys, I've paid off a
seventy two month carloan prematurely, shaving GoF fifty three gruelling
months of interest, have been budgeting with ry Nab, and
have hit money gear five. Back in college, I grasped
(06:01):
the idea of compound interest in how roth irays work
a great vehicle for financial freedom. I'm a natural saver,
but I lack confidence in investing at the time, so
I turned to an Edwards Jones advisor for assistance. My
advisor puts my deposits into an investment savings account consisting
of mutual funds to grow my money, and pulls money
out of that account to max out in my roth
(06:23):
IRA each year. My wroth account consists of mutual funds
as well. From the beginning of twenty twenty until now,
I've contributed a total of forty two K to the
investment savings account. Its current value sits at nineteen K
and my roth IRA sits at forty three point six
k I've noticed that you guys referenced Vanguard and Fidelity
for wroth iras and also lean towards index funds. Should
(06:46):
I switch my portfolio to index funds for better returns
in this wealth building phase? Or should I consider shifting
to Vanguard or Fidelity? If so, how would I navigate
this switch? Thank you both for your priceless guidance. Take care.
Speaker 2 (07:00):
All right, We've got a lot to talk about here
with Peter. First of all, he said he's stationed out
in El Passa, which means he's in the military. So Peter,
thank you so much for your service. The next thing
I want to cover is the fact that you said
that you paid off your your car loaned prematurely. And
I don't want to be nitpicking here, but let's not
use that word, because what do you think of, Joel.
When you hear something is premature, it's normally a negative thing.
Speaker 1 (07:22):
You're thinking about a baby coming early, yes, and like
or other medical conditions.
Speaker 2 (07:26):
Use your imagination like this. It's not normally a good
thing for things to be premature premature.
Speaker 1 (07:30):
Baldy, No, I know you weren't referring to.
Speaker 2 (07:33):
That, but instead just thinking about using the term early,
because like if you're early for work or you're early for.
Speaker 3 (07:40):
A meeting, like that's always a good thing.
Speaker 2 (07:42):
And we want to totally paint paying off this car
note in the best light possible. And so I know
it's just a small thing, but Peter, yeah, you are
totally on the ball. You are knocking out debt like this,
and yes, you have saved yourself a tremendous amount of
interest by eliminating that.
Speaker 1 (07:57):
Fifty three months early something like that, and not just
got it done in fifty three months, but like I
paid it off fifty three months early, which means he
paid it off in was it less than two years
or just over two years? I mean, the inn a rapid.
It goes to show that when you have a singular focus,
you can get rid of something pretty quickly. But he,
on top of having that singular focus, he's also doing
a lot of good stuff with other dollars too, So
(08:18):
it's not like he said I'm just going to do
this one thing. But he did make it a ridiculously
high priority to get rid of the car loan after
listening to the show, and my guess is, Peter's the
kind of guy who's never going to have a car
loan again for the rest of his life. So mad
props to you on that. Okay, let's talk about the
financial advisor side of your question. The reason we're not
typically enthusiastic about you having an advisor, especially at your age, Peter.
(08:40):
Let's mention that, like you're twenty four, and they eat
up a good bit of the money you could be investing.
That's going to line the pockets of the advisor that
you've hired, right, And so fees that might seem insignificant
in the moment, they add up as they eat into
your ability for those dollars to compound. Right, So a
one percent fee, for instance, every single year could cost
(09:01):
you hundreds of thousands of dollars down the line. Most
people don't think of it like that, Matt, because of
one percent fee, it sounds like not that big of
a deal though.
Speaker 3 (09:09):
That's trivial.
Speaker 1 (09:10):
Oh cool, Wait that we just got an extra one
percent sales tax increase locally where we live. Great, everything's
going to cost a tiny bit more. I'll barely recognize it.
But the problem with when we're talking about it on
the advisor front, the one percent over the years because
of the way compounding works, it's severely handicaps and kneecaps
your ability for those dollars to grow on your behalf,
(09:32):
and so it adds up to being a whole lot
more than it seems like it would be on the face.
And so I get why Peter went in this direction.
Starting out like he didn't feel like he knew what
he was doing, and he thought he needed expert help.
But at this point he said, he's been listening for
something like seven months. He's received I would say, a
reasonable financial education listening to the show and doing some
of the other things that he's doing. So I think
(09:52):
that it's time to mosy on down the road and
take the DIY approach. That's that's what I would do
if I was Peter totally, and we actually talked about
this on a recent Friday flight. But fee advisors, they
are becoming more common, which is great news, But those
fees can actually be a lot of money as well,
in some cases thousands of dollars, like higher than the
maximum Roth contribution that you're allowed to make, Peter, and
(10:14):
that money would be better off working for you inside
of tax advantage accounts. And plus you can pick the funds,
pick the brokerage firm that you like and that you
feel most comfortable with. And I think pretty high on
the list of things that I'm going to be looking
at are overall costs. And you mentioned Vanguarden often, I
guess because we talk about Vanguard and Fidelity so often,
which would be an excellent choice. But then you're going
(10:35):
to be with one of the low cost grates and
a much bigger chunk of your investment dollars are working
for you, and they're not going to pay someone who's
actually doing something that you could actually do for yourself,
especially at this point in the game. Like you said,
in this wealth building stage of personal finance for you,
there's not a whole lot of complexity in it. It
makes me think of what Paul Merriman said when he
joined us a while back on the show. He said
(10:57):
that it takes the average person forty hours to learn
how to invent with confidence, and I think that's about right.
I mean, I think if you're just starting out, maybe
you feel like you need someone to hold your hand
and show you how and to basically make some of
those decisions for you. But I would say for most folks,
just a little bit of effort to understand what to
do and why they're doing it is going to save
(11:17):
them boohoos of dollars down the road, and it's worth
the time. Considering how much time those dollars have to
compound on your behalf. I think that's where you're paying
the advisor.
Speaker 2 (11:25):
That's the biggest thing too, the fact that he's so young,
and all of those fees that he's going to be
paying over time are going to.
Speaker 3 (11:31):
Just add up.
Speaker 2 (11:32):
They're going to compound. And here today it doesn't seem
like a big deal, but especially over the years, and
so some people might say.
Speaker 1 (11:38):
Oh, Matt Joel, does this mean that you guys are
completely against hiring a financial advisor. Ever, No, the answer
is no to that. I mean, I think that can
make sense for some folks, depending on kind of your
specific financial situation, the kind of questions you're dealing with,
the kind of tax scenarios you might have in front
of you, and what sort of retirement you're planning for.
(11:58):
Like XY Planning, network Work and NAPFA, those can be
great places to turn if you're looking to establish an
ongoing fiduciary relationship to get that expert advice especially as
your network grows, right and those decisions become more complicated,
I think you might want some help from somebody who
has a lot of expertise. But for most folks Matt
and a lot of folks who listen to Hot of Money,
(12:19):
including Peter, it can become an impediment to what you're
trying to achieve because of how much it costs, especially
in those early years and every dollar you're able to
stock away in those early years. Like, once you get
past a certain level of complexity, you might need additional help,
But right now we're in kind of the the one
oh one section of investing. Right Maybe maybe once you
get a mosy on down the line of three oh
one or four oh one, you might want to be
(12:39):
able to talk to somebody, But in those beginning years,
it's all about how many dollars can you set aside
in those tax advantaged accounts in low cost diversified funds.
Speaker 3 (12:48):
Totally. Yeah, And you mentioned xy Planning Network and nap fab.
Speaker 2 (12:50):
Newer models actually make it easier to get advice or
ask questions for a low hourly rate.
Speaker 3 (12:55):
And so if you are looking for.
Speaker 2 (12:57):
Just a really quick check in, then head of over
to a site like Hello Nectarine, and I'm sure what
they're charging is going to be a far cry from
what you are currently paying with your advisory. And then
if you build a massive chunk of wealth and things
do get complicated with your finances down the road, at
that point, I think it would certainly make sense to
bring this person back on board and hopefully they're somebody
(13:19):
who's still around and not even like checking in with
them like once, like every few years, every five years
or something like that. I think that would be a
much better move than having a money man, like having
a guy that handles all of your investments for you.
And by the way, I'd be curious to know which
fund is your advisor puts you in, because, like, it
might not just be their fee that you're paying, it
(13:39):
could also be higher fund fees where there's a load
and you are paying much more in expenses than what
you would get, say over at Vanguard or Fidelity.
Speaker 1 (13:48):
Then you're getting hit on multiple fronts. Yeah, far more
expensive than even you think it is, because maybe some
of those fees are a little opake and you don't
even really know how much you're being charged. So how
do you break up? If you agree with us, and
you don't think that maybe having a relationship with advisor
in perpetuity is going to be the best thing for
you and your ability to build wealth. We've got an
(14:08):
article up on the site with helpful scripts, like we
literally script some of these things out so you can
know how to approach your advisor in hopefully a comfortable way.
I guess basically, I would say it's starting with a
simple email outlining your growing confidence and your desire to
self manage your assets. I would say it's more of
a it's me, not you approach that the breakup. It's
not because you suck. It's because I'm feeling confident, I'm
(14:30):
growing in my skills and this is something I want
to diy because I think I can rock it. So yeah,
that's the first thing, and then I would request any
important documents and then contact Vanguard or Fidelity or whoever
it is that you want to migrate your accounts over
to get the ball moving and have them help you out.
The formula typically need to fill out is called an ACAT,
an Automated Customer Account Transfer form. This should make it
(14:53):
clean and easy, no need to sell assets and rebuy.
You're really just transferring those assets from one custodian to another.
So it's really not as hard as it might seem.
I know the emotional component can be tough for some folks,
like but I've known them for so long. But in
your case, this is a relatively new relationship. It's not
like they came to your kid's high school graduation or
(15:14):
something like that.
Speaker 2 (15:15):
So and either way, even if this had been somebody
who you'd known for that long, Peter like, I feel
like that's the other part of it, Like, you can
give reasons, but you can also just say sorry, I
no longer want to do business with you, because guess what,
it's your money. Also, we're talking a whole lot about
Vanguard don't sleep on Robinhood. We've talked about their ability
to provide a match, which no other investment brokerage is
(15:37):
doing out there. So the ability to pay what fifty
dollars a year you're paying for that gold membership, but hey,
there's also this ongoing match and if you are dedicated
to investing within your roth ira, you're gonna more than
make up.
Speaker 3 (15:50):
For that as you allow your funds to grow over
the years.
Speaker 1 (15:53):
Just read the fine print first, because there are some
details on there that are you gotta know about it.
Speaker 2 (15:57):
But overall, Peter, it sounds like you're doing great And
I know it might seem daunting, but you are. You're
doing an awesome job in this move is going to
help you to build an even bigger pile of wealth
for the future. Just yeah, keep learning, keep it simple.
You got this, man. But Joe, we've got more to
get to, including we're gonna hear from a listener who's
looking to make the most of his home what it
is that he can deduct against his taxes. We'll get
(16:18):
to that more right after this.
Speaker 1 (16:27):
All right, Matt, we're back, and before we get to
overblown tax parks, let's get to a question about kind
of a tried and true rule of personal finance and
withdrawal rates.
Speaker 4 (16:36):
Hey, Matt and Joel, this is Eric from Evanston, Illinois.
I got a quick question for you all about the
four percent rule. It assumes you're making a seven percent
return four percent you get to spend three percent for inflation,
which is totally fine. Right now, my wife and I
are forty and almost all of our investment dollars are
in stocks. But in retirement, when we're assuming to be
(17:00):
more like a thirty seventy split or a sixty forty split,
you know, mostly stocks, but some bonds. What would our
returns most likely be at that point? So, say, if
we're getting a five or six percent return, three percent
goes to inflation, does that mean we only can account
for you know, two three four percent maybe withdrawal. So yeah,
(17:22):
that's the question I had, just trying to, you know,
kind of hammer that out. Side note, I know y'all
are more into the VU which we have a lot of,
but Jeremy from Personal Finance Club loves the target date funds.
One thing he suggested that we're doing is we're looking
to retire around twenty forty five, but we are using
(17:45):
a twenty fifty five target date fund to keep the
stock to bond ratio higher in the early part of retirement.
Just thought that was a fun idea. Hope y'all have
a great day, and thanks for the show.
Speaker 3 (17:58):
Keep it up.
Speaker 2 (17:58):
Eric, We appreciate you setting us a question, and let's
start off by talking about that target date fund hack.
And I'm pretty sure we've talked about this before. I
think it's been a while. I recall doing this with
my wife a while ago. But this is a solid
option choosing a target date fund that's further off into
the future than when you are looking to retire. Generally speaking,
(18:19):
one of the biggest problems we have with target date
funds is that they are typically two conservative for folks
at the beginning of their investing journey. Oftentimes they're more
heavily invested in bonds and we like to see more stocks.
Speaker 1 (18:33):
And that's like, oh, this is a way essentially to
rectify that with just a click of your mouth. Yeah.
Speaker 2 (18:38):
Yeah, So basically, a target date fund, like if you
are in your twenties, if you are in that wealth
building phase of your life, like we just talked about
with Peter, I think if that's you going with a
one hundred percent equity route like that would typically be better.
Speaker 3 (18:50):
But then as you get closer.
Speaker 2 (18:51):
To the wealth preservation phase of life, that's when a
target date fund I think can make a whole lot
of sense. And opting for a less conservative target date
fund by picking one that's further out, that's likely a
way for you to be able to have your cake
and eat it too. And this is of course assuming
that the target date fund the funds that you're looking
at that they all have lower costs, lower expense ratios
(19:14):
associated with them, because oftentimes it's difficult now that Fidelity
rolled out the totally free index funds, and so bytn't mind.
Anything that's over like point zero three percent to me
feels even point one two feels agreed to. That to
me almost feels like that the top end of what
I'm willing to pay, because beyond that it's just like,
well what am I what am I paying for?
Speaker 1 (19:31):
Yeah?
Speaker 2 (19:32):
And but oftentimes you can find some of these target
date funds that are at point five percent or less.
You want to avoid the ones that are closer to
one percent for sure, because then you go back to
the same problem that we talked about with Peter in
the last question, where you are losing a lot of
your potential earnings to expenses.
Speaker 1 (19:47):
And we've talked about this before, how any fund you
can imagine has variations depending on who's serving that fund
up whose fund it is. We've talked about how some
s and P five hundred funds are charging like twenty
x a really really low cost s and P five
hundred fund is charging. The same is true with target
date funds. So if you're with the target date fund
in Vanguard, the low cost one, great, But if you're
(20:08):
with maybe like an insurance company, you might be getting
charged a heck of a lot more than you and suspected.
It makes me think of even at Fidelity, Matt. Fidelity
has two different kinds of target date funds. One is
really really cheap, the other is really really expensive, and
so you have to even be careful inside of that
brokerage to choose the right low cost one. I choose
the right products, yes, But I think you're right. I
think this is a reasonable hack to just be a
(20:30):
little more generous with that retirement age, push it off
a little bit further, and then you're going to have
a slightly riskier version of a target date fund, a
more stock intensive version of a target date fund for longer,
which is likely going to be to your benefit, because,
let's be honest, even in those retirement years, you need
a decent amount of stock exposure, and eric most advice
doesn't allow folks much wiggle room with the target date fund.
(20:51):
It's kind of it's supposed to be a set it
and forget it vehicle. But I think these kinds of
ways of thinking about it can help increase your returns
and just ensure that you're more properly invested at the
right time of your life. And like, it makes me
think again, missioning Paul Merriman again on this episode, he
suggests having most of your investment dollars in a target
date fund, but also having a portion in a small
(21:13):
cap value fund, and that gives you added diversity and
the potential for higher overall returns, at least based on
historical returns, which he mapped out quite well in that episode,
episode seven thirty four. Basically, some people do use them incorrectly.
They own like ten funds. A target date fund is
just one of them. That doesn't make much sense, But
it also doesn't have to be the only thing you own.
(21:33):
And taking the Personal Finance Club approach that Jeremy kind
of spits out, I think makes a lot of sense
to us.
Speaker 2 (21:39):
Yeah, So let's talk about the four percent rule, because
the last time we brought this up, we had to
talk some smack about Dave Ramsey's take on it. Instead
of advocating for withdrawing a safe, reasonable four percent, he
was saying eight percent is what you shouldn't really be
considering frightening. But the four percent rule is important to
know because it dictates fairly reliably what you can take
from your retirement counts without running out of money during retirement.
(22:03):
Front of the show Allison Schreeger, she wrote about the
problem of trying to figure out how much you can spend.
She wrote about this fairly eloquently over in Bloomberg recently.
But the bottom line, nobody is actually doing a great
job solving this problem because annuities try, but they're expensive
as all get out. The four percent rule that helps,
but because of market moves, because of volatility in the market,
(22:24):
it's also not perfect. It's not a guaranteed. You're just
not promised to be able to have that money last
for thirty or thirty plus years. And then when some
folks are telling you that you can take out a
whole lot more like Dave, well, yeah, that sounds great.
It makes you think that, all right, it's time to
start living life a little bit here. But then it
can lead to big trouble, especially if you live a
really long life, which is I mean, is that not
(22:45):
the goal for most folks to live beyond ninety years old? Perhaps,
And if you're looking at retiring at age sixty, and
I mean, like, do you want to run out of
money at age ninety one?
Speaker 1 (22:54):
And we're talking about sequence of returns risk here too,
because let's say you would draw eight percent in the
first three years of your retirement and we experience a
severe bear market during those times, you're taking out more
and more money from that portfolio that can't grow back,
that can't recover, and so be a part of the
reason an eight percent withdraw rate is so stinking bad
(23:15):
is And whether or not your portfolio survives an eight
percent with draw rate largely depends on what happens with
the market. But if you do it at the wrong time, man,
it can crater your retirement and you could be penniless
really in farless than thirty years. Sure, so, yeah, definitely
not something you want to mess with. So does your
allocation dictate whether the four percent rule works or not?
You kind of were asking about that, Yeah, it kind
(23:37):
of does. I mean, let's say you had all of
your money in cash earning two percent. Granted you wouldn't
be doing that right now, hopefully, and then let's say
you're taking out four percent of your portfolio every single
year you're gonna run out of money much sooner than
if that money was invested. And so when the rule
was devised, it was looking at a balanced portfolio, by
the way, at half stocks and half bonds. The reason
(23:58):
is because you can still get solid returns with greatly
reduced volatility having that half and half match. The four
percent rule was not built on a one hundred percent
stock assumption, so don't think that you have to be
one hundred percent equities in order for the four percent
rule to make sense. Eric, you were mentioning, well, if
we have like a sixty forty portfolio, well that puts
you in perfect company with the four percent role. Right
(24:18):
when you start drawing money from your retirement accounts, the
four percent rule should be more than okay, as the
average return of your particular allocation that you're looking at
over the past thirty years has been eight point four
to two percent. That is, Matt, what a sixty to
forty portfolio has returned for investors, which isn't bad. That's
pretty good, and it, you know, means that a four
percent rule is actually looking a little conservative if that's
(24:40):
your mix.
Speaker 2 (24:41):
Yeah, well, I think another problem too, or maybe a
potential problem that Eric is posing here as he you know,
mentions like so he's talking about having like earning seven
percent right on average in the market, basically gaining seven
percent and then losing seven percent, losing seven percent through
spending or through inflation. But the four percent rule or
what the the study that the four percent rule is
(25:01):
based on, the Trinity study, it's just not that straightforward
as earning seven percent of the market and then spending
down seven percent, because if that were the case, you're
looking at a wash like literally you're not spending down
your money at all. And the Trinity study seeks to
prove that you're gonna not run out of money within
thirty years, and so it's just not quite as straightforward.
And so that's another reason why you can't just look
at market returns as opposed to all the countless what
(25:25):
are they like the Monty Carlo scenarios or just all
the nuances that went into that study. But it is
important to note that the within that study that they
were accounting for a reasonable amount of inflation. So that's good,
you don't it's not like you've got to do an
additional calculation for that. But bottom line, I think what's
worth reiterating here is that the four percent rule, that it's.
Speaker 3 (25:46):
More like a rule of thumb.
Speaker 2 (25:48):
And one of the authors of the Trinity study, who
was the one who coined the four percent rule, he
said that that is a reasonable withdrawal rate for most folks,
and if you take out too little, yeah, there's gonna
be an overwhelming likelihood that you're gonna die with lots
of money left over. It's not the worst thing, but
it's also it's also a good idea to make a
plan to enjoy that money and not necessarily to pass
(26:10):
it on to future generations, unless that's just a massively
important goal of yours. I think for most folks a
reasonable goal would be to spend most of their money
while they're living. But at the same time, the eight
percent Dave Ramsey approach, that recommendation is a terrible idea,
too risky. Yeah, but Eric mentioned like two to three percent,
which I think personally would be pretty pretty low. Basically right, like,
(26:33):
it's gonna ensure demoralizing.
Speaker 1 (26:34):
It makes you feel like you probably have to work
longer than you actually do, makes you have to save
up a larger nest egg than you actually need.
Speaker 2 (26:39):
And it feels like it's based out of fear as
opposed to like, well, like what do the numbers actually show?
And that would ensure that you never run out of money,
but it would also just be too cautious. So for you, Eric,
I think a four to five percent withdrawal rate it
makes sense for forty five.
Speaker 1 (26:52):
That's what Matt's going with.
Speaker 2 (26:53):
Okay, wow, four to two five, Okay, it's gonna make
sense for most.
Speaker 1 (26:56):
It's gonna say, Man, you're making Dave Ramsey look like
a geek.
Speaker 3 (26:59):
Yeah.
Speaker 6 (27:00):
Well.
Speaker 2 (27:00):
The other thing, too, is Eric, how much flexibility that
you have? And honestly, the older I get, the less
word I am about retirement because I'm just thinking about
some of the different ways that I can be flexible
when I am a quote unquote entering into my retirement
years and whether that's okay, oh, maybe we're not going
to take as much money out of the market to
reduce that sequence of returns risk. Oh okay, well, Marcus
(27:21):
not doing so great. Maybe I'll just pick up a
part time job or some money on the side, just
other ways to be creative when it comes to your finances,
especially too.
Speaker 3 (27:28):
Just as I don't know I.
Speaker 2 (27:29):
Think Joe, both of our opinions. It's not that we've
completely changed our minds.
Speaker 3 (27:34):
Of our view of work.
Speaker 2 (27:36):
But the older I get, the more I realize that
I mean, I mean, I'd be doing exactly or what
I'm doing now, or working nearly as many hours as
I am now. But there's a good chance I'm going
to do something I.
Speaker 1 (27:45):
See Walmart greater in your future.
Speaker 2 (27:46):
Hey, or we talked about this, like pulling shots at
the local coffee shop or or working at a gym.
Just something that aligns with however it is that you
want to spend your time in some of those later
years and guess what they will reward you for that
time that you spend and that business with a paycheck.
Speaker 1 (28:02):
Yeah, I know. I think that the flexibility thing is key,
And I think if Eric wanted to be as conservative
as possible, guess what a zero percent withdrawal rate means.
Your porfolio can keep growing and you never need to
spend that money. But I think when you say two percent,
like you're almost thinking along those same lines, and you
have to be willing to spend the money that you've accrued.
Although I know it's kind of it's a muscle that
you've never had to develop, and you have to kind
(28:23):
of learn how to be cool with that. But you
also have to learn to be flexible at the same
time and willing to reduce that maybe in a down
year by just a little bit, and then guess what,
in a fat year you might have be able to
increase that a little bit too. So that flexibility is
kind of, I think a hard thing to come to
grips with because it's not some set in stone four
percent no matter what. But I think it's the best
way to approach it. Kind of like you were talking about.
Speaker 2 (28:44):
Bottom line, there's not any sort of guarantee, and folks
are willing to pay a lot of money for those guarantees.
And even those guarantees aren't necessarily guaranteed unless you're willing
to pay tremendously out the nose and fees.
Speaker 1 (28:54):
Is there a Tommy Boy clip about guarantees? There's got
to be oh guarantee by taking the car parts. Yeah,
but Eric, we appreciate.
Speaker 3 (29:04):
Your question, Jill.
Speaker 2 (29:04):
Let's get to a listener who has a clarifying question
about the standard deduction.
Speaker 6 (29:10):
Hi, met Joel, this is Damon from Utah. I've been
a listener. Since The Poor Not Poor Days, A lot
of your device is spot on and you deliver it well.
One thing I struggle and understand is how owning a
home is a tax advantage. Since the twenty seventeen tax
cuts significantly raised the standard deduction, the right offs of
my house have not been high enough to allow me
to itemize. Therefore, whether I own a rent the right
(29:33):
off is the same. My CPA and I were talking
about this last night and she said she hasn't seen
an advantage in the last two to three years. Do
the two of you have some insight on how it
is a tax advantage. Just for a little insight, I
own a primary and a rental, and in the last
few years, with expense right offs for my rentals and
(29:54):
then the standard right offs for my primary, I've still
taken the standard deduction I would say for the last
three to four years. Thanks for your insight. I'd look
forward to your response.
Speaker 1 (30:08):
Damon massive, Thanks man for listening for as long as
you have the Yeah, there are probably some people listening
who are like The Poor Not Poor Days. What are
you talking about? We used to actually started this podcast
with a different name, Poor not Poor, And because we
drink beer. Poor a beer, don't be poor, right, that
was the reason behind it. We changed it to how
the money. It's a little easy to understand them. Yeah,
but if you've been listening that long, you're an OG listener.
(30:30):
So damon, thank you for that. And you raise a
great question here. So many folks think that owning their
home is this tax have and it's a bashion of savings.
That is one of the reasons people get pushed into
buying a home is because wait, to think there are
all these other things that are going to save me money.
Renting is just throwing away money, and there's so it's
just this cultivate home ownership that we've bought into as
a country here in the United States. But alas, so
(30:52):
many of the things that we say about owning homes
are wrong or maybe they have some basis in reality
that just doesn't pan out for most folks, right, And
some people in the real estate industry will hold this
out as another reason to buy a primary residence. Basically,
buy the house because there are tax perks that you're
not factoring in, and if you did, you'd realize that
it was no brainer, right, And so they artificially inflate
(31:14):
the potential tax savings. It's false advertising, and you're letting
the tail wag the dog. And so you are right
in this conversation with your CPA that this isn't a
benefit you're seeing, and so like the fact that you've
heard so much about it. It's kind of mind boggling, really,
it's true.
Speaker 2 (31:29):
Yeah, And this is coming from Damon, and he owns
two properties, right. They come with extra mortgage interests, they
come with extra property taxes. Even Damon isn't seeing any.
Speaker 3 (31:38):
Tax relief here.
Speaker 2 (31:39):
And the truth is, only about eight percent of folks
get a mortgage interest deduction these days. And it's largely
a perk that wealthy Americans are able to snag. And
the main reason is because of the more generous standard
deduction because it jumps so much under the Tax Cuts
and Jobs Act, You've got to typically pay a lot
of interest. And in addition to that, you need to
be giving way a substantial chunk of money to nonprofits
(32:02):
in order to be itemizing your deductions and coming out ahead.
Speaker 3 (32:05):
The average couple.
Speaker 2 (32:06):
They're just not going to have more than twenty nine
two hundred dollars in deductions and it makes that mortgage
interest deduction inconsequential.
Speaker 1 (32:14):
Honestly, Felko, It's in the tax code, but sorry, almost
nobody gets to utilize it. But we still talk about
it like everybody is utilizing it, or that most people
have access to this deduction, and even still like I
wouldn't let the even if I did qualify for the
mortgage interest deduction. It's not the reason to buy a home.
It is this tiny little bitty cherry on top if
you qualify, but again, most people don't.
Speaker 2 (32:35):
So honestly feels it just feels like a holdover from
the number of years leading up to twenty seventeen. It's
a narrative that continues even though the facts of the
ground have changed.
Speaker 1 (32:44):
That's exactly right.
Speaker 3 (32:45):
Yeah.
Speaker 1 (32:45):
One thing you can do, potentially, by the way, damon
this specifically for you and for other people out there,
to snag the mortgage interest tax deduction maybe in at
least some years, is to batch your giving. We've talked
about this on giving episodes before. We've talked about this.
We talk about donor and advised funds.
Speaker 3 (33:00):
That's right.
Speaker 1 (33:01):
Well, let's say you typically give away something like fourteen
grand each year. I don't know that might be a lot,
might be a little compared to depending on who you are.
What if you gave away twenty eight thousand dollars and
one lump sum, let's say in December of one year,
and zero dollars the next year, you're still still giving
away the equivalent of fourteen thousand bucks in each year,
but you're just doing it in one defined calendar period instead. Well,
(33:21):
it's easier said than done because it involves saving and planning.
But that way, you're still giving away the amount you
intended to. And in the year that you give away
the twenty eight grand, your mortgage interest and then your
property taxes would put you over the top, allowing you
to idomize in that given year. See a bigger tax
break in that year. Then you take the standard deduction
again the following year when you give it away next
(33:41):
to nothing. Right, it's a hypothetical scenario, but these are
the kinds of levers that some folks are pulling. Given
kind of the way the tax code is currently written,
it benefits some of that bunching of donations in order
to give yourself the biggest tax break.
Speaker 3 (33:56):
Totally.
Speaker 2 (33:56):
Yeah, and this is where donors advised funds I think
solve this, Like when we had the founder of Daffy on,
I feel like that's the best argument to be made
is the fact that oftentimes when you have a lot
of money like this, there is a disconnect between the
money that you have on hand that you want to
give away versus the organizations and the need that they
(34:16):
have in the moment. Right, So it's like basically they're
what do you call it, like they supplying the demand
of your charitable giving is asynchronous to some of the
organizations that you want to give to, which is why
the ability to put money within a donor advice fund
and have it sit there.
Speaker 3 (34:29):
Yes, you get the tax BIK for the year that
you make that.
Speaker 2 (34:31):
Contribution, but then you don't have to give that money
away until later the next year or years down the road,
even yeah, even after it's it's sat there and actually grown.
Speaker 1 (34:40):
Can release the funds in a steady stream if you want, yeah, yeah,
which means like, yeah, you're right, it doesn't have to
hit the accounts of your favorite charities.
Speaker 2 (34:45):
And the moment you don't, you don't have to decide, okay,
well twenty eight thousand dollars, Well, like that's a big
decision who am I going to give that money to.
We don't have to decide all at once. That's something
that you can figure out over time. And then by
itemizing well, your state, your local taxes, including property taxes,
they can be included in those itemized deductions as well,
up to a max of ten thousand dollars, And so
(35:06):
that might be a way to with your charitable giving,
have that kind of push you over the top. If
you've got higher medical or dental bills as well, that's
something that you can you can deduct. So currently I
think current years it's if it's over seven point five
percent of your adjusted gross income, but it's actually better. So,
like I know, when we had our first daughter, it
was something like ten percent, and so the threshold of
(35:28):
what qualifies as an itemized medical deduction that you can
take has actually gone down, so there's more that you
can actually itemize.
Speaker 1 (35:35):
This is why I'm opting to get a lot of
cosmetic work done this day as you consider it brand
new nos coming your way.
Speaker 2 (35:39):
Bottom line, I mean that the nice thing about the
higher standard deduction though, is that it saves a lot
of folks time. It saves them hassle when they're filing
their taxes. But folks who are on that edge, folks
who you know could come close to itemizing, they can
likely find some different ways to itemize in certain years,
mind shifting and moving things around like that where they're
able to optimize their tax bill. But still the mortgage
interest tax deduction, it's massively overblown. And so if you
(36:03):
hear someone out there talking about it a lot, especially
if they're in the real estate field, especially if they're
an agent or a lender, this check and see if
it would actually make a difference in your situation, because
I think unless you are giving away a substantial amount
of money, then I think the chances are that it
likely wouldn't do a whole lot for.
Speaker 3 (36:23):
You in your tax situation.
Speaker 1 (36:25):
This still resides on all of our collective consciousness because
of all those years where it did make a difference,
and even then it was overblown. It was like, buy
a home because you'll get the tax deduction, and it's like, well,
you don't buy it, kind of like we've talked about
with small businesses, Matt buying items you just because you
can just write it off exactly, and it's like, well,
you still pay for the thing, and you might get
(36:46):
some tax savings on the back end. But it doesn't
mean that you buy all those things just for the
tax break, because you're probably running an inefficient business and
you don't want to go in too hard in that direction.
All right, We've got more to get to on this episode,
including like how much should you be investing what percentage
of your income? We'll tackle that question right after this.
Speaker 2 (37:12):
All right, man, we are back from the break and
we've got our Facebook question of the week, and this
one is from an anonymous poster who writes and needs
some thoughts on investing percentage. My husband and I are forty.
He brings home the majority of our money and would
like to retire at sixty five. We were not able
to invest much until the past few years. Our investments
sit at one hundred and seventy eight thousand. He started
(37:35):
a new job which brings home about one hundred and
twenty thousand a year, and we'll soon receive a raise
of twenty three percent based on union negotiations. Is investing
twenty five percent of his pay too much? Our fixed
costs are around one hundred and sixty dollars a month.
We are saving for a new computer, vehicles renovations, so
that totals three hundred and twenty five dollars a month.
(37:56):
Discretionary spending is nine hundred and sixty dollars a month,
in donations are at six hundred and twenty dollars a month.
We have no debt besides a thirty year mortgage at
two point seventy five percent interest. First thing, right out
of the gate, Hang on to that mortgage as long
as humanly possible, the anonymous poster, because that.
Speaker 3 (38:14):
Yeah, you can't beat that, My.
Speaker 1 (38:16):
Goddess humble bragging the game right now, two seven five.
It's bragging about your low interest rate mortgage. And if
you're in the twos, you make everybody yeh a thirty
year yeah, Like.
Speaker 3 (38:23):
That's that's the other part here.
Speaker 2 (38:24):
It's not like they needed to jump to a fifteen
years sorder to get to that two percent.
Speaker 1 (38:28):
Just don't tell someone who's trying to buy their first
house right now. They'll punch in the face. It's so
frustrating to hear that. I know for people who bought
five six years ago, and it's like, yeah, my home
equity has doubled since I bought it, and guess what
I got this locked in low mortgage rate and people
who are like I would like to buy a home.
I'm so mad that I wasn't like at proper home
buying age back then at that point in time.
Speaker 2 (38:50):
Makes it makes it difficult, It does, okay, But what
do you think twenty five percent of his overall paycheck?
Speaker 3 (38:55):
Is that too much or too little?
Speaker 1 (38:56):
That okay? So my knee jerk reaction is like, no way,
is that too much? But I also don't necessarily want
to you'd say that, but I also don't want to say, oh,
you should really be doing a whole lot more than that,
and you should all because like the truth is, you
don't always need to be aiming higher. You don't always
need to be trying to save and invest a much
larger chunk of your income if you're already crushing it, right,
And so this anonymous poster, Matt, has clearly been a
(39:20):
diligent investor over those past few years. They said they've
just been investing for a few years, but they've got
almost two hundred K, which is pretty impressive. That's amazing
for a couple of years. Yes, that means that they've
been like Max and everything out invest in investing wisely,
and the market has done well for them in those
years as well. And so you've still got twenty five
more years that you'll be able to invest with the
goal of retiring at sixty five. I would say that
(39:41):
with the known quantity of this raise coming soon, being
able to up your investing game funneling a higher percentage
into your retirement accounts is awesome. Like twenty five percent,
in my mind is is a great goal for most
people to have. We usually set fifteen percent as kind
of the floor of what you should be trying to
go for. If you're in twenty five, that means you've
made some more frugal decisions in your life and you've
been able to increase your pay and guess what, why
(40:03):
not invest even more than money, especially because Matt they
started later. I mean, our first listener of the day
is twenty four starting them. And if you just say
fifteen percent your whole life when you started twenty four,
you'll be just fine. But if you start, you know,
in your late thirties, you might want to say closer
to twenty five percent to be able to get where
you want to go.
Speaker 2 (40:20):
All right, Yeah, so this is where the details matter.
And so I just realized too, we didn't when we
were talking about the four percent rule. We should have
talked about the twenty five x rule, the twenty five
times your annual expenses rule, because for me, like the
four percent rule can get confusing because it's just like, well,
four percent of what and don't there's just a whole
lot of variables. And then folks are like, well, maybe
it's three point five, or oh, you could do five
(40:41):
point five or as I love the clarity that you
get with twenty five times your expenses and.
Speaker 1 (40:45):
It's a simple way to understand.
Speaker 2 (40:46):
Yeah, And so what's great about this poster is that
they have all their expenses listed out, and if you
follow the rule of twenty five, you add up all
of their annual expenses, you take that number and you
multiply it by twenty five. Well, that spits out two
point one something million dollars that this individual needs by.
Speaker 3 (41:05):
The time they hit retirement.
Speaker 2 (41:06):
And it seems like that that's an incredibly large amount
of money. It is that being said, you already have
one hundred and seventy eight thousand dollars, and so if
you assume that you're going to earn eight percent returns
in the market were you to invest twenty five percent
of your current salary, this isn't even accounting for this
twenty three percent raise. You're looking at at least investing
(41:28):
twenty five hundred dollars a month, which if were you
to do that, you're going to end up way way
beyond that two point one. So I ran the numbers,
and technically, if you're looking to land around the two
point one million dollar mark, you're only looking at investing
eleven hundred dollars a month, which is less than half
of twenty five percent of your of his current income,
(41:50):
and that doesn't even account for this raise that he's
looking at.
Speaker 3 (41:52):
Getting as well.
Speaker 2 (41:53):
And so I guess what I'm highlighting here is that
when you crunch the numbers and look at and again
this is there's a few assumptions here. Assuming that you're
you know that you are going to see eight percent returns,
and the S and P has averaged over the since
like the fifties, over ten percent, and so this accounts
for a degree of inflation. Of course, assuming the Fed's
able to get that down closer to two percent, perhaps
(42:16):
well we'll see whether or not that happens.
Speaker 1 (42:17):
Good luck, guys.
Speaker 2 (42:19):
But all that to say, the reason I'm taking this
approach is because I want to relieve some pressure from
this listener to feel like that they have to invest
twenty five percent or even more of their overall salary
because they're thinking, man, gosh, I haven't. We haven't been
investing at all. But because of the massive amounts of
money that they would be able to invest for the future,
(42:40):
that just puts some like head and shoulders above other
folks who might be in a similar situation. And so
I present this information to relieve a little bit of
pressure because man, you're talking about saving up for like
a new vehicle. Okay, maybe you spend an extra five
thousand dollars on that vehicle, and maybe that's, yes, that
enlarges that savings budget every single month of the at
that you have to set aside. But what I'm pointing
(43:02):
out here is that it's okay because you are most
likely going to have enough. And that doesn't even account
for some like additional streams of income as well, right,
Like we're not even talking about Social Security as well.
Speaker 1 (43:11):
That's true, okay, And what it made me think, Matt,
somebody in the Facebook group responded to this poster and
they said, I don't know that I've ever heard anyone
regret investing too much, and to a certain extent, I
kind of agree with that. But then on the other
flip side, when you talk about the regrets of the dying,
what are the typical regrets of the dying?
Speaker 3 (43:27):
That's what I'm thinking.
Speaker 1 (43:28):
It's like, oh, I didn't spend enough time with my
friends or family. Oh I didn't spend enough time like
doing volunteer work in the organizations in my community that
I cared about, because guess what, I was so focused
on work income investing. And that's also the like exception
that's like not the normal American. But this poster doesn't
sound like the normal American anyway. They sound like they're
being pretty thoughtful about what they invest and how they
(43:50):
think about the financial future. So you have to also
be thoughtful about today. And so it's not that most
people say, oh, man, I'm really bummed I invested too
much and I've got three million dollars in my retirement account.
But what did it take to get there?
Speaker 3 (44:02):
What sacrifices will you have made in order to have
that nest egg?
Speaker 1 (44:05):
And so for some people at least it requires such
a sacrifice that they're not mad about how much money
they've been able to accrue, but they do have regrets
about the things that they had to sacrifice in order
to get to that point. And I do think it
is worth pointing out to be cautious, to be careful,
and to be thoughtful about, well, cool, do I have
to take on more responsibilities at work? Do I have
to like maybe work more hours. Do I have to
be away from my home? Do I have to be
(44:26):
traveling more for my job in order to earn this
increase salary? Like what is it taking to get there?
And are those trade offs worth it? And for everybody's
going to have like a different answer on that, but
I guess it is just worth in a similar vein
Matt kind of pushing back, like you are saying, well,
what does it take to get to that point? And
do you actually need that much? And it doesn't mean
that you should take your investments from twenty percent down
(44:48):
to zero, but it also it also means that hey,
maybe you don't need to like continue to ramp things
up in definitely either totally.
Speaker 2 (44:55):
Yeah, this is again why I love the clarity of
the twenty five x RO which is based on the
four per rule. But this also assumes that your expenses
are looking at staying the same as well, because guess
what if there are some fancier things that you want
to do off in the future because maybe you have
sacrificed in the meantime.
Speaker 3 (45:11):
Oh really, as I think about retirement, I do.
Speaker 2 (45:14):
Envision us taking more vacations, maybe eating nicer cuts of meat, Joel,
I know that's something that that's been on your mind
reason or just.
Speaker 1 (45:20):
The reality of inflation that things are going to cost
more us no matter what you do in your life.
Speaker 2 (45:24):
And so with that in mind, I could see where
you're like, Okay, well maybe we don't maybe we don't
need to invest that full twenty five percent. But again, yeah,
based on the numbers that this poster left us with,
I mean you are looking at something closer to eleven hundred,
which just frees up money in the meantime to be
able to live your life in the here now and
not just bank on those future years where you're thinking, oh,
(45:46):
one day, at some point, I'll take that nicer vacation. Now, well,
there are ways you can start integrating that into your
life now, which I think is even that's just a healthier.
Speaker 3 (45:54):
Way to approach life too.
Speaker 2 (45:55):
Right where you are, it's just a more gradual, healthy
transition into those retirement years as opposed to there being
sort of like this hard switch, right, like this hard
cut off where it feels like all of a sudden
you have to completely change. How does that you view
money and how you how you view your time?
Speaker 1 (46:12):
Yeah, finding that balance, finding that happy medium never easy.
That's not always what you and I are trying to
achieve on you know, in our lives, and that's what
we want listeners of out of money to be doing
at the same time. That's why I mean, if this
anonymous poster to come in and said we're thinking about
trying to ramp up like sixty to seventy percent savings rate,
throwing all that money in investments, we would be like
that sounds that's yeah, pretty intense. And unless you're the
(46:35):
kind of person who's like, sorry, it's fire or die
for me. I want to retire at forty four and
not look back and never have to work again. Well,
if that's your goal, like, who am I to tell
you that that's a bad goal? But that's not really
our approach on this show. And so what we want
you to do is live an awesome life in the
here and now, spending money in ways that move the
happiness meter for you in a meaningful way, cutting back
in ways that don't, and investing a decent chunk of
(46:56):
your income so you don't have to have financial worries
in the future. But it's possible to overdo it on
any one of those fronts, and we're all kind of
like that pendulum swing and trying to find the center,
and it's it's hard to find it exactly.
Speaker 2 (47:07):
Yeah, it's important to keep your craft beer equivalent in mind.
He's got to keep that forefront because it helps to
remind you what it is that you're saving up for
off in the future, what you're also enjoying in the
here and now.
Speaker 3 (47:17):
And Jel, that's literally what you and I have.
Speaker 2 (47:19):
Been doing during this episode as you and I have
been enjoying a memory farm by Inner Voice Brewing.
Speaker 3 (47:24):
What are your thoughts you've.
Speaker 1 (47:25):
Had this beer before they're at the brewery before, right, Yeah, Yeah,
it's like probably it's top three Atlanta breweries now for sure,
it's so.
Speaker 2 (47:31):
Good, so good, like the combination not only of amazing beer,
but the fact that they have that collab there with
I think some of the best pizza. I mean literally,
I think be the best pizza place in all of
Atlanta indicators not they are their own city, but it's yeah,
it's within reach of Atlanta exactly.
Speaker 1 (47:46):
So this one, in particular was I thought, soft and juicy,
zero harsh vibes. I think usually when you're getting an ipa,
at least there's some of that like bitterness. There was
like no bitterness in this one at all. It was
only the juice. But it also wasn't like overly potent
and in your face. This was like a nice, reserved, juicy,
hazy ip So I liked it.
Speaker 2 (48:05):
It didn't have like that like the West Coast bitterness
like you're talking about, but it did have that bite
hop in my opinion, Like, I don't know how else
to describe it except that I can just there's a
difference between the bitterness that you get from Hops versus
the flavor bite that you get from from Hops. I
don't I don't know how to necessarily distinguish between the two,
but I don't know there's a difference there where it
(48:26):
feels like a flavor attack on my tongue versus sort
of like this chemical attack, which is what the bitterness,
That's what I think of like when I like when
I enjoy the West Coast, ipa, the West Coast.
Speaker 1 (48:36):
Usually tastes more piny, bitter, resiny, and this is, yeah,
just more vegetable.
Speaker 2 (48:42):
I feel like this is a perfect example of a
New England hazy and so glad that we've got one
here locally that we get to enjoy.
Speaker 1 (48:48):
For sure, this is a good one, and thanks for
picking it up at the brewery. By the way. Oh sure,
all right, that's gonna do it for this episode. If
you have a money question of your own that you
want Matt and I to tackle on an upcoming episode,
please do record it, send it our way. We'd love
to take it, and Matt, that's going to do it
for this one. Until next time, Best Friends Out, Best
Friends Out.
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