Money Guy Show: What You Need to Know About Open Enrollment
Release Date: November 25, 2024
Hosts: Brian Preston and Bo Hanson

The Money Guy Show, hosted by Brian Preston and Bo Hanson, delves into essential financial strategies to empower listeners in their wealth-building journey. In the episode titled "What You Need to Know About Open Enrollment," the hosts address a series of listener questions, providing in-depth analysis and actionable advice on topics ranging from early retirement strategies to optimizing health insurance plans during open enrollment.

1. Navigating Early Retirement and Living Off Stocks

Listener Question:
Joshin inquires about the "rules for living off of stocks before retirement," detailing a scenario where he’s considering how to manage a $350,000 brokerage account while taking a few years of no income due to grad school. He seeks advice on whether to sell his stocks gradually or all at once.

Discussion Highlights:

Bo Hanson emphasizes the importance of distinguishing between retirement accounts and brokerage accounts. He notes that while retirement accounts like 401(k)s and Roth IRAs have restrictions until the age of 59½, brokerage accounts offer more flexibility for creating an income stream [00:26].

Bo introduces strategies for those pursuing early retirement or following the FIRE (Financial Independence, Retire Early) movement. He suggests that "if you're able to manipulate your income to the extent that you can keep it super low, you might qualify for 0% capital gains," allowing for tax-efficient liquidation of assets [01:50].

Brian Preston adds that for younger individuals like Joshin, who may have an equity-heavy asset allocation, maintaining a robust emergency fund is crucial. He warns against the pitfalls of selling stocks during market downturns, which can lead to suboptimal financial decisions [03:10].

Notable Quote:
Brian Preston states, “Begin with the end in mind... you probably need to go heavily more on the cash side of the thing... this isn't money you want to have at risk” [03:10].

Conclusion:
For those considering living off stocks before traditional retirement age, it’s essential to balance income needs with maintaining liquidity and minimizing tax liabilities. Gradual liquidation aligned with income strategies is generally advisable over abrupt selling, especially to avoid capital gains taxes and preserve long-term wealth.

2. Establishing Emergency Funds in Dual Income Households with Rental Properties

Listener Question:
Carlos asks, “How big should my emergency fund be? If we are dual income and plan to rent out our house, should we have separate emergency funds for each?”

Discussion Highlights:

Bo Hanson outlines that in a dual-income household where both partners earn similar incomes, an emergency fund of three months of living expenses may suffice. However, if there's a significant income disparity, he recommends increasing the emergency fund to four, five, or even six months to mitigate inherent risks [10:47].

Brian Preston concurs, emphasizing the complexities introduced by rental properties and additional obligations. He advises that entering ventures like real estate or new jobs requires thorough preparation and a solid emergency fund to handle various scenarios [11:48].

Bo further explores whether emergency funds should be combined or kept separate, suggesting that while they can be treated as separate entities, effective communication within the household is paramount to manage financial dynamics and prevent power imbalances [14:05].

Notable Quote:
Bo Hanson advises, “What you don’t want to do is live high on the hog, get to the end of the sabbatical, get to 33, 34 years old... and say, holy cow, I burnt through all the stuff I saved in my twenties.” [05:36].

Conclusion:
An adequately sized emergency fund is critical, especially in households with dual incomes and additional financial commitments like rental properties. The fund should reflect the household’s income stability, risk exposure, and financial obligations, ensuring resilience against unexpected financial setbacks.

3. Evaluating Employer-Provided Ownership and Shareholder Bonuses

Listener Question:
Eric poses a question regarding his company's offer to “buy into ownership,” mentioning shareholder bonuses typically ranging from 10 to 20% of the initial investment and anticipating an increase in share value over time.

Discussion Highlights:

Bo Hanson interprets Eric's query as a "making partner opportunity" and distinguishes it from employee stock purchase plans. He categorizes this as a step 7 or step 8 in the financial order of operations, emphasizing that such investments should only be considered after establishing a solid financial foundation [15:55].

Brian Preston underscores the illiquid nature of such investments, likening it to starting a new business. He warns against over-concentration of financial capital in a single entity, advising diversification to mitigate risks [17:26].

Notable Quote:
Brian Preston emphasizes, “Be careful having both your human capital and your financial capital all loaded up in only one entity.” [17:26].

Conclusion:
Investing in employer-provided ownership opportunities can be lucrative but should be approached with caution. It’s essential to ensure that foundational financial needs are met before committing significant resources to such investments to avoid undue risk and maintain financial stability.

4. Optimizing Health Insurance Plans During Open Enrollment

Listener Question:
Amber seeks guidance on open enrollment, specifically asking, “When might an HSA or a high deductible plan not be a good idea? I currently have a low deductible plan but pay a higher monthly premium. How should I think about this as a financial mutant with HSA access?”

Discussion Highlights:

Bo Hanson advocates for Health Savings Accounts (HSAs) due to their triple tax advantages but acknowledges that high deductible health plans (HDHPs) aren’t suitable for everyone. He provides a scenario where opting for a low deductible plan might be more beneficial, especially if the current low deductible plan offers comprehensive coverage with affordable premiums and minimal out-of-pocket costs [20:08].

Brian Preston echoes the importance of “doing the homework” during open enrollment, advising listeners to assess their anticipated healthcare needs for the upcoming year. He advises comparing premiums, deductibles, employer incentives, and tax savings to make an informed decision [20:08].

Bo further breaks down the decision-making process into evaluating premiums, healthcare usage, employer incentives, and tax benefits, recommending a systematic comparison of these factors to determine the most cost-effective and suitable plan [24:13].

Notable Quote:
Bo Hanson advises, “Stack up those four columns or those four rows for all of your health plans... and make sure you're always optimizing.” [24:13].

Conclusion:
Choosing the right health insurance plan during open enrollment requires a thorough evaluation of personal healthcare needs, financial implications, and available incentives. While HSAs offer significant tax benefits, they may not be the optimal choice for everyone, particularly those with low healthcare utilization or who benefit more from comprehensive, lower-deductible plans.

Final Insights and Takeaways

Throughout the episode, Brian Preston and Bo Hanson emphasize the importance of strategic planning, diversification, and informed decision-making in personal finance. They advocate for:

• Maintaining Adequate Liquidity: Ensuring sufficient emergency funds to navigate financial uncertainties without jeopardizing long-term investments.

• Diversifying Investments: Avoiding over-concentration in single entities or investment types to mitigate risks.

• Proactive Financial Management: Regularly reviewing and adjusting financial strategies to align with changing personal circumstances and market conditions.

• Effective Communication in Households: Discussing financial goals and strategies openly within households to ensure cohesive and resilient financial planning.

Notable Closing Quote:
Brian Preston concludes, “Money's only a tool. It's not really a goal. Take an active role in your financial life... those small little decisions... can lead to your great big beautiful tomorrow.” [25:26].

This episode serves as a comprehensive guide for listeners seeking to make informed decisions during open enrollment, manage early retirement finances, evaluate employer investment opportunities, and establish robust emergency funds. By addressing real-world questions with practical advice and expert insights, Brian and Bo provide valuable resources for anyone looking to enhance their financial well-being.