Afford Anything - Ask Paula: How Should My 64-Year-Old Mom Handle a Toxic Boss?

Episode Date: April 20, 2022

#376: Meghan’s mom is 64 years old and suffering under a toxic boss. It’s tough to switch jobs at her age. How should she think through the next steps? Ellen has a 20-year-old son with physical and developmental disabilities. Her other child, age 21, will need to look after him for the rest of their lives. How should she handle their inheritance? Joe wants to start working part-time in four years, and fully retire four years after that. He worries he’s investing too aggressively for his retirement date. In today's episode, former financial planner Joe Saul-Sehy and I tackle these tough situations. Enjoy! Do you have a question on business, money, trade-offs, financial independence strategies, travel, or investing? Leave it at https://affordanything.com/voicemail and we’ll answer them in a future episode. _______ For more information, visit the show notes at https://affordanything.com/episode376 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 you need to manage, like your time, your focus, your energy, your attention, saying yes to something implicitly means, turning away all other opportunities, and that opens up two questions. First, what matters most? Second, how do you align your decision-making around that which matters most?

Answering those two questions is a lifetime. practice, and that's what this podcast is here to explore and facilitate. My name is Paula Pant. I'm the host of the Afford Anything podcast. Every other episode, my buddy, former financial planner Joe Saul See-high, and I get together to answer questions that come from you, the community. What's up, Joe? I am so happy to be here with you, Paula.

Thanks for giving me the call up from the bullpen to help out. The bullpen. Where did that expression come from? Baseball. I said that because it's baseball season. It's called a bullpen? You do. That's where all the relief pitchers come in that come to help out. Hashtag today I learned. Now, in a baseball game, generally it's because the team is struggling.

Everybody knows team afford anything is not struggling. However, I can come in and, yeah, and help. But go baseball. Well, she's got no idea what to do with that. Yeah, I'm trying to think of a good. segue. I have no segue from this. So speaking of things that are not baseball, we've got three great questions that we're going to answer today. First, Megan's mom is 64 years old and she is struggling under a toxic boss. Given her age and given the fact that she still needs to work

for a few years in order to retire the way that she wants to, what should she do? Ellen has a 20-year-old son with physical and developmental disabilities. Her other child, who was currently 21, will need to look after him for the rest of their lives. How should Ellen plan to leave assets behind? How should she handle inheritance, estate planning, and the financial legacy that she leaves behind? Finally, Joe wants to start working part-time in four years and fully retire four years after that. He's worried that he's investing too aggressively, given his looming retirement dates, is he? We're going to tackle all of these questions right now, starting with

Megan. Hi, Paula and Joe. I actually have a question on behalf of my mom. She's currently working in the C-suite of a very well-known real estate company and has been in that position for 18 years. She's had a pretty good relationship with her boss during this time, with a few ups and downs here and there. But within the past two years, his attitude towards her and her department has sharply declined, so much so that he has become a classic toxic boss. He bullies and belittles to the point my mom has a heart attack if even an email is sent by mistake. This attitude also led to her receiving the worst end-of-year evaluation she's ever had and no raise. She's worried he is pushing her out. Now, as a 35-year-old, I know what I would do, leave ASAP. But my mom is 64 and had planned on retiring at this company.

She still needs a few more earning years to retire the way she'd like. The traditional advice of leave toxic jobs and bosses immediately doesn't really work in her case. She isn't keen on having to learn a whole new job only to leave a few years later. Plus, she has so many other fantastic relationships with the people she works with. As for my question, it's not really a question. It's more that we'd love to hear yours and Joe's thoughts on this situation. We've tried to look at it from every angle, but are wondering if there are other perspectives or things to consider. Thank you so much for your help and guidance. Megan, this, is such a frustrating place to be. And what's interesting is I remember Paula when I was younger

being discriminated against because I was very young in my job. And I remember how painful that is. But I will tell you that even at 54 working with young people in the job that you and I do, I often feel the same as a guy who's older in the workforce. I can't tell you the number of times just the past few years that I feel ageism, agist, ageist comments, is that what it is? Or like, you're too old to understand this thing. And it's weird because I don't really feel like I'm that old a person. So I can already empathize, not yet sympathize,

but can definitely empathize with her mom's pain. Hey, I just want to work for a few more years. I've liked working in a place and I'm not being treated well. I think this is a philosophical question, much more than a tactical question, because I don't know that there's an answer tactically about what to do. You stay and you get your psyche beaten on every day, which doesn't make life fun for the next few years. And you just try to wait it out. And I can just imagine how much the rest of 2022, 2022, 2023, and 2024 will absolutely stay. if she does that.

And I also agree that learning a bunch of new stuff and a job that you might not be in that long doesn't sound like a great place to be. But I have to tell you, Paula, I kind of lean that way. And the reason I lean that way has less to do with the idea that she'll only be there a few years. Then it has to do with the fact that I think there's something exciting about seeing life as an adventure. and about seeing opportunities and new people and new surroundings as part of that adventure, instead of the fear, living every day with the fear that my boss might continue to do something that I don't like and I just have to deal with it.

And I think if you put on the adventure cap where you know this is an adventure, then you're not making the mistake that the grass is greener on the other side of the fence, as they say, you know, it might not be better. but it certainly will be different. And if I look at it as an adventure and different, well, then hey, maybe it's not great. Maybe it's wonderful. But I do know that it's something different. It's a new experience in my life.

And it's something that as I'm remembering the things that I did throughout my life, it's an exciting time. I think of the two situations, I think I would rather be on the adventure boat than on the hanging on for Dear Life Boat. That said, it 100% makes sense for your mom to work on her resume, listen to podcast and audiobooks and watch videos, whatever she can do to get herself ready for a transition. And I also think that not leaving until she has the next position lined up makes a lot of sense first as well. And I also think that's exciting. I think it makes it easier to go to your job every day when you know that you are putting in motion the things that it's going to take to leave. And I say this because early in my career, Paula, this happened to me and it certainly isn't the same thing.

But I had a boss that wasn't treating me very well. And I remember that one day I just made the decision I was gone. And what was great was that I began in my off hours putting together. what my ideal job would be, what my career path would be. And it really, in hindsight, was a fantastic time because I stayed there for the paycheck as long as I had to just to make ends meet. But I remember the job got very easy those days because I remember after that point my boss yelling at me and I no longer cared. And also what was funny was psychologically and not all bosses is the same and this might not work for Megan's mom. But I remember my boss caring more about me and what I thought when he realized that he'd lost me.

Once he realized that I wasn't psychically invested in his little game and that I really didn't care, it was amazing to see him turn around. It was incredible to see him turn around. But I was gone. I was done. You just don't treat people like that. Joe, what's interesting about hearing your answer is that oftentimes when we answer questions, you tend to be a bit more tactical and I tend to be more philosophical. and I tend to be more philosophical. Our approach to this question, we've swapped.

Because as soon as I heard Megan's mom's situation, my brain immediately went to tactics. I just, I created this logical flow chart. There are fundamentally two options, stay or go. And from each of those fork branches, there are subsequent second order and third order fork branches that could result. And so mentally, visually, in my mind, I started just mapping out all of the different scenarios. And so tactically, here's how I would walk through that. If the decision is to go, then there are three possible routes that she could take.

Either find a different job, in which case, Joe, the advice that you gave about, prepare for that other job, perhaps talk to some executive headhunters. She's in the C-suite. She's been there for 18 years or she's been at that company for 18 years. So enlisting the help of a professional executive headhunter who could give her a better shot at making either a lateral or a vertical move into another C-suite position, I think would be a great first step if she were to go and take the go option of finding a different job. Also, not leaving until that job is secure and lined up and the ink is dry and everything's in the bag. I think that's also a fantastic tactic if the option is go and find other job. However, finding another job is one of three possibilities if she were to decide to go.

A second possibility is that she could, given her experience and connections in the field, potentially work for herself for the last remaining years that she desires to perform income producing work. Be a consultant. Correct. And that would be a new challenge. She would have autonomy. She would have mastery. She would, depending on the type of work she's doing, perhaps find a sense of purpose. So there is a reasonable likelihood that that could be a challenging and fun option for the final years of her career in which she could build on all of the skills and relationships that she's made over the span of the last 18 plus years. Or for however long she's been in this industry. I like that option because I often know that consultants, companies will pay a little more. So she may find herself making more money because of her expertise and perceived expertise. And then the second thing is I think that if she goes that way, also remember that you'll be responsible for your own benefits. And I see some people that go into consulting, they undercharge because they forget how expensive your own benefits are. So I would make sure that you charge enough to create your own benefits package.

The other thing, I also like Sun Suu, the Art of War. And one phrase that I love from the art of war is the best battle is the one that's never fought, meaning to think about all of the potential ways out of battles. And one battle that I could see in this scenario would be the CEO not being behind you when you move into consulting, right? the CEO might, if the CEO is vindictive or is difficult, might end up undermining any consulting that mom would do. And that doesn't mean that you shouldn't do it. It does mean, though, I may want to be prepared for that ahead of time that that may happen so that you're not blindsided by the fact that this CEO may not have your back.

Right. And if there's a non-compete or if there are any non-compete related issues, that would also have to be looked at. Oh, good point. At any rate, in terms of the tactical tree mapping, two options, stay or go. And if she goes, she can either work with an executive headhunter to look for another C-suite position or start her own company in which she becomes a consultant. Or the third option would be to go and rearrange her finances in such a way that she could retire and have a cessation of active income earlier than planned by virtue of pulling some strings in her budget, pulling some strings financially so that that would make it possible in terms of the retirement that she's been planning.

In other words, recalibrate the amount of money that she needs to retire in order to take an early exit. Those are the three options that I see if she were to decide to go. I wonder if there's a way on that third note. If she decides to go any of those ways, but she knows she's gone, right? She knows that she's left. Now the worst case scenario is that she leaves and her paycheck just ends. But I also think that it would be hell of fun, especially after the way that she's been treated, to walk into the boss's office after she knows she's gone and say, you know, I think it's become

clear that this working relationship isn't working out the way that you seem to want it to. I know that there's some projects that you may be thinking about or want done. And I would be happy to move out of the way if you offered me a severance package. Let's start talking about maybe a severance package where you and I work together in a way that is mutually beneficial. So ask for compensation for an early exit. Ask for compensation. And if she's already at no and she's okay with no. Right.

Then there's nothing to lose. And I think the CEO might go for that. I remember times that would happen with clients of mine. And it was always an exciting strategy to try. and I can't think of a time, Paula, when my client didn't get money. So it worked every time, to one extent or another. It either worked every time or the boss woke up and the person decided to stay. Oh, that's excellent.

Because it forced a discussion about the working relationship that they had and why they had that relationship. That's excellent. And that actually segues perfectly into the alternate tree branch fork, right, if she stays. because what struck me when I heard Megan's question is that her mom has been at this company for 18 years, and for the majority of that time, she's had a very good experience. She's enjoyed it. She continues to enjoy the colleagues that she works with. So it seems as though there's only one person at this company whose behavior is driving this dilemma, but absent that one person, and it seems as though all of the conditions otherwise are in place for her mom to enjoy this work.

So it doesn't seem to me as though this is a done deal. In other words, I think this might be salvageable. It could be that the boss has no idea that their behavior has changed. Perhaps something happened in the boss's life that is impacting their mood or is curtailing their situational awareness, and they might not know that there's a problem, or at least they might not know the severity of the problem. So if her mom were to stay, addressing this issue directly with the boss, and pointing to specific examples of times when she has felt disrespected,

and comparing those to specific positive examples of things that happened with that, that same person in the more distant past, right? Seven years ago, if X had happened, you would have responded with Y. But these days, if X happens, you respond with Z. Right? Drawing that contrast between how things were versus how things are and drawing a line in the sand to say, I want you to understand the severity of the issue, I think that might be the communication that's necessary for the relationship to improve if she were to decide to stay.

Solving the communication problem is so difficult, especially for you and I, because we don't have any real true insight into what causing the friction, because often that's going to be how you respond is going to be based on, I think, a much more granular set of circumstances, but just remembering to think from your boss's point of view, like what could be upsetting them now that is what didn't upset them before? Like what is going on? And you know what? And a place that often you find is a problem is maybe there are things going on with

the board of directors. Maybe there are things going on that you can't know. Right. Maybe there's things going on at home. Maybe in other words, it has nothing to do with mom at all. Right. Possibly.

But factoring in all those things to figure out what the stimulus is that's created this difficulty is a big part of solving the communication issue. But then to your point, Paula, going and trying to open up a very clear line of communication. But what that also means is that mom has to be prepared for whatever boss says if she goes in and has this discussion because boss may say, I need to change XYZ. And if your mom isn't prepared to change XYZ, then that conversation wasn't very helpful. Or was it helpful? I think the conversation would be helpful either way in terms of at least gathering more information about whether or not the boss is aware of A, the existence and B, the severity of the issue. Well, and I think all.

Also, too, it opens up a much clear line in communication. If it's been like a lot of communication where it's been a little bit of cat mouse, you know, somebody's treating me like X and I haven't really approached them to tell them that they're treating me that way. Right. Then who knows if the boss knows or not. Right. Exactly. To put a pin in this, which way would you be more likely to go? Stay or go.

Given that she enjoys everything about the job other than the boss and given that the boss's behavior change is very. recent, two years out of the last 18, I think that there's a reasonable chance that this could be salvaged. And so the first thing that I would do would be to address this with the boss in the hopes of salvaging it. If that is not possible, then I'd go. And I would probably, depending on the industry, the opportunities, the connections, either go the executive headhunter route or go the consulting route. And there it is. There it is. So thank you, Megan, for asking that question. Please tell your mom, we said, best of luck with all of the steps that lay ahead. And remember, embrace it as an adventure. No matter what happens, it's an adventure. We're going to take a quick

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He graduated from high school and is now attending a university that has a program for students with learning disabilities. He is not excelling academically and remains to be seen whether he will continue, but he is enjoying it and is learning to live more independently. He held a part-time job at a retail store this past summer, greeting customers and doing tasks to support the cashiers, and he loved it. He will need financial support and general guidance throughout his life. After college, an ideal living situation would be an apartment with roommates near my ex-husband and I, so we can help him with grocery shopping and other tasks.

However, our area is expensive, so it makes more sense financially for him to live with one of us. I have thought about creating a special needs trust for him, but the topic is confusing to me. I also recently learned about ABLE accounts, which could be helpful as a way that he can save money that he earns and his dad and I can contribute as well. My older child is studying computer programming, is naturally a saver, and has an interest in personal finance. They are transgender and I worry about their safety. I can't protect them from physical harm, but I can create a financial buffer for them. I'd like to leave assets to them as well as to my son. Additionally, they will be the one providing guidance to their brother when their dad and I are gone.

I own a two-family house and live in one unit and rent out the other. I own another two-family in the much less expensive city where my older child attends college. I also have money in retirement accounts. What are your thoughts on how best to create financial security for both of my children? Thanks so much, Paula and Joe. Ellen, thank you so much for asking that question. Huge kudos to you for all of the thought and planning that you are putting into such an important question or set of questions. I love that you're thinking decades ahead. You're taking it very seriously. You're gathering as much information as you can. You're examining all of your options.

I love the approach that you're taking. And I want to commend you for that. Now let's get into the substance of your question because there's a lot to discuss. First, what struck me immediately when I heard your question is that your older child is studying computer programming, interested in personal finance, and naturally a saver. Given those three attributes, it seems as though your older child will financially be okay on their own. And so when it comes to prioritizing how to direct your assets and how to direct the financial legacy that you leave behind, prioritizing your younger child is where I would put the emphasis. And to that extent, both special needs trusts and ABLE accounts are good options.

And Joe, I know you've been interested in ABLE accounts. I have been because not only have there been some special needs situations in my own family, but I know that these rules have changed, and I was a guest on a couple of podcasts, recently where we were discussing this stuff. And what's fascinating to me is how simple the idea of an ABLE account really is. It's frustrating because it's yet another account. But really, the way to think about it, Paula, is a lot like a 529 plan. In fact, the rule for an able account is rule 529A, which means it is a 529 account,

but it's just a different type of 529 account. And also, if the beneficiary is the same, you can move money from a traditional 529 account into an able account. So for her son that has special needs and he's in school, if there's too much money there for education purposes in a 529, that can be moved. into the ABLE account, which is really neat. The frustrating thing, of course, about a 529 is also frustrating about ABLE accounts, which are that you're saving into these accounts, and nearly every state has one.

There aren't as many ABLE accounts out there as there are 529 plans, but there are still a lot. Most states have one. And much like 529 plans, you don't have to live in the state to be eligible to use their product, which means you've a lot of choices out there for ABLE accounts. However, they all follow the same rules which are universal. You can save $16,000 into an ABLE account. Eligible expenses are things that help with health care, with food, with housing. There's a list of qualified expenses that people using ABLE accounts can take out and have it be a qualified expense.

And it's qualified the same way as a 529 plan. It's the interest that it makes, the gains that the, that the, the investment. investments inside make, all those are tax-free when you pull them out for qualified expenses. So ABLE accounts are a really attractive way, Paula, to pay for health care expenses for food and for housing in Ellen's situation. And in Ellen's situation, assuming they have sufficient money to do it, Joe, would you recommend that they have both an ABLE account and a special needs trust direct the first 16,000 annually towards the ABLE account and then any additional money that they want to leave

for their younger son they put into a special needs trust. Man, see, I think there's conversations that come before that. I think the real question is how much funding is enough is the real question. So I think before we start parceling up what goes where, I think there's a few things. number one, mom studying special needs trust to understand how they work, I think is a great idea ahead of time just because she needs basic knowledge on that. Right. And to that end, there's a book that NOLO puts out, NOLO. They put out a book on special needs trusts. It's 25 bucks. You can buy it online. I'm not saying that you need to go to them

for legal counsel specifically, but a good starting point if you want to educate yourself prior to talking to an attorney is buying and reading either that book or some other similar comparable book that deep dives into special needs trusts. Yeah, I think certainly that's a good place to start because it's a nationally recognized group, right? And I think sticking with publications from groups that are known as being deep into this area is the best place to do. to start. Knowing the tools is one thing, but I think first starting out with, to what extent do we need these tools? And I feel like there's a lot of communication that needs to happen here. I think that first of all, how would you fund these different accounts? When are we planning for?

I personally think that you're probably planning for if you pass away today and your child has to take care of themselves starting today or have help from someone other than you. you today and then work from there. But how much are you going to put into these different places? Where will that money come from? And then I think there also needs to be discussions with your other child because at 21 years old, taking care of their sibling for a long, long, long time. I think that that's also a big discussion. And maybe Ellen's already had that discussion. Maybe they've already talked through that. Well, I think also there should be a series of discussions that also include a series of forward-looking contingency plans.

Because the older child is 21 right now. They don't know 10 years from now, 20 years from now, 30 years from now, will they get a job offer in a different city or different state that they really want to take? Will they get married? Will they decide to have a family of their own? and how will all of those, including the job of the spouse or the needs of their future children, how will all of those impact their ability and willingness and capacity to be able to take care of their little brother? You spoke earlier with Megan's question about the tactics and about the fact that you were thinking tactically. I think the tactic here is a series of if then questions.

If this happens, then we do that. If this happens. And I think you need to go through all the potential ifs. If mom passes away. If dad passes away. If sibling passes away. Like how do we manage each of those situations first? And then I think we plug in the tools.

And the nice thing there is that that gives Ellen also some time to get educated on special needs trust. Because I think the problem with going to the attorney first, my mom always had a phrase, Paula, that when you're a hammer, everything looks like a nail. Right. And I think that attorneys may over-emphasize the use of that tool because they know how to use it. And it's a fine tool, but there may be other ways to solve this. So knowing where to place the tool that the attorney will use and show the hammer which nail you want them to hit versus going to the hammer first and saying, hey, how do we solve this? It may be not only less expensive, but it also may end up, you may end up with a better,

full, or more well-rounded plan. In other words, first have a family discussion around strategically, directionally, what do we want to do? what's the objective here? How do we want to plan this? And then once those conversations happen, then look for what are the tools, the products, the tactics, and who are the experts who can help get us into those and structure those? And that Paula brings up another thought that I have, which is, I think, a really powerful one, not just for this, because this is a topic that doesn't apply to our entire audience, but the answer does apply to how you think about problems.

this case, and I just thought of this, and by the way, I always have this thought too late, and I know many people do that even know this tactic. Ask the question, who, not how. Ask who, not how. Meaning, I actually know this community is very small. When you have a child with special needs, you know other parents that have special needs children. You know parents that may be further down the road than you. And if you don't, I'd be. bet the Ellen knows people who know people that know those people. And I would want to talk to people that are further down the road in their planning than Ellen is. Don't be wrong, asking how special needs trust work is fine. And getting educated on those is fine. I think even more valuable is asking

who are some families who may have been through the things that I'm facing and how did they face them. what did they do well and what did they regret is a powerful and time-saving thing to do. I love that, Joe. And to also make more explicit the idea that we were discussing that led into that, the idea about the distinction between strategy, tactics, and tools, the way that I think of it, and I said this recently in an interview that I gave, I imagine it like a tree. and at the root level of the tree are your values. The tree itself, that tree trunk, stemming up from the roots, represents at the bottom of the trunk, the base of that tree, your philosophy, your philosophy on life, which stems from your values. And as you move up the tree, that then flows into your objectives. What goals, what future, what vision do you want to create? from there, the branches, the beginnings of the branches, turn into strategy.

And then as those branches, the main limbs iterate out into smaller branches, those smaller branches from the big limbs turn into your tactics. And then at that surface level, the leaves on the tree, those are the products that you actually use, the tools, the products, the most visible, most obvious, most public-facing, yet least foundational components of the whole deal. And so oftentimes when people start with a question about product, and we see this often when people call in and say, what's the best app to use for budgeting, or what's the best type of account to use for retirement planning, right? People often start with questions related to products, but products are the leaves of the tree. They are the last

things to form after the root structure, the tree trunk, the limbs, the branches are already in place. And so in this particular case, Ellen, I think you've got the values, you've got the philosophy, you know the objective, you've articulated the objective very clearly. So that tree trunk is already in place. I think now, to echo what Joe said, the strategy of what are the various if-thenes in terms of legacy planning, what happens if your older child? at some point in their life isn't able to care for your younger child. What happens if your younger child outlives your older child by decades?

What are the plans for handling these if-then scenarios? And once those family discussions happen with advice, input, guidance from ask who not how, other families who have been through similar situations or who are living through similar situations, you know, once those strategies are mapped out, then the specific tactics and products and tools that can execute those strategies can come into place, including ABLE accounts and special needs trusts. As well as use of the two-family homes that you own, that can be another great tool in your toolbox for providing housing, particularly if and when they're paid free and clear.

Because if you can leave behind a fully paid off home, particularly a fully paid off two-family home or two-fully-paid-off two-family homes, even better, then that does create an environment where if both of your children wanted to do so, you know, the two siblings, someday in the future, the two-siblings could each occupy one side of a two-family home.

And there are two different homes in two different cities. that they could choose between. So I think that's one of many tools or assets at your disposal that could be very useful. But again, in these conversations that you and your ex-husband and your oldest child will have to have includes what happens in the event that either child wants to or needs to live elsewhere in some third location, some third city or state or country. You know, what are the plans? What are all of the things that could disrupt a given plan that happen over the span of a hundred-year life?

And what are the plans B, C, D, stemming from each of those? So thank you, Ellen, for asking that question. Best of luck to all of you as you approach this incredibly important set of decisions. And kudos to you for approaching. these decisions with so much thought, with the desire to seek out knowledge, and with a perspective that thinks in decades. We are going to take one final break right now. When we come back, we're going to hear from Joe, who has the best name of all time. Oh, sorry. I just didn't mean to get all excited. Really, Joe, you don't think you're maybe a little bit biased there? I don't know.

What would you make you say that? Well, Joe wants to retire down to part-time work in four years, and then he wants to fully retire in eight years. So we're going to hear from him. But you, Joe, that's not like you at all, is it? No, retire anytime soon? Not me. All right. Well, let's take this break and then let's hear from Joe. Black Friday is here at IKEA and the clock is ticking on savings you won't want to miss. Join IKEA family for free today and unlock deals on everything from holiday must-havs to cozy at-home essentials. All the little and big things you need to make this season shine. But don't wait, like leftovers at midnight, our Black Friday offers won't last.

Shop now at IKEA.ca.ca slash Black Friday. IKEA, bring home to life. This Giving Tuesday, Cam H is counting on your support. Together, we can forge a better path for mental health by creating a future where Canadians can get the help they need, when they need it, no matter who or where they are. From November 25th to December 2nd, your donation will be doubled. That means every dollar goes twice as far to help build a future where no one's seeking help is left behind. Donate today at camh.ca.ca.ca. Our next question comes from Joe.

Hello, Paula. My name is Joe, and I'm a longtime listener and appreciate all of your service you provide. I'll start with my numbers and finish with my questions. I currently have $500,000 in my company-sponsored 401K with the 75-25-25 stock bond ratio, making 55,000 a year contributing pre-taxed 21% to include the company match. 90,000 in a taxable brokerage account, 100% stock. 70,000 in a target dated Roth IRA with a 6832 ratio, contributing 200 a month, 15K emergency cash. I pay $1,000 a month mortgage on my home.

I owe $85,000 in the house is worth $325K. My monthly expenses are $2,500. I'm 54, and my goal is to have a fun part-time job in four years, pulling in about 10,000 from the job, and then another 20,000 from my retirement, possibly using the rule of 55 or the brokerage account, then possibly 100% retired at the age of 62 starting Social Security. Also, when I go part-time, I plan to move closer to family and downsize with no mortgage. My questions are, am I being too aggressive in my allocations based on my current goal, knowing I could be in the stock market another 35 years?

Should I move three years worth of expenses into my 401K stable fund to hedge against the down market two years from going part-time. Bottom line, if you were in my shoes, what would you do to include withdrawal strategies? And at age 62, when I'm fully retired, would it make sense to also start Roth conversions? Thanks for all you do. Take care. Joe, thank you so much for that question. First of all, congratulations on everything that you've built. What struck me, as I heard your question, is that you make $55,000 annually and you have over $700,000,000, in your investment portfolio, plus an additional $240,000 in home equity. So you are the definition of the millionaire next door.

On an income of $55,000 a year, you have amassed a net worth that's seven figures, and you've done it by age 54. That's very young. So huge congratulations to you for your incredible savings rate. your attention to your finances for everything that you've built. That's absolutely fantastic. And I hope that anyone who's listening who's in their 20s right now or 30s or 40s takes inspiration from hearing your numbers and your story. So thank you for sharing that with us. To your question, and this is largely a matter of opinion, but I don't feel as though you're

being too aggressive in your allocation, given a few factors. Number one, Given the fact that you have very little risk in other elements of your life, based on your question, it sounds as though you have no debt other than an extremely reasonable mortgage. It doesn't sound as though you have any dependence or anyone who's relying on you for their cost of living. It seems as though you have the capacity to take on slightly elevated risk, and it seems as though you are well-versed enough in personal finance to have an educated and experienced degree of risk tolerance, meaning oftentimes people overestimate their risk tolerance, and then when the recession hits, they convert paper losses into real losses

and learn the hard way that their risk tolerance is not as high as they thought it was. But the vibe I get, based on the question that you asked, it seems as though your risk tolerance has probably been tested through a few downturns in the past, and you probably, I'm guessing, have a fairly realistic assessment of how well you can withstand the volatility. That said, I think moving, if not three years, at least one and a half to two years worth of expenses into cash or cash equivalence before you fully retire could help soften sequence of returns risk. And for a deeper discussion on sequence of returns risk and the wisdom of making your portfolio more conservative at the point of retirement and then making it more

aggressive a few years after your initial retirement, for a deeper conversation on that, listen to our episode with Dr. Wade Fow. He is a retirement researcher who specializes, among other things in sequence of returns risk. He's been on this podcast a few times, but I would recommend episode number 119. You can access it at afford anything.com slash episode 119. And also, if you have the time, check out episode 271, afford anything.com slash episode 271.

You know, as much as I detest all of the pet names that people give to a lot of these states of being, when it comes to our financial journey, I would say, and I may throw up in my mouthful, but as I say this, that Joe is Coastfire at this point. Oh, oh. Right. But what that truly means is that he has enough money. We just need to have it double one more time, Joe.

If it doubles one more time, you have more than enough, way, way, way more than enough money. So I think at this point in the plan, I would just give yourself the freedom. to get more conservative with your plan, meaning to increase the probability that your need for a large stream of income is less. So I think, Paula, what I would do would be to shift from a time of aggressively saving like he has been to a time of aggressively paying off that mortgage. Because even though I'm sure, Joe, that mortgage is at a low interest rate and it may be beatable. I just think that getting rid of that monthly payment every month is going to lock in for you such a high percentage of what you spend every month. And you've done such a nice job of saving up to

this point. I think that locks it down between the inevitable compounding of your money over time and the fact that you'll need less every month is going to make this magical scenario that you're looking for. So I think if you're getting the match at work, still contribute, to the match, but then I think I would find a way to get rid of that mortgage as fast as I possibly can. Right. It struck me when I heard his question that he spends $2,500 a month, a thousand of which is his mortgage payment.

So getting rid of that mortgage payment, and there's only $85,000 left on the mortgage, getting rid of that mortgage payment would either allow him to have a much more free spending retirement, or particularly in times of recession, in times of a market decline, it would allow him to compress his spending, compress what he needs to draw down from those retirement portfolios down to a very small amount. So that's another way to manage sequence of returns risk. If the amount that you have to withdraw is relatively tiny, great. You can afford to be more aggressive in your portfolio because you just don't need that much to live on. And I was wondering if you and I interpreted that incorrectly, would our advice remain the same?

In other words, if it's $2,500 a month plus $1,000, well, still, based on the numbers that he's given us, I think he can still coast. He can still, as long as he gets this one more double, I think he's fine. And I still think that $1,000 a month is such a large specter on the, at least such a huge shadow. in a spending pattern, even if it is another, you know, if it brings it up to $3,500, $1,000 out of $3,500 still is mortgage. It still is enough that I pay down. So either way, whether we have that right or we heard it wrong, I still like the idea paying down that mortgage first.

Right. And just to explain what we mean by one more doubling, in the world of compounding interest, there are periods of time required for your money to double. And there is a shorthand, it's called the Rule of 72, which states that 72 divided by the rate of return that you're getting on your investments equals the number of years it will take for your money to double. So if you are getting an 8% return on your investments, it would take 9 years for your money to double. If you're getting a 9% return, it would take 8 years. At a 10% return, it would take 7.2 years, approximately. it's not an exact calculation, but it's a mental shortcut that can give you a good

ballpark estimate. Joe, the reason that you keep talking about one more doubling is that he's eight years away from retirement. There could certainly be one more doubling in those eight years. Given that his portfolio is already above 700,000, that would put him at a $1.4 million portfolio. And using shorthand again, although the 4% has been proven kind of wrong. It's still directionally is correct. So just using that for today. That's a $40,000 a year

lifestyle. And Joe either way is right on that or below that lifestyle per year with his spending pattern. So he needs a million to get there. Yeah, I think he's sitting in a really nice place right now. Right. Well, if he had a $1.4 million portfolio, I mean, even at the four percent rule, that's a $40,000 lifestyle after taxes. That's true. Yeah, just beautiful. It's great, which is why I think getting conservative and knocking out the mortgage early for that freedom from worry is going to do a few things. He's less susceptible to the fluctuation of the market, destroying his plans at that point because he needs to withdraw a smaller percentage of his portfolio per month. And studies show that if you have to take a lot out every month and the market goes down,

that's the exact opposite of dollar cost averaging. It's, I don't know what the term is, dollar cost sucking. I don't know. Dollar cost horrible or something, but you definitely don't want that. So minimizing the amount he's got to take out per month is important. This is a case where I think that low interest rate is the thing that math whiz is point to and go, oh, don't pay that down early. And he didn't say he has a low interest rate, but I'll bet based on what Joe told me about his

investments, Joe, Joe's pretty savvy with this stuff. So I'm betting it's a really low interest rate that he has on his mortgage. But I think that's a shiny bubble to ignore and instead really look hard at that payment. Let's get rid of that payment. And Joe, even if you end up not living in that home upon retirement, you still then have the option to either rent it out and collect a nice. stream of cash, if that home is paid off free and clear, then it's almost all cash flow. I mean, certainly there's still taxes and homeowners insurance and upkeep and maintenance, but a lot of

that is cash flow. And that will be a nice supplement to the investment portfolio that you've built, particularly whenever there's a downturn. Again, it's another way to hedge sequence of returns risk. Or, alternatively, you could at that point in time choose to sell the home. home and then you would have a really nice lump sum. Well, that's what he said, right, was that he's going to live closer to family. He's going to move closer to family. So if he pays off the mortgage before then, he may have the option to either not downsize and just live in a nicer house if he chooses to or has extra money and downsizes.

It really, once again, gives him the flexibility to do whatever he likes. Maybe lives closer to the places that he wants to be. I know a lot of people commute a long way because they can't afford the housing in the area where they really want to be. So that extra $85,000 off the table is also gives him flexibility. What do you think about Roth conversions after retirement, Roth conversions starting at the age of 62? I like it whenever he can do it. With the Roth conversion money, I think he's got enough money in other spots that he can continue to take money from the other places. not have to touch that Roth conversion money right away. Because, you know, if he's going to touch

it four years or five years from now versus do the Roth conversion today and pay the tax and then touch it five years from now, he just prepaid taxes, which is ridiculous and you don't want to do it. But I think looking at the structure of his investments, I think he has enough money in other spots where he can let that money that he converts to a Roth to be, to sit there for a longer period of time. And yeah, yeah, I think I like it. You? Assuming it doesn't create a cash flow issue, then yes. I love the idea of executing Roth conversions when he's in a lower tax bracket, but given that it creates a taxable event, I would simply want to make sure that he isn't selling out of his holdings in order to meet that tax bill, particularly if it's a point in time when it doesn't make sense to sell out of those holdings.

So if he can manage the cash flow, if he can manage the budget around creating this taxable event, then absolutely I like it. Yeah, agreed. You know, there's one other benefit to him paying off that mortgage early, which is that if he were to do that, he may not need to draw down social security at age 62. If he were to lower his monthly spending by $1,000 a month, then he might be able to delay taking that Social Security payment until he's 63, 64, 65. And for every year that he delays, he gets a boost in what he can collect from Social Security. So in terms of the quote-unquote return on that mortgage payoff, I think that can be factored in there as well. Which brings up a whole other discussion, Paula, that Joe can. begin to ponder, which is a values discussion. Joe's done such a good job of saving and is so ready

for this period of his life. You don't know how long you're going to be healthy. Is he okay with giving away this potential, what, 8% rate of return per year on Social Security by taking it later, by taking it now and just having more money available? Is he happy or having more money available and doing more things. Maybe there's some travel that he's put off. Like if there's those things, I certainly would not put getting more from Social Security before doing the things that you want to do.

But if he's happy doing what he wants to do, why wouldn't he wait? Which is, you're right, gives him that flexibility too because he's not as worried about so much of the payment need age 62. So I think those values-based discussions are the really fun ones. Those are the great ones.

So he could have his cake and eat it too. He could pay off his mortgage, lower his expenses by $1,000 a month, and then still take Social Security. And now he's got extra money to live a highball retirement life. Bucketless time, Joe. It's bucket list time. Let's go get the bucket list stuff, which is great. I mean, those were always the most exciting financial planning cases I worked on. When I had to present somebody the bad news of, do you love the way you spend money? now or do you want to spend more? Those were horrible beatings. I've got bad news. You may die with too much money. Those were always really fun. And certainly, because of a job well done, which I think Joe is done.

Well, thank you, Joe, for calling in with that question and congratulations on... Your name. Your name and how well you have planned for retirement. Well, other Joe, we've done it. Yes, we have. It's so fun as usual. Man, those were completely different questions. That was a cornucopia of questions. Ooh, there's beautiful, it's not quite alliteration. What is it? Is it consonants? Is it assonance? Cornucopia of questions. Oh, it is close, isn't it? You were right, almost to alliteration.

Right? Cornucopia of, that's either consonants or assonance. I forget which is, I keep mixing up which is which. the repeating vowel sounds versus the repeating consonant sounds. It's probably just poetic brilliance on my part, I would imagine, yeah, mostly. A cornucopia of questions. Beautiful little fools. We got F. Scott Fitzgerald over here. F. Scott Fitzgerald Sall Sihai. All right. Sal C. High, where can people find you if they want to hear more of your

cornucopia of answers? You'll find me. And on Friday's The Amazing Paula Pan on the stacking bedroom. show. We call it the greatest money show on earth because it is a circus, as Paula knows. We have a lot of different fun topics. And our goal over there is not the same as it is here. It's just on ramp. Our goal surrounds sound and to make this approachable. So fewer people are crying about their money. So that's what we do there. It's a nice one-two punch, I think, with what we do here. So stackybedgements.com or wherever you're listening to us now.

Your favorite podcast player. Yes. And on that note, please, if you enjoyed today's episode, do three things. Number one, open up whatever podcast playing app you are using right now and hit the follow button so that you don't miss any of our amazing upcoming episodes. And while you're there, please leave us a review. These reviews are instrumental in helping us book amazing guests. Finally, and perhaps most importantly, share this episode with a friend or a family member.

That's the single most important thing that you can do to spread the message of financial independence. Thank you so much for tuning in. My name is 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

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