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Episode #526 - The Benefits Of FIRE
Roger: The show is a proud member of the retirement podcast network.
Welcome to the Retirement Answer Man show.
If you're new to the show, my name is Roger Whitney, and I have been a practicing retirement planner for over 25 years, founder of the Rock Retirement Club. Each week, we noodle on how to empower you to not just simply survive retirement but have the confidence to lean in and rock retirement. We got a lot going on today.
We're going to have Kevin Sebasta join us for our second in 4 segments on FIRE, Financially Independent Retired Early movement, and what you and I can learn and perhaps integrate into our retirement planning.
Today, we're going to talk about some of the opportunities that the FIRE movement presents that we might be able to integrate in our life. In addition to that, in our rock life segment, we're going to have Kevin Lyles, coach in the rock retirement club, come on and talk about unretirement and legacy. If that wasn't enough, then we're going to have Taylor Schulte from Define Financial come on to answer some of your questions. So much is going on.
So, let's just get started.
PRACTICAL PLANNING SEGMENT
In today's segment on FI, Financial Independence Retire Early, we're going to talk about the benefits of FIRE with Kevin Sebesta.
Kevin, one thing I was thinking about last week when we were talking or since we were talking is the idea of thinking as life as a journey, like a hike. Right? A hike that meanders different directions rather than a mountain climb that you need to struggle to summit, which is that could be traditional retirement, sacrifice your life for the payoff at the end versus enjoying life and having more balance throughout life.
That's sort of how I've been framing this FIRE movement versus how we traditionally think of accumulation and then being somebody in the brochures at age 60, 65 finally relaxing.
Kevin: You and your metaphors. I'll tell you what, the FIRE people, they go off that track. They get off that path.
Roger: They're bushwhacking.
Kevin: They go see what's down those side creek down the side path to the creek, into the rock. They look over the edge. They say, well, I don't know if I want to go down there. But there's a path. There's no destination for so many of them.
They just will explore life through that. Then they meet friends along the way who want to get off the standard path, and there is no peak. The FIRE point when they leave their career isn't a peak. That's exactly true.
Roger: So, let's talk about the benefits of financial independence a little bit earlier and this concept of retiring from traditional career. Then next week, we're going to talk about the challenges because there are a lot of challenges too. So, what's the first benefit that comes to mind?
Kevin: Not having a forced 8 to 5 structures in an office is the number one thing I think comes up. That was long before COVID had this whole work from home availability, and that's why I think there was a push last decade for a lot of people interested in it.
Roger: Since COVID, we're seeing the corporate struggle of trying to bring people back in.
So why is not having that structure 9 to 5 structure such an attraction?
Kevin: Maybe Gen X and the millennial generation don't want the standard life path of school, career, family, children, park bench. Maybe they just don't see it that way, life.
Roger: Or at least in that order. Right?
Kevin: Yeah. Maybe they're on the park bench now. Maybe it's not a bench. Maybe it's a rock in the middle of nowhere, or it's a beach somewhere, and they're on slow travel for a month doing whatever they want.
Roger: I remember talking with Andrew Scott a few years ago who is a professor at the London School of Economics, I believe. He and a coauthor, I can't recall her name at the moment, came out with a book called The Hundred Year Life. We were talking, and he had some statistics that, like, a 20-year-old likely has a 50/50 chance of living over a hundred. And I had asked them in that interview, and maybe we'll link to it in 6-Shot Saturday.
Well, in the other part of that research that they did, Kevin, was that a 20 something is going to have to have multiple careers because their career, the destruction of different forms of work with AI and technology, it's just speeding up. They're going to have to constantly reinvent themselves, and they're going to live a long time.
I just sort of flippantly said to doctor Scott, well, maybe that's why they're not in a big rush in their twenties to get married and have kids and get the career going is because they inherently know they're going to live a long time and they have time. Whereas me, when I was in my twenties, I thought I had this tighter rail that I had to navigate.
Maybe they realized, hey, this is a lot longer journey. I don't have to sprint at the beginning as much as maybe my parents did.
Kevin: But you're sprinting more now with all the activities that you're doing and giving and energies.
So, don't you feel that you're making more effort now than in a one job structure back then?
Roger: For sure, but there are two reasons for that. one is I frame it as that I was very mediocre in my twenties and thirties and I have a lot to make up for. Two is I'm on my second mountain, which if you remember David Brooks book, I'm not on my money mountain.
I'm not wealthy by any means, but I'm on my purpose. This is what I'm supposed to be doing with my life, so it doesn't feel like work.
Kevin: I wonder if you're recreationally employed where you do your different facets of activities because you want to, not because you have to.
Roger: Mostly, yes. Pretty much.
I could probably financially make more money and do a lot less work, but I'm just so curious and engaged and motivated to think what I'm supposed to do with my life, for sure. So, yes, I'll call myself part of the FIRE movement.
Kevin: The new version 2.0.
Roger: So, time freedom, essentially, and not having as much structure. What's another benefit?
Kevin: I would say health. Health is a big benefit.
I think about that because in the Rock Retirement Club, we hear often from members who retire. Usually, people join a year or two before they retire, and many are a year or two into retirement after leaving their career. We will get 3 months, 6 months reports that people in the club have more time to exercise. They've lost 20 or 30 pounds. They feel all this energy. They've taken on new adventures.
What if you're able to do that in your forties instead of your fifties and sixties? You're going to have a better base. So, I think fitness and activities and the ability to do different activities is a big one in the community.
Roger: I'm very impressed with the drive by club members, and Kevin hosts Coffee with Kevin in the club. So, he is a connector extraordinaire. That becomes a main pursuit when people retire is their health and because they finally have the time and maybe the mental energy to eat better and exercise, and they realize that it's something that was neglected because of the pace of that structured commanding control corporate life.
Kevin: We should be clear on this that I'm Kevin number 2 in the club, Kevin Life and FIRE. Kevin Lyles is Kevin number one, and that guy is a pickleball semiprofessional.
He just likes beating up on everybody. So, if you talk about fitness, I have my own version, and then Kevin Lyles just shows me how it's run on the court.
Roger: He has a different spirit. He's a competitive sort. But, yeah, health is one where that time freedom gives people the time to meditate or stretch or exercise, they may have neglected.
Kevin: They do this often with other people, right? So, they build a community, friends and family. So, they're expanding their own fitness while they're helping other people with activities.
It's very family, very community focused, and I think they start pulling these pieces together with relationships too.
Roger: Let's contrast that to traditional structure of both parents working. Most activity is around taking shuttling the kids to soccer and maybe fitting in a workout if you can. Right?
Kevin: Many people are on their phone doing communication activities while they're waiting for their children's activities to complete.
In this community, a lot of them are coaching, helping with the activities that their children are in, becoming part of it, not just a delivery service, and that's because they have more time. Some of the parents will take kids to soccer and walk laps or run around the soccer complex for themselves because they don't have to do other things.
Roger: Or because they feel like they have the energy because they didn't just get off a 12-hour shift or whatever.
Kevin: It multiplies upon itself your time, flexibility, your fitness, your community.
They don't even add together. It's multiplicative.
Roger: Multiplicative. Is that a word? I don't have to look that up.
Kevin: Well, you don't listen to enough of my sessions. I make all kinds of words and all kinds of tasks and entertain myself.
Roger: So, health, and then you leaned into another one, is that if they are able to retire early as it was defined last week, There's more time for family.
Kevin: Or the family you choose outside of your family, your friends become family.
Roger: So, what do you mean by that?
Kevin: I mean, I've been to some retreats where sounds great, sounds all hippie retreats. It's really just a little conference.
Roger: Dude, you were at the roundup in, like, a skirt thing. What was it called?
Kevin: Sarong.
Roger: Sarong. So, it's hippie-ish. I'm going to call that hippie-ish. That's cool.
Kevin: It was two hours of feeling free. About 50 of us went to Bali for 5 days to gather, just hang out, visit with a lot of friends and a lot of new friends, and it turned into 2 weeks, and it kind of became like a family of activities. I think you can get close well, you start to share your money and your life thoughts with your community, especially in the FI community. How did you do this? What do you think about that? What's your long-term thoughts, short term thoughts, life phases? Sometimes you don't talk about these things with family, so it kind of becomes your family.
Like I said, it's like cousins, like a family reunion where you see cousins, like, every year or every two years at these events.
Roger: Well, a more traditional way of saying this maybe, Kevin, is when someone is retired in their sixties, they finally have time to go visit their kids more or to participate in book clubs or other community events because they don't have work structuring and travel structure in their life so much. You just get to do it early. You just get to do it early.
Kevin: Right. You do it early, and it's hard to find people sometimes that have the flexibility but seems like everybody's on flexible schedules. Many people are on flexible schedules now.
Think about the community like the villages. I understand that in Florida it's so big and there's so many active people that you can't even get into some of the groups because there's so much going on.
These parts of life, these interests and passions and dabbling with new activities, that's a big part of a successful life is having interest and passions, which we'll talk about too.
Roger: We're doing a meetup in the villages next month.
Kevin: Actually, in there. We went to the village. Just because it's noncommercial. We're just going to gather, and there's so many club members that are looking at being around other active people. It's becoming part of a community.
I've owned a retirement community since I was 40 years old in Northern Arizona because there's something called the Fair Housing Act that I learned about. So, I've been I'm, like, one of the youngest retiree community residents, 55 plus, which is called age qualified. It's I'm just a weirdo. It's hilarious.
Roger: You're wonderful because you're like, you were a 40 something and you understood technology and you're living in a senior community. You get to help everybody set up their passwords and set up their Internet and all that.
So, what's another benefit of that we see from the FIRE movement? We have time freedom, which gives the ability to spend more time in community and with family and with health.
Kevin: I think one is passion and learning and building.
I think one of the reasons the FIRE community became more visible is because there were a lot of people learning about computer stuff and blogging and podcasting and video content.
The challenge to build something and learn new skills is a part of enhancing your life and having the time to do that. I think a lot of that hopped into the social media communication world with places like FinCon, which is the financial conference, which turns out just to be a kind of a family reunion for so many people on that.
I think we see in the club too, intentionally. People are always talking about learning courses and systems like Wondrium and CuriosityStream, Udemy classes, Osher Lifelong Learning. All of the people that I hang out with are always adding knowledge, skills, and abilities to themselves.
Roger: This isn't really that different than a traditional retiree in my mind. I was thinking of a gentleman who I work with who retired about a year ago.
In our last meeting, he has a part time job assembling things. I think it's Lowe’s or Home Depot. He sits in the back and if you pay, he's the guy in the back assembling your grill or whatever it is and he used to work in banking, technology banking or something.
For him, it's like, I just love putting things together. He finally has the time freedom to go do that in retirement, and he earns a little bit of money too. A lot of what we're talking about here is pursuing those interests, whether it's for money or not, just earlier.
Kevin: But is it the outcome also that he made someone else's day better and easier?
Roger: Right, and he has community. The FIRE movement is just people wanting to pursue this stuff earlier. They don't want to wait until they're 60.
Kevin: Think about if anybody in your family builds on any part of the financial independence portion, it makes it easier for the rest of the family to have financially sound people around so you don't have to worry, assist with payments, all types of advantages to this. There's a whole confidence level of feeling like you have control over finances, which is a very external concept of your life, and that leads you with confidence to pursue new activities that you may not have felt the power, internal power to take on. I'm not talking about learning languages. That seems really hard. But with all kinds of activities, you just feel more confident with small pieces of financial independence.
Roger: I think that's important to learn and valuable even if you're 55 or 60. There's a lot to learn from the FIRE movement. I was thinking Kevin, and you had brought this up, I think offline.
We did a series in the fall of what we would want our children to know. Then Mark Trotman, who's a friend of yours, participated in a few others. It's hard if you didn't do it early, like, I mean, starting before they're double digits to teach your kids about money management and the world and all the sales cycle of things.
Oftentimes, it's hard for the parent to be the one to teach this stuff about financial independence. One, because many of us didn't know it, understand it, because it wasn't around in an organized way of sorts. So, the FIRE movement just as a benefit might be, these are things that your kids, if they won't listen to you, you know, me, in my case, maybe if they get exposed to a resource that speaks more to them, they'll learn it there, whereas they might not hear it from you.
Kevin: What if they find some peers, external peers.
Roger: Yes.
Kevin: That have an interesting mindset that they can relate to because nobody wants to listen to old people. Kevin Lyles gave me a hard time when I turned 50 and told me I aged out of FIRE.
I think he was right. But now I'm just engaged as a senior FIRE person.
Roger: Senior is not 50. That's for sure. So, what are a couple of resources? We'll do this next week and the week after too so that people can learn more about the FIRE movement. If maybe it's just for them to get exposed to some of the concepts, but also perhaps for their children.
Kevin: So, I think about how I absorb information, and we were talking about this in the Rock Retirement Club about how you do your smartering, how do you get smarter. And we talked a lot about podcasts while people are exercising because they could still do their work out. Their endorphins were high, so they absorbed information. So, we came up with podcasts.
A lot of people listen to podcasts, and some people watch the videos if they're on stationary equipment. A lot of people really relate to the ChooseFI podcast because ChooseFI podcast covers a huge gamut of information over the past, probably, 7 years. They have local communities, and they have sub interest groups that are on Facebook with different levels of financial independence or book clubs or travel or travel hacking or educational planning.
So, I think that's a great resource for a lot of people, young people and normal age people, we'll call it.
The other podcast is great is Becky and Bill have a podcast, and you've talked about this and been on with Becky called Catching Up to Fi. The idea is for late starters to kind of understand how to become financially sound, how to think about that. It has a community of people that they have on Facebook talking and asking questions. So, some of these are Facebook groups because that's a common landing point, but Becky and Bill both were late starters.
Becky has retired with her husband. They were successful in saving and retiring and traveling and living life now. They have a phase of life. Bill's a physician who lived the physician lifestyle and realized he had to catch up. His wife's a professional as well.
I think those are two different angles for the path of gathering some information, and then you can branch out from there based off of their guests or the topics.
Roger: So next week, we're going to talk about some of the challenges of leaving a traditional career early and getting to FI or financial independence. Then the week after that, we'll talk about what baby boomers and you and I can learn to integrate into what we're doing.
ROCK LIFE WITH MARK ROSS
Welcome to the Rock Life segment where today, we're going to talk about passion and how to ignite creativity with Mark Ross, retirement coach in the Rock Retirement Club. Hey, Mark. How are you doing?
Mark: Doing great over here, Roger. Thank you.
Roger: Why is creativity important in the first place?
Mark: I'm in the second half of life, and I hear people say that I just wish I was creative. I happen to also be a visual artist and people assume that you have to be a creative genius to do that, which isn't true. We can be creative in so many different ways and so many different expressions.
How this came about is that I was invited to give a brief workshop to a group that I'm a part of and talk about creativity. I thought, creativity? What do you mean? What do you want me to talk about? I say, how do you ignite creativity? So, I did some research and I found this, I'm big on resources, I found this great resource called Coaching Beyond Words and it's by Anna Sheather. She's out of the UK. And here's the premise and how it can apply. I happen to be a coach as well, but it's really coaching with art, and art just means making marks on paper.
So when I prepped for this workshop, just imagine y'all, if you were asked to sit in a chair and put your back up straight and sit on your hands, put your hands under your thighs and do not use your body, and now describe to your neighbor, someone in front of you, someone in the room, a spiral staircase that leads from the ground floor to the top floor.
I'm not asking you to do that right now, Roger, but if you try you can try this at home, you won't hurt yourself. But inevitably what happens is, and we did it in this workshop, where the one describing it will eventually start moving their head around and twisting their body and squirming and wanting to use their hands and they can't. Then you give them the full freedom to use whatever they want to use to describe it, and of course, they get up out of their chair, they start stepping like they're walking up the staircase, they're describing it using their hands, their body, their head.
Here's the thing, the left hemisphere of our brain gives us words, the right hemisphere of our brain gives us images. Sometimes words aren't enough. We can't get it with the left side, so we have to make marks. We have to look at images or make images, doodle, do something to problem solve to ignite our creativity. Doing that, the right hemisphere now has a voice.
That's one small example of how we can create and ignite our creativity if we're trying to problem solve. You know, that was a lot of words there. I'll pause there for a second. What's your response to that?
Roger: What I was thinking of this, I was thinking of another book that gives a lot of exercises, which is How to Think Like Leonardo da Vinci, where it walks you through a lot of exercises to creativity. Isn't the point to really exercise your brain to come up with new ways to express yourself or express ideas?
Like, I think of the staircase as an example. Initially, trying to describe it with just words is going to be probably pretty uncomfortable. You know, our vocabulary is usually pretty tight. But by practicing just describing it with words, you're going to get better at it even though you're going to be uncomfortable at first. That's sort of the point of it. Right?
Mark: It's the point of it, and it does help deepen and enrich our conversations that we have and I know in the Rock Retirement Club, we talk about having small conversations along the way. If you happen to be married, have a partner, you're talking about vision for the future, and it's hard for some of us to come up with the words in those conversations.
Here's the point for what we're doing at the moment in this conversation about this topic is how do I ignite passion and get excited about things when I don't seem to be a very passionate person? It's hard for me to dream, let's say.
This is an invitation to sometime just play with this. Take a piece of paper, take a pen or a pencil or a crayon. It doesn't matter. Whatever you're trying to work through, like, I want to travel, then I'm not really good at this. What if you started just kind of doodling on a piece of paper? Kind of make some marks, make an image, make a diagram of what you're having a hard time expressing with words.
You might be surprised, even shocked with some of these images, these diagrams that you come up with to share with somebody else and say, you know, I couldn't put it into words, but this is kind of the picture of what I was talking about.
We did an exercise like this in the workshop. I was surprised at what these people came up with to describe a problem that they're working through where they felt like, I'm just not very creative, and in fact, they're very creative. They were only using the left hemisphere.
So, this is a right brain, left brain, or right hemisphere, left hemisphere way to think about being creative. There you go.
Roger: Yeah. There's another book. I was trying to find it on my bookshelf over here by a professor that studies elementary and high school children on learning math, as an example.
I think it's called Unstoppable. The research that they've done shows that people think about math in very different ways. You know, usually the way we learn it is sort of the root way with the formulas, but there's a lot of different ways to represent a problem. Some people just naturally relate to math spatially.
Mark: Yeah.
Roger: Whereas others are going to be formulaic, and part of spurring creativity is figuring out how you can express yourself or understand things.
Some people need visuals. Some people need spreadsheets, and the goal here is just to keep making your mind more limber, I imagine, and expanding.
Mark: Yeah. Expand your problem-solving creativity because we're all creative.
That story that you just told, Roger, reminded me of when I was a kid. You remember those math problems that, like, 3 or 4, 5 sentences and you had to solve it? Johnny has x and Sally has y, and you go, oh gosh. I remember now. I had to draw that stuff out on a piece of paper, map it out so I could understand what they were really asking me.
I didn't know it, but I was using the right hemisphere. I was being creative, and I didn't even know it. I thought I was dumb because I had to map it out, but, actually, I was pretty smart.
Roger: Let's end here with the why we should lean into igniting our creativity. Why is this important in the first place?
Mark: I believe it's important because we can get stale at any age, but especially as we age, we get into routines and rhythms. And sometimes we think this is all there is. In fact, you can actually explore new ways to think about certain things that you can do differently, and this is an exercise.
I invite you to take a piece of paper, a pen, a pencil, a crayon, and doodle and see what happens.
LISTENER QUESTIONS
Roger: Alright.
Now it's time to answer your questions. If you have a question for the show, you can go to askroger.me and type in your question or leave an audio question. We'll do our best to answer it on the show.
But for today, we're going to answer questions. I'm bringing on one of my besties, my son from another mother.
Well, that sounds weird. Taylor Scholtes. How are you doing, Taylor?
Taylor: I'm doing good, Roger. Thanks for having me.
Roger: To clarify, we actually are not related. Taylor is founder of Define Financial. Before we get to the questions, Taylor, I wanted to talk about the Retirement Podcast Network for a second because you were the spark to found that, and we did that a few years ago. I think I resparked it of, hey. This could be something more.
So, what is your concept of what is the retirement podcast network, and what do you think our goals are for?
Taylor: Yeah. I'm excited. Initially, what I learned kind of starting a podcast and maintaining a podcast is that and then consuming podcast is that it's hard to find high quality shows. There are now, I think, two million podcasts in the Apple Podcast app, and it can be hard to discover and find new shows.
So initially, when I started the website, like, well, let me just bring together some high-quality shows from colleagues and friends and peers that I trust and make it easier for people to find other good shows. Now with your help and Peter's and Ben's and Chad's, we've kind of taken it to a new level. For me, part of it was you and me both and all of us, we do these series or topical episodes on annuities or long-term care or Roth conversions.
One common question I have to get from listeners is, Taylor, I really enjoyed that series you did on Roth conversions or long-term care. I'd love to learn more. Like, what other resources do you recommend? Or I want to hear a different perspective. Part of the point of the Retirement podcast network is to build out some of these hubs to bring other perspectives all into one place. Do you want to learn more about long term care? You liked my series I did? Well, you can go to the Retirement Podcast Network hub on long term care, educational resources to learn more, to listen to other episodes, to download guides and calculators, all hand curated, personally curated by all of us. They're licensed, practicing financial planners looking out for retirees.
I'm really excited to pull these resources together all into one place and try to curate and, you know, make sense of all of the noise and information that's out there.
Roger: Yeah. one of the things that we kept bringing up as we started to expand it is it's hard to find safe places to get information where there's not just some huge sales pitch. I think of this as a safe place, just like this podcast, and your podcast of, we're just actively trying to think about these issues, because we're dealing with them every day.
With AI coming into play, I think it's going to be even more important. So, you can check out the retirement podcast network at retirementpodcastnetwork.com. I think that's what it is.
Taylor: Easy enough.
Roger: Easy enough. Alright. Let's get to some questions.
HOW TO CHOOSE BETWEEN INVESTING IN A ROTH 401K AND A TRADITIONAL INVESTMENT ACCOUNT
Our first question comes from Sophie.
Sophie says,
"I've been a listener for over a year and love your show. My question is about how to choose between investing in a Roth 401k or a non-retirement investment account."
So, some context there, she says,
"My husband and I have been maxing out our traditional 401k for many years and have accumulated more than we need for retirement."
I think that's probably a key point.
She retired a few years ago, and he now invests in his 401k as a Roth option. Obviously, our understanding is that he can revert his Roth 401k into a Roth IRA, which is not subject to RMDs. He is 57 and a half. But I think the core question here, Taylor, is how do you make a decision between contributing to a Roth 401k or after-tax assets?
Within the context, it sounds like they already have enough funding for their retirement.
Taylor: Yeah. To me, it's less about retirement being fully funded and more about your current tax bracket versus your future expected tax bracket in retirement.
So, you know, if you're in a higher tax bracket today, then you will be later on in retirement when RMDs kick in and Social Security and other income sources. If you're in a higher tax bracket today, well, the textbook would say go ahead and contribute to a traditional 401k now and take the deduction.
That said, you might want to improve your tax diversity of your accounts. You don't want to have all of your savings in one account type. So even though that might be the textbook answer, you might opt for a Roth 401k or a non-retirement account to improve your tax diversity. I always like to say, you know, that there's the textbook answer and then there's your answer.
So, it sounds like their answer might be, yeah, we've put a lot of money into traditional 401k's. We want to diversify outside of that. So now we're thinking Roth 401k or a nonretirement account.
To directly answer the question Roth 401k versus nonretirement account with all of that in mind, my personal preference and this is obviously not advice, but my preference would be to fund the Roth 401k. You know, it's hard to get money into a Roth. If I've determined that a Roth is appropriate for me or I just want to get money into it and I have the ability to, well, I want to take advantage of that. I'd rather my savings grow tax free than be subject to capital gains taxes and taxes on interest and dividends.
By the way, if I really needed the money back, if I put money in the Roth 401k because I was excited about the tax treatment, but I needed the money back, well, I can always get my principal out. There's, of course, some unique five-year rules for getting earnings out, but I can get my principal contributions out. So, you know, if I max out my Roth, I have the ability to save more above and beyond that, well, then I could look at a non-retirement account, you know, a plain vanilla brokerage account, but that's where I would stand with this.
Roger: Now to be clear, this is under the optimization pillar of the 4 pillars of a good retirement plan. You got vision, a feasible plan, a resilient plan.
So, this is the bling. This is a bling question.
Taylor: Yeah.
Roger: The essential question, I think, Sophie, is, okay. You have the money to save.
Do you pay tax on it and save it in a brokerage account where you'll have taxes on dividends and interest and capital gains ongoing, or do you save that same dollar that you're already going to pay taxes on in a Roth account where it's tax free?
I think probably the Roth account makes the most sense with the facts that you gave us. It's an interesting ponder. I know for me, I don't know what you do, Taylor.
For myself, I'm in my high earnings years. You're younger than me, so you haven't gotten there yet.
Taylor: I'm getting there, dad.
Roger: Well, at least I'm not funding you anymore. I'm in my high earnings years, and we have a Roth option in our 401k.
I'm 57. I actually actively switched to the Roth 401k option rather than the pretax option. So, it was a little bit different than what you're dealing with, Sophie, and it hurts because I'm in a very high tax bracket. The textbook would say I should defer, defer, defer.
Taylor: Yeah.
Roger: My logic behind it was that I wanted tax diversity, which is essentially what we're talking about there for those of you aren't familiar with is after tax assets, pretax assets, like a traditional IRA, and then tax-free assets.
I was already building up a lot of pretax assets and didn't have any tax-free assets. And while I'm working, I can afford to pay the taxes even though I whine and moan about it.
But it sounds like you're on the right track, Sophie. I think it makes sense, probably the Roth option if this is really extra money and you're just trying to be efficient with it.
Taylor: Yeah. Yeah. I would agree.
It's definitely a tax optimization question, and part of this is we don't know exactly what future tax rates are going to be. Right? It's an assumption that we're making. So, I can understand, especially when retirement is fully funded, you're in the driver's seat here. Maybe you just want that certainty.
You just want to like; you just want to pay the tax bill now and just squash it and be done with it. Like, that certainly can be comfortable as well.
Roger: One last thing I'll say is in retirement, as you get close to retirement, you have to start thinking about different versions of yourself. Here you two are, you feel like you got the savings down. You've created wealth.
Now it starts to become a question of what gifts do I give my 70- or 80-year-old self. That was how I answered the question of the Roth. It's like, I'm probably going to be really happy I did this even though it sucks now.
Taylor: Yeah. Yeah.
TIMING A REALLOCATION OF ASSETS
Roger: Our next question comes from Arthur. Arthur says,
"Hey, Roger. Hope this email finds you well. I wanted to express more gratitude for your incredibly informative and engaging podcast. It's so much better than Taylor's."
He actually wrote that.
Taylor: How dare you.
Roger: "Having absorbed a wealth of information from your discussions, I am now contemplating a strategic reallocation of my portfolio, which currently comprises both equity and bonded mutual funds.
My objective is to transition all my funds to index based mutual funds or ETFs. My primary motivation being a reduction in brokerage fees.
Given the current market downturn, we've had some recovery here. I'm uncertain about the optimal timing for this reallocation. Would it be advisable to proceed now, or might it be prudent to wait for a partial market rebound?
My apprehension stems from the concern that in the market downturn, some of my existing mutual funds may have experienced a more significant decline compared to the indexes. I would greatly appreciate your insights on how to navigate this strategic reallocation."
This is a hard one, Taylor. I think, Arthur, what I would start with is build out what should be.
Like in our planning process, when we start with a client, I don't even really want to know what they own. I just want to know the values of different accounts and then build a retirement plan of record of what should be if we had a clean slate and then go back and look at the current state and see how we reconcile that from a tax perspective or a market perspective.
My suggestion first, Arthur, is go through that process of building exactly what you would like if you had a clean closet and you were building a wardrobe. Then you can go look at your old wardrobe and figure out what do you keep and what do you throw out from a portfolio perspective.
I have a hard time with this one, Taylor, in that and Arthur, in that speed is a force. Taxes are definitely a concern if you have after tax brokerage accounts. I have clients that I've had for years where we've been slowly cleaning that portfolio closet from a tax perspective.
But if we assume all of this is in an IRA or a tax deferred account, I will argue, Arthur, that doesn't matter where the markets are, get to where you want to be. It doesn't matter if one's down more than the other. It's not like you're moving out of the market. You're creating a portfolio that's going to serve you moving forward and that's, I'm guessing, in decumulation. If you're like most people, your vintage or stage in life, you're probably structured for accumulation where you just grow, grow, grow, grow.
How you get to a decumulation standpoint, I would say speed to force, and I would do it sooner than later so you can get on with your life.
Taylor: Yeah. Yeah. I'm in total agreement. I've got a lot of thoughts on this.
I don't know how much time we have, but just stop me.
Here we go. So, yeah, to directly answer the question to me, the current market environment, the current market conditions should not influence your action plan. I like thinking about investment decisions like a prescription. Just like your retirement goal should drive your investment decisions, a doctor's diagnosis drives their prescription recommendation.
You know, so if you're taking a prescription that you've determined is no longer helping you or, you know, has bad side effects, would you continue to take it and just, like, wait it out to see if you eventually somehow feel better? Or would you go talk to the doctor immediately to your point, Roger? Like, take action now. Talk to your doctor immediately and create a plan to get off that medication entirely and, you know, introduce something more fitting.
So again, if we think about our retirement goals like a diagnosis here and you've determined that your goals have changed or you've determined that your current investments are no longer suitable for your stated goals, well, the textbook answer would be developing an action plan now to make those appropriate changes.
Now keep in mind, if an investment has declined more than the funds that you're considering as a replacement, who's to say that those funds have to recover, right? Who's to say they can't keep going down for an extended period of time? With that in mind, sometimes in these situations and, Roger, maybe we went through this last time we were on the show together. But sometimes in these situations, I like to play this what's worse game. So, what's worse?
You make all of the changes to your portfolio today and a few of your legacy positions that you sold off spike in value in the coming weeks and months causing you to lose out on some of those gains. Or option two, you decide to hang on to the some of them for a longer period of time. You're waiting for them to recover, but they don't recover. They just continue to go down or they continue to underperform for a long period of time.
What would sting more?
What hypothetical scenario would be worse for you? I think answering those questions should help you arrive at an answer that's best for you, for you personally, and also maybe more importantly, that exercise would help set proper expectations as you go through this transition.
For example, if you sell all those legacy positions at once tomorrow and then they proceed to spike in value over the next few weeks after you've sold them, well, you should be more prepared for that given that you factored that into your decision. You thought about that scenario and you knew it was a possibility, so it shouldn't catch you off guard.
So that's how I would think about it. Roger, to reiterate your point, yes. I think you nailed it. Identify that target allocation. Where are we trying to get to? Then what's most important here are the taxes, and we don't have that information on us here, but if there are tax consequences to making those changes, be sure you know what those are.
In some cases, Roger, I'm sure you've been through this, it's a multiyear plan because the tax consequences are so large that it might take us 3 years to get from the current portfolio to the target portfolio. So be sure you understand the tax consequences and what it might take to make this transition.
Roger: You know what?
I haven't you haven't been on the show in a while, Taylor, and one reason why I like having you on the show is because I know casual, crazy, silly Taylor, and I forget how good you are.
So, it helps me remember that.
Taylor: Oh, okay. I'm glad I could help you remember that.
A GOOD, DETAILED, FREE RETIREMENT CALCULATOR
Roger: Our next question comes from Jeff.
"I recently retired. I've been listening to your show for about 2 years. I find it invaluable resource."
Oh, thanks, man.
"I point my friends and families to the podcast as well. Is there a good, detailed retirement calculator that you're aware of that is low or no cost? I know you have one in the RRC, but for many, that may be a steep yearly cost. It seems that it would be an invaluable detailed entry of projected expenses."
So, essentially, the question is, if I'm doing this on my own, what is a low cost or no cost quality retirement calculator?
I think you and I agree on this one, Taylor, but I do think I want to throw this in before I'll let you answer that part of it. But if you have an account at Vanguard or at Fidelity or Schwab, a lot of times, they will give you access to at least a limited version of some of the most robust retirement calculators out there. So, I would check that out. But absent related to an investment company, I think we probably agree on the same one. Right, Taylor?
Taylor: Probably. 1, 2, 3.
Roger: Go ahead.
Taylor: Yeah. I was going to say New Retirement.
Roger: New Retirement.
We both know Stephen Chen, the founder of it, and we've used it off and on as an experiment. I also think we know the spirit of what they're trying to build and why they're building it. I think from a consumer perspective, it's the best one.
Taylor: Yeah. I would agree.
You know, sometimes I hesitate to recommend it only because you can go really deep down the rabbit hole. It sounds like this person is looking for something that allows for more detail, which I can appreciate, of course, being a planner. But sometimes we think we need all this detailed information. We need this, like, really nerdy analysis, and it just causes more problems. Right? Sometimes we just don't need that much.
But, yeah, if you really want something more robust that's low cost, they have a free version as well.
I think New Retirement's a good option.
Roger: So, I'm going to ask you this question, Taylor, and I think this relates to you as well, Jeff, on what you want to use is retirement planning software. I have tested them all. We just went down the rabbit hole in q4 of last year testing all the Roth conversion calculators out there.
All of the software is really good at vision, getting your goals, and categorizing as needs, wants, and wishes.
Taylor: Yeah.
Roger: Software is really good at organizing your financial resources and doing long term projections to do a feasibility test. So, is this a feasible journey given all the variables?
Where software really starts to lose its utility is in how exactly does this work and if you want and I find people, if they when they try to make software, even the software I use or we have in the club, when they try to take software and make it get down to the high-resolution detail of the next 5 years, it falls apart. Even with Roth conversion.
So, what we do, and I'm interested to see what you do, Taylor, is we switch after the feasibility testing, we switch to a spreadsheet. We build a 5 year of cash flow estimate, and so we can get very detailed cash flow, and it's a lot easier to manipulate. Do you do something similar, or do you use software all the way through?
Taylor: Yeah.
We do. It was a number of different things. But, yeah, to your point, we'll use the planning software that is really robust and for financial professionals. We'll use that as a starting point for, like, the broad long-term outlook. To your point, like, 5 years, 10 years, 20 years, these projections, I mean, there's so much that's going to happen in your life between now and that endpoint, but, like, we can't project these things. The second we put it up on the screen, it's already outdated.
But it is nice to use as a starting point for, like, the broad long-term plan to identify that there may be an opportunity for something and then if there is like Roth conversions, then we go to the spreadsheet and we analyze the Roth conversion opportunity in isolation for that year.
I also like to use planning software to compare different options. Should we do option A, option B, or option C? Let's compare those against each other, not necessarily, like, the long-term health of the plan. Just like we're considering these 3 things. Let's put them up against each other in the planning software.
Roger: That's probably one of the most powerful things. Right?
Here is my plan of record. What if I buy that lake house? How does that look compared to my current plan?
Yeah. That's a good point. I'm glad you brought that up.
Taylor: Yeah.
WHY ROSIE DIDN'T HIRE ANOTHER FINANCIAL PLANNER
Roger: This last question, Taylor, and I gave you a little bit of background, and but for those of you that maybe didn't participate in last year's Retirement Plan Live, we did a case study with Rosie, a listener, who retired at the beginning of 2022. Went through the bear market, had a financial planner.
In that Retirement Plan Live, we analyzed, well, after this bear market, is her plan still feasible, her and her husband, and it wasn't. We explored the results webinar. You can find all this at in the archives. Maybe we'll put a link to it in 6-Shot Saturday.
We explored what steps she should take to get back on course. Part of the issue with there, I think, was that her financial planner was more of a investment advisor that called themselves a financial planner, so it didn't get really deep. They were either consciously or unconsciously incompetent in some way. That seems a little harsh, but the term isn't meant to be harsh.
Then we had an update with her in December, and there wasn't really a lot of action being taken. So, this question came from that update.
I forgot who this is from, so I'm sorry.
"Hey, Roger. Enjoy the podcast.
I'm curious as to why Rosie doesn't just hire you to establish your plan going forward. The conversation is a bit painful to listen to, the update that she gave in December. You know their finances, and you sure have the strategy to prudently move from forward. If they hired you, you could get them on the right track. Maybe it's not as simple as that."
I thought that was a very interesting question, and it's a little uncomfortable question to answer publicly. So, when we think of you as an individual and consider hiring a retirement planner or a financial planner, is it worth the money? Are they going to add value? What are they solving for?
On the flip side, for planners that are real retirement planners that really take their craft seriously and have a business, we have the same kind of calculation.
Can we help with the issues that they're dealing with? Do they have the spirit to take advice and work in a collaborative way? Are they able and is it reasonable for them to afford the fee that we have in our practice because that is part of our calculus because we can't help everybody because we have capacity constraints in order to do our craft.
In Rosie's case, I think there was a combination of those.
One, our fee is too expensive for her, and two, I'm not sure she's in the place to have the spirit be collaborative enough to take our counsel, her and her husband. I feel even weird saying that because you want to be able to help everyone. That's one reason why we have the club and we have the show, but we can't work with everybody.
I don't know how you navigate that if you have any thoughts on that, Taylor.
Taylor: Yeah. I just go back to I'm a neurologist and Rosie might need a heart surgeon.
Every single one of my clients, and this is where my expertise lies, all of our clients have over saved for retirement. Like their plan is healthy. They're not coming to us saying, oh my gosh, can I retire? Have I saved enough money?
They've over saved for retirement. Their biggest pain point is taxes in retirement. I've saved so much money. I know I have a giant tax bill. I have a tsunami of RMDs coming up. Like, how do I manage all this? How do I get ahead of this this tax bill? Like, that's our expertise is helping them manage and reduce taxes in retirement for those that have over saved for retirement. I truly don't have the expertise.
I have enough expertise to provide some tips and some resources for someone like Rosie, but I truly don't have the expertise to help fix a plan that's broken. I don't have that expertise. I don't have the expertise to help teach somebody how to budget and accumulate money for retirement. Again, like, I know enough to be dangerous here, but my firm doesn't have the service model and the processes and the expertise to help someone in that situation. So, to me, I would be doing them a disservice.
I would just go back to who is the right you know, if Rosie truly wants professional help, I mean, she was just begging for professional help. She has a certain amount she can afford to pay an advisor, and she's looking for the right person. Like, let's help her find the right person. But to your point, you know, you can't force someone to do that. Like, she has to want to want to get that help.
I just go back to the expertise of the planner. I think part of the problem in our profession and maybe where this question stems from are we've long held ourselves out as generalists. Right? We just help anybody with money. That's obviously changed a lot in recent years, and that's something that means a lot to me to just really own my lane and do really good work for one type of person.
Roger: When it comes to people in Rosie's position, my take on this is an investment adviser or a generalist financial planner may not be the best person to go to.
Taylor: Right.
Roger: Our industry has constantly tried to solve it for normal people, not wealthy people. People that need help and they've never figured out a way to do it where it's not focused on investments and it's a business model that's viable.
My thought is where it's really going to get solved or where it needs to be resolved is in retirement and financial coaching. The decisions and the budgeting and behavioral stuff, and it’s not about investments and tax optimization. It's about blocking and tackling a lot of things. I think retirement coaching doesn't have the same structure as the regulated industry in terms of the profit motive, etcetera.
I think New Retirement who has, you know, very approachable service models could be an answer too.
Tough question. I don't feel comfortable talking about it, but I'm a specialist, and I want to stay in my lane because that's where I think I do the best work for people.
Taylor: Well, I think you bring up a good point there with coaching too. Like, when I hear coaching, I think about accountability. Right? I hire a coach to hold me accountable to things.
Sure. They have some knowledge and can help provide resources and advice and things like that. But at the end of the day, like, I hire a coach, whether it's a golf coach or a personal trainer coach or a life coach, like, to hold me accountable to making these hard changes.
Rosie probably has to make some hard changes. So having somebody to hold her accountable for those changes is probably the best person to help her go forward.
Roger: Alright, Taylor.
Thanks for hanging out with us. You can find Taylor at Define Financial. What the heck's the name of your podcast again?
Taylor: definefinancial.com or youstaywealthy.com, the Stay Wealthy Retirement Show, go subscribe. Unsubscribe from Roger's podcast and subscribe to mine.
Roger: Alright. With that, let's go on to our next segment.
TODAY’S SMART SPRINT SEGMENT
On your marks, Get set.
Now it's time to set a little baby step you can take in the next seven days to not just rock retirement, but rock life.
So, in the next seven days, I want you to think about some things that you are considering in your plans to retire. Perhaps it's your career or your personal life. Think of one or two things.
Then define those things in three categories, and I love this structure I got from James Clear, author of Atomic Habits. There are decisions that are hats, decisions that are haircuts, and decisions that are tattoos.
So, a hat is a decision that you can quickly change and swap without much hassle.
A haircut, you can change, but it's going to take a little bit of time.
Then a tattoo, well, that's a decision that is very difficult to undo.
So, if you're facing some choices, maybe about your career, your personal life, or your retirement plans, identify these choices as a hat, a haircut, or a tattoo. If they're a hat, just make the decision. You can change it quickly.
CONCLUSION
As always, thanks so much for joining us.
Next week on the show, Kevin is going to come back, and we're going to talk about some of the challenges of the financial independence retire early movement and some things you have to watch out for if you're thinking of retiring prior to, say, Medicare and Social Security.
In addition to that, we're going to have awesome Andy Panko on to answer some of your questions. As always, I love hanging out with you. I hope you have a great day.
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 do not guarantee future results. All indices are unmanaged and cannot be invested in directly. Make sure you consult your legal, tax, or financial adviser before making any decisions.