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- [00:05]
Brian Preston
Unbelievable. This percent of my peers have absolutely nothing saved for retirement.
- [00:11]
Bo Hanson
Brent, I am so excited to talk about this because I think that we can change it. I think this is a statistic that is sad and frustrating, but I believe that it's one that you and I sitting right here can improve on moving forward.
- [00:26]
Brian Preston
So the big reveal if we were, because let's just go right out of the gates and tell. Now I want to flip this into the glasses half full. Fortunately, 80% of my peers are actually saving for retirement, but unfortunately 20% are. One in five have absolutely nothing saved.
- [00:46]
Bo Hanson
It's pretty dire, right? When you think about turning 50, hitting that thresholding, that mark. Most people, if you're thinking about a normal retirement timeline, you're thinking about age 65. Well, by the time you get to 50, 65 isn't so close. I mean, it's not like right around the corner, but you can see it. You can see the landing approaching. And for folks who have done nothing, who have not prepared at all, I got to believe it's a pretty frightening and pretty scary experience to be in.
- [01:13]
Brian Preston
So that's why let's, let's actually bring people to the bridge. And by the way, if you're younger than 50, which 87% of you are because I went and pulled the stats this morning, still stick around because we got some great stats on how you can do this differently. You don't have to be the passive player in your own financial life and wake up when you're 50 plus and go, oh my gosh, how do I catch up? How do I actually make this work? So we're going to hit the pause button for you young people and just try to give some love to the people who are 50 and older to let them know it's scary, but we still think there's some steps you can do. And then we're going to bring this back around and give you the motivation if you're under 50, so you don't have to be in this desperate situation in your future.
- [01:57]
Bo Hanson
Yeah. There's some key takeaways we want you to be aware of. The first of which is if you're over 50, know that your dollars are still powerful. There is still a lot of ground that your dollars can cover from age 50 out to a normal retirement of age 65. Now, it may not be the same as your 20 year old counterpart, but they can still work pretty hard for you.
- [02:18]
Brian Preston
Yeah. If you need to, don't skip out on our resources. Go to moneyguy.com resources we have actually have a wealth multiplier calculator. I don't care what age you are, you can actually use this calculator and see how powerful every dollar in your army of dollar bills can be for you and even tells you how much if you want to have a million dollars, if you want to have $2 million, what do you need to be saving to actually make your money work harder than you can with your back, your brain or your hands.
- [02:43]
Bo Hanson
And here, here's what I love about this calculator. There's sort of a twofold thing you can do. Obviously number you can put in here how much money you can say hey, If I save $10,000 this year, what can it turn into by the time that I retire? But the other thing that you can do if you have saved something, now we know that one in five have nothing saved. But even if you've only saved 20,000, 30,000, $40,000, if you put that number into the wealth multiplier, it will show you without saving anything additional, what you are on track for. So let this be some motivation, let it be something that causes you to make that next right step toward a better financial future. So that's the first takeaway, is that your dollars are still powerful. The second one is there are still some tools at your disposal. Even if you are at age 50. It's not like there aren't levers that you can pull. And the first of which might be you may need to adjust your retirement timeline. Maybe age 65, full retirement is no longer the plan that makes sense for you. Maybe you have to work a little bit longer or perhaps maybe when you retire you ease into retirement, you have a pseudo retirement timeline that allows you to, to have a few additional years to save.
- [03:50]
Brian Preston
Yeah, there's nothing wrong with if you go take a part time job with benefits or you do something to kind of help offset so you're not pulling so much out of your portfolio before it has time to kind of reach that critical mass point. You can be creative, there are tools at your disposal that you can make work. The second thing, don't forget there is a social safety net out there. Social Security, what I remind because look, I don't think if you were somebody who's probably under 50, you probably have to be a little nervous about what is Social Security look for you. Are they going to add means testing? Are they going to change the structure? But I do think that it's probably reasonable to assume that if you're over 50 and beyond, they're not Going to rip the carpet out from underneath you. So you probably do have some coverage that Social Security can cover some of your expenses in retirement.
- [04:35]
Bo Hanson
And if you're, if you've heard like, okay, Social Security, it's confusing and there's all these different options. We have a great resource you can go check out. If you go to moneyguy.com resources we have sort of this Social Security checklist list. It kind of helps walk you through. When should I claim? Should I draw at 62 or should I wait until I'm age 70? How do I decide? What are the trip wires I need to be aware of? So if you are someone who's thinking about Social Security or wants to know how it works, make sure you check out this checklist so there can be a resource to help you make those wise financial decisions.
- [05:07]
Brian Preston
And it's almost like our government recognizes that there's probably going to be a lot of people who wake up when they're 50 years old and go, holy cow, I need to be saving for retirement. This thing's right around the corner. That's why we do have catch up contributions. You know, look, they've even added. I don't even know if I'm going to get the language right. The Super Mama Jama ketchup.
- [05:26]
Bo Hanson
No, I think that's what it's. That was what was in the tax law, right? Super Mama Jama.
- [05:31]
Ribe
That's right to me.
- [05:32]
Brian Preston
Let's go through this. If you are 50 is the year you turn 50. With IRAs, whether it's Roth or traditional IRAs, you can make a bigger contribution. You know, there's all your 401k or your 403b. They are catch up contributions. Once you hit that status. And now there's even, like I said.
- [05:50]
Bo Hanson
From 60 to 63.
- [05:52]
Brian Preston
Even if you defer even more, they're going to give you even more opportunities to catch up. Take advantage of those things. There's a reason the government is trying to give you tools to allow you to invest for yourself in making your great big beautiful tomorrow.
- [06:05]
Bo Hanson
And then the last takeaway, and we just want you to think about this. If you're someone who is under 50, you're not here yet. Don't let yourself be in this statistic of those 1 in 5 people who have saved nothing because you still have time on your side. We say this all the time. The absolute best time to start saving and investing was yesterday. That means that the second best time to start saving and investing is today. So don't delay. You would Be amazed at how powerful your dollars can be if you will just begin putting them to work and.
- [06:36]
Brian Preston
You get to choose your heart. Look, if you're starting out at 50, it's going to fall on you, it's going to be a little harder and you're going to have to do more and more of the work. A lot of this weight falls on your shoulders. But if you're somebody watching this, and like I said, 87% of you guys are under 50 years of age, we looked at our demos, a lot of you, the lion's share of you are still in your 20s. And if you look at that, I want you to understand a 20 year old has to work basically a quarter of the the hard. It's a quarter of. It's four times harder if you start at 30 versus 20 if you are 40 years old, it is 10 times harder than the 20 year old. So if you're somebody who's in your 20s, let that power of time do the heavy lift for you guys. You get to choose your hard. The earlier you start, the easier it is. You have to just defer a little bit of your happiness now to really build something magical. It's all about that incremental decision making.
- [07:30]
Bo Hanson
And the sooner you figure this out, the more exciting it is. We talk about the wealth multiplier all the time. For a 20 year old, $1 has the opportunity to turn into $88. For a 30 year old, $1 can turn into 23. For a 40 year old, $1 can turn INTO 7. So no matter how old you are, your dollars still have the ability to work for you. So make that small decision today if you can make small decisions or maybe that big decision that you need to make so that you can start working towards your great big beautiful tomorrow. Brian, I love that we get to talk about this kind of stuff. I love that we get to share these kinds of ideas with our audience. And I love that we get to answer the things that you are curious about. It's why every Single Tuesday at 10am we do a live stream where we want to know what are your questions, what are the things that we can answer, what's the information we can share with you that might be valuable? So if you have a question, we would love for you to get it in the chat. Right now we have the team out in the wings collecting you your question. So with that creative director Ribe, I'm going to throw it over to you.
- [08:33]
Ribe
Yes, we're going to kick it off with Renata's question about the 238 car buying rule. It says the 238 rule says car payments shouldn't exceed our monthly investments. Mine fits that rule, but it's a 9% interest. Should I divert investment money to pay it off faster or stick with that rule? Thank you.
- [08:55]
Bo Hanson
So one of the things, Renata, I'd want to know is how old are you? Because 9% certainly sounds high interest. It sounds less than ideal when it comes to an auto loan. But one of the beautiful things about 23eight and the way that we, the reason why we constructed it the way we did is we know that if you are paying down that loan and you have it confined inside of that 36 month or three year period, that interest, while it's still going to be costly, you're gonna be able to knock it out pretty quickly. It's going to take you at a maximum three years to knock that out. And so what I would want to make sure of is okay, I am staying inside that 23 8. And then I'd want to go look at okay, based on my age, if I'm in my 20s, I know that as a 20 year old $1 can turn into $88 or even as a 30 year old $1 can turn into$23. As much as I dislike that 9% interest, as much as I dislike that compound interest working against me, I know that I have it inside a cage. I know that I've got it inside this 36 months where I can knock it out. So so long as you're doing that, rather than getting super aggressive and paying that off, I want to make sure that you're still being true to building wealth for the future and working towards that 25% outside of the 23 8. Agree, disagree, want to fight?
- [10:06]
Brian Preston
I think that, I think I want more structure in the answer. Is that a disagree?
- [10:11]
Bo Hanson
Is that a disagree?
- [10:12]
Brian Preston
Or sounds like maybe let me give more. Let me put some clothes on this.
- [10:15]
Bo Hanson
Thing is that it's naked right now.
- [10:17]
Brian Preston
It is naked right now. Because right now she's scratching her head going, was that a. Was that a yes or no? Because it's 9%. That sounds kind of high. Here's the. Here, here's. Let's get them out of the cold. If you get a match from your employer, That's a step two because there's probably a 50% to 100% guaranteed rate of return.
- [10:37]
Bo Hanson
We're not a small match, by the way.
- [10:39]
Brian Preston
So get in there and get that free money from your employer. Make sure you're doing the 401k. But I will say for somebody who's even at 25 years of age, a 9% interest rate sounds high. And it's step number three of the financial order of operations. By the way, it was hidden under my book Millionaire Mission. Check it out. If you don't know about it is the foo. We have a foo sighting here. And the fact that high interest debt, you're going to want to focus on that. But you know, and that does fall before even emergency reserves. You know, it falls before the Roth ira. But that should scare you to death because Beau is exactly right. I mean I want. For a 25 year old, we know that every dollar has the potential to become. But somewhere between 44 and $45, that's magical. That's. That's something that's really incredible. But yet you here you are paying 9% interest. You ought to figure out, is there a way for a moment in time, a season that I can quickly pay off this loan, maybe even ahead of 23:8. Because 23:8 still works under the umbrella of the financial order of operations. And look, and you look at this and you say, maybe I could even pay this car off in less than a year because of this. And I'm going to be ticked off that I don't get to max out my Roth this year. Let that be motivation versus what I don't want you to do is just let this thing drag out there. I know it sounds like you disagree with that, but I would rather somebody get so motivated that they maybe even go figure out, is there a way I can even knock this out in 6 months, 10 months, make it a season. Because you ought to be really upset that you're not maxing out your Roth. You ought to be really upset that there's other money that's sitting on the table because you have this car loan that's at 9% and get really serious about knocking it out.
- [12:24]
Bo Hanson
Great.
- [12:25]
Brian Preston
You disagree?
- [12:26]
Ribe
I absolutely.
- [12:27]
Bo Hanson
I just. Man, for a 25 year old, I just know how power you've already done the hard work of putting it inside that 238 confines. And so in my mind I'm thinking, all right, Hydra's debt on an auto loan. You know what if it's less than 10% in your 20s, I know that sounds crazy, that sounds egregious, but if it's less than 10% in your 20s, man, and you're paying it off inside that 36 months. I love the idea of you maxing.
- [12:52]
Brian Preston
I worry that that gives comfort in the fact that somebody would be like, okay, well, it's all right. And then they. They could do more. And I hate to ask that because I know in your 20s, you're already feeling like you're lean, you don't have a lot of money, but a little bit goes a long way. And I like squeezing that behavior as much as possible, because 9% just. I mean, it's. It's kind of like when I see somebody has credit card debt, I'm like, man, it's. There's certain levels of interest that it's a shame that it's going to the bank instead of going into your back pocket.
- [13:24]
Bo Hanson
I agree with you on that.
- [13:26]
Ribe
Yeah. I mean, I think you align that 9% is a little high, but also that if you get outside of the three years of the 23, eight, then.
- [13:33]
Bo Hanson
You'Re doing it right.
- [13:35]
Ribe
You gotta cut, you gotta make some changes.
- [13:37]
Brian Preston
This is the unsaid part. You're 25.
- [13:39]
Ribe
Yeah.
- [13:39]
Brian Preston
So we get super excited because it is so you can. It's almost hard to screw it up when you're 25 years old, because the power of your time is so just working for you. That's why Beau is putting. And that's why you're kind of flipping a coin because of the just incredible opportunity. So you ought to. You ought to be excited about that because we are so excited for the power of every dollar that comes in your army dollar bills. But also, don't sleep on it, because that's the thing. I hate it. And that's why we started this show off, that so many people procrastinate because they think that, you know, I don't have to worry about my 20s. I don't have to worry about it in my 30s. I'll have time. As I make more money, I'll save more. Then that is a trap. That's a. That's a fool's errand that you really ought to be focusing on. How do you get anything working for you? And I know that's probably goes more to Bo's point. But then there's also this opportunity cost of you're paying 9%. How are you ever going to get ahead?
- [14:32]
Bo Hanson
Yeah.
- [14:33]
Brian Preston
That's why they're in conflict.
- [14:35]
Ribe
Even though we kind of gave a couple choices for you there, I think that was a good answer. It gives you all the things that you need to consider and make an informed choice that works for you. So thanks for being here and asking the question.
- [14:46]
Bo Hanson
Renata, someone in here asked. Brian said, also, has Brian been working out with Bo. You've been getting a lot of, A lot of, like, health related compliments here recently. Have you noticed that in the chat?
- [14:58]
Brian Preston
Oh, please.
- [14:59]
Bo Hanson
People just say he's Benjamin Button over here. He's reversing and he's aging in reverse. Right. Isn't that awesome?
- [15:05]
Ribe
That's pretty awesome.
- [15:06]
Brian Preston
I do a morning walk now.
- [15:08]
Bo Hanson
That's the key to. That's the key you go from.
- [15:10]
Brian Preston
Well, you know what's funny is you get up, you get a little bit of that morning sun in your face. Set the. Was it circadian rhythm? Yeah, rhythm. And. And you tend to lean out. If you're. If you're walking two miles in the.
- [15:22]
Bo Hanson
Morning, do you, do you do it barefoot?
- [15:25]
Brian Preston
No. Why would I do that?
- [15:27]
Bo Hanson
My wife is all about, do you do this? She does, like, the morning sun and the grounding. It's like this whole thing, okay, you.
- [15:33]
Brian Preston
Live on a farm and you can walk through a field. Me, walking on asphalt?
- [15:37]
Bo Hanson
No, no, I wouldn't walk on asphalt in the morning, but there's like, ground.
- [15:42]
Brian Preston
That's my childhood, by the way.
- [15:44]
Bo Hanson
I mean, I wouldn't walk on the asphalt barefoot, but grounding is a thing, right?
- [15:48]
Brian Preston
Yeah, that's walking grass in a field or something.
- [15:51]
Ribe
I don't think it has to be a field.
- [15:52]
Bo Hanson
I think it's just generally grass. Grass.
- [15:54]
Brian Preston
Like it's not asphalt.
- [15:55]
Bo Hanson
It's definitely not asphalt.
- [15:56]
Ribe
I don't think this is the same thing, though. I think that's where we're.
- [15:59]
Brian Preston
If you're walking.
- [16:00]
Bo Hanson
I'm not saying walk.
- [16:01]
Brian Preston
There's no way. There's nowhere I can walk two miles that I'm not on. Walking on asphalt.
- [16:05]
Bo Hanson
I. I know your neighborhood. There are front yards all over.
- [16:08]
Brian Preston
Oh, that's what I want. I'd be stepping on every dog poo. Everybody's yellow, neighborhood. I would spend just as much time cleaning my feet and getting the poo off my feet and as I would anything else.
- [16:19]
Ribe
Oh, man.
- [16:19]
Bo Hanson
You guys, neighbors aren't scooping up that. They don't scoop up that poop.
- [16:22]
Brian Preston
Not my yard, they don't. I mean, I let my dog just go wild, wild on it. I don't pick up in my. I pick up in their yards, but I don't pick up in my yard.
- [16:30]
Ribe
Talking about his yard specifically.
- [16:32]
Bo Hanson
Just a bunch of landmines in your front yard.
- [16:34]
Brian Preston
My dog goes in my yard. I let the rain take care of it.
- [16:36]
Ribe
Walk at your own risk.
- [16:37]
Brian Preston
God as God meant it to be. I don't want their Great Dane. I have a little seven pound you know, little mini dog, little hamster running around. So I mean, it's not like. I mean it's like a rabbit pellet. You know, the dog first rain, it's gone. But the Great Dane that walks through my neighborhood, I do want them picking up their human size issues.
- [16:56]
Bo Hanson
Now if they, if they left their deposit in their yard, would you be okay with them letting it hang out?
- [17:00]
Brian Preston
Yes. Their yard. Free America. Do what you want.
- [17:05]
Ribe
Wow. Learn something new there about Brian's home.
- [17:11]
Bo Hanson
Note to self, if you walk through Brian's front yard delicately, tread carefully.
- [17:16]
Ribe
All right, let's bring it back to the personal finance questions. I've got one queued up from webgoalie. It says, I'm a little short on step 4 of the foo. Currently thinking about cashing in my HSA money to change to cash. I have about 10k in saved receipts dating back about 9 years. Thoughts? Is this a bad idea?
- [17:40]
Brian Preston
It doesn't have to be an all or nothing. You could actually within the HSA for free up additional cash. So it's still in that awesome structure being in a health savings account. And then that gives you the buffer or the margin to as your life in your actual savings rate is, allows you to build up actual step four. Then you can always go back and then reinvest in step five, that health savings account. But if you pull that money out, you're not gonna be able to get it back in and that would trouble me. So I think it's kind of you're bringing up a solid point that the cool thing about a health savings account, we know 96% of the public typically uses this thing as a cash clearing account. You put the money in, you take the tax deduction, and then you reimburse yourself for your medical expenses. The financial mutant way is you actually put the money in, take the tax deduction. But then the goal is you eventually invest this money, let it grow upon itself, and then you reimburse yourself for the expenses and. And you let all that compounding growth pay you back, but also just build you something even better. It's really an incredible thing. But if you got yourself in a pickle where you're like, okay, maybe I should just go ahead and take some of this health savings account, put it in my step four emergency reserves, I would say, why not do this? Continue to go the financial mutant route, Free up cash in the health savings account. So if you got caught where you had a need for cash, you could always go get the. You said you have nine years worth of medical expenses that you could reimburse. It's the best of both worlds.
- [19:07]
Bo Hanson
Yeah. So I like that idea. I'm going to. I'm going to make one small, like, tweet, tweet. I love the idea. It doesn't make a ton of sense to me to pull that money out of the HSA and then put in your Mercury fund. Because you've already got an hsa, you protect that structure. One of the questions I want to ask Webb is, okay, how short on your emergency fund are you? Meaning is your goal 6 months of living expenses and emergency reserves, and you're at like, four and a half months? Okay, that makes me feel pretty good. What I would say is, rather than like, selling the HSA dollars and immediately taking those dollars and have them sit in cash, could I just put things on pause and start back in step four and just build up my merchant fund over the next month, two months, three months, rather than selling assets that are already working for me, meaning I've already got them in the hsa. I already have them invested. Do I need to sell and liquidate those if I've already got, you know, four and a half, five months in my emergency fund? Now, if your emergency fund is so lean that you've got, you know, two weeks of living expenses, that's an entirely different conversation. But if this is something that you can rectify in the next 1, 2, 3 months just by adjusting how your future savings are going, I think that that would be okay and permissible as well.
- [20:15]
Brian Preston
Just to clarify, because I don't want. I want to make sure that we're not letting web goalie turn into an access to cash trap.
- [20:21]
Bo Hanson
No, no.
- [20:22]
Brian Preston
It's got to have very sure. That's why I love that you clarify that if this is something you can fix in the next few months, that that strategy works. But if it is something that you're like, oh, man, I have woefully underfunded my emergency reserves.
- [20:34]
Bo Hanson
Well, then you got to go.
- [20:34]
Brian Preston
Let's go ahead and place a trade in the health savings account to turn that into cash so that you're not counting on that if things go ugly or sideways, that you're going to have to go sell this account down at the world's worst time to agree.
- [20:47]
Ribe
Well, Webbgoalie, thank you for that question. I hope that helps you think through your emergency fund.
- [20:53]
Brian Preston
Kudos for them actually structuring it that way, at least giving you options. I love the mindset. Now, let's just make sure we don't get so out ahead of our skis trying to maximize food that we don't actually finish off each step.
- [21:06]
Bo Hanson
Love it.
- [21:09]
Ribe
All right, Trey, HS3 has a question. It says, my wife is a self employed hairstylist. What kind of accounts are available for her to fund retirement and take advantage of being self employed?
- [21:23]
Bo Hanson
It's so funny, Brian, back in the day when you were a cpa, you're still a cpa. I'm not going to take that away from you. Back in the day when you were a tax preparer, this is one of the coolest parlor tricks that you would do. Someone would come in, they sit down, they meet with you and they'll be like, Brian, I have this small business and I had the success last year. I didn't know that was going on. And man, I just wish that there were a way for me to decrease my taxes and you would say, guess what, I have a treat for you.
- [21:50]
Brian Preston
Well, it's gotten even better. I mean what Bo was talking about is back in the day you would just use SEP IRAs because they'd allow you. And that's all employer funded money. And it was a really cool thing that you could show for for self employed individuals. But here's the cool thing, it's gotten even better, Trey. Your spouse likely could qualify for a solo 401k where not only because here's why it's great is that it's very similar to a SEP in the fact that you could do 20 to 25% of the profit of the company that's subject to any of the income that's subject to self employment taxes or payroll taxes. You would qualify that as an employer contribution. It would be completely deductible. But then on top of that, because this is why it's better than a sup, you still qualify for what's called salary deferral contributions. When we talk about the $23,500 that employees can put into their 401k, your spouse could do that for themselves. And a lot of these, what's crazy is this has gotten so good is it used to be you'd have to go traditional, meaning you take the deduction when you make those contributions. But now some of even these custodians are allowing Roth distributions to come on the scene as well. So don't sleep that. Solo 401ks are your friend. They keep making the tax provisions even better because there's usually I have to give an asterisk and say, but here's the problem with solo 401ks. But they keep improving it with every new tax legislation that comes out to where these things are pretty fantastic for self employed individuals.
- [23:20]
Bo Hanson
And there are only, you know, two things that I would caution you to be aware of if you do go the solo 401k route. One one is you can't have any other employees. It has to truly just be you or you and your spouse as employees of the entity. As soon as you have your first other employee, you can't do a solo. You can still do a SEP contribution, it'll be a little bit more expensive, but you can't do a solo. You got to do a traditional 401k. And then if you do this for a while, for an entire working career, one of the beautiful things of solo 401ks is they don't have annual filing requirements like other traditional 401k plans until the assets reach a certain level. Once the assets in the solo 401k plan cross over $250,000, you do have to remember to file an annual form 5500. There are no taxes due on this filing. It's just a filing that you must do. But if you don't, the penalties are pretty steep. So you just want to make sure you're keeping an eye on that. Especially if you're going to do something like roll other retirement plan assets into your solo or run roll IRA assets in so that you do not run afoul that. So long as you pass those two things. Solo 401ks are awesome.
- [24:23]
Brian Preston
And even when fast forward to a few years of success and you get this account to 250, it's not the world's worst thing.
- [24:28]
Bo Hanson
No, it's not.
- [24:29]
Brian Preston
Because you can find an accountant that would probably file the 5,500 for a reasonable cost and even have the opportunity because hopefully as you grow your business and maybe even add employees down the road, you could just turn it into a traditional or normal Safe harbor type 401K. Yes. You'd have to do the angle filings and so forth, but you'll be justified at that point.
- [24:48]
Bo Hanson
Yep.
- [24:50]
Ribe
Great. Well, Trey, thank you for the question. Thanks for being here on the live stream today.
- [24:54]
Bo Hanson
Ruby, can I throw a curveball at you?
- [24:56]
Ribe
You can.
- [24:56]
Bo Hanson
I don't know. I'm going to ask you a question don't know the answer to, which is incredibly dangerous.
- [25:00]
Brian Preston
Don't do that in a live stream.
- [25:02]
Bo Hanson
Someone just said this. They said, hey, I've got this idea. You ought to have your top contributors in the live stream on the show. As like a special guest that obviously you do. I don't know if you know this. We actually just released a react yesterday of us reacting to listener confessions of you guys sharing with us, hey, here. The things that we did with money. And here's something that I did, and here's a thing that I happened and that's actually available out there. So, Aviel, that thing that you're looking for, us reacting to some of our top commenters and top people, we actually did one of those yesterday, and I think we're going to probably do more of those coming up.
- [25:39]
Brian Preston
So. Moneyguy.com confessions.
- [25:43]
Bo Hanson
So that was the part I didn't know.
- [25:47]
Ribe
Got it. MoneyGuy.com is where you go if you have a money confession or a crazy money story to share. If you could be on the show, your actual voice could be on the show.
- [25:59]
Brian Preston
Can I clarify two things?
- [26:00]
Bo Hanson
She said your actual Rebi was not.
- [26:03]
Brian Preston
One of the voices in the comments. I'm like, what are people talking about? We. We get enough feedback from you guys. We don't have to prime the pump with Reb changing her voice and pretending.
- [26:13]
Ribe
Like she paid taxes. Yeah, it was like a tax story in, like, Washington, D.C. and I was like, I don't. Yeah, I don't even think I could.
- [26:21]
Brian Preston
Get a sister from another. From another mother out there with your same voice.
- [26:25]
Ribe
Imagine.
- [26:26]
Bo Hanson
Imagine if we did try to do that. Like, we tried to. We read the questions and we tried to disguise our voices. What accent would you go with to disguise your voice when you.
- [26:35]
Brian Preston
Oh, it would be the worst.
- [26:37]
Ribe
I think we all say it would be painfully obvious. Like, you would know for sure.
- [26:43]
Brian Preston
Yeah. I'm John, calling in for the money guy show.
- [26:47]
Bo Hanson
I totally thought he was going to go Australian or something like that.
- [26:50]
Brian Preston
No, I have.
- [26:52]
Bo Hanson
There you go.
- [26:53]
Brian Preston
Money guy show.
- [26:55]
Ribe
Okay.
- [26:55]
Bo Hanson
We would never know it was him. We would literally never know it was him. Yeah. That's awesome.
- [27:00]
Brian Preston
So obviously they're not using me for. For the. The fake voices. No, it's legit. I mean, by the reacts are. Reacts with us. We don't. We don't fake it. First time we saw because even after we recorded that show, I was like, is that gonna be anything? And then.
- [27:15]
Bo Hanson
Oh, I laughed out loud.
- [27:16]
Brian Preston
What I realized is that you don't realize that. How many times can I say realize in a sense is Bo and I just. Our facial expressions. I mean, that's where. That's actually where the show was. I didn't. I didn't realize we reacted that strongly to things.
- [27:29]
Bo Hanson
I want to make sure that I'm understanding this correctly because I'm trying to keep up with the chat. Is this coming in? Am I understanding right, team, that Mr. Thrifty underpants is in the live stream, right?
- [27:39]
Ribe
What?
- [27:39]
Bo Hanson
Bro, Honestly, maybe one of the most shocking things that I've ever like done on air is listening to you tell.
- [27:47]
Brian Preston
Your studio tour with your spouse. Because a little money, man, I can improve this marriage.
- [27:55]
Bo Hanson
Wear pants. The team is saying. Make sure you do your studio tour. By the way, if you have not listened, you want if you have no idea what we're talking about, you may want to go listen to yesterday's react because we reacted to a gentleman, Mr. Thrifty underpants telling a story of how he makes his consumption decisions when it comes to apparel and you don't want to miss it. So if you're not subscribed, you didn't get a notification. So make sure you subscribe so that you can know whatever there was.
- [28:19]
Brian Preston
There were comments that said please don't start the next show and I think they were alluding to the fact that this might have been pg 13. And so I was like, I mean we tried to keep it as clean as possible, but Thrifty, hopefully you got some new drawers.
- [28:30]
Bo Hanson
That's something.
- [28:33]
Ribe
Oh man, that's great.
- [28:35]
Brian Preston
When I started my business, stamps.com made my life easier and made me feel like we had leveled up to the next tier of success. Fast forward. We're much bigger with much more complexity and stamps.com is still our all in one mailing and shipping solution.
- [28:48]
Bo Hanson
You know those Money Guy tumblers we give away during YouTube live streams? Stamps.com is a crucial part of the shipping process. It helps us get those tumblers to their destinations all around the country.
- [28:57]
Brian Preston
It's a great service. You can automatically see your cheapest and fastest shipping options from different carriers. And the best part is it's super flexible. All you need is a computer and a printer. They even send you a free scale.
- [29:08]
Bo Hanson
Have more flexibility in Your Life with Stamps.com Sign up at stamps.com and use code moneyguy for a special offer that includes four week trial, free postage and a free digital scale. No long term commitments or contracts.
- [29:20]
Brian Preston
Get a four week trial, free postage and a digital scale at stick stamps.com moneyguy thanks to stamps.com for sponsoring the show.
- [29:29]
Ribe
All right, you ready for the next question?
- [29:31]
Brian Preston
This is where if we were better at business we we'd have like a I'm not gonna give any brand any free love right now, but we'd have an underwear manufacturer just lined up with like an affiliate code or something that we would say you too can have the same underwear that brought in BO wear.
- [29:45]
Bo Hanson
How ridiculous team is it going to be when the very first merch we roll out is like money God drove. Like that's the very first merch.
- [29:52]
Brian Preston
I'm so excited. Just that just writes itself. Let's just writes itself. Don't worry.
- [30:02]
Ribe
Don't worry, everyone. I will make sure that doesn't happen.
- [30:05]
Brian Preston
I got him. It's like a sniper around here. Oh my goodness. That is the cheapest drawer. Nobody's sells 12 packs of underwear except for like mass. He's got him some fruit of a Loom or Hanes.
- [30:22]
Ribe
Listen, all it needed to be was new, so that's fine.
- [30:26]
Brian Preston
And they're probably tidy whities because nothing sells that unless it's just such a small amount of fabric that they can put 12 of them in a pack. So it's. I don't know if it was an upgrade.
- [30:38]
Ribe
Oh, man. Okay, that was awesome. I am going to try to transition us back to personal finance.
- [30:43]
Brian Preston
Please do.
- [30:43]
Ribe
I am glad we talked about reacting to money.
- [30:46]
Brian Preston
Thank you, Thrifty for the, for the, the input. I'm assuming sovereign citizen is not out there because they're like good tri feds or nice tri feds. Whatever they say.
- [30:55]
Bo Hanson
Nice trough feds.
- [30:57]
Ribe
Okay. Chris H. Wrote. I know as a married couple making under 200k we can count our employer match in the 25 investment rate. That's some money guy guidance that we talk about. But as we approach that 200k mark, how would you recommend working up to the 25% investing mark? And this is kind of a good point because if you have a decent employer match, this is kind of. This could feel like a big jump. Right? Is there any type of mindset or practical thing that he should be thinking about?
- [31:29]
Bo Hanson
And Chris, one. It just shows me that you're a financial mutant that you're even thinking about this. Like, oh, I'm about to cross over this threshold. How do I prepare for it? And my answer is going to be the best way that you can. Right? Like that's how you should get ready for this. Because here's what I want you to feel like, man. All right, I'm saving 20% and I've got this 5% employer match and I'm crushing it, crushing it, crushing it. And then all of a sudden my income crest over 200,000 and like, oh, I'm only saving 200. I'm only saving 20%. No, I'm a failure. No, that's not the thing. If that's what's going on, figure out, okay, what can we do? As my income increased, did I also increase how much I was saving? If I got a pay raise, that I have 60% of that pay raise go towards my saving and then 40% of that net pay raise go towards spending and consumption. And if you do that, what's going to Happen Is that 20% or whatever your number is savings rate will naturally Trend up to 25. It's not like something like line in the sand. You have to make it right today. That's not the way that the real world, that's not the way that real life works. But so long as you have a plan to get there, I think that you're going to be fine.
- [32:35]
Brian Preston
Look, I don't mind sharing that. I think that here's the spirit of why we put this rule in there. If you're Chris, if you are somewhere between 20 and 40 years of age, you know, likely, and you cross this threshold, that's an important thing that you probably need to plan ahead. That man you got, that's a blessing. First of all, that your income is going to exceed 200,000 as a household. Y' all need to act accordingly and plan, man. We actually probably are getting our lifestyle might even be going beyond the social safety net. So it's going to put more of the responsibility on us. But I don't want somebody who's out there who's watching this, who's 60 years old and just it so happens that on their 59th birthday they crossed 200,000. Like, oh my God. Now all of a sudden this rule has caught me and it doesn't count. No, it's, it is the, it's in the spirit of what does your life look like on what you're saving and opportunities to build. And if the majority of your life you never. And we know there's a lot of you financial mutants who will never make $200,000 as a household, but I don't want a one off year to make you feel like, oh my God, now that I don't get to count this. No, if you're 60 years old and you had a one good year where things popped over 200, it's no big deal. I mean, the lion's share of your money was made in this spirit. But if you are on the other side of this, you're 30 years old or 33 years old, and all of a sudden you've gotten some promotions and it looks like next year is going to be even better. You should take that to heart and act accordingly and start really rip out the safety net you've lost. The if you think about the trapeze artist who loses the net when you go to the circus, that's you. So you need to act accordingly. Realize this is a serious situation and make sure you're being disciplined with your success.
- [34:20]
Bo Hanson
But keep in mind, it's not like this thing happens that as soon as you don't get to count the employer match, like your employer match goes away, it's still there. So if you were saving 25% and you cross over that threshold and you save an additional 1%, so you're saving 21%. You actually have 26% going in for you. Technically you just don't get to count that 5% match. So your money is still going to continue growing, still going to continue working for you. We just want you to improve upon it as your lifestyle improves. But what a great spot to be in.
- [34:53]
Brian Preston
Definitely.
- [34:54]
Bo Hanson
That's awesome. Good job, Kris.
- [34:56]
Ribe
Excellent. Thank you for the question. Chris. Leah F. Has a question. She says, I'm 28 and I'm about to inherit 900k in a traditional Roth IRA and a fixed income annuity IRA. Does a growth annuity make sense to move Does a growth annuity make sense to move the annuity to during the 10 years we pull it out? Does that make sense? And do I need an advisor?
- [35:22]
Brian Preston
Okay, first of all, Lee, I'm sorry because obviously you've lost somebody in your life to come into this type of money. So that's the first thing. But wow. Oh wow. What a legacy opportunity for somebody who obviously is in your life that was very successful is leaving you this sum of money. You get a great opportunity to kind of really turbocharge your financial future. I will tell you and I'll let Beau fill in the void here. When I'm reading your question or having Ribi read the question, nowhere in this was I was like annuity. It was the first stop on the train stop. Especially for a 28 year old. Look, you can choose an annuity, but that's something typically annuities are something I see people who are trying to. It's like the equivalent of a fixed income for the future. If you want to do an immediate annuity or something like that uses it a tool to take some of the risk off of you. I don't immediately typically think of that for a 28 year old though. Bo.
- [36:21]
Bo Hanson
Well, here's what's interesting, the question is it's going to be difficult to answer this not knowing the specifics of what you have inherited, but here's what I'm understanding you to say. I'm inheriting $900,000. Some of it is in Roth IRA, it's traditional IRA. Some of it's in a traditional IR, some of it is inside of an annuity. Inside of an ira, there's two different pieces we have going on. Well, one of the beautiful things is oftentimes if you inherit an annuity, you might think to yourself, man, well, I can't, I can't really do anything with this because there's going to be taxation if I'm trying to get out of it or change that. So I might want to do some sort of exchange from a lesser fitting annuity into a better fitting annuity for my age and my risk tolerance. The fact that it's inside of an ira, though, might give you some relief option. If you're past a surrender period and if there aren't any, you know, anything causing you to lock it up, you may be able to just surrender that entire annuity inside of that IRA and get out of the annuity structure altogether. Now, the problem is, is not all annuities are created equal and not all situations and circumstances are the exact same. So this is something where at the very minimum, you're going to want to call the insurance company, call the annuity company and say, hey, what are my options here? If I just want to surrender this into an ira, what are the implications of that? If I want to keep it, what's that look like? If I want to exchange it or trade it, what's that look like? And yes, unfortunately, or fortunately, depending how you look at it, this might be one of those times where it does make sense to get a second set of eyes on this, likely from someone who does not sell products. Meaning don't, don't ask an annuity salesman, hey, should you sell, should I go buy an annuity? Because there's a chance that the, the guidance might be biased potentially. But ask an independent third party who's not paid based on the products that they're selling, hey, what makes the most sense? Or what are my options? How should I approach this? And there's a really good chance that you might be able to get out of the annuity structure altogether with no tax consequences, so that you can then invest those dollars the way that you choose and you can take your required minimum distributions on the timeline that you choose without Having to be stuck in the same type of structure that it was when you inherited the assets.
- [38:28]
Brian Preston
So let me. Because there's going to be the trolls who crawl up from the bridge and go finding all the financial advisors are crooks. You guys would immediately. You have a conflict too, because you would want to manage the money. Ask that question of the if you're interviewing financial advisors, because that's the thing that I always your financial advisor. If you're talking to somebody, it's part of the eight questions. By the way, go moneyguy. Com.
- [38:50]
Bo Hanson
Great resource to pull up.
- [38:51]
Brian Preston
Again, these are the questions you ought to ask anybody who's going to give you guidance. And I don't think it should be off limits to say, hey, obviously if I pay off my mortgage or I pay off some debt or I do this, you guys make less money. How do you navigate that? Don't be scared. Embrace the conflict of the, of the hardness of that question to see how transparent the person that you're interviewing. Because this is important. It's supposed to be a relationship, a fiduciary relationship where they're putting your interest first. I don't think questions like that should be off limits.
- [39:22]
Bo Hanson
And I'm gonna, at 28, I'm gonna go on a limb and assume that $900,000 is a, is a life changing sum of money. I mean if you go to moneyguy.com resources just drop $900,000 into the wealth multiplier to see what that potentially could turn into for you by the time that you get to retirement. It's substantial, it's a significant amount of money. So you're just going to want to make sure you understand all of your options. Not, I mean there's not necessarily one exact complete right answer. But you want to know what all of your options are. So that either you can choose or you can have someone help you choose which one of those options absolutely makes the most sense for your situation.
- [39:59]
Brian Preston
Look, here's the thing because sometimes when you have these big life events, you need somebody to just to tell you the truth of take a deep breath. You probably do need to figure out the structure questions for first. But if you need a little time on what's the best way to invest this, you don't have to get in a hurry. You do need to figure out the tax implications, the structure questions, find somebody to help you that. But then you can slow down the process. You don't have to feel like you have to go invest all at once or make a big lifestyle decision. Right now it's okay to take some time to process, figure out the best thing, but do figure out the structure so we can make that as efficient as possible.
- [40:38]
Bo Hanson
And this Again, here's just 10 cents of free advice. Not all annuities are created the same. So sometimes we'll have clients who come to us and they're, they have an annuity and it's not great and it's stuck inside this structure. And it might be possible without triggering a bunch of taxes for us to do some sort of like rescue annuity, which doesn't have all the commissions, doesn't have all the expenses, doesn't have all the frills and expensive bells and whistles, but it just gets you. If you're stuck in that structure where you might be able to get into a better products. So even if they say, hey, we can't, you can't get out of this annuity, there might be an option for you to get in something that's better, that allows for more flexibility, for you to have a better plan better suited for what you're ultimately trying to have these dollars accomplish for you.
- [41:17]
Brian Preston
You're going through this for the first time. Go find somebody who's done this hundreds of times so that you can navigate.
- [41:23]
Ribe
It well, great answer. Hey, if you are to Leah or to anybody else who is resonating with this conversation, make sure to go to moneyguy.comresources first of all, to download those eight questions to ask an advisor. And then in the same place@moneyguy.com there's a little button that says become a client. Maybe you'd be interested in that. Just go check it out. We're happy to just have a conversation with you, see if that is a good fit for you. So be sure to check those two things out.
- [41:50]
Brian Preston
I just read it as leaf because it's Leah. F. Right?
- [41:53]
Ribe
F. Yeah.
- [41:53]
Brian Preston
Leaf.
- [41:55]
Ribe
Leaf.
- [41:55]
Bo Hanson
Somebody asked their leaf, what's Brian's mug? It looks like a jellyfish. It's not a jellyfish.
- [42:00]
Brian Preston
That looks like a jellyfish.
- [42:01]
Bo Hanson
Oh, it was turned sideways. If you saw from the back. Maybe it's a story.
- [42:04]
Brian Preston
What's funny? Now look, I have, I still have, I have my other mugs that you've seen, but this one I'm kind of proud of just because of financial mutant access. Last time I was at Disney, I see that they're selling this mug still for like 20 something bucks. Somehow it was on the clearance rack with Disney, one of the disney.com or whatever. I got this for like six bucks. Oh, wow. For some reason, the coffee just tastes better because now you got a deal. It's so cheap.
- [42:30]
Ribe
I mean, it was so good.
- [42:31]
Brian Preston
I was like, man, this thing, and it's financial. I will tell you the reason that.
- [42:36]
Ribe
Maybe it's a tight one. Flex. I'm not sure.
- [42:38]
Brian Preston
The reason I got this one though, is because I. When we went to Disney Paris, I bought a stormtrooper mug that I loved, but somehow I got broke, you know, because I had it on my desk at the office and I think the. The cleaning crew, they broke it and they didn't fess up at first, but I was like, where's my. And then I tried to replace it by buying one on ebay. It showed up broken. So I was like, you know what? Until I go back over to Europe, I guess I'm not going to get the Stormtrooper. And it was kind of sad because I was, you know, Avery's graduation gift. But this is kind of. It makes. I think it filled the void because I got a good deal on it.
- [43:17]
Bo Hanson
I love that.
- [43:18]
Ribe
Love it. Well, now you know. It's a stormtrooper mug that Brian got a great deal on.
- [43:22]
Brian Preston
Do you see how I can. We can make stories out of anything. We could walk around and point to things and do all the crazy knickknack stories.
- [43:30]
Ribe
Yes, you could.
- [43:30]
Bo Hanson
We're all terrified of that. That's true. That is the thing that can happen.
- [43:33]
Brian Preston
This is why we can make a two minute show into 12.
- [43:39]
Ribe
Okay, we have another question on deck from Darn it Dave.
- [43:43]
Brian Preston
Darn it Dave.
- [43:45]
Ribe
It says when should we listen to anxiety versus quiet it? We are at step eight, seeing progress, but spending on wants like a nicer home or better vacations feels like a setback. How do we balance enjoyment and long term goals?
- [44:05]
Bo Hanson
Very first question I would ask you, Dave, or darn it Dave, is feels like a setback from what? What are you setting yourself back from? Meaning if you're on step eight, that means that you have passed. Brian, you have the thing. Can you hold the thing up? That means you've passed through the first seven steps of the financial order of operations. You're saving an addition. You're saving in excess of 25% of your gross income. And I hope at this stage you've likely kind of defined what your finish line looks like. If you've not done that, we have a great resource you can go to. Learn.moneyguy.com check out our know your number tool to figure out what your number you're working towards. Well, if you've done that and you know where you are presently and you know the goal that you're ultimately working towards, if you were to upgrade the home or go on the vacation, yes, it's going to consume some of your resources, but are you certain that it's actually setting you back? Is it moving you further away from financial independence? Or are you actually at that stage where now you get to do the things that you want to do on your terms, the way you want to do them, when you want to do them? Because if that's the case, that's the reason why you save, that's the reason why you've built up this wealth so that you can use it for those types of things. So that's the question I would ask is why does it feel like a setback? What do you feel like you are setting yourself back from now? If you arrive at the conclusion, okay, I'm not at financial independence and if I do this, I'm gonna have to work for five more years or da da, da da, then yeah, maybe it doesn't make sense, but you ought to sit down and have a realistic conversation, you and your spouse, to figure out what are the goals that we're working towards and when are we going to begin to be okay flipping the switch and starting to use the resources we've spent our entire lives building.
- [45:48]
Brian Preston
Realize there's a fine line between financial mutant and financial miser. My biggest thing is trying to make sure you live a life without regrets. So I would ask you, it's one of those happiness exercises. If you had unlimited resources, what would you do with the money? I mean, what would you go do more of? If that's like going out to eat, if that's going on vacations, maybe your answer is a bigger house. I mean, I don't know. It's just that I try not to put my thoughts. But that's one of the things I was like, a bigger house wouldn't do it for me, but definitely going on more trips, doing more things I would try to lean into and then say, look at my financial life and go, well, I'm on track to where I should, so I don't have regrets. When I'm 50 something and go, and I wish I'd have done more in my 20s, I wish I'd done more in my 30s. I would, I would start asking yourself some of those big life questions of what is brings you happiness or what it, what makes the memories, what is the, the things you find fulfilling. Are you doing enough of that. Because it doesn't necessarily. Now maybe it is. You want to have a nicer car because there are. Look, there are people. I was, I was talking to some neighbors and we were. And, and they were talking about exotic cars and. Because, you know, some of these guys are really into it and I find.
- [47:00]
Bo Hanson
They were pro exotic car.
- [47:01]
Brian Preston
Like one of my friends shocked me is that he told me he put himself. Now he didn't buy it, but he put himself on this list to buy a Ferrari.
- [47:09]
Bo Hanson
Okay.
- [47:10]
Brian Preston
Because I didn't realize there's like some crazy waiting. They got to shock me. I was and had to approve.
- [47:15]
Bo Hanson
Like there's a whole thing. You got to go.
- [47:17]
Brian Preston
But you know, after he talked about it and I could see, see and he was talking to this other neighbor and all the glee in his eyes, I was like, I would never buy a Ferrari. But. But I could see that for him this might be like this big life achievement thing that. And if he's not sacrificing, you know, his financial success, then okay, that, that's. So there might be things that you can do, but it's just that you have to go through the exercise and figure out the why. What brings you happiness. And then what likely you're gonna find out is you're way ahead of the curve. And if that's the case, then you just need to make sure that you don't move on without with big regrets. Because that's the thing. I get financial mutants who write me and say my family doesn't like to travel with me because we're putting six people in one hotel room. We're still using the closets with sleeping bags. And I'm like. Or, you know, or we go and we're driving 12 or 14 hours instead of actually buying plane tickets for everybody. Even though we're sitting there with millions of dollars. There's a. There's a threshold where you've lost the plot. Now maybe if Your family loves 14 hour road trips, and this is just part of the fun because look, there was a season in my life with my. All my high school buddies, I felt like we had more fun doing things in the car, like riding on road trips and stuff like that than even when we got to the destination. If that's your life, that's one thing. But if you find out that, you know, you got small dogs and, you know, and you're having to pull over and it's just moving miserable, you know, there's a better way. Use the money as a tool to, to, to make sure you're maximizing this life that you get.
- [48:46]
Bo Hanson
Love that.
- [48:46]
Ribe
Yeah. Good stuff. Darn it. Dave, thank you for the question and hope that helps you think about.
- [48:52]
Brian Preston
I will say one, I hate to do string answers. This is one of the big things that a financial advisor does. Everybody thinks financial advisor for sure. They think that we're the, the, the stereotypical 1990 Susie Orman saying, no, no, no. It's just the opposite. Typically, I'm having to tell my financial mutant clients, go do more. Go live your best life. And it's very freeing because usually in a couple, one will be super tight and they need some coaching. And you ought to see the dynamic in the relationship when a financial advisor is working with that one, that's more leaning towards financial miser, the mutant. And we get to give the analytics as well as the coaching on ease up, relax. And what that does in the dynamics of the relationship is pretty amazing.
- [49:39]
Bo Hanson
It happens the best of us. I was at, you know, I was at the beach this past week, and you know how many times my wife had to say to me, bo, we're on vacation. But it was okay. I was like, hey, we can't order. Don't order any appetizer, any drinks until 2 o' clock. Because from 2 to 5, they do. That's when everything goes. That's like, it's half appetizer, half fried. And she was like, Babe, it's 11 o' clock.
- [49:58]
Ribe
We came all the way here.
- [49:59]
Bo Hanson
I want some food. Like, let's get food. So even, you know, even we need a little bit of coaching. My wife is more than happy to help coach me through that. Love you, honey.
- [50:09]
Brian Preston
She's not watching.
- [50:10]
Bo Hanson
I know.
- [50:12]
Ribe
I think we all just had that same thought. Like, she's not gonna hear that. Maybe she will, though. Jenna, if you're out there, that'd be awesome. Okay, Alejandra has a question for you. Question. If I'm not eligible to contribute to a Roth due to my tax filing status, but my employer offers a Roth 403B, would that be the best option versus a pre tax 403B or a pre tax 457?
- [50:40]
Bo Hanson
So here's what's. Here's what's awesome. One of the downsides of Roth IRAs is that there are income limits that if you make over a certain income, you cannot contribute directly to a Roth IRA anymore, depending on your filing status, whether you're, you know, single, had a household, married, filing jointly, whatever. One of the beautiful things about employer sponsored retirement plans is that there are no Income thresholds. So you could make a million bucks a year and you could still contribute to a Roth 401K or Roth 401K or Roth 403B. And you can do up to $23,500 into that. So it's an awesome benefit. Now, the question you have to ask is, okay, does that make the most sense for my situation? Now, Alejandra said something interesting in there. Did you hear?
- [51:22]
Brian Preston
Oh, yeah, well, that's. We'll give you the legal answer, but then be careful what you ask for because we might actually. You're like, gosh, I was just trying to get a simple answer, and these guys just put more on me. We think that what you whether. Because your real question is Roth versus pre tax. You know, if your tax rate, your marginal rate, both federally and state is 25% or less, and you're. Especially if you're under like 40 years of age. Yeah, that leans kind of towards Roth. I mean, without a doubt, because you get so many years of, of compounding growth, you're not in a historically high tax rate. 25 to 30% tax rates is kind of in that gray zone where it could go either way. And that's where probably your age, your goals, how you're going to use the money really, really impacts it. And then for income taxes, tax brackets greater than 30, we're hoping that there's a tax arbitrage opportunity from the time you leave the workforce to when the government makes you take the required minimum distributions. Maybe you do some Roth conversions or, you know, pay a lower tax rate than those high working years. But what bo's picking on, so that's the technical answer, is you've got to kind of go through that gauntlet of tax rates and figure out what fits in with your retirement goals. But what BO is saying, and you just kind of gave it away, and the fact that if your income is so high that you don't qualify for making Roth contributions, you might qualify for this really cool double dip situation where you could do the 403B whether it's pre tax or whether it's Roth. But then you also can fully load up a 457 because it's two different tax code structures. You probably work at a hospital, you work for the government or something, because that's the only people that get these double dip opportunities where you can actually do 2, 23, $3,000, 500. So, yes, that's right. You could do, you know, close to 50 grand worth of savings into these retirement plans. That's why I say, be careful writing us with these questions because we might really turn it around on you and say, what are your goals, what are your opportunities and how do we maximize? It doesn't have to be full 23,500. You might be able to.
- [53:25]
Bo Hanson
Maybe it's $30,000 one.
- [53:28]
Brian Preston
You know, you load up this one. And the other cool thing about 457 is it doesn't have early withdrawal access issues. So if you're one of these people that's part of the fire movement and you want to leave the workforce at like 50, man, oh man, you having a good income with these tools is going to be super powerful.
- [53:44]
Bo Hanson
Love it.
- [53:46]
Ribe
That's great. Alejandra, thank you for the question. Thanks for being here in the live stream today. All right, let's go to Richard S question. Can I count profit sharing as part of my 25% contribution rate? I'm the exact average with mine and my employer match contributions totaling 14%. But every year they have a 10% profit sharing contribution to my 401k. So it sounds like that's on top of 14%. If I'm reading that right. What do you think about what should count towards 25%?
- [54:19]
Brian Preston
Well, and Bo, I'll let you kind of fill in, but we do have an employer that we do the 401k with. Very generous. And it sounds like your employer is very generous, Richard, where what is employees put in five and essentially it's the equivalent of 15.
- [54:32]
Bo Hanson
That's exactly right. Yep.
- [54:33]
Brian Preston
So, I mean, what a powerful thing when your employer. And so I would imagine with that power comes great responsibility. What is the responsibility or the decision matrix for people to figure out if they should count that.
- [54:47]
Bo Hanson
Yeah, I think one of the, I think the first sort of like litmus test you to run through is, okay, where's my income fall? Am I in the income threshold where I get to count my employer contributions? Do I not get to count? And it's 100,000 for single folks, 200,000 for households. But if you're someone who has like a ton of employer contributions, and I'm not clear here, if your employer contributions are 14% or 24%, either way, it's a lot of money that your employer is putting in.
- [55:12]
Brian Preston
It looks like his plus the employer is 14, and then there's an additional 10, so there might be 24% total.
- [55:18]
Bo Hanson
One of the things that you have to recognize is that when you, when you think about the pot of money you have coming in every pay period, the less that you save the more that you spend. And the more that you spend, the more that you're going to have to replace later on in life if you want to be able to maintain the same lifestyle. And funny. So if you are someone who has one of these employers who's putting in 10, 15% of your pay into a retirement plan, what I don't want you to do is begin living off of 90% of your compensation and only saving 10% because there's a chance even with that employer match, you're not going to be able to save to the point that you can maintain that same standard of living. So what I would say to do is first, do the income test. And second, okay, see what's reasonable. If my employer is putting in money and it's guaranteed, like I know I'm going to get a match, okay, I'm going to count that. But profit sharing is not a guaranteed thing every single year. Profit sharing most often is discretionary for employers. So your employer might decide, one year, hey, we're not going to fund this. And the next year, hey, we're not going to fund this. And the next year, hey. And if you go through a long string of your employer deciding they are discretionarily not going to fund the profit sharing, but you have not been saving the way that you should have been saving on your end, there's a real good chance you could get behind and say, man, I wish I would have been structuring my life in such a way so that I could save appropriately. Agree. Disagree. He wants to fight.
- [56:42]
Brian Preston
No, no, actually, I'm so distracted because we have done it. Bo, I thought about. Here, let me just go and do it.
- [56:49]
Ribe
What did you do?
- [56:51]
Brian Preston
We said something obviously so wild on the show that the team out there, the administrators are sending an internal slack telling the entire office that they need to go to 23 minutes of today's show for everybody to go watch. And I'm sure it's about old thrifty pants McGee, you know that or the. So. So I'm so distracted because I'm seeing all this and everybody, the internal dialogue on this is the problem with having notifications on your watch come up.
- [57:18]
Bo Hanson
A lot of you ask in these live streams, hey, why doesn't Brian have a computer in front of him? Hey, why isn't Brian in the chat?
- [57:24]
Brian Preston
If you had that, I would know.
- [57:26]
Bo Hanson
You just saw is why in real time that what I was telling Richard is I think if his. If his employer offers a ton, I'm in trouble.
- [57:37]
Brian Preston
By the way, There are people in this room working on this content as we speak who are responding to the internal Slack thread.
- [57:42]
Bo Hanson
He's still in there.
- [57:43]
Brian Preston
He's still convicted. I'm looking straight ahead, but it's different. Huh?
- [57:50]
Ribe
You're answering a question right now. Oh, so yeah, he said I'm not on camera. It's true. Different. We can respond to this slide.
- [57:59]
Bo Hanson
So do you agree?
- [58:01]
Brian Preston
Let me question. Let me tell you, this is why you can not give me a screen.
- [58:07]
Bo Hanson
If so, Richard is in a situation where his employer is putting in some number. It's probably 15 to 20% of compensation.
- [58:15]
Brian Preston
Oh no, we're back to Richard with 24% with counting his contribution and the profit sharing. We're still there. Brian, question.
- [58:22]
Bo Hanson
My answer is I don't think you should count all of it because the employer could decide any given year not to fund profit sharing. So I want him still saving.
- [58:31]
Brian Preston
At least I want to fight you. Because look, if we know this, because if this employer does it, I mean like I think about our employer that we do the 401k with that every year you put in five, it turns into 15. They've been doing that forever. Sure. So while as long as your income is less than 200 for a married couple, less than 100. Why wouldn't you count that? If they're doing it every year now if it's a one off because they had a great year. I mean that you have to go through that decision matrix. Is this because like we're generous, hey, so let's say we do 8% for our employees every year. I mean that's. Do you think they should next year not count on that?
- [59:07]
Bo Hanson
No, I'm just saying let's, let's look at this scenario, right? Let's say that we have 14% going in between employer employees. So 7 and 7 employer matches 10. So your employer puts in 17%. You're going to tell this person, hey, you to save 8% to get to 25, you can live off the other 92% of your money.
- [59:21]
Brian Preston
Okay, well I get your point in the fact that if you. There's one more decision matrix you have to go through. What are your actual living expenses?
- [59:29]
Bo Hanson
There you go. The less you save if you're living.
- [59:31]
Brian Preston
Off of 90% of your income or even 80, because there was a stat I saw on social media and I'm so bad that I don't send this to the content team. There was some larger than expected percentage that I saw of people who actually retire and because they're in the go go years, they spend greater than the income that they were actually making when they retire. That's a risk. Meanwhile, most financial planning, this is why you have to be careful with just using back of the napkin financial planning tools is you know, they're counting on 70, 80% replacement ratios and if you're in those go go years and you're actually spending greater than 100%, that would be a problem. So you need to kind of run it through the decision matrix of what type of expenses are you going to have in retirement. And if you're spending a lot of.
- [60:15]
Bo Hanson
And you know you have to replace.
- [60:17]
Brian Preston
A lot, it might, you might need to be a little more responsible with your savings rate.
- [60:23]
Bo Hanson
So the answer was he agrees with me.
- [60:25]
Ribe
I think we got that.
- [60:25]
Bo Hanson
He does not want to fight with me.
- [60:27]
Brian Preston
He's such a distraction from my slack thread that I was trying to keep up with.
- [60:31]
Bo Hanson
Note to take slack off of you.
- [60:34]
Ribe
Always take your watch away too. What?
- [60:36]
Bo Hanson
Oh man.
- [60:37]
Brian Preston
You know what's funny is that there's like anybody who's ever had sleep issues and you, you find out about sleep hygiene, one of the best things you can do is not look at the clock. I feel like maybe I shouldn't wear a watch when I'm doing the show. Maybe I'm just that type of personality that we shouldn't have access to.
- [60:55]
Bo Hanson
It only took us 20 years to figure that out. 20 years in to take the watch away. That's hilarious.
- [61:01]
Ribe
Oh man. Well, this has been fun. Thank you for being here on the live stream with us, letting us have some fun. Also talk personal finance. We will be here every Tuesday at 10am Central. But until then make sure you go check out moneyguy.com resources. A lot of the resources that are free to you were discussed today on the show. Only help you go deeper with all the topics that we covered even when we turn the cameras off today. So be sure to go check that out. And thank you again for being here.
- [61:27]
Brian Preston
Hey, despite all the goofiness, without a doubt. I mean this is why you have to show up for the live streams because you never know what we're going to say or do. We do believe wholeheartedly that there's a better way to do money and we load you up. If you're not going to moneyguy.com resources and checking out all the free stuff that we are hooking you up with so we can turbocharge your journey and then fulfill the abundance cycle. So hopefully you get so successful from our system. How crazy is that, that we actually give you the recipe and then tell you, don't even come back until you've had enough time for this thing to catch traction. And then at that point when it gets so complicated, your success creates so much complexity, we're going to leave the lights on so that you'll consider potentially hiring us. So go check it out. That is the abundance cycle fulfilled. I'm your host, Brian Preston. Mr. Bo Hanson. Moneyguy Team Out.
- [62:20]
Bo Hanson
The Moneyguy show is hosted by Brian Preston and Bo Hanson. Brian and Bo are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the securities and Exchange Commission. In accordance and compliance with the securities laws and regulations, Abound Wealth Management does not render or offer to render personalized investment or tax advice through the Money Guy Show. The information provided is for informational purposes only, may not be suitable for all investors, and does not constitute financial, tax, investment or legal advice. All investments involve a degree of risk, including the risk of loss.