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How to calculate the amount you need to save for your financial goals and how much taxes are taking from your investments. That and more on this Saturday personal finance edition of the Motley fool of Hidden Gems Investing podcast, I'm Robert Brokamp. This week I'm joined by my foolish colleague Stephanie Marini, as we suggest ways to prioritize and quantify your goals and highlight some tools that will help crunch the numbers for you. But first, some headlines from the past week or so, starting with an article from the Wall Street Journal's Jason Zweig, who wrote about a recent study from Andrew Ang, a former managing director at BlackRock. According to Ang, if you owned a total US stock market index fund for the 30 years ending in 2025, you earned 9.9% a year before taxes. Not bad. But if you own that fund in a taxable brokerage account, you earned just 8.25% annually after taxes, mostly due to owing taxes on the dividends and the fund's capital gains distributions. Now, that may not sound like a big difference, but if you invested $100,000 and earned 9.9% annually for 30 years, you'd have almost $1.7 million. But if you instead earned 8.25%, you'd have less than $1.1 million. In other words, you lost more than a third of your total return to taxes. This is from a total market index fund, and it would have been worse if it weren't a high turnover actively managed fund or an index fund that invested in an asset class that had a higher yield, such as a fund that invests in value stocks or real estate investment trusts. Even if you don't invest in funds, your after tax returns could be significantly curtailed by active trading and or holding higher yielding investments in your taxable brokerage account. The takeaway here is to give some thought to asset location, which is the science and art of deciding which investment should go in which accounts keep your most tax inefficient investments in your IRAs and 401 s and use your brokerage account for investments that pay little to no dividends and that you plan to hold on to for many years, perhaps even decades. For our next item from the news, we turn once again to the Wall Street Journal for an article with the headline the Home Insurance Coin Flip Nearly half of claims result in zero payout. According to the Journal's analysis, the five largest home insurers didn't pay out on more than 44% of claims last year, up from 36% a decade earlier. The article cited various reasons, including higher deductibles for specific risks such as hurricanes and hail, and tighter criteria on paying for expensive claims such as roof repair. More damage from disasters caused in part by climate change and more development in vulnerable areas are resulting in claims that are excluded from policies, particularly flood damage. Also, to cope with the cost of rising homeowners insurance, consumers have been choosing policies with higher deductibles, and the assessed damage from the claims are often below those deductibles. Adding insult to injury, many homeowners who have a claim denied still see their premiums go up or their policies canceled because the insurer sees them as a greater risk. So what should you do? Well, first off, read your policy to understand what is and isn't covered and make sure that you have enough coverage to protect your home and everything in it. Document the current condition of your home and the stuff you own with a video or pictures so you can prove to the insurance company that future damage or loss was due to a disaster and not just regular wear and tear. Consider a high deductible policy and have a sufficient emergency fund to cover that deductible if necessary. And don't file a claim unless you're reasonably confident that you'll get a payout if you do suffer a loss. Document everything related to the claim with pictures, videos, assessments from professionals. Keep every communication you have with the insurance company and if your claim is denied, get a detailed report about the reasons. You can file an appeal, and if that doesn't work, submit a complaint to your state's insurance regulator. You can also get professional help from a public adjuster or attorney, perhaps by visiting the website of the national association of Public Insurance Adjusters. Just know that they will get a percentage of any payout you receive. And now for the number of the week, which is 16.7%. That is the share of national income that comes from corporate profits, an all time high, according to Data from the U.S. bureau of Economic Analysis and highlighted in a recent episode of the Moody's Inside Economics podcast. This partially explains why the stock market just keeps going up, at least for now. Meanwhile, the share of national income that comes from labor is going down, which is likely one of the reasons that consumer sentiment keeps dropping while stocks keep rising. Of course, we don't own stocks just to see the numbers on our brokerage statements go up. We invest today in order to pay for a financial goal in the future, which is our next topic of conversation when the Motley Fool Hingems Investing podcast continues.
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halfway through our 2026 Financial Planning Challenge, which we're calling a year well planned. And so far we've covered a lot of ground, coming up with a way to monitor your cash flow, net worth and portfolio, tackling your debt, building an emergency fund, thinking about your risk tolerance and asset allocation and how that leads to the type of investments you should own and in which accounts to own them. This month we're going to talk about crunching the numbers behind your goals, figuring out where you are, where you want to be, and what you have to do to get there. Joining me once again is my foolish colleague and certified financial planner, Stephanie Marini. Welcome back, Stephanie.
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Thanks for having me.
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So before we get to the goals and all the math, I want to start off by pointing out that this type of challenge is it's sort of like making a New Year's resolution, right? You start off fine, but then maybe fall off the wagon a few months into the year. So, Stephanie, I just thought I'd ask you, for those who perhaps haven't been following along since the beginning or have maybe lost a little steam, what do you recommend they should do now?
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I think understanding the starting point, your individual starting point, is crucial. So knowing what today's numbers look like, even at a high level, just balances of of your accounts of debts, knowing what your starting point is is the best way to start to be able to move forward.
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Yeah. And I agree. And if you haven't yet, coming up with a way to see your overall view of what you own and what you owe is a crucial starting point, as well as fully understanding how much after tax income you can spend and where it's getting spent. And as we've mentioned a few times over the past five months, there are various tools you can use to including services like Empower, Monarch, Money, Quicken, Tiller, Ynab, or just your own spreadsheets. And knowing that information is important for this month of our 2026 challenge, because knowing how much you spend tells you how much you have left over to save for goals. So, Stephanie, let's move on to goals. How should people figure out how much they need for a goal and how much they need to save to get there?
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So I think even before that, the important decisions of what are your goals? And then prioritizing them is the first step. Because is retirement year the most important? I want to retire when I'm 62 or is it I want to spend a hundred thousand dollars in retirement. Knowing which of those is more important is going to factor in in terms of how much you need to save or how long you can keep working. And then outside of retirement, is paying for college for kids or grandkids a top priority or something that might just be nice to have? You know, if you're trying to get to warmer weather in the winters, does having a second home top priority? Or yeah, you know, it'd be great, but if it doesn't work, I'd rather stick to retirement at 62. So understanding what your goals are is first for me because that helps impact the decisions going forward and then figuring out where and how to save and then I guess I'll keep going. If we're talking about retirement in terms of how to get to a specific figure, everyone knows the 4% rule or, you know, kind of works out to 25 times income or 25 times that savings number. I know you talked last week about whether that can be adjusted with today's numbers if you're closer to retirement or retiring right now, maybe it could be pushed to five and a half percent or so, but for me, I think I'm a bit farther from retirement. I think using that 4% is a good number as a conservative figure, especially not knowing what Social Security is going to look like down the road. Having a more conservative baseline is only going to be more helpful. And I think that goes back to where knowing your baseline numbers is crucial, because how much are you spending or how much are you going to need annually in retirement is the first step in plugging into those calculators. So for me, I like calculator.net as a resource. They have a plethora of calculators to use, but I also really like the defaults that they include for things like inflation and returns. I think they're on the more conservative side. So no shooting for the stars. I know people love to use 10%. Feels a bit aggressive for me. So I like the baseline numbers that Calculator.net uses. And then again, going back to that, understanding what your goal is, for me, something personal is I'd like to retire in my 50s in a perfect world. But knowing that and knowing that I'm not going to be able to touch any qualified funds until I'm at, you know, 59 and a half or about 60, I need to be saving in a separate account to fund that bridge time. So I think knowing what your goal is will also dictate not just how much, but where you're saving in what type of accounts and making decisions. You know, if that's my plan, then it opens up a ton of tax strategy options in my 50s before those required minimum distributions kick in.
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Regarding that 25 times rule, I'll repeat what I said last week, and that 25 times annual spending comes from the 4% rule. It's the multiplicative inverse, as the mathematicians would say, and it could be significantly overstating how much someone needs to save before they retire because it doesn't factor in Social Security. However, that rule of thumb really became more well known over the past several years as it's been popularized by the FIRE movement. FIRE being financial independence retire early. People who want to retire in their 30s or 40s. So that 25 times rule perhaps makes more sense since for them, they won't be getting Social Security for many years and who knows what kind of shape it'll be in once they reach that age. But for those who are currently in or near retirement, I don't think they're going to need nearly that much. I agree with calculator.net being a good recommendation. It does have tons of calculators, even beyond financial calculators as health calculators and things like that. I will also point out the Fool's calculators. You go to fool.com calculators. There are more than a hundred calculators there covering just about everything, cash flow, debt, home and mortgage insurance, retirement taxes, you name it. So you'll find some good ones there. Another one to highlight is dinkytown.net also plenty of calculators. I would highlight their 1040 calculator. So if you're looking for a rough estimate of how much your taxes will be this year, that's one to consider. And then I'll again mention the three premium retirement planning tools that I often highlight. Those being Maxify Projection Lab in Bolden and Motley Fool Ventures. The sister company the Motley fool has an investment in Bolden. These will cost a little bit money, but they are more sophisticated tools than what you'll find for free on the Internet. And I think when it comes to retirement planning, it's worth the investment. All right, so let's move on to using the calculators. And you touched on this a little bit, Stephanie, because when you use these calculators you have to make some assumptions about the future, future things about what is your portfolio going to return, what's inflation going to look like. So what do you think people should input when they have to make these assumptions?
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I mean, and I'll start off by saying I tend to lean on the more conservative side. I am fortunate to say I still got 25 plus years till we're even thinking about retirement. And then I've got grandparents, my husband has grandparents that lived into their 90s. So we have longevity on our side that we're factoring in to our plan. With that long time horizon, I like to use an 8% return for my working years and lowering that down when I hit my 60s to about 5% again. Numbers. I know a lot of people use that 10% number, 3% for inflation. I find it a little just easier to use a little bit lower number. If it returns 10, great, I'll be happy. But at least I'm prepared if it doesn't. I think again, I would highlight I am using even a higher eight because I have that long time until I'm going to be needing these funds. I think if I were working with clients in their 50s or getting closer to that retirement number, I would be even more conservative and use something closer to 5 or 6%. So I think age and how far you are to retirement absolutely factors in. But personally I like sticking to 8 while I'm still working and can be a bit more aggressive, knowing that my contributions are going to be stable and then lowering that down to a 5% return once I will be making withdrawals.
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Now, earlier this year I took a look at the capital market assumptions from big financial service firms. So these are the return assumptions that they might use when crunching the numbers for their clients, Right. When they're running the retirement plans or something like that. So these aren't predictions for what the stock market will do over the next year, but over the next 10 to 30, 15 years or so. And I looked at, I don't know, maybe 10 firms and I would say the average assumption was about 6% for U.S. stocks, a bit higher for small cap and international stocks, around four and a half percent for bonds and two and a half percent for inflation. And this was in February. But so I think this, this is before the war in Iran, so I, I bet they would assume a higher inflation rate today. So this is kind of in line with what you're saying. And when I, when I run my numbers, as someone who is in my mid-50s, I do assum percent before retirement and like you, Stephanie, I assume 5% once I'm in retirement. And I totally agree that I don't think anyone should assume the historical average of 10% a year from stocks given today's high valuations. And of course, for any goals in which you need the money in the next few years, that money should not be in the stock market, it should be in cash, ideally high yielding cash earning over 3% nowadays. So that's what I would use for cash, assuming you're getting that higher yield in cash. All right, so we've talked about the tools to use, the assumptions to use. After doing all this math, some folks may find that their goals are bigger than their budgets. Right? In other words, the amount they have left over after paying the bills isn't enough to make the required monthly contributions to their savings accounts for all their goals. So, Stephanie, what should they do then?
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I would say I think the first thing everyone should look at is what the company matches if they are being offered one. I think getting to that number is worth tightening a belt for is worth, you know, doing everything possible to cut expenses for because getting that immediate return, immediate doubling of money if you're getting 100% match is not even in the market. It's an immediate guarantee that's being Done. So I think that's the first thing people should look at. And then again, it goes back to the goals. Where can we cut? Is it more important to cut now to have the retirement? Is it more important to delay three years to have the retirement? Or is working just not an option? And so where can we cut on the spending? Having to be able to answer those questions is better to do ahead of time and plan for it and making the decision accordingly rather than being forced into it because you've already retired and now the numbers aren't adding up.
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Yeah. And the three biggest expenses for most Americans when you look at their budgets are housing, transportation, and then food. And that includes both groceries and dining out. So those are the opportunities, if you can, to cut back if possible. You know, in the end, you just have to go through your spending and just ask yourself, is this more important than my future goals? And I definitely want to acknowledge that for many Americans, right times may be tough right now. Prices are going up more than income. So I don't want to be glib about this and say it's easy to cut your expenses. For some people it's not. But if you take a look at your spending, I think for many people, they will find ways that they can spend less in order to save more for their goals. So they're not just giving up something, they're actually gaining something. But it won't be something until the future. All right, Stephanie, we can't leave this conversation without bringing up AI. And, you know, more and more people are using it to do their financial planning for our premium Motley fool subscribers. You've actually used it to create some tools or calculators. So what's your take on whether people should use AI to prioritize their goals and crunch their numbers?
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So I think in its current form, AI can really be thought of as a personal assistant for financial planning. It can analyze those spending patterns. It can consolidate that information even outside. Of, you know, I use Monarch money for our budgeting, and it does a lot for me. But outside of any type of paid service, AI is a great option for analyzing patterns, looking for gaps, even helping explain concepts. So as you're hearing us talk about what a 4% rule is, if you don't know, AI is a great way to learn about what some of those concepts are and do all of the calculations themselves. So once you have some of these numbers and you can put it into a Claude or a ChatGPT, asking a question like, well, how would my numbers be impacted if I took Social Security at 62 versus full retirement age. Things like that are done very, very quickly. But that's probably as far as I would go. I do not yet fully rely on AI to building out financial plans. There's just too many personal factors that go into creating a financial plan that I haven't found AI to be able to prompt for yet. So I think as individuals, you don't know what you don't know and AI is not yet prompting enough to answer and fill in some of those gaps that would be needed to fully build out a plan. So I think as a secondary resource, as a checking your numbers, even if you already have a financial plan that you want to get second opinion on, could be a good use. But that's as far as I would lean on fully relying on AI as it stands.
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Yeah, I agree with the second opinion part. I will say personally, I still have some questions about the privacy issues, so I wouldn't be putting too much personally identifiable numbers in there or any facts or anything like that. And I still catch it making math mistakes. So I would go to the calculators and tools that we've mentioned here as the first source. But I think as a second opinion, I think it's great. I don't use it to write my articles, for example, but I do input my articles and ask it to highlight opportunities for improvement and highlight points I'm missing. And I think you could do the same for your finances. Again, don't use your personal information, but say, this is the situation, this is what I'm thinking, this is what I'm prioritizing, this is my strategy. What do you think of it? What am I missing? Give me a second opinion. And I think it can be good for that.
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I would also add that, you know, a lot of times in these financial meetings and financial planning meetings, they can get pretty long, right? You're going through a lot, there's a lot of information. Oftentimes you're getting, you know, a lot of papers back. And I've often found even within family and friends, they're like, yeah, you know, he mentioned something about that, but I don't really remember what he said. So having that as again, a second form of explaining the concept so that you can circle back on what was that tax strategy that was mentioned? Or again, what are some gaps that, that we could be missing, I think is a great, still a great resource. And again, I would echo what you're saying of not putting in the full document, but just, you know, high level, this is a situation this, these are the numbers. What should I be concerned with? It does bring up some great ideas
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I was seeing on a subreddit for one of the tools. I mentioned the premium tools. Someone said I got the output from the tool, I downloaded the PDF and then I put it into Claude or ChatGPT, whatever they used and said give me a second opinion. And I love that idea. But then my first thought was, boy, I would not be comfortable putting that much of my personal information into AI at this point. At this point. All right, Stephanie, any final thoughts about quantifying and prioritizing financial goals?
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I would say every little bit helps. It's cliche, but time is, is the greatest asset because of compounding but then maybe even taking it a step further. I know a lot of our, our readers, members, listeners have that generational mindset and thinking about kids and grandkids and how they can help. And I would say this is a form of being able to help that is maybe not considered helping kids and grandkids put in getting to the company match for their first job or putting in the babysitting money into a Roth ira, helping supplement that way and helping that mindset start of a little bit at a time. Starting early can really have, I mean just dramatic returns over 30 plus years of growth potential. So encouraging or enabling kids or grandkids to be saving for the future I think is an underrated form of passing financial literacy and generational wealth.
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I totally agree. My wife and I opened up Roth IRAs for our kids when they were teenagers as soon as they got jobs. And one of my daughters is 21 and we just started looking at her portfolio and she bought Apple and Nvidia years ago, which is great, but she also bought like Etsy and Pinterest and Lululemon which are all down 50 to 70% and we always start with the foundation of index funds. But anyways, it's been a great experience for her over the last, I don't know, five or six years since she's had this to see what can happen in the markets when you win, when you lose and you have to take one for the other because that's the way it goes in investing. Well, Stephanie, thank you for joining us. This has been great.
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Thanks so much for having me.
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Hilton Honors I can use points for
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a free night stay anywhere? Anywhere? What about fancy places like the Canopy in Paris? Yeah, Hilton Honors baby.
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Or relaxing sanctuaries like the Conrad in Tulum?
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Hilton Honors baby? What about the five star Waldorf Astoria in the Maldives? Are you gonna do this for all 9,000 properties when you want points that can take you anywhere anytime? It matters where you stay Hilton for
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the stay Time to get it done, fools. And following up on my conversation with Stephanie, I encourage you to visit one of the sites we mentioned, Motley Fool's calculators page@fool.com calculators, dinkytown.net or calculator.net browse through the categories and tools. I bet you'll find a few that may help you quantify a financial conundrum. Should you pay off your mortgage early? How much life insurance do you need? How much should you be saving for college? Should you do a credit card balance transfer? How much can you afford to pay for a car? How much more might you have at retirement if you saved another $100 to a few hundred dollars per month, you'll find calculators that will help you answer those questions and many, many more. So visit the sites and run some numbers before you take any action. Use more than one tool to get an analysis. Different calculators might give somewhat different results, and it's always good to get multiple analyses and look for a general consensus. And that, my foolish friends, is the show. Thanks for letting us into your ears. Is that weird? And thanks to Bart Shannon, the engineer for this episode. As always, people on this show may have interest in the investments they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell investments based solely on what you hear. Our personal finance content follows Motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our Show Notes. I'm Robert Brokamp. Full on, everybody.