06.17.25 Ask An Advisor With Wes Moss

Summary

The Clark Howard Podcast Episode: Ask An Advisor With Wes Moss
Release Date: June 17, 2025

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Introduction

In this episode of The Clark Howard Podcast, host Krista Dibiaz engages in a comprehensive discussion with financial advisor Wes Moss. The primary focus centers on strategies for early retirement, navigating complex IRS rules, and understanding the elements that contribute to a fulfilling and happy retirement. Throughout the conversation, they address listener-submitted questions, delve into investment strategies, and explore the intersection of financial planning and personal well-being.

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1. Early Retirement Strategies: Understanding Rule 72T

Krista Dibiaz introduces the topic of early retirement, particularly focusing on IRS Rule 72T, which allows individuals to access IRA funds before the typical retirement age without incurring the standard 10% penalty.

Krista Dibiaz [01:14]: "We're here to talk about a theme that comes up a lot and you've done a ton of research on Wes and that is retiring early."

Wes Moss elaborates on the mechanics of Rule 72T, explaining how it enables individuals under 59½ to withdraw funds through Substantially Equal Periodic Payments (SEPPs), thereby avoiding penalties.

Wes Moss [01:36]: "72T is an exception that allows us to take substantial equal periodic payments from an IRA, enabling early access to funds without the 10% penalty."

He emphasizes the complexity of the rule and advises consulting with financial institutions to ensure compliance and optimal execution.

Key Points:

• Rule 72T Basics: Allows early IRA withdrawals without penalties through SEPPs.
• Calculation Methods: Typically uses the amortization method, allowing approximately 5.5% annual withdrawals based on account value.
• Commitment: Requires consistent payments for at least five years or until reaching age 59½, whichever is longer.

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2. Listener Questions and Advisor Responses

a. Moving IRA to 401(k) and Roth IRA Considerations

Listener Mark from Florida inquires about the feasibility and benefits of transferring an IRA to a 401(k) and whether starting a Roth IRA is advisable given his upcoming retirement plans.

Mark’s Question [08:15]: "Did I hear correctly that you can move your IRA into your 401K? And if so, is that a good thing?"

Wes Moss responds by outlining the advantages of a reverse rollover, such as lower costs, better investment options, and the flexibility offered by some 401(k) plans. He also discusses the strategic benefits of adding a Roth IRA to diversify tax treatments in retirement.

Wes Moss [08:44]: "Rolling your IRA into a 401(k) can provide benefits like lower costs and better investment options. Additionally, starting a Roth IRA can enhance your retirement strategy by offering tax-free withdrawals."

b. Investment Strategies: S&P 500 vs Total Market Index

Listener Ed from North Carolina expresses surprise over Wes recommending the S&P 500 for young investors, questioning the lack of diversification.

Ed’s Question [17:10]: "Why not recommend a total market index fund?"

Wes Moss acknowledges the concerns, explaining the inherent concentration in the S&P 500 due to its cap-weighted nature. He defends the S&P 500's efficacy for young investors who benefit from its growth potential over time but also suggests supplementing with sector-specific or international funds to enhance diversification.

Wes Moss [17:19]: "The S&P 500 is cap-weighted and has become more top-heavy, but for young investors, its growth potential is significant. To mitigate concentration risks, consider adding sector-specific or international funds."

c. Managing 401(k) Contributions and Roth Options

Listener Sean from Nebraska, a 38-year-old planning early retirement, asks whether to prioritize contributions to a 457 plan or a brokerage account, expressing concerns about potential tax bracket increases.

Sean’s Question [37:21]: "Should it be better to focus on the brokerage account? And is this general rule of thumb we could use between these two accounts?"

Wes Moss advises favoring the 457 plan due to its flexibility and tax advantages, especially since Sean is already maximizing his HSA and Roth IRA. He reassures that contributing to the 457 won’t necessarily increase his tax bracket in retirement, given the nature of his income sources.

Wes Moss [38:23]: "I still like the 457 because it's a retirement-type account. Given your projected lower tax bracket in retirement, contributing to the 457 alongside your Roth IRA is advisable."

d. Immediate Annuities vs. 4% Withdrawal Rule

Listener Jay from Missouri questions the attractiveness of an immediate annuity offering a 6.65% payout compared to the traditional 4% withdrawal rate from an IRA.

Jay’s Question [33:38]: "Is it a pretty good deal? It is fixed for our lives, so it will not increase with inflation or earnings in the stock market…"

Wes Moss highlights the trade-offs, noting that while the higher payout rate is appealing, immediate annuities lack liquidity and growth potential. He recommends using annuities as a supplemental income stream rather than relying solely on them, balancing them with traditional retirement accounts.

Wes Moss [37:21]: "An immediate annuity can boost income, but it eliminates liquidity and growth potential. Consider allocating a portion of your IRA to annuities while maintaining other investment avenues."

e. Whole vs. Variable Life Insurance

Listener James from Georgia inquires about the scenarios where purchasing whole or variable life insurance makes sense, challenging Clark Howard’s general skepticism.

James’s Question [41:41]: "Is there any scenario in which it's a good idea to purchase whole or variable life insurance?"

Wes Moss concedes that while Clark Howard typically advises against these products, there are niche situations where they are beneficial, such as for ultra-wealthy individuals needing to offset estate taxes or business owners who require guaranteed payouts for buyouts.

Wes Moss [43:24]: "Whole life insurance can be valuable for ultra-wealthy individuals facing significant estate taxes or for business owners needing guaranteed buyout funds."

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3. Research on Happy Retirees' Habits: Core Pursuits and Joy

A significant portion of the episode is dedicated to Wes Moss presenting his latest research on what constitutes happiness and fulfillment in retirement. He introduces the concept of "core pursuits," which are activities that provide purpose, joy, and socialization for retirees.

Wes Moss [25:25]: "Core pursuits are activities that fill your time and provide a new life purpose, bringing joy and socialization in retirement."

Key Findings:

• Number of Core Pursuits: Happy retirees typically engage in five or more core pursuits, whereas unhappy retirees have four or fewer.
• Time Investment: Happy retirees spend approximately 18 hours per week on these activities compared to 13 hours for unhappy retirees.
• Top Categories of Core Pursuits:
  • Creative Activities: Gardening, music, painting, and art.
  • Adventure: Travel, RVing, and exploration.
  • Volunteering: Community service and charitable activities.
  • Socialization: Spending time with family and friends.
  • Physical Activity: Exercising, walking, and sports.

Notable Insights:

• Socialization as a Core Theme: Seven out of nine categories emphasize social interactions, underscoring the importance of community and relationships in achieving happiness during retirement.
• Purpose Beyond Finances: While financial security is crucial, the ability to engage in meaningful activities significantly impacts overall well-being.

Wes Moss [31:04]: "The real theme in seven out of the nine main categories is socialization, and that is what brings us joy in retirement."

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4. Conclusion and Takeaways

The episode wraps up with Wes Moss reinforcing the importance of balancing financial strategies with personal fulfillment. He underscores that while financial planning is essential for a secure retirement, nurturing core pursuits and maintaining social connections are equally vital for long-term happiness.

Wes Moss [32:47]: "All the money in the world doesn't necessarily make for a happy retirement. Engaging in core pursuits that bring joy and purpose is essential."

Final Takeaways:

• Early Retirement Requires Strategic Planning: Utilizing rules like 72T can facilitate earlier access to retirement funds but necessitates careful calculation and commitment.
• Diversified Investment Approach: Balancing various investment vehicles, such as 401(k)s, IRAs, Roth accounts, and brokerage accounts, can optimize both growth and tax benefits.
• Importance of Core Pursuits: Engaging in multiple, time-invested activities that provide social interaction and personal fulfillment is key to a happy retirement.
• Customized Financial Advice: Listener questions highlight the necessity of personalized financial strategies tailored to individual circumstances and goals.

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This episode offers valuable insights for individuals planning early retirement, emphasizing the interplay between financial strategies and personal well-being. Wes Moss's expertise provides listeners with actionable advice to navigate complex financial decisions while fostering a fulfilling and joyful retirement lifestyle.

Transcript

[Capella University Representative]

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[Ryan Reynolds]

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[Krista Dibiaz]

Of $45 for three month plan equivalent.

[Ryan Reynolds]

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[Krista Dibiaz]

Offer for first three months only. Speed slow after 35 gigabytes of network's busy taxes and fees extra. See Mint. Welcome to Ask an advisor. I'm Krista Dibiaz from Team Clark here with our very own Wes Moss, also from Team Clark. Yes, Krista.

[Ryan Reynolds]

Hi everyone.

[Krista Dibiaz]

We're here to talk about a theme that comes up a lot and you've done a ton of research on Wes and that is retiring early. So today you've got a couple of topics that I think are really intriguing. The first one is about how if you're thinking of retiring earlier, there's a rule called 72T.

[Ryan Reynolds]

Right. Flows right off the tongue. 72T. Yeah.

[Krista Dibiaz]

I've never heard of this role. I've never heard of it. So I'm excited to hear about that. And then you're going to talk about if you do retire early, what brings you joy, Is that right?

[Ryan Reynolds]

Yes. Which is one of my favorite topics. We'll start first with the technical one because when you're in the world of try to help people retire a little bit sooner. And I wrote a book called you can retire sooner than you think, because I think people can. And subsequently I've done more research that just shows there's really this magic moment that does happen. And maybe not for everyone, but just overall in America, our happiness levels rise the minute we retire. So there's something about that period of time which is awesome. So I think that any rule that can help us get there a little bit sooner really helps. And we've talked about the Rule of 55 here. Rule of 55, of course, is if you're at an employer and, and you leave 55 or later, you could access your 401k without the 10% penalty. But there's other rules. But what if you retire even sooner than that and you're 54 and maybe you've already have a bunch of money in IRAs and you don't have a lot in a 401k? There's still hope to be able to pull money out of a retirement an IRA and still be able to not have to deal with that 10% penalty. We do not like tickets penalties, fines in America.

[Krista Dibiaz]

Sure.

[Ryan Reynolds]

Particularly when it comes to our retirement account. So here comes the rule 72T. And 72 is the section within the IRS code that talks about IRAs, and T is the section that talks about the 10% penalty. And this 72T is an exception to that. And here's how it works. If you are, let's say, age 54 and you've got an IRA and you are no longer going to be working, maybe you've saved plenty of money to retire and you're 54, super young to be a retiree, which is awesome. And I've seen this happen many times. Not a ton, but it happens. Well, the problem is that. Wait a minute. Aren't I supposed to be 59 and a half before I can access these funds? That's a long way off. That's another almost six years. So if you apply this Rule 72T allows us to take something called substantial equal periodic payments. Sepp. So these substantially equal periodic payments, it's a formula you enroll in, if you will. And this is all per the IRS guideline. And this is pretty complicated. So you really have to. This is not like a DIY thing. You need a. Usually you should have somebody at your financial institution helping with this, because once you start it, you also don't want to mess it up. Okay, so, so the rule goes that you calculate a formula, and there's two different or a couple different ways that you can arrive at the amount. Usually I see people use what's called the amortization method, which allows you to access about five, call it five and a half percent of whatever the account value is a year per year.

[Krista Dibiaz]

Okay?

[Ryan Reynolds]

So think a million dollars, call it $53,000 a year, somewhere in that 5% range. And then the rule goes that you have to take those payments for at least five years or when you reach age 59 and a half, whichever is longer. So if you start Rule 72T at 58. That's going to carry you through 59 and a half. And you're going to have to do it for at least five years.

[Krista Dibiaz]

I'm sorry, is it the same amount? Like if I start with five and a half, do I have to keep doing that?

[Ryan Reynolds]

Yeah. Then that's part of the substantially equal periodic payments.

[Krista Dibiaz]

Okay.

[Ryan Reynolds]

Okay. And they're the same payments. I don't know if they recalculate a little bit per year. But it's. The point is you're taking the same amount of money and you have to do it for five years or 59 and a half, whichever is longer. So if someone starts at 54, and let's just use Sarah as an example, she's going to have to take that all the way through 59 and a half even. Even if she goes and comes into a situation where she might not need it, maybe a pension were to have kicked in and she doesn't need it, you still have to take it or else then you get a penalty.

[Krista Dibiaz]

Okay.

[Ryan Reynolds]

So you kind of lock yourself into doing this for a pretty long period of time, but it allows you to access the money in your IRA without the 10% penalty, but only a certain amount, which again is per a table and a schedule that you're going to get from the irs. And you have to choose the amortization schedule, if you will, on how much you can take. So think of it this way. Sarah, let's say she has two IRAs. And this is where it gets even a little more complicated. You don't have to do it on all your IRAs. So you can choose an IRA to do it. Let's say she has 600,000 in one IRA and 400,000 in another IRA. Well, she can use the rule 72T. Let's say she needs two grand a month. So she could take the $400,000 IRA and apply this rule to that which would give her around, call it 20, about $2,000 a month, which kind of carries Sarah through. Now what if she needed more and that's going to cut it? Maybe she says, I need four grand a month from my retirement accounts. Well, then you could either take the bigger IRA or remember, within IRAs, you're allowed to roll money into each other as long as they are qualified rollovers. So you can almost right. Size your IRA to the size you need. That five, five and a half percent is enough coming out in the substantially equ. Payments so that Sarah can kind of back into how much she would need in any given IRA in order to fund her retirement. And then once she's done that, you go back to the normal rules that apply. So it's, it's a way to access IRA money early. It can be earlier than the rule of 55. This is again applies to your retirement individual retirement accounts, not your 401k accounts.

[Krista Dibiaz]

Right. Okay.

[Ryan Reynolds]

So just in the bag of tricks to get money out a little early or maybe a lot early and avoid that 10% penalty.

[Krista Dibiaz]

Okay, well, I've got questions for you, of course, Wes. And if you want to ask Wes a question or Clark, you can go to clark.com/mark in Florida sent this one in for you. I've really enjoyed listening to you on Clark's show. Two questions, Mark. First, I have an IRA and a 401K combined. They are close to $300,000. Did I hear correctly that you can move your IRA into your 401K? And if so, is that a good thing? Secondly, I'm 60 and will work for five and a half more years. I do not have a Roth IRA. Since my company does not have a match because we have a pension, should I start a Roth IRA to have an additional pool of money for retirement?

[Ryan Reynolds]

Okay, Mark, Ira and a 401K. No, Roth has a marquee of a pension. And I think the critical point here is age 60. So. And Mark also asked about a reverse rollover here where you. Yes, you can take money that's already in an IRA account and I call it a reverse rollover into your 401k. Your company plan that you're currently at at work, if that makes sense for you and it. And you want to do it.

[Wes Moss]

A.

[Ryan Reynolds]

Maybe you like the 401k plan. Maybe it's super low cost. Maybe you like the investment options. Maybe it's flexible, easy to see, great technology interface. So these are all the things that we would be looking for in order to make that decision of rolling money to one retirement account to another. But the other thing is that because Mark, you're 60, you already are past the age of 59 and a half. So you would never have to utilize that Rule of 55. The Rule of 55 is way to access your money a little bit early without the penalty in a 401k. So since you're already past that line of demarcation, the 59 and a half and you don't have to worry about a 10% penalty if you were to stop working now, you can pull money out of an IRA or 401k without the 10% penalty. So I think the Roth is the right option here because you've got a pension coming. IRA money you already have. 401 money you already have. I think that when it comes to that bucket strategy of how you control your tax rate as best as you can when it gets to retirement, it is nice to have a brokerage account, a Roth account, an IRA account, and it sounds like that's the one piece that you could be adding to here. So I think the Roth, starting the Roth between now and when you retire, whether it's Mark, you probably have a Roth 401k option as well. If not, you can always do the $8,000 a year in the regular Roth contribution.

[Krista Dibiaz]

Okay. Chris in Virginia says Wes, I'm 50 years old, planning to retire at 57. I'm targeting three and a half total in retirement savings. I made a mistake in late 2019 when COVID 19 was first in the news.

[Ryan Reynolds]

Didn't a lot of people 2019? So he was yeah, that's right. It did start in 2019.

[Krista Dibiaz]

I let fear take hold and I moved around 15% of my 401k from an index fund to a short term reserve fund somewhere between a money market and short term bond fund. Its yield ranges between 2 and 2 and a half percent. I have 2 million in my 401k, so 300,000 in dry powder age 50 seems overly conservative. I know I missed growth due to the fear I had five years ago and I can't change the past. I'm thinking I should slowly move some of that balance back to the index fund each month and wonder if I should lower my 401k contribution and instead take the difference and put it in a money market or bond fund outside of my 401k that has a higher yield. My choices in the 401k are very limited for stable value and dry powder. This would give me access to those safe funds without the restrictions of the 401 such as penalties and RMDs. I know I lose the tax shelter of the 401 and would pay ordinary income tax on the portion I don't contribute to the 401. Putting it in a Roth seems to make it a wash. Should I let it ride as $300,000 is around three years worth of dry powder when I retire in around seven years and am I overthinking this, Chris?

[Ryan Reynolds]

No, you're not overthinking this. I think that you are like any investor that has regret because in retrospect everything makes perfect sense. Well, remember 2019. Scary pandemics come in. Wait a minute, it's over overseas. Is it coming here? Yes, it's coming here. Then you get into February and you start to see the markets drop. And then all of a sudden, I remember being on a call. It was a media call with the cdc, and the lady that was running the CDC at the time was freaked out. And you could just tell. And they started talking about lockdowns and shutdowns and isolation. And I remember thinking, holy cow. And that same day, I think a bunch of journalists were listening to that call. The market was down, like 2,000 points. And the next thing you know, we get into March. March madness is canceled. Wait a minute. And the world literally shuts down to, hey, everybody, just stay home for two weeks. Which obviously turned into a lot longer than that. So we were all thinking, like, wait a minute. There is no time in modern history where the largest economy in the world just shuts down. Like, how can this. This is totally unprecedented because it was. And it was really scary. Well, what is that going to do to company earnings? Stock market is down. So I get it. I just wanted to revisit that. The reality of how scary that period was, because it very much was. Then all of a sudden, the Federal Reserve came in and said, wait a minute, it's okay. We're going to buy everything. We're going to inject money into the system. We're going to buy bonds, we're going to even buy stocks if we need to. Again, what? All of a sudden, this big cascade bear market that we got in 30 days corrected itself super quickly. Then the world slowly, slowly healed after that, and the markets got much better. Markets got better really quickly. The rest of the world slowly healed from that, and we still have effects today. I think we'll have effects for many more years from now. When it comes to the economy, the housing market, there's still big effects from COVID But when you look in retrospect, you think, wait, why did I sell anything? I should have stayed 100% invested. But guess what? Over the last five years, there's been another couple bear markets. And Mark, you have stayed invested. What I'm getting from this, and maybe you don't see it, but what I'm seeing is that it's good for you to have some dry powder. $300,000 a. It's nominally a good number because, you know, the world goes terribly again, I still have my safe money that would help me spend if I really needed it. For several more years. And that helps you be a better equity investor because that's the volatile part. So I would contend that first of all, 300,000 15% of your 401k and really less than 10% of your overall assets in safety, that means you're 85 to 90% invested in stock. That doesn't seem too conservative for me as you're now in your 50s. So maybe give that balance that you forced yourself into. In retrospect, maybe you would have a little bit more money if the 100% invested. But you're well invested and I think that balance really helps you. So don't discount that. The other piece of that that I notice in this question is that your short term bond funds or stable market funds, they usually are going to pay prevailing money market rates. So right now that's around 4%. Just call it 3.8 to 4.1%. If you're looking at that option and it's only been giving you 2%, I think you may be looking at the total return. And that makes sense too, that it's 2% is a lot lower than 4 because there were a couple of years after Covid when interest rates were at zero and those probably didn't make much. Just go back and check is your stable value. Maybe it's paying more like four now, but it wasn't a couple years ago. So it may not be as low as you think it is. So there's a lot to that question. You're not overthinking it. You're just being a normal human wishing that you had perfectly done everything, which is easy to think about and do in retrospect. But that balance, my friend, I think it makes you a better investor moving forward.

[Krista Dibiaz]

And how about the idea of lowering the 401k contributions and contributing to a Roth to have that dry powder more accessible?

[Ryan Reynolds]

I don't see that as a bad idea either. There's so much flexibility around a Roth. It's the ultimate account. Now granted, you do have to wait till your retirement age still. You still want to be 59 and a half before you access it. And you're getting there.

[Krista Dibiaz]

You can withdraw your contributions in an.

[Ryan Reynolds]

Emergency and you can do contributions. I like the idea of funding a Roth. Very few situations where a Roth isn't a good idea. So that could be something to do as well.

[Krista Dibiaz]

Okay. Ed in North Carolina says, I was surprised that Wes recently approved of a young investor using an S&P 500 fund. It's not diversified and has a lot of Exposure to just a few stocks. I'm sure that none of Wes clients are invested in only the S&P 500. If Wes wants to keep it simple for young investor, there are globally diversified funds he could recommend or if people are reluctant to invest globally, there are many total market index funds. Wes did recommend at the end of the discussion that people should invest in other sectors outside of the s and P500, but didn't give much detail. Why not recommend a total market index fund?

[Ryan Reynolds]

You know Ed, you could almost put this on a Wes stinks.

[Krista Dibiaz]

I know we don't have a West stinks, but maybe we'll. Well, we read another one, but I don't know.

[Ryan Reynolds]

It was somebody that didn't like my Apple choices. Yes, wasn't it? So Ed, I'm surprised that you're surprised that I talked about having a young person in an s and P500 index fund. Of course that can make a lot of sense. So yes. And we've done some segments here that the S and P has gotten really top heavy. It's call it 30, I think it's 32% today of the total S&P 500 is moved by the top 10 stocks because it's cap weighted. But if you look back over the last 20, 30 years, it's usually 20, 22, 25% in those top names. It's just the way the index works. So it's almost a success biased index. The really good companies that are performing, they get bigger and bigger and then they carry the day. Yes, it's more top heavy today than it's ever been. So I share that same concern. The thought though around saying well let's just look at a total market index in the United States. I've done that. And if you look at a total market index, so s and P500 is 500 companies. Total market index might have 3000 companies, but guess what, those are cap weighted too. And if you look at a total market index fund in the United States and I'm generalizing here, and an s and P500 fund, the top 10 holdings are pretty much the same anyway because they're again, they're mostly cap weighted. So any sort of total index unless it's specifically designed to be equally weighted and there's a lot fewer of those out there or equal sector weighted and those are even more rare, easy to find but. But not. They're not trillions of dollars in these investments, then you're still. You end up with, with a lot of concentration at the top just because of company size, market cap size, but at the same time, I don't disagree. So I think if you're in your 20s, there's so much power in picking something and setting it and forgetting it and just adding and just adding and just adding. And then you look up and do 30. And you've given this great amount of time. And I think there's a lot of power just in doing that. Keep it making it simple. And an index fund can do that. Now, I agree that I like having other sectors. So there's very, very limited exposure in the S&P 500 to utilities. Very small percentage S&P 500 is energy, very small percentage is real estate. So to counter that, you can either look to add those specific indices or Index Fund ETFs with those sectors that are underrepresented. So you start to counterweight very tech heavy S&P 500 or total market index. And you can go back and look at the more equal weighted indexes which will have the same amount in each stock. Still you are weighted towards techs because there's more technology stocks than anything else. And you can go back and look at equal sector funds. You've got to usually do a little more digging and oftentimes they're not available in a 401k. If you go to your average 401k in America, it's going to have 15, 20 funds. It's going to be more rare to have all these equally weighted options. So now almost any 401k you look at is going to have some international. So you absolutely can counterweight just having us with an international fund typically. So I'm a big believer in balance. I don't want everything in just an S&P 500 fund, but for somebody younger, it's a good place to start.

[Krista Dibiaz]

Okay, thank you, Ed. Next you're gonna talk about something that we need to think about, no matter what age we are. And I've really been thinking about this lately. What is actually gonna make us happy? What actually does bring joy in retirement activities, Core pursuits.

[Ryan Reynolds]

This is kind of the opposite of the technical conversation we just had. Around 72t. This one's maybe more fun.

[Krista Dibiaz]

Yeah. If you have a lot of money and you can't enjoy it, what's the point?

[Ryan Reynolds]

Yeah, exactly. We're going to talk about that right after the break.

[Krista Dibiaz]

Okay.

[Capella University Representative]

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[Krista Dibiaz]

I have another challenge for you. Yes, today is ask an advisor. But I wanted you to do a quick minute for us before we start on one subject that I know is near and dear to your heart. You ready?

[Wes Moss]

Yep.

[Krista Dibiaz]

Convince someone who is not a member of why they should join a warehouse club today.

[Wes Moss]

Oh my goodness. You want to give me something easier? Warehouse clubs are the greatest because from the ground up, when the first warehouse club was ever constructed in San Diego called Price Club, it's all been about lowering the cost of running a business so that the savings can be passed on to you. And you can see the proof today that the biggest warehouse club, Costco, that's bigger than Sam's Club and BJ's Wholesale combined Costco's maximum markup on brand name goods 14%. Their private label 15%. Try to beat that anywhere.

[Clark Howard]

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[Capella University Representative]

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[Ryan Reynolds]

Ouch.

[Capella University Representative]

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[Clark Howard]

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[Krista Dibiaz]

We're back. And Wes, you're back with brand new hot off the press research.

[Ryan Reynolds]

It is. This all got started about 15 years ago and I started researching the habits of happy versus unhappy retirees. It came from the thought of happiest baby on the block. Yes. And I thought, well, why don't we if we know what makes babies happy. Which by the way, I don't think that book worked. I don't know. But I do think the research we found about what makes retirees happy versus Unhappy, I think that does work. And it's all in the context of retiring just a little bit sooner. I'm fine with or just having that in mind. But when we get there, regardless, as you said earlier, all the money in the world doesn't necessarily make for a happy retirement. It definitely helps. And that's a whole nother part of the research on different asset levels. But once we're there, there's some really clear behavior that works and leads to a happy retirement. When I'm comparing these two groups, I'm always looking at the top two quintiles of happy respondents versus the bottom two. And then comparing those habits, I actually take out the neutral. So we're looking at the habits of happy versus unhappy. And one of the things I'm very interested in, and this should be the fun part about retirement, is something I call core pursuits. I also call them hobbies on steroids. Our friend Joe Sal Sehe from Stacking Benjamins, he calls them super activities, which I actually probably like more than any of the things I've come up with. But a super activity or a core pursuit is something. It's not just a hobby that you do once in a while. It's something that really fills your time, your schedule, your week Your month, your year that you really have a real, you have a, I would say passion for. But I'm sometimes I like to limit that word because not everything we do has to be this massive passion. But I think collectively our core pursuits can add up to what essentially becomes your new life purpose over time. You don't have to start a charity in another country to help the homeless. You don't have to do something world changing to be a purpose. Your purpose can be doing in regular patterns all the things you love to do and they bring you purpose and they bring you socialization, they bring you joy in retirement. So in my most recent study, I studied 1200Americans across the map to the US Census and there was one open ended question which is what brings you the most joy, purpose, happiness and retirement? The answers were somewhat surprising, but not so surprising. But it's really interesting to look at what people said. So first of all, and I'll back up the number of these things you have. Core pursuits does matter. So happy retirees tend to have five or more. My old research actually showed a little bit less than this. But the brand new research in 2025 shows to have a higher propensity to be in the happy retiree camp. We want to have five or more of these core pursuits and unhappy retirees tend to have four or less on average. So that's you want more is better when it comes to core pursuits. Even more importantly, the amount of time we spend on them per week matters a lot. And this is statistically significant data that shows, and I'm rounding here, the average happy retiree spends about 18 hours a week. That's a big chunk of time on their core pursuits, the things they love to do. Uneppicroup spends about 13. So it's about a six hour per week difference. It's 280 hours a year. It's a big chunk of time. So it's not just the number of core pursuits, it's the amount of time we spend doing them. Are we structuring our week around these? But here's what showed up and I look at it in these open ended responses which is really fun to read through. To boil down to what are the top categories? Well the top categories of what people said here, this is the corporate suit that makes me the happiest. This is what I like to do the most. So at the very bottom, the out of nine, nine out of nine, the least amount came back to work. So there was some gig work in there, but I didn't see a lot of it was the least important thing to folks. And again, happy retirees can be doing part time work. That's part of why that's in that spiritual is on the list. Learning. On the list. Family. So some people just said literally, I just want to be with my family, spend time with my family, kids, grandkids, that's it. Social. Some people just said what brings me the most joy is I just like being with my friends and being in my social groups. That's it. Physical activity is getting near the top. Some people just said exercising makes me feel great. And it is the number one thing when it comes to my retirement. Volunteering is on the list, is number three. Number two with the most, second most mentions out of this entire research study was the adventure category. What's in that category? Travel. Travel is in a category. RVing shows up a lot. People traveling around the country. And the number one category, a little surprising to me was creative. Now part of it is that I took the liberty of categorizing actual activities. So some people said music, some people said gardening. Some people said walking, running, bike. Those got categorized. Those are actual activities. And you got categorized into these bigger categories. And I had to put gardening somewhere and I couldn't figure out if gardening was physical activity. Is it learning? There was learning category was actually in here as well.

[Krista Dibiaz]

Form of being in nature.

[Ryan Reynolds]

So I put it in creative. To me, that's the best category for it because it is a very creative thing that you control. You could have three beds, five beds, 100 beds. You get to choose what you're cultivating and what you're growing. And it's almost like you're working on a painting in real life as you do it every single day or every couple days you're in the garden you're creating. So I think of it as a creative pursuit. But those are the main categories. Creative shows up as number one as the main category of what brings us joy. And there's a bunch within creative. Gardening is one. Music is another. As an example. Painting showed up a bunch. So art showed up a bunch. Adventure as we can imagine. Travel and then volunteering. And what I would say is that seven out of those nine categories, the real theme in all of them is socialization.

[Krista Dibiaz]

Community. Yeah.

[Ryan Reynolds]

And our community. And that is the overarching theme of all of these. Most people that said travel, they also stated travel with my fill in the blank. Travel with my physical activity was very often golfing with my, walking with my friends, neighbors. So the theme in seven out of the nine Main categories, the underlying theme was socialization, and that is what brings us joy in retirement. So the money part of this, of course, gives us the flexible freedom and time to be able to do these things. You don't need all the money in the world, though, to be social at all. And that is a key takeaway when it comes to doing what we want to do. This is what Americans report back as the things that bring them the most joy. It brings them purpose, and I hope we can do the same. And you're thinking about all those things right now.

[Krista Dibiaz]

I sure am.

[Ryan Reynolds]

Not that you're retiring anytime soon.

[Krista Dibiaz]

No. But I think it's important to plan. And you don't want to just start when you're retired. You want to learn what you like and what brings you joy before, I think. Very true. All right, I have lots of questions for you. I'm going to start with Jay in Missouri. To Wes, I love your segments and the common sense approach to most of the issues raised. I obtained a quote for an immediate annuity that will pay out approximately 6.65% of the amount deposited for the joint lives of my wife and me. This is significantly more than the safe 4% withdrawal rate from my IRA. That seems like a pretty good deal. It is fixed for our lives, so it will not increase with inflation or earnings in the stock market and it goes away at our deaths. So it would eliminate any residual for our kids, but it would be a large boost to income in the early years. Any other things to look at, Jay?

[Ryan Reynolds]

Really? That's again, first time I've gotten an immediate annuity question here. And you're right. And that sounds about right. And I don't know your exact age, but I would suspect you're probably retirement age now. And you're thinking, okay, well, if I can use the 4% rule or this annuity over here is essentially. And again, this all goes back to the claims paying ability. There really are no guarantees ever, anywhere, ever. And when we do an immediate annuity, we are counting, of course, on that hopefully very highly rated company that you're getting annuity from. And yes, there's even backups to the annuity companies if something happens. So there's a very high probability that the promise would be fulfilled. But it is a guarantee quote just from a company. It's not from the US Government. It's not from. It's. It's from a company. So just remember that, number one. Number two, I just, I want to make a distinction. This is important. You said 4% withdrawal rule. There's a big difference between a 4% rate of return and a withdrawal rate. And you're conflating the two here. You're saying, well, I can only take 4%, but I can make 6.65%. Those are two different things. So just remember that that's apples and oranges here, the withdrawal rate. So let's compare these two. I would be thinking, well, it boils down to this 6.65% or 6,650 bucks per 100k you're getting from an immediate annuity and no liquidity or no money. So that 100 in my example is gone. But you get 66, 50 a year now also, you made the great point that in 20 years, $6,650 is going to feel more like 4 grand today. So it's going to be eroded. The purchasing power of that is eroded. And that's part of why this calculates right on the surface. Wow, 6.65. That's 2%. Here's what also makes the 4% withdrawal rate confusing is that right now the risk free rate is around 4%, meaning that's about what you can get in US treasuries with very, very little risk. It's backed by the US government, not insurance company. You're also conflating that I can withdraw 4% and not run out. So here's the other option. Option A is no cash and a payment. Option b is taking 4% approximately. And that can vary from four, four and a half depending. And you still have all your money. That's the consideration here. So I'm not totally against an immediate annuity because I believe more income streams are better with happy retiree research. We want differentiation and diversification in our income streams. So the way I would look at this is, Jay, I would look at taking a portion of your IRA money. Maybe it's 20%, maybe it's 30% and you're getting rid of that liquidity and there's no money inherited from that money for your heirs goes away too. It's just you and your spouse. If, when both of you are gone, the money is with the insurance company. So I would consider using that for a portion if it boosts your overall income or how much you can really take each year. Four is a little too little for you. Six and a half does the job. I wouldn't go all to the six and a half. I would be looking at maybe taking a portion in an immediate annuity and then utilizing the 4% plus rule, which is A rule of thumb and at least keeping a healthy portion of your overall investments still under your control, not the annuity company.

[Krista Dibiaz]

Okay. Sean in Nebraska says, my wife and I are both 38 and plan to retire between ages 55 and 57. Our retirement income will consist of our pensions and my VA disability compensation, which together should cover approximately 70% of our projected gross income at retirement. We are currently maximizing our HSA and Roth IRA contributions. I have the option to contribute to a 457, but there's no employer match. We are considering whether to invest the 457 or a brokerage account to further supplement our retirement income from pensions and VA disability until we reach age59.12 and Social Security benefits begin. My concern is potentially increasing our tax bracket by contributing too much to the 457. Will it be better to focus on the brokerage account? And is this general rule of thumb we could use between these two accounts? Is there a general rule of thumb? And I just want to say really quickly, first of all, thank you for your service, Sean, and how impressive that they have this plan in place when they're 38 years old.

[Ryan Reynolds]

It's pretty awesome.

[Krista Dibiaz]

I bet they know their core pursuits and what those are going to be, too.

[Ryan Reynolds]

Hopefully I give you some good examples today to think about. So you guys are young. Sean in Nebraska, if you get. It was a va, VA disability pension, Social Security, which would be. It could start at 62. Now it's 59 and a half. Okay, so, Sean, this is what I would think here, the 457. We haven't gotten a ton of questions around that. But just as a reminder, that's essentially like a 401 for public service folks. 401, 403. Typically more teachers, doctors, nurses. 403. But public service is going to be 457. The cool thing about a 457 plan is that the rules around when you can start withdrawing the money and not have the 10% penalty, they essentially go away. And I don't know if this is that a lot of public service folks are getting pensions a little earlier. 50, 55. So the retirement age can be a little bit earlier. And maybe that's why the 457 was designed that way. But you could stop working at 55, get a pension, and then you could still tap your 457. So you have a lot of flexibility with that account. You're doing your hsa, you're doing a Roth account, even though you're not getting a Match. I still like the 457 because it's a retirement type account. You can do it habitually, over and over and over again, contribute every month and it should grow in the next 20 some years by the time you're ready to retire. So I, I still like the 457, I think also remember about taxes today versus tax tomorrow. Today you're in a high tax bracket. You're. I don't know exactly your income, but I'm sure you're paying Nebraska state tax, which is I think is similar to Georgia. Once you make over. I don't know the exact numbers, but over 50,000 a year, you're paying almost 6% in state tax. Your earnings will keep going up, but you have high. Let's say your earnings are higher today than when they will be in retirement. In retirement, your VA disability won't be taxed on your earnings today. We're paying fica. We're paying. I'm not sure if he, yeah, he would be paying into FICA. I believe that's another 6.2%. So when we get into retirement, your tax bracket should drop because your working earnings will go down even though you have a pension. The VA benefit disability should not be taxed. And then your Social Security should, at least from a state perspective, shouldn't be taxed in the state of Nebraska. So I wouldn't be too worried that your tax bracket is going to be the same or higher in retirement. I think it'll be a little bit lower, maybe a lot lower. And that wouldn't dissuade me from doing the 457B. I still like that as an account. It's hard to say that having some brokerage money is a bad thing. So if you have the capacity to do it, I would also be funding the brokerage. Maybe it's a couple hundred dollars a month and that is a pot of money you can get to that's got its own tax treatment that by the time you're in your 50s, you're going to want that liquidity too. So kind of all the above approach here. But the crux of your question, I wouldn't discount the 457 just because you don't get a match.

[Krista Dibiaz]

Okay. And then James in Georgia says, is there any scenario in which it's a good idea to purchase whole or variable life insurance? Clark is generally a big never, not ever on this topic. Yet there's still an entire industry around these products and it can't be 100% a scam. The one situation that seems to make sense are the ultra wealthy who exceed the estate tax threshold and thus can invest money tax free. And outside of the estate, are there any others? Thank you, Wes. You and Clark are both financial studs.

[Ryan Reynolds]

Oh, that is so funny.

[Krista Dibiaz]

I'm going to have to pass that on to the Clarkster.

[Ryan Reynolds]

Pass that on to Clark. What would Clark say about. That's fine.

[Krista Dibiaz]

He would giggle.

[Ryan Reynolds]

I'm giggling too. Thank you, James. You're right. It's a giant industry and I know Clark is never. But there are some reasons you would do this. So first of all, you're right. The ultra imagine, and this is a great problem to have.

[Krista Dibiaz]

Sure.

[Ryan Reynolds]

You have a $50 million farm estate, big property. Well, the state exemption right now is it's almost 14 million a person, so. 14, 14. Husband, wife, that's 28. Imagine you have a property worth 58 million and the family has this giant property. After the estate settles, they say, wait a minute, that's $30 million over the exemption. And what are the taxes on that? It's something, let's call it approximately 40%. I think it's 45. But let's say 40% of 30 million is what, Krista?

[Clark Howard]

12.

[Krista Dibiaz]

12 million. Look at that fast math. Thank you, Wes.

[Ryan Reynolds]

So wait a minute. Does the family have 12 million bucks in cash to pay the taxes?

[Krista Dibiaz]

No, they've got it in a farm. Right?

[Ryan Reynolds]

They got it in a farm. Can they go and carve out 40% of the farm and say, hey, here's some land, here's some land. Can you do that? So you have a net worth, great net worth, but not enough liquidity to pay the taxes. So then you're in a real problem. This is why a whole life policy that is designed to fund really the taxes to be able to keep the farm. That is a great example, and you brought this up, James, of why whole life still really holds up, holds a place.

[Krista Dibiaz]

But that sounds like a super small percentage.

[Ryan Reynolds]

It's pretty small.

[Krista Dibiaz]

Beyond tiny.

[Ryan Reynolds]

But here's what starts to get a little more mainstream. Buy, sell of a. Of a. If you own a business with a couple people and the business has a bunch of value, grows, you start, it's worth not a lot in the beginning. Thirty years later, it's worth tens or 20, 30, 40, $50 million. And what happens if one of the partners dies? How do you pay out? You can still do that with term insurance, but you'll see some businesses that will fund buyouts through this. So that's another potential reason. And then having a guaranteed amount of money coming in if you have a child, let's say, that has a disability. So you really want some certainty around that. Again, you can say, well, Wes, you could still fund that interim insurance. And that's precisely probably why Clark is a never, because most of these things can still be funded with term. So I'm a big believer in term insurance. It's so much less expensive. You should be able to take what you would be paying in insurance whole life premiums and invest it. Buy term invest. The rest still stands. But the industry really does have its place and at least I want to give it credit for that.

[Krista Dibiaz]

All right, well, that does it for us. Today on Ask An Advisor. Clark will be with us tomorrow and then Friday is his special birthday show. I've got a little bit of a surprise up my sleeve for that birthday. Clark, thank you for being with us. Please share this episode with a friend if you learned something. I certainly learned a lot of things today and hope the rest of your day is fantastic.