Afford Anything - 44 Years Old, $2 Million Saved – Why They're Still Hesitant to Downshift

Episode Date: December 16, 2025

#669: Slade (01:43) - Slade, 44, and his wife plan to downshift careers in the next five to seven years while raising their 11-year-old daughter. They want to know how to reallocate their $685K brokerage account and plan withdrawals to make the transition financially smooth. David (21:50) - David has a high school senior and is deciding how to pay for college. Should he tap the $60K 529 plan now or the $200K 457(b) from his wife’s former employer to maximize tax efficiency and preserve future growth? Graham (37:52) - Graham loved the episode on holding bonds in a taxable account, but he’s curious about a tax-efficient twist. Can an asset swap strategy let you rebalance and pull cash without triggering capital gains? Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, it's been a minute. Welcome back from Europe. Well, thank you. I made it back safely. The Christmas markets, however, are devastated. I'm gone because I felt like between my mom, my spouse and I, the GDP of the EU is going to be just fine. You are single-handedly responsible for GDP growth in the EU. When you come home with seven of those Christmas market mugs and you're like, why seven? Why not one? But every single one you go to you, like, oh, that's, That's pretty too. You know what? We could just bring these out around the holidays because God knows I love to store crap for 11 months and bring it out for just one. Well, you've got one mug for every day of the week. That's good. It's like I'm starting my

Advent mug collection. I don't know. Beautiful. Well, maybe. Hopefully not. Well, speaking of days of the week, I don't know how to segue that. We've got some great callers today. That has nothing to do with days of the week. Welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything. The show covers five pillars, financial psychology, increasing your income, investing, real estate and entrepreneurship. It's double-eye fire. I'm your host, Paula Pant. I trained in economic reporting at Columbia. Every other-ish episode, unless Joe's on vacation, I answer questions that come from you, and I do so with my buddy Joe, who has been absent for a little, he's been, he's been traveling. I have been.

Welcome back. Thank you. I also kept up the dad jokes, though, just for you. Yeah? So you know what you call a paper airplane that doesn't fly? What? Stationary. Ah.

And with that, we will hear our first question today, which comes from Slade. Hi, Paula and Joe. This is Slade in Virginia. I have a few details I'd like you to hear to see if you could help guide me to the next steps or some reallocation of my brokerage account. My wife and I are both 44 years and have an 11-year-old daughter. In the next five to seven years, we are both looking to downshift in our careers or find something that pays much less. We'd like your thoughts on withdrawal order and allocation. We spend about $115,000 a year. Currently, all of our tax-deferred and tax-free

retirement are allocated in about 60% S&P 500 funds, 15% international, 15% small-cap, and about 10% mid-cap. We have about $1 million in traditional retirement and $370,000 in Roth. We also have about $36,000 in $75,000 in 529s. Our taxable brokerage, however, is worth about $685,000, and it's split between about 85% S&P 500 funds and 15% small cap. Over the next 5 to 7 years, while we continue to work, our current jobs that pay well, if we want to live off our taxable brokerage after that should we start to heavily work bonds into that allocation to de-risk, should we consider a 72T, looking for any guidance to help make this possible. Thanks so much. Slade, I love your question. And first of all, congratulations on building such a healthy portfolio and on having such clear,

well-thought-out goals. I love the foundation that you're starting with. Personally, and Joe, we have not discussed this ahead of time. So I'm curious to see if we fall into the same camp here. I'm actually not a huge fan of the 72T in Slade's situation because they have so much in taxable brokerage accounts and they've got enough time until their goal. And their goal involves taking significantly lower paying work, but there's still going to be some income coming in. And their annual cost of living at $115,000, that's a very given the balances that he's talked about and given the whole set of circumstances that I've just out. outlined a fairly achievable number. Based on all of that, I'm not a huge fan of the 72T. I think I'd like to focus on the taxable brokerage portion. What do you think, Joe? I tend to agree, here's the one piece of information slate that we don't have that would help me

with 72T, which is when you talk about the difference between what you're making now and what your income stream is going to be later, I don't know what that delta is. So I don't know how much we're trying to take per year. And I'll tell you why that's important is that when it comes to 72T, one fun reason to take 72T, I like working fun into 72T because anybody who knows this knows it's not that fun. But it gives you some opportunities for some clever financial planning. So if you use some software and you look out, you project out later on with your traditional retirement accounts, there are some hurdles that you're going to need to overcome later. Number one, there's going to be taxation of your Social Security, and this just assumes

things stay the same. Number two is there's this little thing that we probably won't get into today, but people should look it up called Irma, which is another tax-ish hurdle that can be caused by taking too much money out of your traditional retirement account. So what I get worried about Paula, is it the traditional retirement account might grow too big. And if it does, we might cause some tax problems down the road by not tapping it. Now, the cool thing with 72T is you can segregate your retirement accounts. So let's talk about what this is first. So 72T for people like, what the hell are even talking about? What this question revolves around is, should I take my money in traditional retirement accounts

and tap it legally and without penalty before 59.5. People have probably heard that you can't do it before 59.5. Cool thing is you can, but you've just followed some specific rules and basically what the IRS makes you do is turn it into a pension.

And that pension has to run for at least five years or until 59.5, whichever is longer. So at 44 years old, if Slade goes at 50, Slabe will need to continue to take this, quote, pension for nine and a half years, for 10 years. If you want a super deep dive into 72T, we'll go all the way back to episode number 94. It's funny to state a two-digit number now that we're at, what, 600 and something. But if you go all the way back to afford anything.com slash episode 94, we do a deep dive into

SEPP 72T. That's awesome. That's great. Well, and you know what's cool is it is like riding a bike. Once you know it, you got it. I mean, episode 94, it doesn't matter what episode number it is because it's a training thing that, frankly, probably doesn't need to be done again. It's an evergreen topic, right?

Well, that's what I meant. Yeah. It's not like the first Friday macroeconomic episode when I'm, you know, here's the inflation data. Well, you know, it's not something that changes every month. It's very steady. You can tell them just back from vacation. I use 84 words.

Paula uses two evergreen topic to explain the mess of words that I had just before that. But the deal is, is that Paula, I think you could use 72T in a cool way. So what most people think with 72T and this is where people get it wrong is that you got to take all your retirement accounts and turn into a pension. Well, what's cool is you can segregate your retirement accounts and only, use a piece of it so I could 72T this one fund over here and not 72T these other fund. That gives me the opportunity to build a small, quote, pension-ish stream of income that comes out between now and age 60. I reduce my taxation after age 60 because I keep that retirement

account value smaller, a little smaller, and I then am able to do some tax planning today, get the money that I need today, and that also leave some of that brokerage money available for later, which is also pretty cool because that brokerage account represents flexibility. Now, like you, I don't think they're going to spend down all the brokerage account. I don't think they will, but I'd love to know how much money they think they're going to make and use a conservative number, how much money you think you're going to make. and then maybe see about a hybrid of I'm going to spend most of the money through my brokerage account. But then I'm also going to, because I did some projections of the future of how much

money I'm going to have to take out of this later, if those numbers are problematic way down the road, I could do some cool planning at age 50 to lessen the load after 60, 65, 75 years old. Yeah. I mean, so fundamentally, right, they're four. 44 right now. They're talking about doing this within five to seven years. Let's split the difference and say six years. They do it at the age of 50. And we're trying to plug this nine and a half year gap from 50 to 59 and a half. Again, with $685,000 in the taxable brokerage, rule of 72, assuming that the market does in the next six years what it did in the last six years, which we can't necessarily assume that. But there's a pretty good chance. that taxable brokerage account is going to be over a million by the time they turn 50. I think there's a reasonable likelihood that it'll be around a million dollars. And so we're trying to plug a nine and a half year gap with a million bucks in taxable brokerage.

When their annual spend is $115,000, adjust that for inflation by the time they turn 50, it seems like they can, especially given that even if they earned pretty small incomes, I think they could do the whole thing out of taxable. brokerage. Oh, no, they could easily do it out of taxable brokerage. My question wasn't around that when I said, I want to know what the delta is. My question is, how big do I make that 72T to avoid further taxation? Further taxation down the road. Let's be clear, I'm not worried at all about making it. Slate, you're going to be fine. You're going to be great. Love your allocation, by the way, the way it is right now. I think it's fantastic. We can talk about how you switch that over.

but yeah the 72 t thing i don't like doing it generally but in this case because also when you talk about the rule of 72 paula that one million in a traditional account by the time he gets to 59 and a half is also going to be double a yeah exactly it's going to be two point something million dollars sitting there yeah so if we go to tax expert i mean uh my friend ed slot wrote this book you know, the tax time bomb. I'm looking at this time bomb, possibly, with that traditional retirement account. So I'm just trying to diffuse that bomb and use 72T that way. Now, the good news, Slade, let's go through the good news. You could pay all these additional taxes, and I think you're still going to be fine. So this is really much more advanced planning that we're talking

about, much more advanced tax planning we're talking about. You could do none of that, and you're going to be okay, you're going to be fine. So then the question comes around, what are your legacy goals? What are your really beyond your lifetime goals with your money? And that's when, you know, financial planning gets even more exciting, Paula, because Slade and his family may be able to change the world. The other thing to note, Slade, your daughter's 11 right now. Six years from now, she'll be 17. She'll be on the verge of moving out, going to college. You're annual expenses will likely drop at that time. I mean, your college expenses are going to be high, but the 529 covers that. But your day-to-day, the groceries, the amount of groceries that you have to put in the

fridge, the cost of clothing, the cost of all of those miscellaneous daily cost of living items, a lot of that will likely shrink right at the time that you're making this transition. So I think it's wise to plan for your annual spending to remain at 115 where it currently is. But I think there's also a decent probability that that annual spend might shrink. Yeah, without any lifestyle change at all. Yeah. Without any meaningful feeling that it'll change. Yeah. Joe, I know you experienced that when your twins went to college. Oh my God. When my son left home, my grocery bill just shrunk by so much. University of Texas had a food program along with his dorm. And when I saw that number, I laughed. I'm like, you're going to lose. My son will eat that and more. What's amazing is for

people that know him and you've met him, Paul, he's not a big dude. Not a big dude, but he can put it away in college course. So could I. That's a whole different story. Yeah, the metabolism of an 18 year old. Yeah. Yeah. So jealous. Now I look at a centiput and I gain 10 pounds. Can we talk about the switch and allocation? Yeah. Let's do it. There's this problem slade that I think of is the bond problem. On one hand, you hit the nail on the head. You're reducing volatility. On the other hand, you're locking in much smaller opportunities for growth. And you're also, creating some tax issues if you just hit this straight forward. If you just change over some of your funds and your brokerage account to bonds, you create additional taxes and you lock in really suboptimal

returns. The issue with bonds that I have is that whenever I think about a portfolio, I always think a bonds as something I'm trying to have as few of as possible, while also not wrecking my ability to meet my goals. I would want to talk more about risk tolerance here and how you react to changing markets. And based on your current asset allocation, this money in the SB 500, small cap to mid cap, like your diversification is, looks really good. to me without doing a lot of analysis, just looking at it. I think it looks great. I do think that you need to back off so your gut feeling of, okay, the plane's coming in for landing. I need to back it down. I think you're right on there. But how much do we back down and how

do we back it down? I think revolves again, Paula, around whether he uses 72T. Because if he uses 72T to diffuse the time bomb, that money is going to be an income stream that he has to take. Then we can do some of this volatility lessening inside of his traditional retirement account. And then we end up with kind of the best of both worlds. Now, if we don't think there's going to be a huge tax bill, if he goes through and he does this research that I'm talking about and it's not going to be a big deal, then maybe I go ahead and I put bonds in the account if we wanted to be straightforward we got a great call from graham slade hold on graham's going to explain this whole thing to you later on some foreshadowing of later in the episode

of later in the episode yeah graham's going to give you kind of the 201 way you could do this and pay less tax but straightforward wise i didn't even know that's that straightforward wise boy i'm yeah straightforward wise yeah sure yeah i declare that a word straightforward about it means you're going to, you're going to run into some volatility. So let's go down the ladder first. The first thing you can do is traditionally value stocks have had less volatility than growth stocks. So without going all the way to bonds, right, I could take more of a value oriented tilt because during lean years, value stocks are going to go down less than gross stocks will. So remove some of the growth from your portfolio, go more

toward a value bent. But we know, Paula, that utilities, utility stocks, much more conservative, but you don't have to play the bond game. When I look at sectors, the utility sector might be something that he looks at that's kind of a halfway. I don't, I see people go full force from stocks over to bonds. And I think you can do that with some money, but I think you can also lessen the blow by moving some of your stock allocation to a more conservative stock allocation as well. Well, and I agree with you that the answer to 72T is going to play a big role in this because to your point, Joe, the drawback of 72T and the reason why I've, you know, biased towards taxable brokerage, if you can do it from that, is because of the fact that there is a mandatory

annual withdrawal. And whenever you're in a situation where you lack flexibility, you have to curtail your investments and you have to invest a little bit more conservatively because you lack that flexibility. You know, versus just hypothetically, if your strategy was entirely to pay for your cost of living through a combination of lower paying work plus withdrawals from the taxable brokerage account, but you could adjust on an annual basis, you know, maybe there are some years that you make more. more than you did the previous year. There are some years where maybe there's a year where you decide that you want to spend that time in Bali, where the cost of living is a heck of a lot cheaper. And so you're going to have this dynamism both in your compensation income and also potentially in your expenses. There's going to be annual fluctuation there as there is for most people. And so with a taxable brokerage strategy, you have the freedom and the flexibility to

modulate accordingly. And with a 72T strategy, you have to take at least some, whatever portion that is, what that number will be is based on a huge variety of factors. Whatever that number is, you're going to have to take it out every year. And because that is a must and that is a non-negotiable regardless of what is happening in your life, you do have to invest more conservatively because you don't want to be drawing down from a 2008 scenario. The cool thing is, and this is what people don't know about 72T, is I can make that number fairly small. Right, right.

That 72T doesn't have to be as huge as people think. I said 72T on a $2 million IRA. Oh, my God. That's going to be just a monster amount of money. And I don't need to take all that money out. Well, you don't have to. That's the cool thing here. So, yeah, if we have more of a trickle from the faucet than this huge.

72T. I'm all in favor of that. You know, I think a good asset allocation example are foundations, charitable foundations, they are required, the ones that don't do any active work, the ones that are set up for the purpose of making distributions to other charities, they are required to distribute 5% per year. And because of that 5% distribution mandate, they have to invest accordingly. that's the model that comes to mind when I think about the 72T mandate. Yeah, you'll automatically create kind of a two-tier system inside of your traditional retirement accounts.

You'll have some sliver of money that's made to continue to fund that. I need it now, machine. And then the rest of it goes to the far end of your timeline. This is the money that you're letting grow. So it's funny because you'll have your most aggressive money and your most conservative money in traditional retirement. account. But to get this done, you have to segregate the piece that's 72T money. It makes it much easier on your dashboard to know which part is the part I'm taking money from, because I

literally have to have a different IRA for the 72T money than the one that I'm not 72T. So dashboard-wise, it's not that hard to grok. But in your head, you're like, I got my most conservative and my most aggressive money in the same what same tax treatment yes slade i hope that gives you some insight and some next steps and again congrats on everything that you've built i'm excited for this chapter ahead we're going to take a moment to hear from the sponsors who make this show a reality and when we return we're going to hear from david who's wondering which account to use first for college costs, 529 or 457B. We're also going to hear from Graham, who has some thoughts on bonds that actually relates to the question that we just answered from Slade.

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Joe. This is David down in Georgia. I have a senior in high school, and I have a question regarding which of our accounts to draw from first with his educational spending. We currently have about $60,000 in a $529 plan. Additionally, my wife is an educator, and we have about $200,000 in a 457B plan from a former employer. So theoretically, we have access to that money. My question is, should we draw down on the 457B plan first and pay the little bit of taxes on those, is that would be a taxable event and grow the 529 so that that money could be passed on to our child's progeny, should he have some? Or should we draw off of the 529 plan first and avoid touching the 457B as long as possible? In theory, we have enough.

money in our other accounts, based off of the great advice we've gotten from you and others in the community to where we don't necessarily need our 457B money for the purpose of retirement. But again, always nice to have options. Thanks. David, thank you so much for the call. What a great place to be in, Paula, when we have this account from a previous employer that we've done well enough saving that we don't need So it can be flexible money for education if we want it to be. Right. I'm actually going to answer this the opposite way of the way that I answered Slade's question.

And the reason is, is I feel like the damage that it creates and the messiness that it creates when you tackle the 457 before the 529 plan outweighs any opportunity benefit that I see. So the first thing that I would do is spend the $529 plan. That's what the money's there for. That's what you saved it for. See how much of that you go through. The cool news is, is you know you have a backup in that $457 money that you don't need. So the college fund is the college fund, spend the college fund.

I'll tell you what really bothers me, Paula, is if they go with the $457 money first, you know, besides the wonkiness of trying to get money out of what is. traditionally known as a retirement account to spend for college, having 529 money left over afterwards, yeah, okay, I can turn into Roth money if I don't spend it. But I don't see a reason to do that. If we empty out the account, the goal's over, done, goodbye, don't have to worry about 529 at all anymore. Okay, I'm going to take the opposite argument, but I'm curious to hear your reasoning. 4-57 money, once you've left the job, you can withdraw it at any time. So why wouldn't you? They've got this bucket of money in the 457 that they don't need for retirement.

I'm going to take that statement at face value. I'm going to trust that they've run the numbers and they know that they don't need this bucket of money for retirement. So why not take it and let the 529 become essentially part of the legacy that they pass on to their grandkids, you know, like a family educational trust type of a thing. Why wouldn't you do that with the 457? And when the 457, the cool thing is, is that you can put just your son as the beneficiary.

Okay, done. And we have no tax bill at the end of it like he will have if he takes it out during his lifetime. I have no reason to touch the 457 money versus the 529. The 529 is built for college. Use it for college. Get it done with. The cool news is this. This, I guess this is the heart of it then, which is 457 money is so flexible and you can leave it in your name and you can use it for life changes. I mean, things happen. My uncle just died. The last year and a half of his life, he needed a bunch more care. I mean, I'm at the stage of life where I know a lot of old people. The generation ahead of me is going through those final years. And there are so many expenses that we don't know about.

And so if you get to that point in life and you know you still don't need the money, your kids are still at an age, your son is still at an age where he'll appreciate the fact that you can give it to them during your lifetime. I've had some family members that we've been lucky enough that have done that with us. and it's cool to give money to people when they're alive. But without David going into more about his personal funds and how close he might be, sure, he might be fine and he's going to be okay. But if the what ifs in life and life changes enough that he's not okay,

and I already king leered that money away to my kid. This is your second king lear reference on this show. in the last month. You're welcome. But if I've already, if I've already done that. Spoiler alert. Spoiler alert on King Lear. King Lear.

I hate to spoil Shakespeare for those of you, but did not get taken care of. It doesn't end well for King Lear. Yeah. But if I give that money away and then I end up needing it later, I mean, I could do the same thing with the 529, but why do I have the 529 still sitting around? then I got the same

rando problem, but it's even more rando because that was college money. Okay, so why is your college fund still sitting there? Well, because I decided to use this excess retirement money that I had because I don't need it anymore.

Now, I do love the idea, David, of the 529 being a legacy, like education trust. I think that is really cool. In fact,

I don't even know, Paula, needed this ability to change it over to the Roth IRA, I can make a lot of arguments about there was already enough flexibility built in, but whatever. I'm not the government. My job is just to help you figure out the way things are now. So I do love that ability to do that. And if there's money left over, then you can still do that. But you can also do it with a 457. And the cool thing is, with that beneficiary option on that account, you can do it very easily if you pass away. You can do it during your lifetime.

If I did do it earlier, you still have all the same stuff. And the cool thing about the 457 is I have a lot more options for investing it than I do in a 529. Like 529 plans have some cool options, but they're generally limited because of the fact that people are looking at one specific goal. So I can get a little more creative around the 450. I just think there's a lot more reason to keep the 457 than there is to keep the 529. I do appreciate that the 457 has more flexibility. And also that your costs in retirement, we kind of touched on this with Slade's question, but your costs over the span of your life are highly dynamic. And sometimes bills pop,

up particularly around medical care, long-term care, activities of daily living. Bills will often pop up in your final years that you might not have anticipated because your care needs can be so much greater. And I think that is just stepping back from this question and going to a big picture philosophical stance on retirement planning. I think the greatest threat to any retirement plan and the greatest challenge of good retirement planning, planning for those final years. So I do appreciate that if he can fund his retirement out of these various other accounts and keep the 457 as a, in case of emergency break glass account with the idea that that account will then pass on to his son if he ends up not needing it.

Okay, I definitely appreciate the retirement planning flexibility. in that. That being said, when it comes to legacy planning, I think one of the fundamental key questions is, does he want this 529 money? Like, does he want to pass something down to his grandchild rather than his child? You know, does he want it to make sure essentially that there's money that's set aside for that grandchild? Because if it's 529 money, he knows it's going to be spent on educational purposes or is likely to be spent on educational purposes. Once his son is done with education, that would go to a grandchild versus if his son inherits the 457 money, his son could spend it on whatever. So essentially, I'm being a little bit wordy now, but essentially the question

is how strongly does he want to create a family educational trust and name a grandchild rather than a child as the beneficiary. And he can't literally name a grandchild right now because that grandchild doesn't exist yet. And you can't name a beneficiary who does not yet exist. So this would be an indirect way to do that. Which brings up the question, the son is a senior in high school. Maybe there is a grandchild. I'm going to never know that.

But if there isn't a grandchild yet, and let's say there never is one, if there's a grandchild now, And that is the goal. Then certainly, Paula, I'm in. I'm in. That's great. Because my goal is to give something to my grandchild. Yeah. We can take care of your, your kids situation with the 457 money.

We got the 529, which is designed for this legacy education thing. Yeah. Okay. Now I'm using the account the way it was design. You know what's cool about this? This is what's really cool about this, David. David, is that I don't know there's a wrong answer to your question. I truly don't think there is a wrong answer. And I think that Paul and I have explored both sides of the argument

and you probably know based on what you just heard us go through, which way you're thinking about more. The good news here is I don't think there's a ton of pressure on you to get this one 100% right. And that's the cool thing about having that 457 in place. Yeah. Is that I think you can go either way and you're going to be okay. That said, I'm probably right. Actually, I do agree with that.

So many of the arguments that I've put forth have been for the sake of playing devil's advocate in order to work through the problem. But given my predisposition to be extremely worried about end of life care. I do like the idea of the 457 being the in case of emergency break glass fund for end of life care purposes because sometimes you get to retirement and realize you know the travel in your 60s discretionary take it or leave it depending on how strongly you want that for many people that might be take it or leave it right this is Paula I mean let's give a real world example of somebody that you and I know and your afforded anything audience has met in a previous episode, our friend Paul Merriman. Paul Merriman has said, and Paul's an older, incredibly dynamic dude, Paul has said in years when the market goes down, he then just explores the Pacific Northwest where he lives, because then he doesn't spend as much money. He still gets to see some cool stuff. And in years

when the stock market does really well, back when he was a little younger, he and his spouse, they would then travel the world during those years. So to your point specifically, using a specific, we've seen this work for somebody in action. But the thing that Paul doesn't know about is medical care. And he can't say, well, if the stock market does really good, I'm going to use great medical care. Right. And if the stock market does poorly, I'm going to be rationing my prescriptions. We call it micro-dosing.

Oh. This just got dark. That is just horrible. But to your point, there's a big difference. And, you know, in the world of financial planning, what you're looking for are periods of your life when there's huge amounts of volatility. There's huge amounts of volatility right out of college or right out of high school. because you know the future is very uncertain your income streams are very uncertain and you haven't

yet established a spending pattern for yourself so a lot could go off the rails and then you get more established you get more set in your ways you're able to develop some planning and then you go through these years when things are not that volatile when you have a job change things get volatile again if you decide to turn a significant other into a spouse things get volatile again if you have a pet who needs a lot of veterinary care and you don't have pet insurance, things get very volatile again. Well, then any time a family member, including a pet, happens, things get volatile. So you look for these periods of volatility and how am I going to plan for those.

And one period of volatility, we know for certain is end-of-life care. You can just look at all of the statistics around the health care industry and who most of the care goes to and where most of the dollars go. And it's people that are within five years of the end of their life. That's when the vast majority, where the vast majority of money is spent. And so that's the period where in financial planning, I'm almost like, I don't know. I don't know. I mean, we all hope that we go quickly, right? There's another spoiler alert, not just the King Lear one. Spoiler alert, none of us get out of here live. I don't. Don't know if it's too soon.

Death and taxes. To give that away. But David, great question, great thought exercise, and I loved working through it. What a depressing answer we gave him. Well, we're all going to die. You've got a lot of bills to pay and it culminates in death. There's your answer. David, here's some fodder for the therapist.

Right. Welcome to the Little Miss Sunshine podcast. On that note, happy holidays. Well, on that note, should we listen to some ads? Oh, yeah. Is that what we do next? I think that's the best part. All right.

Well, David, thank you so much for the question. I hope we gave you some food for thought and some insight. Next, we are going to ignore our impending mortality by listening to some words from our sponsors. Welcome back. Our final real comment today, not a question, but a comment, but a final fodder for discussion comes from Graham. Hi, Paula, this is Graham. I loved your recent episode about Brandon's question on holding bonds in his taxable account. You made a great point that since it's his only liquid account for the next 20 years,

Keeping bonds there makes sense for convenience. But here's the rub. In order for Brandon to diversify and add more bonds, he'll have to sell those beautifully appreciated stocks, and Uncle Sam will be waiting with a costly capital gains bill in hand. Here's a sneaky workaround if he's also got a pre-tax retirement account. Brandon can sell equities inside the pre-tax account and use that money to buy bonds.

Boom, instant diversification, zero capital gains, and bonds are now tucked safely where they won't throw off taxable dividends every year. Fast forward to the next recession. Stocks drop, bonds rise, and Brandon wants to cash out some bonds. But wait, you say, they're locked behind the age 59.5 gate. No problem. We'll use the asset swap escape hatch. Let's say Brandon wants to withdraw $5,000 worth of bonds.

Step 1. Brandon's going to sell $5,000 worth of equities in his tax. brokerage account and withdraw the cash. Step two. In his pre-tax account, Brandon's going to sell $5,000 worth of bonds and use the proceeds to buy $5,000 of equities. Voila. He's effectively sold bonds and withdrawn $5,000, but his overall stock allocation across accounts hasn't budged. Even better, the IRS has no idea a financial magic trick has just happened. The same deal is true with dividends. When bonds in the pre-tax account spit out $1,000 in income, he buys $1,000 worth of stocks there, sells $1,000 of stocks in taxable brokerage, and withdraws it, creating tax-efficient

income without disturbing the asset allocation. So Brandon can diversify, rebalance, and pull cash, all while dodging capital gains and dividend taxes. Hopefully this helps Brandon and others in the same situation. Thanks again for the awesome show, Paul and Joe. Graham, thank you for the comment. Thank you for laying out the asset swap strategy. I love the strategy. It works under the following set of assumptions. You mentioned if there's a recession and there's a scenario in which stocks fall and bonds rise, which often but not always happens. And there have been times when equities and bonds have not been inversely correlated, but if there is a situation in which during a recession, stocks fall, bonds rise, and you want to rebalance your portfolio by virtue of

selling out of some of that bond allocation and into buying more equities in a recessionary context, then yes, absolutely. Well, it can also work for in Slade's situation. So if Slade is trying to sell and doesn't want to hold bonds in his after-tax portfolio, He'd rather hold them in the pre-tax portfolio. He's going to have to make a few moves instead of make it just one, right? You're not just selling and you can't set up just the automatic sale every month, which a lot of retirees prefer to do. You can't do that.

So it's a little more time intensive, but you certainly get the workaround that you're looking for it. And the beauty, Graham, of the strategy that you laid out is that a person pays long-term capital gains on the equities, the sale of those equities. and that means that you're getting a much better tax treatment than paying at the income tax level for dividends. So it does overall reduce your tax bill. So we like it. A seal of approval. So the question becomes, if we like it, why haven't we, Paula, talked about doing this in the past? And I can't speak for you, but I can certainly speak for me, almost like the difficulty that we just had with the whole 72.

T discussion for Slade earlier today and how we get into some really advanced planning. What I've found during my financial planning years is this, people will try to do the things that Graham said and behaviorally, it becomes frustrating. It becomes time intensive. And I can hear Graham. I can hear you yelling at your device. It's not that time intensive. It isn't if you get it.

But if you're somebody who's talking to a wider audience. What I often found was the wrong people would try to implement Graham's strategy. They're hanging on for dear life when it comes to all these concepts. They hear about this. Oh, my God, I can save a bunch of taxes. This is the hidden thing I've been looking for. And then four months later, you're disenchanted, you're frustrated. You have no idea the hell that you created for yourself by having to set these things up on your calendar to do them all the time.

And so you end up doing nothing. which is the most frustrating thing for me because I think the whole goal of the show is to help people do more, not to do less. And so I love this strategy. I think it's a great strategy. I do think that it's going to be something you're going to have to continually cultivate unless. Now, Graham, if you're just using it once a year for rebalance, then what's this extra step? It's no big deal. Then I think your strategy is no big deal. If I'm trying to take a monthly income stream like Slade's talking about and I'm doing it swapping every month, does it work? Yes.

Is it a nightmare? 100%. Because 12 months a year, I'm digging in deciding what to sell in my pre-tax and then what to sell in my aftertax. And I'll tell you the other thing that ends up happening is that instead of just selling the obvious thing, this is when the market timing starts coming in, Paula. which is, oh, I have this position. It's, quote, doing real good, right? And I don't want to touch it this month, even though on my planet says to touch it, I'm just going to let my winner run a little bit or I'm just going to deviate this one time.

And you begin creating messes for yourself, which is another reason I like automation. Unless I give my brain a chance to mess it up, the better off I'm also going to be. Right. I hope Graham, though, you hear that correctly. I don't dislike it. I think it's fantastic. And I think it solves the tax issue that a lot of people face. And it specifically, Slade, this is a strategy that might work for you, depending on your ability to be able to do this on a recurring basis.

Yeah. Yeah, you know, I think the reason that my brain immediately locked in on fast forward to the next recession is because that, to your point, Joe, the effort burden of doing it once annually during a recession, okay, cool, not so bad. Assuming it's a recession in which stocks and bonds move inversely to one another, which doesn't always happen. But assuming that that's how a given recession unfolds and you're doing this once a year, cool. But it certainly can become onerous if this is how you're paying yourself monthly, if you're relying on it for a monthly payout that covers your costs of daily living. And I think about even as we're talking about this, like, okay, so how do I mitigate all those risks? Like if I set out once a year a systematic approach of how I'm going to do this, so the only thing I need to do is a few more keystrokes, and I'm not going to think about it every month. I'm just going to do a few more keystrokes. That could take this potential hassle and make it fairly quick and easy as well. But you definitely have to think around the system. What's my system going to be at doing this versus every month? How am I magically evading the tax police? I will also say, and Joe and I are both coming from the perspective of we hear the questions that we get from a wider audience and we hear how those questions change depending on what's happening in the broader market.

And of course, your individual behavior patterns will vary. But listening to a mass aggregate audience, no matter how many times we say time in the market is more important than time in the market. We say that to we're blue in the face. And yet, every time something happens, we get calls from people saying, this time it's different. We heard it during the pandemic. We heard it this past April, April of 2025, when there was that very brief but pretty extreme market dip. We hear it over and over and over. And so we know from hearing the types of questions that we receive every time the market goes down, that it is hard for many people to stay on track, stay on plan when the reality of a diminished portfolio hits.

When you log into that Vanguard account and you see the numbers and they are much smaller numbers than what you're used to seeing, there is an emotional gut response. So much of what we do and what we talk about is. to help people protect themselves from the downsides of that. Which often are behavioral. It's a reason why people efficiently pay off debt. You're going to win because of the behavior change, not because of the interest rate. Mathematically, it's a bad move.

Behaviorally, it's a fantastic move. You're referring to the debt snowball? Yeah. Yeah, behaviorally, it's a wonderful move. That win that you experience when you pay off that smallest one. It was also the number one reason I think that people when I was a financial planner hired me, just the fact that we were going to check in four times a year and they were going to be physically in my office twice a year was this accountability pattern that behaviorally worked. You'll see all day online. Don't hire somebody. You can do this yourself. I mean, I'm not going to go back through that diatribe. But I think the number one reason was because behaviorally, if I've got to check in, if there's somebody holding me accountable, I'm going to do it. I talked about before, I'm planning for this race, this race in our community in Texarkana, half marathon to benefit our walking trails in town. We have a meeting every month. My job is

to help with publicity. I will tell you more gets done in the area of publicity the three days before that meeting than happens the 27 other days. So behaviorally, these check-ins, these things matter. They 100% matter. Yeah, I take stand-up comedy classes every Wednesday night. You know, when I write most of my jokes, Wednesday afternoon. Exactly. Right. Yeah. It's the reason people cram for a test. Yeah, exactly, because I know I'm going to class that night. I know I'm going to have to stand up in front of the class and do an act. And so every Wednesday evening, I am standing up doing an act that I have just written and have not practiced, but I got it written. But thank you.

Graham for contributing to the conversation. I love the asset swap strategy. Let's continue the conversation in the broader community. Afford Anything.com slash community is a great place to go to talk to like-minded people about all of these topics and more. Totally free. Affordanithing.com slash community. Joe, we did it again. I can't believe it. Another one in the history books. In the bag. Yes. All right. When you are not buying a your seven-day-year-advent Christmas mug collection. Is somebody who would like to take that off my hands, by the way, just write me. I will send you some Christmas mugs because I have 30. No, I have seven, but. When you're not importing mugs from, where were you? I was floating down the Rhine River.

Ah, nice. I've started in Cologne and ended in Basel and went through Straussburg and a few small cities a long way. Just fantastic trip. Oh, beautiful, beautiful. Well, when you're back at home, where can people find you? Well, even if I'm not at home, which I'll be home off and on, but the show must go on and it does at stacking Benjamins. We're at end of the year time, which every year we have a few traditions. Number one is we have our fantastic roundtable with Paula, Jesse Kramer, and OG, Doug and I about what should we have learned from the events of 2025. The following Monday, we always have a guest from the personal finance community. It's

been people like David Bach, Jill Schlesinger, Gene Chatsky. This year, we have Joel Matt from How to Money, who are joining us. Yeah, and the reason we have Joel and Matt on is because we kick their at a fundraising competition in November. So I just want to say that as well. We have a lot of fun on that episode, but we also get these wonderful guys take on what they think at the end of the year. Then we go into our year end holiday, which we look back five years ago, Paula, and take our greatest hits from five years ago and play them every day during the week between Christmas and New Year's. So people get to hear these fantastic interviews from five years ago. And we're going to replay our number one hit from 2025,

which our most listened to episode was with Alex Harmosey. And on Christmas Eve, we're going to replay our favorite yearly tradition, Doug in the Three Ghosts, which is this totally story that I came up with myself with no help about how Doug gets visited by these three ghosts during the course of one night. And it changes his life. Did no inspiration from anywhere in particular. Do we have to spoiler a little? alert this one. So lots of holiday festivities happening at stacking Benjamins. That's great. Well,

you can find all of that on the Stacking Benjamin's podcast. Thank you all for being part of this community. If you enjoyed today's episode, please do three things. First, subscribe to the newsletter of afford anything.com slash newsletter. Second, open your favorite podcast playing app. Hit the follow button so you don't miss any amazing upcoming episodes. And third, while you're there, please leave us up to a five-star review, F-I-I-R-E, five stars for five letters, and five days of the week. Thank you again for being an afforder. I'm Paula Pat. I'm Joe Sol-C-Hi.

And we'll meet you in the next episode.