The Clark Howard Podcast: Detailed Summary of Episode 04.01.25 - "Ask An Advisor With Wes Moss"

Release Date: April 1, 2025

In this engaging episode of The Clark Howard Podcast, host Krista Dibias teams up with financial expert Wes Moss to delve into critical personal finance topics. The discussion primarily revolves around retirement strategies, market corrections, and listener-submitted questions. Below is a comprehensive summary of the episode's key points, enriched with notable quotes and timestamps for reference.

1. The 5% Withdrawal Rate Debate

The episode opens with a heated discussion on the feasibility of withdrawing 5% annually from retirement accounts, challenging the traditionally accepted 4% rule.

• Wes Moss critiques the notion of a 5% withdrawal rate, labeling it as a "financial heresy" (00:56). He emphasizes the uncertainty in financial planning due to variables like lifespan, market returns, and inflation.

  "Running out of money is a very scary thought for anyone. But when you boil down all the variables, the most important is your rate of withdrawal." — Wes Moss [00:57]

• Historical Analysis: Moss references William Bengen's studies, which introduced the 4% rule, and discusses recent insights from Barron's, suggesting that a 5% withdrawal rate might be achievable under certain conditions.

  "If both stocks and bonds perform well, you might be able to pull out more money." — Wes Moss [05:10]

• Flexibility is Key: Moss underscores the importance of flexibility in withdrawal strategies, allowing retirees to adjust their spending based on market performance.

  "Flexibility is the key. You may need to spend a little less during rough stretches and take advantage of good times to spend more." — Wes Moss [08:30]

• Probability and Risk Assessment: He presents data indicating that a 5% withdrawal rate has an 83% success rate of lasting 30 years or more, based on historical data since 1927. However, he cautions about the increased risk of depleting funds faster than anticipated.

  "Money ran out in 12 years was one of the worst outcomes, but 83% of the time, the 5% rule worked." — Wes Moss [08:30]

2. Listener Questions and Expert Advice

The episode features insightful responses to listener-submitted questions, providing tailored financial advice.

a. Social Security Timing

Listener: Chip from Texas
Question: Should he wait until age 70 to take Social Security to maximize benefits, especially considering his wife's inability to earn enough for her own Social Security?

• Wes Moss advises waiting until 70 to take Social Security benefits, especially given the likelihood of longevity in Chip's family.

  "If you wait till 70, the payments increase significantly, and it acts as an income insurance policy for your wife." — Wes Moss [10:59]

• Optimization Over Maximization: Moss emphasizes the importance of optimizing Social Security based on individual circumstances rather than solely aiming to maximize benefits.

  "It's about optimizing for your particular financial situation, not just maximizing." — Wes Moss [11:30]

b. Roth Conversions and Required Minimum Distributions (RMDs)

Listener: Andy from Idaho
Question: Is spreading out Roth conversions over several years the best strategy, or should some funds remain in tax-deferred accounts to utilize standard deductions against RMDs?

• Wes Moss supports spreading out Roth conversions to manage tax burdens effectively, especially before RMDs commence at age 73.

  "It's still about taxes today versus taxes tomorrow." — Wes Moss [14:14]

• Consulting Professionals: He advises consulting with a CPA or tax advisor to navigate the complexities of progressive tax brackets and individual financial situations.

  "Taxes are super complicated, so meet with your CPA and speak with your tax advisor." — Wes Moss [15:00]

c. Donating Company Stock

Listener: Patrick from Massachusetts
Question: Should he wait to donate appreciated company stock to maximize tax benefits, or donate regardless of stock performance?

• Wes Moss recommends donating appreciated stock immediately rather than timing the market, as predicting stock movements is unreliable.

  "I think just donate regardless because we don't know where the stock is going." — Wes Moss [16:52]

• Tax Benefits: He explains the advantages of donating appreciated stock, including avoiding capital gains taxes and receiving deductions based on the stock's full value.

  "You get a deduction for the full value of the stock, subject to IRS limits." — Wes Moss [17:00]

3. Market Corrections and Recovery

A significant portion of the episode is dedicated to understanding market corrections and their aftermath.

• Understanding corrections: Acknowledging the first official correction of 2025, Wes Moss analyzes historical data to gauge future market movements.

  "We've had almost 50 corrections since World War II, and 75% of the time, they did not escalate into bear markets." — Wes Moss [21:19]

• Psychological Impact: Moss discusses the emotional toll of market downturns, noting that the pain of loss is often more intense than the joy of gains.

  "The pain of loss is four times as impactful as the joy of gain." — Wes Moss [22:00]

• Historical Recovery Patterns: He highlights that markets typically recover within a year of a correction, reinforcing the importance of staying invested.

  "Historically, we're up 11-12% a year after a correction." — Wes Moss [25:51]

• Investment Strategy During Corrections: Moss advocates for dollar-cost averaging and maintaining investment discipline during market volatility.

  "When things are low, they're kind of on sale. Keep putting dollar cost averaging, keep investing." — Krista Dibias [25:00]

4. Additional Listener Questions

a. S&P 500 Being Top-Heavy

Listener: Sriram from Washington
Questions:

1. Concerns about the S&P 500 being top-heavy with the top 20 stocks comprising ~50% of its value.
2. Whether passive investing contributes to this imbalance.
3. Expectations for future stock market returns in the context of low Fed interest rates.

• Wes Moss acknowledges the increased concentration in the S&P 500 but attributes it to the naturally growing size of leading companies rather than passive investing alone.

  "The top 10 now make up almost 35%, up from the usual 25%. It's because these companies have incredibly strong businesses." — Wes Moss [29:27]

• Passive Investing Impact: While passive investing may contribute, Moss believes active management still plays a significant role in price discovery and mitigating passive strategies' impact.

  "There's still $135 trillion in active management globally, so it's not creating a bubble necessarily." — Wes Moss [30:00]

• Diversification Strategies: He advises investors to diversify beyond the S&P 500 using various ETFs and index funds to balance the top-heavy nature.

  "There are hundreds of other options out there. Use equal-weighted indexes or other ETFs to diversify." — Wes Moss [32:00]

• Future Returns Outlook: Moss refrains from predicting future market returns but emphasizes reverting to historical averages over the long term.

  "I believe our average returns will still be there as long as we're in the game for long enough." — Wes Moss [33:21]

b. Diversification in Target Date Funds

Listener: Patir from New York
Question: Are target date funds sufficiently diversified, or is funneling 100% of retirement investments into a single fund a bad idea?

• Wes Moss assures that target date funds, especially those targeted far in the future like the Schwab 2055 fund, offer significant diversification by spreading investments across various sectors and asset classes.

  "Any target date fund for someone young, like 35, is appropriate and super diversified." — Wes Moss [34:40]

• Long-Term Suitability: He notes that for long-term investors, target date funds are suitable as they are heavily weighted towards equities, aligning with the need to outpace inflation.

  "If you're out 25-30 years, being 90% equities is appropriate." — Wes Moss [35:00]

• Caution Near Retirement: Moss points out potential issues with target date funds becoming overly conservative as retirement approaches, which might not align with everyone's risk tolerance.

  "They can get overly conservative for most people, but for young investors, they're generally fine." — Wes Moss [35:45]

5. Conclusion

The episode wraps up with Krista Dibias and Wes Moss reiterating the importance of financial education and strategic planning. They encourage listeners to submit further questions via www.clark.com/ask and emphasize the value of personalized financial advice.

"If you're hearing other people having a struggle or question, you can relate and learn from it." — Wes Moss [37:01]

Key Takeaways:

• Withdrawal Rates: While a 5% withdrawal rate can be feasible, it carries higher risks compared to the traditional 4% rule. Flexibility in spending is crucial.

• Social Security: Optimizing the timing of Social Security benefits based on individual circumstances can enhance long-term financial security.

• Tax Strategies: Strategic Roth conversions and smart donation of appreciated stocks can offer tax advantages.

• Market Corrections: Historically, markets recover within a year post-correction. Maintaining an investment strategy during downturns is essential.

• Diversification: Diversifying beyond top-heavy indices like the S&P 500 can mitigate concentration risks.

• Investment Vehicles: Target date funds are suitable for long-term investors but require careful consideration as retirement approaches.

This episode serves as a valuable resource for listeners aiming to navigate the complexities of personal finance, offering actionable insights and expert advice tailored to various financial scenarios.