Ep. 2011: Four Questions Before Halloween
On Halloween Eve, Don takes four listener questions about starting young, retiring early, managing risk, and making the most of Social Security. The costumes may be spooky, but the answers are practical.
First, he weighs whether an 18-year-old without earned income should keep an Acorns account or move to a taxable brokerage account. Then he explains why someone retiring before 59½ may still benefit from pre-tax workplace contributions, with Rule 72(t) and Roth basis providing potential bridges.
Don also looks at how much investment risk makes sense when pensions and Social Security already cover most spending, and why delaying Social Security can be more valuable than reaching for income from a 10-year Treasury—especially for the surviving spouse.
01:00 Halloween Eve and today’s questions
03:58 Investing accounts for young adults
06:24 Taxable brokerage versus tax-deferred savings
09:05 Portfolio risk and when to claim Social Security
13:29 Treasuries versus delaying Social Security
Something moves in your statement. It rattles the page. There's a fee in the cellar that's been down there for ages. Your neighbors have tock it starting to smell.
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Halloween Eve and Today’s Questions
SPEAKER_03It's Halloween Eve. It's All Hallows Eve Eve. This is there's the day before Halloween, which is um where I live in Celebration, Florida, it's almost literally a nightmare, particularly when Halloween falls on a Saturday. Debbie and I made the conscious decision this year to sit this one out. Yes, we are Halloween Scrooge's bumbug. Um reason? Thousands of children. I'm not exaggerating. Thousands and thousands of children descend upon celebration from every hotel in the Walt Disney World area and from surrounding communities because well, it's more fun here than in a typical suburb or semi-rural setting or uh, you know, just kind of mainstream city. Uh and we just decided it was no fun. It it's just there are too many of them. It's the little conveyor belt of children. Could be cute at times, but we're scrooging it out. Gonna go watch a movie, seal the house up, her medically, and good luck on that trick-or-treating stuff. You know, trick-or-treating, uh actually, it it feels like uh teaching kids to be greedy. Doesn't it? A little maybe I'm just getting curmudgeonly in my old age. Anyway, uh hope you enjoyed the new uh Halloween-themed introduction to the show for uh this this episode only. I'm Don McDonald. This is the Friday QA episode. It's a light one again. We're a little light on questions, because for some reason we go through these cycles where you'll you'll speak your questions. You'll go to talkingrealmoney.com and you'll click the microphone button and you'll speak them into your computer, Mike, then I clean them up a little bit. Um, don't change the meaning or anything. I just make them sound better. Maybe edit out some of the long pauses, or if you, you know, have to do it on two different calls, I edit them together. But I just make it sound better. But they've gone down. We I have like right now I have four more, so I try to do however many I have left for the next week so that uh they can build back up. Whereas Tom, Tom's pile of dead trees is huge. Well, I it's it cycles. So anyway, thank you so much for joining me on this All Hallows EV for uh QA. We have four questions today, and here's
Investing Accounts for Young Adults
SPEAKER_03our first one.
SPEAKER_02Hi, Don and Tom. This is Brett in Seattle. I had a question about investing for young adults. We started Acorn accounts for our two kids when they were younger on your advice. I didn't love the monthly fee, but the good news is they're ready for the next phase anyway. My 18-year-old is headed to community college next week. He won't have any W-2 income due to school. So since he's not eligible for Roth, I'm wondering where should he open an account? What type should it be? And how should he go about transferring his funds and where should he invest his former funds? Thanks for the show. I've enjoyed it for quite a while since my friend Matt turned me on to it several years ago. Thanks.
SPEAKER_03Thanks, Matt. And uh please, all of you, do the same thing. Tell friends about the show because really it's a podcast. So the more literally the merrier. Um I know the $4 fee at Acorns may be a nuisance, but it's more like a gnat nuisance than, you know, a giant blood-sucking mosquito kind of nuisance. Um, you know, an uh a parasite. It's it's it's I like acorns because of the ability to set it up for automatic investing. Uh the diversification of the portfolio. You can get a very diverse, pretty aggressive portfolio through them. It's really simple. It's sane. It's, you know, it's, and I don't think the $4 is outrageous at all. It it's a little high in the first year, but when you get up to thousands of dollars, four bucks is almost nothing. And remember, that's the only way they make money. They're not making, they're not making a lot of money. They might, you know, with the bid ask spreads on the ETFs, but I don't think so. Um but if they do want to change, yeah, you could set up a brokerage account at Schwab or Fidelity or Vanguard or whomever. I would probably I would be tempted to go with somebody like Schwab and then get a relatively aggressive fund like a DFAW or an AVGE if this is very long-term money, which it probably should be since it's earmarked for retirement. Um but either way works. Either way works. I don't think you need to make a big change, just let them keep going with the Acorns account. But if you want to make a change, Schwab would be a good choice. Thanks so much for the question. Thank you for listening. And now on to number
Taxable Brokerage vs. Tax-Deferred Savings
SPEAKER_03two.
SPEAKER_00Done. Here's my question. I want to retire in the next few years. I'm in my early 50s. However, I have very little money in a taxable brokerage account. All my assets are split about 50-50 between traditional and Roth accounts, uh, which are IRAs and um 401ks and such like that. Is there a case to be made for contributing pre-tax until I retire in workplace accounts and then uh using a 72T and a Roth basis to fund retirement until age 59 and a half? Or is it better just to pay the income tax now on contributions and fill up that taxable brokerage account as much as I can until I'm ready to go? Let me know what you think. Playing sure does seem easier if you just have a taxable brokerage account that has the right amount of money in it, but curious your take. Thanks.
SPEAKER_03I don't think the flexibility is that valuable. I mean, it's yeah, I mean it's nice. Uh, but you can do the 72T, which is the substantially equal con uh distributions, and those tax benefits are wonderful, particularly if you're a high earner now and you're getting the tax deduction, and then when you retire, you're going to be in a lower bracket as you're taking the money out and paying taxes on it. I I kind of I really am a fan of the tax break. Not only do you get the tax deduction on your current income and giving it gives you more money to invest, but you also get tax deferral until you start taking it out. Now, some, for some money, that tax deferral is not going to be very long if you retire soon, but others still gonna compound tax deferred for years to come. So I wouldn't reduce my pre-tax contributions. I would if I could squeeze a little more money out and fund a brokerage account. It does give you a little more flexibility, the pre-tax money, but I don't think it's a better idea. No, I really don't. Thanks so much for your question. And please, you guys, send them in. Call, don't call. I'm so used to calling it call. I've been a radio talk show host for so long that, you know, people called the 800 number. Now go to talkingrealmoney.com, click on the microphone button, and then speak your question. You'll see that I make you sound good, as good as I can. So um, and this is the way the Friday QA episodes work. You've got to send me your voice. Let's go to the next
Portfolio Risk and When to Claim Social Security
SPEAKER_03voice. Hey, Tom and Don. This is Andy.
SPEAKER_07All right. I'm gonna have roughly six hundred thousand dollars in my investments, and between me and my wife and our social securities at 62, we'll have eight thousand dollars in pensions and social security. Now, my question to you how aggressive should I be with my portfolio since I'm already getting eight grand a month? I just really like your opinion on this. And uh, I do believe in the value tilts and all the different strategies, so give me a pretty comprehensive idea of how you're thinking. Thank you. You guys take it easy and keep doing what you guys do. Bye.
SPEAKER_03Thanks, Andy. All right, I'm gonna give you the answer to your question and then I'm gonna go beyond it. Um the answer to your question is you take as much risk as your risk profile determines you should take. That's a combination of tolerance for risk and need. You don't have a high need since the 8,000, it sounds to me like that's gonna comfortably support you. If that's the case, then your need is low, but you should still always take some. And then the determinant becomes tolerance. If you have a strong stomach, if you know you can you can sit tight during big downturns in the market, then you want to have more stocks probably than bonds, because historically they've done better. Um I would not go crazy conservative because you always need to have something in that portfolio that can grow in value. We don't want to rely solely on fixed income in retirement because things it gives you more flexibility and it gives you better potential. Now, I want to throw a wrench into the works here a little, though. You said you're gonna take Social Security at 62. Well, I'm gonna make an assumption. You didn't give me numbers, but let's just, for argument's sake, say your pension is five, so you're gonna take that at 62, because whatever, you can take it at 62. And then you're taking 3,000 from Social Security. I'm just guessing at the numbers. If you wait until you're 70, just eight years, then your Social Security income will rise, again, based on my assumptions, to over $10,000. Your total income. Your Social Security will rise from $3,000 to $5,300, roughly. Wow. That's ten thousand dollars a month. So you could live a lot better by waiting. So if you've got money invested, use some of that money. If you want to retire at 62 and you need that $8,000 income, great. Take the pension and then take $3,000 a month for the next eight years out of your portfolio because you're gonna give yourself well, it turns out it's an 8% guaranteed return. Talk about riskless. Reduce your stock allocation somewhat and go for that or reduce your bond allocation somewhat and take that 8% ress money by finding a way to fund that extra $3,000 every month. Don't take Social Security at 62. That's a lot of money you're leaving on the table. And you've got the money to cover it, it sounds like. So that's what I would do. Thanks for being a part of the program. I really appreciate it. Now, well, we come to our last quote caller. Uh there's a couple of parts here, but uh last one. If you want more questions, I need your help. You've got to call them in. You've got to punch the button on talkingrealmoney.com. So go do that. Ask a question. We'll put them on the Friday QA podcast. And they usually end up on the air within a couple of weeks after you call them in. I mean, there is a bit of a delay between when we record and when we put it on, but a few weeks. All right, let's go
Treasuries Versus Delaying Social Security
SPEAKER_03to the last one.
SPEAKER_06Hi, Don. This is Dino from Massachusetts. I have a question about treasuries. So let me first start with I'm married. My wife is retired. I'm I've just recently retired. I collect a pension. My wife collects her small social security amount. I have we both have 401ks. I'm considering taking my Social Security when I turn 67 in two years. But prior to that, I'm thinking of buying a 10-year Treasury that currently is paying about 5.18% and turning my Social Security on at 67 instead of waiting to 70, because the Treasury will basically make up the difference that I would have been receiving in a monthly amount between the ages of 67 to 70. The game plan then is at 677. Then when the bond is matured and paid back to me, I would then get my 200,000 back and then have to start dealing with RMDs, but that's a problem everybody has to deal with that has a 401k. Um and so what do you think? Is it sound like something that makes sense or is it kind of like not really worth getting involved with? I realized that I said I would start the uh 20 uh the 10-year treasury at 67. I meant start the 10-year treasury at 65 to 75, and then turn my social security on at 67. Hopefully that makes it a little bit easier to try to figure out what I'm asking you. Thanks again for all you and Tom do.
SPEAKER_03Well, thank you, Dino. Um, I'm I'm still a little confused. Um yeah, 10-year treasury, you earn about 5%, which, you know, you that's great. You you can take that income out uh for those years between 65 and 75, but I'm not sure how that impacts claiming Social Security. Uh the longer you wait, as I just mentioned, the better it is for you. Yeah, well, waiting until 67 gives you three more years of higher payments at about an 8% increase every year. Big increase. Uh you get and that benefit is for the rest of your life, and it gives your wife a potentially much larger survivor benefit. Waiting until 70, waiting just that three additional years raises your starting benefit 24%. And that doesn't even take into account the cost of living adjustments like the three point, I think 3.6 we're seeing next year. Um, if you can even if it means skipping the treasury, really, literally, it it it take take some if you want to retire at 67, take the money that you would have gotten from Social Security out of your treasury and you know, don't invest that amount, keep that liquid so you can live off of it, and wait the three additional years. Waiting until 70 makes such a big difference, not just for you, but for her. Um if if your monthly benefit at 67 is 3,000, if you wait till 70, it's 3700 plus. Plus. So plus an inflation adjustment. That's a lot of additional money. See if you can figure that one out. Thanks so much for the for the question. Thank you all for being a part of the show. Please, please, please go to talkingrealmoney.com and um scare up a couple of questions. Bad Halloween humor. So uh do that. Hit the mic button. The heck with Tom. Don't type your questions for a while. Speak them. Speak them to me. And keep listening every weekday as we are talking real money.
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