Afford Anything - Ask Paula: How to Shift From Financial Independence to a Mini-Retirement?

Episode Date: March 17, 2021

#306: Jake and his wife want to retire in five years, at which point they’ll have 14 years before they can access their 401k funds. To help bridge that gap, Jake wants to know: what should their asset allocation look like for their taxable brokerage account? This year, Kim’s employer enrolled all employees into a “fully funded indemnity program combined with a nationwide direct primary care membership.” What the heck is this program, and how might it impact Kim’s finances? Burnt Out in Boston is switching their focus from financial independence to taking a mini-retirement. How can they financially and mentally prepare for this leap? Matthew is torn: should he and his wife -- both 26 -- max out their Roth IRAs and then save up for a rental property, or simply save cash for the rental and worry about their Roth later? Finally, Deva and her husband are fed up with their messy tenants. They’re kind and responsible, but they’ve left the yard a mess. They have a clause in the lease that addresses this, so beyond that, what can they do? My friend and former financial planner, Joe Saul-Sehy, joins me to answer these questions on today’s show. Enjoy! For more information, visit the show notes at https://affordanything.com/episode306 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 your time, your focus, your energy, your attention, anything in your life that is a scarce or limited resource. And that opens up two questions. First, what matters most? And second, how do you align your day-to-day decision-making to reflect that?

Answering those two questions is a lifetime practice. And that is what this podcast is here to explore. My name is Paula Pant. I am the host of the Afford Anything podcast. Every other episode, ish, we answer questions that come from you, the community. And today, former financial planner Joe Saul Seahy joins me to answer these questions. What's up, Joe? Former ish financial planner.

Former isish. I just always like the ish there. Like the asterisk after every other episode, asterisk. Exactly. You know, I'm just, the reality is I'm. not that methodical. Like, I'm, I'm, I'm a big picture thinker. I'm good with concepts. I'm good with ideas. I'm good at long-term big picture thinking. When it comes to daily execution of details, it's not my jam. And so as much as I try to stick to a rhythm, that rhythm sometimes

gets thrown. But just like how many times of you and I told people you need to stay flexible, have some flexible money. Have flexibility in your planning. Exactly. You don't need to be held to every other episode. I mean, pretty soon I'm going to take over. It'll be every episode. I'm good with that. Are you planning a hostile takeover of the Afford Anything podcast? Welcome to Afford Anything. That'd be a weird day. No, no, no, no, please no.

Please no, I don't want it. So here are the questions that we're going to talk about today. Jake and his wife want to retire in five years, at which point they will, at the time of their retirement, they will be 14 years away from being able to access their 401K funds. So Jake wants to know how can they bridge that gap? Kim has an employer who enrolled all employees into a fully funded indemnity program. What the heck does that mean? We're going to talk about that.

Matthew is torn. He and his wife are both 26 and they want to know if they should max out their Roth IRAs and then save up for a rental property or vice versa. Should they save for the rental first and worry about the Roth IRAs later? Deva and her husband are fed up with their messy tenants. what should they do? And Burnt Out in Boston wants to take a mini retirement. How can they do that? We're going to answer all of these questions in today's episode, starting with Burnt Out in Boston. Hi, Paula. This is Burnt Out in Boston. I've been a big fan of the podcast for a few years now.

And I am a recent grad who finished my bachelor's to master's program in a matter of four years in the spring of 2019. I was working inside hustling for the majority of the time that it took me to finish my degrees, and I've now been in the workforce for about a year and a half. I make $70,000 and I'm 24 years old, and I'm working a pretty demanding biotech career. Ever since I discovered the fire movement through your interview with Mrs. Fuglewoods a few years ago, my intention was to reach financial independence as soon as possible. but I'm now realizing that since I've been working on overdrive nonstop for basically my entire life since I was a teenager, I should probably take your advice and do a mini retirement before I completely burn myself out. But the problem is I'm not really sure how to swing this. So I guess I'm asking for help on how to adjust my mindset and my goals to make room for a mini retirement. Also, if you could point me maybe towards some calculators for many retirements, I really can only find calculators for reaching actual FI, or maybe just, I don't know, some ways that I can run through my numbers and make sure that I'm going to be financially ready to make this move.

So some more details if it helps are I try to keep my cost of living very low by staying with family. This arrangement might not be doable in the long term, so I currently have a six-month emergency fund, which includes what my rent were to be if I was to move out but stay in the area renting, plus a first, last, and security deposit in case I needed to make that move kind of unexpectedly. I have about $40,000 in federal student loans, and I am about to pay off my car, which I expect to last me many more years. And I'm also saving up for a house hack, both as a vehicle for reaching financial independence, but also as a way to keep my cost of living very low because, you know, hopefully if I have renters, then I won't have to make the mortgage payment out of my own pocket.

I could take it out of the rental income. But the properties in my area are very expensive, so that might take a little while. So I really hope that you have some advice from me and I really look forward to hearing back from you. Thank you. Burnt out. First of all, huge congratulations on being 24 years old and earning $70,000 a year.

That's an incredible income at any age, but particularly to earn that income at the age of 24, that speaks good things for your lifetime earning potential. When you're making 70 grand at the age of 24, you are on track for excellent earnings over the course of the next 40 years. So big, big congratulations to you for starting on such strong footing. Now, you are interested in taking a mini retirement. What I would recommend is first decide where you want to live, slash wherez plural you want to live if you plan on being in multiple locations. during that mini retirement time.

And the reason that I say that is because the cost of living that you will encounter during your mini retirement will differ depending on whether you take this mini retirement in Boston versus in Lao or Cambodia or Thailand. Decide what location you want to be in at the time of the mini retirement. From that, read blogs, listen to podcasts, read books from people specifically who have retired or mini-retired in those particular locations so that you can get a solid grasp on what your cost of living in that location might be. Again, with that caveat that your cost of living in a place like, even if you look at

Thailand, your cost of living in a place like Bangkok is going to be very different than your cost of living if you were to go all the way out to Koso Muay. So depending on where you want to stay during the span of that mini-retirement, figure out what a reasonable cost of living is, and then calculate that that per day cost out for the duration of the mini retirement, you know, your per day cost multiplied by 180 days if it's a six-month mini retirement, and then you'll know what amount of money you're shooting for. So you asked about calculators. I wouldn't worry about any type of formal calculator. I would figure out location specific what's going to be the cost of living in that area, multiplied by the amount of time

that you want to be in that area. Now you know your goal. And from that goal, you work backwards towards how to save up that amount of money. When it comes to, you asked about purchasing a house hack. I wouldn't worry about that until after your mini retirement is finished. One goal at a time. Right now, your goal is focus on saving up enough money that you can go into that next adventure. Once that next adventure is done, you can then switch gears and focus on real estate. I think it depends on how far away that is though, Paula, because a lot of what we're going to talk about this week and these questions, the theme people I think are going to hear is the tradeoffs that you have when you make investment decisions. And when you're 24 years old, for most 24 year olds, you and I would say, let's invest for the long term, right? Let's look at 50 years old, 55 years old, 60 years old. Let's use the heck kind of tax shelters. But really, if burnt out in Boston wants to have flexibility, the house hack and being able to bring in maybe some income today can, number one, make that stay longer and also make a cash flow of lifestyle come about easier on a more quick time frame.

But the problem is, is when you do that, when you decide that you want to build cash flow and take the cash flow from a, let's say it's a rental empire, now you're then giving up the growth because you're eating it. You're living off of it. So I think I'd step back and think the goal. If that goal of the sabbatical is far and off a way that you could do the house hack first and have it partially fund it, fantastic. I think that would be really cool. See, I would disagree, Joe. I would not buy that house hack prior to the mini retirement because, as you know, when you buy a property, particularly one that you yourself are going to be living in, there are all kinds of expenses that come up, things that you never anticipated, particularly

if it's your first home. All of a sudden, for the first time in your life, you need a lawnmower, and you need a gardening hose, and you need window treatments. Those types of expenses, the weekly Home Depot run of home buying, even if you try to do it as frugally as possible, that type of stuff is inevitable. I'm not sure how much money a person would be able to save or how many costs they would be able to offset if they were to purchase their own home, assuming that the mini retirement takes place elsewhere. So you're saying that there's no income generation machine? Correct. Yeah. If you're house hacking into a place, then you've basically got your own place

that's sitting vacant. Let's say you get a duplex. You rent out one side. If it's your first year of owning that duplex, then technically you are supposed to live there. And certainly there's no restriction that says that you can't go to Thailand while you're living there, but you, at a minimum, can't rent it out for the first year of ownership because it's your primary residence. But that's exactly my point is how far away is this sabbatical? It all depends. It's the sabbatical can be pushed off beyond that time frame, and she can get in that sooner and get past that time. I think she might have an opportunity. But it also makes me wonder and want to explore more. more. What this says about her lifestyle later, because when I hear burnt out in Boston's age,

I think if you're burnout at 24 years old, there's a good chance that you want to have this freedom lifestyle. This is you, that you want to have this ability to do this again and again and again. So if that's the case, then she's still going to build a different type of portfolio than somebody who's like, listen, I love working at X place. Let's use tech. I might not I might look at the portfolio differently if I'm her and figure out how to create that income generating machine that can make me be able to take off whenever I choose. I think if you're 24 and you're asking about a mini retirement right now, and again, I don't know what her goals are as far as how far into the future she wants to take this,

but better to take it sooner than later. And if you buy a home and then you have to live there for a year, you're delaying that mini retirement. You know, she might be... I do agree with that. I totally agree with that. Yeah, exactly. I don't want her to be 26, 27.

And then, like, you know, what happens? A parent gets sick or a sibling gets sick or there's an unexpected relationship. Like, life happens and the game plan for traveling gets pulled away. A second pandemic breaks out, right? Shut up. Stop. Stop. You are pure evil.

Anything can happen. And I don't want, you know, there's a big difference between traveling at 24 versus traveling at 30. Not to say one is better or worse than the other, but they're different. It is totally different. Yeah. We know when she was talking about calculators, I thought, and this is the former financial planner in me, I thought she was talking about what impact will that have on my retirement. And for that, you need a more robust calculator. Like if I'm not putting money toward my long term stuff for a year, for whatever amount of time, like what does that do? And the more casual calculators, to her point, will not do that.

And maybe I'm overthinking the question, but there are a lot of people that might have that question. So I'll tell you the place that I like to go and look at different calculators, and they do a great job of comparing calculators is the website, can I retire yet?com. Darrow, and I think you know these guys, Paula. Both Darrow and Chris are great thinkers. Do fantastic work. It's really nerdy. There's a ton of different calculators. there and you can compare and contrast them and find one that is robust enough that it can

show you not adding to those funds maybe for 12 months and see what that does to your longer term money goals. That is a very financial planner assumption around what you meant by calculators. It totally was. You were halfway through your thinking. You're like, you don't need a calculator. I'm like, yeah, I think Paul is right. I think that was the nerd coming out on my end.

Yep, overthought that one. In terms of figuring out that cost per day, Matt Kepnis, who goes by the internet name Nomadic Matt, he has written a book on traveling for $50 a day. And he, beyond the enticing title of that book, has a wealth of information, no pun intended, on how to travel at X number of dollars per day in different locations. So he'll talk about traveling in Latin America or Europe or Southeast Asia or sub-Saharan Africa for X amount of money per day. And so if you're looking for info on travel costs in different locations for your mini retirement, I would recommend starting with him, Nomadic Matt. And we will link to both Can I Retire Yet and Nomadic Matt as well as any other resource

that we mentioned in this episode. We will link to all of that in the show notes. Show notes are available at afford anything.com slash episode 306. Thank you, burnt out in Boston, for asking that question and enjoy your mini-retirement. 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.

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Don't miss out on early Black Friday deals. Head to Wayfair.com now to shop Wayfair's Black Friday deals for up to 70% off. That's W-A-F-A-R.com. Sale ends December 7th. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast. and efficient. They're also powered by the latest in payments technology, built to evolve with

your business. Fifth Third Bank has the big bank muscle to handle payments for businesses of any size. But they also have the fintech hustle that got them named one of America's most innovative companies by Fortune magazine. That's what being a fifth third better is all about. It's about not being just one thing, but many things for our customers. Big bank muscle, fintech hustle. That's your commercial payments a fifth-third better. Our next question comes from Matthew. Hey, Paula. We'd love your opinion and possibly Joe's because I think y'all may differ. So my question is to max out of Roth IRA and then save cash for a rental property or just save cash for the rental and worry about a Roth later. So some background information, my wife and I are 26 years old, make around $100,000 a

year and can save between $2,500 and $3,000 per month. This year, we got married and bought a duplex, which we're house hacking, living in one side running out the other. So our cash is drained to $20,000, which is our current emergency fund that we do not want to touch. We currently have $82,500 in retirement savings, which is between her 401K, both of our Roth IRAs, a deferred compensation plan, and my pension because I work for my state. I have a finance degree, so when I run the numbers, without adding any more to our retirement savings, it could be anywhere between 700,000 and 1.2 million depending on interest rates in our future. We bought this duplex. Everything's going fantastic, which is really itching for making us want another property.

The goal was for cash flow each month, so work becomes optional at some point. I enjoy my job. I don't mind working. My wife is a nurse and is very stressed out with her work, so eventually she does want to stop. And so we're just looking for. the rental properties to add cash flow to us each month to where work becomes less burdensome. That being said, we can only save between $30,000 and $35,000 per year, and if we do our Roths, that's going to take away a solid chunk of that money. So bouncing back and forth between is it worth skipping a Roth to get our rental properties now in order to have the cash flow, or is the Roth IRA super important for our retirement future?

Thanks so much. Matthew, first of all, thank you so much for calling in and congratulations on everything that you're doing. Congratulations on the house hack. Congratulations on both you and your wife setting yourself up for an amazing financial future ahead. You're 26, and you are already in such a great spot. You've set up a strong financial foundation

and you're continuing to build on that. So huge congrats to you for everything that you've done and everything you are continuing to do. I love your question. Fundamentally, the question is Roth IRA versus rental property, which should you prioritize? And any time that there is a question about what should be the priority, I like to zoom out and ask the question, what is the goal? To paraphrase, Joe, Joe, you all. You always say, start with the end in mind. I guess that's not a paraphrase.

That's a quote. But you always say start with the end in mind, which is something that you picked up from Stephen Covey, the author of Seven Habits of Highly Effective People, which, by the way, is one of my favorite books as well. We'll link to that in the show notes as well. Starting with the end in mind is another way of zooming out and asking, all right, what's the ultimate goal here? What are we trying to accomplish?

In your case, Matthew, as you've described, you want to set yourself up for financial independence, financial freedom, greater financial flexibility. To that end, it seems to me, and I don't want to tell you what to do, because there are, of course, pros and cons to prioritizing either one, and I can sit here and make an argument for either option. And I will add the caveat, both of them are really good options. So whichever you prioritize, whether it's the Roth IRA or the rental property, you're choosing between two excellent choices, so there's no wrong answer here. With that being said, if the goal is financial independence at a younger age, a rental property will serve that purpose in that it gives

you cash flow. The returns on a rental are biased towards cash flow. It also gives you greater financial flexibility because of the fact that it's not in a tax-advantaged account, which means that you don't deal with the government restrictions that come from putting money into a tax advantaged account. I say that with the asterisk that Roth IRAs do certainly give you a lot of flexibility. You can draw down the principle on that at any point, interest-free and penalty-free. So among all of the various types of tax-advantaged retirement accounts, Roth IRAs, are arguably one of the most flexible and friendly ones, probably tied with the HSA in that regard. But still, a rental property, because of the fact that it is not a tax-advantaged account, gives you even greater flexibility.

It gives you returns that are biased in the form of the dividend or income stream that it pays out. And it will build your retirement portfolio, but it will do so in a much more cash flow-friendly and flexible manner. Now, that being said, the way that I tend to think not just of Roth IRAs, but of all retirees, retirement accounts in general, is I don't think of them as quote unquote retirement in the traditional sense of the word. I think of it as a deal between you and the government in which the government says, we will give you a tax advantage on this investment in exchange for you giving us the promise that you will not access this money until you reach a certain age. And so I don't think of it as retirement in the cessation of work sense of the word. I simply think of it as a tradeoff

of tax advantage in exchange for an age-related limitation to access to that money. I think this is another example of trade-offs like we talked about last time. And that's actually, of course, Matthew's direct question. Is this trade worth it? And the answer, Paula, I think is exactly what you said, which is begin with the end of mine. And if your goal is to create a cash flow empire, make your life easier as you work, I don't think the Roth IRA can do that. But I think that for us money nerds, I think sometimes we get a little fomo about the fact that I'm going to miss out on all these cool and they're totally cool, these really awesome advantages that the Roth gives us. And I don't want to miss it. And yeah, yeah, you're going to miss out on some of that.

But you know what? I would rather miss out on a cool tax tool than miss out on flexibility in my life to do what I want to do, which you can hear in his voice how that is exciting to him. So I'll take more life over cool tax break any day. Exactly. I was talking to the FI couple, Ali and Josh, on Instagram. We did a interview yesterday. They talked about, you know how on this podcast we always say don't let the tax tail wag the investment dog? Sure. So expanding out of that, don't let the math tail wag the life dog. Yeah, right.

My favorite is my goal in life is to have Bill Gates tax bill. Right. Like that is my goal. Because if I have a zero tax bill, I might have great shelters, but there's a better chance that I just don't have any money. So if I could have Bezos's tax bill, I'll take it. Well, Bezos actually is a famous Amazon at least. I don't know about Bezos specifically as an individual. But Amazon is famous for not having a tax bill.

I know. Well, I guess if I could have Amazon's tax bill, have my cake and eat it to, I guess I'll take that one over everybody. Yeah, so maybe that's Matthew's question. Can I be like Amazon? No. You cannot. Exactly. Upper middle class problems.

That's right. Thank you, Matthew, for asking that question. And again, I'll just emphasize, you're choosing between two great options. So there's no wrong answer here. There's no wrong choice. I think there is. Really? You think that Roth IRA is the wrong answer.

I think that based on what he says he wants to do, the Roth IRA is the wrong answer. Wow. Don't do it. Step away from the Roth, man. Whoa. Take your hand off the Roth. See, I, Joe, you and I are in agreement. that we both, if we were in his shoes, would go the direction of the rental property.

But I still say he's going to win either way. Either way, even if he puts this money into a Roth IRA, that money is going to do way more for him than it would if he were putting that money into buying booze and cigarettes. So either way, he's investing it in a smart, strategic manner, and that is a recipe for success. That's why I say he can't lose either way. Is this where I say agreed? Chow's like, no, buy the booze and cigarettes. I know, booze and cigarettes. Come on.

I don't know about the cigarettes. I'm not online. I don't know. Not for me. Not for me. Not for me either. Might be for him. Booze, well, once in a while.

The Afford Anything podcast is not condone, spending your investment money. So before we go totally off the rails, thank you, Matthew, for asking that question. and Joe, I am going to reiterate. I don't think that he can make a wrong choice. As long as he puts the money in either a Roth or a rental, it's the right choice no matter what. Matthew, we know who's right. I guess can I make a plug in that case?

If I'm going to be cast as wrong on my own show, then I'm going to make a plug for my real estate investing course. If you are going to invest in real estate, I've got a course for that. It's called your first rental property. You have a link to that in the show notes page. Oh, good idea. Yeah. To the, what do you call the presale, the sign up, the waiting list? The waiting list, the waiting list, the VIP list.

Actually, we've got a free e-book. It's called seven mistakes, expensive mistakes, because e-books do better when you have an adjective prior to the verb. So they're not just seven mistakes. They're seven expensive mistakes. Awful. that real estate investors make. So yeah, we've got a free one that you can download at Affordainthing.com slash mistakes. Matthew's like, this is a mistake to call in.

Yeah, now we're not off the rails at all. All right. Let's move on to our next question, which comes from Jake. Hi, Paula. My name is Jake. And I have a question regarding early retirement and asset allocation as we approach that number. Here's some quick facts about me. My wife and I plan to retire in 2026. At that point, I will be 45 and she will be 46. We've been fortunate enough to have great jobs and have built up nice 401ks that will continue to build. So we really don't need to touch that money until age 59 and a half. And at that point, we're confident that what's left in there after it's grown will be able to carry us through the rest of our retirement. So what I'm really focused on is that first 14 years between when we say goodbye to work and hit that 59 and a half. So here's some facts about what we have access to in our taxable accounts.

So we have about 500,000 in a taxable brokerage that's at about a 90% equity, 10% fixed income ratio. It's mostly in VTSAX for equities and VTBLX for bonds. We contribute between 80,000 and 100,000 a year and plan into that taxable account and plan to continue to do that for the next five years. Another way we have access to cash is through restricted stock units that both of us earn through work as part of our compensation. Right now we have about 235,000 at present value in stock. Now, we always sell whatever units vest once per year and move that over into our taxable account just to reduce the risk of being overly indexed in one company. Assuming a conservative 5% annual return, I figure we'll have around 1.2 million when we retire in our taxable brokerage,

and this doesn't include any stock that we'll have left and be able to either keep for the dividend or sell as we move through our early retirement. We also plan to save about $150,000 in cash towards the end of our working career, and we'll use that to pay ourselves, should there be a bare market or the market dips during retirement. So my question is, as we inch towards that 2026 date and towards our FI number, I'm wondering how and when I should start increasing exposure to fixed income in those taxable accounts and where to put that money. So as we're putting more money into our taxable brokerage rather than just that 90 to 10 split, should I start buying more bonds? If so, what types of bonds? I'm really trying to understand how we can limit tax implications. in our early retirement and set ourselves up for success for the long term so that we're not having to sell equities in a down market that we can sell bonds or some other way to make income

until the market rises again. At that point, I'm familiar with rebalancing as we go. I'm just really uncertain about that first portion of early retirement and what our asset allocation should look like. Any help you can provide would be great. Thanks and love the show. Thanks, Jake, for that question. This is the hardest problem in financial planning for me. I don't think when it, well, not in all of financial planning, there are very difficult problems, but when it comes to particularly in asset allocation, this is the biggest problem. And it's an even bigger problem right now. And I'll just define why. And then I'll tell you in my head what I think the tradeoffs are. So I grew up in West Michigan,

there were a ton of farms. So I think in terms of farming analogies, when you're investing for the long term, you plant these investments that historically just look back 10 or 15 years that are going to beat inflation, right? What consistently wins in that time frame? And equities and real estate are the two things that you invest in that do that. The North American Reindex and the S&P 500, fairly similar results over long periods of time with actually a fairly similar risk measure as well. So getting there, stocks or real estate, preferably probably both, is my favorite way to consistently historically have done that. But when you run under 10 years, now you start to get into this mushy period. When we get to, it's like one to five years, really cash is king because

do you want to destroy the goal and even bonds could do that. I mean, if we look at bonds and risk reward on the top end of the risk pyramid, we'll have junk bonds, which are these high interest rate bonds to companies that have a lot of debt. On the bottom, we'll have short duration and government bonds. You could go with short duration bonds. I don't think there's a lot of risk there, but I also take a look right now specifically at the climate that we're in where interest rates a few weeks ago began to climb. And a lot of people, not even a lot of people, just the way bonds work, when interest rates rise,

the value of bonds fall. So if I tell you to build a bond portfolio, which historically, by the way, would be really cool to do for that five to 10 year time frame. If I told you to do that now, I think that a lot of people listening to this who no money will say, I'm telling you to lose.

money. And there's a piece of me that says that there's more danger of that than ever before. Why? Because interest rates are lower than they've been. And when people tell me, oh, my goodness, interest rates now are high because they're in the threes. Right. We get interest rates in the sevens or eights. So the risk of losing money is much worse there. Now, a lot of people in the bond market will tell you a lot of people like me knowing that have already built in a lot of that risk because bonds haven't done a ton. So my answer, Paul, is I don't know. I think we're in a really uncertain time for bonds. Bonds are the textbook answer for the five to 10 year time frame. I accept, and I like your numbers, by the way, Jake. I love the fact, you know, I was trying to do

the math on your numbers, $1.2 million in your brokerage account based on interest rates, based on the way you're saving. I love the fact that that's a very conservative number, what you're going to build. So as long as you're comfortable with conservative numbers, I would say the responsible answer for me to give you would be to keep your durations short on your bonds and accept the fact that you're setting this money aside so you hit the goal and just accept that it's not going to earn a lot of money. I think it's very enticing to go chasing yield and people do it all the time and people lose that game all the time. So it's usually my least favorite time frame to look at Paula because you're rolling dice with that

five to 10 year time frame more than anywhere else. But I feel like now, especially now, you're rolling the dice more than ever. Right. I agree with that. Jake, when I think about your situation, in my head, I'm that 14 year gap of time that you are trying to bridge between when you retire to when you turn 59 and a half. In my mind, in my time, that you're, that 14 year gap of time that you are trying to bridge, in my mind, I'm breaking down those 14 years into three different buckets, the zero to five year, the five to 10 year, and the 10 to 15 year, or technically 10 to 14 year. And in my mind, each of those buckets will have a different asset allocation and a different mix of investments. The zero to five year bucket is the one that should be heavily tilted

towards cash or cash equivalence. And so any money that's within that zero to five year bucket, you know, I love what you're talking about about having the $150,000 that you're just going to keep in outright cash. Beyond that, Ginnie May's high-yield savings accounts, laddered CDs, although those aren't paying anything these days, anything that is a cash equivalent or a conservative asset, such as Ginny Mays, I think those are appropriate for that zero to five year time horizon. That 10 to 15 year time horizon, by contrast, I would throw that right into VTSAX or some other broad market index fund equivalent if it were me.

Because that's a long enough time frame that if it all were to get sliced in half six months after you retire, you would still have between 10 to 15 years to wait out that recovery. and you wouldn't have to turn paper losses into real losses. The hardest bucket to manage is, as you said, Joe, that five to 10 year time frame. And for that, Joe, I'm on the same page as you. If bonds were a better option in a different environment, that might be where I would lean. Given that that's not a solid option right now, I might take that five to 10 year bucket and sort of split it between the two.

You know, treat half of it in the same way that you treat the zero to five year. and treat the other half of it in the way that you treat the 10 to 15 year. I tend to agree with you. I think diversification here's your friend because I also think that when you're, and I don't really love this analogy, but we hear it all the time landing the plane, right? When we're landing the plane, we're trying to harvest our investment. I like harvest the investment better. I'll go with that one.

When you're trying to harvest it, I think that having several different trees to pull from and being able to choose at the time, which one is ripe is. going to be a better strategy that will help you win the day. But I look at even Ginny Mays right now, Paula, as you and I record this, you know, Morningstar has this fantastic and you know what a fan I am of Ginny Mays. And most time frames, I think you, I think the risk level in Ginny Mays is so, so low. And yet, I'm looking at a growth chart on Ginny Mays. And at the midpoint last year, $10,000 invested at the start of 2012 had grown all

way up to, uh, looks like roughly $13,000. And now it's back below $12,100. I mean, that's, that's a lot of loss for something that historically doesn't lose much money. The good news is, and this has been the positive on Jenny Mays, is that, uh, you've got such a nice dividend coming in that if you don't need it right now and just keep reinvesting that dividend, that type of a loss, you can fairly quickly, make. up. But even in the Ginny Mae market, the rate at which that's been descending lately just gives me pause because I feel like we're just on the front end of this interest rate change.

One thing that I will say, and I'm going to add a lot of caution and a lot of caveats, lots of asterisks and disclaimers here, but one thing that could be worth investigating for a small portion of your portfolio are... stable coin investments. So there are cryptocurrency trading platforms, including Voyager, which is the one that I've looked into the most, that have a stable coin, which unlike a cryptocurrency, is a volatility-free stable valuation coin. So a crypto such as Bitcoin, Ethereum, any of the various cryptocurrencies, they're highly volatile. Stable coins, by contrast, are designed to be volatility-free.

And there are three different forms. There are Fiat collateralized stable coins, which means that they maintain a Fiat currency reserve, such as the U.S. dollar. And so, for example, U.S.D.C. has a one-to-one ratio. So for every one U.S.D.C., there is one U.S. dollar. And so that one-to-one ratio of fiat currency creates that collateralization that gives USDC a lack of volatility in terms of its stable coin valuation.

Those Fiat collateralized stable coins are one of three different categories of stable coins. There are also crypto-collateralized stable coins, which I would not recommend going into at all, because by the very nature of the thing that's collateralizing them is volatile in and of itself. And there are also non-collateralized stable coins. And again, I would not recommend those at all for, I think, for reasons that are abundantly apparent just in the name alone. Yeah, but if he times those ones right, Paula, he'll make a killing. That was a joke. I was just being funny.

So of those three different forms of stable coin, the only one that I would recommend looking further into would be the Fiat collateralized form. And again, I will not go so far, at least as of right now, as of March 2021, based on my limited knowledge of the crypto market and the stable coin market. I am not yet ready to go far enough as recommending them, but I will give a nod to looking further into it and doing some due diligence because stablecoin, and again, I'll use USDC, on the Voyager platform as an example, is potentially a method or opportunity for receiving potentially strong returns in a low volatility asset. The reason that I use Voyager as an example, the reason that I keep referencing it is I'm

admittedly quite new to the world of learning about cryptocurrencies. and Voyager is the platform that I've been playing around on with a small portion of my own portfolio. So I've invested in the publicly traded stock of that particular platform, the actual trading platform itself. And I've purchased some Voyager token, which is the crypto that's associated and issued by that platform in and of itself. So that's my disclosure as to any affiliation that I have with them, which is just as a member of the public, investing a little bit of my own money there in my nascent efforts to learn about it. And I myself just made my very first stable coin purchase a couple of weeks ago.

So again, that world has its own underlying risks, but the fact that some stable coins, not all, are collateralized by fiat currency reserves, such as the U.S. dollar, inherently creates an environment of lower volatility as compared to other stable coins that are collateralized either by cryptocurrencies or not collateralized at all. The other aspect of this question is that I am approaching this answer with the assumption that Jake is not interested in any type of real estate investing. And I make that assumption because, you know, when all you have is a hammer, everything looks like a nail. I don't want to push anybody into real estate investing if they are not

interested in doing it. And certainly Jake can have a great retirement without it. So I am basing my answer entirely on the assumption that he doesn't want to invest in real estate and he doesn't want to put his money into other illiquid types of assets, such as investing in private companies. So based on those two assumptions, the three buckets of zero to five years, five to ten years, and ten to fifteen years, with various types of market-related publicly traded investments that fit into each of those buckets, that is the premise upon which I am making my answer. Thank you, Jake, for asking that question. We'll come back to the show in just a second, but first, our next question comes from Kim. Hey, Paul and Joe. My name is Kim. Thanks for being such a great resource. My company is automatically enrolling all of us employees into, I quote, a fully funded indemnity program combined with

the nationwide direct primary care membership, unquote, starting January 1st. This used to be an optional program. I've tried to research and understand how it works, and all I can assume is that it benefits my employer as they are trying to find ways to decrease losses during the pandemic as I work for a nonprofit nursing home rehab facility. Many of my coworkers and I find this very sketchy and concerning that no one is able to explain it to us and that we must fill out a form within 60 days after January 1st to unenroll. I don't agree that they should be able to enroll us without consent. I haven't been able to find much information about this program and its tax implications or potential effect on social security income since less is paid out to social security each paycheck if you have this plan. apparently there's more in the take-home pay, but without explanation of how this happens,

we are just provided a generic pay stub example. I understand that this is a type of primary health care plan, but this is in access to our regular employer-provided health plan. Can you please provide some insight? Thank you so much. Kim, thank you so much for asking that question. Joe is our resident workplace expert. Joe, you've had jobs.

That's more than I can say about myself. This area still, though, Paula, is difficult because, number one, healthcare is not my strong suit either. So when it comes to building a financial plan, a fair amount about health care, but I know much more when I'm given a range of options and asked to choose between them. And the frustrating part of this question, which I can clearly hear is frustrating for Kim, too. She does know enough about it. And sadly, that also means I don't know enough about it. Indemnity plans. The cool thing about indemnity plans is instead of having to go through this network, right, like a PPO or an HMO network, you can direct your own health care and go to almost any doctor or hospital that you want.

That part of the indemnity plan is pretty cool. I absolutely love that. I'm in control. I can do what I want. Now, here's the deal, though. The insurance company agrees. They're just going to pay a set point. portion then of that total charge. So you're going to be at risk for a larger percentage in a lot of

cases. So it's a tradeoff. And have we said this every single one? Paul, it's all tradeoffs. It is today is tradeoff day. And it is a tradeoff when you use an indemnity plan. A, I get any doctor I want. Don't got to go through the maze. I can direct my own insurance or direct my own health care. However, I'm going to probably pay a bigger portion. But they differ a fair amount. So I think there's two places Kim has to go. First thing is, if anybody knows how this works at all, it's HR people. And back when I was with American Express, I would go into companies and help explain how

company benefits worked at many Detroit area companies at the time. And there was a huge range, but there was one thing I was new, that human resource people were the people that were directly involved with not only choosing the plan, but also of making sure it's rolled out well, or in this case, it sounds like not that well, right? But if anybody knows, it's going to be somebody in HR. And hopefully, your HR people are much like the ones that I got to work with. And usually, Paula, they were frustrated because people didn't ask them enough questions. I remember going into many companies where companies had all these benefits and workers would never ask them what benefits they have.

And I mean, benefits much like joining a credit union have. In some cases, you could get Costco memberships for less money and nobody knew about it in the company. But the HR people did. So I would say that second, if you don't trust your HR people, if there's somebody in your area who is a health care expert that you can call. So if you look online for a company that reps, not one type of insurance, but lots of different types of insurance, almost like when you're shopping for insurance and you're looking at someplace like a select quote as an example where they have 50 different companies they work with. Same thing here, but with health insurance. If you can find somebody that does something like that and just have them explain to you the plan that you have and what that really means, I think.

that's who you're looking for. So I don't know the answer, but I know Kim, where to look. And I think that you need more information. I have no idea why that affects your social security. The other thing, Paula, you've got a lot of cool people listen to this program who are maybe health experts. Right. Yeah. And this might be an opportunity to have people in our community call in or help us out. That would be fantastic as well. Exactly. Exactly. So if you go to the afford Anything community, afford anything.com slash community. You know, this is fundamentally, it is an HR question and a benefits question. For us, Joe, you are a financial planner. Like, we are good at personal finance. And certainly, employee compensation is a related vertical. It's an adjacent

vertical to personal finance, but it is not personal finance directly. It is not investing directly. And so while this is an adjacent vertical, it is not directly within actual. field of specialization. But there are many people in the community, as you said, Joe, who are involved in those adjacent verticals and who do work in the fields of those adjacent verticals for a living. So I would absolutely recommend going to afford anything.com slash community because there's a lot of knowledge there. And Joe, to what you were saying about resources that are underutilized, your example is the Costco membership that some companies offer that, you know, HR knows about, but employees that the company don't, so they don't take

advantage of it. The greatest underutilized asset for afford anything is the power of our community. We have incredibly intelligent, very impressive people who are being completely underutilized because they have so much to offer. And many people in this community are happy to offer their knowledge. They're happy to help others. That's the power of the bonds that form among a group of like-minded individuals who share stories and share advice and share tips and talk to one another. So if you're not involved in the community yet... Get there. Exactly.

Our final question today comes from Deva. Hey, Paula. Thanks for your show. Three years ago, after a bad year with my husband's business and then we had a baby. and so I couldn't run my own business as well. I have a small tax advisory firm. I had to take some time off with the young babe. Anyways, we dug ourselves into some serious debt that we've been able to climb out of the last few years.

Thank goodness, largely because we bought our first home five years ago and we made sure to buy a personal residence with a rental unit on it. And we were renting out the small cabin on the property and living in the main home. When we got into all this debt, we decided to move in with family and rent both units. And then now, upon moving back, we're living in the small cabin, which we ourselves did some improvements to and renting out the main home. My issue is with some really, our tenants are just slobs. I mean, it's nasty. Like, it's bad up there. There's appliances strewn about the porch in the yard.

There's a broken down car. There's, um, we have greenhouse. up there that we used to garden in and it's just full of random things now. They're getting moldy and gross. They just use it as a storage unit essentially. They are great kind people. They've always paid their rent on time. They're low maintenance for us in terms of they don't ask for much. Last year when we renewed their lease, we mentioned like, you know, there's this clause in the lease that says the property needs to be basically in good shape. And we need some of these appliances removed, et cetera, because we're hoping to improve the landscaping and maybe paint the home. And they

were like, okay, great. Yeah, well, we've been meaning to work on that. And, you know, it just hasn't happened. And it's just their personality. And of course, we're not going to kick them out with COVID and everything. But, you know, you start to worry, like, what the inside of the house looks like as well. they have pets, they have kids. It's crazy up there. It really is. And we live on a small island. The property is private. It doesn't bother us visually. We can't see their space up there. But when we go up there to do any repairs or maintenance, we're just like, holy smokes. There's dog crap everywhere. It's just, it's nasty. So what do we do? What language do we provide them with either directly or when we renew their lease in a few months coming up in March. 2021, what type of clause or language do we put on the lease to ensure that the property is in better condition? Thanks so much. Deva, thanks for asking that question. First of all, you're being way too nice and this situation is not okay. Seeing random appliances strewn about in the yard, that is absolutely unacceptable. And that immediately, you don't, you shouldn't be

appliances plural, the moment there is one random appliance that is strewn about in the yard, that immediately should trigger a landlord walkthrough or a property manager walkthrough of the unit. It is normal, acceptable practice, and there is usually a clause in every lease that states that if there are objects in the yard that are not supposed to be there, if there is even something as simple as a camper that is parked on the premises, assuming that the lease explicitly prohibits that, if anything is apparent from the outside of the property that indicates that the property is not being well maintained, then the landlord and or property manager has the right to do a walkthrough of the property in order to inspect

the property condition. And of course, the lease is going to state how much advance notice you need to give them, some lease estate 24 hours or 48 hours. But the minute you see any indication that the property may not be well maintained, that immediately should trigger a landlord walkthrough. So the fact that this has been going on for months now, and the fact that you've said in your voicemail that you don't know what condition the interior of the property is in, you only see the exterior, that gives me massive, massive, massive concern. Animal fecal matter in the yard is not okay. Appliances in the yard, not okay. Absolutely none of this is acceptable. The minute there is one microwave, I've actually done this before, a tenant left a microwave in the driveway, and instantly, I contacted the property manager.

I said, please contact them right away and give them notice for a walkthrough. She, I think the lease said that we had to give them 24 hours notice. She contacted them that day, and then the next day she was out there doing a walkthrough. You and your tenants have entered into a legally binding contractual agreement with one another in that they agree. to pay rent and to keep the home, both interior and exterior, in clean, orderly, well-maintained condition, and in exchange, you agree to provide them with exclusive access to said home, as well as to provide timely repairs and maintenance of that home. You have upheld your end of the agreement.

You need to make sure that they are upholding their end of the agreement. You know that they are paying rent on time. That's great. You do not know if they are upholding their end of the agreement in which they promise to keep the home in well-maintained condition. And based on the way that they are maintaining the exterior, well, actually, we know that they are not keeping the home in good condition because of the way that they're maintaining the exterior. That, in and of itself, right away, is a violation of the portion of the lease where they agree to keep the home well-maintained. Now, a messy exterior may not be such a blatant violation that it would warrant termination of the contract, but a terrible interior, that certainly may do so.

What are you going to do if they've got animal fecal matter in the interior? What are you going to do if they've been punching holes in the drywall or if they've pulled doors off the hinges? A lease is a contractual agreement, and your job is to do the due diligence to make sure that they are upholding their end of the contractual agreement. I can already tell you they are not maintaining their end of it when it comes to the exterior. And so that means two things immediately that the moment that you see a violation of their lease term when it comes to the maintenance of the exterior, the first thing that you do is, number one, you do the due diligence to see how they're treating the interior.

Number two, you provide formal written notice that they are required to bring the exterior up to a clean and well-maintained state, as per the terms of the lease, in X amount of time. And if they do not do so, then they could be subject to fines, they could be subject to penalties, and they could be subject to termination of the lease. Now, whether or not you, of course, it's a pandemic and you may not want to terminate the lease, I certainly am sympathetic to not wanting to kick anybody out in the middle of a pandemic. But if you're a pushover and you're just going to not enforce the contract, that's only going to make things worse. At a minimum, you need to be providing them with formal written notice that states

that they are in violation of the agreement, which they are, and that they need to bring themselves into compliance with the agreement in X amount of time. You are both, you and the tenants, are both mutually responsible for upholding certain standards of maintenance and care of the property. You are responsible for your end of that. So if something brings, your job is to fix it in a timely prompt manner. If something needs routine maintenance like gutter cleaning or lawn mowing or changing out the filters on the HVAC unit, your job is to do that in a periodic manner. And you are upholding, to the best of my knowledge, you are upholding your end of that agreement. You are making sure that the batteries on the smoke detector are being

changed out. You are making sure that the filter on the HVAC is being cleaned. You are making sure that all of the routine maintenance on a property is being handled. You are upholding your duty of care and maintenance to the property. They need to do the same. And if they are not, they need written warning from you that they have to. That's the agreement that you're in. Those are the terms of the contract. Now, again, I'm not going to go so far as to tell you to terminate the contract.

Like, I'm very, very sympathetic to not wanting to kick anybody out in the middle of a pandemic. but that does not give them carte blanche to do whatever and to treat your property with abject disregard, which is at a minimum how they're treating the exterior. So this is a serious issue it needs to be dealt with immediately. I would also, final thing I'll say about this is I would think very carefully about whether or not you want to renew that lease. You said the lease comes up for renewal in March of 2021, which is this month. We have a about three to four month lead time in between when people submit questions and when we are able to answer those questions on the show. We have a backlog of questions that have piled up.

So I don't know when this month that lease is coming up for renewal. But I hope that it is in the future rather than in the past. And if it is in the future, if this message is catching you on time, I strongly hope that you will think about the care requirements that you require from your tenants. Think of it this way. In any other business agreement, if there are two parties that have a short-term contract with one another and one party consistently violates the terms of that contract, then in any business situation, the second party would choose to not renew that contract. If there's a contract between a freelance writer and a magazine and one of those two parties consistently, violates the terms of that contract. Either the freelance writer doesn't turn in their work on time or the magazine doesn't provide clear guidelines and keep sending the article back for a million

rewrites. If either party is unhappy with the way that the other party is handling the terms of the agreement, then when that contract comes to an end, either party can say, you know what, this arrangement is not working for me. I did not want to terminate the contract while we were in it, but I am, now that it's come to its natural end, I am choosing to not renew. This is not the type of situation that I want to continually be in. Similarly, the relationship between a landlord and a tenant is one of mutual contractual obligation, where each party has a responsibility to the other. And if one party upholds their responsibility and the other party does not, then that is an asymmetric relationship.

I will reiterate, I am very sympathetic to not wanting to evict anybody at this time or ever, but particularly at this time, I'm very sympathetic to that. But at a minimum, I would not go into a brand new agreement with someone who has consistently proven themselves or consistently demonstrated behavior that indicates that they will not uphold the terms of the new agreement that you are about to enter. That's another way of saying, I would strongly hesitate to renew the terms of the lease unless as a condition of that, I mean, if I wanted to be very generous, then as a condition of that renewal, the exterior must be cleaned up and well-maintained, the interior must be spotless.

If you do a thorough walkthrough of both the interior and exterior, and you are satisfied with the condition of the property, okay, then we can talk. But if they have not rectified what they've done and brought it up to the standard that they moved into, then there's absolutely no grounds for renewal. If it helps, think of yourself as the HOA. An HOA is not going to sit around silently if people are leaving trash out in the yard. Now, I understand that you don't literally have an HOA, but what that means is that you are the HOA. When you're looking around wondering who the HOA is, it's you. So those are some thoughts on the matter. Make sure that any written notice that you give them is in writing. Make sure that there's a copy of it. Send them certified mail if you need to so that you

have evidence of providing said written documentation and best of luck with this. All right, Joe, we did it. We did it. Tradeoff day on the Afford Anything podcast. Exactly. Joe, thank you for joining us. Where can people find you if they would like to hear more about your wacky ideas? I don't know about wacky ideas, but I do have the greatest money show on Earth.

We call it because it's a circus every Monday, Wednesday, Friday. Paula is a part of that circus on Fridays, and we have a good time, the Stacky Benjamin's podcast. Join us there. That is our show for today. If you would like to discuss this show with members of the Afford Anything community, head to afford anything.com slash community. We have a lively group there. This is held away from the common social media platforms.

It's not on Facebook, so you don't have the distraction of other social media noise pulling at you. It's just a dedicated community. where people can focus on whatever topic they want to discuss, whether it's early retirement or real estate investing. You can find all of that. You can find people to talk about these questions, share stories, ask questions, discuss episodes, all of that. So afford anything.com slash community.

If you want to learn the ins and outs of managing real estate investing, I have a course called Your First Rental Property, which will be open for enrollment, April 12 through 19, 2021. So next month, in April, for one week, we will be open for enrollment for our spring 2021 cohort. You can download our free ebook. It's available at afford anything.com slash mistakes. It's our free ebook on seven expensive mistakes that real estate investors commonly make. And if you download that ebook, you'll get all of the knowledge that's contained within that. And you'll also get updates related to this upcoming course. So again, afford anything.com slash mistakes to download the free e-book and to learn more about our upcoming

course enrollment. By the way, I am also, as of the time that I'm recording this, I'm under contract on a duplex in Indianapolis. So I just wanted to make that announcement. I had three inspections done and it looks like I'm going to be going forward with it. So I'll be closing on that property very soon. You can get updates on that property. Actually, if you join the VIP list, if you go to Afford Anything.com slash mistakes, download the free ebook, and I'll be mailing out, I'll be sending out by email updates about my latest duplex purchase. So you'll be able to get all of that information. Tons of information. Just download this free book. And hopefully I'll see you in the course. Thanks again for tuning in. My name is Paula Pant. This is the Afford Anything podcast.

Don't forget to head to Afford Anything.com slash mistakes to learn the ins and outs of the real estate investing world. And I will catch you in our next episode. See you there. Here is an important disclaimer. There's a distinction between financial media and financial advice. Financial media includes everything that you read on the internet, hear on a podcast, see on social media that relates to finance. All of this is financial media.

That includes the Afford Anything podcast, this podcast, as well as everything Afford Anything produces. And financial media is not a regulated industry. There are no licensure requirements. there are no mandatory credentials, there's no oversight board or review board. The financial media, including this show, is fundamentally part of the media. And the media is never a substitute for professional advice. That means any time you make a financial decision or a tax decision or a business decision,

anytime you make any type of decision, you should be consulting with licensed credential experts, including but not limited to attorneys, tax professionals, certified financial planners or certified financial advisors, always, always, always consult with them before you make any decision. Never use anything in the financial media, and that includes this show, and that includes everything that I say and do, never use the financial media as a substitute for actual professional advice. All right, there's your disclaimer. Have a great day. Hey, just wanted to let you know that we are doing on Friday's bonus interviews.

Those bonus interviews, you can find them on stereo. If you go to stereo.com slash Paula Pant, that's S-T-E-R-E-O, stereo.com slash Paula Pant. Download the app, and you'll be able to catch our Friday bonus interviews. In the past, we talked to Rich Carey, who owns 30 units, 30 rental property units in Montgomery, Mary Alabama, 20 of which he bought while he was stationed in South Korea with the military. We did an interview with some GameStop investors who purchased GameStop when it was $15 a share. It is currently, as of the time I'm recording, was trading it more than 200 a share. So we chatted with them.

And they're mostly index fund investors. So we talked to them about, you know, how they learned about it so early on and what that did for them and why they made those decisions and what others can learn from it. So those are the kind of interviews that we do. And again, if you head to stereo.com slash paula pant, you will be able to catch our bonus Friday interviews. So see you there.