Krista Dibiaz (9:42)

Okay, well, are you ready for some questions?

Wes Moss (9:44)

I'm absolutely ready. Stop talking about fear and stop talking about real life. How do we solve our financial questions? Happy to do so.

Krista Dibiaz (9:52)

Okay, well, this is from Anonymous. In Maryland I'm 36.

Wes Moss (9:55)

We call her Annie.

Krista Dibiaz (9:56)

Anonymous I'm 36, earning $76,000 a year and contributing 6% to my Roth 401K. My employer matches into a traditional account 100% of the first 3% and 50% of the next 2%. I have $51,000 in my current Roth plus 52,000 in a Roth from a previous job. My husband recently took a lower paying job to support our growing family. So I'm now the sole retirement saver. With a combined income of 116k, a second child on the way and no raises in two years, increasing my contributions is tough. I know I'm behind on the typical 3 times salary by age 40 benchmark. What should my savings goal be? To get back on track by 67. And if I switch to a higher paying job in 1 to 2 years with a 10k to 20k bump, could that help me catch up by age 40? It would involve a longer commute which I don't love but I could handle when the kids are a little older.

Wes Moss (10:50)

So she is. Anonymous Annie Annie's in a situation where think about your mid-30s and life is just getting more and more expensive. Your 20s, it's just not that expensive. And you can, you have roommates and you things are light and you can maybe save a little bit in your mid-30s and you have a bunch of kids and you're trying to work and your spouse is trying to work and you have this, you maybe you have a mortgage. Everything gets really expensive and you're supposed to save all at the same time. So it's a really hard period of time. So. And it gets, it keeps getting worse. We actually reach peak spending in America in our late 40s and then it starts to come down. That makes sense because our kids are typically out of college by the time we're in our late 40s or early 50s and that's usually peak spending. It's everything that you have to spend normally on and some sort of college and school tuition.

Krista Dibiaz (11:46)

Sing it. Amen.

Wes Moss (11:47)

You're in it. I'm not quite there yet, but I'm pretty close. Krista so this is a tough spot, but it's always a tough spot. Any saving really about 10%, 6% on her own and the way her match works out it's about 4. So it's really 10% and that's actually really good. Sure, 15 would be better, 20% would be better. But the fact that you're able to continue to do the essentially 10%, six plus the four. That's really good. If you can just keep doing that. If you do the math, she's got about a little over 100,000 saved already. If you just do some really simple math on saving that 6% plus the match, you do that for 30 years. There's 30. She's what, 36, or let's call it 36 to 66. 30 years, just doing that and increasing your savings. Say her salary goes up by 2% a year, so still not a huge additional savings. She still ends up with over a million and a half dollars. I look at this as just a 6% rate of return. So conservative rate of return, just doing the 10, essentially doing 10% because of the batch that still gets you a million and a half dollars. Now, granted, in 30 years, is that going to feel like a million and a half dollars today? No. But it'll still be a really, really good base to be able to retire on and have an income from. There will be a time when hopefully you're both able to work more full time. Maybe your spouse is able to get back to a slightly higher salary, and then you start saving those raises. So instead of a 10 a year, maybe it's 12 a year or 15 a year. But it's the methodical nature of doing it every single year, even when it's really tough. Right now, when you're in almost peak spending, you still get to a million and a half, get to 2 million, 2 and a half million, depending on how much you've saved. I've seen it happen over and over and over again. I think she's on a great track.

Krista Dibiaz (13:52)

And doing it into a Roth. That 6% that does have, that saves you on taxes later.

Wes Moss (13:58)

So saves on taxes later. Absolutely.

Krista Dibiaz (14:01)

Kathleen Oklahoma says, if I'm still employed at age 72, am I required to begin taking RMDs, or can I wait until I retire at 73?

Wes Moss (14:10)

Kathy okay, so now the RMD age is, Remember it was seventy and a half and it started moving higher, meaning that you didn't have to take your required minimum distributions. Remember what that's all about? That's the government saying, look, you saved all this money pre tax, and we don't get any revenue from it until you start pulling it out of the account and we're going to tax it like ordinary income. That's what RMDs are all about. It's, hey, I'm knocking on the door and saying, okay, by this age, you got to start taking money out so we can collect our taxes. It's moved up to 73 and it continues to move higher over the next several years. The RMD age is actually going to continue to go up, I want to say, to something like age 75 out into the future. But for now, if the rule around this is that if you are still working and you're working full time or part time and you have a company 401k, your RMDs get delayed, you don't have to take them. So the answer is, look, if you're still working and you've got a 401k at work, you don't have to do your RMD. Now let's take this, Cathy, one step further. What else could you do to take advantage of the fact that you're working at 73, which maybe you want to be working, maybe you don't. If you have other IRAs that you could consider moving those IRAs into the 401. Remember, we always think about rollovers from 401 to IRA. You could consider. There's a lot to think about here. But imagine you had all of your retirement assets in the company 401k and you're working. Guess what? No RMDs for that period of time. So that's just another way to think about how to use the rules to your advantage.

Krista Dibiaz (15:53)

Okay? And then Martin in South Carolina says, my wife and I are 80 years old and planning to move into an over 55 age community. We will sell our current home to purchase a home in the new community. However, the difference between selling and purchasing will leave us with about $200,000 in shortfall. Our combined total investments are 2.5 million in our IRA, 1.4 in our Roth accounts, and 2.1 million in our taxable brokerage accounts. Which would be the best sources for us to take money for our new home purchase. Concerning taxes and additional financial points that you are aware of.

Wes Moss (16:25)

Okay, Martin. It's a lot of savings.

Krista Dibiaz (16:27)

It's a lot.

Wes Moss (16:28)

He's got a lot of savings. Two and a half million IRA, 1,400,000 Roth and then a million over a million in taxable is what I'm seeing there. Here's my thought. Is that the quick reminder on the utility of the different accounts. They're all good. All the savings levels are good because you have cash reserves. But from a tax perspective, a regular IRA is probably the least good. Then you've got a taxable brokerage account and then the next best or the slightly better and then the best, in my opinion, is the Roth tax free no matter how much you pull out. So, Martin, you have a $200,000 delta that you want to cover. We talk so much about how great the Roth is. I also noticed, Krista, that nobody ever wants to use the Roth money. It's like, oh, I can't take the roth. Martin, you're 80. When are you going to use it? This is when you use it. I've talked a lot about the utilization of a Roth. And if you talk to tax professionals, I've heard one of their opinions is often the Roth works if you use the Roth. It only works if you use it. Sure, it's great for your heirs to inherit the roth because their RMDs are same thing or they don't have RMDs. And when they pull money out, it's tax free for them, too. So it's a great asset, legacy asset, too. But I think in this case, because it's only, if you're doing the math, 200 over 1.4 million. It's only about 15% of the Roth. I think this is the time to use it. I would wash away the guilt of using the forbidden Roth money. This is the time to use it. So you use the $200,000. You still have plenty in the Roth. 1,200,000 left versus 1.4. And you've done that. No taxes, no mortgage. Now. And to me, I'm giving you some permission to go ahead and at least consider using the Roth. The second best option, if you do have a taxable account and you have some positions that don't have big gains, you can focus in on those positions, turn that into cash, and use that as well. That'd be my second option. But I like the Roth option. When we get back, I want to talk about. There's lots of talk about missing the best days in the market. And of course, we don't want to miss the best days, but we, we tend to think, well, it would be nice to miss the worst days too. Wouldn't that be nice? So we did some research around trying to hop out between the raindrops and miss the worst days. But the math on that actually gets really interesting as well, and the ability to even do that. So I want to talk about those numbers when we get back.

Krista Dibiaz (18:59)

Okay, great.

Don McDonald (19:00)

Hi, I'm Don McDonald from the Talking Real Money podcast. Simple, honest financial advice is hard to find because there are too many people in the financial services industry and even the media who will do or say anything to get your money. Well, for decades, my co host, Tom and I have been trying to help people better manage money on the radio, TV and in our podcasts. About five times a week we share simple, low cost advice on building the wealth you need to enjoy a better future without making your broker richer. And ironically, you broker Listening to Talking Real Money could not be easier because you're already listening to a podcast. Just search for Talking Real Money on your podcast service or ask your smart speaker. Give us a try. You have absolutely nothing to lose except a few minutes of time and you might just discover something to help you enjoy a more prosperous and secure future along with a simpler present. Just Visit talking real money.com or search for Talking Real Money in this podcast service. It's that easy.

Ryan Reynolds (20:00)

This message is brought to you by Apple Card Apple Card is a no fee credit card that gives you daily cash back every day. That's 3% back at Apple app and 2% back on every purchase made with Apple Card using Apple Pay. Apply for Apple Card in the Wallet app on your iPhone today subject to credit approval. Variable APRs for Apple Card range from 18.24% to 28.49% based on creditworthiness rates as of January 1, 2025. Apple Card issued by Goldman Sachs Bank USA Salt Lake City Branch terms and more at applecard.com if you're listening to the show, you're probably already interested in making appropriate financial decisions for your family. That's where Fabric by Gerber Life comes in. Fabric offers modern, flexible term life insurance designed to fit your lifestyle whether you're planning for the future or just want a little extra peace of mind. Fabric by Gerber Life is term life insurance you can get done right from your couch, all online and all on your schedule. You could be covered in under 10 minutes with no health exam required. Fabric was designed for busy parents like you. And it's more than life insurance. Fabric offers free digital wills, access to investment accounts to invest for your kid's future, and you can manage it all right from your phone. Join the thousands of parents who trust Fabric to help protect their family. Apply today in just minutes@meetfabric.com advisor. That's meetfabric.com advisor me eetfabric.com advisor policies issued by Western Southern Life Assurance Company not available in certain states. Price is subject to underwriting and health questions. This episode is brought to you by Discover. Hey listeners, bet you didn't know that Discover is accepted at 99% of places that take credit cards nationwide. You know what's a little less accepted? Taking Financial Advice from random usernames and avatars you found on some forum that's just sketchy. No offense to all the finance bros out there on the Internet. Based on the February 2024 Nielsen report. Learn more at discover.com creditcard this podcast is brought to you by Progressive Insurance.

Wes Moss (22:07)

Fiscally responsible financial geniuses, monetary magicians.

Ryan Reynolds (22:12)

These are things people say about drivers.

Wes Moss (22:14)

Who switch their car insurance to Progressive and save hundreds.

Ryan Reynolds (22:17)

Because Progressive offers discounts for paying in full, owning a home and more. Plus, you can count on their great customer service to help you when you need it.

Wes Moss (22:25)

So your dollar goes a long way.

Ryan Reynolds (22:27)

Visit Progressive DO to see if you could save on car insurance, Progressive Casualty.

Wes Moss (22:31)

Insurance Company and affiliates.

Ryan Reynolds (22:33)

Potential savings will vary.

Wes Moss (22:34)

Not available in all states and situations. Welcome back to Ask an Advisor. I'm Wes Moss along with the Krista Dibiaz. Wes, we ready to go into market timing?

Krista Dibiaz (22:51)

Let's do it. And then I do have some more questions.

Wes Moss (22:53)

I'm excited to get questions. The reason I want to talk about this today is that I hear about this a lot. I would think our listeners have heard these statistics. I've obviously talked about it here on the show. It's almost become, maybe this is just me because I've talked about this a lot. But after hearing about it and reading about it a lot over the past month, you hear about the adage of if you miss the best days, your rate of return goes down a bunch, right? And it's just a few of the best days. So we've missed just 10 of the best stock market days over a 30 year stretch. And what happens? Your rate of return drops in half. And that makes sense, right? You're missing out on gains. And really what you're doing is you're missing out on rebounds. So the next iteration of that is, what if I were to just miss the worst days? What if I were to get out when markets were dropping? Well, of course that works really well. Again, you take a 30 year stretch, 1995 to 2005, you'll see that that overall rate of return and we just did this research as of I want to say last month, average rate of return 8.3% for S&P 500 fully invested. But if you miss just five of the worst days in 30 years, your rate of return jumps to 10. So it works. Of course it works. If you miss 20 of the worst days in the market, your rate of return on average jumps almost 14%. And that is, I think that is of course why we have the inclination to try to Dance between the raindrops and get out before markets drop. So it intuitively makes sense. And then mathematically it makes a lot of sense. You miss bad days and your overall rate of return goes through the roof. The problem with that and the reality check around that is that if you look at a chart, you'll see that almost all the, the rebound days are almost touching historically, right at this very similar rate of time as the worst days. The rebounds come after the worst days, then you get rebounds, then you get terrible days again. And we're kind of in one of those cycles right now. But if you look mathematically, 80% of the 50 best days in the market, this is over 30 years. So 80% of them happen within just one month of the worst days. So they're all really close together. And I think we're in one of those periods of time. Terrible days. Great days. Terrible. Great. So the reality is that if we're looking at trying to get and miss the worst days, which intuitively makes total sense, then we almost invariably miss the good days as well. We miss the rebound days. So it's, it's not even really. I would say it's. I don't, I guess nothing is impossible, but I would say it's virtually impossible, Krista, to be able to do that. So what if you were to miss. There's some more math and history. If you were able to sidestep just the really volatile period, so you miss the best days and the worst days, you say, I know I can't time worst and best, so I'm just going to miss those really shaky periods and just be invested. When things are maybe to escalator mode, we talk about 2022 or 2023 and 24 were kind of escalator years. What's interesting about that, if you do the math, that doesn't really work all that well either. So for fully invested over that same period of time, this is 95 through April of 2025, fully invested, 8.3%. You miss the 10 best days and you get to sidestep 10 of the worst days. It's 20 days. You're out of volatility. Your long term rate of return only goes up to 8.5. So you get from 8.3 to 8.5 and you're doing something that's virtually impossible to begin with, but it doesn't really help. Anyway, the point here is that because we're not able to time it perfectly, even if we get out of these volatile periods, we still don't really Gain a whole lot of ground. Just another way, I think, to look at the reality of how we need to invest, which is not trying to time, it's timing and being in, invested over time, taking our lumps when things are bad, but then enjoying the fruits of staying patient, staying objective, believing in the future. I think of one thing I believe very strongly of happy retirees is that happy retirees are tomorrow investors. So they're not unrealistic, but they have a general sense of optimism. And I think that helps us get through these tough times. Like we're kind of in right now for markets. But tomorrow investors aren't worried about what's actually happening tomorrow. They're looking way out into the future. That's why I call them tomorrow investors.

Krista Dibiaz (27:37)

Okay. I love it. Okay, we'll go to questions. This one's from Andrew in Iowa. ETFs are great for us as investors, but how do they benefit the institution that issues them? Especially now that asset fees are incredibly low on most ETFs, I'm confused what the motivation would be for creating and issuing that product. Do those tiny asset fees really make them that much money across the whole market? Are they just sharing different investment options out of the goodness of their hearts, or is there some other way they're profiting? Thank you for all your investing insight, Andrew.

Wes Moss (28:10)

That's kind of a cool question. I've never had that before. So I'm thinking about this a little bit now. Now, some companies I think about a Vanguard, they are really mutually owned. So they. It's not a nonprofit. I think it's different than a nonprofit. But the bigger they've gotten, the more they've been able to lower their fees. But besides them, let's look at the reality of the world. Think of the big ETF providers, BlackRock, they own iShares and State Street. I think the brand of ETFs they have are spiders. Think Fidelity, Schwab, all these giant companies, these are for profit companies. And you're right, trading fees have essentially gone away. Now ETF fees are so small that I've thought the same thing. Like at some point, if you're charging point zero, there's 1% and then there's 0.1% and then there's 0.01%. Like how do you make any money doing that? But here's the math at.03%. So again, a third of a tenth of a percent. Krista, ultra ultra cheap. At $100 billion, it's still $30 million a year.

Krista Dibiaz (29:20)

Not too Shabby.

Wes Moss (29:21)

It's all about scale. These companies don't have hundreds of millions and they don't have tens of billions. They have hundreds of billions. And they have, in the case of the really big asset managers under management, for some of the top five, they have multi trillions. So it is a game of scale. And I think that's part of the reason we've been able to see rates and expenses come down because these companies have gotten so big. First, it's so much about scale. Secondly, there is kind of a hidden revenue stream. It shouldn't be costing you the investor. But if an institution owns a bunch of stocks in an etf, they can do securities lending on that. So that's another hidden way they make some money. There is something called creation and redemption fees. So think about the complexity of an ETF that owns 500 stocks and it stays almost perfectly at what the index. Not exactly perfectly, but very close to what the index is. There's a lot that goes on behind the scenes. So there's something called authorized participants that handle the buying, the selling of some of the positions within the ETFs. And the providers make money that way too. And the cousin to scale is the concept of kind of loss leading. What's a loss leader? Maybe this is a bad example, but Costco's $50 hot dog, that's a great example. That's a loss leader.

Krista Dibiaz (30:49)

That's the ultimate loss leader.

Wes Moss (30:50)

Okay, so it is.

Krista Dibiaz (30:51)

You're getting people in the door with something you lose money on.

Wes Moss (30:54)

Obviously Costco's not making any money on $1.50 hot dog plus Coke. But if one out of 100 people make the midday decision of hey, I'll go get my $50 lunch and you end up buying a flat screen TV or a bar of gold at Costco, which you now to 50 packs of.

Krista Dibiaz (31:13)

Toilet paper like I do that 50. You can only get two giant packs at a time actually when they're on sale. But I'll go multiple times.

Wes Moss (31:21)

So they take a little bit of a loss. Maybe they lose a dollar on selling that lunch, but they make 20 bucks selling a TV. And that I also think is all the other services. Remember the big ETF providers, if you look at the scope of their full business, they do way more than just ETFs. They do mutual funds that have, they do have higher fees. They'll do other ETFs that have higher fees. They'll do brokerage accounts, securities lending, and that full suite of services. They're going to have higher Margins on typically. So I think of these ultra low fees as kind of as a Costco hot dog boss leader trick.

Krista Dibiaz (32:01)

This is from Laura in Georgia. Hi Wes. My husband and I both work full time but due to medical reasons we're planning to retire in the next year or two. I'm 63, he's 77 and already receiving Social Security. We've paid off over $100,000 in debt and have $250,000 saved in a traditional IRAs and 401 which is no longer Roth with uncertain markets and only needing about 20k a year to live on. If Social Security remains intact, how much should we move to cash or liquid assets? When should we do it and where should we put it for safekeeping to cover our bills? Love you guys.

Wes Moss (32:34)

Love you too. Laura. Yes, I love these. I very much appreciate.

Krista Dibiaz (32:37)

Yes, absolutely.

Wes Moss (32:38)

We are trying to help and we're doing the best we can do and they're not necessarily the perfect answer but hopefully the guidance is helping. So Laura, the perspective I would have here is first of all you mentioned if it was casual, but you said if Social Security is there, you're 63, your husband's 77, Social Security will be there. It's not going away. It's easy to scare people that it's going to go away, but it's not going away, particularly for somebody in their 60s and above. It'll get maybe reduced. For the 20 year olds watching today, I would be careful if I was a 20 year old counting on what today would be a full, full, full Social Security payment. That's probably a question but that's a really long time. We're talking 30, 40, 50 years from now for you guys Social Security is going to be there. So if that's the case and you only need 20k a year from the portfolio, well, what's the dry powder rule? 5 years let's call it of and it could be anything but I kind of benchmark it at three years at least. Let's push it to five for you. Simple math. Five years of spending 20k is 100k. So I would have of the 250, 100 of the 250 which is only 40% in the dry powder areas which would be CDs, a money market mutual fund, a shorter term treasury fund or even a short to intermediate term treasury fund that is going to have some movement because bond prices do move if they're not ultra short term. But to me those are all the areas Laura, that you want to keep 40ish percent in that dry powder then for utility purposes. Cash, cash, cash. Not invested actually in a checking account six months to a year, just so you're not having to sell something that's another 10 or 20 in just a regular checking account. Usually you don't get a lot of interest in those in the world we live in today. But, but I think that takes care of five years dry powder, safety assets and the really short term, six to 12 months of just utility money. That's what I would do it.

Krista Dibiaz (34:50)

All right, this next question is from Cheryl in Texas. What is the best way to give an elderly parent who is moving to assisted living soon? A small amount of funds, cash or credit or debit weekly for things like light shopping and snacks, bingo, small fee events, et cetera, and do so without giving them full access to their entire bank account. And also, is there a way to track what they spend it on? If there is a way, then that would be a bonus.

Wes Moss (35:15)

Cheryl brings up a really good point. So think about if you're in your 20s, your parents are still probably in their 40s or 50s, so this doesn't register well. Of course, mom and dad, they can deal with their own cards. But if you are 50 and your parents are 80 or 90 and it's harder for them to maybe see, and technology's confusing and they're susceptible to a text message or one of these phishing scams where somebody ultimately gets access to an account, you do need to be worried and careful about having, let's say a big, big brokerage account or savings account tied to a card or checking, because you can really leave the door wide open. So what Cheryl's thinking about here is how do you just siphon off enough for them to use and not be tied to the bigger accounts? And I think that's a super smart.

Krista Dibiaz (36:07)

It's kind of like a question we will get about people trying to give their teens money to spend or their smaller kids not giving them full access, but how do they give them?

Wes Moss (36:17)

And for sometimes the same reason or a similar reason, which I've used the green light card as an example with my kids. So you essentially need a green light card for your parents. I think the simple answer right out of the gate is just, I guess it's a little harder to track where all the money's going. It's just a prepaid debit card. So every single month you give mom and dad a prepaid debit card, it's got $1,000 on it or 2,000, and that takes care of all the spending they need to do in a given month and it's not linked to anything else. So you've got some protection there. There's a couple other companies, though, that I want you to check out. Full disclosure, I have not used some of these, so I want you to read about them and research about them. But the Trulink card is really designed, I've read about this. Designed for kind of like a green light card for your parents and for seniors and for caregivers to solve this very problem. So I would check that out. Also, there are again, prepaid cards. There's netspend, there's Bluebird by Amex. Those are all options for you to consider. But I think the bigger point here, Chris, is just like we don't want our kids to have a card tied to a video game where they can spend, you know, $1,000 or $5,000 on video virtual coins. We want to protect our seniors as a caregiver, really. More from a, from fraudsters and bad actors.

Krista Dibiaz (37:43)

And I would also say, Cheryl, if you, I assume that you have fiduciary financial power of attorney. And if you have that and you have, they have a credit card, most cards allow you to set daily spending limits on them and also or checking accounts. If it's a debit card, you can set like a daily limit on the debit card. And so if the parents don't have access to that and they can't change it and you have that power of attorney, that might be an option, too. And you can look in the account and see what it's spent on.

Wes Moss (38:11)

Yeah, I think it's a really good point. When mom and dad are declining and your parents, you're worried that they're going to be taken advantage of, that's the time when the siblings or the adult children really do want to step in. Maybe you start by just getting access to see their accounts. And then you take the next step, which is a power of attorney on the financial accounts to really monitor it for them. That's a really good point.

Krista Dibiaz (38:37)

Well, thank you so much, Wes. Thank you, everyone, for tuning in today. We'll be back next week. Clark will be back tomorrow with a new episode of the Clark Howard show. And we hope the rest of your day is great.