Afford Anything - Ask Paula: How Do I Know If I’m Ready to Retire?

Episode Date: August 2, 2021

#330: Linda is 58 and wondering how to account for her Social Security benefits when thinking through the 25x expenditure equation. Her expected expenses are $100,000 - $150,000. How can she figure out if she’s ready to retire? Alise has dreamed of living abroad for long periods of time and wants to buy a property in Portugal before the minimum spend requirement increases. Should she go through with this, or is there another way to gain dual citizenship or travel abroad for long periods of time? An anonymous lawyer from Colorado has $250,000 in a SEP-IRA account that’s invested in mutual funds with fees ranging from 0.61 percent to 1.06 percent. Fees on these funds are projected at $200,000 over the next 20 years. Should he and can he transfer these funds to another SEP-IRA account? What are the consequences of doing that? Mr. Man is eligible to retire with a full pension, health benefits, and social security at age 48. He has 20 years to go. Should he include his pension and social security benefits in his financial independence plan, or think of them as extras? Former financial planner Joe Saul-Sehy joins me to answer more of your questions. Do you have a question on business, money, trade-offs, financial independence strategies, travel, or investing? Leave it here and we’ll answer them in a future episode. For more information, visit the show notes at https://affordanything.com/episode330 Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything, but not everything. Every choice that you make is a trade-off against something else, and that doesn't just apply to your money. That applies to any limited resource that you need to manage, such as your time, your energy, your attention, your focus. Saying yes to something implicitly means that you're turning away all other opportunities. And that opens up two questions. First, what do you want the most?

And second, how do you align your daily, weekly, monthly, annual decisions to reflect that which matters most. Answering these two questions is a lifetime practice, and that is what this podcast is here to explore and facilitate. My name is Paula Pan. I am the host of the Afford Anything podcast. Every other episode, my friend, the former financial planner Joe Saul Seahy, joins me on this show to answer questions that come from you, the community.

What's up, Joe? I am buckled in and ready to ride along. This is going to be an amazing show. There's a giant thunderstorm happening as. I record. So if you hear thunder in the distance, I'm seeing flashes of lightning. Like right then. Yeah. Like right then. Exactly. Yes. It's beautiful. It's an absolutely beautiful backdrop to this recording. By the way, it's a great thing to tell people's going on when we all know that you're just moving furniture while you podcast. Exactly. That's very multi-talented. Yes. As I'm lifting this

couch. I've got a side hustle as a mover. It'd be cool to have a side hustle along with your podcasting. Oh, geez, that's the last thing I need. But we've got tons of resources. We're actually not going to talk about... You're welcome. We're not going to be talking about side hustles on today's show. But for anyone who's listening who wants to know more about it, afford anything.com slash, what is it, extra income, I believe. Hold on. I'm checking that URL. Hey, look at that. I was right. I know my own website. Yeah, afford anything.com slash extra income. That's our big page with everything side hustle. But Joe, we are not talking about side hustles in today's episode because nobody has asked about it.

But we've got other fantastic topics, Paula. Absolutely fantastic. So here is what we are going to cover in today's episode. Linda is 58 years old and she's wondering how to think about both her social security benefits and her retirement portfolio when she figures out whether or not she's ready to retire. An anonymous lawyer from Colorado has $250,000 in a separate. IRA account that's invested in mutual funds with some pretty high fees. What should he do? Another caller is currently 28 and eligible to retire with a full pension, health benefits, and Social Security at the age of 48. How should he think through his retirement in 20 years?

And finally, a lease wants to buy property in Portugal. Should she go through with this? We're going to tackle all of these questions right now, starting with Linda. Hi, Paula and perhaps Joe. My name is Linda, and I'm calling from New Hampshire. I want to know how I think about and factor in Social Security when thinking about the 25 times expenditure equation. I'm 58 and think Social Security will still be viable for my age group. Well, at least 75% of it.

We have a portfolio of $2.5 million, and with 75% of my Social Security benefits, that would be around $52,000 a year. Is there a formula that we can multiply that 52K by to see how it impacts our retirement readiness? Our anticipated expenditure is anywhere from 100 to 150 per year. Thanks for all you do. Linda, first of all, congratulations on being so well prepared for retirement. You have a retirement portfolio that is $2.5 million.

In addition to that, you've got a great Social Security payout that you're anticipating. and a reasonable cost of living relative to the assets that you've accumulated. So congratulations on being in such a good place. Now, to answer your question directly, you asked if there's a formula by which we can multiply $52,000 to see how it impacts your retirement readiness. I don't know if there's a reason to do that. And again, this is where we get into the question presupposes the answer. the structure of your question seems to presuppose that we should take your Social Security benefit

and apply it to that same 25x formula in order to arrive at its comparable portfolio value. That's at least how I'm understanding your question. But I don't know if, I mean, sure we could, but I don't know if there would be a reason to do so because I think the core question, what you really want to know is, do you have enough money to retire? Now, as you said, your anticipated expenses in retirement are going to be between $100,000 to $150,000 per year. Let's take the higher of those numbers. Let's assume that you want to retire on $150,000 per year. You're going to get $52,000 from Social Security.

We'll actually, we'll round that down to $50,000, right? So we'll say one third of your retirement, $50,000 out of $150,000 is going to be covered by your social security. security benefits. So the remaining question is, of the $100,000 left over, that that $100,000 gap between what Social Security will pay you and what you want to live on, will your $2.5 million portfolio cover that? Yes, it will. At a 4% withdrawal rate, a $2.5 million portfolio would cover $100,000 in annual withdrawal. My thought process, Paul, is around just taking this one step further. Instead of using a rule of thumb or any multiplier at all, I just like doing the financial plan. I think it is so worthwhile. And you think about the amount of time

once you leave your job that you want to stay away from it. Like you hope this happens once. Why wouldn't I use a little insurance by taking some time to actually calculate out the number? So as she was talking, I was thinking of two things. Number one, a scenario where she's drawing off of her portfolio without Social Security. And then not just, you know, she talked about 75%. What if it ends up being 50% for whatever reason or 25% or it's 100%. So she could use all those different numbers if she just took, I don't know, an hour maybe and took one of the great calculators that you can find. online and just built out a plan based on her actual numbers versus using a rule of thumb.

Are there any particular calculators that you recommend? If so, we can drop them in the show notes. There are a few. Now, there's one that you have to pay for that we absolutely love at stacking Benjamins because it's ours, which is the retirement design lab. If you just go to stacky Benjamins.com, we call it the Retirement Design Lab, which is going to include other tools, but the calculator, which is powered by Steve Chen and his team at New Retirement, is a calculator that we like. Another place that has some fantastic, just a great list of calculators, our mutual friends, Darrell Kirkpatrick and Chris Mamula at Can I Retire Yet, have probably my favorite comprehensive guide of a bunch of different calculators out there. So those are two. I like Steve Chen's enough that we got behind it and made it ours.

but I also really love Darrow and Chris's list. Fantastic, and we will link to all of those in the show notes. To my previous comment about the 4% withdrawal rate, for people who want to listen to a deeper and more thorough explanation on that, I'll also drop a link in the show notes to a previous episode that we did with retirement researcher Dr. Wade Fowell. He is one of the nation's foremost leading experts in retirement planning as an academic subject, we have a long discussion about the 4% withdrawal rate, whether or not

we can use that as a safe withdrawal number, and what various contingency plans should be if we choose to use either that number or some variation off of it. But Linda, going back to your question, you've got a $2.5 million portfolio. You're going to be receiving $52,000 per year from Social Security, and if you needed to, you could spend as little as 100,000 per a year. You'd rather spend 150 a year. Totally get it. But if there were a year where maybe the markets have pulled back and you don't want to convert paper losses into real losses, if there's a year where you just need to temporarily tighten your belt, you could scale back to 100,000 a year. And so given all of those factors, I feel very confident about your upcoming retirement,

plus your 58, so you still have a few years. I don't know what age at which you plan on retiring, but you may still have a few years before you start drawing down from both Social Security and your retirement portfolio. Thank you, Linda, for asking that question. Our next question comes from a caller who refers to himself as Mr. Mann. Hi, Paula. You can call me Mr. Mann.

I am a federal employee and more specifically an Airbusiness. traffic controller. As an air traffic controller, you are eligible to retire with full federal benefits after 25 years of service. When I would be eligible, VH 48, and with that, I would be immediately eligible for my full pension, full health benefits, and maximum social security benefit. up until recently, I've never considered the pension and social security part of my FI plan and just considered it extra money if it's there in 20 years. However, recently I've been considering that I probably should include the pension and social security as part of my FI plan or as extra money.

wouldn't the government and Social Security still be here in 20 years, so I should still count on that money, or is it wiser of me to do what I'm doing now and consider them two separate events and invest my investments how I'm doing now? And then if I have the pension and if I have the Social Security in 20 years, I'm more secure than I wouldn't be otherwise. I appreciate all you do in your podcasting, and thank you for your time. Thank you for that question. You can absolutely count your pension as part of your financial independence plan. Social Security, I don't really care. You can count it or not.

But the pension, 100% absolutely. Your pension is backed by the full faith and credit of the United States government. So as long as we as a nation still exist and are solvent, then you'll be fine. And if we don't, then we're all going to have much bigger problems to worry about. Deciding whether you count the pension or not is not your number one question. Exactly. Exactly. You're never going to mean a spot going, you know, I think I shouldn't account it. Exactly. Exactly. I will completely agree with you with one caveat, which is the way pensions work, and I'm sure that's, you know, I'm sure that our caller already may know this is that it's based on working there a number of years.

And the more he stays in that job and knows for certain that he will make it to the 20 or 25 year mark or whatever the mark is that he thinks he's going to make it to, the closer he gets to that, the more solid it is. I like the closer he gets looking at it. But, you know, people change jobs a lot and change. I mean, we're looking at this right now, right? It's all over the news that everybody's thinking about changing. their career right now. There's tons of people rethinking where they're going. And if he thinks he's not going to be there long term, then I don't know how much I count it just in that instance. That is a good point. The pension is something that he can count, assuming that he spends 25 years

of service in this field and in this role. But things change. I do like the idea, though. I just like it is an exercise, not counting it. I like, I like what he's done there because if I can make it without it, just freeze up all that money, you know, which I just think is fun. I'm with you though. I would totally count it. But man, if he can make it without it, the flexibility he then has is incredible. Yeah. And just so people are aware, for the sake of everyone else who's listening, sometimes if a pension is offered from something that is not as secure as the U.S. government, If a pension is offered from a company, for example, companies can go bankrupt or go out of business all the time. And yes, there are mechanisms.

There are safeguards in place such that if a company goes out of business, then the pension may still be funded. But things start getting dicey when that happens. It's not a pretty picture. It's not a situation that any pensioner wants to be in. And even then, your pension may be backed by the pension benefit guarantee corporation. And so I think even then you might have some recourse to count part of your pension still. Right, but it wouldn't necessarily be the entire amount. Right.

And so if your pension is coming from a company, sure, there's a reason to be a little more conservative in whether or not you count it. Similarly, if your pension is coming from the government of a less stable nation, if it's coming from the Nepalese government, good luck. You don't have a lot of faith in them, huh? No, definitely not. Definitely not. Is that where you got your accent, by the way? Joe is referencing a story that I told him when we weren't recording. I told him behind the scenes about someone yesterday who asked me where my accent is from. And I just, I looked him straight in the eye, smiled and said, it's American.

It's Cincinnati. It was good stuff. Sorry, shouldn't have made the inside joke. But back to the question. Yes, I absolutely think that assuming you stay in the job, you can count the pension. As far as Social Security goes, as a generalized rule, I'm not a huge fan of counting it, but I don't have strong feelings about it one way or the other. I often tell people to think of Social Security as a bonus, to think of it as icing on the cake, or to think of it as something that will cover healthcare costs, because those costs could certainly escalate quite a bit. But it sounds as though you more so than most people will probably have very good health coverage.

And that's one of the biggest variables in retirement and throughout a person's life. So given that your health coverage is secure, given that you will have this pension, assuming you stay in the job, and given that you'll also have Social Security, whether or not you want to count it, it seems like your financial independence. plan, assuming you live a reasonable, not too extravagant life, will be fine. I don't know your numbers, but that's the sense I get. So, thank you for asking that question, and best of luck with your financial independence and your retirement. We'll return to the show in just a moment. The holidays are right around the corner, and if you're hosting, you're going to need

to get prepared. Maybe you need bedding, sheets, linens. Maybe you need serveware and cookware. And of course, holiday decor, all the stuff to make your home a great place to host during the holidays, you can get up to 70% off during Wayfair's Black Friday sale. Wayfair has Can't Miss Black Friday deals all month long. I use Wayfair to get lots of storage type of items for my home, so I got tons of shelving that's in the entryway, in the bathroom, very space saving. I have a daybed from them that's multi-purpose. You can use it as a couch, but you can sleep on it as a bed.

It's got shelving, it's got drawers underneath for storage. But you can get whatever it is you want, no matter your style, no matter your budget. Wayfair has something for everyone. Plus they have a loyalty program, 5% back on every item across Wayfair's family of brands. Free shipping, members-only sales, and more. Terms apply. Don't miss out on early Black Friday deals. Head to Wayfair.com now to shop Wayfair's Black Friday deals for up to 70% off. That's W-A-Y-F-F-A-R.com.

Sale ends December 7th. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and efficient. They're also powered by the latest in payments technology, built to evolve with your business. Fifth Third Bank has the big bank muscle to handle payments for businesses of any size. But they also have the fintech hustle that got them named one of America's most innovative companies by Fortune magazine. That's what being a fifth third better is all about. It's about not being just one. thing but many things for our customers. Big Bank Muscle, FinTech Hustle. That's your commercial

payments of fifth-third better. Get you and your crew to the big shows with GoTransit. Go connects to all the main concert venues like TD Coliseum in Hamilton and Scotia Bank Arena in Toronto. And Go makes it affordable with special e-ticket fares. A one-day weekend pass offers unlimited travel across the network on any weekend day or holiday for just $10. And a weekday group pass offers the same weekday travel flexibility from $30 for two people and a to $60 for five. Buy yours at gotransit.com slash tickets. Our next question comes from anonymous.

Joe, we name every anonymous caller. I am still stuck on Disney Plus. And Loki, the new Loki series, has hit Disney Plus. It's okay. It's a little confusing. But my spouse, Cheryl, says that Timothy Hiddleston is dreamy. as Loki. So I think that this has to be Timothy then, right? You're saying our next caller is dreamy? I'm not saying that. I probably shouldn't have even mentioned that Timothy Hedleston's

dreamy. I kind of think he's dreamy also. So maybe yes, maybe our anonymous lawyer caller is dreamy. Well, I'm going to have nightmares about that answer. But our next anonymous caller, I suppose, will be named Timothy. Hi, Paula. I'm anonymous from calling. I'm a 37-year-old lawyer married to a 36-year-old teacher with two kids. My financial goal is getting to FI and beyond, efficiently to be ready to retire with my wife at 58 when she's eligible for her state teacher pension. Just before the pandemic, I discovered you and had a personal finance awakening, so thank you for the education. I cannot believe they don't teach you this in school. Like many young professionals, I was approached after graduating law school by a financial planner.

I was promptly convinced to purchase $7,000 per year Whole Life Insurance Policy and to invest my employer's step contributions in the American Fund Family Mutual Funds, being told that they were the best. Since my personal finance awakening last year, I've realized just how costly all this advice was. In March last year, I canceled the Whole Life policy, invested the $30,000 cash value of that policy in the market, which, by the way, was less than I put in over the years.

Is no tax a win? I've put that mistake behind me now and maybe even came out ahead since investing by chance at the bottom of the market. That brings me to my question today, which is what to do about my SEP account in the amount of $250,000, invested in mutual funds with fees ranging from 0.61% to 1.06%, which is 20 to 35 times the fees on VTI, the total stock market ETF I invest in for my brokerage account. And don't even get me started on the two to five percent loads I paid to get into those funds over time. I'd like to break up with this financial planner and move those SEP funds from one SEP account to another in M1 finance or Vanguard, but I need some handholding. What do you call a transfer from what SEP account to another? Is this a rollover? Do you have to

sell everything all at once and transfer cash? Will I owe capital gains on the sale? If I own capital gains on the sale, should I still do it or is there a break-even point? Personal capital tells me in 20 years the total fees to be paid will be $200,000. I greatly appreciate any advice you can give and thought your listeners would like to hear about how to undo past bad decisions and write the ship. Thank you. Timothy, thank you so much for asking that question. First of all, I'm so happy to hear that you had a personal finance awakening. Late is better than never. I'm thrilled that you are on track to be able to retire in 19 years.

Thank you also for sharing the story of what happened after you graduated from law school, after you met with the wrong financial planner. I think that that story, I'm sorry to hear that that happened to you, but I hope that the people who are listening to this episode can learn from it. I hear so often people ask, well, why don't I just learn from? the cheapest teachers, get the cheapest coaches, get the cheapest advisors, get the ones who are free. And I think that your story illustrates the importance of being careful about who you take advice from, being careful about who you learn from, being careful about the sources of information

and knowledge and education, because what purports to be free or cheap can sometimes be very expensive. I'm going to stand up for the advisor here just a little bit, Paula, because there's a bunch of stuff that we don't know. Now, clearly, it ain't working. If it was working, he wouldn't be calling. And if he understood what he had, he wouldn't have called in with the question. But we don't know what his income stream was going to be. We don't know where he already had money. even though he said that it's a whole life insurance policy, because I'll tell you where this could totally make sense for me. And by the way, I doubt this is the place.

I doubt this is what really happened. But giving the advisor the benefit of the doubt, and maybe Timothy also the benefit of the doubt that he might have done something that was better than he thought, if this was a low expense variable universal life policy that had things that look like mutual funds on the inside, and he was investing it in the markets, and it's the type of policy that where he can take money tax-free out of it later, there was a potential that that could have been at the time

the right thing, assuming that either he wasn't eligible for a Roth IRA or he'd already max-funded the Roth IRA and he had tons of income. But if he had tons of income, he probably wasn't eligible for a Roth IRA and then would have had to do some backdoor contributions that it also presupposes that he had already maxed out any retirement plan, workplace retirement plan that he had. But if he has oodles of money coming in, tax sheltering that money makes sense. Now, clearly it wasn't invested well. Even if he did that right, right? Let's say that that was the strategy that the advisor had. Even if he did that correctly, well, it wasn't based on the fact that the way the markets have performed lately. The fact that he

hasn't made any money on that money shows me that there definitely is a breakdown. But had he done all those things and he was that 1% of people that need that tax shelter, I'm on board with it. My problem with permanent life insurance strategies is not that it's a bad strategy as much as it is a strategy where people are using the wrong insurance policies for commissions where people are putting round pegs into square holes, meaning people that don't have oodles of cash flow, they're recommending those policies once again for commissions. So is that probably what happened? Yeah.

But I think there is a case where this might have been a good strategy, but somewhere the ball got dropped. The second piece on the American funds. Let me comment on that before we move to the second piece. So the tip off for me was when he said that this financial planner talked to. him right after he graduated from law school. If he had said, oh, when I was 15 years into my career. Yeah, but we don't know, and I'm with you. We don't know what his first job was, though. We don't know what it is. I mean, we're presupposing a lot based on the fact that he's just out of law school.

So don't get me wrong. I'm with you. I just want to defend the point that is the subtext of almost every discussion that I hear about whole life insurance is that it's wrong in every case. It's not, it is not wrong in every case. And there is a time when it works. It works a hell of a lot less than I see it being used. I just had a conversation about annuities with someone the other day where a friend of the show said, you know what, I really hate annuities. No, I kind of like guaranteed income streams for the right person.

I don't like the way that they're sold. And I don't like the way some of the companies that sell them have added all these extraneous bells and whistles for huge fees. I don't like that. But the concept of an annuity is not bad. And I feel like, and the reason why I'm so voracious about this, Paula, because how many times have I gone on this rant? Right. The reason I'm voracious about this is because whenever, when I was a financial planner, it's been a long time. But when I found the person that needed this strategy, that needle in the haystack that needed it, I had a hell of a time getting them to do the right thing because we use so much shorthand.

We say annuities are bad. Annuities are not bad. Permanent life insurance is not bad. Putting a round peg in a square hole is absolutely horrible. And there isn't that big a jump that we need to make from what we're talking about now, this shorthand of annuities stink, to why do they stink? Like it's, all you've got to know is three sentences more, but nobody ever makes that leap. And by the way, it's not a leap.

I feel like it's a little tiny puddle jump. Right. First of all, let's not conflate annuities with whole life insurance. They're two separate products. Second, I don't think anyone's making the claim that in 100% of cases, whole life insurance is always evil. Oh, you've seen that all over the place. I've seen it all over the place.

In Timothy's specific case, this guy's just out of law school. No, no, no, no, no. Exactly. And I wanted to bring that up, not necessarily for Timothy. but because I hear this all the time, that I learned that whole life insurance is bad. My point to Timothy, if we're going to talk specifically to Timothy,

is that I don't know what type of whole life policy this is. I don't know how it was invested. I don't know what your income stream was. To your point, Paula, he's right out of college, probably ain't making a ton of money. So he probably was the wrong person. But I don't know any of that. And I think that to other people listening,

the implicit message would be that whole life insurance policies are bad and that's not the case so takeaway everything is nuanced and to label any product as entirely good or entirely bad is short-sighted and reductive now do you want to do the same lesson with the second half of this question american funds have done incredibly well and are they cheap? No, they're not cheap. And are they sold by commission-based advisors? Yeah, they're sold by commission-based advisors.

But do American funds have this long history of being very responsible money managers that made a bunch of money for the people that were in them? Absolutely, they do. So for me, to compare fees without comparing what, and I don't know which American funds he has, by the way. so I have no idea if it's correct or not. But to compare just the fees versus what you get, there is cheaper and cheaper can be a win, Paula,

but cheaper is not the same as better. Cheaper can be a win. Don't take that the wrong way. You can win by getting stuff less expensive, but cheapening everything does not necessarily make it a better thing. In this case, I think American funds are a fine thing. they're sold with a commission attached. I don't like that.

They do have some fees that are higher than the indexes that I would have probably recommended. Yes. But once again, I don't want to say that they were bad because American funds ain't bad. I go to Morningstar.com. I look at the fund family. I can't find a problem with American funds outside of the way in which the salespeople get compensated. And if that was the relationship that Timothy has. had with the salesperson from the beginning that, hey, I'm going to do the research and I'm

going to figure out all this stuff. And then you're going to pay me? I think choosing American funds could have been a very responsible pick and the advisor got paid. So, Joe, this is where you and I disagree because I am not a fan of judging funds based on historic performance, given that while a five-year or 10-year track record may be impressive, while there may be a fund that has beat the underlying index that it's trying to beat, you know, while there may be a fund that has outperformed in the short term, most funds in the long term... It isn't even in the short term, Paula. It isn't even in the short term. Go look at how long American funds have been around. Statistically speaking, most funds in the long term

revert to the norm. They revert to the mean. I get all that. Would I have recommended American funds? No. But to say, our American funds... funds bad? I don't think so. But should he stay in it? I wouldn't. If I had money in those, I would pull it out. I don't know which funds he's in. I would start with the goal and I would work backward. I would begin with the goal. What rate of return does he need? What does he need? But to stick it all in a single index versus a diversified collection of American funds, I'm going with the diversified collection of funds. Well, he could also go with a diversified collection of index funds. He doesn't need to necessarily stick it all into VTI. He could. He could. He very well could. So if he were to go

into a diversified collection of low-cost passively managed index funds at Vanguard or M1, then that to me seems like a win. That's a win, but that doesn't mean that he's losing. So here's what I would do. It is clear to me that he doesn't trust his advisor, so he has to fire them. That's number one. That's number one regardless. I don't know half of the facts, which is why I'm reticent to say that this was bad, but because he doesn't, you can't people on your team, you don't trust. You can't. You have to have people that make you smarter. And the fact, by the way, that he also doesn't feel like his advisor educated him to make him smarter, advisors got to go. So I do think the advisor's got to go. Second is he's starting to get, Timothy is starting to get a basis of what I call an investment policy

statement, which is he's got this idea that he wants to use passive index funds as the basis of what he does. If that's his criteria, and he's going to make that his investment policy statement, by the way, that's just the beginning. From there, then he has to talk about how does he diversify that to reach his goal, right? What is his goal? How does he define a win and a loss? When does he rebalance his index funds?

so he's not trying to beat Mr. Market. But because he has the bedrock of the beginning of that, where he says, I want lower cost index funds, then by all means I would change it. But it should be deeper than, I paid a bunch of fees to a really good fund family, and I don't want to pay those fees anymore.

It isn't about where you're coming from. It's about where you're going to. If he's going to move it, don't just move it to get on board. with the, you know, I hear everybody talk about VTI. So crap, I need VTI. You can't yolo your way to success. So I think that starting there and then moving it, because you know what that's also going

to do, Paula? That will also then define where the right place is. And clearly the insurance policy ain't working. Now, here's what he's got to watch out for with the insurance policy. There are often surrender charges. I don't know that I'd let those get in the way a ton, but at the very least know what they are. because all that money that's earned no money and lost some money while the market's gone up,

he's still going to pay a fee to get that on the back end, which by the way is a big fat kick in the ass after he already got kicked in the ass. Now, I don't know that that's the case. As I mentioned at the top of this discussion, there are policies out there that don't have those back end fees. Man, a ton of them do. And I just want him to be aware of it before he withdraws it. So he doesn't get this surprise after he's taken the money out.

Well, he said that he canceled the policy in March 2020 and invested the 30,000 cash value in the market. Oh, he did already. He did already. I'm sorry. I missed that. Yeah. And then hopefully if he needed insurance, he bought term insurance instead, right? Cool.

Yeah, exactly. Yeah. So the last piece of this and the technical question that he really asked. And I'm sure there's people wondering when they're going to get to the part that you really ask is that's just called a transfer. Just to highlight what his technical question was, his question was essentially, can I move funds from one SEP IRA account in one brokerage to another SEP IRA account in another brokerage? Yeah, is this called a rollover, was this question? A rollover is when you're rolling it from one type of tax shelter to another. And that's the way I think about it is if I'm changing the legalese, there are some of those that are allowed.

I can move a 401k if I've separated from service, or if my company allows me an in-service withdrawal, I can roll over a 401k as an example to an IRA. But that does change some subtle rules. So you're moving from one type of shelter to a different type of shelter. These are two-like shelters. So that is called a transfer because you're just transferring from American funds holding the SEP IRA to M1 or Vanguard or whoever holding it. Now, here's the good news. a lot of these brokerage firms hold American funds.

So he could even just transfer them in kind, do a complete account transfer. Then he can sell it at the new place. What I would do is I would look and see if where he holds it now, if there are fees to sell, clearly he talked about M1 and Vanguard. There will be no fee to sell at M1 or Vanguard. And I would want to verify with that with them ahead of time

just in case the type of fund that he has, there may be some rules. but Vanguard and M1 are known as two brokerages that don't have fees for trading themselves. So the product might have a fee, but M1 or Vanguard is not going to have a fee on their end. That said, there's also going to be no tax on those. He was asking about capital gains tax, Paula. There'll be no capital gains tax because these are inside of a tax shelter. So any moves that he make, there will be no tax.

It's if he pulls the money out that he's going to have a tax. But because he's not doing that, doesn't have to worry at all about taxation. So the direct answer to his question was rather straightforward and easy. But the conversation really happened around the setup to his question, which was he, and I very much believe that Timothy got screwed by the whole life insurance salesperson. I agree with you. I don't know that he did, but based on the fact that he made no money and it was right after college, those are a couple of warning bells. Indicators, yeah, there's some red flags in that story. I would love to know more. And I know that people have to keep it kind of brief, but I would love to know more. I would have loved to be a fly on that wall.

Yeah. But him telling that story about getting screwed by whole life insurance, to your point, Joe, does not mean that we can succumb to the temptation of all or nothing thinking. So much of this show is about thinking about how to think and relieving ourselves of our cognitive biases. And the simplistic all or nothing thinking of X is good, why? is bad, whole life bad, term life good, is to your point reductive. So thank you, Timothy, for asking that question. We'll come back to this episode after this word from our sponsors. Our final question today comes from Elise. Hi, Paula, it's Elise and Mike again, long-time listeners, multiple-time callers. I'm really excited to ask you this question because we love international travel. And one of our favorite things about show is that you also seem very passionate about travel. It has always been a dream of mine to live abroad internationally, specifically in Europe. And I always thought I might go about that by investing

in the golden visa, which is essentially a program where you buy property abroad and therefore gain dual citizenship. My plan was to do it in Portugal, but I just discovered that the minimum for the property price you must invest in is going from 350,000 euros to 500,000 euros. And it makes me want to hop over and purchase a property right now before it goes up. But I would like to think things through from every angle. So I'm curious if there's another way to maybe get dual citizenship or live abroad for long periods of time. And if it even makes sense to be investing overseas and what that might look like. Anyway, thank you as always for all the great work you do. huge band and it's great to be calling in yet again. I hope you're great. Talk soon.

Elise, I want to go first because I have very little help for you. I think Paula has a lot more here than I do. But I just want to say how much I love that idea. During the pandemic, Paula, I think you know that we thought we were going to become nomads and live all over the place. And we thought that my spouse, Cheryl, had a job in Arizona for six months. And then we had a place rented in Bali. So we thought we were going to be there. And then six months somewhere else and then a month in Portugal. So when she said Portugal and buying land overseas, it made me go back to my thoughts of possibly doing that myself. By the way, during that process of being a nomad for six months, which you often talk about, Paula, playtesting things, right? And I love this

approach of playtesting. Don't wait for this day in the future. Don't wait for this day in the future. or do it now, I learned that that's not for me. I definitely needed to have a home base. And had I not play tested, I would have still been of the illusion that, you know what, when I get to ex date like a lot of people do, I'm going to change my life and do all this stuff, only to find out maybe six months into it that all of my quote, retirement dreams might not have been what I really wanted. But so I'm really excited.

Elise and I both are excited to know what you say about this, because that's, I very much wonder. So, Elise, I am going to question the premise of your question. So you're asking about gaining dual citizenship. The first question that I have back to you is, why is citizenship important? And I ask that because the final line of your question, you cite three different objectives. You ask, is there another way to gain dual citizenship or live abroad for long periods of time? And does it make sense to invest overseas?

Wow, those are three very different concepts that just got lumped together into two sentences. Becoming a citizen of another nation is not the same thing as simply living in that nation for a long period of time. I lived in the United States for nine years before I got my U.S. citizenship. So you can absolutely live somewhere for a long period of time as a permanent resident of that nation, as someone who is on an employer-sponsored work visa for that nation, heck, you could go to grad school and get a PhD overseas, and that's going to take six or eight years, depending on what type of degree you get.

So even a student visa will give you a long period of time elsewhere. There are many ways that you can live abroad without necessarily needing citizenship in that country. And so that's the first question that I would ask back to you is is citizenship a requirement for what you are trying to do? Because if what you're trying to do is live overseas for X period of time, could that goal be achieved through a work visa or through some process that would get you permanent residency but not citizenship?

That being said, I have absolutely no objection to this program that you talked about in Portugal. If you want to spend 350,000 euro or 500,000 euro to buy property in Portugal, and if you have the money to do that, cool. That sounds great. I have no qualms with it whatsoever. I just wonder whether or not it's necessary. Now, if you decide to take the route of buying this home in Portugal, the next question becomes, as you asked, should you buy now or should you buy later, now at a cheaper price or later when you'll actually use it even though it'll be at a higher price. That's largely a question of opportunity cost. Let's walk through an example with the assumption that you're buying this in cash just to keep the example easier and not to conflate

issues of getting financing into the decision-making process. So if you bought now at a price of $350,000,000, which is equivalent to about $415,000 U.S. dollars, if you have that, you have that, you amount in cash, what would you do with it right now, assuming that you weren't going to tie it up into Portuguese real estate? What would be your next best alternative investment? And what are the projected returns that you would get from that investment? And remember, the answer that you're going to come up with is not a single answer. It is a probabilistic range. What is the range of returns that you might receive on that next best alternative investment, make an estimate of that numerical range, and then discount it based on the risk factor involved. Because of course,

you can never make an apples to apples comparison of two different options that have different risk profiles. So if you are looking at a higher potential reward, discount that or adjust that based on the risk, and then ask yourself, which is the better option? Is it a higher EV decision, a higher expected value decision, to put that money into the next best alternative investment now and hold that money in that investment for X period of time, does that decision have a higher expected value than the decision to take that same amount of money and use it to buy a property and just hold that property for that same X period of time? because it might be the case that depending on your holding time,

the returns that you could make from investing that money could exceed the jump in price. Or vice versa, it may be the case that the jump in price exceeds any reasonable return that you might be able to project. Either way, calculating the opportunity cost and framing that opportunity cost in the context of a range and then discounting it based on the risk involved, I think that will help lead you mathematically to what is the higher EV decision. But that being said, math is only part of the

equation. There's also, of course, the behavioral or psychological part of the equation. And that is the self-assessment of, if you were to invest this money, would you be up all night worrying about it. If that's the case, then the peace of mind of knowing you have that property in Portugal may be worth the trade-off of any potential future higher returns. By contrast, if you were to buy this property in Portugal, would you stay up at night worrying about the fact that you've now tied up all of this money into a home that you're not going to even visit for a while? If that's the case, then maintaining your money and keeping it in investments until you are ready to use it might be the psychologically healthier option. And so to the question of which one is mentally, psychologically, behaviorally better, that largely comes from your own self-knowledge.

Which of the two possibilities is going to make you less anxious? So those are the two ways, one mathematical, the other psychological, that I would approach. the question of whether you should buy that home in Portugal now versus later. That said, I will go back to my original answer, which is to question the premise of, do you have to go the route of buying a home in Portugal? Do you have to go the route of trying to obtain citizenship elsewhere? Or could you live overseas with student visa, work visa, or permanent residency status? So thank you, Elise, for asking that question. Joe, we did it again.

I can't believe it. I can't believe we're done already. That was fun. Yeah. That was a fantastic episode, as they always are. Chah. Joe, where can people find you if they want to hear more of you and your wacky adventures? Every Monday, Wednesday, I don't know how wacky they are, but they are adventures.

And it's every Monday, Wednesday, and Friday is the Stacking Benjamin show, where we have interesting people like the Paul pant on. We recently spoke to Kevin Rose for people who are into crypto. And we also had a fun conversation with a guy, I think you know, Paula. Do you know Alan Corey? No, I don't. He is a new book out called Housefire. And he's a guy who was a millionaire by the time that he was 30. And just his stories of the way he purchased real estate is super interesting and fun. He definitely does not go into the nuts and bolts like you do often here. But for people that want to hear somebody other than Paula talk about how great real estate investing can be, Alan Corey is just a fun, neat guy. And we had a great conversation. Great. And you can listen to that on the Stacking

Benjamin's podcast, available wherever finer podcasts are downloaded. Well, thank you so much for tuning in. My name is Paula Pant. This is the Afford Anything podcast. If you enjoyed today's episode, please do four things. First and foremost, are you subscribed to the show notes? If you are not, why not? They're free. You get timestamps of every question and their answers. You get synopsies of the interviews that we do. You get loads of stuff. It's amazing. So, Affordainthing.com slash show notes to subscribe to the show notes. Number two, share this episode with a friend or a family member that's a single most important thing you can do to spread the message of making sense with your money.

Number three, make sure that you hit the follow button in whatever app you're using to listen to this show, whether it's Spotify, Pandora, Apple Podcasts, make sure you hit follow. And while you are in that app, number four, leave us a review. Thank you so much for tuning in. My name's Paula Pant. This is the Afford Anything Podcast, and I will catch you. in the next episode. Here is an important disclaimer.

There's a distinction between financial media and financial advice. Financial media includes everything that you read on the internet, hear on a podcast, see on social media that relates to finance. All of this is financial media. That includes the Afford Anything podcast, this podcast, as well as everything Afford Anything produces. And financial media is not a regulated industry. There are no licensure requirements.

There are no mandatory credentials. There's no oversight board or review board. The financial media, including this show, is fundamentally part of the media. And the media is never a substitute for professional advice. That means any time you make a financial decision or a tax decision or a business decision, anytime you make any type of decision, you should be consulting with licensed credential experts, including but not limited to attorneys, tax professionals, certified financial planners or certified financial advisors, always, always,

always consult with them before you make any decision. Never use anything in the financial media, and that includes this show, and that includes everything that I say and do, never use the financial media as a substitute for actual professional advice. All right, there's your disclaimer. Have a great day. is to your point overly reductive. Is to your point reductive? Is overly reductive redundant? Yeah, yeah, yeah, exactly.

I was like, why did she change that? I'm like, oh, that's redundant. That's funny.