Afford Anything - Ask Paula: Should I Raid My Retirement Savings to Pay for School?

Episode Date: February 10, 2020

#241: Anton wants to accelerate his flight training so he can get hired within two to three months, rather than two to three years. He has to raid his retirement savings to achieve this. Should he? Linda and her husband have their eyes on early retirement, but they aren’t sure what their post-retirement lifestyle will cost. How can they budget for unknown expenses that include travel? Joseph contributes 15 percent of his income to both a Roth 457b and Roth IRA. He wants to retire before age 59.5. Given his early retirement goal, should he focus solely on his Roth 457b? Henry wants to know how rebalancing and dollar cost averaging interact with each other. Should he rebalance his all-equities portfolio? If so, what approach should he take? Joe maxes out his 401k and IRA each year. He can make after-tax 401k contributions, or fund his Vanguard taxable brokerage account. Which should he prioritize? As usual, my friend and former financial advisor, Joe Saul-Sehy, joins me on the show to answer these five listener questions. Enjoy! For more information, visit the show notes at https://affordanything.com/episode241 Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. Every decision 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 attention, any limited resource that you have to manage. And that leads to two questions. Number one, what matters most? And number two, how do you align your day-to-day decisions to reflect that? Answering these two questions is a lifetime practice. That's what this podcast is here to explore.

My name is Paula Pan. I'm the host of the Afford Anything podcast. Every other episode, I answer questions that come from you, the community. And today, former financial planner Joe Sal C-high is with me to answer these questions. Hey, Joe. We are back for more fun. Oh, my goodness. And we've got some great questions today.

Especially, well, they're all fantastic, but I think we're going to kick this one off with high gear. Oh, my goodness. Our first question comes from Anton. And it's a really good one. Here, Paula Pan. Thanks so much for your willingness to share valuable. ideas with us in your podcast and blog. I'll start with my question. Should I raid my retirement savings of $43,000 total by pulling half of that out to fund and accelerate my flight training so I can get

hired in two to three months instead of two to three years? Now for a little background. I'm a former wilderness ranger once living a frugal seasonal lifestyle like your friend who is now a firefighter in Austin. Now I drive semi-trucks as a way to pay for flight school. I have $43,000 in retirement funds, mostly in a Roth IRA, which I can pull from without penalty or taxes. I have been ambling slowly through the flight hours over the past five years. I'm halfway to becoming a flight instructor, the first paying job I could have, which would pay $35,000 a year after tax, which is what I currently make as a trucker. The flying trajectory could lead to two times or three times that in the first five years of work, potentially 10 times in 10 to 20 years after that. Maybe. It's a volatile

path with plenty of ways to be cut short. A medical license is easily lost to a high blood pressure reading at a flight physical once a year. Or I could fail a check ride or the economy could throw a five-year wrench into captain upgrades. So what do you think? Is it worth rating my trusty retirement to get to that goal a little bit faster? Well, quite a bit faster. I know that 20 grand represents $150,000 in 30 years time at a 7% interest rate, so it's hard for me to touch. But I also know I can likely pay it back in two years, whether flying works out or not. And the flying career would be a significant lifestyle improvement for pay, time off, flexible schedule, and travel perks. It's a difficult career for sure, and I have doubts about the time away from home in some avenues of that career.

I also wonder about real estate or other entrepreneurial pursuits that could be done alongside or instead of a flying career. That's all I've got. Thank you so much, Anton. Anton. Anton, it's funny just to pull back the curtain a little bit, when we heard your question, Paul and I both went, ooh, it's a great financial planning question. So my first question will be, I would look at where are you at now and what does your retirement look like first? Because if you have enough money still in the retirement plan after you take out money for the flight lesson, then by all means do it. So if you can meet you. your retirement goal and take out all the cash, then yes. But the problem I have with most people

is they make this decision without seeing what the cost is. I love the fact that you've done half of it by looking at the fact that it's going to cost you a lot of money at 7%. I love the fact that you did that calculation. Right, $150,000 in your retirement. But I really want to see overall with the rest of it that you leave there, can you still make it work? Because I think that that's going to be the first answer to your question. So Joe, just to clarify, in other words, what you're saying is he should look at how old is he? How much money total in his portfolio does he want at the age at which he retires? And how on track is he for it? Yeah. And if he gets this, if he spends this money early, which there's no penalty to get, does it hurt that goal? And in a lot

of cases, I saw that it didn't hurt the goal, you know, back when I was a financial planner. And that was pretty exciting. If it hurts the goal, then there's degrees of magnitude. Joe, I've got a follow-up question for you. So unfortunately, most retirement planners and most like broad, overly generalized retirement, quote-unquote, rules of thumb, unfortunately, try to calculate how much money you'll need for retirement as a percentage of your current income. If he were to do that right now, he would be calculating that off of a $35,000 income, which is what he's currently making. But he might not want to retire at a lifestyle of what he's currently making, given that the whole premise of this question is about upward mobility. So what should he use when he's trying to figure out how much money

he wants or needs in retirement, what that ultimate number is? He can still do that as a percentage of what he makes now, but it might be closer to 150% or 200% of where he's at now. A better thing to do, and what I used to do with my clients was find online some of, you know, budget sheet to make sure that we don't miss any of those little areas that we always miss, like car repairs or kids' birthday parties, you know, holiday stuff, those things, travel. Some people miss some travel expenses. So making sure that you hit all of these non-recurring expenses as well. And use actual numbers in today's value.

And then very simply, just look at inflation, it may be 3%, and inflate those to the cost. to what it'll be when he gets there. And most retirement calculators, by the way, will do that for you already. Right. But how would he adjust for the fact that when he's in his 60s, let's say right now he does not yet own a home, but in retirement he hopes to be a homeowner. He may or may not still have a mortgage at the time of retirement. Lots of retirees do. And he certainly would have expenses that he doesn't have currently, such as home repair expenses, property taxes, expenses, hypothetically, he doesn't have kids right now, but when he's in retirement, he might want to give some money to his adult children or give some money to his grandchildren. There are so many lifestyle changes

that cause your budget to be different in your 60s than it is in your 30s. This is why we call it planning and not developing a plan, because planning is truly an ongoing process. And since he used a flight analogy, I'll use one back. When you set a course and you're in a plane, the pilot doesn't just set it and forget it. You've got all these external conditions. You've got wind. You might have other traffic. You've all of these things that change the course. And then what do you have to do? You have to course correct. So you set motion a plan and then you tweak it as you go. So no matter what we do, it's not going to be perfect. We just want to know directionally. Okay, I probably want to live on twice. In today's dollars, I want to live on twice what I'm living on now.

then use a simple 200% or 150% whatever that number is. The difference between using one of those budget sheets I talked about earlier where you line item it versus using 200% not that much more time. And you're probably going to have a number that's much closer. And some people you talk to, you know, if Anton's a spreadsheet nerd, look at how long he'll have a mortgage in retirement. If he's going to have a mortgage in retirement, I mean, you can get as nerdy as you want. And the nerdy here in this case, Paula, the better. but I still think that he will get a good idea, even with a percentage number of is this really going to cook my retirement or not, which is in this case, cook is bad.

We don't want to cook his retirement. Is it going to fry it? Is it going to burn it? Yeah. Fried sometimes is really good. Burn is probably, yeah. The second thing, though, I worry about. This is what I worry about if he takes the money.

If he takes the money away from retirement and he does. doesn't think he can afford it. His premise, it sounds like, and he didn't say this specifically, is that because he'll have more money, he'll be able to make up for lost time. But he also coupled that, Paula, with I can have some lifestyle improvement, which financial planners call lifestyle creep. As we make more money, we tend to spend more money. So I would bet that if he borrowed against his retirement, he wouldn't pay it back as quickly as he thinks he would in his head because he'd be able to enjoy a much nicer lifestyle today than he would otherwise. So I always get hung up when my client would tell me can. My head immediately goes to can does not equal will. Just because he can

make extra payments and catch back up doesn't mean that he will. In fact, I would bet that he won't that he will probably enjoy the fact that he's making more money and stay behind. I mean, might catch up, but that's far from a guarantee. It's true that for the general person, the likelihood that a general person might is low, but I believe in Anton. I do. I believe the type of person who self-selects as somebody who listens to personal finance podcasts and calls in with a question and clearly, as Anton has, does his homework

prior to asking that question so that he has real numbers? I mean, the type of behavior that he's exhibited so far leads me to believe that he's on his game, he's taking responsibility, and if he makes a commitment to himself to repay $20,000 back into his retirement in the form of more contributions than he otherwise would have made, like, I believe he's going to do it. And what I mean by this is let's say after he finishes flight school, after he gets a new higher paying career, you know, maybe year one, his career will still pay him 35,000 a year as it currently does. But as he said in his voicemail, maybe by year four or five, he'll be making significantly more. I have faith in him that if in that time he does a budget and says, you know, in order for me to be on track for retirement, this is how much money I need to contribute to retirement every year, I have faith that in addition to whatever he wants to contribute to retirement annually, he will also pay himself back,

like repay that 20 grand in the form of additional 401K contributions or IRA contributions. I agree with all that when it comes to intent. And especially somebody like Anton, to your point, that's done all the math, listens to the Ford anything podcast, clearly somebody who has financial education, financial improvement, financial independence, as top of mind. However, even if that's the case, Paula, things come up. And this is something that came up

and there will be another thing that comes up. And as things come up, the plan may change. In the spirit of that, something else may come up. My brother does not like to have his meat touch his potatoes or his vegetables. It's kind of weird. When he has a plate of food,

nothing can touch each other. know why. It all goes to the same place, but they can't touch. I have always wondered how people like that would fare if they grew up in a country like Nepal, where the standard way to eat food is to mix it all together. I've always wondered that. We ate with friends of ours from Bangladesh when our kids were at home and it was so fun. Not only was it mixed together, but they also taught Nick and out of my twins how to use their hands when they did it. And it was awesome. It was super. We had such a great time. But yeah, my brother would starve. But when it comes to financial goals, having separate pots of money for different things is often a great idea, which brings up in the spirit of...

Oh, that's where you're going with this. Yes. Which brings up that, well, it's bad for my brother, good for financial goals. And we can segregate this goal over here and say, here's the cost, here's the benefit. Here's how I'm going to pay for it. This is a great place where when we look at return on investment, which Anton has already done, we can calculate the cost of a loan to meet the goal. You're talking about a literal loan, like a student loan. I'm talking about literally taking out a loan to meet the goal.

He knows what the ROI is. He knows what his repayment term would be. He knows where that money's going to come from, different than a lot of the student loan problem in America where people take out student loans. They got no idea how they're going to repay it later. Anton knows exactly how he'd repayment. And it's separate from his retirement. Yeah, actually, that was, Anton, that was the first thought that popped into my head when I heard. your question. My first thought was, rather than take that money out of a Roth IRA, why not take it out as a

student loan? The general rule for student loans is that you never want to borrow more than your first year starting salary that you would make after graduation. The reason for that is that if you limit your borrowing to your first year starting salary, then your repayment can be 10% of that first year starting salary and you'd have the loan repaid within 10 years. Or if you choose to increase the amount that you repay over the span of that decade as you continue to get raises, you can repay it even faster, but at a minimum, you can repay 10% of your first year starting salary and have it done within 10 years. And it sounds as though, I mean, he's looking to borrow $20,000. He says that his first year salary is going to be about $35,000. So that relative to what he expects to make,

seems like a reasonable amount to borrow. I would probably hesitate to borrow more than 20,000, but 20, I think, could be quite reasonable. Now, I'm assuming this would come in the form of a standard student loan that would have a low interest rate somewhere in the 3 to 6% range. If you're, Anton, if you start seeing interest rates that are above 6%, then my answer's going to change. You don't want to get into the over 6% interest game, 6 and a half maybe at the top. Yeah, on that note, I also dislike playing the where is the market headed or where are interest rates headed game. Yeah. But we can play the, and I like playing the where have they been game versus today.

And we know, Paula, the interest rates are historically very, very, very low. So that also makes me think if he's going to do this to speed it up as well. Like his whole idea is, should I speed it up? The answer, if we look at historical interest rates would be, Yeah, yeah, absolutely. You think it's unusual that somebody calls a personal finance podcast and both of the hosts are like, take out a loan. Oh, take that, Dave Ramsey. No, but I do love the Dave Ramsey philosophy of live a debt-free life.

I'm a big fan of that, but everything comes with a trade-off. And when the question is take out a reasonable small student loan versus removing. money from a retirement account, that becomes a much more nuanced question. That's why I love Anton's question so much. You know, that's why, Joe, when you and I both heard this question, our face is immediately lit up. We're like, this is good. This is going to be a good discussion. There's so much planning going on there. So much planning he's already done, which also made our job easier. Right. So Anton, in conclusion, our recommendations are either take out a student loan, assuming that that loan comes at an interest rate of 6.5% or less, and assuming that that loan is

confined to about $20,000 or less. Or do take the money out of the principal contributions that you've made to a Roth IRA. And notice, for the sake of everybody listening, we are not recommending taking money out of a 401k, which would trigger a penalty. We're specifically talking about Anton's situation, which is take money out of the principal payments that you've made to a Roth IRA if, number one, you first see how on track you are for retirement and can remove that money while continuing to be on track for retirement. And also, if you repay that $20,000. In fact, I would even go one step further, repay yourself that $20,000 with interest once you're making more money. So thank you, Anton, for asking that question. And by the way, Anton, in the span of our answer to that question, we briefly touched on a conversation around how to accurately predict what your expenses in retirement will be and therefore how to accurately predict how much money you'll need for retirement. We touched on how complicated that can be and how broad rules of thumb are insufficient. So right now, we're going to take a quick break to hear a word from the sponsors who make this show possible, the sponsors who make this show possible, the sponsors who are.

allow us to distribute this for free? We're going to take a quick break to hear from them. And then up next, we're going to go over Linda's question because Linda's question is going to shed a lot of insight into how to estimate your expenses in retirement. So that's coming up next. We'll come back to this episode after this word from our sponsors. 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

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I'm a little on the older side for your podcast, but I really enjoy all the information. I wish I only knew half of this stuff when I was in my 20s and 30s. Let that be a lesson for all listeners out there start early. We're in pretty good shape, though. But my question today is I want to talk about something so fundamental to the retirement question, and yet I think very little time is devoted to it. I want to get your perspective and how you and Pasha B. Joe would walk through thinking about your post-retirement expenses. As you know, it's the entire basis for the question of when you can retire.

Maybe sometimes it's easy, but there are so many unknowns, and I find it very baffling. If you just plan to continue your exact same lifestyle, it would be easy. But for us, we will end up selling our home and traveling for a period of time. I can tell you we currently spend around $100,000 per year. The plan is to rent or downsize our large home and travel extensively for the first year. After that, we will probably purchase a smaller home or rent two small places. I anticipate we will continue to travel after that first year, but just less so. I'm just having trouble with figuring out how much that would cost us.

I know it's very highly dependent on where you travel and how you travel. We are small-time travel hackers, so we do have some points for travel and hotels, but those only go so far. I'm also interested in open to house sitting as well. But is there any general rules or how do you go about planning a budget for this type of thing? Is there an average day per number that would make sense to use? We are both 57 and plan on retiring at 60. We anticipate our spending to be greater in the first five to 10 years and then taper off. I've been doing a lot of reading, but sadly I do not have the crystal ball.

We know health care is going to be more expensive, as we will not have insurance until Medicare, but we know their housing expenses will go down, just not sure how much. I have read a lot about how to calculate this online when you're not working. They always talk about expenses that go down due to not working, such as dry cleaning, commuting, etc. But both my husband, I work from home so we don't have a lot of those typical expenses. I don't expect their expenses to go way down after retired other than regards. our home. So lastly, I've considered selling our home and not buying or renting something for that first year. That way we could use all of our entire 50 grand, which we currently spend on our

home annually on travel. That way, we could have only storage costs for our stuff. But I think it might be difficult, as there would be no place to stay when we are home. And my son, who will be in college, won't have any place to call home either. So my second option would be to rent something small during that year. We also happen to live in New Hampshire, which is a pretty high cost of living area. It's southern New Hampshire. We're very close to the Boston metro market. So again, thanks in advance for your thoughts and how to walk through this process. Linda, that is a fantastic question. So thank you for calling. Thank you for asking it. And thank you for raising that issue, because that is quite literally the million dollar question around retirement planning. How do you

figure out how much you need for retirement, given the fact that your expenses in the future will be different than your expenses today, and given the fact that retirement itself might encompass a 30-year, 40-year, 50-year time horizon in which over the span of those decades, your spending is going to change. Sometimes due to choice because you choose to travel more or less, and sometimes due to necessity because health care expenses and other home health care expenses either increase or decrease over the years. How do you make accurate predictions given the inherent volatility of life? Let's talk about each component of what you've discussed, starting with travel. Based on your question, I can tell that you and your spouse have traveled quite a bit already.

the amount that you spend currently when you travel is the best indicator adjusted for inflation of how much you will spend in the future when you travel during retirement. So look back at old credit card statements, old bank account statements, find out how much, over the span of a two-week period, how much do the two of you, on average, spend during a trip? That's going to be your best source of information. And yes, when you're in retirement, you'll have more time to develop out travel hacking techniques. You'll have more flexibility to pursue house sitting assignments or pet sitting assignments. But it's also true that perhaps you'll line up two different pet sitting gigs.

One is at the beginning of the month. The other is at the end of the month. And that puts a three-week gap between pet sitting gig A and pet sitting gig B, in which you have to figure out someplace to go, something to do. some other place to travel during those three weeks. And it's also true that if you do decide to go the house sitting or pet sitting route, maybe you'll have gig A in Southern California, gig B in Minnesota, and then that three week interval in between in which you need to figure out somewhere else to go. And so transit costs can add up during that time as well. So house sitting and pet sitting

is great. I have several friends who are full-time travelers who use house sitting or pet sitting as their primary form of residence and they absolutely love the lifestyle. But there are expenses that come up as a result of that lifestyle, including transit expenses, that you'll have to adjust for. And so give it a dry run right now. If you've never housed that or pet sat before, can you do that for two weeks right now and see what your spending is and use that as a barometer for approximating how much you're going to spend when you travel full-time. Cheryl and I are doing the same thing right now, Paula. We're talking about possibly spending a few months in Europe or Portugal a year,

Portugal specifically because it's great weather and the cost of living is low and because it was one of the last places in Europe to get high-speed Internet. It has very fast Internet over most of the country, which means I can podcast from there. Nice. Yeah, so I can keep doing my thing while we, you know, enjoy some nice weather instead of this balmy weather in Detroit. I know. You're just melting from the humidity in February, Detroit.

Not that I don't love it. However, we might do that. So what we were talking about doing is the same thing you're advocating, which is let's just do it for a couple weeks. Do it for a couple weeks. See what problems come up. You know something's going to come up. It also is great for playtesting the last. lifestyle, how much you like it. But it's funny, just digging into Linda's question and listening

to her, she's all, she already knows a lot of the numbers. In fact, as Linda was talking, I'm sure I'm not the only one that was seeing the spreadsheet in my head already of, well, I know this line item, this line item, this line item. And as we were talking with Anton, doing this in a line by line approach where you list all of the expenses. And Linda's close enough where Anton isn't, where she has a handle on, this is how expenses will probably be those first years. Here's what I would do, by the way, Linda. I would use the highest expense that you think you're going to have as your planning tool to see if you can do it that way. The reason is, if you can do it using maximum numbers that probably won't come true every year, you'll find some

discounts, you'll find some economies. Also, you'll find that when people really commit to a permanent retirement, the fear that you'll run out of money stops you from spending money as fast as you do in your plan. Like for most of my clients that were in retirement, they would usually meet the budget and not exceed it and usually come in under budget because of the fear of running out. So you know if the maximum expense that you're going to spend, let's say, in a month is five or $6,000, then you'll know the lower number. that you're probably going to spend when you look for discounts and you look for deals like you were talking about, that you can do it that way. I'll also say this, that over time you spend less. So

when you were talking about the fact that the first 10 years of retirement, that you probably anticipate spending more money, that's most people. Most people spend more of the first 10 years, settle into a lifestyle that is sustainable after that and usually lower. When I, I was doing financial planning, we wouldn't spend nearly the money in our projections when somebody was 80 or 90 that they were spending the first few years at 60, 65, 70, whatever the age might be, 35, whatever the goal might be, spending more money up front. Here's the cool thing, Paula. I'm going to go back to the spreadsheet. If she has those line items and she knows what they are, kind of like she was talking about in her call, as she gets that experience with each of these line items, it's going to be

very easy for her to tweak the plan because she's going to be tweaking the plan based on actual experience, not based on a bunch of assumptions. And she's close enough that I think she could do that. She can find some robust software online, and there's some great calculators out there. Then she doesn't have to worry about rules of thumb. She doesn't have to worry about percentages and what she's living on now. She can line out of the whole thing and do the little tweaks. And what's very frustrating for me is how few people do that and how not that hard it is. Like in my head, I know that I run away from any task that I think is going to be complex.

And I think I'm like most people there. And when I start talking or you start talking about retirement planning and line items at a spreadsheet, I immediately go, oh, no, no, no, no, no. can't do that. But I'll tell you, having done this particular spreadsheet over and over and over, it is so much easier to plan. It's so much better planning than using rules of thumb and things that happen to other people, that if you can do it, and I think Linda can, it's going to be a much, much more effective plan and a great use of time. Linda, one of the budget line item categories that I think will give you the best return for your time in terms of really digging deep in on a

spreadsheet into exactly what you think these numbers are going to be are your housing costs. So you mentioned that you may move out of the current home that you are currently living in and you talked about the idea of possibly renting two different places. What I'd like you to do is add up exactly how much money your current home is costing you, not just in terms of the mortgage, but in terms of repairs, maintenance, all of the other related expenses, figure out how much that's costing you, figure out how that will change in some alternate situation that you enter into in retirement. And then if you do decide to rent one or two different places, take a look at where you might want to rent, take a look at what that is going to cost,

and put that all on the same spreadsheet so that you can have those pluses and minuses of your housing costs and get an actual numerical picture of how that might change. Because the three biggest expenses that a person has are housing, transportation, and food. When you look at how much historically you've been spending on travel, that's going to cover the transportation and food component of your lifestyle, or at least it's going to cover a big chunk of that. So the other thing that I want you to do is dedicate a spreadsheet specifically to housing costs. The other thing that you said, you mentioned that you'd contemplated possibly not renting a place and not having a home of your own for one year so that you could accelerate your savings and not have any housing-related costs other than storage for your items. I think that's a fantastic plan.

One hesitation that you voiced is that your son, who is kind of, currently in college, would not have a place to call home. Now, I don't know if what you meant was that your son is currently living with you while he attends college and needs a place to live. Like, I don't know if that's what you meant, or if you meant that during breaks, Thanksgiving break, winter break, spring break, summer break, during those breaks from college, he might want a place to call home. If what you meant was the latter, talk to your son about it and see if he would be interested in traveling with you during Thanksgiving break or winter break or spring break. He might be totally open to not being attached to having a bedroom of his own that he can return to for breaks.

He might be really excited about the idea of joining you in a beautiful location on the coast of Oregon or in Florida or in some gorgeous destination. when he comes to visit for Thanksgiving. So have a conversation with him about it because it might be the case that he's just not concerned about having a place to call home. And he's down to go with the flow. The only piece that even if Linda line items, all this comes up with a great strategy around her son and all of these things, Paula, that is always going to be a nightmare. I don't know about always, but currently is a nightmare, is healthcare costs.

Yep. And having a plan about how you're going to handle any sort of catastrophic illness is difficult. And long-term care is not the issue. It was 15 years ago. The cost of long-term care insurance policies has become very expensive. The cost-benefit has become much less. But that doesn't mean that you shouldn't have a strategy. What companies do is they think carefully.

about all the things that could go wrong while they're working on a project and they create contingencies for those. I would, while she is young, I would come up with a plan ahead of time about how am I going to handle this. There's still going to be a lot of nebulousness there. I don't even know if that's a word, but it's going to be a little foggy. That's going to be the part of the plan that is very difficult to plan for and around. Yeah, I agree. Medical costs and medically inspired costs, such as in-home care, assistance with activities that you used to be able to do that you can no longer do, like vacuuming, gutter cleaning, lawn mowing, cooking. There comes a point where your body can't do that the way that it could when you were

in your 50s. Yeah. For that reason, oftentimes when people say that they anticipate their expenses will be higher at the beginning of retirement and then lower in their 80s and 90s. My caution against that assumption is that it might be the case that your discretionary expenses are lower in your 80s and 90s. Sure, you might not be jetting off to Tahiti, but you might need somebody to come and vacuum your carpets because you can't do it. And a lot of people, by the way, Paula, and this was a frustration I had when I was a planner, which is very, and I'm going to use the word flippantly would say, well, my family will help me with that. Well, imagine no matter what age you are now, just think about your parent saying that, and I'm not saying that you wouldn't,

but imagine your parent just assuming that, that with all the other responsibilities you have, all the things going on, that your parent just assumes, oh yeah, you're going to come over to my house every day and you're going to do all these tasks for me. And I know that you want to. and I know that for a lot of families, you will do that. But I always just thought any parent that just says, no, I'm going to saddle my kid with me, it's just really a little, I don't know, self-centered. Yeah. I don't know if that's the right, if that's the right word or if that's overdoing it. But it really kind of didn't seem like a great plan.

Yeah. Hope is not a plan. You know, ideally that's the outcome that you would want. but any business, any organization that is pursuing a major goal has multiple backup contingency plans. So sure, that might be your plan A, but also have a plan B and a plan C and a plan D. So thank you, Linda, for asking that question. And thank you for raising the issue of the complexity of predicting what your expenses will be in retirement. because retirement is a three-decade, four-decade, five-decade project, and expenses fluctuate

dramatically over the span of 30 to 50 years. So thank you for the question, Linda. Our next question comes from Joseph. Hi, Paula. My name is Joseph. I love your podcasts, especially the episode, Why We're Irrational of Money. Can't Stop Playing that one over and over. I was calling and hoping to get help with a decision I'm trying to make regard to Roth 457. Currently, we're putting 15% of our income into traditional retirement accounts. 5% of that is going into a Roth 457B where I'm getting a match up to that 5%. And then the additional 10% is going into Roth IRAs. I'm considering putting all 15% into Roth 440.

57B just because I'm going to retire before 59.5. And it seems that the 457b code will allow us to access that money, penalty-free, and the growth will be tax-free as well. As soon as I separate from this government agency than I'm working for, I just want to see, you know, am I missing something in this equation? Should I keep contributing to both my Roth IRAs and my 457B? or am I okay to just contribute and focus on that 457B considering that I intend to retire before age 59 and a half. Investment options in the 457B are fantastic. The cost of the funds and the performance of the funds are both great. It's been difficult to find information on 457B in the various online communities.

Thank you for your help in advance and love your practice. us. Hey Joseph, thanks for the question. Great name. By the way, I may be biased. Full disclosure. Joe, what's your middle name? Andrew. Joe Andrew. Joseph Andrews Sal C. High. See, the second you say Joseph Andrew, I cringe because my mom does that when she's angry. Joseph Andrew. Yes. I am very, so, Paula, whenever you're angry at me when we're debating funds to say Joseph Andrew and I'm I'm out of there. You want. So here's the thing. On one hand, I would look at your goal and see if the money, the money that you put into the Roth IRA is enough to sustain you until you get to 59.5.

Because of two reasons. Number one, in a Roth IRA, you have flexibility. even though right now your 457 funds are good, you're handcuffed to those. The agency you work for, whatever it is, municipality decides to go cheap with those and do something different.

You're stuck with whatever they have. And I've seen cases where companies went, what many people thought, me included, was the wrong way with that. And you're stuck in those funds. They'll map over to the new funds and you are just stuck. So I like the flexion.

flexibility of being able to have the Roth IRA because if let's say all the sudden your vanguard funds for goodness knows what reason gets all wonky and and they jack the fees up on you or do some weirdness, you can roll it to Fidelity or to T.Role Price or to Charles Schwab or to TD Ameritrade. You can do whatever you want with that Roth IRA money. So I love the fact that you've got some of each. the other thing is and I think Paul is going to love this and anybody that's listened to me for a long time

is going to love this a lot of the time a 457 plan will have what looks like really good funds inside of it but 457s are known for having a lot of hidden fees and while I have said over and over that fees are not the main dragon

and I usually when somebody talks about fees with me I know I roll my eyes but in this particular case, moving a bunch of money that's probably a pretty low fee stuff to stuff that looks like it's really good, you might not be seeing everything. This is where I would look inside the prospectus. And by the way, the way to know if your 457 has high fees, one instant alert to me is how they present the funds when they show you the fund choices. If they call the funds subaccounts anywhere in the description, that means your plan is actually what's called a variable annuity.

And the second that I hear variable annuity, I immediately think 98% chance that you have incredibly high fees inside of the product. The second I hear variable annuity, I immediately think. Well, Paul and I will disagree there. We'll save that disagreement for a different thing. Joseph Andrew. That's all you got to say now. I do think there are uses for a variable annuity, but I think it's often square peg round hole enough that Paula will have that reaction. So I do agree.

But that's another reason. I would really dig into the hidden fees inside of your 457 before you go there. It could be that I'm wrong and that these funds that sound wise, really are wonderful. But generally speaking, a government entity will go to the lowest bidder. A government entity will go to the lowest bidder when they're choosing their funds. It's expensive to manage retirement accounts. There are a lot of rules to managing them. I would definitely bet that they are passing on some fees to you that you don't know about. By the way, the notable exception, Paula, incredibly interesting. The thrift savings.

plan through the federal government is a phenomenally low-cost fund and well-run plan. So the federal government's plan for everybody who, whether you're in the military or working in federal government, it is amazing. But a lot of the municipal plans that make up 457s, the hospitals out there, man, a lot, lot, lot, lot, lot of hidden fees. How about that? You never thought I'd make the fee argument. Right. Exactly. You're the person who always tells the community, hey, don't get overly hung up on fees. So if even you think fees are a problem, it's a problem. It is a big problem. Right. So thank you, Joseph, for asking that question. We'll come back to this episode in just a minute. But first, get you and your crew to the big shows with Go Transit. Go connects to all the main

concert venues like TD Coliseum in Hamilton and Scotia Bank Arena in Toronto. And Go makes it affordable with special e-ticket fares. A one-day weekend pass offers unlimited travel across the network on any weekend day or holiday for just $10. And a weekday group pass offers the same weekday travel flexibility from $30 for two people and up to $60 for five. Buy yours at go transit.com slash tickets. Our next question comes from Henry. Hi, Paula. Henry here calling from New York City.

I'm 26, just started making $150K per year, and debt-free, have an emergency fund of $15K, and have about $30K in retirement savings at this time. I'm now maxing out my traditional and Roth 401k and my HSA. My 401k is 100% Vanguard index equities, 85% S&P 500, 5% small cap, 10% international. I don't have much of a rhyme or reason for this allocation, so your critique here is welcome.

My question is, how does rebalancing and dollar cost averaging interact with each other? Should I periodically rebalance my current allocation? Does rebalancing in all equities portfolio make a difference? should I make the allocations more even or even move to 10% bonds to make the rebalancing more effective? Or does the dollar cost averaging of continuous investing make the value of rebalancing effectively negligible? Super appreciate all you do for your listeners. I look forward to learning more from you. Henry, that's a great question. First of all, congratulations on being in such a great spot.

You're making 150K a year at the age of 26. That's very impressive. You're debt-free. You've got great savings. you are super on track. So congratulations for being in such an incredible position by the age of 26. That's fantastic. You're set up for great things ahead. You've asked a very insightful question because as you dollar cost average, and first let me pause here and explain conceptually, Henry, I know that you know what dollar cost averaging is, but for the sake of everybody who's listening, including, you know, there are many people who listen to this podcast who are new to personal finance. I'm going to briefly define what we're talking. talking about. Dollar cost averaging is the practice of every paycheck or every month periodically depositing the same amount of money into your investment accounts, such as a retirement account. So for example, let's say that every month you contribute $500 into an IRA. That is what's referred to as dollar cost averaging. And the reason that people do that is because that $500 during times when the market is high, will buy fewer shares. And that same $500 during times when the market is low, will buy more shares. So if you're buying, just to keep this example very simple,

if you're only buying one fund and that fund is VTSAX, it's the Vanguard Total Stock Market Index fund, at times when the market is high, the cost of that fund is going to be more expensive. so that same $500 will buy you fewer shares of it. When the market is low, vice versa. Where this becomes interesting is when you dollar cost average into a variety of different funds, there are a couple of approaches, Henry, that you could take with this. One is if your contributions are automated and if the purchase of those funds are automated, such that every month your $500 get split between Fund A, Fund B, Fund C, Fund D, if all of that happens automatically, then dollar cost averaging will happen inside of each fund automatically.

And then once a year, you can rebalance in order to get to your target allocations. But if your investing does not happen automatically, let's say that $500 maybe gets transferred into your account and held there in a money market account in the form of cash, and it's up to you to actively select the investment that that goes into. there are people who do a modified version of rebalancing by using their monthly contribution to purchase the most undervalued asset or the most undervalued fund among the selection of funds that they currently hold. So if in March three of the asset classes represented by the Broad Market Index funds that you hold are up, but one of them is down. a modified version of dollar cost averaging and asset allocation that some people practice is to direct all of their money from that month to the down fund. The benefit of that is that you hug your target allocation a little bit more closely throughout the span of the year. And this practice forces you to take a contrarian approach in which you've systematized a

practice of consistently buying the most undervalued fund among the funds that you've chosen to hold, you're consistently buying that undervalued fund every month. So those are the two benefits of that. The drawback, however, is that it's not automated. And we know from behavioral science that any time you unautomate a system, there's a stronger likelihood that that system will start to fall apart. A tool that I like that illustrates, by the way, how important rebalancing is, is something that, it goes by a lot of different names, Paula, but I've always referred to it as the periodic table of investment classes. Have you seen this? The periodic table of investing? I have not. Yeah, let me show you. I think you probably have where it shows all the different

asset classes year by year and how they do do against each other. And it looks like a periodic table. It really does. So behind the scenes right now, Joe is holding up his laptop in front of a Skype screen and showing this thing that does look a lot like a periodic table. Yeah. We will link to this in the show notes. Show notes are available at afford anything.com slash episode 241. What's funny is if you just look at large company stocks called large cap. When I first became a financial planner, by the way, this word cap got in the way of everything.

Just use the word company instead wherever you see cap and it gets rid of all the confusion for people that aren't finance majors. Right. Large cap just means large capitalization, which means big company. Yeah, big companies. You look at large cap. It was in the middle from 2005 of returns from 2005 through 2012. And then starting in 2013 through 2017, it was one of the top performing classes before, you know, going down to maybe the middle of all the different asset classes. And then it was top again last year.

If you look at real estate, though, much more all over the board and emerging markets. one of my favorite places to invest money all over the board, either number one or the worst. So think about that. If you rebalance out of emerging markets after the year you get 79%, then you avoid some of the negative 18 from the following year. And you look at the average return. If you keep rebalancing in emerging markets, just eyeballing it looks pretty darn good over time. So rebalancing is a big key to your success because asset classes perform differently against each other every year. So Joe, in terms of, you know, Henry's question was how does dollar cost averaging work hand in hand with rebalancing?

In terms of the two approaches that I outlined, I mean, he could at the simplest, most automated approach, he could make monthly contributions or periodic contributions that are automatically. divided in such a way that the percentage of each new contribution matches his target allocation. So if he's contributing $500 per month and he wants 20% of that to go to fund A, he wants 15% of that to go to fund B. He wants 30% of that to go to fund C and on and on. He can set that all up automatically. And in that regard, he can dollar cost average into every fund and not have any relationship between dollar cost averaging. and rebalancing. He's simply dollar-cost average every month and then rebalances annually, right? That's one approach. That's the most automated approach. That's quite honestly the approach I would suggest due to its automation. But there's also the alternate approach. And I think Henry might be alluding to this in his question of... Like an approach. The what? The fill-in approach. The fill-in approach, exactly. The fill-in approach of a modified version of rebalancing by virtue of where you direct that monthly contribution. I think if you look over time, if you can do it, the fill in approach will work marginally better. But the return on hope for investment versus what you're really going to do if you're the average person isn't nearly as high because of the fact that you will probably forget to stop filling it in. So I like what you said earlier about behavior. Let's just go with the easy one.

Right. So what you're saying, Joe, is that mathematically, assuming that you were to practice the first, fill in approach perfectly with perfect compliance. You're going to win. You're going to win. However, the chances of having perfect compliance behaviorally are quite low. You're not going to win. Let's just be honest. You're not going to win. So, Henry, I hope that that shed some more insight into the relationship between dollar cost averaging and rebalancing to your target allocations. If you're feeling ambitious, you can take the fill-in approach, but given the fact that you clearly have a great career going, you're 26 years old and

you're making $150,000 a year, spend your time and energy focused on your career and just set up the system to be automated. That way, you only have a manual task to complete once a year rather than once a month. I'd like to make one last comment about dollar cost averaging before we sign off from Henry's question, and that is if, and Henry, I know this wasn't your question, but this is for the sake of anyone who wants to more deeply understand the concept of dollar cost averaging. If you are in a situation in which you have a lump sum of money, let's say that you got a great year-end bonus or a big commission, and you have this nice lump sum, people often ask, is it better to dollar cost average that into the market over time, or is it better to

invest the entire lump sum all at once? statistically speaking, it is better to invest the entire lump sum all at once because on average, on any given day, the market goes up more often than it goes down. And so researchers have looked at historical data around both of those scenarios and they found that on average, you're likely to have better results by investing the entire lump sum in one big go. And one way to think about this is that if you do hold on to that lump sum of cash and dollar cost average it over time, your asset allocation is totally out of whack during the time in which you're metering out that lump sum because your cash allocation during that time is going to be far too heavy. So that's the reason why lump sum investing is better than dollar cost averaging in the event that you have a big lump sum. Now, the natural follow-up question to that is, well, if that's true, then why does everybody talk so much about dollar cost averaging? It's because when we discuss it, we're discussing making new contributions out of every paycheck. And you can't invest money that you don't have yet.

So dollar cost averaging is a great way to make plans for how to invest money that you have not yet earned because they come from future paychecks. That's why, Paula, when I was a financial planner, the most difficult to see, that my clients would face were always around getting a windfall, maybe not the most, but it was always a very difficult decision because while I would explain that roughly 70% of the time the market would go up, we didn't know where it was going to go next. And it usually represented a large piece of their net worth. And the right thing to do was to invest it all at one time. And when we did that, I had to trust that. that my client's financial acumen was high enough.

I wasn't worried about the market. The market's going to do what it's going to do. I was worried about emotionally where they would sit if it started at the 30%. Because generally speaking, most people, when they buy something, they watch it for the first couple of weeks. And if it goes down, they don't like it. And immediately they have negative thoughts about that investment for a long, long time, which is, once again, behavior, right?

So I didn't worry about the investment. I worried about my client when we made those big moves that were, frankly, the right thing to do. Right, exactly. And one way that some people compromise between the two approaches is if they have a lump sum, instead of investing the whole thing in one day, they might meter it out over the course of eight weeks, right? Because if you're holding a heavy cash allocation for two months for eight weeks, I mean, that's really not going to be a big deal in the big picture. So they might split that big lump sum into eight equal payments that they drop into the market once a week for eight weeks. And that takes the edge off a little bit in terms of the emotional impact of putting the whole thing in the market all at once without unduly compromising their long-term returns by virtue of keeping that money in cash or keeping that money out of the market for too long of a period of time. Sure. But it is interesting. I mean, just for a look at how bad that. strategy, even that strategy, which seems very like a very conservative approach to putting it all in

at once. Look at if you did that just in December 2019 and January 2020. The market had such a run-up, Paula, that even a conservative approach like the one you suggested of putting it in over eight weeks, have gotten smoked. And now you would have made money, but your potential return to just do the right thing and put it all in at once would have been so much. much higher. And that's not timing the market. I actually think that by mitigating it over eight different periods, you're trying to not time the market, but you're trying to get rid of some of the risk that's going to be there no matter what you do. It's more about not hurting your feelings by going over eight weeks than it is about the right thing. The right is to put it in now.

Correct. Yeah, the eight week approach is entirely an emotional approach and not in any way a mathematically sound one. Which is why the question you and I see all the time online is, I got this some money, isn't the market high now? Shouldn't I put together some quote-unquote dry powder, right? So that when it goes down, I can magically know when it went down enough that I'm going to buy, I'm going to buy in. There was a little snark there at the end of that.

But you know what I'm talking about? The market, if we talk about the fact that the market does go up most of the time, the market should be hitting new highs most of the time. And the fact that it's hitting new highs shouldn't be a reason for you not to invest appropriately for your long-term goal. Right. People often have a fear of heights. Yes, they do. They do. And that's another reason why asset allocation matters so much. Because if you are 57 years old and you've properly asset allocated so that an appropriate percentage of your portfolio is held in bonds and cash equivalence, then then you're, you're, you're, you.

you're holding the right portfolio for your age and your timeline. Whereas if you're like Henry and you're 26 years old, and by the way, Henry, you asked about the asset allocation that you had. Sounds great. I have no objections to what you described. But that's exactly why asset allocation matters so much is that the market is constantly hitting new highs. And it's imperative to not have that fear of heights. And the way that you can offset that is by making sure that your investments are allocated in a way. that is age and timeline appropriate. Henry, one other thing. Within your question, you asked if rebalancing matters if you have an all-equities portfolio. Yes, because inside of an all-equities portfolio, you will have different asset classes. You might have a large-cap index fund, a small-cap index fund, a developed markets fund, and emerging markets fund. You might have a handful of sector-specific plays in transportation or health care or utilities.

Maybe you have an allocation towards reeds. So inside of this all-equities portfolio, you still have different asset classes that do not move in perfect correlation with one another. Some of them will be overvalued at times when others are undervalued. And rebalancing inherently is a contrarian play, one that forces you to realize your gains while buying the underperformers, while buying asset classes that you hope are undervalued. So anytime that you have a variety of asset classes that do not move in perfect correlation with one another, you have the asset classes. the opportunity to rebalance. Now, it is certainly true that equities and bonds move an inverse correlation when one goes up, the other goes down, so there's obvious contrarian advantage there. Whereas, say, a large-cap domestic fund and a small-cap domestic fund, their movements will

be more closely aligned with one another. But they won't be perfectly aligned, and particularly as you diversify out into international funds or sector plays, or all the fund that you can have inside of an equity's portfolio, then rebalancing will be that contrarian practice that systematizes harvesting the gains and buying the undervalued performers. So thank you, Henry, for asking that question. Our last question today comes from Joe. Hi, Paula. First of all, I want to thank you for putting out all the great content you put out each week. I'm an avid listener of the show, and it's been really helpful to listen. My question is about after-tax 401K contributions. I'm 42. My wife's 39. We both fully max out our 401k and IRA contributions each year. We're

completely debt-free, including our mortgage and have a nine-month emergency fund stored away. So my question is sort of what's next? My employer does allow after-tax 401K contributions. Should I do that? Or am I better off just continuing to invest in my taxable Vanguard index funds accounts? I appreciate your perspective and I appreciate your help. Joe, that's a great question. Before we answer your question, I first, for the sake of the entire community that's listening, want to make an important distinction that after tax contributions to a retirement account are not the same thing or not synonymous as Roth contributions to a retirement account. And I know I can tell from the way that you've asked your question that you understand this, Joe, but I'm stating this for the sake of the entire community that's listening. all Roth contributions are after-tax, but not all after-tax contributions are Roth. And other Joe, on the other side of the microphone with me, Joseph Andrew. Oh, whoa. What?

You can explain some of the hang-ups and the challenges associated with after-tax retirement contributions that are not Roth. In a theoretical world, Paula, after-tax contributions would be a fantastic. idea because all it means is that you're not getting a tax break today. The money sits there much like it would in a perfect world the way an annuity would work. Ooh, nice fun. It would sit in this tax shelter. The gains would never be taxed until you went to take it out and then they would tax the gain. So only the gain would get taxed. What really happens is what we call a dumpster fire. That's the technical term that we use. And the reason for that generally is around companies' capability and the way companies code rollovers.

If at some point you take that money out of the after-tax portion of your 401k and you roll it over to an IRA and it gets commingled with money that was pre-tax, which I can't tell you the number of times that when I was a financial advisor and every financial advisor driving down the road listening to this is nodding their head, you create just a tax mess. and you have to track what percentage of that money was after tax versus a percentage that was pre-tax. The companies that manage that money for you don't have a great way to do it. So you get to try to do it yourself, which is a ton of fun.

And if it moves from place A to place B to place C, it gets even messier. So generally, what we've always told people to do is don't engage. Unless, in less, every year, if you have, and now I'm going to, to get really in the weed. So most people stop right there, hit fast forward for the next 45 seconds and don't listen to what I'm about to say. But for the Uber nerds out there, if you have the ability to do an in-service withdrawal, which means while used to work at the company, you can take that money out every year you could make huge after-tax contributions. And then every year, take every single penny of that money. Don't leave any money there. Take every single penny of it, turn it into a conversion

Roth. And then we have a backdoor Roth IRA and a very effective tax strategy. Okay, for all those of you that just fast forwarded, you didn't need to know anything that I just said. Because seriously, it applies to four people. But for most people, just don't do it. Don't, please, please don't contribute to an after-tax 401K. So what should Joe do then, right? He and his wife both max out their 401K and IRA. They're debt-free. They have a nine-month emergency fund.

And now they've got even more money to invest. Should they, and Joe, I'm pretty sure I know exactly what your answer is going to be. Should they, with this additional money that they have to invest, invest it as an after-tax contribution to their 401k? Or should they go with the taxable brokerage account route? Go with a taxable brokerage account. Yep. And let me tell you why. Especially in the fire movement, I hear way too many people talk about optimization, right?

Optimized. And I feel like there are some practitioners and people that really want to pursue early financial independence that are trying to optimize every nickel. And what's frustrating is when I, in my previous role as a financial advisor, meet you later, I have to try to extricate you from all of these tax shelters that you're in so you can get the early flexibility that you desire. Much like you said earlier, Paula, flexibility is, I think, underrated. And I also think that we overestimate the amount of tax that we're going to pay on most of these index funds. If you actually look at the amount of tax that you're going to pay on your average index fund, it is ridiculously low.

ridiculously low. You're not going to pay hardly any tax on an index fund in a given year. There will be a little friction, but not something that if I'm Joe, I really worry about. And I am Joe, and I don't worry about it. I agree. Taxable brokerage accounts, I think, are underrated. They give you the ability to invest in the market and watch your money grow and enjoy compound growth while simultaneously preserving maximum flexibility. Any time that you, you know, you know, you're going to you need to access that money for any reason, whether it's that you had some unexpected emergency or you simply reached your goals early and now you can enjoy the fruits of your labor, or any reason whatsoever, you can tap that taxable brokerage account anytime you want to

without restriction. I love it. But he invested passively low tax consequence if I want to use that money to buy snow cones for the neighborhood. I can do it. I don't have to answer to anybody. Right. Exactly. The other great thing about a taxable brokerage account is if you have goals around making charitable contributions, money that is in a taxable brokerage account, you can quite easily transfer into a donor advised fund. So that was what I did. At the end of 2019, I set up a donor Advise Fund, and I funded it with money that had been in a taxable brokerage account that I held. And that was a tax advantageous move because the deduction that I could take on my contributions to a donor advised fund was the fair market value of the investments that were held in my taxable

brokerage account. So I got the tax deduction on the entire fair market value of the asset, rather than on my cost basis. And so what that means, ultimately, is more money for the charity, right? Because the money that's inside of a donor-advised fund, that's no longer mine. That belongs to the 501C3 nonprofit organization that I decide to then that my donor-advised fund will then release those funds to. And what that means is by virtue of transferring money from a taxable brokerage account into a donor-advised fund and getting freedom from,

of the capital gain that would have been associated with that tax had I realized to those gains directly, that additional money, that capital gain that no longer is taxed, is money that the charity receives. That's money that the nonprofit that I want to support receives. And so that's, I think, another beautiful way to handle a taxable brokerage account. That can be the money, or a portion of it can be, the money that you earmark for your charitable contributions. It's fantastic. Again, easy. And if your money is grown very quickly, you're going to want to do that anyway.

And the tax friction on that is absolutely zero. Right. We would like to close out with this comment from Kyle in Connecticut. And Kyle in Connecticut has a message for a previous caller. This is a woman who called in in episode two. 233, this particular woman said that she and her husband have a strange situation. About a decade ago, her husband who at the time worked at a private company, was partially paid in incentive stock options. The couple paid $30,000 for those stock options. Five years later, they sold 20% of it for about

$100,000. So they're happy because they're $30,000 investment. They realized 20% of it, made $100,000 from that. but they're still holding on to the other 80% of that. It's currently worth about $900,000, but the company is still private, and they can only harness it when the company makes them an offer. They called in with that question, and we answered that question in episode 233. And right now, Kyle in Connecticut has a great comment that we'd like to share with more ideas about what this couple can do. So here's Kyle. Hey, Paula and Joe, happy new year. Just got done listening to Episode 233, another great one.

I did have something to add for Lucky in Los Angeles's situation. I come from the land of Silicon Valley and Golden Handcuffs, so I definitely have friends in similar situations who have a lot of private stock that they feel they can't do anything with. There are some fintech startups out there now who will buy private stock from employees of unicorns and other similar businesses. So that's something else lucky could consider.

Now I'm sure it comes, you know, at a discounted price, and you may not be making back as much as you would like, but that is the trade-off for liquidity. So something else for Lucky in L.A. to consider if they'd rather not have those funds tied up and get a slightly smaller payday, but a more predictable one, there are those options out there. I haven't used them myself, so I can't speak to their,

reputable nature or anything like that, but there is some Googling, and I'm sure once you do, you'll be hit with a lot of Instagram ads for that. So do your due diligence and good luck, lucky. And thank you again, Paula and Joe. Kyle, thank you for that comment. That's a great suggestion. And I like all of the disclaimers that you added. Absolutely. Because they will take a healthy chunk of the money, Paula. But if you have cash flow issues and you're in a closely held company, like Lucky in Los Angeles had said, there are very few avenues. This is a lot like the modern version of life insurance viaticals or these companies that purchase your life insurance proceeds from you for money today, very much the Silicon Valley equivalent with closely held stock.

they will have you sign an agreement with them that gives them the ability to receive the proceeds from your stock when you're able to sell it in return for cash a day. And because of the fact, to Kyle's point, because of the fact that you don't know when it closely held company is going to go public or if you'll ever have any opportunity again, that's why they take a very, very healthy chunk out of that for themselves as profit it because of the risk of that transaction. So essentially, if you need liquidity, it's an option, but the drawback is the giant fees. Yes, not a wonderful one, but man, between a rock and a hard spot.

I agree with Kyle. It's a Google search. It's a Google search? Oh, you mean to find the companies who will buy it? Yes. Nice. Speaking of Google searching, Joe, people probably don't want to Google search to figure out how to find more of you. So why don't we just tell them how to do it? Where can people find more of you?

We have this exciting show called Money with Friends that my friend, Bobby Rebell, and I do six days a week. All we do, Paula, we have eight people from diverse points of view who are thought leaders in our community. And we meet with them to talk about headlines, some of the headlines that you see every day, like the Federal Reserve met and interest rates went up, or the coronavirus is spreading and people are worried about their stocks now because of that. What does this really mean to you? And we tackle all those headlines and talk about your wallet, six days a week, about 15 minutes. So a very short show. It's called Money with Friends. And that's available anywhere. Finer podcasts can be downloaded. Only the places where finer podcasts

are downloaded, which I think means everywhere. Yes. Your favorite podcast playing app. That's right. Awesome. Well, thank you so much, Joe, for joining us. Well, thanks to you, Paula. Thanks to everybody who asked us questions. Special thanks to Joe and Joseph, a couple of cool dudes who have great names. Asking questions. All the Joe's hanging out together today. Thank you for tuning in. If you would like to discuss today's episode with other people in the community, we have a super active community that you can find at afford anything.com slash community. that's afford anything.com slash community. We have a really active group there.

Here's an example specifically of the type of conversation and the type of sharing that happens in that group. So recently, a few weeks ago, we had somebody write in to say, hey, there were quite a few of you who said that you use your own spreadsheets to track your net worth. Does anybody want to share their spreadsheets with the group so that people who don't yet have spreadsheets, non-spreadsheet inclined members, can benefit from having it. So somebody posted that in January, and there was this great, great thread with a whole bunch of people who were sharing their net worth tracking spreadsheets. So that's the type of support, the type of benefit, the type of community that comes inside of afford anything.com slash community. So you can join it for free. Just go there to sign up. And you can join tribes that are based on your own specific interests. So if you want to join a tribe on

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specifically for people who live in Germany. So we have a lot of tribes within the community where people can connect with each other based on either geographic location or shared interests or shared life circumstances. Check it out. Chat with other people in the community. That's all at afford anything.com slash community is where you go to sign up. Affordanthing. If you are interested in learning more about real estate investing, specifically, we have a free email series that's available if you sign up at afford anything.com slash VIP list. This email series covers everything from how to find properties when you're looking out of state, how to calculate the cap rate, how to get financing for rental properties, how to build a team of people like a property manager or real estate, agent contractors. So we have an email series that covers the answers to all of these questions, and you can get that at Affordanithing.com slash VIP list. We also have a course that we

release twice a year. We do a spring semester and a fall semester. It's a 10-week-long course. The whole cohort goes through it together as a group. And in the span of 10 weeks, you learn, you deep dive into everything you need to know about how to buy your first rental property. So if you sign up at Afford Anything.com slash VIP list, on that VIP list, that is when we will announce the enrollment dates for our spring semester of this year, spring 2020. So we'll announce that first on the VIP list. You can sign up Affordanithing.com slash VIP list. Thank you so much for tuning in. My name is Paula Pan. This is the Afford Anything podcast. If you enjoyed today's episode, please share it with a friend or a family member. And make sure that you've hit subscribe or follow in whatever app you're using to listen to this podcast so that you don't.

Don't miss any of our awesome upcoming shows. Thank you so much for tuning in, and I'll catch you next week. So my lawyer says I'm supposed to give you a disclaimer. So here we go. This is for entertainment purposes only. This is not intended to be advice. And please do not consider me to be an expert or a grown-up or in any way worthy of even really being considered an adult. I'm just some random person who has access to the internet. So anything I say is purely for the sake of entertainment, you can just think of this as the least funny comedy show that you've ever heard. This is the Afford Anything Unfunny Comedy Hour. Before you make any financial moves, please check with a real grown-up and a real expert. That means check with a financial planner,

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