07.15.25 Ask An Advisor With Wes Moss

Summary

The Clark Howard Podcast: Episode Summary – July 15, 2025

Title: Ask An Advisor With Wes Moss
Host: Clark Howard
Guests: Wes Moss, Krista Dibiaz
Release Date: July 15, 2025

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Introduction

In this episode of The Clark Howard Podcast, host Clark Howard teams up with financial advisor Wes Moss and co-host Krista Dibiaz to address critical financial topics that resonate with many listeners. The primary focus revolves around Social Security, target retirement date funds, and answering listener-submitted financial questions. The discussion aims to empower individuals to make informed decisions about their personal finances, ensuring a secure and prosperous future.

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1. Social Security: Maximizing vs. Optimizing Benefits

Discussion Highlights:

Wes Moss delves into the complexities of Social Security, emphasizing that there isn't a one-size-fits-all answer to when one should begin taking benefits. He outlines the importance of considering personal longevity, spousal benefits, and the impact on retirement assets.

Key Points:

• Maximizing Benefits: To receive the highest possible annual Social Security payment, it's advisable to delay claiming benefits until age 70. This strategy maximizes yearly payouts but requires a longevity outlook of at least 12 years to recoup the benefits foregone by waiting.

  Wes Moss [01:40]: "If the question is how do I maximize my Social Security, the answer is that one is not an opinion. That's easy. You just work as long as you can work and then you wait as long as you can wait all the way to age 70 to start taking Social Security."

• Optimizing Benefits: Instead of solely focusing on maximizing, Wes suggests optimizing Social Security based on individual circumstances. This approach considers factors such as full retirement age (FRA), spousal benefits, and the necessity to preserve retirement assets.

  Wes Moss [02:50]: "My overarching thesis around when to take Social Security and how to approach it is to optimize your social, not maximize your social."

Rules of Thumb for Optimization:

1. Work Until FRA: Typically around age 67, continuing to work can delay Social Security benefits without penalty.
2. Spousal Benefits: Delaying benefits can enhance spousal payouts, acting as income insurance.
3. Preserving Retirement Assets: If withdrawing from retirement accounts at high rates threatens financial stability, taking Social Security earlier may be beneficial.

Notable Quote:

Wes Moss [09:06]: "You should take it as late as you can."

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2. Addressing Retirement Anxiety and Financial Security

Listener Question: An anonymous listener from Illinois expresses fear about running out of money in retirement despite having substantial savings and a pension. The question probes whether this anxiety is normal or if both financial and behavioral counseling are needed.

Discussion Highlights:

• Prevalence of Financial Anxiety: Wes shares his research indicating that financial fears, particularly concerning uncontrollable economic conditions and the stock market, are prevalent even among those with significant assets.

  Wes Moss [11:24]: "The biggest fears in retirement, number one. And this actually creeps above health."

• Behavioral Counseling: Krista emphasizes the psychological aspects of financial fears, advocating for therapy to manage underlying anxieties.

  Krista Dibiaz [12:44]: "It is a psychological thing."

• Concrete Financial Planning: Wes suggests that creating a detailed financial plan can alleviate fears by providing clarity on spending needs and investment strategies.

  Wes Moss [14:38]: "It's part art and it's part science or it's part behavior."

Notable Quote:

Krista Dibiaz [17:14]: "If it's causing you to lose sleep, oh, you have underlying anxiety, why not? You know what I mean?"

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3. The Advantages and Downsides of Trusts

Listener Question: Eric from North Carolina inquires about the benefits and drawbacks of placing a primary residence in a trust, including considerations like costs and the impact on financial instruments like HELOCs or reverse mortgages.

Discussion Highlights:

• Types of Trusts: Wes explains the difference between revocable living trusts and irrevocable trusts, highlighting their purposes and complexities.

  Wes Moss [18:00]: "The most common one is a revocable living trust."

• Advantages: The primary benefit of a living trust is the avoidance of probate, ensuring a smoother transfer of assets to heirs without court intervention.

  Wes Moss [19:51]: "You can essentially don't have to worry your heirs something happens to you. You don't have to worry about going to through the court process to have the asset change hands."

• Downsides: The main drawback is the cost associated with setting up a trust, though Wes notes that it is relatively affordable compared to the potential benefits.

  Wes Moss [19:52]: "The downside, the short answer is just cost."

Notable Quote:

Wes Moss [22:10]: "Trust, then they get more complicated. You have irrevocable trust that can be used more for protecting your assets from lawsuits or creditors."

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4. Target Retirement Date Funds: A Critical Examination

Listener Question: The discussion shifts to target retirement date funds, with Wes offering a critical perspective while Krista provides a balanced view.

Discussion Highlights:

• Wes's Critique: Wes likens target date funds to "TV dinners" of the investment landscape—prepackaged and convenient but potentially suboptimal without customization. He argues that these funds may become overly conservative, allocating too much to bonds and too little to equities, which can hinder growth and the ability to keep up with inflation.

  Wes Moss [29:10]: "They almost get too conservative for my liking."

• Krista's Perspective: While acknowledging Wes's points, Krista aligns with Clark's appreciation for target date funds' simplicity and accessibility, especially for those in the accumulation phase of investing.

• Alternative Recommendations: Wes suggests balanced funds with a fixed allocation (e.g., 50% equities, 50% bonds) as a more tailored alternative that avoids the pitfalls of target date funds becoming overly conservative.

  Wes Moss [31:50]: "If you're a pure buy and hold investor, I actually would err towards the index mutual fund. Same cost if cost is equivalent."

Notable Quote:

Wes Moss [27:28]: "Target date fund, I think we all know what they do. They're a set it and forget it way to invest."

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5. Strategic Decisions on Social Security Timing

Listener Question: Scott from Washington seeks advice on whether to draw from retirement accounts and let Social Security benefits grow until age 70 or to take benefits earlier at 62, considering potential job loss and reduced income.

Discussion Highlights:

• Balancing Withdrawals and Social Security: Wes emphasizes the importance of addressing immediate financial threats, such as potential job loss, before considering strategies like Roth conversions.

  Wes Moss [21:34]: "You got to take care of the big problems and the scariest problems first."

• Rule of 55: For those anticipating early retirement or job loss, utilizing the Rule of 55—which allows penalty-free withdrawals from a 401(k) if you leave your job at 55—can provide a safety net.

  Wes Moss [22:20]: "The rule of 55, meaning if you're at that company and you get laid off, it doesn't matter what you leave for, as long as you're 55 and you have a 401k plan at that work and they allow for this."

• Investment Growth vs. Benefit Delay: Wes cautions against relying solely on high investment returns to offset delayed Social Security benefits, noting the complexities in directly comparing investment growth to Social Security payout increases.

Notable Quote:

Wes Moss [33:05]: "You don't know when you're going to die. We don't know when we're going to die."

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6. Saving for College and Retirement: Navigating 529 Plans and Roth IRAs

Listener Question: Drew from Alabama, a high-income earner, seeks advice on saving for his children’s college education through 529 accounts and the feasibility of converting unused funds to a Roth IRA.

Discussion Highlights:

• Understanding 529 Plans: Wes explains that 529 plans are designed specifically for educational expenses and come with strict conversion limitations to prevent misuse.

  Wes Moss [37:41]: "They make it so you can only convert up to 35 grand."

• Roth Conversions: Given Drew's high income, direct Roth IRA contributions are restricted. Wes suggests exploring Roth 401(k) options if available through his employer.

  Wes Moss [37:33]: "If you have the opportunity at work, I would think, Drew, you probably have a Roth 401k option too."

• Whole Life Insurance vs. Dry Powder: Clarifying misconceptions, Wes differentiates between whole life insurance policies and liquid assets ("dry powder") that can be utilized during retirement.

  Wes Moss [36:52]: "The trust itself allows the trustee just to say this is where this money goes."

Notable Quote:

Wes Moss [36:49]: "The main point here is that is not dry powder."

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7. S&P 500 Fund vs. ETF: Choosing the Right Vehicle

Listener Question: A listener from Michigan, Ron, asks about the differences and benefits between investing in an S&P 500 mutual fund versus an S&P 500 ETF.

Discussion Highlights:

• Mutual Funds vs. ETFs: Wes compares mutual funds to sturdy yeti containers and ETFs to more accessible glass tumblers, emphasizing that both provide exposure to the same underlying assets but differ in trading flexibility.

  Wes Moss [39:44]: "They're still getting access to the same 500 companies at should be the same cost at 0.02 or 0.01% cost."

• Trading Flexibility: ETFs offer real-time trading and liquidity, allowing investors to buy and sell throughout the trading day. In contrast, mutual funds are priced once a day and are better suited for long-term, buy-and-hold strategies.

• Investment Strategy Alignment: For pure buy-and-hold investors, mutual funds may be preferable to avoid the temptation of frequent trading. Conversely, more active investors might favor ETFs for their flexibility.

  Wes Moss [41:39]: "You can do that in the fund version, ETF version. So if you find yourself, if it's helpful, if you're a pure buy and hold investor, I actually would err towards the index mutual fund."

Notable Quote:

Wes Moss [42:11]: "It's a little clunkier. You're not able to sell it midday."

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Conclusion

In this insightful episode, Clark Howard, alongside Wes Moss and Krista Dibiaz, navigates through nuanced financial topics that are pivotal for listeners planning their financial future. From optimizing Social Security benefits and managing retirement anxiety to understanding trusts and evaluating investment vehicles, the discussion offers valuable guidance tailored to diverse financial situations. By addressing real listener questions, the episode underscores the importance of personalized financial planning and the delicate balance between strategic investment and psychological well-being.

Notable Closing Quote:

Krista Dibiaz [42:18]: "Have a great day."

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Resources Mentioned:

• Submit Your Questions: www.clark.com/askclark
• Community and Newsletters: clark.com/newsletters

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This summary provides a comprehensive overview of the episode’s key discussions and insights, equipped with notable quotes and timestamps to enhance understanding for those who haven't listened to the full podcast.

Transcript

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[Krista Dibiaz]

Welcome back to Ask An Advisor. I'm Krista Dibiaz and I am here with the West Moss the Christa Diaz. And we're going to talk about investing, saving for the future. And if you end, we're going to get to your questions as well, which you can submit to [e-mail] ask today. Two topics that come up quite a bit on this show and Clark has had his own takes on his show. And you're going to share with us your takes today. Social Security and target retirement date funds.

[Wes Moss]

I love both these. They're opinion based and there's no right answer. So I'll start with that.

[Krista Dibiaz]

But you don't necessarily love the target retirement funds, right?

[Wes Moss]

My opinion is less favorable than Clark's target date funds, I think are the TV dinners of investments. Oh.

[Krista Dibiaz]

Oh, I love it. Another analogy. We're going to get to that. And of course, your questions, as I said.

[Wes Moss]

All right, can we let's start with Social Security.

[Krista Dibiaz]

Let's do it.

[Wes Moss]

Now, there are whole books written on this and there's no perfect answer because Social Security is something that you can, you have to decide when to start taking it and think about you, your longevity, your spouse, spouse's longevity and then what it means for your retirement assets and the withdrawal rate on those assets. And there's a big window. You can take Social starting at age 62 and you can wait all the way to age 70. Now if the question is how do I maximize my Social Security, the answer is that one is not an opinion. That's easy. You just work as long as you can work and then you wait as long as you can wait all the way to age 70 to start taking Social Security. That will maximize how much you get from Social Security at least in a given year. And you've got to live at least 12 years to get all that money back you didn't get. You could have started at age 62. So this is a longevity question and none of us know exactly what our longevity is going to be. We may have an idea. My grandmom lived till she was 105. And your parents lived into their 90s. Maybe you've got to really plan for some real longevity. That all works into the calculation. But we'll start with the simple answer which is how do I get the most amount per year from social? The answer is wait till age 70. That's simple. The next would be my overarching thesis around when to take Social Security and how to approach it is to optimize your social, not maximize your social. And there's a couple main rules that go into this. So number one, the way I look at this is that we're going to optimize normally and I love rules of thumb. This one is, has a few different tentacles. So it's hard to have just a sentence here. But I would say normally is you're, if you're trying to optimize, you're going to, you're going to work and wait to take social at your fra, your full retirement age. Now that's a little different for everybody. For a lot of folks listening it's probably age 67 delay. It even may be longer if it's something that could help your spouse. So the spousal benefit could benefit if something happens to you. It's almost an income insurance for your spouse. And then number three, kind of the third part of the sentence or rule of thumb is that if you have to take too many or too high of a percentage of withdrawals from your investments, if you're not taking social, consider taking it earlier. In general, this is the way I think about it. Most people, but certainly not everyone, I like to see people wait till their fra start, collect social, maybe wait till 7 if you really don't need the money and you'd like to get the highest benefit. So if something happens to you, it's a higher benefit for your spouse. And three, take it early if you're really starting to cut into your retirement accounts or of course if you don't have retirement accounts. Remember a lot of Americans don't have any retirement accounts. So if you don't have anything and you have to rely on Social will probably make sense to take it on the earlier side. When I say early, I mean starting closer to 62 versus waiting to seven. It's a big window. It's an eight year window. So number one, work until remember, even though you can take Social Security 62, there's an income limit before your Social Security starts to get reduced because of your earnings. That number is around $23,400 per year in 2025 and it'll go up per year. So technically you could start taking social at 62. You get a monthly benefit and if you only earn 20 grand that year, then you should be able to keep your full 20 again. These are all this is going to be taxed and you shouldn't have any penalty on your Social Security. So that's a nice way to think about it. If you've got a side hustle or a little bit of income and you start social a little early before your FRA for a lot of folks 67, that's one way to think about it. But if you're fully working and you're making up $100,000 a year at 62, you don't want to start taking social because it'll wipe out your entire Social Security payment because every $2 above 23,400 takes a dollar Social Security away. So it doesn't take long before your whole payment goes away. Now the caveat is that that reduction does eventually get paid back to you in a Social Security payment over time, but it's a really takes decades before you get that lost money back, that penalty money. So that's, that's one is if you're in a full time job, wait to your fra, your full retirement age. Here's another reason you would take it early. Let's say you've got your investment accounts and it's five, you have $500,000 saved and you need, you need $50,000 a year and that means you have to take 50 grand out of 500. You're taking 10% a year from your investment accounts. Well, that's just too high. It's so far above the 4% rule. You get a couple even one year of that high withdrawal really puts your safety, your liquidity, your nest egg at jeopardy. Particularly if you have to do it for a couple of years. So I've seen people say, well I'm going to wait and wait and wait and wait and take social, but I'm taking 7% a year out of my, my retirement account. That puts the whole nest egg and the whole cushion in jeopardy. And I'd rather see people start social earlier so they don't have to take withdrawals much higher than that 4% number three, we touched on this earlier. If your spouse doesn't have a high Social Security, a level per month, let's say they're taking 50% of yours, they're taking a spousal benefit, and you've got. It might make sense that if you think your spouse will live long, even longer than you, it sometimes will pay to wait so that you get the highest payment you can get. If you pass away, your spouse will take over that payment that is now higher because you weighed it. So there's a consideration here about longevity, not just for you, but you and your spouse. The next one would be working past your full retirement age. Remember, once you hit fra67, let's say in a lot of cases, you can earn whatever you want. You can earn as much as you want and not have your Social Security penalized. So you could also say, well, I'm now at 67. If I'm still earning, then why not wait until 70 anyway? That's just a decision that you have to make. The way the math works out on almost. Almost works no matter how long you wait. Whether you wait a month and you forego one month of social, yeah, your payment goes up, but how long does it take to get that back? The answer is about 12 years, 12 and a half years. That's the break. Even if you wait until you're 70 to take social, you're going to get a much higher payment than 62. But you don't even get that money back that you forwent until you are at least 82 and a half. Now I remember, and this is why I love getting questions from our audience. Somebody asked me about a YouTuber that is really adamant about taking Social Security early. So I looked that up. There are tons of videos on YouTube that make really strong cases. There's countless YouTube videos on why you should take Social Security as early as you possibly can.

[Krista Dibiaz]

And I'm sure there are equally as many that you should take it as late as you can.

[Wes Moss]

You should take it as late as you can. So I'm not. I don't default people for taking it at 62. Because the reality here is that someone, two brothers, one takes at 62, one waits at 67. By the time they're 80, they've both collected about the same amount of money. And the argument for the brother to take it, let's call it early, is that what are you doing at 62 versus age 67? Maybe you're more active, maybe you're more mobile. Maybe you're traveling. Traveling. You're hiking, you're biking, you're running, and you have more time to enjoy your retirement. Here's one thing that I've recently. I don't know if this is shocking or not. I think it is somewhat shocking the amount of Americans that consider themselves in a happy place there. Let's call it happy. Almost retirees. It's a pretty good number. It's two thirds of people. 66%. But when we get to retirement in America, that number jumps to 80%. Retirees in America are happier.

[Krista Dibiaz]

Wow.

[Wes Moss]

Because they're retired in that state of life, more so than when they were working. So if you can buy yourself, and this is why I've written books about retiring sooner, there is a lifestyle improvement for the majority of people when you are no longer working and you've hit a place of financial security, Social Security can do that. And imagine we're only on the other side so long. It buys you an extra year or two or three or four of a wonderful life. Really hard to argue with that. So that's my take. Social Security. There is no perfect answer. We know how to maximize. It's not about that. It's about optimizing for your situation.

[Krista Dibiaz]

All right. Anonymous in Illinois wrote in with.

[Wes Moss]

We just call Anonymous Annie. Annie in Illinois.

[Krista Dibiaz]

Okay. This question's probably as much about psychology as it is about money. We're facing retirement and at a time we should be celebrating long careers and looking forward to the rest of our lives. I'm paralyzed with fear. We've saved a substantial amount for retirement. I have a decent pension with. And with taking Social Security, age 70. Our expenses are more than covered. I still fear running out of money. Is this normal, or do I need both financial and behavioral counseling?

[Wes Moss]

Hmm. How much do they have an asset?

[Krista Dibiaz]

$5 million. More than $5 million.

[Wes Moss]

5 million. Look again. Let's go back to some research. The biggest fears in retirement, number one. And this actually creeps above health. And this is in some of the new research that I've conducted over this past year. I was actually surprised at this. There's a bigger fear of uncontrollable economic conditions, stock market conditions even, than health. Now. They're tied kind of neck and neck.

[Krista Dibiaz]

But wow, I can't believe that there's.

[Wes Moss]

Even a higher level of worry around the uncontrollables in the stock market and the economy. Maybe it's because we at least have some control over our health. Not completely.

[Krista Dibiaz]

I just. I want to say one quick thing, if it's okay with you, Wes, because I know There are people out there that are going to write in and say, this is insane. I can't believe you even read something from someone with that much money.

[Wes Moss]

Oh yeah, and blah, blah.

[Krista Dibiaz]

The reason I didn't say the amount when I read the question was because I do believe we get get questions like this from people with all levels of money. And to me it's not as important that they have like an extraordinary amount of money compared to 99% of Americans. But I think it's more about the, you know, the idea that like, when do you ever feel like you have enough and to fill that security which affects people of all income levels, a lot of people.

[Wes Moss]

The answer is never.

[Krista Dibiaz]

Yeah.

[Wes Moss]

And I again, looking at some brand new research that I've done, I wanted to ask again, looking what are your biggest fears and how many indifferent. If you have investable assets of X, how many people are afraid of still running out of money? People with a million dollars or more. 40% of those people are still worried about running out of money.

[Krista Dibiaz]

And that's infuriating to so many people listening.

[Wes Moss]

I know those with $3 million or more where this anonymous question comes from, clearly more still. One in four of those people are worried about running out of money. It doesn't go away. So it is now for some people it does. 75% of people with over $3 million, sure, they're not worried about running out of money, but there's still one in four that are worried about running out of money. Now that's just human. That's human.

[Krista Dibiaz]

It isn't psychological. I think like the question was, is it? I think it is a psychological thing.

[Wes Moss]

It's part art and it's part science or it's part behavior.

[Krista Dibiaz]

You can do the math. And no, you'll never run out of money if you only spend. It's all about what you spend, right?

[Wes Moss]

Not what it is about what you spend. It's also about feeling confident about what you're invested in. And sometimes when it comes to behavioral counseling, the first step is always just some sort of concrete plan. And you put that on paper and you say, look, if you only need X and you have this much and it only grows at 4% a year, then see, not only do you not run out of money, you end up with 10 or 20 million dollars. Wait, a lot of that's a helpful step. But then you could still say, well, what if my variables are wrong? What if we go into a great depression? What if, what if, what if? Then you start by saying, well, wait A minute. What's not going to go away? What is the was known as the safest, most risk free asset there is in the United States and that would be short term Treasuries. It's not necessarily CDs even though CDs are quote guaranteed by the FDIC, they're still backed by the United States government.

[Krista Dibiaz]

Right.

[Wes Moss]

So if Treasuries go FDIC doesn't matter anyway. So if you think about this, well, what's a short term treasury pay a one year Treasuries over 4%. So the 10 year treasury is almost 4 and a half percent now that I'll move around. But imagine if all you did was just keep everything in the safest asset possible. You're still going to end up with around 4% in interest per year. Well that's 200 grand on 5 million. And if a pension and Social Security covers most of your living expenses, then your problem is not running out. Your problem is figuring out who to leave all that money to. So you're right, I think and you know your audience even better than I do Krista here on the Clark Howard Show. But right. This may make people angry. How could you not? How could you even think that you're going to run out of money? The only way to do that is buying a bunch of fancy cars.

[Krista Dibiaz]

But it happens. I mean it's, it's very interesting happening. It can happen. I mean I'll give an example. I remember Clark gave a talk to an NFL team one time and he used this statistic. It was over 50% of NFL players within a couple years of leaving the league are bankrupt. Even if you make millions of dollars per year because you know, things happen, lifestyle choices, lots of family members and friends asking you for tons of money. So in this case it's a different case. But this anonymous author, I really appreciate that it's, you know, it's, it's anxiety inducing when you're facing a huge life change and I'm a huge advocate for therapy. So I think everyone should go to therapy. If you can, if you can afford it and do it, it can be really helpful to have you know, a non judgmental third party listen to, you know, your fears about things. So I always think that's a good idea.

[Wes Moss]

Yeah. And I don't know if probably this is probably not actual therapy with a psychologist but I think that any good fee only fiduciary financial advisor should be able to really walk you through the art and the science of why you really should not even remotely worrying about running out of money. And that might just take a little bit of risk. So first of all, it's a recognition that, hey, wait a minute, I can't believe I'm still worried about this. That's probably 90% of solving this problem. The next 10 or 20% will be going over a plan and figuring out that as long as you don't spend hundreds and hundreds of thousands of dollars per year or million dollars a year, the chance of running out of money should be less.001%.

[Krista Dibiaz]

And that's good. But I'm gonna just say again, if it's causing you to lose sleep, oh, you have underlying anxiety, why not? You know what I mean?

[Wes Moss]

And why not? I agree.

[Krista Dibiaz]

Okay. Eric in North Carolina says, could you please cover the advantages of trusts? I read so many conflicting comments about, for instance, putting your putting primary residence in a trust. Is the cost worth it? Can you still take out a HELOC or do a reverse mortgage if your home is in a trust? And what are the downsides, if any?

[Wes Moss]

Eric, you're right. There are dozens of different kinds of trusts. The most common one is a revocable living trust. And a lot of people like to put their homes in the name of the trust. Now, caveat, I'm not an estate planning attorney. So it's an estate planning attorney that can determine what the exact right trust is for you. Do the paperwork, write the trust, administer it, et cetera. So just note that I'm not an estate planning attorney, but this is my opinion in general. And trust, then they get more complicated. You have, you have irrevocable trust that can be used more for protecting your assets from lawsuits or creditors, if you will. Those get a little bit more complicated. And the reality here is that a simple revocable living trust, what does it really do? What's the downside? Downside, the short answer is just cost, but it's a pretty low bar on cost. People aren't spending $20,000 on a living trust. You can do a living trust with estate Planning attorney for 1,000 bucks. Again, varies per firm, but,000 to 3,000 bucks. So I think the barrier, what would be bad about doing this would just be really the cost because you should still be able to do a HELOC on a property even though it's in a trust. The advantage of this primary on something as simple as a living trust really has to do with and for your heirs and skipping probate. So if you just have a will that says that this asset goes somewhere, then someone a probate court, a judge or someone in a courtroom or in a courthouse has to determine who gets what. When it's in the name of a trust home is in the name of the trust. You can be a trustee and you can name another trustee and the trustee then decides who gets those assets. So you essentially don't have to worry your heirs something happens to you. You don't have to worry about going to through the court process to have the asset change hands. In this case your home. You can do brokerage accounts into trusts, et cetera, but it helps with skipping probate. The cost is pretty low, so I don't think there's a huge downside to doing so because you can still usually do so if you just do a.

[Krista Dibiaz]

Will that still has to go through. The will has to be probated, but you have an executor and if things are simple, you could do it that way. Right?

[Wes Moss]

Well, but you still the executor. It's. You still has to go through the probate process.

[Krista Dibiaz]

Right, right, right.

[Wes Moss]

The trust itself allows the trustee just to say this is where this money goes.

[Krista Dibiaz]

You skip it. Okay. Eric in Georgia says I'm currently employed and have about 550k in my employer 401k as well as a separate IRA which were rollovers from various previous employers of about 675k. Given my employer, the current financial environment and other circumstances, we are under a persistent threat of being laid off. I turned 55 this year and given that I am in the tech space, I would anticipate difficulty finding another job in the same field since ageism is a real issue in tech. My spouse and I currently have about 90k in a high yield savings account as an emergency fund and our only debts at this point is the 165k mortgage that has 10 years left on its term and approximately 30k annually for a youngest still in college for three more years. My question revolves around my current employer's 401k and the rule of 55. My understanding is I can begin to take withdrawals from my current employer's 401k the year I turn 55. Given an anticipated reduction in income due to either unemployment or having to settle for a job that pays less than I'm making now, and the fact that my expenses really only amount to about 65k per year, which could be covered by my spouse's income, would it be a good idea to start making withdrawals from the 401k under the Rule of 55 in order to start Roth Conversions while we were at a reduced income and thus a reduced tax rate. Currently we sit in the 22% tax bracket, but we would anticipate dropping to 12%.

[Wes Moss]

You got to take care of the big problems and the scariest problems first. So solve for that. What's the scariest problem Eric is facing? Losing his job or you're worried about, hey, ageism, reduction in workforce. We've been talking about AI and society and what that could do to jobs. So how do you solve for that problem first? Well, rule of 55, meaning if you're at that company and you get laid off, it doesn't matter what you leave for, as long as you're 55 and you have a 401k plan at that work and they allow for this. And they. And they should. The rule of 55, then that in itself is your cushion. Now let's take that one better because you can't start the rule of 55 after you leave work and then roll your IRA, because Eric has a big IRA too. So if I'm Eric, then what I would be thinking to really have some real safety in case something happens to my job. You may want to consider taking your IRA and rolling it into your 401k. It's kind of a reverse rollover. That way you have the whole thing to access at age 55 without penalty. I still owe taxes on it. I'd be taking care of the bigger problem first here. And that's worried about not having income as early as age 55. I'd have as much in that 401k as I could. Now, you don't have to roll the entire IRA into the 401k if your plan allows for it. So you've got to check here. You got to check. Can your. Does your plan allow you to roll money into the 401k? I would be considering rolling some of that money in. There's a lot of things to think about. The investment options, the cost. Yes, you've got to make the determination. But if you're really looking to utilize the Rule 55, it may make sense for Eric here. As far as Roth conversions, to me, that's a little lower down on the priority list. It'd be great if everything was in a Roth ira, but it's takes a long time to get there without impacting your taxes. You don't want to just take money out of your 401k to create income because you already have income. You would just be doing conversions from your regular IRA into a Roth ira. You could still do that. But to me the bigger problem to solve here is cash flow and being able to have enough money spending money without a 10% penalty between 55 and 59 and a half. I would be more inclined to consider having more money in that 401k in case something happens to your job.

[Krista Dibiaz]

Okay, well, we're going to take a quick break and we'll be back and we're going to talk about target date.

[Wes Moss]

Funds and TV dinners of the investment landscape.

[Krista Dibiaz]

All right, looking forward to that.

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[Wes Moss]

Welcome back to ASK AN Advisor. Wes Moss here along with Krista Dibiaz. You're on the Clark Howard Show. And it's time to dive into target.

[Krista Dibiaz]

Date funds, one of Clark's favorite things.

[Wes Moss]

Clark loves these things and I like them and I think they're a great financial innovation. Target date funds, I think we all know what they do. They're a set it and forget it way to invest. You start and the target date is the date that you think you're going to retire. So if you're going to retire in the year 2040, by 2040, target date fund, if you're in your 30s, very simply, and your dates 20, 30 years out, it's going to be mostly in stocks and then it will slowly migrate, adding to conservative investments or bonds by the time you get to age to your target year. Maybe you, you look at that at age 60, maybe it's 65, but it's the calendar year that it's, it's migrating to. And then when it gets to that calendar year, supposedly in retirement, it continues to migrate and and often gets even more and more and more conservative, meaning we've got more and more fixed income less and less in stocks. First of all, the reason Clark loves them is that they're easy. They make investings easy, accessible and they make investing something you can do over and repeatedly add to it over and over again. And that is such a big part of the equation of being successful in investing So I love them too. I think they're really good. They're not necessarily perfect and great, but I don't think that's why Clark loves them. I think he likes it because they're easy and they simple help people just get going. And that's 90% of the battle. So I think they're really good in the accumulation phase, particularly in your 30s. You get to 60 because they've been pretty heavily weighted towards equity markets. And I guess I call them TV dinners because they're just prepackaged and you pretty much know what you're getting. But unless you really look under the hood or look on the package and see what it is, the TV dinners you're buying at the store from year to year to year, they can tend to change a little bit over time. And if you're not looking, then you may end up with a TV dinner selection once you pull off the cellophane that you don't necessarily love. That's the point about why you've got to be careful to understand what's inside underneath the cellophane. What's inside the TV dinner, What's inside or underneath the hood of the target date fund in any given year because it changes. Now think about getting into retirement. I look, there's all the big companies, all the big mutual fund companies have target date funds or lifestyle funds that migrate to become more conservative over time. My only real knock on these, and why I'd say they're good, not great, is that they almost get too conservative for my liking. Number one, I've seen a couple of issues with them. Sometimes they'll have a really high percentage in international investments, maybe more than I would want to have personally. I've seen some of these with 30%, 35% in international stocks. That's been a tough place to be for the last decade. Hasn't been kind of my part of my investment thesis to be that exposed. That's number one. Number two, most target date funds are around 45 or 50%, give or take, in conservative investments when you start retirement. So again, it's per the year. Now you choose when, how old you are by the time you retire. And I think that starts to err on the side of overly cautious because they're less and less stock market or equity percentage investments inside those target date funds. And if you look out over time, a lot of them, 25, 30 years in, they're 70, 80% in bonds. Again, maybe that's nice. And you want to be really conservative in your later years of Retirement. However, remember the 4% rule. One of the ways we are trying to max out what we can pull out from these, our retirement accounts without running out and keep up with inflation has this 4% plus rule I talk about. It's predicated on having at least 50% in equities, 50 to 75% in equities at any given time. So if you're just letting the target date fund do its thing pretty quickly, you're under 50% in stocks. And I think that to me for trying to keep up with inflation, that can be an issue. And that's my main issue now. What would you do besides that, Krista? Do a balance fund. And in a balanced fund that you know what their target allocation is. Maybe it is 50% never goes. If it's 50% in stocks at 50% in bonds, but it never goes below 50 and it rebalances every quarter or every year. That's one way to avoid the overly conservative trap when it comes to target date funds. So you're. You're kind of picking a more specific TV dinner than one. You don't know what is actually underneath the cellophane. So they're good. Not great. Agree with Clark. Up to the point of retirement, then our paths diverge a little bit. I think if you really want to set it and forget it, easy way to invest, I'd be looking at a balanced fund that I like the allocation for rather than a target date fund.

[Krista Dibiaz]

All right, you have said your piece on that. I think that Clark would probably agree with you.

[Wes Moss]

We really disagree on.

[Krista Dibiaz]

Well, I don't know that you totally disagree. Yeah. No. Okay. Scott in Washington says my wife and I hope to retire at 62. We're 56 now and currently have about 1.2 million combined in our 401k and 403b accounts. Would it be wise to draw from our retirement accounts and let our Social Security amount grow until age 70 or take the Social Security at 62, leaving more to continue to grow our retirement accounts? Do we just need to beat around 7% return with our retirement accounts to counterbalance taking Social Security early or are there other things to consider as well? The caveat is that we don't know when we're going to die and if that occurs before 70, we would never get any of that money if we wait.

[Wes Moss]

Scott, that's a pretty. Nobody's going to disagree with that caveat. No, you don't know when you're going to die. We don't know when we're going to die. And that's what makes taking Social Security, turning on Social Security any given year complicated. You're completely right. If you're waiting until 70 to turn on the Social Security spigot, you pass away at 69. You've gotten, you've got nothing. So that is a consideration. I don't think we. It's kind of not a fun thing to talk about that. So it kind of gets swept under the rug. But yeah, you can, you can just get no Social. If you die before you start, you, you turn it on. So that is, it doesn't necessarily discount your spouse from doing so. But I think it's really important to understand that piece of the equation. We don't know when we're going to go. Secondly, do you take it at 62 versus 67 and let it grow? Because yes, it grows at 7% a year. It's not a complete apples to apples comparison because the rate of return on your overall investments, the dollar amount is significantly different depending on how much you have invested. So on a million to 7% would be around $80,000 of growth per year. If you have $100,000 invested, 7% is only an extra 7,000. So I don't know if it's a completely. It gets a little bit messy when you're trying to compare your investment growth relative to your Social Security growth because it's just the payment that grows every month. So I'd be, I'd be careful on that. And I think it goes back to the withdrawal rate. If you're not going to work past 62 and you don't have to withdraw more than 4 or 5% in those early years from your assets, then maybe let Social Security grow a little bit. But if you're rating your retirement accounts to the tune of 6, 7, 8% a year, then I think that you should consider turning on Social Security to avoid that really high portfolio withdrawal rate.

[Krista Dibiaz]

All right. And this is from a couple in a totally different stage. Drew in Alabama says, currently my wife 34 and I 33 have about 130k combined in our 401ks. I'm able to max out my 401k contributions and get 6% from my company. My wife puts enough in hers to gain the company match. She puts in 4% and gets a 4% match. We also have some whole life insurance policies. Yes, I know what you're thinking. The total death benefit being around 800k meant to be used as dry powder. My financial advisor thinks we are well on our way to saving for retirement. We are also trying to figure out the best way to save for college for a newborn and two year old. Would it make any sense to open 529 accounts in our names and move the money to a Roth IRA if we don't need it for our kids college fund or change the beneficiary if we did. For context, we bring in a little over $300,000 a year to high earners.

[Wes Moss]

Drew in Alabama, I think that's part of the reason you're talking about this 529 that could eventually part of that can be converted into a Roth because you're over the limit. The joint income limit to be able to contribute to a roth is around 250k in 2025. So you guys are making over. You're making 300. So you're not eligible to contribute to a Roth. So I understand that part of it. Love that you're both getting your full matches. You're six, your wife's at 4%. The whole life insurance, the death benefit. That is not dry powder. Dry powder. Something you can use while you're alive. A death benefit life insurance policy. Technically you can talk about the cash value but in the end if you die, then your spouse gets the cash or if she dies, you get the cash. That's not dry powder. That's just liquidity coming in to help solve for a horrible life event. To try to cushion it at least somewhat financially.

[Krista Dibiaz]

And if you do surrender it, there's a surrender charge usually right on those. And on a whole ip much less.

[Wes Moss]

Yeah, potentially could be significant. The main point here is that is not dry powder. Dry powder is money you can access while you're alive. It helps you be a better equity investor over time. As far as you starting a 529 in your name, sure. You can always transfer it to your son. That makes sense. Or your, your child. And if you have more kids you can do the same. But then the conversion to your own Roth one day it would have to be in your name, not your kid's name. And they're pretty serious limits. So they, I think they thought about this when they wrote that rule. Because otherwise you can put a ton of money in a 529, just convert into a Roth and be a backdoor mega 529 Roth conversion. They make it so you can only convert up to 35 grand.

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Total.

[Krista Dibiaz]

Total. And you have to do it yearly.

[Wes Moss]

And you can only to the max.

[Krista Dibiaz]

Yeah.

[Wes Moss]

Up to the contribution limit which is seven or eight grand a year depending on your age per year. So they kind of close. It's really good thought, Drew, that you could just convert into a Roth. But they pretty much close most. They mostly close that door, but not completely. So I would think that you have 529 plan for your kids the way that is intended. You can always change the beneficiary if they don't necessarily use it and continue to do your 401ks. And if you have the opportunity at work, I would think, Drew, you probably have a Roth 401k option too. So maybe that's where I'd be looking at contributing to some sort of Roth oriented account if you have that available at work. But just be careful about thinking you can manipulate the logistics and the rules on the 529 relative to a Roth.

[Krista Dibiaz]

Okay, cool question though.

[Wes Moss]

Good thought.

[Krista Dibiaz]

This one's from R and one of your favorite places, Michigan. Wes, what do you think between the S&P 500 fund or an S&P 500 ETF?

[Wes Moss]

S&P 500 fund versus SPF. I don't. I need to come up with a food analogy for this one.

[Krista Dibiaz]

Okay.

[Wes Moss]

I know we just talk about food or cooking.

[Krista Dibiaz]

Yeah, you talk. You use the crock pot.

[Wes Moss]

Crock pot burrito. Remember the French burrito.

[Krista Dibiaz]

I love it. I love it.

[Wes Moss]

This one. This is not a great analogy, but it's kind of. It works. First of all, it doesn't matter. Let me just start by saying R. My father in law is Iran.

[Krista Dibiaz]

Maybe it's from Ron.

[Wes Moss]

He's from Michigan. Iran from Michigan. But R from Michigan doesn't matter. I think that they're. They're too. It's like drinking water out of a glass or drinking water out of a tumbler. In the end, doesn't really matter. Not the best food analogy.

[Krista Dibiaz]

No, I like that.

[Wes Moss]

But it's. That's the reality.

[Krista Dibiaz]

You have to have your preference.

[Wes Moss]

Yeah, but a glass is not a tumbler. Or think about a yeti. They are a little bit different. Yeti is a little more.

[Krista Dibiaz]

It's a little clunkier and expensive.

[Wes Moss]

Yeah. Assuming the same cost yeti versus the glass. The glass a little more accessible. You mean. And which one's which? The S&P 500 Index Mutual Fund is the yeti. The water analogy in a glass. That's an etf. There's something about. You could get to more of it quickly. There's no lid on it. Meaning that an index fund, which is a mutual fund. S&P 500, same water in both. You're still getting access to the same 500 companies at should be the same cost at 0.02 or 0.01% cost, very low cost, assuming both of them are the same. The index mutual fund only updates its price once a day. It's a little clunkier. You're not able to sell it midday. Get the cash, buy something else to do. Rebalancing, it's a little more cumbersome, which can be a good thing. The price doesn't change throughout the day, just updates. At the end of the day, the net asset value of that fund will update for whatever the market did that day. The S&P 500 ETF, on the other hand, you're fully exposed to the price change throughout the day. So some ways that's better because it's more accessible. You can buy it at 10 in the morning, rebalance it at 10:30 in the morning, etc. But it can also lead to a little more investor anxiety, a little more trading. And that's why John Bogle, John Jack Bogle, the founder of Vanguard, which now has an enormous amount of ETFs, he didn't love ETFs because he thought it propagated trading when you should just be. If you're a buy and hold investor in the S&P 500, just buy it and hold it and add to it, reinvest dividends. And you can do that in the fund version, ETF version. So if you find yourself, if it's helpful, if you're a pure buy and hold investor, I actually would err towards the index mutual fund. Same cost if cost is equivalent. And if I'm a little bit more active and I like to do rebalancing a little more often and I'm okay with seeing what the market is doing in any given day, then I'd go with the S&P 500 ETF again, underlying. You're still getting the same water, same faucet, slightly different wrappers.

[Krista Dibiaz]

All right, that is going to do it for us. Ask an advisor today, this week.

[Wes Moss]

Send in more questions.

[Krista Dibiaz]

Yes. And you can send those Questions in at clark.com [e-mail] Remember, we also have a community. I hope you'll join it. And there's some great people on there helping each other. And we really appreciate everybody who listens, listens, who writes into us, who watches on YouTube and who subscribes to our newsletters, which I hope you're subscribed. You can go to clark. Com Newsletters to see our offerings. Have a great day.