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Episode #503 - Should I Borrow Against My Investments to Buy a House?
Roger: Captain's Log, Star date 47634. 44. Today is episode 503 of the Retirement Answer Man Show.
Welcome aboard, mateys!
My name is Captain Roger P. Whitney, and the mission for today's voyage is to not just survive retirement, but rock retirement because you're doing the work to lean in with confidence.
Welcome to the show. We have some waypoints on our voyage today. We're going to talk about books in August books that I've completed.
We're going to answer your questions, starting with the title question on how to finance, or should I finance a house using a brokerage account, then we're going to bring on Dr. Bobby Dubois to talk about how we build energy so we can show up to life. Got a lot on board today. If you go to our show notes at rogerwhitney.com, you can see the timestamps for all of these things. If you want to hop to something that is of interest to you.
Now, next month, we are going to have a theme around what our kids need to know. You, if you're listening to this show and you're like a normal listener in their 50s or 60s, you got a lot of wisdom, and perhaps you have children. One of the difficulties if you have children is sometimes, we're not the best people to provide advice. They don't listen to us in the same way they listen to others. So, what we're going to do over the month is explore what we would like our kids to know so they can hear it in an organized way from someone other than their parents.
Perhaps they will hear it more clearly. I'm going to ask you for a lot of your insights and insights on the Passions, your career and hobbies, your finances, budgeting, saving, and investing, relationships, choosing a spouse or partner, building your network of friends, and then retirement. How should they think about retirement? How should they plan for retirement? What would you suggest they do or not do based on your experience? You're welcome to go to askroger.me and share your thoughts. We'll be collecting those thoughts and I'll be sharing them on the show. So perhaps this is one that you can have your kids listen to.
Ultimately, if I do this well, we're going to create a resource, a mini handbook or guide that you can email to them or share with them, logging and organizing some of the wisdom from you and all the wonderful people that listen along with you. So that's what we're going to do in October. You can start sharing your wisdom if you want to at askroger.me.
THE BOOKS I'VE READ IN AUGUST
All right, onto the next thing. The books I read in August. I finished three books, but I'm going to talk about a couple more that I've read and came back to.
The first book that I finished is The Wager, A Tale of Shipwreck, Mutiny, and Murder by David Gran. Great book. I think it's actually on a bestsellers list. I don't recall where I found it.
I like historical nonfiction, where it picks an event. or a person, and they are the thread that helps you gain a better understanding of the times. In this case, this was the mid-1700s, where the Wager, which was a British ship that was sailing with other ships around South America, if I recall, and it was shipwrecked, because that's like a really scary place to go around the Straits of Magellan, I think it's called.
It got shipwrecked. Some of the ships were lost, and the captain and the crew salvaged what they could off the ship, and they're on this desolate island in the middle of nowhere by Patagonia and what happens? You have factions that develop because it's a newer captain that doesn't quite have the command authority or reputation.
The captain kills one of the sailors in questionable circumstances, and there's feuding and fighting. The majority of the survivors perish, but actually a very small number of them, including the captain, are able to make it back to England, which is amazing.
A couple of the lessons I learned from that was, one, the toughness of people, humans. We are so much more resilient than we give ourselves credit for. Yeah, I'm assuming we're as resilient as they were. What they had to endure physically, psychologically, emotionally in order to survive is just incredible. It also brought home the importance of the captain's log, hence the Star Date, or Star Trek reference.
That's the only way a book like this could really be written, because they went to the captain's log, as well as logs of, I think, one or two of the officers, to weave together a tale of what happened when the ship was wrecked, and the circumstances in which the sailor was killed by the captain. These logs, essentially the only record of what really happened, or at least one person's perspective of what happened, and captains keep these kinds of logs, as well as doctors. Doctors dictate notes for every meeting they have with a patient.
Indeed, in my practice, we have a captain's log of sort for every client. What meetings were held, what did we talk about, some color commentary, what decisions were made, and that becomes the record in the event that you have to go backwards in time and piece together what happened in the past.
So, I've considered, well, why don't I keep a captain's log, like a journal? Doesn't have to be a journal where I talk about my emotions, although I've done that, and it helps. Maybe it's more captain's log like of, hey, today's the date. I guess today is Star Date 47634. 44. There's a calculator where you can calculate the star date, by the way, and then I just say what happened today, who I talked to, some of the highlights, some of the lowlights. Doesn't have to be a book, it can just be the facts. Just the facts, man.
Thought that was interesting. And we're leaning into the captain's log concept in our practice, which is fun.
The second book I read was American Prometheus by Kai Bird and Martin Sherman.
My understanding is this is the book that the movie Oppenheimer, which is, I guess, out right now, was based off of. It's the story of Robert Oppenheimer, who led the development of the atomic bomb in the Manhattan Project in the 40s. He was married to a former communist. He had very liberal views from that perspective, especially early on, but he was a famous physicist.
He is the thread that tells the tale of obviously the creation of the atomic bomb, but also a lot of the political and military structure that was in place, and especially in the aftermath after the war, where he was vilified in a lot of ways in the McCarthyistic era of the Red Scare, and it walks through a lot of that with him as the thread.
Now, he was a very interesting dude. I think we're all interesting, actually. But he had some oddities to him. He was a good threat to have a better appreciation for how vicious politics was back then. Even in the wager back in the 1700s. It's not any worse now. It's just different themes of the same stuff.
So that was a good book. Oppie, which is his nickname, was a great character.
Third book I read. is finally finished, Outlive by Peter Attia. I don't know where to start with this book. This is by far the most tagged, highlighted book I've read. Perhaps I'll share a photo of my book because I got tags all over the place and I think I've run through a couple of highlighters in this book.
I appreciate his writing. It's technical, especially the first half, but not too much though. It's technical, but I like how he approaches it with a lot of humility. He's a doctor. He has a lot of humility and a lot of curiosity about the subject of how do we not just extend our life longevity, but how do we extend our health span?
How do we live healthier for longer from a science-based perspective, a doctor’s-based perspective, and a more progressive form of medicine. He would define it as medicine 2.0 which is essentially reactive. Once you have something, then they go about treating it. He would argue that what he calls medicine 3.0. Is more about being much more proactive in your healthcare decisions.
The first half of the book is a lot about science. The second half of the book is a lot of, okay, what do I do in certain domains, nutrition, strength, flexibility. And he is very humble in this, definitely an authority, and he has a curious mind in how he approaches that, which I appreciate.
This book is helping me radically change how I approach my health. Perhaps we do a meet up with a book study on this. Or we dive into this book with Dr. Bobby DuBois. I'm going to create my own worksheet out of the book, now that it's complete and tagged, but outstanding book.
The next book I'm reassociated with is The Courage to Be Disliked, which is a book on Adlerian psychology.
It's done in a dialogue form, professor and student. We're actually going to send you in our 6-Shot Saturday email, the philosopher's note for this book and the concept around separation of tasks, which is in the philosopher's note, which is a summary, which is created by Brian Johnson from Heroic is critical to create boundaries in our life so we can live free.
So, we're going to send that out. So, I would definitely get recreated with that book. I listened to it as an audio book. I have a love hate with audiobook. I just ordered the hard copy of the book. Audiobook is like ear candy. I'm sort of paying attention because usually I'm doing chores or exercising, etc.
I enjoy them, but I can't tag them and digest them or integrate them as much as I want. So, I'm getting the hardcover for this.
The last one was a movie I watched on just a whim on Netflix the other night. I watched The Big Short. The Big Short is the story of the mortgage meltdown in 2007 to 2009. It's a little crass. It's got bad language in it. It seems like embellishment in terms of the personality of the characters and things that actually happened. Having worked in this world for 30 years and peeked behind the curtain in Wall Street a number of different ways along the way, it just makes me sick, and it's all true.
It's not really embellished, which just makes me sick. The financial industrial complex is real. It's just, I don't know. It's a good movie to watch every now and then. This is why I want to be organic as possible when it comes to investing. It's just, yeah, it's a whole engine.
Alright, anyway, with that said, let's get on to answering your questions.
LISTENER QUESTIONS
Let's get to your questions. If you have a question about the show, go to askroger.me. You can type in your question, you can leave an audio question, and I'll do my best to get it on the show and help you take a baby step towards rocking retirement.
SHOULD LARRY BORROW FROM AN AFTER-TAX INVESTMENT ACCOUNT TO BUY A HOUSE?
Our first question comes from Larry, related to using an after-tax investment account to help pay for a retirement home he wants to buy.
Larry: Hi Roger, this is Larry, long time listener and also an RRC member. I'll be retiring in about one year and will be buying a new house. I'm leaning toward paying for the house in cash, but I've just learned of this possibility of borrowing against my taxable brokerage account instead of using some of the account to pay for the house. This would also avoid capital gains when selling the investments to raise the cash.
This would allow the entire brokerage account to remain invested, but I do realize this loan would have to be paid off eventually. The loan is variable rate with fairly unattractive rates currently, although I guess they could improve if interest rates go down.
I'd like to hear your thoughts about the pros and cons of such a strategy.
Thanks, Roger, and keep rocking it.
Roger: So, Larry, this question falls under the Optimization pillar of how do I optimize paying for this home that I've already determined is feasible from a financial perspective? So, I'm assuming you, especially because you're in the club, you've already done that work.
So how do you optimize paying for this retirement house? I'm going to assume that this is temporary or bridge financing of some sort. So, this isn't, I'm going to permanently use this loan and have it there for decades like you would a traditional mortgage. This is a temporary meaning less than a year or no longer than three or four years.
What are your options, right? You could just go do a traditional mortgage or variable rate mortgage of some sort and pay all the underwriting costs of a traditional mortgage. Or you could sell assets in your brokerage account to raise the money to buy the house, which would cause you, it sounds like, to incur capital gains, pay tax, and you'd lose the of the tax you had to pay, and you would lose any potential upside of the investment assets that you have.
So, there are these programs called collateralized loans. Generally, you have your brokerage account, and I'll just use Schwab as an example. You have a Schwab after tax investment account. And let's assume you have a million dollars in there. You need 400, 000. You could sell the assets, and then now you're going to pay 15 to 20 percent capital gains and if you haven't retired yet, you might be in a high tax bracket. So, you'll be at the 20 percent gains and maybe more. Or maybe next year you're going to be in a really low tax bracket, and you could potentially sell some assets and save 5 or 10 or even 20 percent on your capital gains rate.
What do you do? Because you have got to buy the house now.
Well, institutions like Schwab have relationships with private banks that are lenders that will provide lines of credit using the brokerage account as collateral. In this case, we'll call it a million-dollar Schwab account. I actually have some of these in the books because I have used this tool that you're referring to, Larry, with clients in certain situations.
Generally, because it's temporary financing with significant capital gains, and we're trying to optimize either because they're going to get a big payout from their company or going to work through liquidating assets to manage some of the tax liability for a variety of reasons. The advantages of this kind of strategy are they're easy, right?
You have the account; they're going to look at the account and they'll determine how much they're going to lend you based on the type of assets you have in the account. So as an example, if you had actually went to the portal of the private bank that I've used in some instances and said, what if I had a million dollars in fixed income and a fixed income portfolio, and the calculator said they would lend between 650 and 850, 000 on a million-dollar fixed income portfolio? If it was 1 million in mutual funds or ETFs or individual stocks, The calculator said they would lend between 600, 000 to 650, 000 on those million dollars. So, it depends on the mix of assets that you have in the portfolio.
In addition, they'll do some basic underwriting, but there's no cost to it, and it's a heck of a lot easier than going through a traditional mortgage. That's a big key. Speed is a force here. What you would do, just like you would do with a home equity line of credit, you would go through the process, establish the line of credit, and you don't ever actually have to use it, and if you don't use it, it's not costing you any money.
Now, what are the rates on these kinds of mortgages? Generally, there are going to be adjustable rates, usually one-month adjustable rates and that adjustable rate is going to be based on some benchmark rate. The one that I use is based on what's called the Secured Overnight Financing Rate, SOFR rate.
It'll be based on that rate plus a spread. It used to be based on LIBOR, they just did a switchover in the last year or so. We don't need to understand what these are. They're just a public benchmark that you can see. So, in this case I looked at one of the loans that I see outstanding and the secure overnight financing rate, plus 2. 75%, which is the markup above that rate, and that's basically what a lot of the revenue that the private bank is getting, has a one-month adjustable rate of 7. 68%. So that's the interest rate on a collateralized loan using a brokerage account as collateral.
Now that's a little higher than a traditional mortgage right now. But you don't have the friction of the underwriting, it's a lot less friction anyway, and you don't have all the closing costs of a traditional mortgage. A year or two ago, which was when I did more of these, the rates were in the 3, 3. 5 percent range, and so they've more than doubled here in a year or so. So those clients that were paying on those loan balances are now paying a lot more.
Generally, with these lines of credit, Larry, you're paying interest only. You get charged interest only and they can pull it from the brokerage account, or they can send you an invoice and you can mail in a check. So, the payment potentially could still be a lot lower because you're only paying interest.
Rather than interest in principle and you got to make those payments and there are some requirements that we don't have to get into here that if the portfolio goes down by a significant amount, the loan could be in default because they have collateral limits to make sure they have enough collateral to feel safe that the loan is fully securitized.
So, you'd want to explore that. If you have riskier assets, they're probably going to lend a little bit less because they want to have a bigger cushion because it's going to be more volatile, and they want to protect their loan value because it's fully collateralized. They're trying not to take risks here.
So, the benefits are, it's easy, no underwriting costs, you don't actually have to use it, you can pay interest only, and this can allow you to manage the realization of, say, capital gains if you have some timing issues that you're trying to work through based on your income level, etc.
Also, I guess a potential benefit is if you believe that you're going to earn more in your investments It allows you to keep more money invested earning whatever you hopefully think it's going to earn relative to the interest that you're paying.
So, if you think the stock's going to double or the investment's going to double and you're only paying 7. 68%, oh, that feels like a good deal, right? You don't want to not be in that investment.
Conversely, let's go to the negatives of these types of strategies. Number one is the interest rate cost, right?
It used to be a lot lower when interest rates were lower, but you're paying 7. 68%. That's direct money out of your pocket. And unless you're paying the principal, that number stays the same. You don't have a loan, that's a just guaranteed rate of return. If you don't take the loan of 7. 68%, if I could take a guaranteed 7. 68%, I'd probably take that all day long.
The negative is the interest rate right now. Yes, the number could go down. If interest rates go down, they could also go up. So, you're taking that risk.
The other risk that you're taking is. That your portfolio may not keep up with the interest that you're paying on the loan.
That's a high bar for a guaranteed rate relative to the potential return. I do not believe in the concept of borrowing money, invest it because you'll make more than the interest rate. I don't like that structure. I think it over complicates things. It's getting a little bit too cute for me.
Another downside is that if the portfolio goes down significantly, you may find yourself in a pickle just like you might with a margin loan where the bank is going to say, hey, hey, hey, this isn't at a level that we can sustain as collateral anymore.
So, you're going to have to put up more money or pay down some of this balance, or we're going to default on the loan. So, you're going to take that risk.
Another downside is once your brokerage account becomes a collateralized account, actually it gets added to the name because that lender is going to have lean on that brokerage account, is that if you want to take money out of that brokerage account, let's say journal some money to your IRA as a contribution. You have to get their permission, essentially a release of whatever amount you want to withdraw before you can actually take the money out.
Generally, it doesn't take a lot of friction paperwork wise, but you can't just draw on that account like it's your money because the lender will have to release it as collateral, whatever amount that you're taking out.
I like these types of strategies, Larry. If you have a pathway that you're going to pay that loan off, over a couple of years, maybe because you're going to sell a house or you're going to have some other capital event that's going to come in, or you're working on optimizing tax rates on capital gains, whatever capital gains you have right now, I think, Larry, that's a bird in the hand.
Even if you say, well, I'm going to do this now, and then after January, when my income is zero, I can realize capital gains to some level and not pay any tax on it. That is potentially true, but you're taking the portfolio risk of that stock going down and not having nearly as much capital gains later on.
You can model these thinking through the issues that we've talked about and just get to a judgment call for yourself. I think one rule of thumb is if you are very overfunded for your retirement, meaning you have a lot more assets, your wealth is such that the kind of life that you want to live, you're well overfunded for, then these are the kind of optimization strategies that are a little bit more attractive because you have enough margin that if things go sideways, it's not going to hurt your base great life.
But if it's one of those strategies where you're constrained in your retirement funding, and you're just trying to make things work, now that gets a little bit more problematic. So, I'd be careful about that.
So hopefully that gives you at least some appreciation or framework.
JENNIFER WANTS TO HEAR MORE ABOUT "PRE-TIREMENT"
All right, our next question comes from Jennifer.
Jennifer says,
"I recently found your podcast and I'm loving it."
Awesome, Jennifer.
"My husband and I are both 53 years old, recently made the final tuition payment to our son's university, and now are excited to begin making plans for retirement."
Jennifer calls out Kevin Lyle's list of questions to have with a spouse before retirement in one of our most recent episodes. I think it was the one titled historical verse projected returns.
" My question is in the 500th episode a listener called in and mentioned Pre -retirement, this concept really resonated with me.
Can you point me towards a few episodes where this was discussed?"
All right. So, in our 6-Shot Saturday email Jennifer will have I'll link her to where we have discussed this, but let's just go over it really quickly.
Pre-tirement is moving away from binary decision making or binary frameworks for thinking about things. So generally, when we think about retirement, Jennifer, we think in a binary way. I'm working in my career, or I'm retired, right? I'm on or I'm off. In this realm, we want to think more in a nuanced way, more like a dimmer switch.
So rather than frame it as I'm retired or I'm working, there's a lot of in between there that you can explore that might get you everything you want. So as an example, most of us are institutionalized and we're really good at what we do, and we make really good money. So, it's hard to justify not working full time and getting all the accolades and the title and the compensation that goes along with it.
It's hard to justify slowing that down. You might as well just retire because how could I ever make less? How could I not have that title, et cetera. What we have found, Jennifer, is that, and this is from listening to you and people that have been on this journey that you're just beginning. What most people want most in retirement, from my understanding and from what people tell us, is not so much the absence of work. It is more time freedom, more space in their life to be able to explore things outside of work. Many of us, and maybe you, Jennifer, and your husband, have been on this career Treadmill, where you're doing everything, you need to do to build your human capital to be valued by the company to get bonuses and raises and everything else.
Most people just want time freedom. Well, you can slow your work down by taking a quote unquote lesser position at your company, where you're working three quarters of the time, you're working half time, maybe you step down from a team lead role to a role player role.
Yes, the compensation will go down too, and your career advancement might be capped, but you're able to leave work at work, you're able to compartmentalize it more. Maybe you're not having to manage people anymore, so it gives you more time freedom to work four days a week or turn off from work so you can start to explore life and you still get the benefit of the joy of working with people and being productive and feeling valued there and the compensation, then you also get the benefit of having some more free time.
Many people have done that in the company that they work with. Remote work has definitely helped the increase in that. Some companies are very open to that because they have a brain drain of talent that they're trying to manage. Other companies aren't. So, one way would be to explore, how do I do this within my company?
Another way would be maybe I do retire, take a hiatus, and go work at, I mean, literally Lowe's or Ace Hardware or Starbucks or whatever, whatever you can dream of that's totally pivoting. Maybe it's using your skill sets in a different way where you're making significantly less money but you're enjoying it a lot more and you still have time for him. It keeps you busy, and it helps pay for travel.
The benefits of thinking in this nonbinary way are that it may allow you to slow down earlier than you would retire. And I've seen cases where, well, if it's binary where I'm working or I'm retired. Okay. You have got to work three more years to make it really feasible. Whereas if you slowed down today and maybe worked part time, halftime, three quarters time for four years, you could do that earlier. It's a way of thinking where you can buy more life, put more life in your life. A lot of this is just conceptual of getting off of the mindset of I am on a career track I always have to please everybody and say yes to everything from a career perspective.
So, it's that in between stage. We'll try to have some resources on that in our 6-Shot Saturday as well.
HOW TO GET THE ROTH CLOCK TICKING WHEN YOU DON'T QUALIFY FOR A ROTH
Our next question comes from Kyle related to opening up a Roth IRA to get a dollar into it so you can start that five-year clock for either future conversions or rollover from Roth 401k.
Kyle says,
"Thank you so much for the great shows.
You talked about the need to contribute the first dollar to a Roth IRA to start the five-year clock. But what if our earnings don't allow Roth IRA contributions? Can we still contribute 1 and just pay some sort of penalty? Will the backdoor Roth contribution work, or do you have any other suggestions?"
You know, Kyle, I am in this exact situation. This is the story of the cobbler with no shoes. So, I have Roth 401k contributions that I've been making for a few years. I've never opened up to a Roth IRA. I just totally blipped on it. My wife and I don't have one. My wife's 57, I'm 56.
We need to get that started.
I don't qualify to make a Roth IRA contribution. So, what you can do, Kyle, is you can open up a Roth IRA, there's no rules against that, and then you'll need to convert from a traditional IRA, whether it's a backdoor Roth strategy or whether you already have IRA assets.
Once you have the Roth IRA opened up, you just need to convert. In theory, at least a dollar into that Roth IRA and pay tax on that conversion unless you have some after tax assets there. So, it's a very simple workaround. It's basically doing a Roth conversion for whatever amount you need to fund that Roth account to get that clock started.
ON DISCUSSING FAITH IN THE RRC
Our next question is really a comment, well, question comment from Todd.
He says,
"Huzzah, Roger, on reaching 500 episodes."
Thank you so much, Todd.
"Thanks for the great content, financial and otherwise. I enjoyed your discussion, Todd says, on alcohol with Dr. Bobby DuBois. In another recent episode, Bobby made a brief reference to caffeine.
Do you think Bobby could do a deeper dive into caffeine for a Bring It On segment? Caffeine consumption in the U. S. seems to me to have skyrocketed during my lifetime. I'd love to hear a summary of the latest research about the good, bad, and ugly related to that, and aging. Also, thank you for being bold on occasion to mention the role of faith in your own life.
Are there faith related subgroups or meetups within RRC? I'm considering joining the next enrollment period and this would be an important feature for me."
So, number one, Todd. Yes, I'll talk to Bobby. I have no doubt he will dive into this either on the show or in the club. Related to faith subgroups, we do not have any. I am open to it.
Yes, I am a man of faith, and my philosophy about it is just to live who I am and not preach it, but not ignore it.
In the club, we do pretty much the same thing. We're not going to shy away from it, just like those that don't live in faith aren't going to shy away from that. We just try to be who we are in as respectful a way as possible.
I'm open to a subgroup, but I would say we don't have one at this moment. But I appreciate even your consideration.
THE COST OF ALCOHOL
Richard, another listener, has a comment on alcohol. from our conversation with Bobby, which is a really interesting one.
Richard says,
"I found the recent podcast regarding alcohol quite informative.
I was a bit surprised that you did not list one particular negative. The financial impacts of alcohol consumption. From personal experience, I'm aware of the cost of alcohol at home, wine clubs, grocery purchases, in particular restaurants, where there is a substantial markup. This is not a trivial expense."
It's a great point, Richard. We didn't talk about it because it was the non-financial realm, but it also impacts the finances just like gym memberships do, although exercise is good. So, it's a great point.
Very multifaceted. Thanks for pointing that out.
RICHARD'S THANK YOU FOR 500 EPISODES
All right. We have one more question on Roth 401k versus IRAs.
But before we do that, I'm going to play one audio message I got celebrating 500 episodes. I know we've covered that and It's just so nice, and he sings.
Richard: Happy anniversary to you, happy anniversary to you, happy anniversary dear Roger, and staff.
Roger, this is Rich from Michigan. I'm a pediatrician, and that's how I sing to my kids in my practice sometimes. I want to say thank you for your help and education. wisdom and thought process and energy and direction in how to use not just finances, but life and energy as well.
So, thank you for all your work these past 500 episodes and to your staff because it's not a solo project by any means.
Best of luck and for many more years I'll be listening to you. Thank you.
Roger: Rich, thank you so much for singing on the show in Donald Duck. I love that you bring that passion to your practice. Yes, I'm the voice, but there's so many people, Tina, Nicole, Tracy, Kim, Troy, Scott, Bobby, Kevin, Kevin, Mark, Michelle, Louie, that go into the show, I just happen to be the voice.
I need to make sure I acknowledge them more. Thank you for reminding me of that.
DO THE SAME GOLDEN RULES APPLY TO ROTH 401KS AS THEY DO WITH ROTH IRAS?
All right. Our last question, and then we're going to get to energy with Dr. Bobby Dubois, is from Dan.
Dan: Hey Roger, Dan here from Albany, New York.
I'm a longtime listener since about 2015, believe it or not, and an RRC member. I've learned a tremendous amount from your show over the years and I'm ready to rock retirement at the end of this year.
But my question is regarding Roth IRAs versus Roth 401ks. All the literature and the podcast have been focused on IRAs, but do the same rules apply for a Roth 401k? For instance, is the golden rule? The same five years account open and 59 and a half years of age are the growth and withdrawals all nontaxable.
My company 401k plan has a Roth option, and I am considering opening an account within that plan for my Roth contributions and roll orders. Of course, after I do my UDA assessment each year.
So, thank you for your feedback on this and please keep up the great work.
Roger: Well, that's a great question. Do the same rules apply?
So, thank you for all the kind words, Dan, and the kind words that you left after your question. I appreciate that. The team is amazing.
So, do the same rules apply related to the golden rule? Now, the golden rule, when it comes to Roth accounts, when we're talking about the five-year rule here, the golden rule is, are you over 59 and a half, and is your first dollar over five years old in an IRA?
That same rule does apply to Roth 401ks. The only quirkiness that you're going to want to navigate, Dan, is you have to be careful if you do a Roth 401k. When you retire and you're past over 59 and a half, and the money's in there for at least five years, you want to be careful that you don't transfer that to a brand-new Roth IRA where there haven't been any dollars because if you transfer a Roth 401k to a Roth IRA, you lose the holding period that you've been building in that Roth 401k. It's going to assume the holding period of the Roth IRA. So, if it's a brand new one, you're starting from year one again. If you've had money in there for three years, now you're at three years. If it's over five years, then it doesn't matter.
That's the idea of wanting to have at least a Roth IRA opened up with a dollar in there so that clock is ticking.
The other wrinkle that you'll want to check is how your company's plan handles withdrawals from your Roth 401k. Are you able to just say, give me money from my Roth 401k or give me money from my IRA pretax account? Make sure that they give you some flexibility in order to do that. Some plans may not. So, you just want to be clear on that. So, you don't get yourself in a jam in terms of the withdrawal rules. If you have both pretax and Roth contributions in that 401k plan.
Another little wrinkle that popped into my head as I was talking is that generally in a 401k plan, when you choose your investment allocation, it's done on a macro level and applies to all of the assets within your plan, meaning that if you choose 60 percent in stocks, 40 percent in bonds, in whatever investment selection that they have, that allocation is going to be applied to your pretax contributions, your company matches, and your Roth 401k contributions.
You can't, at least in most plans, say I want my Roth invested this way and I want my IRA or pretax assets invested this way in a 401k. They're all going to be the same. I don't think I've ever had an exception to that in my experience, there may be some out there.
So that's one potential negative if you want to be more aggressive or more conservative with one of those.
So hopefully that helps give you some framework to walk this journey with that. Let's go to the bring it on segment.
BRING IT ON WITH DR. BOBBY DUBOIS
Now it's time to bring it on and talk about building the energy to actually show up and rock retirement with Dr. Bobby DuBois.
Bobby, how are you?
Dr. Bobby Dubois: I'm good. Good. Thanks for asking.
Roger: Recently, I bought some protein powder to put into my smoothies. Protein powder is not inexpensive. Is protein solving a problem we need to think about, or what's the point?
Dr. Bobby Dubois: I think it does. It's very topical that you buy protein powder, since we're going to talk about that a little bit later in this segment.
There's this famous saying, you are what you eat. I would just sort of modify it a little bit. You are what you eat and when you eat it, both of these things seem to matter. Protein is really important, and it becomes particularly important when we age. I think you framed it correctly, which is, is it a problem we're trying to solve?
So, in previous episodes, we talked about how from an exercise standpoint, we're kind of dealing with a slippery slope going in the wrong direction, which is we lose 1 to 2 percent or more of our muscle mass year after year, no matter what we do. It's a general decline that probably happens beginning in our 30's.
The only way to forestall that really is to build muscle and the only way to do that is combination of strength exercises and adequate and I underline the word adequate protein intake. So today I thought we would. focus a bit on protein, its importance, how much we need, when we should eat it, what we should eat and how do we figure out if it's going to make a difference for us?
I think it is terribly important.
Roger: I want to preface this because we have a range of people that are super geeky about their nutrition and lots of things. We have another group where they just need some rules of thumb. So, I want to make sure that the goal here is not for you to have to become geeky if you're not, but to just be more aware so you can think about when you eat things and how much you eat things so you can think about protein.
That's a win here, I think, in this discussion.
Dr. Bobby Dubois: If people want to stop this segment right now, I mean, the take home message is having three real servings of protein a day at each meal, one at each meal, and perhaps throw in a protein shake or a protein bar, and you should be in pretty good shape.
That's kind of the punchline that we'll get to if people want to be practical.
Of course, over the next few minutes, I want to convince people that they want to do this. I mean, losing muscle strength is like, okay, yeah, I'm going to lose IQ points too. So that's just part of aging. But losing muscle strength is a big issue because muscle strength relates to our balance.
Balance relates to falling. Muscle strength relates to being able to do all the things we want to do. Lift up our grandchild, buy groceries, go on a trip and put the carry-on baggage in the overhead bin. All of this is going to gradually fall unless we make some conscious efforts, and diet is one of the things that can help us.
Roger: One perspective that I've changed for myself recently from doing some reading on this, Bobby, is this idea of the carry-on bag, right? If I have a 30- or 40-pound carry-on bag, I want to be able to put that into the overhead, or I want to be able to pick up my grandchild when I'm 70.
The perspective that's changed is if that's my goal when I'm 70 or 80, then as a 56-year-old, I have to build as much capacity as I can build right now because I'm naturally going to lose some of that.
So, if the end goal is to be able to say, lift 30 or 40 pounds, I have to be able to build capacity to do a lot more right now.
Dr. Bobby Dubois: That's correct.
Roger: That perspective, it's not just I have to be able to do it now and maintain it. I actually have to build more capacity knowing that I'm sort of swimming upstream in terms of strength loss.
Does that make sense? Am I right there?
Dr. Bobby Dubois: Yes. And the term that I've sort of coined is not use it or lose it but overuse it or lose it. Meaning exactly what you said, which is if I want to be able to do something that amounts to 30 pounds in 10 years, I need to be able to do 40 pounds or more. So yes, exactly what you were saying.
Roger: Okay, and so then protein is part of this solution when it comes to muscles, mass and strength, I assume.
Dr. Bobby Dubois: Yes, and to just sort of give a teaser since, as you know, and as the audience knows, everything that I try to have come out of my mouth is based on some science or other. So, there was a really important study that looked at folks that were a bit older than your average listener.
So, folks in their 70s, and they did food questionnaires and obviously focused on many things, one of which was protein, and then they followed these people for a number of years.
What they found is that the people in the highest 20 percent of protein intake compared to the lowest 20 percent of protein intake. Those in the highest lost a lot less muscle, specifically the low end of it lost 40 percent more muscle than the ones in the highest.
So, what we eat actually does potentially affect the strength that we want to have. in the years to come.
Roger: So, the solution to all of this is sort of basic common knowledge, exercise and nutrition.
Dr. Bobby Dubois: Right, and so let's now sort of drill into the nutrition side and the protein side.
Unfortunately, the government has not been our best friend here. The RDA, the Recommended Dietary Allowance, daily Allowance says that we need about 50 grams of protein for a typical person that's on a 2000 calorie diet, or roughly 10 percent of calories, which then turns into sort of 0. 8 grams of protein for each kilogram of body weight, or about a third of a gram of protein for each pound.
I weigh 150. So, on this basis about 50 grams.
The problem is this was based a long time ago on studies that were not as sophisticated as they could be or should be. And they came up with a really lower bound.
It's kind of like in the old days with scurvy, and they said, okay, how much vitamin C do you need to prevent scurvy, and you said, okay, this amount. Okay, that's the recommended daily allowance. The problem is that that's just the lowest amount to not get scurvy. It doesn't say what's the optimal amount.
The RDA may be correct at one level, but if you're trying to maintain muscle mass, that number is way too low as you get older and probably needs to be about 1. 2 to 1. 6 grams per kilogram or about 0. 5, 0. 55 grams per pound.
So, for me, and that's 1. 2 and then it goes up from there. So, for me, I'm aiming as a 150-pound person to weigh about a hundred grams or more.
There are even people that recommend a full one gram per pound, which for me would be 150 grams of protein a day, which is an awful lot. But I'm sort of aiming for above a hundred.
Roger: So, for me, I'm about a 200-pound dude. I would just do the math and need to aim higher.
Dr. Bobby Dubois: I think so. 120, 130 grams of protein a day, which is a lot more than what the average person gets.
Roger: On a side note, I just finished the book called The Wager. Which was about the ship called the Wager back in the 1700s going around South America and it was shipwrecked and they kept great logs and scurvy back then on ships was this mysterious disease that killed massive amounts of sailors and they had no clue what was happening.
Dr. Bobby Dubois: Correct.
Roger: I was amazed by that or reminded of that anyway. Okay, back to the topic.
So, 80 to 100 grams a day is a good range to start, depending on your weight. If you're heavier, you need more, like me, right? Is there too much protein, by the way? Can you overshoot this and hurt yourself?
Dr. Bobby Dubois: You can, in two ways.
One is, if you have excess protein, that's excess calories, and excess calories leads to the problems that I think we're all aware of.
The other caveat is that people with kidney disease have a hard time excreting the byproducts of protein. If you have very severe kidney disease, they actually limit your protein intake, which of course makes your strength problem even worse.
But for most people, other than calories, you should be okay if you had a bit more cottage cheese than maybe the average person would.
Roger: That actually reminded me, my old business partner had that kidney disease and they had to severely limit their protein.
Dr. Bobby Dubois: Yeah, it's a very serious problem. Kidney disease in general, and then what it requires of your diet more specifically.
Roger: I understand That protein is one of those compounds, it's an energy that is a long-lasting energy, unlike say a carbohydrate, which is really quick energy. So, when you eat protein, it's something that lasts a lot longer because it's more complex to break down. Is that correct? I remember learning that from a nutritionist years ago.
Dr. Bobby Dubois: It is.
If you eat a wallop of protein, there's only so much your body can handle at one moment. You can't just store little protein particles for later when you need it, unlike sort of carbohydrates, which we can turn into fat and then back into carbohydrates. Protein is sort of, it goes in, you either use it appropriately or not. Then you need your next batch of protein.
We'll get into this, not only what you eat, but when you eat it is important.
Roger: So, if we need 80 to 100 as a guideline, but you can go up based on your weight, where do we get it?
Dr. Bobby Dubois: The good news is there's lots of ways of getting it. But I think as Gail and I have realized, you have to be very proactive.
I love carbs. I could easily have toast and jam for breakfast and for lunch, I might have the leftover pasta from the night before and have a couple of pieces of whatever over the course of the day, and then maybe have some protein for dinner. At that rate, I'll probably end up with 30 grams of protein.
So, what we've realized is you really have to think about it. Oh, okay, for breakfast, I'm going to have this protein. For lunch, I'll have this. For dinner, I'll have this. And maybe I'll have a little smoothie somewhere along the line with protein powder.
But to be sort of very practical, we love cottage cheese.
If I'm splurging, I'll get full fat. If I'm not, I'll get the other stuff. And in a cup, which is, that's not a huge, huge amount, it's 28 grams. Greek yogurt, a little bit less, probably 20 grams in a cup. Eggs, every egg you eat is about six grams of protein. So, you have three eggs, you’re 20. Then milk's pretty good, eight grams per cup.
And then if you have basic good meat, chicken breast is going to be 35 grams of protein in a four-ounce portion. Often, we eat more than four ounces.
Roger: I was going to ask because a typical chicken breast, like I buy at Kroger, if I eat a chicken breast, I'm guessing that's a lot more than four ounces.
Dr. Bobby Dubois: I bet you it's closer to eight.
Roger: Okay.
Dr. Bobby Dubois: If I had to guess, because they really plump up those suckers. So, probably so. I mean, a scale in your kitchen is a wonderful thing and you don't need to be a slave to it. But just your eyeball, put it on the scale and say, ooh, my eyeball wasn't quite right.
Too much, too little, whatever it is.
Salmon's great. Again, a four-ounce portion is 30 grams. Tuna's 25 grams. When you get into the things that the vegan folks eat, the lentils and the quinoa and that kind of stuff, you've got to work at it. Because a whole cup of black beans, which is a fair number of black beans, is only 15 grams. You've got a long way to go to get 100 grams of black beans.
I think if you consciously say, I'm going to have a portion of protein three times a day, and you can easily get to 30 grams for each one of those. Okay, so for breakfast I'm going to have yogurt. or cottage cheese. Lunch. I'm going to have a sandwich with a chicken breast in it. Dinner, I'll have a hamburger, whatever. You're already at probably 75, 80 grams. Then maybe throw in a protein bar or a protein shake and you'll be in great shape.
But if you just let it eat what you eat, my guess is when you add it up, it's going to be way less than you think.
Roger: Are you aware of any numbers on whether people are getting adequate protein or not as an average?
Dr. Bobby Dubois: There's the NHANES study, which is the National Health and Nutrition Assessment Survey, and they do assessments like this. I think, by and large, people get way too many carbs and fats and, by and large, not enough protein.
It gets more complicated because, as people age, their tastes change, and they may not end up with as much protein as they think, and then, as you age, you don't absorb the protein quite as well as you did when you were younger.
I invite people to measure what they eat in a typical day in terms of their protein, and then they'll know for themselves. Some people are vegetarian or vegan and don't pay close attention to their protein.
I bet you it's way low. Some people are like, well, I shouldn't eat much red meat and I'm not a huge fish lover. My guess is theirs are very low too.
Roger: Yeah, we're so carb centric. Does the type of protein matter?
Dr. Bobby Dubois: It does, especially if you're a vegan, because there you really have to pay attention. Unlike other kinds of things like carbs and fats, one size doesn't fit all.
So, there are proteins made of building blocks that are called amino acids, and there are what are called essential amino acids and non-essential amino acids. Non-essential means our body can build them itself. Essential means you got to eat them. If you have milk products, whey, casein, you’re going to get all the essentials.
Don't worry about it. Don't even think about it. But if you're eating mostly soy protein, you may not be getting enough of the essentials. So that's where the really careful vegans will be sort of, I need to do rice plus beans because between the two. I'll get all the essentials.
For the average person, I don't think you have to worry about it too much, but for those people whose diet is a little atypical, I think it is worth taking a look and see are you getting the leucine, which is one of the essentials that people might not get.
Roger: Then we talked about protein supplements.
Dr. Bobby Dubois: Well, there's a little bit more to say about protein supplements.
There's a myriad of them out there, and that could be the powders you put in your smoothies. It can be protein bars. The protein bars can be mostly protein or a little bit of protein and a whole lot of other stuff.
We went to Costco the other day and bought four different types of protein bars, ranging from sort of 12 grams of protein up to 24, ranging from very little fat to a huge amount of fat. Yeah, you can get a lot of calories and other things in protein bars, whereas the protein powder is pretty unique. It's just protein.
Now, whether you want the whey-based protein powder, or you want casein based, again, I don't lose a lot of sleep over it. I tend to use the whey base. That's the milk-based ones because again, they have all the essentials.
For example, if I'm going to do a workout, I might have a protein bar beforehand and that will handle 20 of my grams for the day or a protein smoothie after my workout. I like that too.
Roger: Yeah, what I'm amazed with the protein bars is they have protein in them, but they're almost like candy bars. A lot of them. They're like chocolate and caramel. I tend to eat RX bars, which give you a little less protein, but it's like five ingredients.
Dr. Bobby Dubois: Yep. You mentioned earlier on that these protein powders are expensive. And I used to have that feeling too, like, I'm not going to buy protein bars or buck or two a piece and I'll just have some food.
But then when I go to the market and I buy cottage cheese, that's not cheap either if you're eating at like a full cup. So, you're probably spending a buck or more on your cottage cheese. So, the protein bar, the protein powder actually isn't much different.
So, yeah, I'm less concerned about the price of these things because the price of food is caught up.
Roger: Well, I was thinking about this as you were talking, actually, because I recently bought this. I don't even know which one you bought. The hard part, too, is there's just too much selection, and everybody's marketing you. Basically, you just want the whey protein, with a guess. But it was like 40 bucks for this big thing.
I'm guessing, I don't recall off the top of my head. But then when I think of the number of servings, If I went down to a per serving, it's probably not that expensive for the bang that I'm getting in terms of the protein. If I really did math.
Dr. Bobby Dubois: Probably a buck 50 per serving, depending on me, if you get the fancy ones, probably more, but it's about the same as my Greek yogurt I just bought or the cottage cheese or. God forbid you're doing it with salmon and being a pound of salmon, decent salmon is probably 15 bucks a pound in four ounces of that's going to be four dollars. So, the protein powder is cheap by comparison.
Roger: Let's compare. Cause I'm very basic in my shakes, frozen strawberries or mixed fruit. If I have it, a banana, Greek yogurt, my protein powder, and I add a little bit of water. That's about all I do. Yours is probably fancier. Do you have anything fancier?
Dr. Bobby Dubois: No, mine, I'm becoming minimalist because I used to do what you do, which is we're getting a little far afield here, but then I figured out how many calories did I just put in there?
You have five or 600 calories by the time you're done with the banana, the strawberries, you know, the yogurt, etc.
I started because my standard one is like; I'll throw a banana and I'll use whole milk. Cause I like whole milk. And it was like, wait a second. So, my new thing, and I learned this from my wife is if you throw in a bunch of lettuce, like mixed greens, it gives it a flavor, it's not bitter. I was using milk. Now I'm just putting water in. A few blueberries, some handful of greens, protein powder, and water, old fashioned water, and calorie count is nothing. I mean, it's the hundred calories for the protein and maybe another 30 or 50 of the blueberries or whatever, as opposed to the 500 calories that went into my typical one, which I love.
So, I'm going more minimalist of late.
Roger: This is on topic because people wonder about these things. I think it's on topic.
Dr. Bobby Dubois: Well, there is one thing we haven't gotten to, but it's critically important. And that is, we're not only we are what we eat. So I hope people are convinced they probably should eat protein. It'll help them from a strength standpoint, and you got to be proactive in your thought process, but the time-of-day matters.
So, this blew my mind actually, because again, I'm the pasta centric view of the world. I just had croissants for breakfast, homemade croissants. And it was like, Oh God, this is delicious.
I did have a protein smoothie beforehand, but my actual tendency is just to have carbs, carbs, and more carbs throughout the day, and then have a wallop of protein for dinner.
So, there was a randomized control trial, exactly the kind of thing we're looking for now. It wasn't a huge study, and they looked at whether it mattered in terms of protein uptake in your body, and there's various isotopes and things that can assess it, whether you had evenly spaced protein throughout the day, which is really what we're talking about, versus skewed protein intake, meaning you have most of it for dinner or lunch or whatever it is, and what they found was it made a huge difference, that you really, really, really need to spread it out over the course of the day because if you have 60 grams of protein in one sitting, most of it is going to get turned into fat and it won't be used for the protein purposes. Your body can't handle that much at one moment in time.
So, you really, really, really should, according to this study, and lots of other people have been talking about this as well, that you want to space it out.
Now, where this has become a huge problem, everybody's in love with intermittent fasting. And we've talked in the past, there are definitely some pros and cons of intermittent fasting, but from a protein standpoint, it's a nightmare because you can't cram all your protein into a four-hour feeding window and expect it to be used.
So, I was mezzo mezzo on intermittent fasting myself and now I'm absolutely not doing it all because I want to get the protein in. I think the two are a really hard marriage to make work.
Roger: Yeah, so you want to space it out throughout the day is the message, I think.
Dr. Bobby Dubois: I think so and be proactive because if you're not you won't get enough.
Roger: Okay. So now we're going to end with what we always end with, which is how do we self-assess and take a baby step?
Dr. Bobby Dubois: Well, I know I always say we always end with this. This one's a little more difficult. This one is a bit of religion. You kind of have to believe it's the right thing to do. Now I've tried to get some science that it is, but it's not like sleep or reducing alcohol or doing some exercise where you can really take stock of, you know, I've been feeling anxious all the time. Maybe if I change X, I'll be less anxious in a week or two.
The problem with the protein intake is you kind of have to like, believe it's going to work. But I think there is a self-assessment because we always have to end with that.
So, the first is just take stock of where you're at. Again, nonjudgmental.
What did you eat yesterday? Or what are you eating today and try not to modify what you're doing because you know you're measuring it. Just be honest with yourself. Are you getting 30 grams of protein? You're getting 80 grams of protein? Is it all at one time? Is it spread out? Step one, do that.
Step two, figure out what you think you should eat in terms of grams of protein.
I said 100 grams for me as a 150-pound person, but again, do the math. We can put this in the 6-Shot Saturday so people can know if this is per pound or per kilogram. and then figure it out. So that's the second is.
Then figure out how am I going to get that number of grams and divide it up into the day, throughout the day.
Don't worry about protein powder or stuff. It's fine to use those and it's not less good than eating your chicken breast. You don't have to have chicken breast four times a day. There's lots and lots of things to eat.
Then, pick something you might be able to measure. One of the future podcasts, maybe we'll talk about DEXA scans, body scans, or muscle strength things and maybe measure where you're at today in terms of muscle strength or muscle pounds in your body and then reassess in three to six months.
Unfortunately, you're probably doing more than just tracking protein and it is hard to disentangle all of it, but it might give you a sense of the impact. And if you can't do all that, take it on faith, have a bunch of protein throughout the day and do the best you can with your strength training, and you'll be in good shape.
Roger: Wise counsel. I'm going to go make my protein shake now. It's lunchtime.
Dr. Bobby Dubois: Beautiful. Go for it.
TODAY'S SMART SPRINT SEGMENT
On your marks, get set,
Roger: and we're off to take a little baby step we can take in the next seven days to not just rock retirement, but rock life.
In the next seven days, let's have you take a baby step. I'm going to give you a challenge, because I'm going to do this challenge too. In the next seven days, just keep a captain’s log. Every day, take five minutes and just make a quick summary of what you did that day, who you spoke to, and any highlights or lowlights. Don't feel like you have to write a journal. And just see if you find this as a habit you want to install in your life.
I'd be interested to hear your feedback.
CONCLUSION
Alrighty, end of the show. I want to remind you of what the show is all about.
This show is about you taking action to actually rock retirement. We care about the details, but I care much more about you taking intentional action. We are going to approach this subject with curiosity, with humility, with as much integrity as we can.
We don't talk about things for money and ads. Other than talking about the club, we're not going to try to sell you anything. We don't have any vested interest in that. We're going to try to work on you sharpening your retirement planning saw. I'm doing the same thing and we want to have fun doing it because this is a wonderful game we're playing, life.
It's an important game and we want to get it right. We're all in on this. On you rocking retirement. So, let's go.
The opinions voiced in this podcast are for general information only, and not intended to provide specific advice or recommendations for any individual. All performance references are historical and does not guarantee future results. All indices are unmanaged and cannot be invested in directly. Make sure you consult your legal tax or financial advisor before making any decisions.