08.05.25 Ask An Advisor With Wes Moss

Summary

The Clark Howard Podcast – Episode 08.05.25: Ask An Advisor With Wes Moss

Release Date: August 5, 2025

Hosts:

• Clark Howard – Nationally syndicated radio talk show host and consumer reporter.
• Krista Dibias – Co-host alongside Wes Moss.
• Wes Moss – Certified Financial Planner (CFP), fiduciary, broadcaster, author, and financial advisor.

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Introduction

In this episode of The Clark Howard Podcast, Clark Howard teams up with Career Financial Planner Wes Moss for the segment "Ask An Advisor." The discussion centers around essential retirement planning strategies, particularly focusing on the 50 Plus Retirement Catch-Up Toolbox and the 4% Plus Withdrawal Rule. Listeners are encouraged to submit their financial questions to www.clark.com/askclark, fostering an interactive and informative conversation aimed at empowering individuals to achieve financial freedom.

50 Plus Retirement Catch-Up Toolbox

[01:25 – 10:50]

Wes Moss delves into the challenges of saving for retirement, especially for individuals who start late—those with little to no savings by their 50s. He introduces the 50 Plus Retirement Catch-Up Toolbox, a set of strategies and IRS provisions designed to help late savers maximize their retirement savings in the final working years before retirement.

Key Strategies Discussed:

1. Catch-Up Contributions:

   • 401(k) and SIMPLE 401(k): Annual contribution limit increased by $7,500, totaling $31,000.
   • Traditional and Roth IRAs: Additional $1,000 atop the standard $7,000, bringing the total to $8,000 annually.
   • Super Catch-Up (2025): At age 60, an additional $11,250 can be contributed, raising the 401(k) limit to $34,750.

2. Health Savings Accounts (HSAs):

   • Enhanced contributions starting at age 55, allowing an extra $1,000 annually on top of the standard $4,100 for individuals and $8,300 for families.

3. Social Security Optimization:

   • Delaying Social Security benefits beyond age 62 to maximize monthly payouts.

4. Roth Conversions:

   • Converting traditional IRA funds to Roth IRAs during lower-income years (ages 66-73) to benefit from tax-free growth without affecting Required Minimum Distributions (RMDs).

5. Spousal IRA Contributions & Reverse Mortgages:

   • Contributions to spousal IRAs to bolster household retirement savings.
   • Considering reverse mortgages as a last-resort option for those aged 62 and above to access home equity.

6. Income-Producing Annuities:

   • Utilizing immediate annuities to generate steady income streams, with higher payouts for older retirees.

Notable Quote:

“If you have the ability to do so in your mid-60s, it's still doing pretty well in the U.S.”
— Wes Moss [03:30]

Understanding the 4% Plus Withdrawal Rule

[22:26 – 33:26]

Krista Dibias and Wes Moss explore the 4% Withdrawal Rule, a cornerstone of retirement planning designed to ensure that retirees do not outlive their savings. Wes Moss provides a comprehensive analysis of the rule’s applicability, its historical success, and the debates surrounding its effectiveness in today’s economic climate.

Key Points Discussed:

1. Origin and Purpose:

   • Developed by William Bengen in the early 1990s to determine a sustainable withdrawal rate.
   • Aimed to allow retirees to withdraw 4% of their initial retirement portfolio annually, adjusted for inflation, with a high probability (99%) of lasting 30 years.

2. Controversies and Adjustments:

   • Recent challenges due to low interest rates and volatile stock markets.
   • Emerging studies, including those by JP Morgan and Bengen himself, suggest that withdrawal rates might safely exceed 4%, potentially reaching 4.25% or 4.5%.

3. Balanced vs. All-Stock Portfolios:

   • A balanced portfolio (60% stocks, 40% bonds) historically has provided greater security and reduced the risk of depleting funds compared to a 100% stock portfolio.
   • All-stock portfolios, while offering higher chances of growth, carry increased risks during market downturns, potentially leading to significant losses and earlier depletion of funds.

4. Dynamic Flexibility:

   • Emphasizing the need for flexibility in withdrawal amounts based on market performance and personal needs, rather than strictly adhering to a linear withdrawal plan.

Notable Quotes:

“The older we get, the higher those immediate annuity income rates will be.”
— Wes Moss [08:47]

“The 4% rule is a rule that helps us reduce anxiety, reduce worry, and give us some mental armor.”
— Wes Moss [25:00]

Listener Questions and Expert Answers

1. Renee from Colorado: Being One of the Happiest Retirees

[10:50 – 15:43]

Question: Renee and her husband have aggressively saved for retirement, recently became parents via IVF, and have significant investments and minimal debt. She inquires whether they can still be considered among the "happiest retirees" despite not fitting into traditional retiree profiles.

Wes Moss’s Response: Wes commends Renee's achievements, highlighting their substantial savings and low debt as key indicators of a successful retirement plan. He emphasizes the importance of balancing financial security with lifestyle pursuits, suggesting that Renee's proactive financial strategies and optimistic outlook position her well for a happy retirement. Wes encourages maintaining diverse financial moves and fostering personal pursuits to enhance long-term happiness.

Notable Quote:

“You are in such a great scenario. Mortgage wise, kid wise, financial picture wise, core pursuits wise. And I think it'll only get better.”
— Wes Moss [15:05]

2. John from Georgia: Understanding Penny Stocks

[15:43 – 17:31]

Question: John seeks clarification on what penny stocks are and whether they can yield profitable returns.

Wes Moss’s Response: Wes defines penny stocks as shares typically priced below $5. He explains the high-risk nature of these investments, citing low trading volumes that make it challenging to liquidate large positions without affecting the stock price. While acknowledging that minor profits are possible, Wes warns against expecting significant returns, labeling penny stocks as largely unreliable for substantial financial gains.

Notable Quote:

“Penny stocks are typically under $5 and there’s a real lack of volume in these.”
— Wes Moss [15:55]

3. Joel from Idaho: Impact of Pension on Investing Strategy

[33:26 – 38:18]

Question: Joel asks how receiving a pension should influence his investment strategy, particularly regarding the asset allocation between stocks and bonds.

Wes Moss’s Response: Wes compares Joel’s pension to a substantial bond holding, equating a $50,000 annual pension to a $1.25 million bond portfolio based on a 4% withdrawal rate. He recommends a more aggressive investment approach, such as a 100% stock allocation, given the stability provided by the pension. However, Wes advises incorporating a balanced portfolio (70% stocks, 30% bonds) as Joel approaches retirement to ensure liquidity and mitigate risks, especially in scenarios where pension and Social Security may not cover all expenses.

Notable Quote:

“Having one of these pensions gives you the opportunity to be a more aggressive investor.”
— Wes Moss [18:08]

4. Lucas from California: Investing in Emerging Markets ETFs

[38:18 – 42:00]

Question: Lucas is concerned about overexposure to China in his current emerging markets ETF (VWO) and is considering a new Vanguard ETF focusing on countries like India, Brazil, Taiwan, and South Africa. He asks for advice on whether to switch, hold both, or remain with his current investment.

Wes Moss’s Response: Wes advises against holding both ETFs to prevent overexposure to emerging markets. He suggests choosing one option: either continue with VWO, accepting its inherent China exposure due to the integrated nature of global revenues (e.g., S&P 500 companies derive a significant portion of their revenue from China), or switch exclusively to the new ETF focusing on other emerging markets. Wes highlights the importance of diversification while cautioning against concentrated risks associated with geopolitical tensions affecting specific regions like Taiwan.

Notable Quote:

“You can't get away from China exposure unless you just buy a local utility company in the United States.”
— Wes Moss [41:51]

Conclusion

The episode wraps up with Wes Moss and Krista Dibias encouraging listeners to submit their financial questions for future episodes. They reiterate the importance of informed decision-making in retirement planning and investment strategies. Listeners are reminded to visit www.clark.com/askclark for personalized advice and to continue leveraging Team Clark's resources for financial empowerment.

Final Quote:

“Don't lose hope. It's hard for everyone to save significant money and invest in America, but there are tools out there to do it if we have the discipline and the fortitude and the income to do it.”
— Wes Moss [10:50]

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Resources:

• Submit your questions: www.clark.com/askclark
• Follow Team Clark for more financial advice and updates.

Note: This summary omits commercial advertisements and non-content segments to focus solely on the informative discussions and valuable insights shared during the episode.

Transcript

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[Krista Dibias]

Welcome to Ask an Advisor where we here at Team Clark talk about investing saving for your retirement happ so many.

[Wes Moss]

Happiness the habits of happy retirees.

[Krista Dibias]

One of my favorite topics Krista Dibias and Wes Moss, Certified financial planner. Is that right? CFP fiduciary and excellent broadcaster, author. When's your next book coming out?

[Wes Moss]

Excellent broadcast.

[Krista Dibias]

When's your next book coming out? I think you are a podcaster, radio people.

[Wes Moss]

We grew up in radio, right?

[Krista Dibias]

And you still do some radio. That's why I said that.

[Wes Moss]

Yeah, I do a lot of radio still. So a couple of the topics today, this is inspired by true events. This is inspired by people that I've met over the years that it's somewhat rare, but just because you don't have any money saved in your 30s or in your 40s even, I've seen people go essentially not be able to save much at all all the way until they're almost 50 and they still end up with significant amount of money by the time they're in their mid-60s. So today I wanted to talk about this 50 plus retirement catch up toolbox. And then later in the show we're going to talk about the power of the 4% plus rule. There's even a potential to go a little higher than that. And there's a lot of there's always controversy around this number, but it's about how do we max out our withdrawals in retirement without running out. Those are our two topics today.

[Krista Dibias]

Okay. And then I have plenty of questions and you can submit [e-mail] ask including I have a question about what your opinion is on penny stocks and I'm very curious to hear that. So we'll get to that. And all of the other questions I have for today.

[Wes Moss]

All right, so we're going to start with it's expensive to live in America. It's expensive to live in a big city. Pretty much any metro area in the United States, if you're in the heart of it or you're within it, it's not an inexpensive place to live. We can downsize our house, we can maybe move further away from that metro area and we get usually get the less expensive real estate. The cost of living should go down. But in the end, as we're growing, we get married, we start having children, then those children we hope are going to go off to some sort of more education. And that's so expensive, as we all know. It's really difficult to be able to just pay the bills, do your family trips and experiences that we want to do, and save for retirement. It's hard. And that's why, if you look at the statistics, essentially half of America doesn't have any savings. And it's because it's expensive to live in the big city. Expensive in America. Good news is in America we can make a tremendous amount of income, but it's still an expensive place to live. Now, it's not as though there's not hope. So if you're in your 40s and you, you're thinking, gosh, I still really haven't saved enough. I've seen people do it, I really have. And I want to give you an example of Bruce and Lisa, who started essentially from scratch when they were 50 and they ended up with very real retirement money by the mid-60s. Now, if you, if you haven't saved Anything by age 50, you're probably not going to be an early retiree, you're not retiring sooner. But still, if you have the ability to do so in your mid-60s, it's still doing pretty well in the U.S. so fortunately, there are several provisions. I would think of these as the retiree catch up toolbox host 50 that are to your advantage. And these are provisions within, call it IRS code, savings code, et cetera, that are really help to design people to catch up. In fact, the first one is literally called a catch up tool. Number one, catch up contributions in retirement accounts. It goes 401ks and simples and simple 401ks. There's a catch up for IRAs, Roth IRAs as well. Then there is a super catch up which is brand new in 2025 once you hit age 60. So it's not just age 50 that some of these things start kicking in. They kick in at different ages. 50, 50 plus HSA catch up started age 55. You can do more in an HSA. Then we can always think about Social Security optimization. That would be post 62. If we delay Roth conversions. If we've stopped working before we get to our RMD age at 73 and we can think about spousal IRA contributions, we can think about strategic use of our home equity when we're in retirement and we're 50 plus. And again, you don't need to be a certain age for that. You do though, if you're thinking about a reverse mortgage, you have to be 62 for that. And then income producing annuities. The older we get, the higher those immediate annuity income rates will be. So that's the grouping here. Here are some of the numbers behind that. The regular 401 contribution right now is $23,500. If you are 5050 plus, you have $7,500 per year, more room to save for a total of $31,000. It's tremendous amount of money, particularly if it's you and your spouse doing that. For a simple IRA or a simple 401k standard limit 16,500, the catch up is another 3,500, taking it to all the way to $20,000. If you're 50 plus a traditional and Roth IRA regular limit 7,000. It's $1,000 extra if you once you hit 50. So it's really $8,000 a year. Think about how much money that is if you do that over a period of time. Then there's the super catch up, which is really, very, really new. It's such a new provision. It was under the Secure 2.0 Act. I haven't seen a lot of plans enact this yet, but I would think by the end of the year they will. And certainly next year I think a lot of 401 plans will have this. But when you're 60, you hit 50 and you got a $7,500 per year allowance, more to save. When you're 60, it's even larger. Starting this year, if you're eligible, you contribute up to an additional $11,250 on top of the regular 401k deferral limit. That brings that all the way to $34,750. So you're talking about almost 35 grand a year, serious money you're able to put away. Again, the plan has to allow for it. There's some other provisions starting in 2326, but for now I Think I would keep that on your radar even if you don't have to play catch up. HSAs age 55 plus the regular HSA is 4100 bucks. 4158,300 for a family. Once you hit age 55, it is a thousand dollars extra on top of that. So again, your HSA is your 401. Really, I think of it as your 401 for healthcare costs and that gets to be significant. Now you guys here, I know that Clark's talked about this. We've, we've talked a lot about Social Security. Another way, if you're behind in savings, then it does put more emphasis on you wanting to have your Social Security be as, as high as it can be. So that leans you towards saying, well, maybe I do want to wait and not take it at 62, not take it at even 66, but delay it all the way to 70 so you can maximize your Social Security. Again, these are age related things we can do that can help us play catch up for the long run in retirement. Number five, Roth conversion in lower tax years. Once we stop working, or we have, let's say we have a window between 66 and 73 before the required minimum distributions kick in. We might have a really low income. We might have a very low income because there's no wage income. You don't have to take money out of an ira. Those are the years that you could really think about doing some Roth conversions so that you have more money that's tax free in retirement. Again, for the long run. Do you guys talk much about reverse mortgages?

[Krista Dibias]

No.

[Wes Moss]

Yeah, it's not something that I've seen people do. I know that we've probably all seen commercials around that.

[Krista Dibias]

Oh, yeah, but so many commercials.

[Wes Moss]

Reverse mortgages are kind of in my book, a last resort. Again, if you're trying to pay for life, we've got to do what we can do. And you can cap on equity to do that at age 62 and up. Again, last resort safety debt and then income producing annuities. If you looked at what are you going to get paid for $100,000 immediate annuity, which is a fixed amount based on your age actuarially. And if it's you and your spouse, it's a joint age calculation. The older you are, the higher that number is going to be per year. So if you're in your mid-50s and doing an immediate annuity, it maybe it's. And again, I'm just generalizing here, maybe it's a 5.5% payment for life. If you're 70, then maybe you're looking at a 6.5% or 7% payment. So the older we get, the larger the immediate annuity income will be based on your lifetime. An example, Bruce, Lisa, age 50, had saved pretty much nothing because their kids didn't get out of college until they were age 50. Well imagine though that happens today. Well, what if they just maximize their 401 contributions? Well, now that they're 50, it's not 23,500 anymore, it's 31K. And imagine that doesn't even go up with time, which I think it probably will increase. I don't know. That's still, that's out into the Future. But just 31 times two, they're both working, that's 62,000 a year. You do that for 15 years from 60 to 65 at only a 7% rate of return. Bruce and Lisa, by the time they're in their mid-60s, have a million and a half dollars. And again a big chunk of that is because the toolbox allows us to do even more. Now I also included a 3% employer match which is pretty common. I did not include the super catch up, so it could be even more than that. So don't lose hope. It's hard for everyone to save significant money and invest in America. It's expensive to live here, but there's tools out there to do it if we have the discipline and we have the fortitude and we have the income to do it.

[Krista Dibias]

All right, we'll go to some questions for you. This one came in from Renee in Colorado. I've just discovered your sage advice here and read your Happiest Retirees book. Even though everyone's situation is unique, ours is even more so. And I'm hoping there are others out there that could benefit from my post. My question is, could we still be one of your hrobs? Happiest retirees on the block.

[Wes Moss]

For those of you I'm going to ask you if you if you knew what that meant.

[Krista Dibias]

We have been working with a financial advisor and aggressively saving to reach financial independence by 55. But after reading your book, we're not going to fit into some of your guardrails of HR OBEs explicitly. We will have a mortgage and children living at home in retirement. In quotes. Nine months ago, my husband and I became first time parents at ages 43 and 44 through IVF and donor conception purchased a new home and converted our previous home into a rental. Two and a half, 2.6% interest rate. It will be paid off in six years. Other than a car payment, we will pay off in two and a half years. Any other debt we have is interest free like either paid off in full each month or paid off in 0% credit cards. We have combined $1.6 million invested in retirement accounts. We're considering a second child and are both in good health, have three plus core pursuits and prioritize our health and fitness. I will receive some Social Security, he will not. We are not factoring that into our numbers so could we still be hrobs? Any advice you give, especially as we weigh the decision of a second child. I've been listening to Clark since 2008 and now I look forward to your show as well. Thanks for all you guys do and how you do it.

[Wes Moss]

Listen, that is heart melting for me.

[Krista Dibias]

I know.

[Wes Moss]

I was meeting with a family the other day, they just had a grandbaby through IVF and it just like the most amazing it's miraculous thing medicine. Renee, I feel like you're already checking so many of those happy retiree boxes. The short answer is I feel like you're already totally on track for this. The recipe though is a group of financial moves and life moves that are super important to increase our chances I guess statistically the way I look at it through research and through numbers of being a happy retiree, but half of it is financial half of his lifestyle. Your rental home is going to be paid for in six years. You're not going to be retired in six years, only be 49. That means that that's going to be a new income source in retirement. Long term, by the time your one child gets to 20, 20 years from now, your mortgage will have even though it's a new home, you're probably going to have 10 years or less or nine years are left on your mortgage. That checks a happy retiree box. Some of my new research shows that there's a big happiness jump as long as we're at nine years or less on the mortgage. Mortgage payoff when in sight. I used to say five, now it's nine. That was a long time ago to now there's a little more leeway and that so that's going to work. You're in the action state. Colorado is the action state. It's the activity state. You're going to need more than just three core pursuits. I want you to have five. And it's not so much about just having those five. It's about spending more time doing that. Happy retirees Spend a ton of time doing those core pursuits every week relative to the unhappy retiree counterparts, kids. So you've got the mortgage now, you have at least one child, maybe another over time, we don't know. And I think you've got to be optimistic, Renee, to have kids to begin with, particularly if you're doing IVF and you're talking to somebody with four of them. I remember someone, one of my mentors told me, you've got to be real. As I was having more and more kids, you got to be really optimistic. More kids is you're bringing kids into this world. It's a scary place. Who knows what a job is going to be like in 20 years. They can all be AI. I don't think they will. But what's that environment look like? So you have to have some optimism around that and that gives you great purpose as a mom, as a parent. You're doing all the happy retiree things and you already have a million six saved, let alone what will be a paid off house and an almost paid off primary home. If you stay where you are just by, even if you don't save at a 7% rate of return, that money mathematically doubles every 10 years. So in 20 years, your 1, 6 goes to 3, 2 goes to. Could be 6 million doll dollars.

[Krista Dibias]

Wow.

[Wes Moss]

So that's with a 7% rate of return. So you put that all together. Core pursuits, your brand new child will be a young adult at that time. In 20 years you'd be 63. Still pretty darn young. It's still an early retiree. I know you want financial independence at 55. Maybe it's going to take a little longer than that. But I think I put all this together and you are in such a great scenario. Mortgage wise, kid wise, financial picture wise, core pursuits wise. And I think it'll only get better. I think it's such a cool example. Renee, thank you so much for that question.

[Krista Dibias]

Best of luck with everything. Okay, John in Georgia says, what are penny stocks? And do they ever pay off?

[Wes Moss]

No, that's it.

[Krista Dibias]

Okay, moving on.

[Wes Moss]

Next question. You want me to answer that?

[Krista Dibias]

I do.

[Wes Moss]

Okay, look, here's the deal, John. I don't know of anybody ever making any real money in a penny stock, ever. However they're traded, they're out there. These are typically a penny stock is actually, as you might imagine, in cents. It's 15 cents a share, 20 cents a share, or anything that's under $5 is I think considered a penny stock. So of course some people have made Some money on penny stocks and you buy at 20 cents, it goes to 30 cents, they gain. Here's the problem with them. It's not that they don't go up in price because they're going to go up and down in price. And sometimes they go maybe go up a lot. It's that there's a real lack of volume in these. There's just not a lot of shares traded. So imagine you put $100,000 into a penny stock at 20 cents and it goes to 30. That's a ton of shares to unload if your shares are only 20 cents. I mean, let's do the math on that one. It's at 50,000. If you have $100,000 divided by 50 cents, it's 200,000 shares. It's a lot of volume, these things. Maybe I'll trade a couple thousand shares a day. So even though your value may be high, there's no way to have a buyer. So that's. I think the dirty little secret is that these things may go up in price. But even if it does go up in price, how can you sell it without a whole lot of volume, without a whole lot of activity? So can you make a couple hundred bucks in doing penny stocks? Maybe. I guess so. But anything really significant, I have not seen that happen.

[Krista Dibias]

Okay. This is from Joel in Idaho. I Wes, I recently discovered your podcast. It's quickly become one of my favorites. I was hoping to receive some advice on how receiving a pension might change my investing strategy. I currently view my pension as a giant bond holding. Because of this, I'm otherwise invested 100% in stocks at 50 years old. I'd like to stay that way until I turn 55 and then have a short glide path to be a 70:30 balance ratio by the time I turn 59 and hit my pension retirement goals. What do you think of that approach? Are there other areas where having a pension might change conventional advice when compared to those who only have a 401k?

[Wes Moss]

Joel in Idaho. That's how I look at it. Yes. And it's not completely apples. Apples. But think about this. If you have 50,000 round number, $50,000 annual pension, the company says you're getting it no matter what. What is that worth to you? If you divide that by let's call it 4% as a potential withdrawal rate, it's really worth a million and a quarter. It's like having a million to a million and a half, a million to a million and a quarter bond portfolio steadily paying you. And you don't have to worry about the value of it going up and down at the same time, Joel, you don't have access to it. So there's no liquidity there. So it's, it's like the result of having a million dollar bond portfolio, but you can't go get 50 grand if you needed it. So it's not as good, let's say, is that, but it's pretty darn close. So I do think that it gives you the opportunity to be a more aggressive investor if you have one of these pensions. So yes, 100% stocks, it makes sense because Joel here now has lots of safety on the other side of the ledger. Now when you get to 55, does it make sense to start then migrating to a little bit more balance with the liquidity dollars that you do have? And the answer, in my opinion is yes, because you don't have liquidity in the pension. You've got the income, but you can't get to it. So you still want the liquid assets that you've saved in your retirement plan to have some of that dry powder to help you be a better investor on the equity side and get to some of the dry powder if you need it. Because you may need more than what your pension is. And let's say you've got Social Security and you have pension, but you maybe still need to pull from your investment assets, you're going to want to have some balance in order to do that when the time comes. So doing that in your late 50s, early 60s, getting to a balance of 70% stock, 30% bonds, Joel in Idaho, I think that's a really smart way to look at it.

[Krista Dibias]

Right. And so we're going to take a quick break now and then you're going to come back and talk about the 4% rule. You're going to revisit it. All right. We'll be right back.

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[Wes Moss]

Welcome back to Ask an Advisor. I'm Wes Moss along with the Krista DBS. I like Mr. West Moss.

[Krista Dibias]

Okay. Mr. Have you ever seen that? Yep.

[Wes Moss]

It's easier to.

[Krista Dibias]

That's so funny because Clark just rails against anyone who calls him Mr. Howard. It's like an insult. He's like, call me Clark.

[Wes Moss]

Yeah, the, the other thing that I've noticed on radio over the years, I'll have people email me and they'll say, hey, I have a question for you, Russ.

[Krista Dibias]

Oh yeah.

[Wes Moss]

And maybe it's because the W is hard to understand or something.

[Krista Dibias]

Mr. Moss is alliterative too, so.

[Wes Moss]

Mr. It is. I think it's what it is. I think that's why I like it. Russ, I have a question for you. But it is Wes. So let's talk about the 4% rule. Let's understand it, maybe even raise the bar a little bit on it. Let's start with the basics. And this is one of the most well known rules in financial planning, but there's always great controversy around it because it is a rule that dictates the very thing you need when it comes to retirement, which is the use of your own money. And the whole point of Saving and toiling in this long term endeavor that we have when it comes to retirement savings is to be able to then use it. But you're also always coupling with that, never wanting to run out. And Americans are very worried about running out of money. And almost at every asset level, the fear of running out of money is still very prevalent. Yes, it goes down on a percentage basis the more we have saved. That would make sense. But even people with a million dollars, over 40% of Americans are so worried about, quote, running out of money. So this is a rule that helps us so that we can reduce the anxiety, reduce the worry and give us some mental armor around. Hey, I've got a plan. A big part of it is this 4% plus rule of thumb that has some complexities too, but we understand it then we, we shouldn't be worried about running out of money if we follow this. So it's about designed. Back in 1990s financial, it was an aeronautical engineer turned financial planner, William Bengen. He made the Role famous in 1990, 1991 when he published it, he looked at how do I, if I retired in, in January of 1942, how long would would money last? What percentage of scenarios? January, February, March, every single month of every single year going back to 1929, would it last 30 years? That was the, the bar. And what it effectively told us is that if we are in a balanced portfolio, again, assuming we have a balanced portfolio, typically 50 to 70% in stocks, again, Bengen is one that looked at all these different iterations. The method has historically worked 99% of the time to make your money last 30 years, starting with the initial amount and ratcheting up for inflation every single year of retirement. So not only do you max out what you could pull out from your investments, but you're also keeping up with inflation. Now here's where the controversy comes in. We go through a period of low interest rates. So again, remember 50 to 70% in stocks. Well, what's the other part of that? It's the bond market. So we go through rough stock periods of time. You'll see a headline in a newspaper online that says the 4% rule is broken. The stock market has been doing terrible for the last year or two or three years. So it's broken. It doesn't work anymore where the bond market is no good because interest rates are too low, lower than history. So the 4% rule can't work. Well, every time I've seen one of those headlines, a year or two later somebody comes out and says, well, you know, maybe it does work. So instead of saying, well, you can only take 2% of your money because stocks shouldn't be good in the future and bonds aren't good in the future, which blows everything up and quite frankly blows up almost all retirement savings, if you can't ever get or access the money you save, then what is the point of saving to begin with? So it's gotta be a compromise and happy medium. But also recently I've seen whether it's JP Morgan that has come out with this, William Bangin himself has come out with this, and even our team has done these studies and modeled this. There is an argument to be made that it can be even more than 4%. It can be four and a quarter, four and a half. And there are scenarios where even 5% is possible. Again, not with the highest, not as nearly as high a probability of not running out for 30 years. But maybe your horizon isn't 30, 30 years. Maybe you're 70 and you're using the 4% rule and you're saying, I want to plan for the next 20, I don't need to plan for 30 plus years. So there's a lot that goes into it. Basically this is you take 4% of your initial balance in year one on a million, that's 40,000 and ratchet it up every, every year for inflation. So the next year if you had 3% inflation, it'd be 41,000, etc. Etc. That's how the rule works. Now let's get to some percentages here. Again, predicated on having at least 50% in stocks, up to 70% in stocks. And this is where the, it gets kind of interesting if I were to look at some of these numbers and what's kind of our highest percentage here? Well, obviously taking zero would make you never run out, right? As far as utilizing the money, 4% at a 60% stock and a 40 bond portfolio gets you a 99 chance over the course of economic history of the money lasts at least 30 years. And that was the worst case scenario.

[Krista Dibias]

Wow. Okay.

[Wes Moss]

99 of scenarios. Your fifth worst scenario is still 39 years.

[Krista Dibias]

Wow. Okay.

[Wes Moss]

Just, it works historically. I don't see why it wouldn't continue. That's since 1927. Okay, Krista, now what about 4% with a hundred percent stocks? Well, it still works 97 of the time. Okay, you don't really, you don't necessarily need the balance. However, in the 3% of periods that it didn't work, there were some pretty bad outcomes and money ran out in 17 years and 16 years. So it, it works most of the time. But if you happen to retire, which you can't control this, you don't know what economic environment you're going to retire in. Maybe you've got a high inflation environment and a bad stock market environment. And if you happen to be, and this is what we call sequence of return risk, if you happen to start the process of pulling money out in a time where there's a lot of inflation and not great markets, then those are the times where you get quickly get in a hole. And that's when the 4% rule doesn't work. Which brings me to the dynamic nature of the rule. I want to say dynamism. How would I say that this is a dynamic rule? Because even though these models, these models are done completely linearly, meaning that you take your amount and you ratchet it up historically for whatever CPI is every year so that you're spending that amount more and more and more every year. And that's not the way retirement works. You may spend a little more in the early years and a little less later, and you may have some low years and may have some years where you want to spend a little bit more. So we have the power to be flexible about how much we're pulling out of these accounts. And that dynamic nature of this makes this work much better than just looking at it in a linear straight line. Now, what about 5%? We ran this as well. And if you were to pull same period 1927, look at it every retiring every single month. What does a 5% withdrawal rate look like? Well, it's not as good as you can imagine, but it still works 83% of the time. Okay, 83% of the time, the 5% withdrawal rate. So instead of starting at 40, start at 50, ratchet that up for inflation. And this is in 100% stocks. However, there's some really bad outcomes. There are some times when it only lasts 19, 18, 17, 13 and 12 years. And this is really another good example of why, even though stocks can work, there's something really magical about that balance that makes this rule work from an investing standpoint.

[Krista Dibias]

Right.

[Wes Moss]

So I think that's important as well. We interestingly get the same outcome for great money lasting greater than 30 years if you're doing 5% with a balanced. Wow, really portfolio, 60% stock, 40% bonds. And the bad outcomes relative to looking at 100% stocks are, are less bad. So the, the worst outcome here is money lasted 20 years.

[Krista Dibias]

Yeah. So you definitely don't want to be in 100%.

[Wes Moss]

So you just, I think that's, that's an area you want to, you want to really steer clear of and done this for 6% too. I'm not going to go in. But my point here is that you pull it all together and there's a lot of ways to think about it. Not everybody needs money to last 30 years plus not everybody needs the full 4% every single year. Some people might need less, some people might be more, and everyone might have a different balance when it comes to the investments themselves. But it's a really good guideline why we originally used that so we can really utilize our money at its most without having the worry of running out. And that's why we want to understand it so well.

[Krista Dibias]

Okay, here are some questions for you. This one came in from Justin in New York. How does the 4% rule work? If I'm 100% invested in the S&P 500, say in year one of retirement, I have a million dollars. I could withdraw 40k. Correct. In year two, if I saw a 50% decline in the S&P 500, my portfolio would drop to 500k. Does this mean that my withdrawals are limited to 25k or can I withdraw the 50k that I originally planned to?

[Wes Moss]

The latter is correct. Justin. Justin, the way the rule works is that whatever you start with, that's your amount forever plus inflation. Think of it as a high water market. Ratchet's higher with inflation. So the 40 in the year where the stock market's down 50%, then the rule, if you're just taking it linear, linearly out and not adjusting it suggests that you are, yes, still taking 40 or probably 41 or 42,000 in that next year. That's how it works. First of all, that's happened. Million goes to 500. That's happened a couple times.

[Krista Dibias]

Yikes.

[Wes Moss]

In recent economic history over the last 25 years, it's really happened twice. SB500 was down about 50% after the tech crash, Right. And it was down more than 50% in the great financial crisis. Imagine that that's the year you retired. This exact scenario would have played out.

[Krista Dibias]

It's terrifying.

[Wes Moss]

Yeah, terrifying. Which is exactly the reason why when you look at the probabilities in using a balanced portfolio versus an all stock portfolio, you'll see that more scenarios work out that either they work out similarly when it comes to the percentage of times that money lasted 30 years plus. But the bad outcomes are less bad and money lasts longer with the balance.

[Krista Dibias]

Okay, this one's from Joe in Florida. Far too many financial advisors provide very broad advice when it comes to the 4% rule. And it's damaging to many seniors. Having a solid financial plan post retirement that focuses on income generation through regular dividend and interest payments can provide a very safe and secure retirement with no need to touch principal. Far too few advisors seem to understand how income generation is far more important to a retiree's long term happiness than are big gains in the market. A well diversified income generation plan, particularly in today's market, can assure the average investor a return north of 6%. While such a portfolio will likely not participate in large market upswings, it can also sit in a defensive position during the large market downswings. With a general time horizon of 20 years or less, far too many retirees find themselves needlessly stressed when they could be simply sitting at home collecting monthly or quarterly dividends with far less volatility than most financial advisors advise. Why don't more financial advisors take this approach to really understanding what's actually most important to most retirees? The ability to live stress free with significant income and enjoy the things they love.

[Wes Moss]

Joe is the best. Joe. Well, I don't know if it's almost like a Wes stinks question. Is he saying that to me or not?

[Krista Dibias]

Well, I said I think broad brush.

[Wes Moss]

Don't paint me with that broad brush, Joe. I'm not every financial advisor. No, I love income investing. I don't hammer it.

[Krista Dibias]

And dividends. You talk about it a lot.

[Wes Moss]

Income investing is the accumulation of dividends, interest and distributions from various securities that add up to an overall portfolio. Yes, yield and that portfolio yield over time. Because dividends have historically risen at two times the pace of inflation. Inflation has risen at 3 over time. Dividends just in the S&P 500 have grown at 6% a year. So dividend growth alone has been two times inflation. You put all that together, Joe. And I think it is a, it's a super important formula. I just don't hammer it home necessarily here because I we all and we want to invest in our different ways. And that I think is a personal decision. Yes, I am personal to what you're saying. I, this is how I love investing because it does bring in a higher level of predictability than not doing it this way. There's nothing that makes me more excited. This is a. When somebody says I need Wes, I need $100,000 a year and my income streams are 50 Social Security, pension. So I have, I need 50 grand for my portfolio. And we look and we see that their portfolio has maybe their portfolio has 60 or $70,000 worth of dividends and interest. How are you ever going to possible to run out of money? But if your dividends and the accumulation of your stock dividends and your bond interest and your distributions from other areas of the market, maybe that's pipeline companies, energy, maybe it's real estate, maybe it's closed end funds for some investors. You put them all together and if that cash flow is beyond what you need, then to some extent how much do you really need? The 4% rule, if you're just looking at your income. So it's another way to look at it. However, remember the total return equation, Joe, is still growth and income. And you even you make a good point. If you are really at a total income portfolio and you're trying to get to 6%, which is a really high level, I don't want to own a bunch of stocks that yield over 6%. There's usually something wrong with those stuff. And bond levels at that level, those are usually riskier bonds or they're really long duration. So you do need to be careful. I think you use the word assure in here. There's nothing totally assured when it, when it comes to any of this. But you're right. If your formula total return growth plus income, if it's really heavy income, then there may not be much growth. And the worry I have there is that if you have no very little growth and that is risky not being able to keep up with inflation. But if you're using dividends, dividends should be growing. It's just, it's hard to find a portfolio that's yielding 6 or 7% just in dividends alone. Those stocks are a lot of volatility there. So I think you're preaching to the choir, Joe. I love that you bring up the point. And yes, it is another way. And he even brought up a shorter time horizon. He said, well, maybe I only need money for 20 years. Another great point, Joe. But the very reason we're talking about explaining the 4% rule in, in great detail, I'm like, I've tried. At least I'm trying to do it is so people understand it, so they don't worry and they don't needlessly stress like you're talking about.

[Krista Dibias]

All right. Lucas in California sent this one in. I've been investing through Vanguard and currently hold vwo, the emerging markets etf. I recently heard that Vanguard is launching a new emerging Markets X China etf in August. I'm interested in this new fund because VWO has about a 27 to 30% exposure to China. And I'm concerned that China's economic and political issues could continue to be a drag on long term performance. The new ETF is expected to focus more heavily on countries like India, Brazil, Taiwan and South Africa, which I believe have stronger growth potential right now. However, the Taiwan situation of China, if China were to invade, could be of concern. My concern is if I hold both VWO and the new X China etf, I'd end up overweighing emerging markets, especially since there's significant overlap. Would you consider switching from VWO to the new etf, holding both or just staying put with what I have. I'm a long term investor and like to keep things simple. Thanks for everything you do. Your advice has helped me build a strong financial foundation. And Lucas isn't the only one who asked about this new fund.

[Wes Moss]

Lucas, I wouldn't buy both. I wouldn't own both. That's my simple answer. That's just my opinion on this. When I was a younger investor, I. I had this great hope and it seemed to make so much sense to me that emerging market investing was such a good place to be because you have these. I mean we're a very mature economy. We're growing at 2.2% a year is good for the United States, 3%'s great. But you look at some of these other countries and they're going to 5, 6, 7, 8% a year. Wow, what economic growth. How does that not translate into earnings and how does that be great for markets? It really hasn't worked out that way in my career. In fact, the emerging market index over the last five years is five and ten years way under the S&P 500. Now I'm not discounting and I love that you have some diversification and not everything's just here in the US for you. If it were up to me, I would say that I'd rather be invested emerging markets without China. That's just my opinion on that. But you can't get away from China. The S&P 500 itself has anywhere from 8 to 10% of all revenue for all those companies in China. Starbucks is 9%, Apple something like 15% revenue from China. Nvidia is 12 and a half, 13%. So you can't get away from revenue in China even if you're on in 100American companies. So the question is, do you really need to add more to China? And I think that maybe circles around back to saying you've already got some exposure here in the United States. It's not insignificant at all. It's temper. Almost 10% of the S&P. And two, maybe what you're doing in, in this newer setup would be investing in some of these fast growing companies like India and Brazil and trying to limit the exposure to China. But you're not going to be able to get rid of China exposure unless you just buy a local, local utility company in the United States. So listen, I, I think in my, my opinion would be you wouldn't want to own both. Maybe you pick one of the two And I love that you have this broad exposure, not just us but globally. The other thing I think you've proven if you're still an investor in emerging markets, you, it sounds like you're a really long term investor. So again, I like what you're doing.

[Krista Dibias]

All right. Thank you Lucas and thank you to everyone who sent in questions. Again if you have one. Clark.com ask these questions coming.

[Wes Moss]

Yeah, I love these questions.

[Krista Dibias]

They're great.

[Wes Moss]

What's the website again?

[Krista Dibias]

Bark.com/ask and I hope you have a great rest of your day. Thanks for listening.