05.27.25 Ask An Advisor With Wes Moss

Summary

The Clark Howard Podcast - Episode: Ask An Advisor With Wes Moss (Released May 27, 2025)

In this episode of The Clark Howard Podcast, host Clark Howard brings in financial advisor Wes Moss and Krista Dibiaz to provide expert advice on retirement planning, investment strategies, and managing personal finances. The episode delves into a comprehensive 10-point checklist for retirement readiness, addresses listener questions about early retirement and investment management, and explores strategies to optimize spending in retirement. Below is a detailed summary capturing the key discussions, insights, and conclusions from the episode.

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1. Retirement Readiness: A 10-Point Checklist

Krista Dibiaz kicks off the episode by presenting a 10-point checklist designed to streamline the often overwhelming process of preparing for retirement. This checklist aims to reduce anxiety by consolidating various concerns into manageable steps.

1. Count It Up ([01:33])
   “You need to do an inventory of all of your different assets.”
   Krista emphasizes the importance of creating a comprehensive inventory of all assets, including investment accounts, real estate, and any outstanding debts. This honest assessment lays the foundation for effective retirement planning.

2. Map It Out ([01:31]-[03:15])
   “Mapping out a retirement game plan can calm everyone's fears.”
   Developing a retirement plan well in advance (preferably 10-20 years prior) helps in understanding future financial needs. Utilizing tools like online calculators or working with a fiduciary advisor can aid in creating a feasible plan that accounts for growth rates, inflation, and spending.

3. Paint a Picture of Your Retirement Life ([03:15]-[05:19])
   “Think of the fun things you want to do in retirement.”
   Krista suggests visualizing retirement activities to clarify personal goals and desired lifestyle. This exercise helps in aligning financial plans with life aspirations, ensuring that savings are directed toward fulfilling experiences.

4. Lock in Your Income Streams ([05:19]-[07:02])
   “Understand and secure your income sources like Social Security, pensions, or annuities.”
   Identifying and securing income streams is crucial for sustainable spending in retirement. Krista advises evaluating options such as Social Security timing and potential pension benefits to ensure steady income without solely relying on investment withdrawals.

5. Finish Big Projects ([07:02]-[08:53])
   “Complete major housing projects before retiring to avoid financial strain.”
   Addressing significant projects like home renovations before retirement prevents unexpected expenses from derailing financial stability. Krista recommends tackling these endeavors 1-3 years prior to retirement.

6. Craft a Plan to Kill the Mortgage ([08:53]-[11:19])
   “Retirement happiness levels increase when your mortgage is paid off or near payoff.”
   Eliminating mortgage debt before retiring reduces monthly obligations, contributing to greater financial freedom and reduced stress during retirement years.

7. Get Your Healthcare Ducks in a Row ([11:19]-[14:32])
   “Ensure you have the right Medicare and supplemental plans in place.”
   Transitioning to Medicare involves selecting appropriate supplemental insurance. Krista underscores the importance of consulting with healthcare advisors to secure plans that maintain access to preferred doctors and cover necessary medical expenses.

8. Tune Up Your Estate Plan ([14:32]-[17:36])
   “Ensure your wills, trusts, and beneficiary designations are up to date.”
   Regularly reviewing and updating estate plans is vital to reflect changes in personal circumstances and asset levels, ensuring that your financial legacy aligns with your wishes.

9. Rethink Your Insurance ([17:36]-[19:10])
   “Update property, casualty, and umbrella insurance to protect your assets in retirement.”
   Revisiting insurance policies helps mitigate risks and shield assets from potential liabilities, adapting coverage to the needs of retirement.

10. Do a Digital Review ([19:10]-[21:17])
    “Secure your digital financial accounts with dual authentication and safe password storage.”
    Ensuring robust digital security for financial accounts protects against unauthorized access and provides a safety net for managing finances in unforeseen circumstances.

“You go through that 10-point checklist, you're gonna have a lot less anxiety when it comes to pulling the retirement trigger.”
— Krista Dibiaz ([11:19])

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2. Listener Questions and Expert Advice

The episode features a segment where Wes Moss and Krista Dibiaz answer listener-submitted questions, providing tailored financial advice based on individual circumstances.

a. Early Retirement and Asset Management (Brian from Colorado) ([11:45]-[17:36])

Brian's Scenario:
Brian and his wife, both 53, have aggressively saved over the years. Their assets include:

• Retirement Savings: $2.7 million in various accounts (traditional IRAs, Roth IRAs, 401(k)s, HSA)
• Taxable Investment Accounts: $1.4 million in index funds and dividend-paying large-cap stocks
• Cash/ CDs/Money Markets: $1.1 million
• 529 Savings: $400,000 for their children's education

Questions:

1. When to Retire:
   “Should we consider early retirement given our substantial savings and debt-free status?”
   Krista assesses their financial readiness using the 4% rule, suggesting they could safely withdraw approximately $200,000 annually from their $5 million portfolio. This withdrawal strategy, combined with their existing assets, indicates that early retirement is feasible.

2. Professional Account Management:
   “Is it worth paying a financial advisor 1% of our assets to manage our investments?”
   Krista explains that at the $5 million level, advisors typically charge lower percentages. She cautions that advisors often cannot consistently outperform the market and recommends using advisors for comprehensive financial planning rather than active asset management. If they prefer market returns without high fees, they might continue managing their investments independently using low-cost index funds.

“You're not paying a financial advisor ever to beat the S&P 500.”
— Krista Dibiaz ([14:32])

b. Shifting Investments to Avoid Capital Gains Taxes (David from Massachusetts) ([17:36]-[21:17])

David's Scenario:
David has built over $2 million through aggressive investing using a self-directed brokerage account. He is contemplating shifting from aggressive stocks to more stable investments in anticipation of retirement and is concerned about potential capital gains taxes.

Questions:

1. Managing Capital Gains Taxes:
   “Is there a smart way to shift investments without incurring significant tax liabilities?”
   Krista suggests a strategic approach to selling investments. By focusing on securities that have not appreciated or have minor gains, David can minimize capital gains taxes, especially if he falls within a tax bracket that allows for zero long-term capital gains tax. She also mentions reverse dollar cost averaging, which involves gradually selling portions of the portfolio to mitigate market volatility impacts.

2. Roth Conversions Concerns:
   “Would converting to a Roth IRA result in double taxation?”
   Krista clarifies that Roth conversions involve transferring funds directly from retirement accounts to Roth IRAs, which is different from contributing to a Roth from a brokerage account. She advises that conversions should be carefully planned, considering the tax implications and eligibility based on age and income.

“If you want to be the S&P 500 or any index, that's when you're either doing this on your own or you're looking at a hedge fund or a mutual fund.”
— Krista Dibiaz ([14:32])

c. Withdrawal Strategies to Manage Tax Brackets (Joe from Florida) ([35:16]-[40:36])

Joe's Scenario:
At 71, Joe and his spouse have:

• IRA Savings: $500,000
• Traditional Investment Accounts: Sufficient income from guaranteed sources and an additional six months in a high-yield savings account
• Investment Strategy: Dividend stocks, ETFs, and high-yield bond funds with a 6-7.5% withdrawal rate

Questions:

1. Sustainability of Current Withdrawal Strategy:
   “Our advisor claims our strategy is unsustainable. Is this true?”
   Krista reviews the withdrawal rate, noting that a 4% rule is generally considered safe. Joe's 6-7.5% withdrawal rate exceeds this guideline, potentially risking portfolio depletion. Krista advises adjusting the withdrawal rate closer to the recommended 4-4.5% to ensure long-term sustainability, especially if relying solely on investment accounts without additional income streams like Social Security.

“The 4% withdrawal rule is based on a long market cycle where you know that you will inevitably go through lower periods of rate of return.”
— Krista Dibiaz ([37:59])

2. Reinvesting Remaining Funds:
   “Does reinvesting 25% of withdrawals affect sustainability?”
   Krista explains that reinvesting part of the withdrawals does not alleviate the issue of a high withdrawal rate, as it offsets some depletion but still may not align with safe withdrawal practices.

3. Advisor's Recommendation of Immediate Annuities:
   “Should we consider immediate annuities as suggested by our advisor?”
   While immediate annuities can provide higher guaranteed income, Krista highlights the loss of liquidity and control over funds. She recommends balancing withdrawal rates to maintain liquidity for unexpected expenses while ensuring sustainable income.

“The four percent withdrawal rule is trying to protect you when things don't go well in markets.”
— Krista Dibiaz ([17:36])

d. Investing in Tax-Exempt Bond Funds (Akshay from North Carolina) ([40:31]-[43:41])

Akshay's Inquiry:
Akshay seeks advice on investing in tax-exempt bond funds such as VTEAX, VW, AHX, or bond ETFs like VTEB. He wants to understand when to invest in these instruments, how to incorporate them into his portfolio, and the associated risks.

Krista's Response:

• Risks Associated with Municipal Bonds:
  “These are obligations to local or state governments, and their credit ratings can vary.”
  While high-quality municipal bonds (e.g., AAA-rated) are relatively secure, bonds from financially unstable municipalities carry higher risks. Krista advises investing in highly-rated municipal bonds to minimize credit risk.

• Tax Equivalent Yield Calculation:
  “A 3.5% tax-free bond is equivalent to a 5% taxable bond if you're in a 30% tax bracket.”
  Krista explains how to compare tax-exempt yields with taxable bonds using the tax equivalent yield formula, helping investors assess the true value of tax-exempt investments based on their tax situation.

• Investment Strategy Integration:
  Investing in municipal bonds outside of retirement accounts can provide tax-efficient income. Krista recommends balancing these investments with other asset classes to maintain portfolio diversification and manage tax liabilities effectively.

“Assuming you stick with really high quality municipal bonds, then it's hard to say they're the same credit level as the US government, but they're pretty close.”
— Krista Dibiaz ([40:36])

e. Roth vs. Traditional 401(k) Contributions (Kevin from Illinois) ([43:03]-[43:41])

Kevin's Scenario:
At 57, Kevin contributes to a company 401(k) with a mix of traditional and Roth options. With plans to work until 70, he seeks advice on whether to allocate entirely to Roth or continue the current mix.

Krista's Advice:

• Tax Bracket Consideration:
  “High tax bracket, stick with traditional. Low tax bracket, do Roth.”
  Krista advises that individuals in higher tax brackets may benefit more from traditional 401(k) contributions due to immediate tax deductions, whereas those in lower brackets might prefer Roth contributions for tax-free withdrawals in retirement.

• Middle-Ground Strategy:
  For those in middle tax brackets, maintaining a 50/50 split between traditional and Roth contributions can provide tax diversification, offering flexibility in managing taxable income during retirement.

“If you're in that middle range, split them 50/50 so that you have both.”
— Krista Dibiaz ([43:03])

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3. Structuring Spending in Retirement

Following the listener questions, Wes Moss introduces a discussion on structuring spending in retirement. Krista elaborates on managing withdrawals from various accounts to optimize tax efficiency:

1. Understanding Withdrawal Order ([27:08]-[35:16])
   Krista outlines the importance of recognizing three main "buckets" of retirement funds:

   • After-Tax Accounts: Individual brokerage or savings accounts
   • Retirement Accounts: Traditional IRAs, 401(k)s, etc.
   • Roth Accounts: Roth IRAs

   The general strategy involves withdrawing from after-tax accounts first, followed by retirement accounts, and using Roth accounts for larger, occasional expenses to manage overall tax brackets efficiently.

2. Age and Withdrawal Rules ([29:30]-[35:16])
   She emphasizes knowing the minimum age for penalty-free withdrawals (typically 59½) and understanding the rules around different account types to avoid unnecessary taxes and penalties.

3. Practical Scenarios ([35:16]-[43:41])
   Krista provides hypothetical scenarios to illustrate how strategic withdrawals can significantly impact tax liabilities and financial stability in retirement.

“The key, what we want to do is be able to keep and manage our tax bracket most efficiently for as long as we can.”
— Krista Dibiaz ([27:48])

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4. Light-Hearted Segment: Apple Connoisseur

Interspersed between the financial discussions, Wes and Krista engage in a playful debate about the best types of apples, highlighting the podcast's balanced mix of serious financial advice and entertaining segments. This light-hearted interaction serves to humanize the hosts and provide a brief, enjoyable respite from the technical discussions.

“Anybody that calls Pink Crisp horse food is just that. That's just... that's heretical.”
— Krista Dibiaz ([22:13])

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5. Conclusion

The episode concludes with Wes Moss and Krista Dibiaz summarizing key takeaways on retirement planning and expressing their readiness to address future financial inquiries from listeners. They encourage continued engagement through listener questions and emphasize the importance of informed, strategic financial planning to achieve long-term financial freedom.

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Notable Quotes:

• “You go through that 10-point checklist, you're gonna have a lot less anxiety when it comes to pulling the retirement trigger.”
  — Krista Dibiaz ([11:19])

• “If you're in that middle range, split them 50/50 so that you have both.”
  — Krista Dibiaz ([43:03])

• “Anyone that calls Pink Crisp horse food is just that. That's just... that's heretical.”
  — Krista Dibiaz ([22:13])

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Final Thoughts:

This episode of The Clark Howard Podcast offers valuable insights into retirement planning, emphasizing the importance of thorough preparation, strategic investment management, and tax-efficient withdrawal strategies. By addressing real-life scenarios and providing actionable advice, Wes Moss and Krista Dibiaz empower listeners to make informed financial decisions, paving the way toward a secure and fulfilling retirement.

Transcript

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[Wes Moss]

Welcome to Ask an Advisor. We're back, we're back, we're back. Wes Moss, I'm Krista Dibiaz and we're talking about investing, retirement, all sorts of great stuff. Today we're gonna get to your questions which you can submit [e-mail] ask. You can ask a question for Wes.

[Krista Dibiaz]

I've been noticing a lot of the questions are Wes and Krista.

[Wes Moss]

That's very nice.

[Krista Dibiaz]

Which is cool.

[Wes Moss]

So please send those questions in and then today you're gonna have a couple of really interesting topics. One is something people ask a lot like when am I ready to retire? When am I gonna be ready to retire? And you actually have like a checklist.

[Krista Dibiaz]

A 10 point checklist.

[Wes Moss]

Yeah. So that's, that's pretty awesome. And then you're also going to talk about transitioning from saving to retirement and what the spending in retirement really looks like.

[Krista Dibiaz]

Yeah. How do you really pull, how do you start taking what you've been saving forever? How do you start withdrawing it? It sounds simple, but there's a lot to it.

[Wes Moss]

Awesome. Okay, well, let's get to it.

[Krista Dibiaz]

We'll start with a checklist and if you're thinking about retirement, you're. It's almost a little overwhelming of like there's infinite things to think about and do and I think it's important to consolidate that down so you're not, your head's not spinning around such a big situation. I'm going to stop working. When do I start withdrawing cash? Do I've got to worry about my home, kids? There's just so many things to worry about. So we'll just, let's consolidate that down into 10 things that we can stop the chaos of all the, all the different questions circling around. And so here we go. So the first one be counted up. Second one is map it out. Third is paint a picture of your retirement life. Four is lock in your income streams. I'll start with those quickly. The first one is when I say count it up, you need to do an inventory of all of your different assets. That is the first step. And that is it's. Some people don't love to look at every different account. There's a little bit of a. There's some comfort with head in the sand, but that doesn't really work when it comes to planning out the next 20, 30 years of your life. So it's really you. And if you have a partner sitting down and counting it up and saying, oh yeah, we have this account over here and oh, honey, don't you have this old 401k over here? So you get an inventory of that and then with that same inventory would be your real estate, not just your investment accounts, but your real estate and any sort of debt. So that is the first step we've got to do. We've got to be honest with ourselves about what we have and what we don't have, and then our liabilities. Second would be the thought around mapping out a retirement game plan. This is one that I think just will calm everyone's fears down. I've done a lot of research lately. I'm always studying happy versus unhappy retirees. One of the things I see in retirement planning is that it's pretty easy to do a retirement plan. And, and when you get to that stage where you're within a year, it's better to do it 10 years prior or even 20 years prior. But getting to retirement, it's pretty doable to do a plan. And there's great comfort for folks when you're getting into retirement to just get it done. The industry will provide, whether it's a website or an online planning calculator or you sitting down with an advisor, a fiduciary that can help you map it out. The plans really work because they take in all the main variables that you need to understand. And then you're spending. So you've got that part of that inventory is, hey, what are we going to spend? And that can be just a round number. It doesn't have to be exact, it needs to be directionally right. Then the plan itself accounts for an assumed rate of growth, an assumed rate of inflation, and puts all of those into a really comfortably clear way to Figure out. And I think that reduces a bunch of anxiety. So I think mapping it out is number two. And again, that can be pretty comprehensive. Your withdrawal strategy, your taxes, but that's all in number two. Number three, this is less about the numbers and more about painting a picture of your retirement life. I did this exercise with my dad and my stepmom called a couple years ago, and I was just visiting Pennsylvania, and on the refrigerator, we was her retirement roadmap, which I had them do in colored pencils.

[Wes Moss]

Oh, very nice.

[Krista Dibiaz]

And it's a really fun exercise is to sit down and think of the things that you want to do, all the fun things that you're looking forward to doing, all of your core pursuits, all of your socialization, family, friends, hobbies, core pursuits, I call them. And I almost like to do a map of the United States or the world. And you can point to where you want to go, travel, and it's a really fun way to clarify all of the fun things you want to do. I call it just a retirement roadmap. But if you do it in colored pencils, it may end up on the refrigerator wall. That was pretty cool to say. Number four, lock in your income streams, meaning that part of this may be in the planning, but they may not all be turned on. Right. So you can have Social Security be turned on at any given point in the future up to the age. Age 70, and you've got to make that decision. What about a pension from somewhere else? Maybe you have some sort of annuity that kicks in or a potential inherit. I see this a lot. Folks that don't have annuities, but their parents maybe had annuities, and now they've inherited that income stream. So spend some time understanding those income streams. They're so important in retirement. They're kind of the lifeblood of spending without you tapping your investment account. So that's number four to me, is lock in your income streams. Number five is something you can totally control. And if you don't, I've seen this spin out of control. Number five is finish big projects, and particularly with housing. And this is super clear. When you see somebody who retires, I've seen this, they retire and they say, well, we've got to have a little bit more time. So we're going to renovate the bathroom.

[Wes Moss]

Oh, man.

[Krista Dibiaz]

Or we're going to renovate the kitchen, and it's not a big project, or we're just gonna do the floors, and then it spins out of control. So it doesn't. It's not just a budget thing, which that's a whole nother story that can get out of control. But it's a project problem too. It's, well, it's the floors and it's the kitchen, the bathrooms. The next thing you know you plan on spending $50,000 and it's 250 and you've stopped working. So you don't have time to cushion that and say, well, wow, we really overspent here and maybe I'm going to work another year to kind of pay for that. So get the big things done before you know you're going to stop working. So the one to two to three years prior to retirement, get those big housing projects done. Number six is craft a plan to kill the mortgage. It is well documented in our research that retirement levels of happiness go up when, when your mortgage is either paid off or payoff is within sight. Again, not everybody is fortunate enough to pay off the mortgage before you retire, but have a plan to pay it off in those early years of retirement. Number seven, get your healthcare. Ducks in a row. There's a huge jump when you go from having your own private insurance prior to age 65 to getting onto Medicare. When you get onto Medicare you're gonna need to get some sort of supplemental program. And when you get your Medicare supplement program, you've got to figure out what doctors stay what doctors are not in this plan. That will take typically meeting with someone that specializes within that space. Now you can research it and pick it on your own. But I think it's super important to get with someone whether it's a referral from your advisor or a health. But find a healthcare advisor and make sure that you've got the right supplemental plan for your state.

[Wes Moss]

So I'm just curious about that real quick. A health care advisor are the do to be really careful that it's somebody who's really not trying to sell you on one specific plan.

[Krista Dibiaz]

Health care advisors, nobody's making a big fortune. This is, these are not selling annuities. There's no giant commission when it comes to this.

[Wes Moss]

But you want someone who's more of a broker who's going to look at many different companies. You don't want someone repping a company.

[Krista Dibiaz]

Options and supplemental options in your state. And again, I think it's a, it's a hard industry to be in. It's not like these people are have making huge amount of money helping. It's not free, but I think it's an important service. Number eight, this is where you tune up your Estate plan. And this can again, before you retire, it's really important to make sure that even if you have wills, are they up to date? Maybe you did a will and your kids are young and now they're grownups. Things change. Beneficiaries change, the amount of assets you have change. So you're going to want to check this off the list of sitting down and making sure your will planning and your trust planning is in line with what you want. If something happens to you and your spouse again, it's one of these things that'll swirl around in your head and give investment and I'd say financial anxiety until you get it done. And that'll take an estate planning lawyer as well to do that. Number nine, rethink your insurance. You don't want to go into retirement without being properly insured. And that again, it's a different phase of life when you're in your 30s and you're trying to protect your kids with life insurance. Maybe you don't need to do that anymore. Make sure your property and casualty insurance is up to date. Make sure you have some sort of umbrella policy when you're heading into retirement. The last thing you want to do is have some sort of weird liability for somebody that gets hurt at your house. So this is about protection. Insurance really is about protection. And it's something you need to check off the list. And then number 10 on my list to check off is the digital side. So do a digital review and make sure that your investment accounts all have dual authentication. Make sure that your bank accounts have dual authentication. Make sure there's a area where your passwords are somewhere safe and whether it's in an app or someplace in the house that if something happens to you or your spouse, you can make sure that you can still get into your bank account.

[Wes Moss]

Or somebody else can.

[Krista Dibiaz]

Or somebody else can. So getting some digital security, a lot of these are just getting our head out of the sand, facing up that we need to get them done. You go through that 10 point checklist, you're gonna have a lot less anxiety when it comes to pulling the retirement trigger.

[Wes Moss]

Great. All right, I'm going to ask you a couple questions and then everyone who listens to Clark, we have a West Stinks. A fun west stinks. I'm going to read.

[Krista Dibiaz]

You already have a West stink.

[Wes Moss]

Yes. This one's from Brian in Colorado. Some background on us. My wife and I are both 53, have been aggressive savers over the years. Our home, cars and credit cards are paid off. We have no Debt. When is it safe to call it quits and enjoy some of what we have worked so hard to save? We have three kids and hope to fund the cost of their undergraduate education. One child's finishing his sophomore year in college, so we have 4 plus 4 plus 2 equals 10 years of tuition remaining to cover. With the status of the economy and the potential of ageism, should we lose our jobs, I daydream about the possibility of an early retirement. Here are their savings. Retirement savings, mostly traditional. Some Roth IRAs, 401 s and HSA. 2.7 million taxable investment accounts. A mix of index funds and dividend producing large cap stocks. 1.4 million cash CDs, money markets 1.1 million. We are slowly feeding this into the market. Maybe 50,000 a year but it never seems like the right time for a big purchase. 529 savings, 400k. As a follow up question, when does it make sense to have a professional manage our accounts? I hate to pay someone 50k per year 1% of 5 million only to be disappointed when they can't outperform an S&P 500 index fund.

[Krista Dibiaz]

Hmm. Okay. It seems like this is Brian in Colorado. I think it seems like education is paid for for the most part. I mean 10 years is a lot to pay for still but. But $400,000 already in a 529 plan. That should cover most of it unless they're all going to expensive private schools. And that, that's a really good point here is that maybe I should put it on the retirement checklist. It should say get your kids through college first. Now most, most folks are already done with that but when you're a really early retiree you maybe have a crossover with kids in school. If I did an early retiree checklist this would be on it. Meaning the kids school needs to be done because it's a little bit like a housing project. You never know how much the year or multiple years will cost. And maybe the kids go an extra year and they say I still need more money for school. So you want to get done and independent before you're going to the daydream, which I love to hear about. This comes to reality. That's one. I'd check that off the list. It sounds like it's mostly ready to be paid for. Number two, the assets add up to 271411. They add up to a little over $5 million. Four percent rule means that you could spend $200,000. You could spend $200,000 right out of the gate forever and then increase that by inflation. Let me make sure I'm doing my math right here. So 5 million times, let's call it.

[Wes Moss]

When you say the amount you can pull out, you mean gross, right?

[Krista Dibiaz]

Right. So 4% of 5.1 is $204,000 a year. That's the gross amount that you could be withdrawing from your investment account. If you're an early retiree, the income streams are going to kick in. Yet you're not going to be getting Social Security if you retire in your mid to late 50s. If you have a pension, that probably won't be kicking in. So it really is withdraw from the portfolio. But if that still covers the bills, the net amount after that, 200, I think you're in completely fine shape. So I think that retirement is absolutely possible. There's two other quick questions. First of all, when you have that much in assets 5 million level, you're usually not paying 1%. You're usually in the 0.9, 0.8, 0.7. Again, this totally depends on who you're working with. But still significant 0.7 on 500 million is 35,000 a year. Absolutely. We. You're not paying a financial advisor ever to beat the s and P500. That is not a thing. And I say that because if you want to be the s and P500 or any index, that's when you're either doing this on your own or you're looking at a hedge fund or a mutual fund, you're looking at an asset manager. And still most of the time that doesn't necessarily happen either. Unless you're taking a whole lot of risk. You're paying an advisor to make sure that all of those things you would like to go right over time, in fact go as planned. And there's a lot to that. It's not just about beating the market. If you're worried about that, then you should probably just be a pure index fund investor and just get the market return and deal with the volatility that comes along with that. And that's not necessarily a bad plan either. But an advisor is going to make sure all those different areas like estate planning, asset protection, withdrawal strategy, allocation, that you can live with in retirement. Because when you get into retirement, investing gets scarier. Just, it's just the reality. Again, more recent research, I've looked at number one worry, even above health. Krista. Now it's, it's almost tied, but statistically it's a lot. The number one concern in retirement is your finances. And Dealing with an uncontrollable situation like the economy going bad and advisors there to get you through that. And that should be a manageable to small percentage can really pay dividends over time. Otherwise you can just find a fund or two or a hedge fund that is trying to in fact beat the market. That's in my opinion usually not a great strategy. And then lastly, I think he asked about dollar cost averaging in it is a lot to put a million plus dollars to work. We're in an interesting interest rate environment where rates are not low at this point. So that's good for bond investors today in this kind of environment we're in. But investing a tiny bit of that to take a couple of years. I think if you're going to get invested in a balanced plan, you want to do a six to nine month weighed in strategy as opposed to a multi year way to do it.

[Wes Moss]

Okay. David in Massachusetts says years ago a financial pundit on TV talked about the power of compounding savings for retirement. The time I only had a checking and savings account. So I opened a self directed brokerage and started putting $1,000 a month into it. I subscribed to a newsletter that followed a Buffett style approach. Buy solid companies, hold long term, avoid day trading. I'd invest in their monthly picks and only sell when they said to. 20 years later I've built over $2 million. With the stock market feeling turbulent, I've been thinking about the future, specifically retirement. Considering moving some money from aggressive stocks into something more stable. So in about five years when I retire, I won't be exposed to extreme swings. But I'm worried I'll be hit hard by capital gains taxes when I sell. Is there a smart way to shift from aggressive to conservative without a big tax hit? Would it make sense to sell from my regular brokerage and reinvest in a Roth? Since Roths are taxed up front, would I be taxed twice? Once when selling again when funding the Roth, Should I just leave it alone or sell what I need later? I've heard selling in a down market near retirement can hurt with no time to recoup losses. But won't leaving it in tempt fate?

[Krista Dibiaz]

Yeah. Look David, this goes back to our last question. You may be an aggressive investor from 30 to 60, but when you get in retirement you're worried about big swings in your retirement accounts. So you want to have some sort of balance there. There's two ways to look at this. One, we pull out our gain loss tab. Now if you've Been investing and been buy and hold mostly for 20 years. You may not have any losses, maybe no losses at that point, but you certainly have, you'll have a few big winners. That's the way the market works. That's just the way that when you're diversified and you're investing, you're going to have a couple winners that really kind of carry the day and you're going have some that have been a little more lackluster. So you would start with anything that's even flat to down, you may not have that. You would potentially reduce your lower winners is one way to start doing that. And you do that slowly over time. So you're keeping your capital gains at a level where you may pay zero taxes. Right? It's certain income brackets. Long term capital gains are taxed at zero. So that's one strategy to start chipping away. And then what you're able to sell, even if it's at a gain, if you're in the right tax bracket, it could be no to minimal long term capital gains. And then you reinvest that in more safety assets. That's the way to do it. The other way to think about this would be almost reverse dollar cost averaging, meaning that you do a schedule over time that so this avoids really high peaks in the market and troughs in the market. You make a plan to say, look, I really want 20 or 30% of this to go to more conservative assets. So do a little bit every month. But you're selling here. So this is like reverse dollar cost averaging. Sell 1 or 2% in any given month and that will help ride out the market swings and give you the capital to reinvest in some of these more safety oriented areas. Now the Roth idea, this wouldn't be a Roth conversion because it's not coming from an IRA and putting it into a Roth. So that's not. We're not talking about conversions here. You're really just talking about Roth contributions. And you can only do up if you're 50 plus. It's only $8,000 in any given year. And that would just go back to if you have earned income, if you've earned income of that much or more, you can make the contribution. But you're not going to want to say that the money from my brokerage is then going to go into a Roth that's more of a IRA to Roth conversion. But not in this situation.

[Wes Moss]

Okay, now the west stinks. These are just fun. On a recent Ask Advisor, yes, I've.

[Krista Dibiaz]

Seen some Clarks, some of them are kind of brutal.

[Wes Moss]

Well, he doesn't think so. He loves it. Wes called himself an apple connoisseur after.

[Krista Dibiaz]

Saying this about apples.

[Wes Moss]

Chris, Pink apple is the best apple. He must not have tried the Sweet Tango. Pronounced Sweet Tango apple. Available from mid fall to early winter, it's the best apple on the planet. According to Applerankings.com and my own taste buds, the Sweet Tango apple is the holy grail of apples. Perfect in almost any way, scoring a 97 out of 100. The Crips Pink Apple scores a 42 of 100 and is likened to horse food according to apple rankings. And that's from Mike in Denver. And also Kevin wrote in to say you were incorrect with your apple choice. The Snapdragons from Aldi are the best.

[Krista Dibiaz]

Kevin is not totally wrong. There is a snapdragon apple, and I get these at Whole Foods, and they're.

[Wes Moss]

In a. Oh, boy.

[Krista Dibiaz]

No, no, no. You and Clark Fresh Market is where it's still. They're expensive.

[Wes Moss]

Clark's somewhere screaming right now, aldi. Aldi.

[Krista Dibiaz]

But there is nothing like the snapdragon apple because they're small. They're almost like the apples we would pick off in the hometown orchard that you would feed to a horse. Like, a horse would eat one of these in one. They're little. They're like for lunchboxes, but they're super snappy. They have a great name, Snapdragon. They're juicy snappy. They last a long time. And the Snapdragon is really good. I'd rank it just under the pink, the crisp pink. Now the Sweet Tango. I don't know what ridiculous website you're going to that would call a crisp pink a 42 out of 100 and be like a horse food. It's. This is the one apple you don't feed to a horse because it's so great. Horses don't get the nuances between all these different apples. They're fine with, like, an old Granny Smith. You don't need to feed them a Pink Crisp or a Sweet Tango. I'm not saying the Sweet Tango is bad. It's a pretty good apple. The problem I have with it, I like the russeting. Like, it has some russeting, which are like that little quirky thing. It's like the little barky thing that gets raised on the skin of an apple. Kind of makes it a little more rustic.

[Wes Moss]

I had no idea. There's no rust sitting on the complexity to apples.

[Krista Dibiaz]

You dig into a Sweet Tango and it can be a little yellowy and a little ivory oriented and I don't like that. And they don't sit and last as well. But you may like them and this is a preference thing. So I'm not going to disagree that the Sweet Tango is good. I'm just saying that the Chris Pink, a good one, is the best. Apple. It's a. It's a 99 on my scale out of 100 and it still beats the Sweet Tango. I would just. You're at the. You're on the wrong website. Anybody that calls Pink Chris horse food is just that. That's just. That's. I think that's heretical.

[Wes Moss]

Okay.

[Krista Dibiaz]

That is blasphemy. Wow. I'm looking for. That would be. That would be Apple blasphemy.

[Wes Moss]

Apple blasphemy. Well, if you're still with us, we're going to get back to it coming up. Straight ahead. And we're going to talk about structuring what you spend in retirement.

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Price plan options available, taxes and fees, extra fee, full terms@mint mobile.com welcome back.

[Krista Dibiaz]

To Ask An Advisor on the Clark Howard Show. Wes Moss along with Krista Dibiaz. Hello.

[Wes Moss]

Hello.

[Krista Dibiaz]

What do we got? So I'm going right in. What are we talking about right now?

[Wes Moss]

How to spend in retirement.

[Krista Dibiaz]

Spending in retirement. This came up and here's why. One, I think you guys wanted me to talk about it. And two, doing a radio show a week ago, one of the producers who's on the air is in his early 30s and he said he goes, wes, when you get to retirement, how do you actually take the money? Do I take it right from a 401k or do I have to put the money in another account in order to spend it? Because if you hadn't really thought about this, it is a question. It's not like your retirement accounts are not checking account. You don't just write checks out of them. So where does it go? How does it work? So that's the first question. The second question is it's not as simple as I'M going to pull money out and just pay the tax and go. There's a lot of strategy behind this. It's incredibly important of how you use the three main buckets. And the buckets are individual or brokerage account, which could be savings account or taxable account. I call them an after tax account. Number two is your any retirement account, 403 B, 401 K, 457 and an IRA or individual retirement account. And then the third bucket is a Roth. And how you use those three really matters in managing your overall tax bracket. And the key, what we want to do is be able to keep and manage our tax bracket most efficiently for as long as we can when we get into retirement. And it all matters on which one of these buckets you tap first. So number one, we've got to get to the right age. Really for most retirement plans it's 59 and a half. That's the age when you can tap an IRA without paying a 10% penalty. Now there's the rule of 55, which is if you retire from a job and you leave money in your 401k, you can start tapping without penalty at 55 plus. But for the most part, just first of all know the age you're able to tap these accounts. Again, mostly it's 59 and a half. For some folks it could be 55. Secondly, we would need to recognize the three buckets. Third, let's start with a simple example. If you only have retirement accounts and you've been an amazing saver, and you've got a million dollars saved in a 401k plus an IRA and you have $50,000 in an after tax savings account, you still have plenty of money, but you really don't have many decisions to make. You don't want to spend your, what I call it the most sacred bucket, which would be an after tax account or a Roth. But that money you can typically pull out in a very tax efficient way. A Roth, of course it's going to be tax free as long as you've let it bake as long as it needs to. A savings account that's just in cash. Again, you're typically not going to have any sort of capital gains to use that a brokerage account, this is where you can manage how you pull money out. But if you're only most 95% of your assets are retirement money. It just is what it is. In that case, you want to judiciously pull money out. So you only want to pull out just what you need to cover your expenses. Otherwise you're increasing your overall adjusted gross income. And as that goes up, your tax bracket goes up. So you want to do it in a really measured way if that's your only option. But most people are going to have a series of different accounts to decide on which to pull from when and the general order. I would say the way to think about this is after tax or individual brokerage money first, then IRA money goes next and then you save the Roth for the bigger chunk expenses you would need in retirement. New roof, 20 grand I don't want to take out of the IRA because I'm going to have to pay taxes on that money in order to get to it. The Roth should be tax free. So I like to use the Roth as kind of a big expense chunk buffer in retirement. But that would be the order logistically. And this goes Back to the 33 year old's question like, well, how does it really work? When you pull money from an ira, it's typically going to go. If you're going to spend it, it's typically go to your checking account where you actually spend money from. But to get it there, there's a process which you've got to fill out IRA distribution forms and you're going to have to elect your tax withholding. So there's a federal number and there's a state number. Now you don't have to withhold taxes on IRAs, IRA withdrawals, but most people like to keep their. If you know you're in the 20% tax bracket and you're pulling money from an IRA, people will typically like to just withhold the 20%. That 20% sliver actually goes to the IRS and then you get the net actually. And then let's say you're withholding. Now if you're in Florida, you're not withholding for state, but if you're in a state with state income tax, let's call it 5%, then you're typically withholding 5% that goes to the state. So when it comes to what you receive in your bank account from a retirement plan distribution, it's typically net of the federal and the state withholding that you get to choose if you're only in the 10. If you're in the 10% bracket, you would typically elect to be 10. If you don't do that, then at the end of the year everything you pulled out will be towards your AGI and you're going to pay taxes on it anyway. Now if I looked at two different scenarios, let's say Sandy from Oklahoma and she has $300,000 in an IRA, 300,000 in brokerage and 150k in Roth. She got me 750,000. And let's say she gets 30 in Social Security and she needs 70 to live or she gets 40 in social, 70 live. So she needs to take out $30,000 a year. She could elect to just take it all day one from the retirement account and now her income is going to be the Social Security. All of the dividends and interest that she's getting already in the regular after tax account because that's a. I'd say a current pay by the day account. Anything that happens in a brokerage account, any transaction, dividend interest, the sale, a capital gain or a capital loss that's owed, the taxes on those transactions are owed in that given year. So by not electing to use any of that money, she's still having to pay some tax there and she's paying tax on the whole $30,000 that she pulled out of the IRA. So that's kind of a tax bomb situation where you're paying as much as you really would need to pay. Conversely, Sandy could say, well I've got this $300,000 in brokerage, $100,000 of the three is in fixed income or bonds and it's mostly just paid me interest and it hasn't really appreciated. So she could elect to use that part. And she's really just returning her own principal. There may not be any capital gain there at that point. She can pull money from that account with no capital gains potentially and not increase her income and not take anything from the ira. So she keeps her overall adjusted gross income really low and which keeps her other tax rates low when it comes to the interest that she has to pay. And the dividend tax rates are also income based. So it makes the whole process more efficient. Two scenarios, one not strategically thought out and higher tax, one strategically taking from the areas that keep and manage your tax bracket as low as possible. And that creates a big net difference to Sandy. So that's the way I'd look at it. Generally individual account first, then IRA or 401k then Roth for special occasions.

[Wes Moss]

Roth last. Well, not necessarily, but like you said, that makes sense. That's interesting. I never would have thought of all that. We'll go to questions. We got this one from Joe in Florida. We are 71 have about 500,000 saved in an IRA. In traditional investment accounts we have sufficient income from guaranteed sources to cover expenses and have about six months additional in a high yield savings account. We look to our investments for additional income, for play money and are unconcerned about leaving money behind with that.

[Krista Dibiaz]

That's an important part of the equation. Right.

[Wes Moss]

We choose to invest in dividend stocks and ETFs plus different high yield bond funds. We withdraw 75% of earnings monthly with 20% of that sent to the IRS and the remaining 25% reinvested. With this strategy, we are easily able to Average an extra $2,500 per month Net of tax withholding. We've had a financial advisor tell us that we are being very foolish, that we would do better going into with an immediate annuity plus direct investment in the S and P and nasdaq. He claims our strategy is unsustainable, even though it has worked just fine for a number of years now. What are your thoughts on this strategy for someone in our age group and situation? Never heard of one like this before.

[Krista Dibiaz]

Yeah, unsustainable. The, the advisor saying this is. There's something wrong with this. So let's just think of Joe. The math here is important and on the surface it sounds like this has been working. So he's been pulling this money out and his accounts still haven't gone down. So it's been working. So what's the problem, advisor? Well, let's do the math. 2,500 times 12 is 30,000. 30k divided by 500 is what, 6%? The 6% withdrawal rate. That's a little high. Those are the wrong numbers. Those are the wrong numbers to use because what's happening here and this, I think what your advisor's looking at is that $2,500 is the net amount he's getting, but he's withholding 20%. So really what you've got to look at is 2,500 divided by adjust for taxes. It's really about 3,125amonth times 12 is 37, 5 divided by 500. Joe, it's seven and a half percent. That's why your advisor is saying, I think what he's probably saying is 7 1/2% is almost double the 4% withdrawal rate. It's the quote, safe rate. And even though you're only receiving $2,500, it really is the gross number that's going out. It's that plus the taxes that are getting paid.

[Wes Moss]

But then they're reinvesting the 25% remaining. Does that make a difference?

[Krista Dibiaz]

That shouldn't make a difference because he's, he's actually not pulling from the account. So it's really just what is coming out, what is depleting the account. Now, here's the other, here's the other thought. If you go through a stretch of markets, it's pretty good, right?

[Wes Moss]

Which it has been.

[Krista Dibiaz]

It could easily, that could easily work. You could have, you could pull seven and a half percent out and you still have more because you're making eight or nine. The four percent withdrawal rule is based on a long market cycle where you know that you will inevitably go through lower periods of rate of return. So it's trying to protect you when things don't go well in markets. The other thought is that you have, again, I don't know the dividend stocks here, but again, it's hard to argue with dividend stocks. I'm a big believer in that. But also, if you have high yield bonds or closed end funds and they're a really big part of the overall allocation, they may pay out 8 or 9%. The problem with that typically is that there is usually a principal loss because sometimes those distributions are reducing the value of the fund. If you have a $10 fund and it pays you a dollar, it's a 10% yield sounds great, but it's really not great if at the end of the year the fund is at $9, it's essentially just, it's giving you your own money back. And that also could be happening here. I think that that's probably the disconnect here, Joe. So what would we do? If you do it immediate annuity, you may get a high, you're going to get a higher rate here than what your dividends will pay, but you lose your the control of your money. You're essentially saying, look, here's my money. Pay me forever until I die and or my spouse. So it might give you a higher overall sustainable income. But there's really not that. It's not so much that there's nothing left at the end, because that sounds like that's fine your situation, Joe, but you do lose the control of being able to get to the money to go pay for a new roof if you need it. So I like keeping the liquidity and maybe just adjusting. You did say it was play money, so it doesn't seem like you have to pull out that much. So maybe you just reduce your withdrawal rate a little bit and get it closer to that 4, 4.5% range. A little compromise here, I think makes everybody happy.

[Wes Moss]

All right. Akshay in North Carolina says, would you please talk about tax exempt bond funds such as Vteax, VW, AHX or Bond ETFs such as Vteb. When should I invest in tax exempt instruments like these? How can one include these types of funds in their investment strategy? And are there any risks? We should be aware?

[Krista Dibiaz]

Risks, Ashke, there's always risks. You're looking at tax free bonds in general, you're talking about municipal bonds. These are obligations not to the US Government, but to a local government or a state. So they're pretty darn high credit. Now you look at some states that have bad credit or underwater, those municipal bonds will typically be rated pretty low. So you can get a AAA rated municipal bond or you can have an A rated, or you could have a B rated. So the credit of the municipality or the state is that goes down, so does the rating. And you've got to be careful if you're in low rated, also higher yielding municipal bonds that are tax free at the federal level. But if you live in that same state and the bond is from that state, it's typically tax free in the state as well. So I would say that the risks are like any other bond risk. You're going to worry about the credit. Assuming you stick with really high quality municipal bonds, then it's hard to say they're the same credit level as the US government, but they're pretty close. Highly rated, let's call it state triple A rated bond. That's a really high credit rating. But because they have a high credit rating and because they're tax free, the yields are lower. So the real math here, the calculus is looking at the tax equivalent yield. So if I get 3.5% from a tax free bond, okay, well that's lower than I could get, let's say in a taxable bond, but I don't have to pay taxes on it. So you have to take the tax free yield and adjust it and make it a tax equivalent yield. So if you're in the 70% tax rate, I take the 3.5% divided by 0.7, a 3.5% tax free bond is equivalent to a 5% taxable bond. So that's the calculus you want to do here, is that if you net in the end something similar, maybe a little bit more, and keep your credit rating similar to what there would be in a corporate bond environment, then I'm all for investing in municipal bonds. And this would be outside of a retirement account.

[Wes Moss]

Okay. Kevin in Illinois says I'm 57, have been contributing to our company's 401k and have about $90,000. Our company now offers a Roth option and I've changed contributions to be half traditional and Roth. I intend to work until 70 if I can. Should I go all Roth traditional or continue the mix?

[Krista Dibiaz]

Here's my rule of thumb on that. Is that high tax bracket, stick with traditional. Low tax bracket, do Roth. If you're somewhere in the middle, continue to do both. Meaning that if you're in the 30 plus percent tax bracket, you're probably going to want to stick with the regular good old fashioned 401 contributions. If you're 15%, let's say and under go with a Roth, make your contributions to the Roth 401K. A lot of people are in that middle ground and I think it's a really smart way to do it, Kevin, is if you're in that middle tax range, split them 5050 so that you have both.

[Wes Moss]

All right, well, that does it for this episode of Ask an Advisor. Thank you so much for listening or watching. Hope you'll stick with us. And tomorrow Clark will be back. Have a great rest of your day.