10.07.25 Ask An Advisor With Wes Moss

Summary

The Clark Howard Podcast: Ask An Advisor with Wes Moss

Episode Date: October 7, 2025
Host: Wes Moss (with Krista)
Theme: Exploring the cost of the American Dream, the impact of inflation on investing, and real-world financial questions from listeners.

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Episode Overview

This episode of “Ask An Advisor” features Wes Moss and Krista digging into big headline topics like the true cost of the American Dream, the nuanced relationship between inflation and the stock market, and practical, listener-driven financial advice. Wes presents research-backed perspectives while maintaining an accessible, encouraging tone.

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Key Topics & Insights

1. Inflation and its Relationship with the Stock Market

[01:47–08:16]

• Simplistic View vs. Reality: "Is inflation good or bad for the stock market? I thought, wow, that's such a simple question... It is pretty nuanced. There's not just a super easy answer."
  — Wes Moss, [01:47]
• Goldilocks Zone: The market historically performs best when inflation is "not too hot, not too cold," ideally in the 2% range (the so-called “Goldilocks zone”).
  • 0–2% inflation: Sweet spot for stocks, averaging about 14.2% returns.
  • 2–4%: Returns dip to just under market average (about 10%).
  • Over 4%: Returns drop further, to roughly 6%.
  • Deflation (below 0%): Rare, but stocks averaged 13% (small data set).
• Stock Types & Inflation:
  • High-inflation periods (e.g., 1973–1982, average of 9% inflation): Dividend stocks do relatively better (~11%/yr); growth stocks barely keep up (~2%/yr).
  • Low-inflation: Growth stocks outperform; investors chase future returns because bond yields are low.
• Current Status: "We're in the Goldilocks zone right now...under 3% for inflation. That's still a pretty decent environment in general for stock market."

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2. Q&A: Listener Financial Advice

CFP Career Switch Advice

[08:19–12:49]

• Context: Jason (mid-career) wants to become a CFP.
• Industry Overview:
  • Aging demographic: "50% of all CFPs are over the age of 50. 40%...are supposed to retire by the year 2034." — Wes Moss, [10:07]
  • "There's even more of a need for financial advisors" despite accessible technology.
• Path to CFP:
  • 6,000 hours experience or 4,000-hour structured apprenticeship, four-year degree, tough exam.
  • Recommendation: Get a part-time or apprenticeship role in finance, even if only 10 hours/week, to build experience and ease exam process.
• Encouragement: "It's a hard road. We need you."

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High-Yield Bond ETFs in a Portfolio

[12:49–15:53]

• Summary: High-yield bonds ("junk bonds" rebranded) can complement a portfolio but carry more risk.
  • "They are for more aggressive investors knowing that they have a lot of volatility...But you do get this 6.7% yield along the way." — Wes Moss, [15:40]
  • Use as a "satellite" position, not core holdings.
  • "They don't count as dry powder" (i.e., as the safest portfolio component).

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Retirement Savings Benchmarks & Age Gap Spouses

[15:53–20:56]

• Chris’s Situation: Late start to saving, married couple with a 7-year age gap; confused by Fidelity's age-based savings benchmarks.
• Wes’s Advice:
  • "I would scrap that chart completely...What matters is what you need to spend in retirement." — Wes Moss, [17:38]
  • Use the "25x rule": Multiply desired annual spending by 25 for a target nest egg.
    • E.g., Needing $50k/year means a $1.25M goal.
  • With $250k at age 37 and saving $15k/year at 6% for 25 years, Chris could reach ~$1.9M.

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3. The True Cost of the American Dream

[24:14–32:35]

• Investopedia’s Calculation: $5M needed over a lifetime (post-tax), equating to ~$7M gross income (~$160k/year over 45 years at a 30% tax rate).
  • Retirement savings: $1.6M
  • Health care: $414k
  • Homeownership: ~$1M
  • Raising kids & college: ~$875k
  • Cars: ~$900k (“Clark would have a heart attack on this one” — Wes Moss, [26:39])
  • Lifetime vacations, pets, wedding: Minor compared to the above
• Wes’s Take: Most agree with retirement and homeownership costs; retirement “green zone” starts at $1M, $1.6M is a solid but not extreme target.
• Reality Check:
  • “There’s a big difference between saving your way to the American dream and investing your way to the American dream.” — Wes Moss, [28:54]
  • Investing (with a 6% return) lowers needed annual savings significantly—to about $120k/year gross if investing, compared to $160k gross if just saving.
  • Retirement Income Example: $1.6M nest egg at 4.5% withdrawal = $72k/year, add Social Security or pension, “a lot of people in America can live on that.”
• Retirement Happiness: "Having your mortgage payoff within sight...adds to retirement happiness." (Wes’s forthcoming book), [32:35]

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4. Practical Listener Questions

Life Insurance in Later Years

[33:05–36:34]

• Joe (58), spouse 55, grown kids, substantial assets, $1,900/yr for $200k policy.
• Advice: "Insurance has done its job" once dependents are grown and assets are sufficient, but Joe isn’t quite there yet. “$1,900 a year to protect that much...is still a low amount of money.” Keep the policy a few more years; shop for better rates.

529-to-Roth Transfers for Kids (SECURE 2.0)

[36:34–40:47]

• Steve’s Plan: Open 529s at kids’ births; later roll over to Roth IRAs using new $35k rollover provision.
• Wes’s Approval: “This is a very real rule. This isn’t just some loophole...Even $35k growing at 7% a year could be half a million dollars [for retirement].”
• Caveats: Must wait until account is 15 years old; funding 529 and using the “third, third, third” rule for college costs (parental aid, savings, student contribution/loans) is pragmatic.

Saving to Bump Up Lifestyle Before Retirement

[40:47–44:26]

• McKay (steady job, disposable income, kids): Seeks to balance enjoying today with lifestyle inflation and future savings; open to “more complex solutions.”
• Wes’s Strategy: Set up incremental/automatic increases in savings (e.g., 1% annual autopilot increases in 401k contributions), or establish a small brokerage auto-investment to “trick yourself” into long-term saving. “Start small today. If you do that for another 10, 15, 20 years...it could add up to more than you might think.”

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Notable Quotes & Memorable Moments

• “We want Goldilocks inflation. Not too hot, not too cold...That’s the zone the stock market seems to like the most.”
  — Wes Moss, [02:09]
• "Financial planning is about making the complicated simple. And that chart makes it even more complicated."
  — Wes Moss, [17:38]
• "There's a big difference between saving your way to the American dream and investing your way to the American dream."
  — Wes Moss, [28:54]
• "Having your mortgage payoff within sight...adds to retirement happiness."
  — Wes Moss, [32:35]

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Important Timestamps

• 01:47 — Is inflation good or bad for stocks?
• 08:16 — Listener questions begin (Jason’s CFP journey)
• 12:49 — High-yield bonds in a portfolio
• 15:53 — Retirement benchmarks (Chris in Washington)
• 24:14 — Cost of the American Dream (Investopedia study)
• 33:05 — Life insurance after kids are grown
• 36:34 — 529 plans and Roth IRA rollover for kids
• 40:47 — Bumping up lifestyle/lifestyle inflation with disposable income

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Tone & Style

• Encouraging, data-driven, and practical.
• Wes and Krista provide plain-spoken, sometimes witty responses (e.g., “junk bonds” vs. “high yield” rebranding), always emphasizing real-world utility and psychological side of money decisions.
• Clear examples and calculations punctuate the advice, making complex issues accessible.

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Takeaways

• For Investors: Moderate, “just right” inflation is ideal for stock returns. Beware of simplistic rules—context matters.
• For Career Changers: Financial advice desperately needs new blood; the journey to CFP is demanding but worthwhile.
• For Savers: Retirement charts are interesting but secondary to understanding your real-life needs; focus on the 25x rule and your specific desired retirement spending.
• For Families: Long-term planning (like 529-to-Roth rollovers) can give your kids remarkable head starts but don’t lose sight of the need to pay for current obligations (college, life insurance).
• For Everyone: Automate savings increases to painlessly grow your future security, and remember: the American Dream is costly, but strategic investing makes it far more achievable.

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For further resources or to submit your questions, visit clark.com/askclark.

Transcript

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[Wes Moss]

Tonight on NBC, Jimmy Fallon and Bozma.

[Commercial Voice (American Express)]

St. John host the incredible new competition show.

[Wes Moss]

I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity.

[Don McDonald]

This is the battle for the next big idea.

[Krista]

This is not play Play.

[Wes Moss]

We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. May the best idea win. Jimmy Fallon, tonight on NBC.

[Krista]

Welcome to Ask an Advisor, where we here at Team Clark go deeper on all things investing, saving your money, inflation, the American dream. Yes, yes, yes. So today on today's episode, Wes, you're going to talk about a couple of things. The American dream. What does it take? That's been in the news a lot lately.

[Wes Moss]

What does it cost?

[Krista]

What does it cost?

[Wes Moss]

Pretty high number, supposedly, according to an investor PD study.

[Krista]

Oh, okay. And then is inflation good or bad for the stock market? You asked me this this morning and of course, I promptly got it wrong.

[Wes Moss]

Well, you got it almost right.

[Krista]

We'll see. I don't know.

[Wes Moss]

So it's more complex than that. So maybe we'll, let's just start with that. And this is prompted by really a reporter question asking me to sit for an interview talking about inflation. And it's a really simple question, if you think about this. Is inflation good or bad for the stock market? And I thought, wow, that's such a simple question. Do we really, do we really want to do an interview about it? And then as I thought about it for a second, I thought, well, wait a minute. It is pretty nuanced. There's not just a super easy answer. But I'll start with the super easy answer is that we want Goldilocks inflation. If you can imagine that we're in a nice, not too hot, not too cold zone, 0 to 2%. Closer to 2%. That's the zone the stock market seems to like the most, at least historically, if you go back over the last 50 years, and that's where we see the best performance, if we get to a point where we have lower inflation than that. The reason that inflation and usually interest rates would be super low is, is that the economy's starting to have a little bit of a problem. So even though it's not necessarily a bad environment, for another couple of reasons, that's a different rate of return than we found. When inflation is sub 2%, then it's pretty clear if we go from the 2 to 4% zone, returns come down. We go to the 4% plus zone as far as inflation, then returns come down even further. So we'll go through this number. So, first of all, there is no one variable that impacts how the market does. In fact, it's even more nuanced than that. It is really the question goes to what kind of stocks do well when inflation's high? What kind of stocks do well when invasion is low? So there's really two layers of that. So I'll start by just saying there are all sorts of variables that are determining whether stocks do well or not. Valuations, earnings really is what drives equity prices higher over time if earnings are growing. So there's. There's valuation, there's how the economy's doing, there's interest rates. So there are so many layers of variables in order to figure out this question. But if we were to isolate and just say, well, let's just look at different inflation regimes, different inflation environments over the past 50 years, and see how stocks do just in general, the s and P500, before we break it into different categories. And here are the numbers. If you look at when inflation is greater than 4%, so that's getting pretty high. It's high. And obviously we've seen, if you go back to 2021, 2022, we saw 8, 9% inflation in that zone. Rates of return on average are in the 6% range, which, again, not great relative to stock market history. So it's pretty clear that really high inflation just isn't great for stocks. So that's the first answer. If you go to a moderately high zone, 2% to 4% inflation over time, stocks average a little less than, just a little bit less than the overall market return at about 10%. But the sweet spot or the Goldilocks zone, inflation, not too hot and not too low or too cool. That's when you get 14.2% average rates of return. So that's Better than market history. That's the zone that the stock market really likes some inflation, not too much inflation. But we also don't want less than zero, which we've also had some periods of time where we've seen a little bit of deflation. Now, there's not a ton of data for that. So even though average rates of return for the stock market, when we have inflation less than zero over the past 50 years, there's not a ton of data on that because it's a pretty rare event. But you see a 13% average rate of return. I wouldn't put too much stock in that, in that data because it's just a really small sample set. It's really just there's only a couple of months even where we saw inflation less than zero. So that's the larger answer to the question, which is we want to see for the broad market, if you're an investor, you want a little bit of inflation. Not too much, not too hot, not too cold. That's the Goldilocks inflation zone. If we dig a little bit deeper, and we've done a lot of research on this over the last several years, and if you go back to 1960, Krista, and we're going looking at a lot of history here, that corollary really holds true of how I just talked about this. And if you go to the 1960-72 period of time in America, we had a Goldilocks inflation environment. Inflation averaged 2.9%. I mean, that's kind of relatively in check and low. And stocks did pretty well about 9% a year. Dividend stocks did about 12. Growth. Growth stocks did about 9. So there's not a huge disparity between the two. But then you get into these extreme periods, and I would call the 1973-1982 period, that's an extreme right hyperinflation. Inflation averaged 9% a year. Nine for that long stretch of time. That was a very different environment. Dividend stocks did pretty well. They averaged about 11% a year. And growth stocks, as an example, think of today, what would be a dividend stock. Think of a utility company, a bank, an industrial company that pays dividends. They're growing, but not extremely fast. Growth company. Think of the big technology companies that don't really pay dividends, but they're trying to grow at 20, 25% a year. That's a growth company that growth companies did really poorly during that period of time, just barely above the flat line, averaging only 2% a year. So it also stands to Reason that you can think of really high inflationary environments good or better for still not great for anybody, but better for dividend paying companies. Really low inflationary environments very good for growth oriented companies. If we have low inflation, we probably have low interest rates. So investors are more willing to say, well, I can't get much sitting my money in cash savings. Yeah, I'm going to go ahead and invest in a company that may have good returns but way out into the future. So that's when the market pendulum swings toward growth stocks and we have really low inflation and lower interest rates. The takeaway for investors, we're in the Goldilocks zone right now. We're not quite at the 2% level, but we're under 3% for inflation. And that's still a pretty decent environment in general for stock market.

[Krista]

Okay. All right. Are you ready for questions?

[Wes Moss]

Let's do it.

[Krista]

If you have a question, you can go to clark.com ask and jason in Georgia did that. And this question. I'm currently halfway through my career but I'm looking to branch out to something else entirely. I've looked into getting my CFP accreditation, but it says you need a four year degree before the exam or within five years of taking the examination. There are also hours that need to be gathered for experience. As someone who would be doing this part time around their full time job, how would you advise me to move forward? While my current job isn't my passion, I've developed a true passion for helping people take control of their finances rather than letting money control their lives. And I want to share that with anyone willing to listen. Your segment has been a great addition to the show and if Clark has to cut back, I'm glad they filled the gap with a financial advisor like you. That's nice. Thanks. Jason.

[Wes Moss]

Jason, what a cool question. And here's the deal. Did Jason tell us his age?

[Krista]

No. But halfway through his career.

[Wes Moss]

Halfway through his career, I'm going to assume he's 40, 35. 40 probably. This is cool because. And there's a problem in the financial advice industry and you almost, it's almost counterintuitive because you think of how technology has made everything easier to invest and there's more things we can invest in at a lower cost and there's so much advice swirling around you would almost think there's less of a need for financial advisors. But I think it's because the world is even more confusing than it's ever been. It's the opposite I think is true, which is there's Even more of a need for financial advisors. And demographically we, our industry, financial advice is a really aging industry. 50% of all CFPs are over the age of 50.

[Krista]

Oh wow.

[Wes Moss]

50%. 40% of today's advisors are supposed to retire by the year 2034.

[Krista]

Wow.

[Wes Moss]

Again, it's kind of right in the next call that, what's that, nine years you're going to see almost half of the industry retire when we need that many more people than that many more people need help. So we have a supply and demand problem. There's so much supply of people needing advice and the supply of advisors is actually contracting pretty rapidly.

[Krista]

And then the supply of non advisors giving advice on TikTok and stuff is expanding, which is scary.

[Wes Moss]

Probably expanding. I just, I don't have, I don't know, I don't have TikTok, so I haven't seen that. But you're probably right about that.

[Krista]

Oh yeah.

[Wes Moss]

So you would be part of the solution, Jason. And we need folks like you that want to do this. But part of the reason we're in this imbalance is that it is really a long road to get the CFP. It's 6,000 hours of experience in the field. It's 4,000 hours of structured apprenticeship. It's a four year degree. It's an exam which I'm glad I took that exam right out of college because I was so used to studying and I was working in the industry. I graduated from college so I was still in test taking mode. I've seen people that go back in there, let's call it 30s and 40s and. And then it's like, well, I got to restart and figure out all these different sections of the CFP and then I have to sit for a six hour exam. Oh, so it does take a lot of time. And then if you don't have your bachelor's, you've got to get that within I think five years as well. What he's saying. So I would just say this, the best, the most logical way to get this done is that I think you've got to get a job, a part time job, an apprenticeship somewhere in the financial industry. So let's say you're an engineer and you're working full time. I know it sounds really tough to do, but you almost have to get a job somewhere in financial services. And once you're in that job, and it doesn't have to be the perfect financial job, but it needs to be something that gets you in kind of the jet stream of being in the Industry. I think it's also really, it's much easier to pass the CFP test if you're already in practice as well. I think if you do it purely and academically, it makes it really, really hard. So I know it's a hard road. We need you. But I would also say that the most realistic way to really get this done is have an internship, apprenticeship, part time work, even if it's 10 hours a week. That will put you on the road to being able to accomplish that long list and it sounds like it's a passion for you, so I know you can do it.

[Krista]

Awesome. David in Texas says Mr. Moss, is there any benefit on having a low cost high yield bond ETF as part of my portfolio? I see it as an extra yield boost to the current total bond fund I already have.

[Wes Moss]

David in Texas, you're a multi asset class income investor. So I love the thought of having a lot of diversification how you're getting your income. So that also means a variety of stocks and stock categories that pay income. But the bond side is what you're asking about and talking about. And high yield bonds, they have done really, really well, I would say over the last several years. So I'm not against them. They are for more aggressive investors knowing that they have a lot of volatility. They're not like watching the total bond market index which moves only a little bit. High yield bonds, they may not move as much as equities, but it's pretty close. And when you're getting a 6%, 6 and a half percent yield, which is about where high yield bonds are paying today, it comes with some risk and some volatility. So I would use it as a satellite or a piece of the overall, not the whole portfolio, number one. Number two, they don't count as dry powder. So if you're looking at the safety portion of your portfolio and we're looking for highly safe, let's call it high quality corporate and government type bonds. High yield bonds, remember they've been renamed just to make them sound less bad, which is they used to be called junk bonds. That's what high yield bonds are today. They just have a nicer title to them.

[Krista]

A lot nicer.

[Wes Moss]

High yield. Oh, that sounds good. Junk bonds, wow. Very different. But they're the same thing. They've just been rebranded.

[Krista]

Well, that's quite a rebranding.

[Wes Moss]

It's like how the, the estate tax was rebranded as the death tax. Yes, words matter. So the industry figured out how to make them sound less bad. But over time. If you're in a diversified, let's say an ETF or a fund that has lots of different high yield bonds, then you've probably done pretty well over time. So where are yields today? High yield bonds are in the 6 6.5% range. Government bonds are going to be more like the 4% range. The 10 year treasury today is a little over 4%. And the reason I say that is that you're not getting a ton of extra yield right now. The industry would tell you that high yield spreads are very low and that just means that you're not getting a whole lot of extra risk to own a low rated quality company that has bad credit essentially. So we have to be careful. And when the economy goes awry, then high yield bonds can take big hits 5, 10, 15, even 20% depending on what kind of crisis we go into in America. If you go back to the pandemic, high yield bonds fell almost as much as stocks did.

[Krista]

Wow.

[Wes Moss]

But you do get this 6.7percent yield along the way. So I think they're a nice complement to an otherwise high quality dry powder section of the overall portfolio.

[Krista]

All right, Chris in Washington says hello. Wes, thank you for adding another podcast to your busy schedule and helping Clark wind down with with other endeavors he enjoys. I have a simple question that has confused me since I started listening to financial podcasts. I understand the amount needed for retirement is based on what you plan to do in retirement. However, I like to use the generic benchmarking system out there such as fidelities, to make sure my wife and I are not falling behind in retirement savings. My wife and I are seven years apart though she just turned 30 and I'm 37. Fidelity states you should have one times your annual income by 30 and three times by 40. We started I started late saving for retirement when I was 30. I currently have 250k and do not think I will hit the 360k savings goal by 40. My wife is at 60k but would need 100 to be on track. We are both in new jobs now which do provide pensions if we stay where we are for at least 5 years. We also have a brokerage with about 50k invested. My question is should I be looking at our individual incomes and individual savings to match ages when comparing to the suggested? Or should I be incorporating out full home incomes and retirement amounts assuming my age is our age? Thank you.

[Wes Moss]

Whoa.

[Krista]

It's a lot.

[Wes Moss]

That's a lot Chris.

[Krista]

And by the way, I don't think 30 is late. If you look at statistics. You're early, man.

[Wes Moss]

It's not law. And. And they. He already has 250,000 savings. I mean, 50. Really? 300.

[Krista]

Yeah.

[Wes Moss]

Here's what I would say about the age multiplied by your income and where you should be charts. I think they're fascinating. Like if there's a new article that pops up and I haven't seen that chart for three months or six months, I always look at it.

[Krista]

You love a chart.

[Wes Moss]

I love a chart. I love a table. So I don't blame you for looking at these things. They are at least somewhat helpful. Totally get it. But I would scrap that chart completely. Just throw that chart out. And it's nothing against who publishes it, because most financial firms publish the same chart. It's just math, but it's confusing. It's particularly if you've got a big age gap between you and your spouse. It's your age. It's your income. It is the age of your spouse, your age. So that could be different depending on what your income is. Maybe your income is artificially low right now. Maybe it's artificially high right now. Does that really matter? What matters is what you need to spend in retirement. Retirement. So this is a generic benchmarking system to make people feel guilty. So I would just scrap it. Just don't even look at that. Remember, financial planning is about making the complicated simple. And that chart kind of makes it even more complicated. Here's how you make it simple. Just use the 25x rule and think less about what you're earning today and what you're going to need to spend in retirement. And if you do some quick math here, and I'm going to just use the financial calculator. If you've got $250,000 and you average 6% a year, and let's say you are 37, so 25 years, you'd be 62 at a 6% rate of return. If you're saving 15k a year, and this is compounding on top of the 250 you already have, well, you really have 300. But let's just do 250 for the next 25 years. Just mathematically, that comes out to 1.9 million. And if you're using the 25x rule, think of it this way. If you need 50k times 25, that equals a million and a quarter, right? That means that you could. If you've got Social Security and you may have a pension, and I would think putting all that together is 50. If you have 1 million and a quarter again, $50,000 times 25 is 1.25. That's the 25x rule. You would have another $50,000 on top of that. So then you have $100,000 per year in retirement. That can escalate higher for inflation. That's how I would be looking at this. And not a complicated chart. I'd be looking at just making sure that you've got your million and a quarter. And by my math here, you would have almost $2 million if you're saving a little over 15. And that's early, it's at age 62. So now you've got 2.

[Krista]

And you may end up saving more than that a year as income goes up.

[Wes Moss]

Then you get $2 million saved, which if you just use the 4% rule, that's 80k in spending plus all of your pensions and social 130. That's the way I would be looking at this, planning fast forward, say, well, what would it take to get 100 a year, 100 a quarter a year, and just use the 25x rule. That's the amount you would need in savings. You do the math where you say, I want at least 50 for my investments, or in this case, I want 80 for my investments. The 25x rule allows you to do that plus social, plus pensions. That's how I'd be looking at this.

[Krista]

Okay. All right, we're going to take a quick break and when we come back, the $5 million American dream.

[Wes Moss]

Sounds expensive.

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[Wes Moss]

Welcome back to Ask An Advisor. I'm Wes Moss along with Chris Dibiaz here on the Clark Howard Show. Ask An Advisor session talked about inflation and stocks. This is a broader topic about the American Dream and the cost of the American Dream. And this is not a number for retirement. This is the amount that supposedly according to Investopedia and this is an article that's been floating around recently and I've had a couple different people ask about it So I wanted to cover it here on how much you need to earn over the course of your career to pay for all the big stuff. The big chunk of it is retirement savings. So they're estimating you need. Again, these are not my numbers. This was the investopedia saying this is what you need. And I would agree with some of these numbers and I would disagree with some of them. But let's just. According to their lights, retirement is the biggest chunk and you need $1.6 million for that. Again, the 5 million is how much you should be earning in order to have the spending power to do all these things. Health care, they estimate 414,000.

[Krista]

This is per person.

[Wes Moss]

This is for a. It's really should be for a household.

[Krista]

Okay.

[Wes Moss]

But if you're single, it's per person.

[Krista]

Okay.

[Wes Moss]

For the most part. I look at this, Krista, as a household.

[Krista]

Okay.

[Wes Moss]

It's hard enough. Remember what this statistic is that half of Americans have no retirement savings at all. The median retirement account right now sits at $134,000. Not even close to the 1.6.

[Krista]

Right.

[Wes Moss]

Investor PD is saying. So one, they say you need 1.6 million in retirement savings. Health care is going to cost 414. Homeownership is 958K. Let's call that a million dollars. Again, median single family home prices right now at about 415,000. And then they base that off the 30 year fixed mortgage rate, which at the time they did this, it was about six and a half. They're saying the cost of kids to raise your kids and then the cost to send the kids to college, they're putting that at 650k to raise the kids and 230 for college. So that's 875 grand. So almost $900,000. Cars now. I don't know, maybe Clark will have a heart attack on this one. $900,000.

[Krista]

Wow.

[Wes Moss]

Over the course of your lifetime, they're estimating two new cars every ten years.

[Krista]

Oh, wow. Yeah. I mean that probably is average. Yeah.

[Wes Moss]

The vacation budget, again, this is for your lifetime. 180,000 pets, 39,000. They're taking the average cost for one dog and one cat.

[Krista]

Oh my gosh.

[Wes Moss]

And veterinary bills and food, et cetera. And then, well, a wedding, I guess they're assuming that only one of the kids get married.

[Krista]

Okay.

[Wes Moss]

Or maybe you pay for one of the two and they're saying $34,000, 38,000. 8,000 for the wedding. You add it all up, that's $5 million. Which by the way, is the first problem I have with this article. That's after taxes. So it means you have to earn about $7 million in gross pay in order to net down over your lifetime. Yeah.

[Krista]

Wow.

[Wes Moss]

You know, I don't know. I would just say that I understand the car number, I understand homeownership, that number. Most people aren't just paying for the first house in cash. You're going to pay some interest to have a mortgage, health care, hard to argue with that one. And then 1.6 million in retirement savings. That to me is that gets you into what I would consider the green zone of retirement savings. I've done a lot of research around this and I think that is an appropriate number. The retirement green zone, in my opinion, starts at a million dollars in investable liquid assets for retirement. So I'm not going to argue with the 1.6 million. Now, what would you have to make in order to make this work? And I'm looking at now, I think a 30% tax rate may be a little high for some people, but if you're 25% federal and 5% state. So again, depends on where you live here, but that's the number I used. To net 5 million, you would need to make 7.14 million, which essentially is $160,000 a year in gross income over your. They're looking at this over your 45 year working life.

[Krista]

Wow.

[Wes Moss]

Now there are two.

[Krista]

Seems realistic.

[Wes Moss]

It does seem realistic. 45 years.

[Krista]

But making that much for 45 years. You're right, that part is really insane to me.

[Wes Moss]

But here's the. I would think the good news, because let's get a dose of reality into this. And there's a big difference between saving your way to the American dream and then investing your way to the American dream. And if you do the numbers, because the biggest chunk of this is retirement savings, if you're just saving your way and you're going to put away $1.6 million, assuming no rate of return, which that's probably artificially low as well, then by my math, you need to make 100. You have to average 160k a year. But if you were to save every year and invest those dollars in order to get to 1.6 million by the time you're done your 45 years, it's not nearly as much having to be socked away as you might think. By my math, you would have to earn about 480,000, which would net to about 338,000 over that period of Time. And if that compounded at 6% over time, then where do you end up? Well, you still end up with the 1.6 million because the net 308, call it 340 grand, which would be 7,500 bucks a year or 650 bucks a month growing at 6% a year. Then you get to that number, you get to the $1.6 million in savings. And to me that's the biggest cost of this whole equation. Now if you do the math on that, you end up with having to earn about 119, let's call it $120,000 a year. So saving your way to the American dream, and this is trying to put it into perspective for all of us, like what does it really mean? Over 45 years you'd need to earn about 160k gross. If you invest your way to the American dream, that number drops all the way down to $120,000. So 6% for 45 years, 7,500 bucks a month or $7,500 a year. $650 a month gets you to the 1.6 million. Yep. So I again, I don't really. It's expensive. It is a lot of earnings over a 45 year career. 7 million, depending on your tax rate. It could be 6 million if you're a lower tax rate to net down to the five that they're saying in this study. And I don't think it's that far off. And it's a big mountain to climb.

[Krista]

Yeah, it is. And I think, of course all of this, like you've always said, is affected by what is your lifestyle going to be in retirement? You know, are you going to pay for a $35,000 wedding? Maybe a lot of people wouldn't. I mean there's so many. Do you need a new car every 10 years? So you know, there's certainly, there's so much that we can do and that's what you know, Clark talks about so much is like figuring out how to live with.

[Wes Moss]

What would he guys say about a $40,000 wedding? Crazy or normal?

[Krista]

He would think that's insane.

[Wes Moss]

Insane. Think about this though. The $1.6 million and if you use the 4% plus rule, I'm just going to use 4 1/2% for easy math. That's $72,000 a year in income. Starting retirement, you add another 40k in Social Security or maybe a pension as well. You're at 112.

[Krista]

Yeah.

[Wes Moss]

If you don't have a Mortgage, that's key. A lot of people in America can live on that.

[Krista]

Yeah. And maybe when they're younger, a lot of paying down their mortgage so they, their expenditures are much higher than they might think they're going to be in retirement if they get that paid off. One of your keys to a happy retirement, as you say, not having a mortgage. Right.

[Wes Moss]

That is. That is wonderful. Oh, really? In the newest book that is still yet to be released, it is having your mortgage payoff within sight. Okay, so if you have a 30 year, you have 30 years left. That's bad for retirement happiness if you are within a certain amount of years. So there's light at the end of the tunnel that adds to retirement happiness.

[Krista]

Okay. I cannot wait. We'll hear more about that book, I'm sure. Any idea of when it's going to be released?

[Wes Moss]

Hopefully sooner than later.

[Krista]

All right, we'll go to questions. This one came from Joe in Georgia. Should I continue to carry a large life insurance policy on my wife and I. I'm 58, she's 55. I'm paying $1,900 a year for $200,000 for me. And I have two grown children, one of which is still single, and we supplement his income. I have $300,000 in a 401k and I own seven rental properties that are worth around 1.7 million. We have $125,000 in debt, most of which is our primary home. I would like to invest the insurance premium in my 401k to catch up.

[Wes Moss]

And the catch up on the catch up.

[Krista]

Yep.

[Wes Moss]

Joe, you could ask 10 people on this and maybe get 10 different answers. In large part, insurance has done its job. Meaning that you. We want to. We want insurance. We want to pay for insurance, but we obviously don't want to have to use it. And that's why we do lower cost term policies. And then hopefully you've just wasted all your premiums and everyone is now financially independent. You're financially independent for retirement. The kids are out of the house and you don't need the insurance anymore, so you can stop paying it. You are not, in my opinion, you're not quite there. So it makes sense to say, well, I don't really need this anymore. I can go ahead and drop it. But if you were to just start today, is it a good deal to have $200,000 that would come to your wife if you Pass today for $1,900 a year? In my opinion, that's still a low amount of money to protect that much. That would add that much in assets because remember, if something happens to you, your wife will go down to just one Social Security payment, not two. You won't have both of you together for retirement. So I think that, I know you're 58, so you're getting close to the point where I think you could think about giving this up. But you're a little, in my opinion, you're a little far away from that. And I would continue to do the $1,900 for the 200,000. Remember, it's insurance. It's in case of something really bad happens that you don't expect. Sure. You could invest the $1,900 over the next, call it five years. Is that really going to get you anywhere close to. If something were to happen in three or five years and you pass, it doesn't come close to the 200,000. So my opinion, even though you've got $2 million between your 300 and your 1.7 in, in real estate and you're, you're technically, you're pretty much funded when it comes to retirement, I would keep, I would not be getting rid of that insurance policy today. That's just my opinion on it.

[Krista]

I assume it's term life.

[Wes Moss]

I'm assuming it's term life.

[Krista]

And I would, what I would do though because I just recently re upped. I did a 10 year additional 10 year term life policy. I would shop it around a little just to see if you look at 10 year policies and how much they would cost. Because that does sound a little high to me. Unless there's some medical underwriting issue for term life for.

[Wes Moss]

But it, but that much money, it is the bird in hand.

[Krista]

Right. But you don't have to do anything. You can keep that policy.

[Wes Moss]

Or I would shop around and see what a brand new policy would cost. Again, based on where you are health wise, we don't know.

[Krista]

Yeah.

[Wes Moss]

So that's another option. If you could get the same amount for less over the next five or 10 years, maybe it's worth doing that too. But I would be of the mind of not getting rid of the insurance just yet.

[Krista]

Steve in Missouri says, hi guys, I have a question about saving and 529 plans for my children. My wife and I go back and forth on how much to fund their college and how much we're willing to help them on that. But I found an interesting loophole open. 529 plans for each of my kids the year they were born. Under the Secure 2.0 Act. I understand, I can roll over up to $35,000 from each 529 to my child's Roth IRA pen and tax free as long as the account is at least 15 years old and my child has earned income. My plan is to fund each 529 so that by the time they're 16 and working, I can roll over the Roth IRA maximum each year and get the full 35,000 transferred by around age 21 or 22. Letting it compound for decades. Is this approach sound under current IRS rules? Is there anything I need to watch out for such as contribution limit interactions, plan specific restrictions, or better account options to maximize long term growth? Instead of using this 529 money for college expenses, I'd love to kickstart their retirement portfolios with rocket fuel instead letting the magic of compound interest do its thing for several decades. Is this a good strategy? Thanks Steve.

[Wes Moss]

I think it's a great strategy. It really is. I love it. This is a very real rule. This isn't just some loophole. This is IRS Approved under Secure 2.0. It's they say you're able to roll over 529 money but there's a limit to it. You can only do $35,000 from a 529 to a Roth and you can only do up to the contribution limit in any given year. So it's going to take a while. The other caveat is the 529 account has to be pretty old. So it's I believe that needs to be a 15 year period.

[Krista]

He said that. So I think he does know that.

[Wes Moss]

And then the beneficiaries, it has to have some earned income, etc. Which obviously can happen as kids start working. So I would say it's a really good plan. You've got to be careful about rolling over contributions or earnings on those contributions in the last couple of years. So you've got to be careful about that. But I think it's a really good idea. Even 35k growing at 7% a year could be half a million dollars by the time your kid retires. So your children retire. Retire. So I think it's a really good number. The question is then how do we pay for college? I think about this as a. And again, there's no right answer on this one. But I always think of this as a third. A third, a third meaning that depending on where the kids go to college, I mean you could be in a state like the state of Georgia where you go to in state school, maintain a Certain grade point average and it's, it's, it's extraordinarily low. Almost free for tuition. Not every state is like that. Where is Steve coming from? Did he say?

[Krista]

Yeah, Steve is in Missouri.

[Wes Moss]

Missouri. I don't know if how it works in Missouri but I think of it as kind of the third, a third, a third rule. Where and this is why most people don't retire until their kids are already out of college is that one, you help them pay for a third of it while you're still working and they're in college. Two, a third of it comes from savings 529 plan that you already have. Maybe it's another type of savings. And then three would be to have the student either pay for the a third of it or take out loans. And I think that that allows skin in the game. So you've got everyone's kind of sharing what has now become an enormous number for most families. And depending on your state you've got to be able to break up a cost like this. A third coming from while you're working. A third coming from savings. A third coming from the burden on your children having that college debt so that their skin in the game. So the question is what are you going to do on the saving side and are you planning on continuing to work until they're through college? There's only so much we can squeeze out of the orange here. I think if you had to choose and figure out how you would pay for college, I think advantage goes to the potential of several hundred thousand dollars long term in retirement for the kids. So I think it's a really good idea. But still got to pay for College.

[Krista]

Yeah. Okay. McKay in Georgia says I love this show crazily enough. My kids ask to listen sometimes anyway.

[Wes Moss]

That's because of you, Krista. They like to hear you.

[Krista]

No way. Absolutely not. Anyways, I've had this idea for some time. I want to invest our disposable income in some way to balance enjoying it now but also have it grow so that it bumps up our baseline lifestyle before retirement. I have a very steady paycheck and I love my job but I don't expect significant raises. How can we do this? I'm happy to consider more complex solutions if they squeeze out more over time.

[Wes Moss]

McKay. First of all, I can't believe your kids listen. That's pretty cool.

[Krista]

I know Clark would make a joke about. They're probably falling asleep in the car.

[Wes Moss]

They are. I can just tell you my kids I've been, I've Done radio and podcasts now for almost 20 years, I guess 17, 18 years. And when my kids were really young, I think they thought it was somewhat cool. And then after the first year or two, they just absolutely could care less, right? And turn that off if it comes on. And the only time I ever hear about being on the radio for my kids is when one of their buddies at school said, oh, I heard your dad on the radio. And they're like, yeah, whatever, I don't even know what he's talking about. So anyway, it's cool that they're learning. They're going to be very smart kids, number one. Number two, I think your question, McKay goes back to the automatic increases in savings that you're able to stomach and not make it so that you can't pay the rest of your bills. And more and more 401k plans. And in fact, I believe now after the secure 2.0 act, any new 401k plan allows for this. So not every older 401k plan does, but most of them do, is that there's an escalation option inside your 401k contribution and you can have it automatically ratchet up your savings. I think it's just in 1% increments and I don't know exactly if you can do it four times a year, once a year. But even if you do it once a year, McKay, and you may not notice that extra savings that you're getting.

[Krista]

So.

[Wes Moss]

So Maybe you're saving 8% today and you go auto escalate and in a couple years you're at 12, 13, 14% and you may not have even noticed that you're saving that much more in your retirement accounts. So you're almost tricking yourself into saving a little bit more. You said that your salary is going to be pretty much level. So there's only again, so much juice you can squeeze out of your salary and put into savings. And. And it's really hard to manually do that. So I would look at this as just you're tricking yourself into saving more by turning on the auto ratchet up higher contribution limit inside the 401k. The other thing you can do is just to get started and it doesn't have to be a huge amount of money. Maybe it's the amount you won't miss much. Maybe it's a hundred bucks, maybe it's $200 a month and you're doing that in a brokerage account and you're doing an auto investment plan and you're doing a reinvestment plan, and you may not miss that all that much either. So I think that you. There's two ways to kind of trick yourself into saving more. First of all, it's starting small, but you're doing it today. And if you do that for another 10, 15, 20 years, sounds like if you've got young kids, that could add up to more than you might think. So I would think about tricking yourself into just saving a little bit more this year. That could turn into a lot more in the future years and then add up to an awful lot way down the line.

[Krista]

I love that McKay has a job that's so fulfilling, too. I think that's so important, even if they're not expecting significant raises. Yeah. Loves the job.

[Wes Moss]

Do we have more questions or no?

[Krista]

That's it, man. We're done for this episode.

[Wes Moss]

It's a wrap.

[Krista]

It is. Thank you for joining us.

[Wes Moss]

Please share these questions.

[Krista]

By the way, we've got plenty.

[Wes Moss]

We have a great audience.

[Krista]

Yep.

[Wes Moss]

Really?

[Krista]

Oh, no question. Best audience in the entire country. I'm absolutely convinced. People are so nice. There are a couple on YouTube who aren't as nice. But that's okay.

[Wes Moss]

That's okay.

[Krista]

Most people are fantastic. Thank you so much. Share this episode with a friend. Subscribe please to our YouTube channel or wherever you listen and hope you have a great rest of your day. Clark is back tomorrow with a brand new episode.