04.07.26 Ask An Advisor With Wes Moss

Summary

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The Clark Howard Podcast: Ask An Advisor With Wes Moss

Date: April 7, 2026
Host: Krista DiBiase with Advisor Wes Moss
Episode Theme: Overcoming Financial Fears: Speculative Investing, Retirement Decisions, and Your Questions Answered

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Episode Overview

This Ask an Advisor episode features Wes Moss answering listener questions on investing, annuities, lump sum pensions, and diversification. The discussion centers around the growing anxiety Americans feel about being behind on savings, often resulting in risky decisions. Wes underscores the power of long-term, patient investing and addresses nuanced retirement planning questions, aiming to help listeners avoid major pitfalls on the path to financial freedom.

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Key Discussion Points & Insights

1. Feeling Behind: The Speculation Trap (00:21–08:00)

• Main Issue:
  Many Americans—particularly younger generations—feel they're behind on retirement savings and are turning to speculative investments to play catch-up.
• Wes’s Analogy:
  Feeling behind is like "being in the fourth quarter and just throwing up threes... Hail Mary passes." (00:47)
• Stats from Northwestern Mutual:
  • 73% of all adults feel behind financially.
  • 80% of Gen Z, 75% of Millennials, 66% of Gen X, and 51% of Boomers report this feeling.
  • Younger people are more likely to turn to speculative assets: cryptocurrencies, meme stocks, sports betting.
• Accessibility Issue:
  These investments are more accessible than a decade ago, making impulsive betting easier.
• Planning Makes a Difference:
  71% of people who work with a financial advisor feel secure versus much lower rates among those who don't.
• Wes’s Prescription:
  “We're not behind. If you're in your 30s, you’ve got three decades of investing ahead. Build wealth through long-term patient accumulation, not lottery ticket investments.” (06:21)

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2. Listener Q&A: Practical Guidance

A. Alternative Options for a Maturing Annuity (08:01)

• Mary (TX):
  Has a $200K fixed three-year annuity maturing, not renewing, doesn’t want to invest in stocks/IRA.
• Wes’s Advice:
  Suggests staying in safe, liquid options—like US Treasury money markets or short-term bond ETFs—with yields of about 3.5%-4%. Stresses minimal risk, especially when risk avoidance is a priority. (08:22)

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B. How Do Dividends Really Work? (10:00)

• Bob (GA):
  Asks about the real impact of dividends versus interest, questioning if dividends just reduce share price.
• Wes’s Breakdown:
  Explains that historically, a third or more of US stock market returns come from dividends reinvested.
  • “If you look at the US stock market, the return is 10%…without dividends, it's 6%. A third of total returns are from dividends.” (11:49)
  • “Dividends give companies discipline and provide steady income to shareholders.” (13:01)
  • “It’s not just your own money coming back to you–it’s a critical part of real, long-term growth.” (13:25)

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C. Should We Pay Down a Mortgage or Invest? (14:16)

• Christina (CO):
  Couple in late 30s, $300K after selling a house, considering applying it to a new mortgage (now $600K) or investing.
• Wes’s Take:
  No right/wrong answer; personally would prefer investing for the long-term, leveraging the power of compounding (“Rule of 72: Money doubles every 10 years at 7.2% returns”).
  • “You’re not at the end of the game; you’ve got four quarters ahead. Doubling that $300K could mean $1.2 million in your 50s.” (15:24)

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3. Lump Sum Pension vs Annuity Payments – The "Pot of Gold Trap" (23:51–28:24)

• Alarming Statistic:
  “One out of five people who take a lump sum from a pension run out of money—on average, in four and a half years.” (23:51)
• Wes’s Cautions:
  • Lump sums create temptation. Unexpected large sums can increase spending on big purchases, sometimes violating safe withdrawal rates.
  • Flexibility vs. Discipline: Lump sums offer flexibility and legacy potential, but only if managed with discipline to convert them to "your own paycheck engine," simulating an annuity with proper guardrails.
• Context Note:
  The study comes from MetLife, an annuity provider, so Wes urges listeners to “know where the data comes from.” Still, the risk is real.

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4. Listener Q&A, cont.

A. Proper Stock-to-Bond Mix for Elderly Parents (28:24)

• David (CA):
  Manages finances for elderly mother/mother-in-law; advisors recommend a 60/40 equity/cash split, but he cites "age from 100" rule for stocks.
• Wes’s Take:
  That old rule is "overly crude.” For many families, the investment time horizon spans generations, so higher stock allocations can be appropriate—sometimes even 50–70%.
  • “If your withdrawal rates and time horizons support it, more equity can make sense. Just don’t blindly follow outdated rules.” (29:15)

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B. Multi-Year Guaranteed Annuity (MYGA) vs. CDs (32:53)

• Michelle (WA):
  Wonders about MYGA annuities, pitched as “the CD of annuities.”
• Wes’s Caution:
  • “There’s no new magical annuity. At the end of the day, it’s just a fixed annuity–but with far less safety than federally-insured CDs."
  • MYGA guarantees are only as good as the insurance company making them—not FDIC. Less liquidity and more hassle if you need to access funds early.
  • “You’re trading a little higher yield for less safety and more complexity.” (33:51)

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C. Managing RSUs and Diversification Before Early Retirement (36:58)

• Billy (GA):
  At 45, wants to retire at 55; company RSUs now make up 30% of his investments. Asks about selling/diversifying without tax “bomb.”
• Wes’s Strategy:
  Pay ordinary income tax at vesting. Recommends steadily diversifying—reduce RSUs from 30% to 15–10% of portfolio over a few years, managing realized gains to stay in lower capital gains brackets and avoid 3.8% NIIT when possible.
  • “There are no companies immune to drawdowns. Gradual diversification keeps risk in check and manages taxes.” (37:45)

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Notable Quotes & Memorable Moments

• Wes Moss on Risky Investing:

  “Why go for a 1 in 10,000 chance when you really have almost a 100% chance to get to financial freedom?” (07:00)

• On Dividend Returns:

  “A third of the total return of the US stock market over the last 50, 100, 150 years is because of the dividends getting reinvested.” (12:17)

• On Lump Sums:

  “One in five folks just run out ... in about four and a half years. It’s the pot of gold syndrome.” (23:51)

• On Rules of Thumb:

  “That ‘100 minus age’ adage is directionally correct but mathematically, overly crude.” (29:15)

• On Annuity Guarantees:

  “There’s no stronger guarantee on planet Earth than FDIC, but annuity guarantees are only as good as the company behind them.” (34:30)

• On Diversification:

  “There are no companies that are totally impermeable to their stock price going down.” (39:15)

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Timestamps for Key Segments

• Feeling Behind and Speculative Investing: 00:21–08:00
• Annuity Alternatives (Mary in TX): 08:01–10:00
• Dividend Mechanics (Bob in GA): 10:00–14:16
• Mortgage Paydown v. Investing (Christina in CO): 14:16–17:22
• Pot of Gold Trap: Lump Sum vs. Annuity: 23:51–28:24
• Elderly Family Allocation (David in CA): 28:24–32:53
• MYGA v. CD (Michelle in WA): 32:53–36:58
• RSU Diversification (Billy in GA): 36:58–40:34

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Episode Tone

Upbeat, direct, sometimes humorous; practical and forthright advice underscored by data and war stories. Emphasis on the long view, measured optimism, and protecting against human nature’s financial missteps.

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Takeaways

• Feeling behind is normal, but don’t respond by gambling your future; long-term, patient investing is the sure path.
• Lump sum pensions require discipline or you could outlive your money.
• Dividend reinvestment is a foundational, often underappreciated force in building wealth.
• Don’t be mesmerized by high-yield annuities—always know who guarantees your money (FDIC vs. insurer).
• Diversify from concentrated holdings (like RSUs) gradually, managing taxes along the way.
• Old rules-of-thumb are a starting point—not a substitute for holistic personal planning.

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For personalized questions or more, submit at clark.com/ask and specify “Wes” for investment topics.

Transcript

[A]

Welcome to Ask an Advisor. I'm Krista Dibiaz with Wes Moss, our advisor here at the Park Howard Show. And we're going to take your questions today about investing, saving for retirement, all sorts of things.

[B]

All sorts of things. Hello, Krista.

[A]

It's great to be with you today again, Wes. And I hope that if you like the show, you'll subscribe and share it with a friend. It really helps us out if you give us a review on Apple Podcasts, too. And today, Wes, you're going to talk about a couple of really important things. First, some alarming numbers in terms of people feel like they're behind in their investments. There's just that constant feeling like you don't have enough. And maybe they're making some choices in speculative or things that are risky.

[B]

You know, I think about March Madness and April Madness and basketball season, and I think that a lot of America feels like they're way behind and they feel like they're in the fourth quarter and they're just throwing up threes. They're just hail marrying, hey, maybe we'll hit these. We're taking big bets. So they're getting speculative. And I think it's obviously we have the numbers behind that and it's an alarming trend.

[A]

And then you're going to talk about pensions. There's always the debate, should I take a lump sum? Should I take the payments in annuity payments? And I'll just say this, you mentioned to us in the room what you're going to talk about here. And we all gasped.

[B]

A new study shows one out of five folks who take the lump sum from the pension conversation versus the payments runs out of the money completely in about four and a half years.

[A]

I remember once Clark was talking to an NFL football team. They asked him to come talk to them about their finances. And you know that we were all joking around in the room when he was starting and he said, did you know that within two years of being out of the NFL and 80% of players are bankrupt?

[B]

That's a staggering statistic.

[A]

It quieted the room. And I felt like that from this pension. So I'm eager to hear what's behind that.

[B]

I didn't mean to quiet the room, Chris.

[A]

Okay, it's.

[B]

But it is a serious topic.

[A]

It means it's important if you have a pension, if you're lucky enough to have a pension.

[B]

Well, let's start with this top this idea that in the way I look at this, it's not just younger investors, but this skews More the younger you are in America, the more you feel as though you have to go for broke. And I think about any game, whether it's basketball or football, and you feel behind and you are behind in the score and the clock is running down, you do get a little desperate. And that's when you see Hail Mary passes, that's when you see basketball teams shooting threes and threes and threes, which are low probability, but they can work. A Hail Mary is a super low probability, but it's. It can work. Doug Flutie, Boston College, and that is your alma mater.

[A]

It is.

[B]

You're the most famous Hail Mary of all time. Doesn't mean you're speculative, though. So that's the scenario that we're seeing right now, and this is a study by Northwestern Mutual, that these are the percentage of the US Population that feels as though they're financially behind and they think that high risk, speculative investments are going to help them reach their financial goals. What do I mean by speculative investments? And this, by the way, it's 73% of adults feel this way. It's 51% of boomers, it's 66% of Gen Z, 75% of millennials, and 80% of Gen Z. So the younger we get, the more people feel like they're behind and they feel as though they need to invest in things like cryptocurrencies, options, meme stocks, sports betting, prediction markets, which are all very accessible today. Ten years ago, I would say that none of these areas were really all that accessible. You could do options, but it's much easier today to do options. There really were no, to some extent, there were a few meme stocks that's much more prevalent today. And then sports betting and prediction markets are still very new and they're very, very accessible.

[A]

Oh, too accessible.

[B]

And younger folks, if you ask a eighth grader to name five stocks or five sports betting apps, they're going to name probably give you six sports betting apps, and they may only have three stocks that they know about. So that is the world that we live in. So it skews younger, but it's really across population demographics. The biggest category is cryptocurrency. But meme stocks, options, sports betting, it's still a really high percentage for Gen Z, 32%, a third of all Gen Z feels as though that could help them catch up financially. 24% of all millennials feel it can help them catch up, et cetera. So that's the issue that we face today. If you go to the whole population about half of America seems as though they're on financial footing. But the younger we get, the more nervous people get and the more they feel that they are behind. Now of that group among Americans with a financial advisor, which really means they're doing planning. So if they're doing planning and they're putting these down on paper, whether it's using an application or using an app or doing something online, or really pen to paper, 71% feel like they're financially secure. So there is a lift for people who are intentional. I would suspect a lot of our folks listening today are more in that camp. If you're listening to financial podcasts, then you probably have planning and investment thought on your mind. And that really, really helps. And it helps people make better decisions. And of the folks that are drawn to these speculative assets, the reason they're drawn to that, some of it's for fun. And if you ask younger folks why they're doing sports betting, they'll say, well, it makes the games more interesting. I've got three different bets going and I really am pulling for these two team, and I normally wouldn't pull for those two teams. And that's, that's the draw for a lot of folks when it comes to sports betting. But 73% of all the folks that do it say they're doing it because they feel financially behind. So here's my solution for this. When you're in your 20s and your 30s, you may feel like you're behind because you look around and you see on social media that someone is taking a vacation and they're young and you say, well, I can't take a vacation, so I must be behind. So the world messages to us that we're behind. It's not true. We're not behind. If you're in your 30s, you have three decades of investing. If you're in your 20s, you have four decades of investing. And people make money over time and build real wealth through long term patient accumulation, not speculative home run investments that work just happened to work out. So it's really lottery approach versus the much more secure marathon approach. Lottery can work, but again, it's one in millions. Speculative assets can work, but it's one in hundreds or one in thousands that really, really pay off and make a difference for your retirement. So why go for a 1 in a 10,000 chance when you really have a, in my opinion, you have almost a 100% chance to get to financial freedom if you recognize that there's not a minute left in the game and you Recognize that really it's just the beginning of the first quarter and you've got four more quarters to go. That way you're not throwing up threes from the very beginning. You can take layup after layup after layup. High probability investing. That really is patience over time. And that's my message today here. If you feel like you're behind, just do a reality check. There's not 10 seconds left in the game. There's a lot of quarters left in the game.

[A]

All right, we'll go to some questions that came in for you, Wes. This one was from Mary in Texas. She says, I have a fixed three year $200,000 annuity that will mature soon. I don't plan to renew it. I do not need the cash at this time and do not wish to invest it in my rollover IRA or in the stock. Can you recommend another investment option?

[B]

Mary, this is really an investment question. It sounds like, but it's also a little bit of a tax question. My sense from your question is that that $200,000 in an annuity is already in an IRA, or else Mary wouldn't be asking, could she roll it into an IRA if it was outside of an IRA. You couldn't just roll 200 grand into an IRA. So I would suspect it's already there. So really you shouldn't have to be worrying about tax consequences because again, IRAs are like crock pots. Everything's staying in. You can change the investments, the ingredients can mix and it's still fine. It's only when Mary pulls money out that she has to worry about taxes and the age because annuities have an age scenario that you have to look at too. So really, to me, Mary, you're asking more of just an investment question. And it sounds like you don't want to put this money at risk. You don't want to invest it in the market. And its question is really about safety. That seems like you would stick with dry powder, which would mean the simple answer would be a high quality. And I like to use treasury money markets. Money markets are already super high quality short term bonds, but I like the treasury money markets that are just 100% short term US Treasury. So that's your answer. And that's the 3 1/2 to 4% yield right now that always moves with where the Federal Reserve puts rates. But you can still get a pretty decent rate of interest, Mary, and take on, I would say, virtually no risk. Same with short term bond ETFs. You can do that too. But really more of investment question that Mary's asking.

[A]

Bob in Georgia says, can Wes explain how a dividend works? I know he's a huge proponent of dividend investing, but I've always heard that is a unlike getting interest on a savings account, for instance. Basically, when a dividend is issued, then your share price goes down in a corresponding fashion, so you aren't getting something for nothing or some sort of added bonus from the fund. You're paying for your dividend in reduced share price. So what's the difference in getting a dividend or just taking that same amount of money out of your fund instead? If I have this all wrong, please correct me.

[B]

Thanks, Bob in Georgia. I've gotten this more and more and I think it's a good question and it's a good conversation to continue to have. What Bob is saying is that if you've got a company that has a billion dollars sitting in cash and they pay out 100 million in a dividend payment to thousands and thousands of investors, technically the company has now reduced their value by that same amount. Right. So it stands to reason. Well, is the dividend just giving you back your own money? Good question. If you're looking at it from just a purely textbook standpoint or in a vacuum, then there is some validity to that. Now I will ask you this. You're going to help me answer this question about what is the total rate of return of the stock market? Just in general, Give me the number over how long. Just 50 years. 100 years? 150 years. What's the U.S. stock market done? Just give me the ballpark.

[A]

8%.

[B]

No, it's more than that.

[A]

10.

[B]

Let's call it 10. And if we look at different periods of time, it's more like 11. But let's just say it's 10%, which is on the low side. Okay. What is the rate of return with the US Stock market without dividends?

[A]

Trick question.

[B]

No, not trick question.

[A]

10%.

[B]

No, it's 6%. So the United States stock market, the core reason that we all invest is because we're going for 10% over time.

[A]

Okay?

[B]

Right. We're going for that double digit rate of return, a third of the total return of the US stock market over the last 50, 100, 150 years is because of the dividends getting reinvested.

[A]

Okay.

[B]

So you. It's impossible to say that dividends don't count when a third and in some decades dividends have made up more like 40% of the total return. You bring up a chart and financial Websites are not great about this and usually it's a paid site to do this, but you can look at the price return of almost any stock on any financial website you go to. Not all of them have an extra button that says total return and total return is what matters. Remember TR G plus I Total return equals growth plus income now. So that to me is just that. That is a economic fact now doesn't mean that everybody reinvested their dividends, but if they did, that gets us to the long term rate of return that we're going after. The other thing it does that's very powerful is it gives companies this great discipline and they're returning capital in a steady way to shareholders. It's an easy way for you to systematically get income. It shows financial discipline. Another reason that the way I look at the dividends really do matter and it's not just your own money, is that most companies that are paying out dividends are doing it in a rising way, meaning that they're always trying to increase the dividend, which means they always need to increase profits in order to do that or they're trying to. So that dividend growth is another sign that companies that lock into or commit to dividends have great financial discipline so that you don't have to sell. And when you go to a, let's call it a situation where you're constantly saying, well, I'm going to sell now, I'm going to sell now, and maybe I'm not going to sell, it actually brings up a lot more guesswork into the long term equation. So dividends also can help eliminate the guesswork and know that you're going to get delivery of your dividends on a very, very regular basis. So to me, it's a very powerful piece of the equation. Not at all that, oh, I'm just getting my own money back.

[A]

All right. Christina in Colorado says, my husband and I are in our late 30s and planning to sell our house will likely get about $300,000 from the sale post taxes. We recently bought a house with 20% down and have a sizable mortgage over twice the amount we're getting from the sale.

[B]

So it's a 600k mortgage, right?

[A]

Would it be better to buy down our mortgage principal, put the funds in the stock market or something else? This is the most money we will ever have had at once and we want to make sure we' smart with it.

[B]

Christina in Colorado, there is no right or wrong. There's no perfect answer here. I can't give you a. This is 100% what you need to do. All I can do is give you a 100% what I would do in this situation. And if I were in my 30s and I'm very tempted to pay down the mortgage right this, I get it. And you'd go, maybe your payment is 30, I'm going to guess 3800 bucks a month. And it would drop down to 1900 bucks a month. Only if you recast it, by the way. Just remember, if you just put, if you chunk down half your mortgage, your payment won't go down.

[A]

Right.

[B]

It would be paid off sooner. In this case, probably about a decade sooner. So that's awesome. In your mid-40s, no mortgage. Great. If you recast the mortgage, then your payment would drop by about half, which would also be great. So good option one is good, Option two is good. Option three is probably what I would do. And I want the liquidity that I can get to over time. And if I'm thinking about being in my mid-30s and I've got 300k, this goes back to. There's a lot of time left in the game. Christina, you're not, there's not 30 seconds left. There's like four quarters left. So rule of 72, that's just math that says that money doubles every 10 years at 7.2%. So you go in seven years, you're at 600, and at 15 plus years you're at 1.2 million. So 15 to 20 years from now, what I could see, what you'd really feel good about is you're in your mid-50s, your house by the way, is getting close to being paid off already anyway. And you've got a million two in after tax, super valuable, even more so than an IRA or a 401 money for your retirement. Now the world starts to open up, the options and optionality for you starts to really open up. So you can't really go wrong by paying down the mortgage. I get it. But if it were me, imo, as my kids would say, in my opinion, I would be thinking about let's double this and then double it again over time. And you end up with Even at a 7% rate of return, 7.2 money doubles in 10 years. So you're, you go from age 30 to 40 and it's now 300 to 640 to 50. 600 is 1.2. Even at a 7.2% rate of return, money doubles over every approximately a decade. That's what I'd be looking to do.

[A]

That sounds great. I Like option three. Okay. Good luck, Christina. And when we come back, we are going to talk about lump sum versus annuity when you're lucky enough to have

[B]

a pension pot of gold trap.

[A]

Mmm.

[C]

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[C]

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[B]

Welcome back to Ask An Advisor. I'm Wes Moss here on the Clark Howard Show. Chris did Evias with me here, ready to ask questions, et cetera. You were shocked by the price versus dividend reinvest.

[A]

I mean I always you've talked about dividends the way you have. But yeah, I felt a little stupid

[B]

that I thought no, if you think about it just I think that it does depend on the timeframe and different years and different decades have different contributions of dividends to total return. But it is a very big part of total return and you just can't ignore it. And it's a much lower average rate of return. In fact, I think of it this way. The stock market probably wouldn't be so famous if it hasn't over time achieved a double digit rate of return. Oh yeah, that's why we take the pain. If the stock market has averaged average 5% over the past 150 years, there wouldn't even be a CNBC. Maybe there wasn't, but it has the gravity of being such a big part of our economic lives because it is delivered.

[A]

Yes, I feel like I'm probably one of those people you have to deal with because as I get older I'm just so hesitant to assume anything over 4% or 5% when I'm thinking about my planning for my future that like there could be a long period when I happen to Be needing my money where it doesn't get to that 10% average.

[B]

But you're right.

[A]

Hopefully I'm wrong.

[B]

Most of my first decade in this investment business was like that.

[A]

Yeah.

[B]

I got into the investment business in the 90s, in the later 90s and we had a couple boom, boom years. And then there was about 11 year stretch where it took the Dow from 10 all the way down, then back to 10, 11,000. That did take almost a decade. So there are lots of stretches that are rough. Dividends matter even more during those stretches.

[A]

Sure.

[B]

And then they kind of get outshined in the big growth years because they don't compete with a 10, 20% rate of return for a stock. But over time, that steady drip of the faucet is a big part of the equation. Now let's talk about something else.

[A]

I do want to say one thing. You know how Clark has his favorite children, Fidelity, Schwab and Vanguard? I feel like your favorite child is Dividend.

[B]

It would be if I could do it all over again, would I name one of my children dividends basis points? I don't know. There is a guy that makes fun of private equity I found online. I don't know if it's YouTube or Instagram, but he has named, he's a fictitious character or a fictional character and he has named one of his children ebitda. Oh, earnings before interest and taxes, depreciation, et cetera. Anyway, all right, let's talk about the pot of gold trap.

[A]

Yes, yes.

[B]

This is a study from MetLife. I'm calling this the lump sum trap because from their studies, one out of five Americans run out of the lump sum. They took the very lump sum that's supposed to last forever and pay for the retirement. And they run out of it on average in about four and a half years, which is a remarkable number. Now, in fairness, one, it didn't tell me the average amount of the lump sum. But some of these I know were really big. Some of them, maybe they're not enough to sustain a retirement, but they did have a floor and the minimum amount was 25,000. So to me that may be 25, maybe 500,000 and maybe, maybe a million. From the way I read this, it's probably all over the map. But the real meat of this is the alarming fact that 1 in 5 folks just run out and they took, they took the pension for flexibility. The second thing I would say, and I would couch the story is that let's remember MetLife is an insurance and annuity company. So remember, if you're talking to the barber and do you need a haircut? These annuity companies want people to take the annuity payout as opposed to the pension. So it's always when you're reading any of these studies, know where they're coming from. And I wanted to say in full disclosure, it is an annuity company that's kind of advocating to take the annuity payment. So with that, it still bears mentioning that the problem and I have seen this happen in real life too. So it's, this is a real problem. You get a lump sum and you could have said, oh, okay, I'm going to take this payment monthly, 1,000 or 2,000 or $3,000 a month. And instead of that, you take the big chunk and you roll it into an ira. Typically you would roll it into an IRA from a tax perspective. But you run into this pot of gold syndrome. And we've actually had some cool questions about this. I remember a couple months ago, someone said, I looked up, I didn't really pay attention to my 401 and I didn't really think it was a whole lot of money. And when I retired, I looked at it and was, whoa, it was over a million dollars. So it made me feel like, oh, wow, I have a lot of money now. I can do a lot of things. And in an unsuspecting way, I've seen this happen where folks, just because it's a big pot of money, 300 grand all at once, 501 million. The conversations around the dinner table are, oh, honey, we can't afford that too. Oh, we can afford that, we can afford it. And maybe you do some well intentioned things and pay off a mortgage. And again, there's tax ramifications. So that's usually not a good idea to have an IRA anyway. But hey, the car's 15 years old, we gotta replace it. We've wanted to renovate the kitchen or the bathroom for 15 years and now we'll do it. We deserved, we have some money, we should go on these trips. And then they end up with a higher overall rate. This is the other thing I see we're gonna follow a Conservative withdrawal rate, 4% a year. But they don't want to count like, well, I also took out 50 grand to do this. And I also took out 80 grand to do this. Well, that means your withdrawal rate isn't where you want it to be. So it can happen. I've seen it happen. And I know, according to the study, the running out of money, because now it's all it's at your disposal. Happens one out of five times. So it's a very real chance that that could happen. Now I am still an advocate for people taking the lump sum but if you do that you really have to think of it not as this pot of gold that you can do what you want, anything you want to do and think of it as an amount that will now create you your own, your own, not the annuity companies, your own lifetime income engine that can provide steady paychecks every single month for the rest of your life as long as you don't overrun and over RPM or rev the engine.

[A]

Got it.

[B]

That is the key here. So I'm not anti lump sum at all. I think that it gives you control, it gives you flexibility, it gives you legacy so you can leave the money to other folks. Gives you planning options and I see many, many happy retirees be able to do this. They take the lump sum, they're smart about how they roll it over, they turn it into a paycheck engine, they have some spending guardrails. Krista gives them flexibility and they can use some annuitization as a sliver or a slice if they want to add a predictable income stream. So it's not totally out of the question to do that. I think most folks listening here, lump sum is usually their better option. And I bet you don't run out.

[A]

All right. David in California wrote into you and said am I missing something? I handle financial planning for my family which includes managing my mother and my mother in law's finances. Both women are in their late 80s, live in retirement homes and have caregivers. Lots of money going out. I received calls from two financial advisors who currently handle some of our money. One from Schwab and the other from Oppenheimer. They both noted that my relatives have significant cash reserves for living expenses and recommended increasing their stock investments with one suggesting a 6040 split. I disagreed and expressed that this advice seemed unreasonable and potentially irresponsible. I thought the common guideline for a suitable stock to cash allocation was to subtract their age from 100. Am I mistaken or are the brokers not considering their circumstances appropriately?

[B]

David, in California there are a lot of variables here to make the right allocation to arrive at the right allocation. It sounds like for your mom and your mother in law situation it sounds like those advisors, maybe they don't know the full picture. Now what you're saying is that hey, this should be pretty obvious. My mom is 88 and she's taking money out every month. But at the same time, the old adage, I don't even know if it's an adage, but I have heard it 100 minus your age in stocks. Let's say you're age 85. That means you'd only have 15% of stocks. That adage, which I had now it's probably been 15 years since I've heard that. I've also remembered John Bogle from Vanguard used to say own your age in bonds. So if you're 60, own 60%, 70, own 70% even he backed away from that, I think at some point. And it's a very antiquated, overly crude rule of thumb that I do not subscribe to at all. So it's not that it's not. It could be right. And it's a super conservative way to look at it. But think of it this way. If you're 60, 100 minus 60 equals 40, does that mean you should go into retirement and only have 40% of bonds? That breaks the 4% rule allocation right there. Remember, 4% withdrawal rule is predicated on at least 50% in stocks up to 75%. So that immediately is broken if you're following that rule. Now there's a lot of variables here and if mom and mother in law are very don't want to just see any movement and have no tolerance for their accounts going down and you as their manager have no tolerance for it, then that's fine. But it can be appropriate for folks that are in their 80s to have 50, 60% in stocks or even more. Because think of it, this is the one thing a lot of folks are not thinking about. But again, you've got to do the math here. Very often the investment portfolio for your family or for your parents might have the time horizon of the whole family. So that mom is not going to run out in her lifetime. If she's taking 5 or 6%, maybe that's totally doable and that really she's not going to use 70 or 80% of this money is not going to get used anyway. So very often family members will say really I'm investing this for me, but also for my kids for their. And they have a much longer time horizon. So that can increase and make it more appropriate to have 50, 60, 70% in stocks. Because you're looking at two timelines, not just one. So I would just caution you on using that adage. It's super conservative and doesn't mean it's wrong. It's just that it's not necessarily it's not what I would follow. It's directionally correct, but it is mathematically, I'd say overly crude. I think what you need to do Dave, is just have a much more forthright conversation with those advisors and make sure they understand what's happening with mom and mother in law from a time and spending need perspective.

[A]

I would also look at, you know, he said that they're getting care and I understand there are different levels of care. So find out. I would also project what would a much higher level of care cost. So you have an idea of what might it cost if they should need more and more care, full time, round the clock care because then you have more of an idea of what they're going to need.

[B]

You know very much about meeting up the finding the goal which is spending with the investments.

[A]

Michelle in Washington says hello Clark, Krista and Wes, my husband and I have been listening and following your advice for over 20 years and we've recently retired early ages 55 and 60 due to the great advice we have followed from all of you. I've heard and read on Clark's website that Clark only recommends two types of annuities. Sorry for saying the A word but recently I have learned of a different type of annuity and I would love some feedback. It's called my G a multi year guaranteed annuity and is heralded as the CD of annuities. I've been researching it and other than locking money up for term like in a cd, I can find no downside. There seem to be no fees associated with the product and it has a guaranteed fixed rate that is much higher than CD rates currently available even with a rated companies. Can one of you please weigh in? Am I and AI missing some fundamental downside?

[B]

Hey Michelle in Washington. Yeah, There is something you're missing here is that there's no new magical annuity. There's nothing new. They've been doing the same thing for 10 years, 20 years, 50 years. Maybe this is a new way of thinking about now. It's called a. This is just a fixed annuity. That's all it is. But maybe it sounds different because it's called a multi year guaranteed annuity. There is no comparison between FDIC guarantee and what a company says is guaranteed. So yeah, it's a huge difference. Money in a cd, first of all it is still liquid and when you need, if you really need to get money out of a CD before the term, you lose three, six months of interest but the money's still yours. You don't lose Money. I think that's actually a misconception. Folks think, oh, I lose money if I take it out. No, no, no, you lose some of the interest you were promised. But it is FDIC backed and there is no stronger guarantee on planet Earth than that because the FDIC is backed up by the US treasury and the US Government. And there is nothing like that. On the other hand, when a company says it's guaranteed, the company's just saying, hey, as long as things go well for us, then we'll make good on these promises. But what happens if they don't? What happens if something goes wrong? And that does happen. So there is not a guarantee from an annuity company. And people also tend to put a bunch of money in one annuity. It's the same thing as putting a whole bunch of money into one corporate bond. Hopefully the company is able to pay you back. How much more is it per year? I don't know the specifics for you. Is it 1, 2% more per year than you get in a CD? Maybe. Is it worth taking that risk of being actually locked up? These multi year. I guarantee annuities very often. Again, not every time. They usually have actual penalties on your money if you do break the lock cycle, which are usually longer than CDs. The third thing, Michelle, is that try dealing with an insurance company or an annuity company. These are products, and products get sold. And what happens when a product gets sold? The salesperson goes away. There's no more help. So try dealing with a giant annuity company. When you have a question or something went wrong or you want to do something different, that is the nightmare part of this. Typically cd, it's usually a bank or a local bank. You should be able to talk to somebody pretty quickly. So you're trading a little bit of a higher percentage yield for dealing with an annuity company and taking away what is an actual guarantee for an implied guarantee. And there's a difference there. Not to say you shouldn't do it or it's not appropriate for part of your money. But to answer your question, they are very different.

[A]

All right, this one's from Billy in Georgia. Hey, Wes. I'm 45 years old and hoping to retire at 55. My company provides me with RSUs as part of my annual compensation. They have a current worth of around $300,000, which is about 30% of my total investments, with the other 70% being in other retirement accounts. I max out my Roth 401K and HSA annually. I know my company holds back shares every year to pay taxes when they vest. But I don't understand this in detail. I was thinking of just holding these RSUs until 55 and then using them similar to a brokerage account to fund early retirement. What do you think about this strategy? Should I sell them and diversify in a brokerage account somehow? I don't want to create a tax bomb now or in the future.

[B]

You don't want a tax tsunami. Billy. Yeah. Billy, we've more and more questions from young folks. 45 wants to retire at 55. He's thinking retire sooner. He's thinking retire sooner, which is what I love to think of. We'll be talking more in the coming months about the retire sooner method, which is a book that I have coming out very soon. Billy, from a compensation and tax perspective, the way these RSUs usually work is that when they vest, the value at your vesting is compensation. So you are paying the taxes, ordinary income. Then you're holding these shares and it moves toward the next decision is long term capital gain. You're paying your ordinary income. And then let's say you hold them for five years, six years, eight years, 10 years, and now they've gone from 150k, which was your base value or 100k to 300k. And now you're really only your real problem here is a diversification problem and you've got one company. It's 30% of your total savings, which is arguably way too much the problem. And lots of people run into this, not just with RSUs but stocks that do well can end up being a big percentage. And you don't want to go into retirement and say, okay, I'm going to have this account fund me. And then next thing you know, the stock's down 30, 40, 50%. So what I would be doing here is how do you get that to a more manageable level? Now I don't know the company, but there are no companies that are totally impermeable to their stock price going down. So I would say that what you should look to do over the next year is try to get to the 30 or the 300 down to 150. So it's not 30, it's, but it's 15% of the portfolio. Or maybe you take it next year down to 20 and then the next year down to 10. But try to make sure that you stay in the 15% long term capital gain bracket. That's a little over $600,000 in income and you're still in that bracket. That's married filing jointly. Keep an eye on the net investment income tax that niit, which is a 3.8%. That's 250. That's a $250,000 level. So think about managing your tax rate by staying under the 250, which would would hopefully avoid the 3.8. And your taxes should be closer to 15%. In order to get that diversification that I think you do, you want that you may, you may not have to do it all at once. That creates, I would say, a mini tax tsunami. Do it over the next couple of years and get the diversification down from 30% down to maybe 15 or 10.

[A]

All right. That is going to do it. For this episode of Ask an Advisor if you have a question so cool, please go to clark.com ask and indicate if your question is for Wes and if it's an investment question, it's likely going to go to Wes's long list of questions anyway that we get in and we really appreciate you listening and watching this show every week and we're very grateful for all of you who have subscribed and shared an episode with a friend. So thank you so much. Have a great day.

[E]

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[F]

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