Q&A: She Has $884K Saved — So Why Can't She Retire?

Summary

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Podcast Summary

Afford Anything | Make Smart Money Choices

Host: Paula Pant (with co-host Joe Salsihai)
Episode: Q&A: She Has $884K Saved — So Why Can't She Retire?
Date: June 23, 2026

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Overview

This episode centers around an in-depth case study: a listener (“Mia,” an anonymous 50-year-old single woman) who’s saved $884,000 and wonders why early retirement still feels out of reach. Paula and Joe walk through her detailed financial picture—including accounts, debts, expenses, goals, and challenges (including health and care for her aging mother)—and share frameworks for analyzing complex financial lives. The discussion covers investment account strategy, risk management, asset allocation, and the psychological side of money. The episode concludes with a sidebar about the risks and realities of purchasing property in an HOA, prompted by another listener’s story.

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Key Discussion Points & Insights

1. Introducing the Case Study: “Mia”

• Mia, age 50, has faced career changes and health issues.
• She’s prepping for surgery, plans to take time off, and is reevaluating her finances—including plans for early retirement.
• Complex situation: juggling her own health, investment accounts, family obligations (caring for her 77-year-old mother), home repairs, and planning for emergencies.

Notable Quote
"She has her own health to worry about. She has an aging parent … She has all these things, and then she has all these wonderful savings toward these things. But putting this all together, it initially looks like a mess. … This is just life, right?" – Joe Salsihai ([05:15])

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2. The “Four Cornerstones” Framework for Organizing Finances

(Timestamps: [05:53]–[21:51])

Joe and Paula use this visual quadrant system to organize Mia’s complex financial life.
The quadrants:

• Upper Left: Day-to-day living—Income, expenses, debt, emergency fund.
• Upper Right: Risk management—Insurance (health, disability, life, home, auto), estate plan.
• Lower Left: Short-term goals—Less than 7–8 years out (house repairs, caregiving).
• Lower Right: Long-term goals—Retirement funds, investments, FIRE (Financial Independence, Retire Early).

Listener Tip:
Downloadable worksheet at affordanything.com/cornerstone.

How Mia’s Situation Fits:

• Mia’s income: $119,184/year; expenses: $80,000–$101,100/year.
• Debts: Low-interest mortgage ($16,954), car loan, manageable credit card, surgery payment.
• Cash on hand: ~$22,000 (split between her and family emergency funds).
• Investment accounts:
  • Tax Deferred: $744,000
  • Tax Exempt: $68,000
  • Taxable: ~$50,000
  • Pension: $1,490/mo (rises with further work).

Memorable Moment
"For anybody who wants to go through this exercise at home … You can download it and follow along at home and do this with your own finances." – Paula Pant ([06:41])

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3. Building a Timeline for Goal Clarity

(Timestamps: [21:51]–[33:21])

• Draws out all of Mia’s goals on a visual timeline: early retirement, home repairs, mother’s care, surgery, travel, etc.
• Emphasizes the reality of “goal friction”—when goals compete for limited resources.
• Urges listeners to specify goal timing and amounts: When do you want to retire? How much will it cost? What are your caregiving commitments in dollars and years?

Memorable Analogy
"Now we have … these goals are going to create friction against each other because you're going to want to make sure you have money for both. … It becomes a cage match. It becomes this really cool goal friction against each other." – Joe Salsihai ([31:05])

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4. Mia’s Core Questions Answered

(Timestamps: [37:16]–[64:01])

a) Should she invest more in taxable and tax-exempt accounts (vs. tax-deferred)?

• Current balance is heavily skewed to tax-deferred; minimal in tax-exempt/taxable.
• Both hosts recommend boosting tax-exempt (Roth) contributions for:
  • Tax diversification
  • Flexibility before standard retirement age (can withdraw Roth contributions, not gains, at any time)
  • Tax-free growth for potentially 30–40+ years

Quote
"The thing that I like about the tax exempt accounts … is the fact that she's either going to have to wait till 55 or 59.5 to get at her pre-tax money. And that tax exempt money, the money she puts in initially, the contributions, she could take out whenever she wants. So she gets more flexibility toward her FIRE goal." – Joe Salsihai ([38:08])

Strategic Note:
Taxable brokerage funding depends on whether she’ll need pre-retirement access for caregiving or home repairs. The timeline and quadrant framework helps uncover where to direct new money based on when it’s needed.

b) At what point should she minimize 403(b) (tax-deferred employer plan) contributions?

• After getting the employer match, ramp up Roth (tax-exempt) contributions instead.
• Assess whether those funds need to go toward short-term goals or long-term investments, and allocate accordingly.

c) How much does she need in emergency funds (self vs. family)?

• Maintain the current solid personal emergency fund ($17,000).
• Ensure the “family/home repair” fund is adequately sized—may need to allocate more here instead of investing in high-volatility assets like VTSAX for short-term needs.

d) How should she optimize her asset allocation and asset location?

• Asset Allocation (what you own) & Asset Location (which account it’s in) both matter.
• Take care not to use volatile investments like VTSAX or individual stocks for near-term expenses (lower left quadrant).
• Use stable, liquid investments (like money markets) for short-term goals and emergencies.

Quote
"VTSAX is a horrible fixing house problems in the next five years fund … We don't want it to go there." – Joe Salsihai ([45:54])

Behavioral Insight:
Beware the endowment effect—don’t get emotionally attached to particular funds or stocks just because you already own them; structure your plan based on your actual goals and timeline.

e) Specific product note: The annuity

• Mia may have an annuity inside her 403(b); check if there are high fees or surrender charges.
• If annuity is outside of 403(b), be cautious—could face tax issues withdrawing before age 59.5.

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5. Investing Psychology & Risk Tolerance

(Timestamps: [56:04]–[61:32])

• Sometimes optimal planning means “de-risking” short-term funds—you might not maximize growth but you ensure liquidity and avoid losses.
• By shoring up short-term needs conservatively, Mia can be more aggressive in the long-term (growth) quadrant, especially inside tax-exempt (Roth) accounts.

Quote
"We're actually telling you that, based on the number of short-term things, you'll probably want to de-risk your portfolio … we're going to make sure that you have money in the place where you need it, when you need it, which I think is far more important." – Joe Salsihai ([59:10])

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6. Sidebar: The Reality of HOAs (Listener “Meryl’s” Regret)

(Timestamps: [66:21]–[80:08])

• Anonymous listener (“Meryl”) shares a cautionary tale: she purchased a condo in a Texas HOA, moved out, rented it, and later faced a sudden $15,000 “special assessment” with no payment plan—financially stressful, especially for owners without cash reserves.
• Paula & Joe discuss:
  • Assessments are a real risk for HOA/community living.
  • In non-HOA homes, you have agency over when to pay for maintenance; in HOAs, assessments are sometimes imposed on short notice.
  • If you must buy into an HOA, read the legal docs carefully; use AI to help parse them if needed.
  • Influence is local: Consider running for the board or attending meetings to advocate for humane payment policies.

Quote
"When you get to exercise agency over that, yes, you might still end up spending the same $15,000. But it feels very different because you were in the driver's seat the whole time …" – Paula Pant ([71:33])

Listener Tip:
If you’re in an HOA, attend meetings, run for the board, and advocate for reasonable homeowner protections.

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Timestamps for Major Segments

• Deep Dive on Mia’s Situation: [01:57]–[21:51]
• Four Cornerstones Framework: [05:53]–[21:51]
• Timelining Goals & Goal Friction: [21:51]–[33:21]
• Answering Mia’s Core Questions — Account Allocation & Planning: [37:16]–[64:01]
• Asset Allocation/Location Discussion: [45:54], [46:25], [47:37]
• HOA Regret Story & HOA Tips: [66:21]–[80:08]

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Notable Quotes & Memorable Moments

• “We have to build some constructs that help us take this thing that seems very complex ... That’s not just her. This is everybody. This is just life, right?” — Joe Salsihai ([05:15])
• “The answer about the taxable brokerage question really depends on a few things. … The timeline and quadrant framework helps uncover where to direct new money based on when it’s needed.” — Joe Salsihai ([41:10])
• “VTSAX is a horrible fixing house problems in the next five years fund … We don’t want it to go there.” — Joe Salsihai ([45:54])
• “We're actually telling you … you'll probably want to de-risk your portfolio ... which means we're getting rid of some of the upside. ... We're going to make sure that you have money in the place where you need it, when you need it …” — Joe Salsihai ([59:10])
• “Yes, you might still end up spending the same $15,000 (for maintenance), but it feels very different because you were in the driver’s seat the whole time …” – Paula Pant ([71:33])

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Actionable Takeaways

• Organize your financial life using the Four Cornerstones: clarify liquidity, risk protection, short-term, and long-term strategies.
• Map out your goals visually on a timeline. Prioritize, estimate dollar amounts, and see where they compete.
• Balance your account types. Tax diversification (deferred, exempt, taxable) gives you flexibility and future options.
• Match investment risk to goal timing. Don’t use volatile assets (like stocks or funds) for near-term expenses.
• Love your goals, not your investments. Don’t let attachment to certain funds or stocks dictate your planning.
• If you’re in an HOA, know your documents, participate in meetings, and advocate for reasonable policies.

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Links & Resources

• Four Cornerstones Worksheet & Case Study Summary
• Leave a voicemail for future episodes: affordanything.com/voicemail

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Tone & Style

Smart, practical, and empathetic—Paula and Joe use humor, relatable anecdotes, and proven frameworks to bring clarity to complex questions. They blend technical advice, story-driven teaching, and reminders about the emotional/behavioral dimensions of financial decision-making.

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For Next Steps

• Try the Four Cornerstones and Timelining exercises for your own finances.
• Double-check your own asset allocation/location—match it to your real goals and timelines.
• If you have questions or case studies, send them to the podcast for future episodes.

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Transcript

[Paula Pant]

Joe, we're gonna do a deep dive today.

[Joe Salsihai]

We're going swimming.

[Paula Pant]

We got a call from a 50 year old single woman who thought that she could retire early and is now thinking, you know what, after a closer look, she might not be able to retire early. Can she or can't she? We've got a lot of detail and so we're gonna really dive into it.

[Joe Salsihai]

Awesome. Can't wait.

[Paula Pant]

Welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything. This show covers five pillars, Financial psychology, increasing your income, real estate and entrepreneurship, acronym double I Fire. I'm your host, Paula Pant. I have masters in economic reporting from Columbia. Every Tuesday, ish or most Tuesdays, I answer questions that come from you and I do so with my buddy, the former financial planner Joe Salsihai. How are you, Joe?

[Joe Salsihai]

Fantastic. We working on my health lately. Been thinking a lot about that. So I've been at the gym and while I was at the gym I was wondering to myself, like, you know, sometimes you want to be a little lazy. Like what, what exercises do lazy people really like? And then I figured it out, you know, what exercise lazy people like?

[Paula Pant]

What is it?

[Joe Salsihai]

Diddly squats? Come on, come on, come on.

[Paula Pant]

Speaking of health, the caller that we're going to hear from today, she's about to get surgery. Because she's getting surgery. She has to step away from work for a little while and during this time off she's going to be rethinking whether or not she can retire.

[Joe Salsihai]

Speaking of health.

[Caller 1 / Guest]

Yeah.

[Paula Pant]

In the voicemail that we're about to play, she gives a lot of information that's actually the reason that we can do such a deep dive. And she goes really fast. So if you're listening to this, don't be overwhelmed because we are going to break it down. You're going to hear a lot of ticker symbols, you're going to hear a lot of numbers. It's going to all come at you really fast. But don't worry because Joe and I are breaking this down. Here's our question from Anonymous.

[Mia (Anonymous Caller)]

Hi Paula and Joe, I'm seeking your thoughts as I consider changing my investment approach among taxable, tax exempt and tax deferred accounts. I'm a 50 year old single woman who has experienced career changes and health issues which have impacted my finances. I'm undergoing surgery this month dealing with an aging parent, my 77 year old mom who has a fixed income and several health issues such as diabetes, high cholesterol, knee pain and juggling ongoing home maintenance and repairs. Surgery will force me to take a short pause in recovery. I want to use this time to reset how I approach my investing. I want to grow my investments and have more flexibility in accessing the money. My questions are do I consider investing more in my taxable and tax exempt accounts? If yes, what is the best ways to determine how much to invest in these accounts? At what point do I minimize my contribution amounts for my work 403B how much do I need to have in cash for my own emergency fund versus my family's? I realized I needed to have these amounts in different accounts to make any progress on my own emergency fund. Lastly, I wanted to retire early, but considering my circumstances that might not be possible. Overall, I want to focus on financial flexibility. Here's what I have in Tax Deferred accounts of work 403 which include employer contributions and I'm 100% vested 142,993 traditional IRA 583,570 and annuity 18,095 where an automatic transfer of 77,000 to my traditional IRA occurs yearly and tax exempt accounts A work Roth 403B where I'm 100% vested 25,000 Roth IRA 43,278 and taxable accounts A Vanguard brokerage account which is my fire account 39,110amount is invested in Federal Money Market Fund, VTSAX, VGT, VPU, VYM and VXUS. A Fidelity brokerage account which is for Family and home repairs $10,939Amount is invested in FZROX, FUTY, FLPSX and individual stocks for cash on hand and Vanguard cash plus account my own emergency fund 17,315amoney market account my family emergency fund 4,713. I will have a monthly pension amount of 1,490 which increases as I continue working. I'm 100% vested. My current debts are mortgage of 16,954 at a 2.25 interest rate car loan of 6,793 at a 4.1 interest rate a credit card balance of 1,207 which I pay off the entire balance every month surgery expenses of 6,227 which I'll pay via payment plan at 0% interest rate. My current salary is 119,184. I have been contributing 10% to my pre tax 403 and 0% to my Roth 403. In my Vanguard account I buy $230 of BTSax each pay period for a total of 26 pay periods. Also, for background, my yearly expenses have been anywhere from 80,000 in 2022 to the highest at 101,100 in 2024.

[Joe Salsihai]

Paula, you weren't kidding. That's a lot of information.

[Paula Pant]

It's so much info in this case.

[Joe Salsihai]

I mean, we all have. Let's start off with a couple of things. Number one is we all have a lot of this. We have a lot of data. Right. And it can seem overwhelming. And just listening to all the stuff that she is going on in her life, it's easy to feel overwhelmed because it feels like a lot of complexity. So we have to build some constructs that help us take this thing that seems very complex. I mean, she has her own health to worry about. She is aging parent to worry about. She has home maintenance issues to worry about. She wants to retire early and hopefully still can. So she has all these things and, and then she has all these wonderful savings toward these things. But putting this all together, it initially looks like a mess. That's not just her. This is, this is everybody. This is just life, right?

[Paula Pant]

Yeah.

[Joe Salsihai]

We all have 50 things going on. And over time, when you get to 50 years old, you just have six different accounts. Each one has five positions and then it's ticker, ticker, ticker, ticker, ticker, symbol. So let's not focus on them all at once. I do this thing when I was trained as a financial planner. You have to be able to look at this stuff and get away from some of the complexity and the way that we do this. I use this construct called the four cornerstones. And the four cornerstones takes all the information that she just gave us and draw on a sheet of paper like a plus sign with four quadrants. And we're going to lay these things out in the four quadrants so we can take a look at each quadrant and see how they look. So that's the first thing I do

[Paula Pant]

for anybody who wants to go through this exercise at home. We're going to have a downloadable cornerstone, four quadrants. You can download this and follow along at home and do this with your own finances. You can download it at afford anything.com/corstone.

[Joe Salsihai]

Let's go over what the four cornerstones represent. And we don't have all the information for the cornerstones. There's some that is missing. So we're going to have to make some assumptions or we can just work around it for now. It's easy. When you look at the four cornerstones approach to know what information you still need, what information you don't have. So the upper left cornerstone, this is your day to day living, Paula. What gets you through your, your daily life. So this is cash flow. So she told us how much money she makes per year. She told us how much her expenses are per year. So we already have those things. So your budget is in the upper left quadrant. And for my clients that needed budget help, sometimes this is the first thing that we did because we needed help freeing up money that we'd be able to save. So money coming in, money going out is in the upper left. How does that look? And generally what I would put when I was a financial planner for most people is exactly what she gave us. 119,184 coming in 10% to the pre tax 403B. I actually don't put that there, but I'll get to that later.

[Paula Pant]

Put that in the upper left.

[Joe Salsihai]

I don't. Annual expenses 80 to 100. 1000.

[Paula Pant]

Yeah, between 80,000 to 100, not 80 to 100.

[Joe Salsihai]

1000. Thank you. Yeah, so that's going to be a little flexible. So I'll put that down. But the more granular you can see that we get about that, the better. And what I also want to put in that upper left is any free cash flow that she has. What is an amount of money that she might have that she's not saving right now. We don't know what this is, but I don't think there's a lot, Paula, because she's putting money toward VTSAX$200 and she has money going into her 401k 10%. So I don't know. But that, that would be question number one up in the upper left. Second thing that's in the upper left is going to be her emergency funds, funds that she has available for short term. What if needs. She has two different emergency funds. One is actually not really an emergency fund. It's for house projects. It's what she calls her house account and family fund. So we're not going to put that in the upper left, but we will put the $17,000 in her Vanguard Cash plus account in the left because that's truly Paul of the emergency fund. We also put any debt then in the upper left. Mortgage 16,954 at 2.25% car loan 6,783 at 4.9% surgery expenses on a 0% payment plan, $6,227. So we, we have all those in the Upper left.

[Paula Pant]

All right, so the upper left is your income, your expenses, your emergency fund, your debt, all of that day to day living stuff.

[Joe Salsihai]

All of that stuff. So we have some of that heartbeat. The question is, the immediate question is, and we'll begin analyzing this more later and see how we can help her reach her goals, which we'll also get to in a minute because we're not even up to the goals yet. We're just laying it out. And then we'll go to what does she want to do later? One initial question is, inside of her budget, is there a number that represents free cash flow? We don't know. I don't think so.

[Paula Pant]

But it sounds as though every dollar is accounted for.

[Joe Salsihai]

It does sound like because the money

[Paula Pant]

that she isn't using for her living expenses is being directed towards intentional savings such as that 403B and.

[Joe Salsihai]

And there still can be some optimization there, right? I mean, is she spending according to her values? Are there things, you know, subscriptions that she's not using, cell phone plan? Is there any way that she can change things or their economies of scale that she's not taking advantage? So there might be some things, but we're going to let all that go now. We're not focused on that, we're just laying it out. Then we go to the upper right. If the upper left is our day to day, our upper right is what happens when things go wrong. So upper right is going to be your insurances. You can also have that emergency fund really straddle upper left and upper right. If you've got a decent emergency fund, you can raise your deductibles as an example. So emergency fund really can go upper left and upper right kind of straddle

[Paula Pant]

the 2.1 framework, just to put a pin in that and add some description here, one framework that many people use because the term emergency fund can be really broad and some people have these different buckets of kind of different sub buckets inside of an emergency fund. There's the portion of your emergency fund that might represent one or two months of living expenses. And it's that portion that you tap when expected. I don't even want to call them emergencies, but you know, the expected big ticket items that you know will happen, they're guaranteed to happen from time to time. You just don't. Your refrigerator breaks down, your refrigerator breaks down, your car engine goes to crap, you run over a pack of nails and get four flat tires.

[Joe Salsihai]

It's a bad day.

[Paula Pant]

Yeah, it's a bad day, right. But you Know that these things will happen from time to time. You don't know when they're going to happen, but at some point you're going to drive over a pack of nails.

[Joe Salsihai]

And on the base of that, Paula, it's insurance. It is insurance. And that's why I don't like, I don't like thinking about buying insurance. I like thinking about managing risk.

[Paula Pant]

Right. So when you say it's insurance, you mean it in the, in the metaphorical sense of the word.

[Joe Salsihai]

Yes, in the much broader sense and I think we take a broader term, we're no longer going to say should I buy this insurance or not? The first thing we're going to ask is what is my risk and am I covering it?

[Paula Pant]

Right. So then in terms of the emergency fund straddling both the upper left and upper right, what you could do is the portion of your emergency fund that covers, we'll say, the day to day living of major things that you know will happen but you don't know when, such as appliances, car repairs, things like that, that can be the upper left portion. And then the like true black swan emergencies, you get sued. That's not.

[Joe Salsihai]

You get disabled.

[Paula Pant]

Yeah. The things that may never happen in your lifetime, hopefully you go your entire lifetime without ever getting sued.

[Caller 1 / Guest]

Yeah.

[Paula Pant]

But if you do, this is the portion of the emergency fund that is available for that.

[Joe Salsihai]

You can go crazy. In the upper right, listing all the different risks. There are a few that I would put. There are five specifically that I put in the upper right. You can put more. My five are disability. What's my disability coverage look like currently? Life insurance. Is there anybody that needs life insurance coverage? If I have it, what is it, how much is it? We'll think about if it's enough, if it's too much later, but we're just going to list it. What disability insurance do I have? What life insurance do I have? Those are the two things. There's a one in one chance that you will die someday. None of us get out of here alive. Disability is a much higher percentage and depending on the source and how broadly we term disability, can be as high as one in seven people has some short term disability event that happens during their life. A more common statistic is about 1 in 30 that you'll see. So looking at disability, I want to list that then, then the smaller ones. But important because while the magnitude might not be as high, the chance of it happening still is very high. Your auto coverage, what is your auto coverage and what is your homeowners and you Might list just a few of the basics there just to make sure that you have those down. You might be thinking, Joe, that's only for then. My estate plan, Do I have a trust? Do I have a will? Do I have power of attorney? Do I have health care, patient, patient advocate designation? So my estate plan, homeowners or renters, auto insurance, disability coverage, life insurance, all go in the upper right. Plus whatever portion of my emergency fund is to keep my deductibles high and to cover, you know what if I end up being sued as part of an auto insurance claim, auto insurance is going to cover part of it. It's going to be part that is on me. What's my deductible? Deductible management goes over there. Now for other people, they might put other risks that they have specifically in their life. As you imagine. We can go crazy on this side as well, but. But we just want to get it in front of us. So put those things out. She didn't leave us any of those details, Paula. It wasn't important to her question. But in terms of getting it all out, what we're going to be looking for and looking at as we unpack this is we're going to answer her specific questions. But what we also don't want to have happen is unintended consequences, right? We answer the question, but then something else rears its head. And because we're focused over to the right, something happens on the left. As a financial planner, I always wanted to make sure that things didn't come out of the blue, because what's crazy is working with about 120 families. I will tell you, something doesn't come out of the blue for you every day, but when you're helping 120 families manage their money, something's coming out of the blue for somebody. Nearly every day I was getting a call going, guess what happened, right? This weird thing happened, right? Nearly daily.

[Paula Pant]

And technically this time we'd be focused on the left and something comes out of the right.

[Joe Salsihai]

Right? Exactly. Yes.

[Paula Pant]

And Joe, to your point, broadening this out for the entire audience as you're going through this exercise yourself at home and going through the four corners and laying out your own details in your four corners sheet, your own risks are going to be very individual. There are some people who are listening who are business owners, and if you own a business, you have a certain set of risks that W2 employees, like this particular caller, by the way. We need to give her a name because she's anonymous. We do, but you have a certain set of risks as a business owner that W2 employees don't have. And that would go on the upper right. If you are here on an H1B visa and you're not sure if you're going to be able to get permanent residency and you have to make contingency plans based on what's happening with that application. Right. There are a whole bunch of contingencies that you may need a plan for. We interviewed somebody recently, the director of an autism organization. If you have a child or any loved one, a cousin, a sibling, if there's somebody in your life who you are caring for, who has some type of developmental disability, there's a whole set of risks that are associated with that. We'll talk later in this episode about this particular caller caretaking for her 77 year old mom. How do you manage that? For every person listening your risks, you know, the what could go wrong is incredibly individual.

[Joe Salsihai]

Yeah. That upper right is going to be, you know, you could also put your health insurance there or especially if you have very minimal coverage when it comes to healthcare, you could put that there. You could, there are, there are so many things your HSA will go in that upper right quadrant. Then, Paula, these two, I call the two that you live by. We live our life and we experience risks. We never know when they're going to hit, but we want to make sure that that's taken care of. So I actually have a much closer to a double line between the top two and the bottom two because the bottom two are the ones that we're going to grow by. So any goal in the next few years and few years depends on your time frame, your outlook, but your, we call them short term goals. For most people, I'm looking at goals seven, eight years and less. So I put those in the lower left hand quadrant. Right budget and your emergency fund and any debt that you have and free cash flow. So I put that there. So this would be her house fund. Right. So this would be that Vanguard account with roughly $17,000 in it will go into that account. Now she could also put, because she's 50, depending on when she wants to retire, she could put the early years worth of money that she wants for the early retirement. She could put that in the lower left. I sometimes find, because my goal is just to parse this out and keep the goals separate even if, if it's an early retirement. I kind of like keeping retirement together on the right just because I'm trying to get a clear picture of this goal versus that goal, am I taking care of this one? And if I've got part of retirement in the left, like if you retired now and you're doing this yourself, even though you're going to spend some money in the next seven years, I kind of like leaving your retirement assets all together in one spot. So that'll be the lower right hand. And that's where she's going to put her Roth 401K, her Roth IRA, her traditional 403B, the annuity. All of those assets, those tax deferred assets are going in that account, plus her fire account, as she calls it, it's going to go in that account, the taxable piece. And that truly is the crux of her question, right, Is how do I change my saving in these? Her first question was tax wise, do I slow down the money into my 403B? Do I pick up more money into my fire account? How do I manage all these different goals?

[Paula Pant]

Right. So, and we actually, because she, she gave a lot of numbers, we consolidated these numbers into tax deferred, tax exempt and taxable, plus your cash reserves. To give the audience a snapshot of the numbers that we're going to work with in this case study, she talked about 403B, Trad IRA and an annuity. We lumped all of that together into tax deferred accounts. That amounts to $744,000. She also talked about a Roth 403 and a Roth IRA. We lumped that together into tax exempt, and that amounts to $68,000. And then she talked about two brokerage accounts. We lumped that into taxable, and it's approximately $50,000. And then cash reserves, about 22,000 split between personal and family emergency funds.

[Joe Salsihai]

So that's the first thing. I have now taken all of this huge amount of data that she gave us and I've now put it into four quadrants. We've actually been able to use three. We don't have information on the fourth. We're going to want that to make sure that everything dovetails, because it truly does. If I have, she has a surgery, which I'm sure you generally don't plan on surgery 20 years before they happen, maybe a year before they happen or two years before they happen, depending on what type of surgery. But generally that's not on the radar when, until all of a sudden it is. We want to make sure that our risk management strategy dovetails with all the answers that we give. And we don't have that information. So we know that, we know on the, on the upper left quadrant, budget wise, there might be some things she can do inside of her budget that we don't know about. Then we can dig into the lower left hand quadrant and say are these assets relevant and meaningful for a goal that's less than seven years? The things are, these are things we should be holding in that account. And then for goals that are over seven years, is our tech strategy really good now? Tax strategy is going to play a part everywhere else but really in that lower right we can really laser in on do we have the flexibility that we need tax wise. And obviously is there enough money there? I don't use this for that last question. Is there enough money there? This is the first illustration. There's a second one that I then pair this with. So I've got this to help me stay organized. The second is then we build a timeline because on the timeline we want to now take her questions and, and we want to make sure that we can see them next to each other. And the reason I like this, Paula is because the sequence of events matter. We worry about sequence of return risk. So we worry about that in the early years, but we don't worry enough. I think about sequence of our goals risk, and what happens is we do one of two things. Generally as people, we either hyperfocus on the short term goals and we never think about the long term goals. This is society in general. We don't save any money because we think we can't afford to.

[Caller 1 / Guest]

Right.

[Joe Salsihai]

I've got too many short term things going on, I can't afford to save. And then all of a sudden we're 55, we wake up and we go, oh my God, I didn't save nearly what I should have. That's not generally this community that's going to be some people that finally found us. We're glad you're here. And you know what? It's easier to get on track than most people think, which is really exciting when you hear these success stories. But for most of our community, I think we hyper focus on the long term things and optimizing and then this, oh my goodness, all of a sudden this thing came out of the blue and I don't have money in the right place. What do I do? We want to make sure that we're looking at all of the goals, not just hyper focused on the thing that's in our brain. So I take this. We have to give her a name. I can't just keep saying this wonderful woman. I have an idea. Yeah, I don't know if you know this, Paula, but there is a soccer tournament going on right now.

[Paula Pant]

Oh, I. I've heard there's a globe and a drinking vessel.

[Joe Salsihai]

That's right.

[Caller 1 / Guest]

Yes.

[Joe Salsihai]

A big drinking vessel. Holy cow.

[Paula Pant]

Yes. I believe it's called the World Cup.

[Joe Salsihai]

And the stories I. I hear about the World cup are so wonderful. And of course, this is the men's World Cup. But I'll get.

[Paula Pant]

We'll.

[Joe Salsihai]

We'll bridge that gap in a minute. But I love, like, the stories of the Japan team. Have you Japan fans with the big blue. They get these big blue things that they beat during the game. They fill them full of air and they beat them during the game. And they look like big plastic blue bags.

[Paula Pant]

No, but IKEA has some big plastic blue bags. They do, yeah. That's what I imagine.

[Joe Salsihai]

Well, let me tell you what I'm

[Paula Pant]

imagining them with the IKEA bags.

[Joe Salsihai]

They shake them and they beat on them. You can go look up, you know, on YouTube or TikTok or wherever, Instagram, look up these videos of the Japanese fans. And I love the different ways that different fans celebrate their teams. But not only do they use them to cheer, and so the whole Japanese section is all this blue, the sea of blue. Afterwards, they turn them over and they are trash bags and they pick up their section.

[Paula Pant]

Oh, wow.

[Joe Salsihai]

Isn't that cool?

[Paula Pant]

Oh, that is cool. Wow. That's so community responsible.

[Joe Salsihai]

It is so awesome. And the Scottish fans do two other cool community things that we've heard about the Scottish fans. Number one, the rumor is that they drank so much beer in Boston that Sam Adams had to get more. So I want to party with the Scottish fans. But number two is they also clean up after themselves.

[Caller 1 / Guest]

Wow.

[Joe Salsihai]

Which is really, really cool. So, you know, we have a big party at the end of the party. We make sure everything goes back where it is. Just. Just some neat traditions. I saw a bunch of Norwegian fans. Norway hasn't been to the World cup in a long time. A bunch of Norway fans going up an escalator. They all have those famous Viking horn helmets on and they're sitting on the escalator, all rowing as they're going up the escalator.

[Paula Pant]

Oh, that's great.

[Joe Salsihai]

Yeah. So just looking at all these traditions around the world, I thought, who is maybe one of the. One of the top soccer stars of all time? And it's got to be this wonderful woman, Mia Hammer. It's got to be Mia.

[Paula Pant]

Oh, yeah, yeah.

[Joe Salsihai]

So American soccer star Mia Ham. So we should call her Mia.

[Paula Pant]

Mia.

[Caller 1 / Guest]

Okay.

[Paula Pant]

In honor of the World Cup, Mia. Anonymous. Your name is Mia.

[Joe Salsihai]

So we draw.

[Paula Pant]

All right.

[Joe Salsihai]

Line.

[Paula Pant]

So we draw a timeline. All right, and again, you can download all of this. We're going to have it all mapped [e-mail] cornerstone and we'll also have a synopsis of everything that we talked about there. So you'll remember what goes in what quadrant, how to think about all of that. We'll have the double line between the top, which represents the goals we live by, and the bottom, which represents what we grow by on the timeline.

[Joe Salsihai]

And by the way, the timeline is the part of my book where we take a part of the Afford Anything podcast. And it's actually in my book.

[Caller 1 / Guest]

Yeah.

[Joe Salsihai]

Because we illustrated to timelining before here. In timelining, we draw Mia as a stick person on the left, and then we draw a line, and that line represents the timeline of her life. And then we start setting out these goals. So the first goal, we're going to put a big half moon somewhere around age 60. It is this big bag of money she's going to need to get her from 60 through the rest of her life. And this is financial independence. And one of her questions is, I want to retire early. I don't know when I can. I would put it around 60 to start with, just to see, you know, you can put it 55. I don't care where you put it. Just put it 55, 60, 62, wherever. Then inside of this ball, you put a question mark. Unless you already know how much money it is. Because my first question when I was a financial planner was, okay, Mia, your goal is early retirement. Let's say you retire at 60, question mark, how much money do we need in this ball? You've got all these assets. How much money we need? And Paula, you already know what the answer was 99% of the time.

[Paula Pant]

Well, if her expenses are around 100,000 a year, then she would need about 2.5 million.

[Joe Salsihai]

You overestimate the average person 99 of the time. The answer was, I have no idea. And actually, Mia needs less than that because she has a pension.

[Paula Pant]

That's right, she has a pension.

[Joe Salsihai]

Yes. So.

[Paula Pant]

And she also has Social Security. We don't know how much, but she will have some Social Security.

[Joe Salsihai]

Yeah. So the question is, we've got to figure that out. If we just set a year. So Mia and you and I would agree on a year to start with, just for our. Just to put a point down. If I'm going to get minimum viable retirement, what age do we want to start at and how much money we going to spend per year. And then we need to know what that number is. A lot of calculators to do that. You can either be back in the envelope to start off with or you can get really granular with a great calculator or with a financial planner. But we need to know that number. And then we've got these short term things. You have the house fun, the repairs. What repairs is she talking about? What maintenance, what years does she want to do those? And how much are the individual repairs? Again, we plot that on the timeline. I want to do redo all my windows in the house. It's going to be $15,000. It's going to be two years from now. Boom. I've got this ball of money, 15,000 bucks. I've got care of my mom. What does care of mom look like financially? That's going to obviously last a good amount of time. I actually put a second little like arc line below the timeline for this where I know something's ongoing, an ongoing expense. And so you're recreating mom's reasonable timeline where you're helping mom from now until the end of her lifetime. So help out mom. Ongoing expense during this time frame. Because now you can already see now we have helping mom and we have house repairs in different buckets on the same piece of the timeline. Together these goals are going to create friction against each other because you're going to want to make sure you have money for both to help out on both sides. You have the surgery, which is sounds like it's right now. It's happening very soon. Surgery date, any amount of money that you're going to need for ongoing expenses. Over and above the 0% surgery payback. Is there any other expenses? If there are, that goes on the timeline. I would then continue to quiz Mia about other things coming up. Oh, when I retire, I want to take a trip around the world. That very specific amount of money that she has. People say I want to buy an rv. I want, I want to buy that rental piece of property, whatever it is, you put a ball on the timeline. So we're going to fill up as many of the knowns as possible. And by the way, at this point, Paula, be happy to dream. You know, can I do something else? And. And Mia has a dream, right? How early can I make that? I started her at 60. Can we move that up? And if we do move it up, what does that take? So now I have these two things. I can look at the goals against each other, which I love because then it becomes a cage match. It becomes this really cool goal friction against each other. And then we have these valuable conversations about if I can't have them all, what comes before what, which is really a great conversation. This isn't about money. The Afford Anything show is not about money. It's about what do I value and getting what do I really, really want to afford and what am I going to let go. And the timeline is your vehicle that does that. And to make sure it's not a mess, you've got the four cornerstones to help you just keep it all separate in your brain. And then I can begin applying these four cornerstones into the timeline. And now with these two things working together, now we're actually ready, Paula, to start answering Mia's questions.

[Paula Pant]

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[Joe Salsihai]

So let's go back and begin parsing out then Paula, her initial questions.

[Mia (Anonymous Caller)]

Questions are do I consider investing more in my taxable and tax exempt accounts? If yes, what is the best ways to determine how much to invest in these accounts?

[Joe Salsihai]

So question number one is do I put more of my taxable and tax

[Paula Pant]

exempt accounts in order to build out that tax triangle? Yes, because she has 744,000 in the tax deferred accounts and only 68,000 in tax exempt and only 50,000 in taxable.

[Joe Salsihai]

The thing that I like about the tax exempt accounts, let's start there. The thing that I like about that Paula, two things. Number one, she's talking about how on the tax exempt front, if she takes time off work, my first question would be does that mean she's not getting Paid during that time.

[Paula Pant]

Like as she's recovering from surgery.

[Caller 1 / Guest]

Yeah.

[Joe Salsihai]

If she's getting money from a disability as an example, if she gets disability payments or maybe she's not being paid at all. If she's not, then her income's going to be lower. We don't need the pre tax burden, the hand right now as much bird in the hand, meaning she gets a tax break immediately. It makes it even easier to put money into the tax exempt side anyway because there's going to be less of a tax burden. I would like it from that standpoint as well, not just from the tax triangle standpoint, but the second thing I like, which I think I like even better, is the fact that she's either gonna have to wait till 55 or 59 and a half to get at her pre tax money. And that tax exempt money, the money she puts in initially, the contribution she could take out whenever she wants. So she gets more flexibility toward her fire goal, as she put it, her retire early goal. So if she is able to retire early, it'll also help with that.

[Paula Pant]

Paula, the major thing that I like about tax exempt accounts, well, two things. One is I love the fact that all gains are tax free. And given that she's only 50, she's very young. If we're planning on this money existing until she's in her 90s, a portion of it will then that's 40 years of growth. And to have 40 years of tax free growth or even 30 years. Right. For the bucket of money that she's going to be spending at the age of 80, 35 years at 85, you get the picture. That is an incredible amount of growth. The contribution is going to be negligible relative to the growth that will accumulate in that account over the span of 30 to 40 years. That's one of the two reasons that I like it. The other is as she's tax planning and we don't know over the span of the next 40 years what tax rates are going to be, where the band between different tax treatments is going to exist. We don't know in the future what's going to trigger IRMAA and what's not. We don't know what's going to affect Medicare Part B and D in terms of tax issues that could impact that. Like we don't know where those lines are going to exist over the span of the next 30 to 40 years. So having a pile of money in tax exempt accounts gives her flexibility to tax plan as tax law changes, which it will, which it always does. As tax law changes over the span of the next three to four decades,

[Joe Salsihai]

matching on her money is automatically added as more pre tax as well. So she's still going to be putting money in the pre tax portion. The company will. So loading up more on the tax exempt works. Our answer, you can see already, Paula, through the work that we've done just laying this out, the answer about the taxable brokerage question really depends on a few things. What are we talking about in terms of help with mom?

[Paula Pant]

Right?

[Joe Salsihai]

What about additional surgery expenses? What are the housing expenses that she has? And then how is she doing overall based on what her goal would be? Is it to live a similar lifestyle as today? Is it live on less? Is it live on more? Some people feel very comfortable living on $50,000 a year in retirement. They don't spend a lot of money. Other people feel horrible spending $200,000 a year in retirement. So we don't know that. But based on what type of retirement vision she has, then she looks at that number. How is she doing now? Meaning how much? If she really is not going to be able to retire before 55 and the other goals are handled, then I think staying in tax advantaged accounts makes a lot of sense. If there's a real possibility that she's going to move that needle forward and have a lot of need for funds before 59 and a half and especially if it's pre 55, then by all means we want to use the taxable brokerage more.

[Paula Pant]

Right. And this is where that exercise of laying out the cornerstones and then timelining that out comes in handy because that arc, Joe, that you described, the arc that you draw at the bottom of the timeline, that shows, you know she talked about family emergency fund, right. It shows caretaking for her mom across the span of her mom's life. How much does caretaking for her mom cost? What is the dollar figure that we're going to associate with that? Is that a fixed amount or is it a dynamic amount? So for example, are there going to be certain one time expenses that she'll need a plan for and how long reasonably does she expect that arc to run?

[Joe Salsihai]

And I love that. While we can't answer the question, you can already see how this is going to help her zero in on the answers. It helps you get very, very clear on the answers in a hurry to those questions. So use the Roth. Yes, taxable brokerage. Depends on how she answers those.

[Paula Pant]

I agree. But definitely, definitely tax exempt. Mia, I'd like to see you significantly Grow the portion of your assets that's in tax exempt accounts.

[Joe Salsihai]

Ready for her next question?

[Paula Pant]

All right, let's do it. What's her next question?

[Mia (Anonymous Caller)]

At what point do I minimize my contribution amounts for my work? 403B? How much do I need to have in cash for my own emergency fund versus my family's? Lastly, I wanted to retire early, but considering my circumstances, that might not be possible. Overall, I want to focus on financial flexibility.

[Joe Salsihai]

I think we just answered most of those questions. However, let's dig in more.

[Paula Pant]

Well, in terms of reducing the amount of money that she's contributing to workplace tax deferred accounts, I would put as much as possible into tax exempt. I mean, the employer match has to go to tax deferred. That's the law. There's no choice there. Everything besides that, put it into tax exempt.

[Joe Salsihai]

Assuming that she has enough money. And this is the assumption we're making that we don't know the answer to. I really want to dig into what these housing costs are and how much money she needs to help mom. But assuming that those are under control and she has those mechanisms in place that she may or may not be okay, there I see the amounts of money that are in place now and they look like nice sums. Over $10,000 in her. Her current emergency fund is a nice emergency fund. And then $17,000 in the house account is a nice amount of money. What I don't see right now, Paula, is any mechanism to replenish those. Her money's going into vtsax, which for me is the fire account. Right. Is the financial independence account. I think financial independence is what you're talking about. Continuing to put money in tax exempt and not slowing that down, which is a question she asked, but keeping it going, but making it all tax exempt as much as possible. I may move VTS X Stop that and have that be the money that replenishes her housing fund. VTS X is a horrible. Fixing house problems in the next five years. Fun. The reason is it's going into the stock market, which over short periods of time is incredibly volatile.

[Paula Pant]

Right.

[Joe Salsihai]

We don't want it to go there. You want it to go to that Vanguard money market plus fund instead of 200 going to VTSAX. I'm not sure what the number is, but we can figure it's. It's a knowable number if we ask the question, what's the rate at which we're going to be spending down the house fund and helping mom. But I may change the VTSAX over Paula. To something more like the money market instead.

[Paula Pant]

Do we want to talk through her asset allocation?

[Joe Salsihai]

We do. Because then the next question because then the next question is are these assets the way they are in the right place based on where they're at in the timeline?

[Paula Pant]

Right, exactly.

[Caller 1 / Guest]

Because.

[Paula Pant]

Well, I'm thinking two things. There's asset allocation and there's asset location. So what you just talked about when it comes to VTSAX and its current location. Right. VTS X is a great, great index fund. I mean big, big portion of my net worth is in vtsax, but for her it's not in the right place.

[Caller 1 / Guest]

Yeah.

[Joe Salsihai]

When I heard going into a fund that I might spend. Well, she called it her fire fund. So right now she's funding this thing that might be seven, eight, nine years out, 10 years out. So if she continues to do that, that's fine. But I didn't hear any money going in to replenish all these short term issues that she has. And I think that's going to get rid of some of the stress between these competing goals on the short term end. So in terms of what she told us her goals are, I think it's in the wrong place. Based on what she told us she wants to use it for, Paul. I think it's a fine place to put it.

[Paula Pant]

Yeah. Well, the unknowable question is when does

[Joe Salsihai]

she want to fire and when can she realistically.

[Paula Pant]

And when can she realistically fire?

[Joe Salsihai]

Yeah, but let's go into this because the House fund, number one, individual stocks in a fund that you're going to be spending in the next couple of years.

[Paula Pant]

Yep. That's a no bad idea.

[Joe Salsihai]

Too volatile.

[Paula Pant]

Absolutely too volatile. And I want to make the point. This is for the sake of everybody listening. I've been having this debate with a friend of mine recently because I have a friend who is completely financially illiterate and he recently asked me for some help. I took a look at his very meager retirement account and it's all in individual stocks. I ordered him to sell out of everything and to put it all into index funds. He sold out of a bunch of stuff and then lo and behold, a week later I go to check in on like, hey, how are you doing? What did he do? He bought the SpaceX IPO. He bought it at 170 a share. 171 a share. He sold it at like 191 a share. And he was like, look, look, I made a bunch of money. He was like, look, I made. And based on the quantities he bought, I think he made like four or five hundred dollars. He was like, I made that much money in a couple of minutes, just a couple of minutes of work. And I made all of that money.

[Joe Salsihai]

Huge risk for non life changing returns.

[Paula Pant]

Yeah, exactly. It's frustrating speaking with him because the idea that I cannot break him of, you know, he sees the result, the outcome. He sees that he made a few hundred dollars for a negligible amount of work in a very short time period, in a couple of days. And he's like, wow, look at how much money I made in just a few days with almost no work. And that's what he sees, right? He sees what's on the surface.

[Joe Salsihai]

Oh, the SpaceX IPO is a whole different thing. There's so much FOMO going on.

[Paula Pant]

I wrote about it in my newsletter.

[Joe Salsihai]

We did an episode at the end when I share what we're doing on stacking. Benjamin's people can go listen to our whole episode where we break down the SpaceX IPO and how IPOs work and all that stuff. Here's the thing about SpaceX IPO. They raised $75 billion. There were 71 other IPOs this year. There's been so much press around the SpaceX IPO that people may draw one of two conclusions. Either A, I feel like I missed it. So I got to get the next one. I gotta get the next IPO. Cause I missed this one. AKA all IPOs are the same. You just print money.

[Paula Pant]

Right.

[Joe Salsihai]

The second thought is it went well. This is your friends. That one went well. So you learn the long wrong lesson, which is I'm going to do the next one.

[Paula Pant]

Right.

[Joe Salsihai]

That IPO raised $75 billion. Get this, there were 71 other IPOs since January 1st. Combined they raised $35 billion. One IPO, double the amount of the other 71 IPOs. All IPOs are not built like this. It's not the same thing. And it's going to be so easy for people to learn the wrong lesson from the SpaceX IPO.

[Paula Pant]

He definitely learned the wrong lesson. That's where it gets tricky because sometimes it works out and. But that doesn't mean that it was a good idea. Anyway, we started talking about this because we got onto the topic of individual stocks.

[Joe Salsihai]

Yeah. And the other positions we would want to look at where they're at along the timeline. So as an example, let's take vpu. VPU is the Vanguard Public Utilities. It's the Vanguard Utilities Index. Utilities aren't known for growth. Utilities are Known for paying a dividend. So what we have is a high dividend. It's throwing off dividends, which means it's also throwing off tax liabilities. And we still have some volatility. Now for a 5 year goal, VPU might be great. So if she can begin allocating this fund into what buckets serving which of these house goals, then it's going to be easy because VPU might be great if it's five years Apollo. But if it's a year out again, she's got too much volatility in, in that spot. She has now a bunch of vtsax. VTSAX is rotten in this account. It's horrible in the lower left. It's great in the lower right. When it comes to the four corners, Vanguard high dividend yield is something that sounds like something we want, Paula, but carries a lot more risk than most people think. When something pays a. These are high dividend paying stocks, in some cases, maybe high dividend paying bonds. When you look at something that pays high dividends, that sounds awesome until you start thinking about why does it pay a high dividend. It pays a high dividend either a, because it's a utility and it can't grow.

[Paula Pant]

Right.

[Joe Salsihai]

Or it's something risky like a high dividend. Payers include shipping container ships, which if you buy a container ship and something bad happens to your container ship, there it goes. If it's on the bond side, they change the name, I think to make it more marketable. This is Joe's conspiracy theory. They changed the name to make it more marketable. What used to be called junk bonds and they now call them high yield bonds. Same thing. But the reason a bond is a junk bond is because if Paula has such bad credit, she can't get credit from anybody else. She has to offer this very high repayment. It's, it's the same thing for any person when they go get a loan. If they can't get a loan from anywhere else, they go down to the payday lender. And the reason they go to the payday lender is because it's the only place they can turn. High yield junk bonds are not high yield because these people are givers. They're high yield because they have nowhere else to turn, which inherently tells you that it's has a little risk built into it. And here's the thing, Paula, those aren't specifically for the house fund. That's just in the taxable brokerage. And so my question is the taxable brokerage, where are we putting it emergency fund in the upper left house, take care of mom stuff, or is it lower right? Which quadrant is the taxable brokerage in? What are we doing with it that will determine whether VTS X fits? Currently, I don't think any of this fits because I think it's going to be lower left. If it turns out that it's lower right, then my question is, is inside a taxable brokerage? If it's in the lower right, why do I have these high dividend payers? Because all we're doing is throwing off taxes. I want it to grow. I want the brokerage account, but I want less tax. And I know that I've got a long enough time frame that I'm not going to throw off those things. In the house fund, we have utilities. We have the individual stocks that we mentioned earlier. And we also have a fund that has a fund manager. It's not an index. It's the Fidelity Low Price Stock Fund. It's a really good fund. It is a really, really, really good fund. Fidelity Investments has a management team that goes out and finds stocks that they consider using a lot of mathematics. Why they think these stocks are underpriced. The fund gets five stars because it's a managed fund. It has a high expense ratio. It's earned its high expense ratio. I mean, 0.89, so almost 1%. But the results have been there, Paula. There have been great results. But when we talk about a house fund and I'm buying low price can do stocks in a fund that I might spend in the next five years, it's a great fund that I think is misappropriated.

[Paula Pant]

I think that part of the plan just needs to be reworked.

[Joe Salsihai]

It does begin with the timeline. Forget about the assets you have. Think about the bottom line, Paula, and then start building it according to the timeline. And I say that because people fall in love with what I already have.

[Paula Pant]

Yeah, yeah. There is the endowment effect. We ascribe added value to things that we already own. Like my daybed, for example. This thing that I got from Wayfair, because I own it, I have a huge emotional attachment to it that goes way above and beyond its actual value.

[Caller 1 / Guest]

Right.

[Paula Pant]

But we do that with everything that we own. We do it with shoes, we do it with stocks, we do it with everything.

[Joe Salsihai]

This is why we like index funds, because they're hard to fall in love with. It's so hard to say, oh, my goodness, that's the best index. But as an example, you know, to

[Paula Pant]

an extent, some people do do that. With vtsax, there's a little bit of a, a cult following around vtsax that you don't get with even vti, which is the ETF wrapper for the same thing.

[Joe Salsihai]

I know. Try saying it's sloppy out loud like I have and then watch the reaction people give you. What are you talking about? Yeah, but as an example, I mentioned that this Fidelity Low Price stock fund, if me and I were sitting across the table from each other and I let her know that this is a five star fund. Morning Star is a scale of one to five stars. It's a five star fund, well managed fund, great management team, been a rock star for a long, long time. And then I say we need to get rid of it. It's like. But that's a great fund. It's a fantastic. The individual stocks, Paul, are harder. Right. Do you know how long I've owned General Electric? We can't get rid of General Electric so hard. Or God forbid, it's like Nvidia. You know what that stock has done? How can I sell it? Yeah, I'm with you. I think we just rework this from the bottom up, beginning with the timeline.

[Paula Pant]

Right. And that was why we started this exercise by mapping out the four corners and the timeline, because everything flows from that.

[Joe Salsihai]

I have one last piece on my end before we say goodbye to Mia, which is the question that I would get when I'd walk through the strategy with clients that were in Mia's situation. Because sometimes we would add risk to a portfolio. We would add in risk. We talked about unintended consequences. Paula. People would tell me I'm afraid of the stock market. That's why I keep all my money, my 401k in cash. The unintended consequence is I'm very safely never going to reach any of my goals. Inflation is going to eat my money alive. All these unintended consequences. So in this community we can see that we get that right? Unintended consequence for a lot of people that are doing a lot of the tax work. I mean, Mia to some extent already has tax diversification. She already has a great start there. She has great emergency funds. She has a good to great savings habit. She has the pension, which is fantastic. So she's got all these things going on. The question Mia may wonder, which is why at this point in the discussion I take on the role of Sun Tzu from the Art of War, that the best battle is the one we don't fight. And I'm going to tell her what the battle I'M going to anticipate the battle. Mia, if you do what we're telling you to do, will you make more money? The answer is no, you won't. We're actually telling you that based on the number of short term things, it looks like you'll probably want to de risk your portfolio, which means we're getting rid of some of the upside. So if the market goes up, you won't go up as quickly. What we're doing though is we're also getting rid of the volatility on the other side. With your short term goals being the way that they are, we're going to make sure that you have money in the place where you need it, when you need it, which I think is far more important. Now, knowing that this is the cool thing, knowing that we're not going to make as much money, but we're going to get rid of some of the risk. You know what we can do now in that lower right quadrant, Paula?

[Paula Pant]

What's that?

[Joe Salsihai]

She didn't get into the asset allocation in her long term goals. We can now notch that up. We can actually take more risk there because we're confident.

[Paula Pant]

Right?

[Joe Salsihai]

The short term stuff's covered. Now we can press on the gas in the lower right quadrant because I'm not as worried about these short term goals like I was in the past.

[Paula Pant]

Right, that makes sense. And in fact, many people often ask, you know, they look at lower returns in the short term bucket and then they'll say, hey, wait a second, why am I getting these lower returns when, you know, when they're zeroed in on the short term bucket, why am I accepting these lower returns if I could be making more money elsewhere? But sometimes by virtue of having lower returns in that short term bucket, you set yourself up to be able to be aggressive in the long term bucket. And if you're aggressive, and as we talked about earlier, it's in a tax exempt account, it's in Roth accounts. Cool.

[Joe Salsihai]

Bam.

[Paula Pant]

Now you are aggressively going after high growth in a bucket where all of that growth is tax exempt, tax free.

[Joe Salsihai]

It's a beautiful thing. One more random thing as I look over Mia's stuff one more time that I'd like to comment on. When Mia said she had an annuity, she has a 403B as well. So for people that don't understand the difference between a 403B and a 401K, it's just the type of entity that you work for. But many 403Bs have annuities as the structure inside of the 403B. So I don't, I would have said the annuity is misplaced. The annuity probably is misplaced.

[Mia (Anonymous Caller)]

Still.

[Joe Salsihai]

My question is, is the annuity inside of a 403B? Is it actually just the device of choice that the administrator uses for their 403B? So is it a 403B annuity or is it just an outside annuity? The reason I ask that is if it's inside of a 403B, if she no longer works for the employer or she has other options that are non annuity, she needs to look at what the, what the cost is going to be. A lot of annuities at back end fees to get out. What's the cost? And then is it worth it to get out of that annuity? Because she's probably paying fees through the nose inside of that annuity. And even if she takes a short term hit, it's going to be easy for her to see the crossover point between the fee she pays with index funds versus the fee she's paying for the annuity. It might only take her a couple of years to get back any surrender charge she would have. If it's on the outside, she has a bigger problem, which is if you pull money out of annuity before you're 59 and a half, then you run into some tax issues. You're going to run into some tax issues anyway because annuities are what are called lifo, last in, first out, meaning any money the annuity has made is going to get taxed before you get to the principal that got paid in. So annuities are a tax trap. I may set up a strategy after 59 and a half to eliminate the annuity, but I might wait until then to do it if it's outside of the 403B. But either way, with that pension in place, she has lifetime income coming in that she doesn't have to worry about. Paula. So an annuity really can be turned into a pension. She already has a pension. So that leg of the stool, so to speak, is already taken care of. So I think the annuity can safely go just when you do it. And how to do it safely depends on whether it's 403B or not.

[Paula Pant]

Well, Mia, I hope that gives you a deep dive into what to do next. Thank you for providing so much detail. Best of luck with your surgery and I hope you use the downtime to set up the structures, the systems that will allow you to glide into this early retirement. We're going to take one final break to hear from the sponsors who make the show possible. When we return, we're going to hear from an anonymous caller who says that their biggest financial regret is buying into an hoa. We're going to hear why right after this

[Joe Salsihai]

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[Paula Pant]

Welcome back. Our final call today comes from Anonymous.

[Caller 1 / Guest]

Hi there Paula. Love your podcast. I was recently listening to one of your older episodes on financial mistakes, so I wanted to share a big regret financially that I have, which is that I bought into an HOA just as a means of sharing these mistakes with others so that they don't end up making the same mistake. I lived in the property for about a year and then ended up having to move so I rented it out. At one point in time the HOA assessed made a special assessment of $15,000. No payment plan and this was not even for an emergency. The board just decided that the siding on all the units had to be changed and it had to be done all at once. We found out about the assessment sometime in the spring and all the money was due by fall of that year. I even emailed the board asking for a payment plan, and it was denied. I'm in Texas, and the HOAs here are completely unregulated, as are the property management companies that the HOAs end up hiring. So just a word of warning that if you do end up buying in an hoa, down the line, there may be a hefty special assessment that comes your way and it can knock you off your feet because one of the other homeowners had lost her job and she was SOL because she still owed that $15,000. And it's not like these properties are worth millions of dollars. They're somewhere in the, I would say, 200 to 300k range. So, you know, anybody who purchases in that range, $15,000 is a lot of money. Just a word of warning. Your podcast episode brought to mind the biggest financial regret that I have. Just be wary when you buy into an hoa, and I think this is a topic that's not discussed enough in the financial world. So, again, thank you for your time.

[Paula Pant]

Anonymous thank you for the comment. Thank you for sharing that story. I'm sorry to hear about the stress that that caused, and it's horrible. Yeah. And the lack of a payment plan is really bothersome that. That, to me, that is. The, you know, special assessments happen, but the lack of a payment plan, that in particular is just incredibly insensitive. Most people don't have 15,000 just sitting around.

[Joe Salsihai]

We had a $15,000 assessment during the two years that I lived in Michigan. The road hadn't been paved in our neighborhood for 40 years. I lived there for two years, and right at the end, they decided to pave it just so I could be on the hook.

[Paula Pant]

Yikes.

[Joe Salsihai]

It's great. But to your point, Paula, they didn't have an inside payment plan, but they did list out a bunch of resources for people to create payment plans. So they listed out all the options they went through. Exactly why it happened. I agreed it had to happen. I just thought it was bad timing for me, but the road definitely needed to be redone. I understood ahead of time that there could be an assessment, but I felt like our HOA was far kinder and gentler than this. This poor woman's.

[Paula Pant]

Yeah, yeah, my dad, actually, he owns a condo. They also had a big special assessment, but in that particular case, they allowed a payment plan. I believe it was a monthly payment over the span of a year. So it was a fairly. They gave everyone a fairly long Runway.

[Joe Salsihai]

Yeah, that's great.

[Paula Pant]

What's particularly frustrating, you know, when you're a Homeowner in an area that is not governed by an hoa, you sometimes get hit with these huge, unexpected bills, but you have full control, full agency, full authority to decide what's an emergency and what's not. I mean, there are certain things. If a tree falls and crashes into your roof, that is an obvious emergency. But then homeowner's insurance steps in and you pay the deductible. But maybe it's a high deductible. If a tree falls into your roof, it's a true emergency, it's an act of God, and you're on the hook for the deductible or for anything that insurance won't cover. By contrast, if there's some form of deferred maintenance, like the siding needs to be replaced or the windows need to be replaced, as a homeowner, you have the control, the authority, the agency to say, all right, I see that the siding needs to be replaced, and I'm going to do it this year or next year or in two years. Right. Like, I see that this has to happen, but I, as the homeowner, get to set that timeline. And we were just talking about timelines, right? Like timelining your goals, timelining your big ticket expenses, timelining that home maintenance, as we just talked about with Mia, that's part of financial planning. And when you get to exercise agency over that, yes, you might still end up spending the same $15,000, but it feels very different because you were in the driver's seat the whole time, and you get to set that timeline and plan for it. It's a very different feeling than that being imposed onto you by some outside authority.

[Joe Salsihai]

I do have some questions for you, Paula. As somebody that knows far more about that than I do, my first thought is, she and other people this happened to, you're not without recourse, I feel. I mean, should she contact an attorney and maybe have a strongly written letter to her hoa? Because if there's an issue with, I mean, knowing what the covenants and the contract before you go into a community with an hsa, I think that's really important.

[Paula Pant]

Hoa?

[Joe Salsihai]

Did I say hoa?

[Paula Pant]

You said hsa.

[Joe Salsihai]

I said hsa.

[Paula Pant]

Yeah.

[Joe Salsihai]

Well, it's important on both fronts.

[Mia (Anonymous Caller)]

Then.

[Joe Salsihai]

That's funny, because obviously I'm at hoa, but I think it's important to know that before you go into the neighborhood. When I found out our neighborhood had an hoa, I wanted that document before I bought the house. I want to know exactly what I was getting into and how that worked. But it also seems to me that you may be able to, I don't know is. Is there an opportunity here?

[Paula Pant]

No. In most cases, no, there's not. Great. Because the thing is that, and this is what I tell all of my students is if you're going to buy into a, a building or a community that is HOA governed, you have to carefully read all of the documents and understand what the risks are. And actually AI can really help with this because AI can read a lot of the fine print and can help highlight some of those risks. You yourself should also do an old fashioned read, but you can double check it with AI.

[Joe Salsihai]

Well, especially if there's areas that seem very much written like an attorney and you're not sure how to parse it. I've done that before where I read it myself and I'm like, hey, AI, I don't know what this means. Can you spell this out for me?

[Paula Pant]

Right.

[Joe Salsihai]

What are the potential pitfalls of this section of the agreement?

[Paula Pant]

Exactly. Yeah. What are the risks? What are the unknown unknowns? You know, if that's the agreement, then that's the agreement. You know, the law is contract enforcement.

[Joe Salsihai]

Okay, next question. It seems to me we hear these horror stories about HOAs, but at the end, an HOA is an association made up of people. And you might end up with people that are power hungry or just jerks or want to rule the neighborhood. But I also feel like finding a way to make a connection with people that are part of the HOA and then appeal to people's humanity. Is that worth your time?

[Paula Pant]

I think that's definitely worth your time. I think running for a position on the hoa, you know, running for a seat, if you want to influence the decisions that the HOA make, run for one of those seats. Not a lot of people vote. A very, very small minority of homeowners vote for their HOA members. So you just need to drum up a little bit of support and given the low voter turnout, a small amount of support can give you a seat.

[Joe Salsihai]

This reminds me of one of my favorite documentaries is called Join or Die. And it's about how we increasingly no longer know our neighbors and we don't participate in our local governments and we scream at each other about what's going on in Washington.

[Paula Pant]

Right.

[Joe Salsihai]

And what is happening in your backyard, you can have a much more direct effect on. And in terms of happiness, if we're solving for happiness, there have been the scientific studies that show you are generally happier if you are involved in your local community.

[Paula Pant]

Right. And HOA in particular is one of those. It's one of those areas where you, you become aware of what it takes to run a community. The power washing, the landscaping, the snow removal, the variety of contractors who don't perform or who raise their prices or who go out of business or who sell to. You know, there's a lot to manage and frankly, that's the reason a lot of people don't run for their HOA board. It is a lot of work, it's a lot of administration. It is truly the rolling up your sleeves, low glamour, high effort, day to day grind of running a community. But if you want to be influential in decisions such as do we give our residents more advance notice prior to a special assessment? Do we offer some type of a payment plan? I mean, a payment plan like sufficient advance notice. With enough, sufficient advance notice, you can set up a payment plan because you've just given them so much advance notice that you give them notice in the spring and you start accepting payments in the fall. And then you accept those payments from fall through the following spring. And then the following spring you begin the work. Boom. There's your payment plan right there.

[Joe Salsihai]

Yeah, we didn't have a payment plan, but we had plenty of advance notice and resources so that people could set up their own payment plan or they could prepay ahead of time themselves, try to. They were invited to prepay the assessment on their own accord if they wanted to.

[Paula Pant]

But that's what I'm saying. So a prepay mechanism. So if you give sufficient advance notice, it's a de facto payment plan. So let's say that you make the announcement in the spring, but the money isn't due until the following spring. Well, then you can just start paying early. Yeah, you can just decide to allow people to start paying in the fall.

[Joe Salsihai]

Yeah.

[Paula Pant]

And then that, that de facto sets up a six month payment plan, right?

[Joe Salsihai]

Yeah.

[Paula Pant]

So if you give sufficient advance notice, that does the work of essentially setting up a payment plan and you actually benefit as the HOA because you, by virtue of setting that up, collect the money early.

[Joe Salsihai]

Are HOA meanings open?

[Paula Pant]

They are open to homeowners. So they are not open to the general public, but they are open to the members. Yeah, they're open to all of the members.

[Joe Salsihai]

Gotcha. For some people, they think, join the board. I don't even go to the meetings. Maybe it starts off with just going to the meetings. Yeah, I am on a board of a group that builds walking trails. And we will just have people, Paula, that are interested in trails that just Come to our meeting.

[Paula Pant]

Yeah.

[Joe Salsihai]

And what's cool is they end up participating in the meeting. Like, they end up. We recognize them because they're sitting right in front of us and they tell us, oh, I really like that project. I want more trails over here. And when you hear this from real people, it's. It's super. And I think in this case, maybe that would have helped the board to do something that was a little more human.

[Paula Pant]

Right, right. To recognize that there are going to be some homeowners who are unemployed who've just lost their jobs. Right. So, yes, if you are a member of the hoa, if you're paying dues to the hoa, you can go to any of their open sessions. Now, they do have some closed door sessions as well, the just executive meetings, but they've got plenty of open sessions and those are open to all members. Okay, thank you. Should we give Anonymous a name?

[Joe Salsihai]

Is it too late?

[Paula Pant]

Oh, it's never too late to give. I mean, imagine calling in and being Anonymous but not receiving a name.

[Joe Salsihai]

Like, what is. What is going on?

[Paula Pant]

Right.

[Joe Salsihai]

What else do we have going on? I know something else on the calendar this week, Paula. It is Meryl Streep's birthday.

[Paula Pant]

What?

[Joe Salsihai]

This week?

[Caller 1 / Guest]

Wow.

[Paula Pant]

Wait, you just happen to know that

[Joe Salsihai]

I'm part of the Meryl Streep fan club. Paula, her birthday was yesterday.

[Paula Pant]

Yesterday, June 22nd. All right, well, in honor of Meryl Streep, Anonymous from Texas, you will be Meryl.

[Joe Salsihai]

Big fan of the show, by the way. Both Meryls, this Meryl and Meryl Streep.

[Paula Pant]

Well, thanks to all of you for being part of the Afford Anything community. If you have a question, please go to afford affordanything.com voicemail and leave your question there. That's affordanything.com voicemail again. Remember, you can download our Four Cornerstone exercise for free at affordanything.com cornerstone. Oh, wait, Jo, I haven't asked you what's going on in your. I'm running ahead of myself.

[Joe Salsihai]

She's getting all excited.

[Paula Pant]

What's going on in your world?

[Joe Salsihai]

I think I mentioned it earlier, but yesterday we went over the SpaceX IPO. I like going through and taking that apart. Mostly for the same reason we talked about it today. But if you want to know more, A, how IPOs work, B, why you shouldn't have FOMO around the SpaceX IPO. Also why major media talked about how the Stock went up 20% on day one. You did not get 20% unless you were an insider. You didn't get 21. How does that work? How can they say that people got 20% and and I didn't or individual investors didn't we talk about that? We also talk about how this may be changing the game with indexes because the NASDAQ index is a lot of people. No, change the rules.

[Paula Pant]

Change the rules. Fast tracked it 15 days.

[Joe Salsihai]

And what's cool is we have two more of these coming up soon. We're going to have an OpenAI IPO coming and we'll also have an company, Claude Anthropic. Yeah, thank you. I know the name. Yeah, so we have those coming. So it's a good primer. So that's yesterday on Stacking.

[Paula Pant]

Benjamin's amazing. Well, Joe, thank you for joining us. Thank you for being part of the afforder community.

[Joe Salsihai]

Thanks for the great questions. And by the way, thanks to Meryl for us being able to talk about hoas and being a part of your local community. And it really stinks. And I love the cautionary tale, but huge thanks to Mia for sharing so much data that we were able to dive into her question.

[Paula Pant]

Absolutely. And thanks to all of you for being afforders. I'm Paula Pan.

[Joe Salsihai]

I'm Joe Salsiha.

[Paula Pant]

And we'll meet you in the next episode.