Ep. 2021: Enough to Retire?

SPEAKER_08 0:00

We'd like to hear an intro design in the style of Lumpstein.

Friday Q&A and a Rammstein-Inspired Intro

SPEAKER_08 0:08

It's a German rock band. Really popular.

SPEAKER_02 0:59

I don't think anybody ever said that. We take requests. Hey, if you if you send in a question and you want to request a genre. Now we we can only do genres in general genre style. So while I have never heard of the band Rommstein, sorry, guess I'm old. Although they're from the 90s, but you know, my my formative years were in the 70s and 80s. Uh I did, I was able to look up the genre and then write a prompt, a style prompt based on that genre. That is not based on the band itself, but more based on that uh 90s metal euro thing. Anyway. It was fun. Thanks for the suggestion. We'll have the rest of your question a little later on in the program because this is the Friday QA show. Thus, the questions with the requests for musical genres. We we just want to make you happy. We're trying to make everybody happy. Our listeners, our uh hosts. Uh, who else do we want to make happy? Oh, probably the employers, because they pay the bills. Um, but other than that, yeah, I guess nobody else. If you have a question, though, go to talkingrealmoney.com. And my preference is, and I'm speaking for me, not Tom this time, my preference is that you find that mic button, which is in the corner of the screen, down in the right corner, and you record your question using a microphone, preferably a good one. But if even if not, we'll fix the sound. We'll do the best we can to make it sound good. And it's a lot less work than typing. However, Tom likes it when you type them. You use the ask a question form for that. You type them in and then he reads them on the Tuesday, well, Monday through Friday or Monday through Thursday shows. Fridays is always

Why the Show Is Recorded in Advance

SPEAKER_02 2:50

QA. And thanks for being here for Friday QA. Now, Friday QA, like most of the shows, is recorded uh generally about a week in advance. There's a reason for that. We, because we work for a firm that's registered with the Securities and Exchange Commission, these things have to go through compliance. They have to, like, oh, they didn't say something they couldn't. We're pretty good about that. I don't think we've ever said anything we really couldn't. But we make them early. Therefore, when I'm recording this, this is literally the day after the uh big stock market decline in the wake of the election. So, um

Staying Calm During Market Declines

SPEAKER_02 3:37

I don't think you panicked. You know, I was gonna remind you not to panic, but it's a week after, and I don't know if it's done something even worse. Maybe it has, maybe it hasn't. But um it's you know, already we had a bad day and then it's recovered a little bit. So just don't react. We're opposed to that. So what were the numbers for uh that big Thursday decline? Um I I again, this was a week ago, not Thursday that we just had, but Thursday a week ago. The SP 500 lost about 4.4%, which really isn't all that bad. I mean, it sounds bad, particularly with the way the media reports it, and most of that decline was focused on the big tech stocks. So you really don't have to, uh, you shouldn't have been too concerned. I don't know if it's gonna continue, even if it does continue. That's just part of what the markets do. However, if you'd had a very nicely globally diversified fund that didn't focus on those big growth tech stocks that was uh that was the total market, including international, along with a tilt to value in small, your loss on that one day would have been 3.6%. That's dramatically less over a single day. And that's why we're dull, boring proponents of this globally diversified approach to investing with a tilt to asset classes that aren't emphasized in those big uh growth stocks, like the uh growth stock indexes, like the SP 500. So just be diversified, be patient. Make sure your portfolio is built for your risk profile. And that includes not just risk tolerance, but need to take risk. If you're at the point in life where you've saved plenty, you don't need to take risk. What game are you trying to win? If you haven't saved much, well, then you may need to take more risk than you can stand and steal yourself against these declines. But declines happen, and declines are by their very future nature, just like increases, totally unpredictable. They happen, you can guess, sometimes you'll be right, but sometimes you'll be wrong. Now we are doing a short question show today. We only have four questions because I, as I've mentioned before, I try to keep enough for next week, and I just have three for next week. So we do need some more questions. Go to talkingrealmoney.com and click the mic and record them.

Retiring With $5 Million

SPEAKER_02 6:23

Now, let's get to the first one.

SPEAKER_06 6:26

Hi, John and Tom. When is it enough? We're having a difficult time figuring out when I can actually retire. I am 66 and my spouse, Shell, is 60. We are planning to move from Oregon to a lower tax or no tax date in 1 to 2 years. Our home is paid off and we have zero debt. Nonetheless, our next house purchase will likely be $300,000 to $500,000 more than our current home value of $450,000, and we will both need new cars within the next five years as the vehicles surpassed 20 years old. We have $1 million in liquid assets earning about 3.5%, $500,000 in Roth, primarily invested in S P 500, and total stock market index funds, and $3.5 million in pre-tax retirement accounts, 3 million of this is in my name. So our MDs are looming. The pre-tax accounts are invested in the market just like the Roth. Shell is likely to work part-time for another two plus years, earning about $50,000 annually plus receiving medical insurance benefits for both of us. I would like to pull the trigger now. My social security remains untapped and may provide about $3,500 per month at age 70. Shell will be able to claim on her own record with an estimated $3,000 per month at full retirement age. We estimate our annual expenses, including entertainment, to be about $120,000 per year in today's dollars. We are both worried about longevity risks, which seems like a good thing, as we have no chronic disease concerns at this point. Inflation risk is also a huge concern. We feel that we are far from the illustrious $10 million mark for a financially secure retirement. What say you? Kindest regards, BB and Shell.

SPEAKER_02 8:02

Okay, that one was kinda.

unknown 8:05

Ah.

SPEAKER_02 8:06

That was a typed question I could tell. That you could tell? Anyone could tell that was a typed question that was recorded from like a phone or something. Because here, listen to the original one before I fixed it.

SPEAKER_07 8:20

Hi, John and Tom. When is it enough? We're having a difficult time figuring out when I can actually retire.

SPEAKER_02 8:25

That was either AI or someone who sounds exactly like C3PO in Star Wars.

unknown 8:31

I don't know.

SPEAKER_02 8:32

Okay, um, oh, I don't know what this illustrious $10 million figure is. Um I don't think many Americans, many anybody, many, many people, Americans probably have a better chance. Not too many people have $10 million going into retirement. That's rarefied air. You're going in with five million. Wow. I mean, that's great. That's better. I mean, you're in the you're in the top fraction of one percent of uh retirees, potential retirees. You could spend the full 500 grand on that next house. You still have four and a half million. And the cars aren't gonna be that much. Uh, you've got social security coming in, you got a hundred and twenty thousand dollar lifestyle. Um, Social Security's gonna provide 70 to 80,000 of that. So you got 40,000, 50,000 you got to come up with uh from your portfolio. That's just a tiny little distribution from your four and a half million dollar portfolio. You're in such great shape. You're really in great shape. You can do pretty much anything you want right now. So yeah, you've got the go ahead from me. Go retire, please. Or partially retire and then fully retire later. I whatever the it it's still the numbers work out so so so well

Roth Versus Traditional Contributions

SPEAKER_02 10:01

for you. Thanks for the call. We appreciate it. And let's go to the next one, which I do believe. Oh, well, this is the one that requested the music.

SPEAKER_08 10:09

Hey, Don. Um two questions for you. Number one, we like to hear an intro to one of the shows done in the style of the band Rommstein. It's a German rock band, really popular. That'd be great. Don't worry about it.

SPEAKER_02 10:26

Okay, done.

SPEAKER_08 10:27

Uh, second question is my wife and I are starting to approach the 24% tax bracket. Um, probably be there in the next couple of years. Um, and that's after standard deductions, everything comes out. Currently, we are maxing out our Roths as much as possible. Um but I've heard of people saying you should actually put more into traditional IRAs and Roths than Roths. That way you're not paying as much tax as now, lowering your annual tax bill. But to me, thinking about it, in two or three years putting that money into a Roth, I'm gonna make up all of those taxes I've paid. Plus, then everything after that is all tax-free growth. And we have no idea what taxes are gonna be in the future. So is that a true thing? Am I thinking about this too simplistically? Uh do you have any suggestions uh when it comes to that? Thanks. Have a great day.

SPEAKER_02 11:36

Oh, you know, I don't over over two or three years, it's not likely you're gonna earn back unless you have a really great period of performance and you are you're pretty aggressive. It's not likely you're gonna earn back that tax that you paid. Um after several years, okay, maybe, but then you've also forgotten to factor in the growth that you would have gotten on that 24% that was taken out for taxes uh from the other money. Yeah, this is we're just we try to overcomplicate this stuff, and we really can't know what the right answer is without knowing so much about the future. Tax rates, your situation in the future, how much your taxable income will be, how much your your portfolio is going to grow to, so what your RMDs are gonna be, all of those kinds of things. Um, I I believe, and this is sort of like splitting the baby, do both. You know, get the tax break to get your tax bracket down today, because that also means you pay less on other monies. If you have a lower bracket because you've you've put a lot of money into a regular IRA or 401k, that means your other income, too, is at a lower rate. So at least reduce your bracket a little bit. But I don't see anything wrong with doing both. Have a regular deductible IRA and have a Roth. And again, we don't know what the future is going to look like. And that's really the wild card in this whole thing. We can all guess, and we can all say, well, in my opinion, it's gonna be this, but we don't know. But we do know that we can control today's tax bracket by using pre-tax contributions to retirement plans to give you less taxable income so that you pay less on the money you're making. And that's a powerful tool. Thanks for your question. Hope you enjoyed the German music, whatever it is. I have the genre here somewhere. I just have

Choosing a Safe Cash Sweep Account

SPEAKER_02 13:43

to look it up. And we again we have four questions today. That's two down and two to go. Here's three.

SPEAKER_00 13:50

Hey guys, um this is uh Brad in Atlanta. Um I re recently rolled over my 401k to Vanguard, and Vanguard offers two sweep accounts. One is FDIC Insured, and the other is a money market account. The FDIC account, I think what they're doing behind the scenes is they're distributing your funds across several banks up to the $250,000 limit. And with the money market account, uh, I've researched that and they say that they're only using um government-backed uh paper rather than commercial paper. And there is a significant difference in interest rate between those two. Like right now, the um money market is paying 3.81%, I think, and the FDIC one is much lower. And I'm not sure what kind of risk I'm taking keeping it in the money market uh account. Um can you give me some idea if how safe it is? It's a pretty significant amount. It's about 1.8 million. And you know, if we had another 2008 hit, am I okay keeping it in that sweep account until I decide how to deploy these funds? Thank you.

SPEAKER_02 15:18

Actually, you're probably safer if you're talking about the Vanguard federal money market, which it sounds like you're talking about with the yield and the like, which is W Hold on, I for I forgot the ticker symbol. I have it right here. WMFXX. I'm sorry, VMFXXW. Where did I get the W? It's like two Vs side by side. VMFXX uh yielding about 3.8. It is all treasury securities. It's all government paper. Government paper is identical in risk, if not slightly lower in risk than FDIC insured paper from banks. Because remember, the FDIC is a part of the government, it's a government agency, but they have to go back to the government if they run out of money and get funded, and there's no guarantee that will happen. Um so the treasuries are actually safer, I think inherently safer. So take the higher yield, don't worry. Even if it was the regular money market fund, which is in commercial paper, I wouldn't worry because of the diversification of the of the thing. But this way, you're all federal paper, so it's very, very highest level of safety safe. I would not be concerned in the least. Thanks for your question. And just like that, we're coming up on the last question of the show. Oh well, give us some more, please. Go to talkingrealmoney.com, click on the microphone button, please. Record it with your voice, please. And I mean, because if you type them, we can have AI

Reviewing a Young Investor’s Retirement Funds

SPEAKER_02 17:05

read them. You know, that's easy. All right, let's go to the last one, get it over with. Darn it.

SPEAKER_03 17:10

Hi, Tom and Don. My name is Sharon from Los Angeles. I am trying to help out a recent college grad, well-employed with her retirement. She currently has a T-Row Price 2065 fund. Her company uses John Hancock Management, and she does fund her Roth IRA. So just wondering what else she should look at, what else she should add. She might need some variable funds. I'm not sure what's in the 2065, but I thought I'd let you guys give me an answer. Thanks so much for your help.

SPEAKER_02 17:50

Well, if she ever gets clout with the company, she should suggest that maybe they f stop using John Hancock to advise on investments, because they're it's an insurance company. There probably are commissioned people on staff. I don't know, but I know John Hancock has lots of those. I just don't think this is necessarily a best interest firm. And I using the T-Row price fund, it's not a terrible fund, but it's an expensive fund. If it's the TRSJX, that fund has uh an expense ratio of 0.64%. That is really high. I mean, if they went to somebody like Vanguard or Schwab or whomever, let's see, the Vanguard target 2065. Hold on a minute. Uh the adjusted expense ratio is about it's less than a tenth of a percent. Less than a tenth of a percent, substantially less expensive. I mean, the portfolios are fine, but T Row Prices is actively managed, so you're going to get less diversification. Uh but it's it's okay. But I'd like to see her doing something else with her own money, and I'd like to see her probably being more aggressive, having a small value tilt, which this really doesn't have. Um it's diversified, but it could be diversified better. I'd rather see her in a DFAW from dimensional funds or an AVGE from Avantis for her other money because this is such a mainstream fund. I mean, it's the T Row Price Growth Stock Fund, the value fund, the large cap core fund, the equity index 500 fund. So there's going to be heavy SP 500. They have an international value, they have an overseas fund, but the overseas portion of the portfolio is relatively small. Uh, they have emerging markets, they they they they've got the asset classes, but when you dive into the funds, for example, the T-Row Price Growth Stock Fund that they use, instead of having thousands of stocks like Vanguard will have in their growth portion, they have 69 stocks. 69 stocks. Her employer is doing a disservice by using a relatively weak uh administratorslash custodian. So but she can she can remedy that with her own monies elsewhere. And if she's not getting a match, she may want to max out her regular Roth using more aggressive funds and only after that put money into the 401k with the with the weaker

Wrap-Up and Podcast Disclosures

SPEAKER_02 20:45

funds that are there. Thanks so much for your question. Thank you guys for all of your questions and your musical suggestion. And if you have some of those, well, when you call in your question, pick a genre and uh I'll try and make you a theme. Thanks so much for listening. Please tell a friend or two or ten. Uh follow the podcast on your favorite podcast service. That really helps. Not sure how, but it does. And if you like what you hear, you know, leave a review on it or a rating on Apple Podcasts or Spotify. Thanks so much for listening. I'm Don. More QA coming up next Friday. And then remember, every day I'm here with Tom. Talking real money.

SPEAKER_05 21:31

The opinions and views expressed on this podcast were current on the date recorded. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice, including any forward-looking estimates or statements which are based on certain expectations and assumptions.

SPEAKER_04 21:45

Although information and opinions given have been obtained from or based on sources believed to be reliable, no warranty or representation is made as to their correctness, completeness, or accuracy.

SPEAKER_05 21:54

Information presented on the podcast is not personalized investment advice from Oppolo Wealth. The views and strategies described may not be suitable for everyone. This podcast does not identify all the risks, direct or indirect, or other considerations which might be material to you when entering any financial transaction. Pass performance does not guarantee future results, and profitable results cannot be guaranteed. We hope you realize that the information provided on Talking Real Money is for informational, educational, and hopefully enjoyable purposes only. The podcast is not trying to get you to buy or sell any financial products or securities. Instead, the program is provided as a public service by Apello Wealth, a fee-only registered investment advisor.

SPEAKER_04 22:27

See Appello Vox ADV Party to any other website for information regarding Appellate's fees and services.

SPEAKER_05 22:32

Appello Capital, L L C D B A Apello Wealth, is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in the states where it is properly registered, or excluded or exempt from registration requirements. Registration with the SEC or any State Securities Authority does not imply a certain level of skill of training. Apello does not provide tax or legal advice, and nothing either stated or implied here should be inferred as providing such advice. Thanks for listening, and please visit talkingrealmoney.com for more information and important disclosure related to performance of any specific index or fund quoted in this podcast.