Afford Anything - Ask Paula: How to Build a New Career After Adversity

Episode Date: June 14, 2023

#446: Paul suffered a stroke at 48. He’s on disability and feeling lost. How does he figure out what’s next? Should Ashley’s aging parents spend a third of their retirement savings on a house? Margaret is wondering if she could use her 401k for a down payment and save on her taxes. An anonymous caller is concerned she won’t have enough access to cash if she retires at 50. Is an Indexed Universal Life policy the right solution? Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode. Enjoy! P.S. Got a question? Leave it here. For more information, visit the show notes at https://affordanything.com/episode446 Learn more about your ad choices. Visit podcastchoices.com/adchoices

So, Joe, we're recording this on Thursday, June 1st. This is officially my first day full-time back at Afford Anything. Did you stretch out thoroughly before you started? You literally just saw me stretch. You don't want to strain something on your first day back. Exactly, exactly. You got to warm up. I'm afraid to look at Slack.

Yeah, I hadn't looked at Slack for 10 months. I'm afraid to see. What could have accumulated in 10 months? I mean, really? It's only 10 months. Come on. Well, welcome to the Afford Anything Podcast, the podcast that understands

you can afford anything but not everything, that every choice you make is a trade-off against something else. And that applies not just to your money, but to any limited resource you need to allocate your time, your energy, your attention. So, what matters most? That is the question we're here to answer every other week. We answer questions that come from you, the community.

I'm your host, Paula Pant, and my buddy, Joe Sal C-Hie-Hai, former financial planner, joins me to answer these questions. What's up, Joe? I'm super happy to be here to welcome you. I'm the welcoming committee. I should have brought cake, but I'm a dude, so I forgot. No, you only forgot because you're Joe, because you're Joe Sal C-Hie-Hye. That is what exactly.

Spoken like somebody who's known me for a long time. Yes. You forgot because that's your nature. It takes one to know one. It's mine, too. I am the most forgetful. Well, luckily, we didn't forget. What were we just talking about? Oh.

I was about to segue. I had a ninja segue, Paula. All right. Let's hear it. Let's hear it. Oh, but it's ruined if you're like, oh, let's pay attention to it. Yeah. Okay, here it is.

But luckily, we didn't forget these four awesome questions we're going to answer today. Wow. What a segue. Oh, you're welcome. OMG. Oh, M.G. So we're going to start with a question from Paul, who is wondering how to start over after a stroke. He had not quite a career-ending disability, but a career-changing disability. So what comes

next? We're also going to hear from Ashley. Her dad is 81, her mom is 76, their renters, she's wondering if they should buy a home. We'll hear from Margaret, who's wondering if she should save cash for a down payment on her next investment property or use a 401K loan. And we'll hear from an anonymous caller who has a question about a recommendation that she received from her financial planner. A questionable recommendation. We're going to hear all four of these questions right now, starting with Paul. Hello, Paula and Joe. Let me start by saying, if I mess this up, it's because of a small stroke that I suffered, that or I'm nervous.

My wife and I are 48, and we own our home outright. It's got two apartments that our kids are in, and we make about $1,000 a month combined from them. It's really more to give them a place to stay versus rent. We have something like $1.6 million in retirement accounts, and my wife owns their own small business as well as the property it's on. Figure $3 million at the cheapest, but probably closer to $5, realistically. In a good year, my wife could make a million dollars, and a down year she still pulls in $200K. I have two investment properties that should start making money next year when they're finished, but there's no guarantee of it. I still owe something like $400K on them.

So with that said, I haven't mentioned my income. It's because I'm on disability from the stroke that I mentioned before. I'm very fortunate that my company has an excellent insurance plan, and I am. have up to a year of long-term disability at 10k a month. I'm doing pretty well, but I still can't really move my right arm or hand, and I am, of course, right-handed. I can type slowly with my left hand, but between that and the mild aphasia I suffer from, they don't want to put me out there, and I don't really disagree. I plan to stay on my insurance as long as possible, but I'm not sure I want to go back. I've enjoyed being around the house, and I've enjoyed being around the house, and

I feel like I should go back, but really I don't want to. My question is, what do I do? I know it's impossible to answer a question that big, but I feel kind of lost. It's likely too early to retire. I make a lot more money when I'm working, probably twice as much. Realistically, my existing work will probably disappear the minute I come off disability, leaving me unemployed. I know you can't make a specific recommendation.

But I'm a little lost here on working, not working, you name it. Help. Paul, first of all, thank you for calling in. I'm so sorry to hear about your recent stroke. I'm also so relieved to hear that all things considered, you're doing reasonably well. It sounds like you're on the road to recovery. And as your question reflects, on the road to starting the next chapter, in life. So here's what I'm hearing. You have an enormous amount of financial security. You own your primary residence outright, free and clear. You have $1.6 million in retirement accounts. It sounds as though the only debt that you have is $400,000 that you owe on two investment properties that are currently under construction. Your wife makes between $200,000 to a million

per year and the value of her business is worth somewhere between three to five million. And your children are adults and able to take care of themselves with the added help of some affordable housing that they're able to rent from you that keeps them close by. So it sounds as though financially, there's no pressing reason for you to return back to work. after your year of long-term disability is over, the only reason that I hear for you to stay would be for the sake of remaining on that workplace insurance, since the insurance that you're getting from your work is almost certainly going to be significantly better than anything that your wife, as a small business owner, would likely be able to access.

Yeah, and I think that's going to be a key component is finding out without that health insurance option available, finding out what health insurance is going to cost now. Because what really concerns me, Paula, is thinking about Paul's situation like he's a business. And it's what does it cost every day to keep the lights on? Once he knows what that is, then it will be much easier to walk backwards through the nice asset base he and his spouse have built up, position those. effectively and make sure that he is where you think he is. And I certainly also think he is. I would just want to make sure that he is okay financially and that that cost is not above what they have already accumulated. Right. The health insurance is going to be the wild card. But the good news is because

they have so much financial stability, even if they have to pay an extraordinarily high premium for health insurance through his wife's small business, it sounds as though they'll be able to pay out of pocket for high-cost Cadillac insurance. Yeah. Because with a paid-off home, with adult children, it sounds as though, Paul, that you and your wife have an otherwise relatively low cost of living, yet significant income and significant assets. And so other than the health insurance question, I don't see any compelling reason for you to stay in a job that you don't want to be in, particularly after your year of long-term disability ends.

And so that opens up the question, what do you want to do next? More specifically, how do you go about figuring that out? It creates the what colors your parachute question. Yeah, because I interpreted this not at all as a question of, do I go back to this job? I mean, he clearly made that point. He doesn't really want to go back. I thought it was bigger. I thought it was specifically what you're talking about, Paula. What am I going to do? And that becomes a pretty exciting question because Paul has all of these opportunities available. And I think for that one, once you know that the monthly number is taken care of and you know where your health

insurance is coming from, then I think at that point it is the big question of, what legacy does Paul want to leave? And what is the intersection or where is the intersection of his interests, his skills, the opportunities that he can access, and the problems he can solve, or the projects that he is excited to work on? It's an exciting question. It's really a question about how to make a career pivot, right? when you put to the side everything that got him here, you know, put to the side, the net worth,

the assets, the stroke, right? If you look past all of that and approach the question in a vacuum, the question fundamentally is, I have financial security, I'm 48 years old, I want to make a career pivot. I want to start that second chapter. How do I figure out what I want to do next? There are a few episodes, a few interviews that we've done on the Afford Anything podcast that have been directly about this. Jenny Blake, who is the author of a book called Pivot, which is precisely about this topic, she was our guest on episode 81, which you can access at afford anything.com slash episode 81. And among the many frameworks that she introduces, she has a particular framework called the Pivot Hexagon, in which you look at six values, money, adventure, freedom, time,

structure, and security, and weigh potential opportunities with regard to how it ranks among these six values. We also did an episode with Ashley Stahl, S-T-A-H-L. the author of a book called U-turn. That was episode 321, Afford Anything.com slash episode 321. And she describes 10 core skill sets that can help you chart a career path

that aligns with your traits. In fact, beyond core skill sets, she talks about your core nature, which is essentially the core of who you are, your core skill sets, and your core values. And so using each of those frameworks, who you are, what you can do, and what you value.

She helps you rank various skills or attributes and then cross-reference that with different types of jobs. So I'd recommend those two episodes, episode 321 and episode 81. We'll link to both in the show notes. I think on top of those excellent recommendations, Paula, you have to think about mindset. that I know that whenever I've spoken with some great career counselors, you have to go into this with the heart of an explorer, not somebody who thinks they're going to get this right,

right away. You're not going to find the perfect spot immediately, which is why I think that that is so important to think, okay, I'm going to go in and start looking for this thing, which means it's then going to be okay. You're going to take a lot of pressure off yourself to find the right fit immediately. But I do like, I do like the idea that both of those past guests talked about, which is, you know, looking at what your skill set is and what fires you up. I think that's a, that's easily the first place to start. You know, I loved when I was a financial planner. I loved talking about money. I loved giving people advice about money. The part that I couldn't stand was the individual one-on-one meetings. I didn't like that sometimes I cared more about people's goals than I felt. felt that they cared. And look at where we are today. I get to sit here and talk about money with you and get rid of the stuff that I didn't like through a simple, just not simple, frankly,

switch where I didn't get it right right away. But it led me to the stuff that really does light me up. Right. And that speaks to the importance of talking to people who are in the field that you are thinking about entering to find out what their day-to-day reality is like. Because often, what we think someone does from the outside looking in is very different from what someone actually does. You know, the notion that life is a picture, but each day is a pixel. The way that they spend each pixel, right, can be incredibly different from the picture that outsiders see. I remember in college I took a public relations course. Our professor had a public relations professional come in and talk to us. And to your point, Paula, one of the first things

the pro said, all this stuff you're learning is fantastic, but I don't use any of this during my day-to-day work. Like I do none of this. It's great background, but you're not going to be doing this. Right. So Paul, when you have a few ideas about potential new careers or new businesses, use the power of LinkedIn and Twitter to reach out to people and see if you can chat with them on the phone or on Zoom for even just 10 minutes so that you can ask them

about what the day-to-day experience of their work lives are like. How much time do they spend sending email or sitting in meetings or applying the Slack messages or handling invoicing or filling out expense reports, right? All of the administrative stuff around a job. How much time do they spend dealing with that? How much time do they work within their core unique thing that they were hired to do, right? Their core unique skill, their core unique value. And then how much time do they spend doing other things, perhaps navigating office politics, perhaps traveling, perhaps

whatever it is that they do? What is their day-to-day like? And how is it? And how is it it different than what they initially expected and how has it changed in recent years and in what ways do they anticipate it may change in coming years? If they could start their career over, would they have picked the same field? Why or why not? What are the attributes of a person that they think would make that person best suited to that particular field? And conversely, what attributes would make a person a poor fit? Those are the questions that you'll want to be asking. But what's wonderful about your situation is that it sounds as though compensation doesn't need to be the crux of it. That's the best piece. Right. You can, if you want to, take a pay cut to do

something that you might enjoy more. And your task right now is to do the due diligence to test or validate the hypothesis that this is something that you are likely to enjoy more. Also, if what you might want to do requires any kind of retraining. And again, I say this as somebody who went back to school for the last year and just graduated. During that retraining process, you'll discover a lot more about the field and about adjacent or related fields. I think there is not only opportunity for that, Paula, but also because a consistent paycheck may not be not. I think him also exploring, if he decides it's appropriate, he can look into things like consulting on what he clearly was successful doing before his stroke, where he's maybe doing

project work in that same area, but for himself. So he's bringing him money when he wants to, and when he doesn't feel like it, he doesn't have to. Paul, I think it might be worthwhile to talk to other people who have also recovered from a stroke. or who have experienced a mid-career disability, to gather stories, see how their relationship with work changed, how their outlook, their values, their goals, how all of that shifted.

And their stories, of course, may be different from yours, the standard your mileage may vary. But if you speak with enough people, 5, 10, 15, say, aim for at least 10, you may start to hear some broad themes or patterns emerge. Paul, there's one other podcast episode that I will recommend. Episode 313, Afford Anything.com slash episode 313. That was our interview with Goric Ng, a career coach and advisor at Harvard, who specializes in working with first generation low-end.

income students. His interview was not about midlife career pivots per se. It was more focused on starting your career off in the correct manner. But as a Harvard career coach, he has a lot of nuggets of wisdom that he shares throughout the interview about career management at the 30,000 foot level. So I'll link to that in the show notes as well. Thank you for your question, Paul. And best of luck with the pivot. Call back in a few months and give us an update on what you've decided to do. I think this whole community would love to hear how your story continues.

So thank you so much, Paul. We'll come back to this episode after this word from our sponsors. 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.

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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. Our next question comes from Ashley. Hi, Paula. This is Ashley. I wanted to thank you for an amazing podcast. I'm learning something

new every week. My question is actually for my parents. My dad is 81. My mom is 76. They are currently renting a place at an apartment complex. They pay about 2,500 a month in rent, and they have about $1,000 in expenses, you know, from anything from car and insurance and groceries. They do have about $700,000 in mutual funds and Roth accounts and about $300,000 in cash, $300,000 in cash. They don't have any long-term insurance or life insurance. And my question is, does it make sense for them to buy a house or a town home? Something around 300 to 350. I'm just wondering if it makes sense at their age to buy a place so they can use it as investment

in case they need it for a nursing home later on. I just hate for them to waste their money paying rent. Looking forward to your feedback and appreciates. appreciate all you do. Thanks. Ashley, thank you so much for the question. First, I commend you for looking after your parents' finances, wanting to make sure that they're going to be okay as they enter their golden years. Both of my parents are 82. So I share the experience of feeling protective of them. you know, entering that stage of life where you flip the script and you want to parent your parents, right?

You want to protect them. So let's talk about the answer to your question. First, let's take a look at the numbers. Let's assume that your parents qualify for a mortgage. And I'm going to put a pin in that because we're going to have a separate conversation a little later on about whether or not they're able to qualify for this mortgage. But let's assume that they qualify for a mortgage on a home that is valued at $350,000. We'll assume they make a 20% down payment, so they put down $70,000. And we'll assume they take out a 30-year fixed rate loan at a 7.537% interest rate.

Now, I'm running this through a mortgage calculator, and I'm running property tax assumptions based on a New York residence. but of course you should run your own mortgage calculator based on your own specific location because that's going to change the property tax ramifications of the answer. If they were to buy a house at those numbers, then their total monthly payment would be 2432. So about what they're paying, almost exactly what they're paying right now. Again, that's for a home valued at $350,000. they put down a 20% down payment. They take out a 30-year fixed at 7.5% interest.

And that is the estimated total monthly payment, including principal, interest, taxes, and homeowners insurance. On the surface, that sounds like a decent idea in that their monthly payment would remain around the same. The quality of the place in which they're living, I'm assuming, based on your question, would be approximately the same as what they're renting right now. So it wouldn't be a drastic change in quality of home.

It wouldn't be a drastic change in monthly payment. And given that they have $300,000 in cash, and we are running these assumptions assuming a $70,000 down payment, it also wouldn't unduly drain their cash. They would still be left with $210,000 in cash plus $700,000 in mutual funds. So under that set of assumptions, I like the idea, but there are a couple of caveats that I want to put into place.

One is the question of whether or not your parents would enjoy and be comfortable in that particular home. Could they actually purchase something for $350,000 that is comparably comfortable to the place that they are currently renting? because if they have to live in a place where, for example, the bedroom is up a flight of stairs or the entrance to the home is up or down a flight of stairs, right? If those discomforts are in place, those can be significant when you're 81 years old. The second question that I have is whether or not they would be able to qualify for that mortgage.

You may need to co-sign with them. the third comment that I would make is that in your question, you asked if this would be a good investment in case they need it later on. They're not going to build a significant amount of equity in this home in the next 10 years. Most of their mortgage payments for the next decade are going to go towards interest taxes and insurance, the amount of the payment that goes towards principal payoff is incredibly small. So if you're looking for them to build their investments, what you could do is run an amortization calculator. There are plenty of free ones online.

Take note of the amount of money per month that's going towards principal payoff. In theory, if they were to take that same amount of money, that monthly principal payoff amount, and invest that each month, put that into a Vanguard total stock market index fund, for example, that would also have the effect of building their investments at the same rate. And those investments would be easier to access if they needed the liquidity. Equity in a home is tough to tap. So I would only do it if they would enjoy living in a place that had a similar monthly payment to what they're paying now.

Otherwise, I'd urge you not to think of them as, quote, unquote, throwing their money away on rent. Instead, the question becomes, how can they invest X per month with X equaling what that principal paydown would be each month over the next 10 years? Yeah, I think this is a draw for me, whichever way truly that they want to. go if they leave the money invested, assuming that it's invested in a way that meets the end use of that money, either for them or for their heirs, right? I think it's a mistake. Often people in their 70s and 80s will invest money as a short-term investment when they don't need it for the short-term. If they don't, then they should certainly still have that money in a growth spot.

So I think, you know, she used that great phrase that we hear all the time about throwing your money away on rent. I see older people throwing returns away because they're overly conservative with money that they're not going to spend anytime soon. Right. So I think thinking about when they're going to next use a dollar is important. And I also think about their ages and I think about the transaction costs of moving into that house. I don't think that at their age, that should be overla. looked because I think that, you know, if you pay a 5% fee on a loaded mutual fund, we definitely look at that fee, that commission in this case because of the fact that

that they might not be living there longer than X number of years. Who knows, but certainly not moving into it at 35. I think that those transaction costs along with the amortization stuff that you talked about is also important. So as an investment, house as investment, I think is a key part of this question. The answer is no. House as something where they're going to be more comfortable that they own, that they may need later, suits their needs more, because they have enough money to remain financially

independent, certainly. I also have to say there might be an underlying question here, Paula, which is about long-term care costs. And so money in a brokerage account would be subject to long-term care costs if it's inside of a primary residence and it's beyond the look-back period where the government will look back and see if those assets are in a spot that are available or not. What she might be alluding to is setting them up for Medicaid, paying for any long-term care expense versus paying for that out of pocket.

I'm not a fan, number one, of playing those games at all, but also number two, I think it's a long-term care planning. I wouldn't make this house move. I'd go talk to an elder care attorney about what her options may be and what might be the best ideas. Right. You know, one of the benefits of really either option, depending on what's available in the area for that 2,500 a month monthly payment, they may want a home that is set up for a caretaker,

either a live-in caretaker or somebody who, you know, just visits often enough that they need a spare bedroom or need a spare basement or guest house or casita for that person. The benefit to renting, Ashley, is that your parents have flexibility. So if their needs change in the future, it's relatively easy for them to move when their lease ends. Or heck, even break the lease early for a one-month fee, or whatever the fee is. Typically, it's going to be around a month-ish. But check the lease, of course, for details. So the benefit of renting is that they have that flexibility as their mobility needs change

and as the need to be in proximity to caretakers changes. The other benefit to them living in an apartment, you said they're renting an apartment right now, is that if a caretaker, if you, if a family member wanted to live close to them, but still have some independence, apartment buildings are perfect for that. You could rent an apartment on the same floor. And so you could live very close to your parents on the same apartment floor as them, but still have each of you have your own independent living quarters. Now that said, plenty of homes are also set up for that too. Lots of homes have in-law units, granny flats, mother-in-law suites, whatever the term de jour is. But that's something I'd be thinking about as your house hunting. The final thing I'll say, and Ashley, this isn't just for you.

This is for anyone listening to this who has that whole renting is throwing money away idea in their mind. I'm going to link in the show notes to an article that I wrote years ago that to this day is one of my most popular articles that breaks down the math of why renting is not necessarily throwing your money away, especially when compared to taking some of that same money, the money that you'd use for a down payment, for example, or any cost differential between renting and owning, taking some of that same money and investing it in an index fund. Oftentimes, by renting and investing the difference, you can come out ahead. But of course, that's highly dependent on prices in your area and specifically the price to rent ratio in your area. So I'll link to that article that's going to be in the show notes. Thank you, Ashley, for asking that question. Our next question is from Margaret. Hi, Paula and Joe.

My name is Margaret, and I have a question about optimizing my pre-tax retirement savings versus a saving in cash for a down payment. My husband and I currently house hack a four unit in Chicago that we bought in early 2021. The building had a lot of deferred maintenance and renovations needed, which we covered with a combination of savings and cash flow from my W2. Because we were spending so much on the property, for most of this year, I've only contributed 6% to my 401K to get my full match, which is only about 10 grand, so it's well below the maximum contribution limit. We've stabilized the building now and are thinking about our next purchase. I have around $40,000 in a high yield savings, but I'm thinking I will need closer to $60, depending on the

target property and the area that we're looking in. We currently save around $4,000 a month after my 401K contributions. I've been looking at my 401k plan rules and it allows me to take a $50,000 loan. My question is, since I'm in a high tax bracket, our combined income for 2020, is likely to come close to 200,000. Is it a better idea to max out my 401k by the end of the year to shelter some of that money from taxes and then use a 401k loan if needed to supplement our down payment funds? Would we be better off taking a larger loan from the 401K for a down payment and keeping more in cash reserves?

Whatever we buy next is likely going to need renovations as well. Any loan I take from the 401K we would look to pay down as quickly as possible. and it does not appear that I lose the ability to contribute while the loan is active, although I would definitely double-check that before pulling a loan from the 401K. Thanks for taking my question. I really appreciate you and look forward to hearing your perspective. Thanks. Margaret, thanks for that question.

And it's funny behind the scenes, Paula goes, I know you have strong feelings about 401K loans. Yes, I do, Paula. Yes, I do. Yes, you do. All right, Joe. let her rip. Well, here's the problem is that when you're dealing with just your personal financial situation,

it seems like a great idea. But when you see the law of larger numbers, when I was working with maybe 150 families at a time, it always seemed like the worst thing happened at the wrong time and it derailed everything. And I think any strategy involving a 401k loan that you're going to repay in the future, the chance that that might just unwind everything versus just going the straightforward way and just working on the house separate from the 401k and not commingling those two. It seems like a great idea, Margaret.

Like everything I heard, as long as everything goes right is fine. But things don't go right so often, Paula. And I feel like when we need things to go exactly the way we need them to go for, for a strategy to work. That's when I don't like it. So here's some of the things that could go wrong, Margaret. Number one is you lose your job. If you lose your job and you have a huge 401k loan out,

you may have to repay that 401k loan now or in a very short amount of time. Or you're going to get the 10% penalty plus pay all the taxes if you earned it today as income this year. That could be incredibly ugly. Second thing that could happen. Something else could happen in your personal life. where you're not able to repay that and make the contributions the way that you think that you will be able to. If that happens, now we have to decide between future contributions and repaying the loan,

which means we get further behind on our financial independence goal as it relates to the 401K. Maybe the house, maybe the properties are also a piece of that puzzle in a different way. I mean, I'm not sure what you're using every dollar for. But, man, I just do not like the idea of 401K loans. Now, there's a few other general reasons that you can find on every website out there about why 401K loans are just not great. But I think specific, Margaret, to yours, I would just do it the clean way. I would keep it clean. I have your real estate over here.

And I would have your 401k over here. I'd have a strategy in how you're going to save into your 401K. I'd have a strategy with the houses and leave them separate. So, Joe, what I hear you saying is it's a question between simplifying versus optimizing. Absolutely. Yes. Yes. Am I supposed to snap?

Like, do I say? By virtue of compartmentalizing the 401k and the real estate, she's simplifying. While there is a way that she could optimizing. it would add an additional layer of complexity, and that layer of complexity poses a new set of risks, and the benefits aren't worth the risks. The two themes I'm hearing. One is simplifying versus optimizing.

The other is fragility versus resilience. The more complex plan is also highly fragile because it depends on everything to go exactly right. man more the more resilient plan is the one that is compartmentalized and simple and I love the undertone Paula of what you're saying which is Margaret the way you explained it to us could work

it could work but it's like the end of the first Star Wars movie and Paula has no idea what I'm talking about here no idea at the end they have to drop this bomb in the Death Star and it's it's a one in a bigillion chance that it's going to go right now Margaret's plan has much better odds of working than a one in a bigillion but

there's so much complexity there's so many things going on and it has to work right the way that it does I got to remember to repay the loan I can't lose my job I gotta have yeah nope we love to do that Paula as money nerds I mean we do we love to optimize

and optimize and optimize and optimize and I would run into two totally different groups of people when I was a planner. Group number one were people that rarely thought about their money and needed to get on board and think about it more often. Group number two were over optimizers, overthinkers, who we had to back it down and make sure that they had the flexibility to be able to

roll with the things that come up in life because we really have two choices. We can either set things up that. something might go not according to plan or just make sure that everything always goes according to plan. And we know the dishwasher is going to break down. We know that every day we have these new things that come up. So I would just plan for flexibility. I'm going to also drop into the show notes an article that I wrote about simplifying

versus optimizing because thematically, that applies to so many money conversations. on one side, you've got the penny pinchers who are like, oh, well, if you stack this manufacturer's coupon on top of the store coupon, and then you use the app to scan your receipts and you enter the barcode into a reward system. Like, I figured out a way to get this jar of spaghetti sauce for a penny, right? But it takes me four hours. Right. And it's so complicated. And then on the investing side, you've got the people who are obsessing over 800.7. 74 different investment funds and how do you compare their last 10 years of returns to their expense ratio to their what I mean, you know, and they drive themselves nuts comparing funds. And Margaret, I'm not suggesting that you're doing this. In fact, what you're doing is the opposite. You've picked one thing. You have a four unit in Chicago that you're house hacking. You've had it for over two years.

right? So you've had one project and you focused on that one project for two years. And now you're ready to take on a second property. So you've done a great job of simplifying in the way that you approach your rental property investments, which is one property at a time, do it till it's done, be okay with the fact that that could take two years. And then when you're ready, then and then only move on to the next. That's that, that slow and steady wins the race. So I think you've done a great job of simplifying and focusing in the way that you approach real estate investing. And I agree with Joe. I'd encourage you to maintain that same mindset as you think about the compartmentalization between building your 401k portfolio and building

your real estate portfolio. Because the other piece of it is between working a full-time job and finding the next house hack, bidding on it, buying it, renovating it, you're going to have your hands full, balancing your full-time job with your rental property side hustle. So the more you can simplify around the edges, the better. Excellent. Excellent. So thank you, Margaret, for asking that question.

Congratulations on your first house hack. Best of luck on your next one. We'll return to the show in just a moment. Our final question today comes from an anonymous caller. Oh, ho ho. Are we back to movies? Yeah, let's go back to movies. Joe, you should name this caller.

Okay, I will. We just went and saw another Marvel movie. And I have to say, if you are hanging out with us and you're sick of Marvel movies. So am I. But Paula, it was a random Tuesday. There was nothing going on. And so Cheryl and I picked up.

We went to the cinema and we watched this two and a half hour movie called Guardians of the Galaxy Part 3. Have you seen parts one and two? I did. One was really good. Two was really bad. I felt like that with most of the Marvel movies. I felt like the early ones were pretty good. The ones lately have been all over the place and messy and not great.

But part three was so good. And it was about friendship and having your friends backs and giving and togetherness. And it was just, it had such great themes. I really liked it. It was a little long. But it was well worth. And of course, Guardians of the Galaxy also known for really good music. So I got to tap my feet all the way through as I, as I watched the movie on discount day.

Tuesday afternoon, by the way, is discount day. So we got in for. Joe's stacking coupons, movie coupons. movie coupons on top of popcorn coupons on top of discount day. It was seriously, at our local theater, it was $5 for the movie. And then it was only $87.50 for a popcorn. Right. And then when you came out, your car had been towed.

That's right. But a wonderful actress who's in that, I am also watching a series on Netflix called From Scratch, where she goes to Florence, which, oh, my goodness. Just the visuals of Italy, Paula, make me just want to go back right now. So get on a plane. Let's go to Italy right now. But her name is Zoe Saldana, and she's in Guardians of the Galaxy, and she's in from scratch. Another show I really like.

So let's call her Zoe. All right, Zoe. Well, then our final question today comes from Zoe. Hi, Paula. I recently started working with a financial advisor who recommended that I invest in indexed universal life insurance, and I'd love your take on whether this is a smart move. My background, I'm a single 41-year-old woman. I'm not married, and I do not plan to have children. I have a base salary of about $185,000, and my annual bonus can range from $50,000 to $80,000 before taxes

depending on the year. I bought a home in 2020. It's currently valued at about $675,000 with roughly 317,000 left on a 20-year mortgage. I regularly contribute to a brokerage account that has about $162,000 in it. It's a mix of individual stocks and funds, and I have about $30,000 of cash sitting in that brokerage account uninvested at the moment. I have a Roth IRA that I no longer contribute to, but that's at $92,000, a traditional IRA at around $40,000. $40,000 that I do contribute to, and my 401K through my employer is valued at about $400,000 at the moment. Outside of the mortgage, I don't have any debt, though I am thinking through how best to fund a $40,000 home improvement project this year. My primary financial goal is to make work optional by

age 50. I'm not sure whether this will be feasible, but it's what I'm shooting for. I recently started saving and investing 50% of my income to help me get there. Given that goal, my advisor suggested that IUL would help me access cash to bridge the gap before age 65. We modeled this out high level with an annual $35,000 contribution, but I'm not exactly sure what the right investment amount would be. I also assume I'll continue to contribute to my other accounts, although possibly less. The information that the advisor provided is compelling, limited to no downside risk with a floor at 0%. Great upside potential as I'm looking at an option that comes with a spread. But I'm not really familiar with this vehicle and some of it sounds a little bit too good to be true.

The articles I found online mentioned high fees and more risk. So I love your take on whether this is a decent option and how you'd approach it in a similar situation. Thank you so much for all you do to keep this community inspired and informed. I'm very grateful. Zoe, thank you for the question. And first and foremost, huge congratulations to you on how beautifully you are managing your money. You are saving and investing 50% of your income in order to reach your goal of making work optional by age 50. And I love the phrasing in the framework of that, make work optional. You've done, an amazing job of saving money into retirement accounts, your Roth IRA, your traditional IRA,

your 401k, your taxable brokerage account, and you have a massive amount of equity in a home that you bought relatively recently, right? You bought your home in 2020, which means you have a locked in low rate on a 20-year mortgage. You've already got more than 50% equity in it. So congrats to you on the focus that you've put on building investments, building equity, and getting closer and closer to that dream of making work optional in nine years. I think she has done a great job, Paula. I'm with you, which is why I think it's going to be really important that she gets this right. Because that is an incredibly aggressive goal.

And, you know, in the fire community, I think people. talk about, oh, age 50, how cute. I'm going to do it at 45 or age 40. And you look at the number. Like a pissing contest. Yeah. Right. But you look at the number of people that retire at 40 and actually stay retired. It's one thing to say you did it. It's another thing to actually do it and be able to do it forever. So I love that work optional at 50 goal. But it is aggressive. And you've done all kinds of great stuff. So I think the first thing I would suggest is that you,

want to consider firing your advisor. And by the way, it's not because this is a bad recommendation. It is a bad recommendation. But it's because you trust him or her little enough that you wanted to run it by us. And I just think if you've got great people in your corner who you know that you have their back or they have your back, that second opinion, yeah, okay, I get it. But I think that, I think she's aware. I think she's aware that there's something that just doesn't seem right here. Well, I agree she should fire her advisor.

I disagree on the reason because I do think that even if you have a high degree of trust in your advisors, it's wise due diligence to stress test their recommendations, to get second opinions, third opinions, fourth opinions, you know, to trust but verify. I agree. She said she already did that. though. She said that she had already read articles and she's still unsure, so then she calls us. So, you know, maybe. I just think I want to make sure the people are in my corner. So here's the deal. When you put money into a life insurance policy, the first thing you have to consider is that you're buying life insurance. There is going to be the cost of insurance that's attached to that strategy.

And so she's adding friction, Paula, just through that aspect. Now, the cool thing that the advisor will tell you is that this type of a life insurance policy, you put money in and then you can take money out tax-free. I'll bet the advisor even said the same thing you'll see in these TikTok videos from people that tell you half the truth, which is that you can then borrow money that you'll never have to repay, which also can be true, but is a half-truth. I think that this again, almost like we talked about with Margaret Paula, it can work, but it is so convoluted.

And also, just to get into it a little bit, if I was going to use this strategy, I would want there to be a reason for the insurance, number one. Zoe said she is single, 41 years old, doesn't have anybody else that relies on her for income. I didn't hear, did you hear a reason to have life insurance? No, no, no, it doesn't sound as though she has any dependence or. I didn't hear that. So neither of us heard that, but not a deal killer, by the way. This strategy, if you've significant enough streams of money and you need more tax shelters,

can be a decent next place to go after you, maximum fund, your 401K, maximum fund, anything that is easily available out there for the average person. And you still have gobs of money, taking some of it. and sheltering it and a life insurance policy can still be okay. But if she's going to do that, Paula, I would then use a life insurance policy that just has straight up mutual funds inside of it. Because if you're going to try to do something like retire at age 50, getting the upside of more growth is what you should be emphasizing.

She needs growth on top of growth, on top of growth. She needs that stuff. This stuff has to grow a lot. and by choosing an indexed product, she's actually cutting herself off at the knees because what's neat about this policy supposedly. And so we mentioned this is that the chance of loss is zero. That sounds really cool. But you have to know that when the chance of loss is zero, they take away your participation

on the top level. So notice whenever you hear these people on TikTok talk about these index products, they say, hey, you can, quote, participate in the market. They'll use the term participate. You can participate in upside of the market and it'll never go down. Study after, study after study shows that all these products, if you would have just invested in the market and been a little okay with the fact that I'm not going to touch this for a long period of time and there will be a roller coaster

between now and the time I touch it, I'm going to grow this so much more than if I pay for the floor by, letting them cap that. That's what when Zoe talked about is spread. They're giving her a spread so that she's able to get between one on the bottom, which ostensibly zero and a number on top. If the stock market does, let's say the stock market does 12%. Maybe she gets six or seven percent, whatever. The insurance company is going to keep the rest. So it is a complex strategy. number two, it is even inside of this complex strategy, I think it's the wrong strategy. If you're going to go complex, I'd use one that doesn't have that floor.

I would use one that just has mutual funds inside of it. Number three is the advisor said, hey, this is a great product to use if you want money pre 59.5. You want money before you're able to get it from traditional 401K accounts, for example, traditional IRA accounts, for example. There's another product that does that. A tax-efficient mutual fund inside a brokerage account. I knew you were going to say taxable brokerage account. A taxable brokerage account.

It's like your favorite account. Well, here's the thing, Paula. I mean, the taxes that people are going to pay are overstated by insurance. Oh, you're going to pay tax every year on that, even if you don't spend. Yes, you will. And I want you to calculate out what that tax would have been every year for the last 10 years and compare it to the cost of insurance. Because the cost of insurance for most people is going to be much higher than the friction of the little bit of tax you're going to pay and have that money available

whenever you damn well want it without having to beg an insurance company without having a whole strategy maybe collapse because you did it wrong. Right. I just want to call Vanguard and go, give me my cash. Thank you. Hang up. I have my money. It's done. It's beautiful. It's Simple. It's beautiful. It's done. It is overly complex for not a lot of upside. I've used this strategy before that she's talking about. I didn't use a UIL. No, I think that ruins the strategy. But I also loved it much better if there was some reason for the insurance on top of it. And if the goal wasn't this aggressive, Paula, I think the goal being this aggressive means. you can't get rid of your opportunities for growth, and that's also what this does. You know, I'm curious about the goal, because if the goal is make work optional in nine years,

my question is how rigid is that goal? You know, 50 is a nice round number. It's a good number to aim for. But some people, when they set goals, they strictly mean on the day I turn 50. There are others who might mean, you know, if I hit it at 51, one, that's fine. This is a pathway that I'm charting rather than a rigid. Got to do it now. Right. Yeah, it's always definitely in pot number two there. I mean, I feel like, based on her question, when you use the phrase make work optional by, and I'm not

sure if I'm going to hit it, but that's what I'm aiming for. I think it is much more flexible. Right. So then bucket number one then. wait for two which one did I say first I thought you said I got to do it on my birthday age 50 she's not that bucket oh right right right okay yeah yeah yeah yeah yeah you're definitely bucket number two yes yes so I'm yeah I'm there with you which also means you know what is I sit here and stew on this which I am why this advisor is over complicating this situation the IRS gives us rules as well, Paula. If you're not going back to work, your 401k may let you get at the money before 59.5. You need to check with the rules on your 401k plan. But if you are full out retiring and not going

someplace else, you may be able to get that before 50. Now, money in your IRA, it's 59. 5. Money in your 401k, that becomes more flexible. Even beyond that, Paula, let's say she can't get it until 59.5. The IRS steps in and goes, yes, you can. We've got the SECPP. rule 72T, which by the way is a little complicated, but not as complicated as this insurance policy. Not at all. So, Zoe, if you're not putting as much money in your 401k as you can for fear that you won't be able to get it until 59 and a half, check with your HR department and then start exploring rule 72T, which is the SEPP rule. and I think you can set up a strategy to create an income stream that will also help you there. The other place that this life insurance policy does not help is she also mentioned at the end of her call, Paula,

she's trying to best fund $40,000 home improvement this year. Yeah, I noticed that. I thought that was an interesting comment given she can easily cash flow it. Putting $35,000 into a life insurance policy goes directly against that. Right. Directly against that. It is sad, but I'm with Zoe. These strategies sound so compelling.

They sound so awesome. And you know what? For the right person, maybe they are. But I don't think Zoe's case is that case. By the way, Joe, you mentioned the SEPP 72T. For people who are wondering, what the heck is that? Yeah. There's different ways to calculate this, but it's a rule

where the IRS says you can take money out of your qualified retirement plans before 59.5. You have to set up a stream of income. It has to be fairly similar every year. So it has to feel like a yearly payment. It has to go for five years or to 59.5, whichever is longer. So if she goes at 50, it'll have to go till 59.5. That stream of income. Now, You can calculate this a few different ways, so you can calculate it with an inflation rider, which is cool. So you can take a little more out every year as prices go up. You can calculate it as a straight line. I would work with a professional who's done it before because you don't want to get it wrong. But it's a way for you to create that early income stream. Right. Exactly.

There are two resources that I'll refer you to. One is a podcast episode that we did. And actually the show notes, I'm looking right now at the show notes for this episode. and it's long. This reads like a full-on, fairly detailed article. And that is episode 94, afford anything.com slash episode 94. I'm going to put that in the show notes for today's episode. Mad Scientist also did a really beautiful visual depiction of how the SEPP 72T process works,

beginning with contributing to pre-tax retirement accounts, then retiring, then transferring your employers accounts to your traditional IRA, then making that determination, Joe, like what you were talking about. Do you want to do fixed amortization? Do you want to do RMD? Do you want to do fixed annuity? Like what calculation method suits your scenario best? Then making those withdrawals and continuing for five years or until you turn 59 and a half. So it's a visual that takes something that's quite complicated and that doesn't easily lend itself to visuals and makes it simple to understand at the high level. So we'll link to that in the show notes as well. I really appreciate people who can tell complicated financial stories with beautiful and simple visuals. That's a true

skill and service. So the show notes for today's episode are going to be quite robust. Bam. So thank you, Zoe, for that question. And in conclusion, not a fan of indexed universal life if instead you can use taxable brokerage accounts and SEPP 72T. We haven't mentioned the Roth conversion ladder, but, and I don't want to open up that new can of worms. And Zoe, you have... Just did. I know.

And I just did. But you know what... We didn't mention... Episode 94, which I've linked to in the show notes, goes into deep detail about the Roth conversion ladder. So I'll refer you to that one. So thank you, Zoe, for asking that question. Joe, we did it again. That's fabulous. And I love the fact that we did have a couple of recurring themes there. Simpler is often the better answer. If it is complex, it can get you in the weeds. I think that's theme number one. What's another theme? That the distinction between simplicity versus optimization is also,

in many cases the distinction between fragility and resilience. There it is. So when in doubt, shoot for the option that is simpler and more resilient rather than the option that is complex and fragile. Yeah. How about that? We came up with four words. Wow. Someone give us a medal.

I think it's funny. We came up with the part B of that. And I think they were both right. But your two were different than mine. I would have thought we would have one word overlapping. I don't know. But we didn't. See, that's why there's two of us, Joe.

That is why. Joe, where can people find you if they would like to hear more of your zany ideas? You can come here to Texarkana. I'll take you to one of the three great restaurants here in town. And we can chat money. I've been to two of those three, right? That awesome brunch place, breakfast brunch place, the diner. And then there's that great Mexican food restaurant.

Oh, isn't that heaven's a potas? Oh, so good. So good. What's the third? So, so good. Oh, well, there's actually several. You know what? There's a great Italian place called Verona. It was fantastic. I actually went there last night. All right. I'll have to come back to Texarkana then. Yes. Do that. And if you can't make the trip or until you make that trip, you can find me Monday, Wednesday, Friday at the Stacking Benjamin Show, where rumor has it, Paula Pant now that she's back is going to rejoin our cast of Merry Friday characters. And do we have some fun coming up, including one of my favorite. types of, and I think Paula, one of your favorite types of Friday episodes of the Stacky and Benjamin show are infamous game show episodes. Right. The first one I'm coming back on is a game show, yes. It is.

Yes. Yes. And for people that don't know what our game show episodes are all about, we take one of those stupid list articles. And this time, I can't tell Paula what the list is because we haven't recorded the episode yet. But we take one of those stupid list. And Paula and award-winning blogger, Len Penzo and our own OG from Stacking Benjamin's, try to guess what's on the list. And you know what I like about these?

It's not really about the list. Often the three of you come up with way better things for the list of what the list should be than what the author put on the list. We should put in a fourth contestant and it should be chat GPT. And we'll see what that comes up with. Can you imagine? We have an announcer guy on our show, Doug, and we had ChatGPT put us together an episode that we called hilarious featuring Doug. And it was funny as heck what it wrote. Funny because it was so bad.

It was just, it was so bad. It was hearty, har-har. It was terrible funny. It was terrible funny. Yes. Well, it's a newborn give it time. It's coming. It's on the way.

All right. Well, thank you so much, Joe, for spending this time with us. And thanks to all of you for spending this time with us. If you enjoyed today's episode, please do three things. First and foremost, share it with a friend or a family member. That's a single most important thing you can do. Second, subscribe to the show notes. They're, as I've mentioned in today's episode, quite robust.

And point you to lots of resources that can help in your financial journey. That sign up is at afford anything.com slash show notes. And finally, please leave us a review in whatever app you're using to listen to this show. Those reviews are incredibly instrumental in allowing us to bring amazing guests onto future episodes. Thanks so much for tuning in. I'm Paula Pant. I'm Joe Salsyke. And we 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, here 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 anytime 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. We'll hear from Margaret, who's wondering if she should kiss. Who's wondering if she should...

Is it your first day back? Oh, my goodness. The, um, if she should... She should is a bit of a tongue twister. If she should. If she should. It's like I feel like I need to warm up. Like she sold seashells by the seashore. You should say she shan't. She shant.

Uh-huh.