The Clark Howard Podcast – Episode Summary
Title: Ask An Advisor With Wes Moss
Host: Krista Dibiaz
Guest: Wes Moss
Release Date: February 25, 2025
Introduction
In this episode of The Clark Howard Podcast, host Krista Dibiaz welcomes financial expert Wes Moss to the segment titled "Ask An Advisor." Together, they delve into critical personal finance topics, addressing listener questions and providing actionable advice on retirement planning, investment strategies, and navigating market uncertainties.
Retirement Planning: The "Filling the Gap" Method
[01:20 - 04:46]
Wes Moss introduces a straightforward approach to determining retirement savings needs, emphasizing the importance of maintaining focus on long-term financial goals to avoid uncertainty and confusion.
Key Points:
- Understanding Retirement Needs: Start by identifying steady income streams in retirement, such as Social Security and pensions.
- Filling the Gap: Calculate the difference between desired retirement income and guaranteed income streams to determine the necessary savings.
- The 4% Rule: Utilize this rule to estimate the total retirement savings needed by multiplying the annual gap by 25.
Notable Quote:
"Financial planning is tough and investing is really tough when you're uncertain. So it's always good to kind of have this certainty around the goal."
— Wes Moss [01:35]
Example Provided: For a couple expecting $8,000/month in retirement with $5,000/month from Social Security and pensions, the $3,000/month gap translates to $900,000 in savings needed (using the 4% rule).
Listener Q&A
1. Mark and Lisa's Retirement Analysis
[08:20 - 16:29]
Scenario: Mark and Lisa, both in their mid-50s from Texas, aim to retire within the next 7-10 years. They have a combined income of $275,000, substantial retirement accounts, and estimate annual retirement spending at $120,000.
Wes Moss's Advice:
- Financial Sufficiency: With approximately $2.87 million in savings and projected Social Security benefits of $50,000/year, their financial position appears robust.
- Spending and Taxes: After accounting for potential taxes, their net income is estimated to be around $130,000/year, comfortably covering their $120,000 spending estimate.
- Purpose in Retirement: Emphasizes the importance of identifying daily activities and hobbies to ensure a fulfilling retirement. Suggests experimenting with various interests ahead of time.
- Phased Retirement: Recommends considering part-time work in the final years to ease into retirement.
Notable Quote:
"They've accumulated a ton of retirement cushion. I think of it as a giant engine that's a big as a lot of horsepower to produce income for the rest of your life."
— Wes Moss [17:37]
2. Tracy's Inquiry on Direct Indexing and SMAs
[16:29 - 22:14]
Scenario: Tracy from Florida is exploring investment options for her taxable brokerage account, considering direct indexing through separately managed accounts (SMAs) to leverage tax loss harvesting.
Wes Moss's Insights:
- Direct Indexing vs. Traditional Index Funds: Direct indexing allows ownership of individual stocks, enabling tax loss harvesting, potentially increasing net returns despite higher fees (0.3% to 0.8%).
- Suitability: More beneficial for taxable accounts rather than tax-advantaged ones like IRAs.
- Cost Consideration: Advises ensuring that the benefits of tax loss harvesting outweigh the additional fees compared to low-cost index funds.
Notable Quote:
"If you're paying for it, but I do think that these are good strategies as long as you're keeping that cost in the 10-20 basis point range."
— Wes Moss [20:00]
3. Mary's Question on Secondary Income: Rental Properties vs. Dividend-Yielding ETFs
[29:23 - 35:38]
Scenario: Mary from Michigan seeks a secondary income stream of $60,000/year within 10 years. She's contemplating investing in rental properties or dividend-yielding ETFs.
Wes Moss's Advice:
- Rental Properties:
- Cap Rate: A good investment typically offers a cap rate between 5% and 10%. Example: A $500,000 property yielding $30,000/year equates to a 6% cap rate.
- Total Return: Combines income from rents and property appreciation.
- Active Management: Requires significant time and effort unless a property management company is hired.
- Dividend-Yielding ETFs:
- Generally offer lower yields compared to high-performing rental properties but require less active management.
- Recommendation: Rental properties can provide higher income but come with increased responsibilities and risks. Investors should evaluate their willingness to manage properties versus opting for more passive ETF investments.
Notable Quote:
"If you find a cap rate that's 6, 5% minimum, then I think that's when you want to start getting interested."
— Wes Moss [30:17]
4. Sherry's Short-Term Investment Strategies
[35:38 - 39:13]
Scenario: Sherry from Oregon, aged 40, is considering short-term investment options due to potential relocation within 2-3 years. She has funds in a 401(k), brokerage account, and is interested in low-cost funds and cryptocurrency.
Wes Moss's Recommendations:
- 401(k) Withdrawals: Advises against tapping into the 401(k) before age 59½ to avoid penalties and taxes.
- Low-Cost Funds: Suggests maintaining liquidity by keeping a significant portion in cash or money markets, and investing a smaller amount in diversified, low-cost index funds.
- Cryptocurrency Exposure: Views cryptocurrency as high-risk and difficult to value, recommending minimal investment.
Notable Quote:
"I think that you don't want to tap the 401(k). You're too young. The very simple answer is that you're going to want to wait until you are of age to be able to not get penalized."
— Wes Moss [36:53]
Navigating Scary Market Headlines
[21:56 - 29:23]
Wes Moss addresses concerns about alarming market predictions, particularly those made by well-known author Robert Kiyosaki, who has frequently forecasted economic downturns.
Key Points:
- Skepticism of Doom Media: Acknowledges that while market downturns are possible, constant negative predictions can induce unnecessary fear.
- Historical Accuracy: Illustrates Kiyosaki's repeated crash predictions that did not materialize, highlighting the unreliability of such forecasts.
- Investment Perspective: Encourages a long-term, optimistic view of the U.S. economy and stock market, emphasizing resilience and growth over time.
Notable Quote:
"If you're listening to scare headlines, you'll be scared away from ever really investing anyway. It's already hard enough."
— Wes Moss [25:21]
Conclusion
In this insightful episode, Wes Moss provides valuable strategies for retirement planning, diversifying income streams, and making informed investment decisions amidst market uncertainties. His practical advice empowers listeners to navigate their financial futures with confidence and clarity.
Additional Resources
- Submit Your Questions: www.clark.com/askclark
- Calculators: Access a variety of financial calculators at clark.com/calculators
Disclaimer: The information provided in this summary is for informational purposes only and does not constitute financial advice. Always consult with a qualified financial advisor before making any investment decisions.