03.25.25 Ask An Advisor With Wes Moss

Summary

Episode Summary: The Clark Howard Podcast – March 25, 2025

In this enlightening episode of The Clark Howard Podcast, host Clark Howard welcomes financial advisor Wes Moss to delve into critical aspects of personal finance, focusing on saving strategies for retirement and the evolving nature of risk tolerance over time. The episode, titled "Ask An Advisor With Wes Moss", provides listeners with actionable insights and expert advice on navigating complex financial decisions.

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1. The Secret to Saving More for Retirement

Krista Dibiaz opens the conversation by highlighting Wes Moss's expertise in helping individuals save more effectively for retirement. Wes Moss introduces the concept of psychological tricks that can enhance saving habits, emphasizing the difficulty many face in visualizing and planning for the distant future.

Key Insights:

• Visualization Techniques: Moss references a study by Indiana University and UCLA researchers, revealing that when participants were prompted to "picture your future self in 2035," they increased their long-term savings by an average of 14% ([02:15]).

  "Picture your future self in 2035 and now adjust what you think you should be saving for your future self." – Wes Moss [02:15]

• Going Home Effect: Moss explains the psychological phenomenon where familiar scenarios reduce uncertainty and promote rational decision-making. This effect can be leveraged to encourage more disciplined saving behaviors.

• Retire Without Regrets Study: Citing a Harvard study, Moss notes that retirees who actively planned their post-retirement life using tools like colored pencil roadmaps reported higher satisfaction levels.

Conclusion: Visualization and proactive planning are powerful tools that can significantly enhance one's ability to save for retirement, turning abstract future goals into tangible plans.

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2. Understanding Risk Tolerance and Its Evolution

The discussion shifts to risk tolerance, where Moss presents empirical data and personal observations on how individuals' comfort with investment risk changes as they age.

Key Insights:

• Risk Tolerance Heat Map: Moss refers to a JP Morgan publication featuring a heat map that illustrates how risk tolerance typically shifts over a person's lifespan. Notably, individuals in their 30s often display a conservative leaning due to limited investment history, while those around 55 exhibit peak risk tolerance before gradually becoming more conservative approaching retirement ([14:46]).

  "As you get closer to retirement, you start thinking, wait a minute, I'm not going to get a paycheck anymore. So I really can't have my entire portfolio go down by 20 or 30% if I'm all totally invested in stocks." – Wes Moss [15:10]

• Investment Phases:

  • Early Career (20s-40s): Emphasis on high equity exposure (up to 90-100% in stocks) to capitalize on long-term growth.
  • Mid Career (40s-60s): Gradual introduction of safety assets, adjusting to a more balanced portfolio (25-30% in bonds).
  • Pre-Retirement (60s and beyond): Significant shift towards conservative investments to preserve capital and ensure income stability.

• 4% Withdrawal Rule vs. 6% Pension Rule: Moss clarifies the distinct applications of these rules, noting that the 4% rule accounts for inflation and focuses on personal savings longevity, whereas the 6% rule pertains to fixed pension incomes without inflation adjustments ([13:22]).

Conclusion: Understanding and adapting one's risk tolerance over time is essential for maintaining a balanced and resilient investment portfolio that aligns with evolving financial needs and retirement objectives.

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3. Listener Questions and Expert Advice

The episode features a series of listener questions, each addressed with thoughtful and personalized financial advice from Wes Moss.

a. Javier from Colorado: Strategy for Three Years of Dry Powder ([06:51])

Question: At 71 years old, Javier seeks strategies to manage three years' worth of liquid assets ("dry powder") while maintaining investment safety.

Advice:

• Diversification of Safe Assets: Moss recommends seeding dry powder with intermediate to short-term bonds, CDs, and high-quality US bonds rather than high-yield or junk bonds, which carry higher risks.

  "The dry powder could have a lot of different components to it and to me that all counts." – Wes Moss [07:15]

• Time Horizon Consideration: Ensuring that the selected assets align with the short-term liquidity needs without exposing Javier to significant market volatility.

b. Jeff from Georgia: Roth vs. Traditional 403(b) Decisions ([08:22])

Question: At 44, Jeff contemplates allocating his consistent 15% contributions between Roth and Traditional 403(b) accounts and seeks guidance on optimizing for tax benefits.

Advice:

• Tax Bracket Evaluation: Moss advises assessing current versus expected future tax brackets. If Jeff is in a high tax bracket now and anticipates a lower one in retirement, Traditional contributions may be more advantageous.

  "If you're in a high bracket and when in retirement you're only going to be in the 15% bracket, then I lean towards keeping traditional 403 contributions." – Wes Moss [10:23]

• Balanced Approach: Suggests potentially splitting contributions to benefit from both pre-tax and post-tax advantages, providing flexibility in retirement.

c. Steve from Minnesota: Withdrawal Rate Confusion ([12:40])

Question: Steve seeks clarification on the discrepancy between the 4% withdrawal rule for personal savings and the 6% rule for pension buyouts.

Advice:

• Inflation Consideration: Moss explains that the 4% rule incorporates inflation adjustments, making it suitable for personal portfolios, whereas the 6% rule applies to fixed pension incomes without such adjustments.

  "The 4% rule accounts for inflation. The 6% rule is not your money. It’s the pension promising to pay you." – Wes Moss [13:22]

d. Bonnie from Ohio: Using HELOC vs. 401(k) for Retirement Funding ([25:30])

Question: Bonnie, at 64, asks whether to utilize a Home Equity Line of Credit (HELOC) to bridge income gaps until Social Security benefits commence, or to draw from her 401(k).

Advice:

• Cost-Benefit Analysis: Moss weighs the high interest rate of the HELOC against the potential tax implications and growth of 401(k) funds.

  "I don't love when the payback phase comes because I feel like it could get you into a tax vortex of pulling a bunch of money out of the retirement account." – Wes Moss [26:56]

• Recommendation: Cautious use of HELOC is acknowledged as a viable strategy, but advises minimizing reliance on it to avoid excessive interest costs and tax complications.

e. Caroline from South Carolina: IRA Account Security ([29:31])

Question: Caroline is concerned about the security of her IRA accounts, which are held at the same brokerage as her checking account, fearing potential cyberattacks.

Advice:

• Cybersecurity Measures: Moss reassures that major brokerage firms implement robust cybersecurity protocols, including two-factor authentication and continuous monitoring.

  "It's two-factor authentication. It's checking your accounts on a regular basis to make sure nothing's happening that's out of the ordinary." – Wes Moss [29:48]

• Personal Vigilance: Emphasizes the importance of strong, unique passwords and regular account reviews over dispersing accounts across multiple institutions.

f. Gail from Vermont: Dividend Stocks vs. Equity Index Funds ([31:11])

Question: Gail expresses concern over YouTube channels promoting high monthly income streams from dividend stocks and seeks clarity on their viability compared to traditional equity index funds.

Advice:

• Realistic Expectations: Moss cautions against expecting abnormally high returns from dividend stocks, noting that yields above 4% often come with increased risk.

  "If there's anything that's 10% rate of return in income, that's something that usually doesn't last." – Wes Moss [31:54]

• Dividend Quality: Recommends focusing on dividend yields in the 2-4% range, which are more sustainable and indicative of stable, mature companies.

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4. Final Thoughts and Encouragement

As the episode concludes, Krista Dibiaz and Wes Moss encourage listeners to continue submitting their financial questions to further enrich the community's understanding and management of personal finances.

"Keep them coming clark.com ask and we will be back next week." – Krista Dibiaz [35:57]

Wes Moss reiterates the importance of informed decision-making and adapting financial strategies to align with individual life stages and goals.

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Takeaways

• Visualization and proactive planning are crucial for effective retirement savings.
• Risk tolerance evolves with age, necessitating adjustments in investment portfolios.
• Personalized financial advice can significantly impact the management of assets and retirement strategies.
• Cybersecurity measures are paramount, but can be effectively managed without overly complicating account structures.
• Dividend investing requires a balanced approach to ensure sustainability and mitigate risks.

This episode of The Clark Howard Podcast offers a wealth of knowledge for listeners seeking to optimize their financial strategies and secure a stable and fulfilling retirement.

Transcript

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[Krista Dibiaz]

Welcome back to Ask an Advisor. I'm Krista Dibiaz.

[Wes Moss]

Wes Moss, Hello.

[Krista Dibiaz]

We're so happy to be with you again today, going deeper on all things investing. And I'm really excited about today's show, Wesley, because you have a couple of awesome topics. So you're going to talk about how we can save. There's a secret to saving more for retirement. Is that right?

[Wes Moss]

There is. There's psychological tricks.

[Krista Dibiaz]

I like that. And then you're also going to talk.

[Wes Moss]

About risk tolerance and how that changes over time.

[Krista Dibiaz]

Okay.

[Wes Moss]

And I found a new, I found a really cool study on that. So it prompted me to, I think it's an important topic.

[Krista Dibiaz]

Okay. Yeah. Especially these days.

[Wes Moss]

Especially these days. And risk tolerance. So let's start by, I would call this think about your future self for a minute. This is a secret. We got this from some researchers from Indiana University and UCLA researchers. So we've got some Hoosiers and we've got some Bruins. And these two universities put a lot of work into figuring out how people can save more for the future. When you're asked to think about the future, 80% of us start by thinking about today. We immediately start thinking about today. And it's really hard to visualize into the future. But if we can do that, it might really help us save it. There's another piece of this. And psychologists call this the going home effect. Think about your last trip, too. I was thinking I had to drive to A sporting event for one of my kids. Had to look up the high school in the map. I'd never been there. It was, you know, let's call it an hour away. And I'm driving up to this north Georgia county that I hadn't been to, hadn't been to this high school. And it took about an hour and it just felt like it took forever to get there. And it wasn't just because Atlanta traffic. It did took an hour. But do you ever notice, though, then when you come home, it feels like. It feels like a quicker drive?

[Krista Dibiaz]

Of course. Yep, they're done that.

[Wes Moss]

Yeah, it's a way quicker drive. And again, I'm not saying because there was less traffic, it still took about the same amount of time. But we know as we're going home and that psychological component gives us less uncertainty. I know where we are and I know where I am and I know. So that's called the going home effect. And when we have a little bit more certainty, we think clearer, we're calmer, we have less worry about it, and we act more rationally. We know that we're scared and we're uncertain and we're frazzled. We don't make great decisions. That's just life. It's not just in finance, it's just life in general. So how do we trick ourselves into saving more? Because the problem with savings is it's not ever really that urgent. And it's so far into the future. It's like going to this high school that was. It's really, really far away. It's hard to think about it. So that's one of the biggest challenges that we all face when it comes to saving for retirement. Way out of the future. Do I really have to do all this work today? It's not going to pay off for 30, 40 years. It's hard for Americans to do that. So these researchers from UCLA or from UCLA and Indiana University did a whole bunch of different experiments and different tricks and different prompts on trying to see what helped move the meter in convincing people or helping people save a little bit more. And one of their experiments, they stumbled across this and they did this with the customers of a Swedish fintech company. So it was. I don't know the name of the company, but it was a company that, again, think of a brokerage company or retirement planning company. To this participant base, 6,700 people. Every time it was time for them to either look at their percentage savings or put money away, they asked them this question. They said, picture your Future self in 2035 and now adjust what you think you should be saving for your future self. What are you gonna be doing in 10 years? That moved the participants on average to save 14% more in long term assets. 14%, that's like a game changing number into long term investment assets as opposed to cash. So they went through all these ways of trying to trick yourself to do this, and this is what worked. I see this in the Harvard study. It's called the Retire Without Regrets. The retirees that were the happiest drew out a colored pencil little roadmap of what they're going to be doing in five years or two years or three years. And the ones that did a better, more comprehensive job on that were ended up being happier in retirement. So this kind of comes back to trying to crystallize or visualize. And this is, I think, where any sort of financial planning, whether it's at the dinner table with you and your spouse, whether it's at the financial advisor, the act of sitting down and talking about it for an hour, hour and a half and drawing something out is so powerful, it sounds like, what's the big deal? I'm going to draw out what I'm going to do in the future. I'm going to ask myself what, what my future self should be doing. Well, look, athletes have coaches and they do a lot of visualization because it works. And we can do the same thing when it comes to retirement. So if you take this research, newly discovered research, is that visualization of what you want to be doing in 10 years really helps up the ante when it comes to how much you're going to save. And I think it's important. You're not going to some crazy sweat camp retreat to figure this out. This is just dinner table across the desk. Visualize and it helps.

[Krista Dibiaz]

I love that. Okay, Javier in Colorado has a question. Going back to last week's dry powder.

[Wes Moss]

Segment, would you say Javier maybe, or is it Javier?

[Krista Dibiaz]

I'm not sure. I hope I'm pronouncing it correctly. Javier, question for Wes. Please provide a strategy for three years of dry powder. Right now I have my money in Schwab Value Advantage Money Investor shares. I'm 71 years old and I love the podcast and enjoyed your book, what the happiest retirees know. 10 habits for a Healthy, Secure and Joyful Life. Thanks.

[Wes Moss]

Thank you, Javier. Dry powder can be a lot of different categories. It doesn't have to just be cash. Cash that's sitting there with no interest. It can of course be seeded anything that is relatively safe compared to stocks and real estate and other assets that have prices move a bunch and it doesn't mean prices don't move some. But bonds really fill this category and there's a bunch of versions of that. So of course CDs, of course cash money markets count high quality US bonds that are not super long term. So dry powder doesn't count. Super long term bonds because they can move a lot in price. So I would say intermediate to some extent counts, but really intermediate to shorter term bonds. Government, municipal, corporate bonds. What doesn't count would be high yield bonds or junk bonds. They act a little bit more like stock. Think of your dry powder could have a lot of different components to it and to me that all counts. Remember, we want three years worth of the spending need beyond your guaranteed income sources and you can really round that out with some diversification.

[Krista Dibiaz]

Great. This came in from Jeff in Georgia. I'm 44 and I'm currently and consistently putting 15% into my company's 403. I just happened to notice when I was looking at the account that they offer a Roth 403 in addition to the traditional 403. I've been putting money into this 403 for almost 21 years. It's the first company I was hired with after leaving the Navy in 2004. Just looking around online, I figured out that the Roth is post tax and traditional and pre tax. But I don't know if I should put money into the Roth 403. Should I put half of what I'm currently putting into the Roth 403 and the other half in traditional? Should I put the full 15% into the Roth and transition away from the traditional or just keep everything going to the traditional? My company matches up to 3% of what I put in, but they also have a pension that I'm enrolled and invested in. Wow, lucky you. A lot of people don't have that anymore. I'm just trying to figure out what kind of retirement account would be best. Any sort of insight would be greatly appreciated.

[Wes Moss]

Jeff. To Roth or not? To Roth. To Roth 401k or not? Roth 401k regular 401k? That is a tough question and I don't know if there's a perfect answer here. What I would tell you is first of all, he's been saving Jeff. You've been doing 15% for 21 years. In my opinion, that's 90% of the battle. The other 10% of the battle is figuring out which account is better now you already have a ton. It sounds like you already probably have a lot in the regular 403B. The choice of a Roth or not or regular. There's advantages and disadvantages to both, so you can argue either. But primarily, the lower the tax bracket you're in today, the more likely it's better to do the Roth IRA, the Roth 401. If you're in the 37% bracket and you're making a ton of money right now, you get a big pre tax advantage by using the regular 401k lowers your overall tax rate. In fact, if you do a bank rate has a calculator on this, it's.

[Krista Dibiaz]

A 4.3B but I know that doesn't matter, right?

[Wes Moss]

4 3B, 4 1K Roth, 4, 3 before 1K. They're somewhat synonymous. Very, very similar. But if you were to go and look at a calculator where you're trying to figure out the answer to this question, if you check the box that is, I'm doing a regular 401k 403b and I'm getting the deduction, but I don't get the tax free nature of it eventually when I'm starting to withdraw money. If you check the box that says you take what you've saved by using the regular 401k because remember this is pre tax dollars and you invest that as well, your net almost always, from what I can tell in these calculators, you always should mostly always win and that's the better strategy. But very rarely do folks say, oh, I'm saving $6,000 because I'm lowering my taxes by using the 401, I'm going to take that 6,000 and invest it and, and that's going to grow over time. So that's one way I would look at it is if you are doing this and you're quote saving money, you want to reinvest technically the savings as well. But if you're in a high bracket and again 32%, 37% and when in retirement you're only going to be in the 15% bracket, then I lean towards keeping traditional 403 contributions. But if you're in a moderate, call it the 24% bracket and even in lower makes this even better, then I would do the Roth.

[Krista Dibiaz]

It also can kind of force you if you're not someone who's going to take the extra money and invest it. If you were going to put 6,000 in and you can still put 6,000 in post tax, you're kind of forcing yourself to actually save more money because you're paying the taxes on it and you're still, you know, another cool way.

[Wes Moss]

To think about the Roth, but it really is. It's all about taxes today versus tax tomorrow. And for most people, the Roth retirement plan option does make a lot of sense unless you're in a super high bracket. He also has a ton of money. He's already saved in the regular. So if you want to start to try to get that balanced, your Roth is here and your regular savings, your traditional, is here. I would lean towards probably doing more in the Roth. And you could always split it.

[Krista Dibiaz]

Sure. Steve in Minnesota wrote in with this one for you. Wes, please help me wrap my brain around two different percent rules that you have discussed. First is a retiree can withdraw about 4% of their saved funds each year and typically have the funds last all of their retirement. Second is the evaluating lump sum pension buyout versus annual pension and the rule that if the annual pension is greater than 6% of the lump sum, then take the pension. If a pension wants the lump sum to last all of their retirement, then why is the decision point not at 4%?

[Wes Moss]

So he's saying, wait a minute. Why do you use six for one rule and four for another?

[Krista Dibiaz]

Right?

[Wes Moss]

Man, nobody's ever asked me that before. So I guess I have to have an answer for that. I think there's a very simple explanation here, is that the 4% rule, and this gets missed, the 4% rule accounts for inflation. The 6% rule doesn't. Okay, the 4% rule is about your own money and making it last. The 6% rule is not your money. It's the pension promising to pay you. And you have to be alive to get it. That's why those two numbers are so different. And they're different. But the calculations and how we came up with these, they're taking into account some majorly different variables. One, it's your own money and accounts for raising the amount every year for inflation. Pensions. By and large, most pensions, not all, but by and large, most pensions do not give you a cola. It's a set amount doesn't go up. And again, it's not your money. And you got to be alive and or your spouse to get it. That's why those are two completely different scenarios and why one's four and one's six. That's a cool question.

[Krista Dibiaz]

You have an answer for everything. I love it. Okay, coming up next, we're going to talk about risk tolerance and historical risk tolerance changes.

[Wes Moss]

Over time.

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[Wes Moss]

Welcome back to Ask an Advisor. Wes Moss along with Krista Dibiaz. You have a big lineup of questions coming.

[Krista Dibiaz]

I do. We're getting lots of questions. Again, if you want to ask a question, go to clark.com ask and you can pose your question to Wes or to Clark.

[Wes Moss]

And they're getting more complicated.

[Krista Dibiaz]

They do get complicated.

[Wes Moss]

They're getting more complicated.

[Krista Dibiaz]

Right. Because you do go into more complicated investing topics.

[Wes Moss]

Some of these are like a half a page.

[Krista Dibiaz]

Yes. Which. Please don't send us a half a page if you can avoid it.

[Wes Moss]

I'm fine with it. But that's probably the max. I'd say that's the limit. Max, limit. But I'm happy to do it. And the more in depth and the more numbers that we get, I think that the more we can drill in on actually helping someone. But we wanted to go into changing risk tolerance.

[Krista Dibiaz]

Right?

[Wes Moss]

Right again. How do we come up with these topics? It's usually something I read or a chart. I love finding new charts. And it's.

[Krista Dibiaz]

You love a chart?

[Wes Moss]

I love a chart and a table. A heat map. Oh, one of this. We actually have a heat. I, I want to talk about a heat map too. But this was a JP Morgan publication, I believe, and they had this really interesting chart and they used different colors for the percentage of how likely or how self identified you were aggressive to conservative on a time continuum. So if I'm 30, what do most people put? Are they aggressive, Moderately aggressive, moderate, moderately conservative? Conservative all the way out to age? Call it 80 or 90. And. And it's an interesting shift according to the research. Meaning that. And I want to frame this in thinking. I think I call this from being bold to being balanced. And what we see empirically is that people shift their risk tolerance over time. I think that makes sense. You start out more aggressive and then you migrate to becoming more conservative. What a little bit interesting is that in the 30 year old category, there's actually a fairly big chunk of folks that are in the conservative group. Even though you're in your 30s and you've got a forever time horizon, there's still A higher amount of folks that are in the conservative leaning group, conservative safe investments than there are people in their 40s. And it's because I think you're starting out even though we'd say start when you're 20. Most people aren't, don't start investing till they're in their 30s and or 40s. So you do tend to see there's a bigger contingency or a higher propensity when you're starting out to be a little more cautious. Hey, I haven't been investing for a long time, so I want to keep money just in cash. I get it. Then we see again empirically that risk tolerance peaks at around age 55. So you see the most people that identify themselves as aggressive, moderately aggressive, moderate investors, and the fewest in the conservative camp. And then by around age, call it 55, you start seeing the conservative group start to really jump. And of course that keeps going in 60s, 70s and 80s as people add more balance or more conservative pieces or ingredients to the overall investment pie. So that is what the data says and that's what I see in real life. It's natural. As you get closer to retirement, you start thinking, wait a minute, I'm not going to get a paycheck anymore. So I really can't have my entire portfolio go down by 20 or 30% if I'm all totally invested in stocks. So that begs the question of kind of where do we want to be as a guideline per age? Now I will say this, even though I love rules of thumb. There is no one size fits all on what your allocation should be for your age. If you're 30 or 40 or 50, there's no exact, there's nothing to tell you what works. Now the way I think about this is I go back over market history and look at economic data, market data, think about some of the really important financial planning rules of thumb. And then I think about just behavioral finance and investment behavior. And I think if you look through that lens, you can start to get an indication of approximately where most people should be at a certain age. So this is how I would look at it. I think if you are in your 20s through 40s, that's early career, still super early career, and you still have a super long time horizon. That's the time that you want to be arguably 90% in stocks, 100% in stocks, provided you still have some emergency money, some, some liquid money to get to. So that phase very simply is mostly in equities. This is where corrections bear markets dips you name it, that's your friend. During that period of time, you want the market to dip because your dollar, you should be investing regularly, AKA dollar cost averaging. You're smoothing out your purchase price over time. Then you get to, I would call it the next phase, Krista, the 40s to the 60s, that's where you want to start to enter into balance. Now this may be 25, 30% into safety assets, maybe more depend again depending on your risk tolerance. But you still want to have the majority of your investments in longer term assets that can keep up or beat inflation over time. I think it's when you get to your 60s, you get into your 60s. That's when you really want even more balance. Call it 40% in bonds potentially. And then of course your 70s, that's when that number increases. Now there's a caveat to that, is the financial planning rule of thumb. This is the heat map I was talking about. JP Morgan also did a heat map that showed the different withdrawal rates from 1% withdrawal rate all the way up to a 10% withdrawal rate and paired that with different allocations from all in bonds or cash, all in stocks, and then everywhere in between to try to figure out what gave you the highest probability of never running out of money. Well, of course the 1% withdrawal rate didn't matter, right? You never run out of money. You're leaving everything invested. 2%, same thing, 3% same thing. But of course, 10% and 9% and 8% and 7%. Almost in every scenario, people run out of money with a high confidence of running out of money. It's the opposite of what we want. We want a high confidence of never running out of money. On the heat map, of course, the 1%, 2%, 3% withdrawal rate, that's in the green, then you got the red and the high withdrawal rate. Where do you find some sort of happy medium? And this goes back to this concept of we want to be able to max out our withdrawals without running out of money. And that goes to the 4% line. That's where the heat map kind of is, has some different coloring, but with still a really high probability not running out 90 to 95% of the time. Money doesn't run out for 35 years. That's what they did in the study and that's with a balanced half stock, half bond portfolio. So as we change our risk tolerance over time and we get more conservative, I think for most folks, if you're really having to withdraw money, you don't want to go beyond 50% in bonds in most cases. And I think that that gets lost in the idea of you look at some of these target date funds, and when somebody's in retirement or a few years into retirement, it's 60, 70% in bonds. I just think that gets too conservative. It doesn't apply to the 4% rule. You need to have that 50% in equities in order to be able to keep up with inflation.

[Krista Dibiaz]

Okay. All right, I'm going to give you some questions now. This came in from Bonnie in Ohio. I'm 64, retired. I retired at 62, and I have a net, a pension of $3,900. My husband will be 68 in October. He retired in 2024, and he's trying not to take Social Security until he is 70. Social Security would be 3363 at this time, and at 70, it'd be over $4,000. We have just paid off our mortgage, and we have $500,000 in equity and $800,000 combined in our 401ks. We have a car payment of $550 at just over 5%. Four years to go. That is our only bill. We lived on savings for his first year of retirement. We have a HELOC at six and a half percent. It's $100,000 of available credit. My thinking is to live off the HELOC until my husband can take Social Security and let the 401k continue to grow. I have everything in a Target retirement fund, 20, 30. I know I can access those funds if I need to. I don't think we'll need additional support once he starts collecting Social Security. And I'll collect my own at 70 as well. I feel pretty good about those numbers since it puts us in the same income to expense ratio as when we worked. So does using the HELOC make better sense than pulling from the 401k?

[Wes Moss]

Hmm. Bonnie, that's a good one. A lot of variables. I'm writing these down.

[Krista Dibiaz]

Lot of numbers.

[Wes Moss]

$3,900 in pension. Husband's 68. He wants to wait two years to get to his full social at age 70. Mortgage paid off, 800,000 in savings, $550 car payment. What I can deduce here, I'm deducting that they don't need that much money because the Helix 100, that could bridge the gap for two years. That means she probably has less than 50,000 of a need. That's important here because, first of all, it's an interesting idea, right? I mean, if you said The HELOC was 12% interest. It's no way, Bonnie, that's crazy. Don't use the HELOC. Just judiciously pull money out of the 401k. Don't even mess with the HELOC. It's in kind of that heat map zone. It's not red hot bad, it's not green. Let's go. It's kind of somewhere in the middle. 6.8%, I think. So it's, it's a high rate, but it's not crazy high. It intuitively does make a little bit of sense to utilize that, bridge the gap because what is she doing? She's keeping her tax rate low because the pulling money from the heloc, that doesn't go towards your tax rate. So you'd be an ultra low tax rate. At the same time. The problem, I think, Bonnie, this is just my opinion. I think it's, that comes on the back end, okay, we got to pay the HELOC off. Mortgage is already paid off. Now you get 100 plus thousand dollars in HELOC. Well, if you want to get rid of that 6, almost 7% interest, where's it going to come from? Well, yes, you're going to be getting some Social Security coming in, but that's a bigger bill to get rid of it quickly. So the money's got to come out of the 401k anyway. And if you do that in a big chunk, then you have a lot of income in one year and your tax bracket goes up and you pay a lot more in taxes. So it makes sense intuitively. And I think if it was a small amount, I could see how that would work and it wouldn't impact your taxes. But. So I love, I really love that idea, but I don't love when the payback phase comes because I feel like it could get you into a tax vortex of pulling a bunch of money out of the retirement account. So I would lean towards not doing it and just judiciously taking just what you need out of the 401k if it's only 40 or $50,000 and the only other income is the pension. Right now, I think, Bonnie, you and your husband are still in a pretty low tax bracket. So it's not a ton of taxes. The rate shouldn't be that high anyway. So that's how I would play. This is just be, just take just the bare minimum you need out of the 401k to supplement. I don't think I'd mess around with the HELOC But I think it's actually a really smart idea.

[Krista Dibiaz]

Okay. This is from Caroline in South Carolina. I'm concerned about my IRA accounts, which are held at the same brokerage as my checking account. Is my retirement at risk? If a scammer gets hold of my bank account information, should I move my retirement funds to a different brokerage than my checking?

[Wes Moss]

Caroline, look, we are all worried about this, and rightfully so. There are thousands or millions of cyber attacks literally every single day. And the big any bank, and particularly the large brokerage firms, have entire cybersecurity teams that are monitoring every transaction. Try to minimize this and cut it down to as low as humanly possible. I don't see any reason that having brokerage firm A with a bank account at the bank division of brokerage firm A is any less safe than having brokerage firm B and a bank account at brokerage firm A. I don't see any. I don't think you need to do it. I am totally fine. To have an investment account at one place and also have a bank account at another. It really goes back to the cyber vigilance. It's two factor authentication. It's checking your accounts on a regular basis to make sure nothing's happening that's out of the ordinary, and strong passwords. I think if you can really continue to do that, that, to me is much more effective and more important than trying to spread out. Bank here, brokerage here, bank here, brokerage here. Totally fine to have a couple different bank accounts. I get that I've got more than one bank account, more than one banking institution, but I would just say you don't necessarily need. I don't feel the need to do that from a cyber perspective.

[Krista Dibiaz]

Okay. And this came in from Gail in Vermont. Question for West. Can you explain the benefits, if any, of investing substantially in dividend stocks and ETFs, as opposed to the more commonly recommended equity index funds and ETFs, target date funds, etc. My YouTube feed seems to be full of channels promoting too good to be true monthly income streams from this investment strategy. What am I missing? Thank you for your very informative weekly appearance. I really appreciate it.

[Wes Moss]

Gail in Vermont. The Too good to be True. You didn't give me a number on that, but I would just expect that's 10% a year income is probably an ad she saw and that. That is too good to be true.

[Krista Dibiaz]

And then you get more because you're in the algorithm.

[Wes Moss]

Oh, she's. She's. Even so, Gail's been looking around for, for income producing stocks. The other thing I probably should have mentioned in the thought around the changing risk tolerance. Remember the stock continuum is really, it's a giant continuum, meaning you've got some stocks that are aggressive and have super volatile high beta stocks and then you've got low beta stocks that are. And that goes into this conversation around dividends. If you're in an index fund cap weighted, then if you look at the S&P 500 right now it paid collectively the dividend on the whole market is about 1.3%. And that's important because dividends are in order to call something a dividend stock. It's, it's all relative, right? If The S&P 500 has a dividend of 2 1/2% and over time, I mean if you go back to 1980, the dividend on the S&P 500 was five and a half percent. So what was the dividend stock? Well, it should have dividend stock then was a 7 or 8% yielder. It's all relative. Today you got a ton of big companies that dominate the S&P 500 that are technology based, that are not known to pay a whole lot in dividends. If you look at the tech sector, they pay less than 1% on average. So a lot of those companies pay zero in dividends. So to have a dividend stock, it's relative. I would say a dividend stock to call. And this is subjective. There's not a, there's not a perfect black and white answer or definition here. But for me a dividend stock in today's world has to be at least 2% and that's pretty low. And you can easily find that. You look at the utility sector, a lot of those companies are closer to three. The oil sector or energy sector, it's well over three. Those are dividend stocks in the world we live in today. So to have anything beyond call it 4% or 4.5% as a dividend, you're running into a little bit, a lot more risk. And there are lots of things that pay 7, 8, 9, 10%. Where are you going to likely suffer? There is on the value side. So remember, we're all after TR equals gi. Total return is growth plus income. So if you have a huge number on the income side, then there's probably something wrong with the growth side. I think when you're looking for dividends, then that's where I want to look at kind of a Goldilocks zone. Not too low. So 1 or 0 to 2% is probably a little low to call it a dividend stock, you're probably looking at 2.25% to 4%. That to me is the Goldilocks zone for companies that pay out steady cash flow. I think that that becomes more and more attractive to folks as we change our risk tolerance over time. Note that dividend paying companies are usually more mature. They're slower growing, so they have a lower G and a bigger I. A younger technology company that's growing gangbusters will have a bigger potential for G growth and they're not paying out any dividends because they're still a newer company and all the money's going back to reinvest for growth. So as we go from the continuum of high growth no income to a more mature, slower growth higher income, that continuum can be attractive as we get closer to retirement. Again, these are styles of investing. There's no perfect answer, right or wrong. It. I think a lot of this goes back to our risk tolerance. As I get into retirement, I'm a little less okay with huge swings in my stock portfolio. One way to do that is reduce stocks. Number two is change and modify the kind of stock and big indexes are typically going to be weighted towards the big players. Right now, big players in the market or big sized companies that dominate are much more weighted towards tech high growth, low, low dividend, low income. So just note that as you do some of this planning. But it always gets back to if there's anything that's 10% rate of return in income. That's something that usually doesn't last.

[Krista Dibiaz]

Yeah, Gail was right on with her. It's probably too good to be Galen.

[Wes Moss]

Vermont is right on the money. Thank you Gail.

[Krista Dibiaz]

Thank you everyone for your excellent questions. Keep them coming clark.com ask and we will be back next week. We'll be back tomorrow with a new episode of the Clark Howard Show. Have a great rest of your day.

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