Afford Anything - Ask Paula: What’s the Point of Financial Independence if I’m Not Going to Retire?

Episode Date: August 12, 2021

#332: Ginger’s financial independence (FI) number is $2 million, but she doesn’t want to fully retire early. Once she hits ‘coast’ FI, she wants to 1) buy her time back with outsourcing, 2) take a mini-retirement, and 3) buy a vacation home. Does it make sense for her to divert retirement contributions to these goals, or should she aim to save $2M? Wilson plans to have a two percent withdrawal rate in retirement. Given this low rate, should he go all-in on stocks? Or should he split up his retirement funds and invest one half conservatively and the other half aggressively? Jennifer has a low-stress doggie-daycare, but she needs a bigger space to scale up. How the heck can she find a property to suit her needs in Austin, TX? My friend and former financial planner Joe Saul-Sehy joins me to answer another round of listener questions. (If you have questions on business, money, trade-offs, financial independence strategies, travel, or investing, leave them here and we’ll answer them in a future episode.) For more information, visit the show notes at https://affordanything.com/episode332 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. That applies to any limited resource that you need to manage. And that opens up two questions. First, what matters most? Second, how do you align your decision-making around that which matters most? Answering those two questions is a lifetime practice, and that is what this podcast is here to explore and facilitate.

My name is Paula Pan. I am the host of the Afford Anything podcast. Every other episode, we answer questions that come from you. And former financial planner Joe Saul Seahy joins me to answer these questions. What's up, Joe? Not much, Paula. Just thought we might dive into some questions today. We have some fantastic ones. Say it ain't so. It is so. I say it is. So the very first question that we are going to answer relates to the distinction between FI and R.E.

And for the sake of new listeners, there's different letters. I know, right? For the sake of new listeners, if this is your first time tuning into this podcast or maybe your first time tuning into any money podcast, to very quickly define these letters so that you understand what the caller is asking about, FIRE, FIRE, is an acronym for financial independence, retire early. The FI part, financial independence, references having enough potential passive income, typically through investments, such that you could support yourself or at least support a bare-bones version of your life.

That is the traditional definition of FI. The RE part is one of many options that you might choose if you reach FI. So the RE stands for retire early. And many people, once they've built that sufficient safety net, choose to retire early. but FI is the enabler. It is the foundation, the financial foundation, and RE is one of many options that follow upon reaching FI. So with that context established, and I say that for the sake of new people, here is our first question, and it comes from Ginger. Hi, Paula. My question is, if you don't want the RE part of FI, shouldn't your goals adjust? Our FI number would be $2 million, but given I'd go crazy without the structure of a job long, term. I don't want to fully retire early, so I'm not sure that number is very helpful. Instead,

I'm thinking the main goals we have are using the power of compound interest to pre-fund our retirement and our child's college. We've saved 190k in retirement accounts and 100K in a taxable brokerage towards retirement. We've saved 15K towards our unborn child's college. As we're 33, by my estimates, we're only about 60k away from reading. Coast Fire in the next year or two, where we wouldn't need to save any more to fund traditional retirement. Once we reached this, I'm thinking we should reduce our savings and stocks about 50% of our income, and instead start, one, buying back our time by paying for a cleaning service, two, saving a year's worth of expenses separate from our six-month emergency fund for a one-year

mini retirement where we'd travel and homeschool our kids with experiential learning. And three, purchasing a vacation home with our workplaces implementing hybrid work from home policies, I'd like to purchase a vacation home or cabin that we'd subsidize by Airbnb for most of the year, but would work from home there for a month or so a year. And four, have more freedom to accept lower paying jobs if they're more rewarding or gave better hours and flexibility. All of these would be spending choices, not savings. we do this post-reaching coast FI, but very far from full FI. I'm just not sure I should see why I should target continuing to save for early FI

if I don't want early retirement. Am I missing something? Ginger, thank you so much for that question. I love this question because this is a question in which money is a tool that enables your life and so much of the conversation oftentimes can get granular that we forget that. We forget what this is all about. So, first, if you want FI without the RE, I think that's fantastic. I've got FI, but without the RE. I never planned to R.E. And given that life situation, the FI number, the number at which you feel secure enough to be able to take risks, that number is

highly subjective. I object to the boilerplate traditional interpretations of FI, which state that you need to, for example, have 25 times your annual spending. Those definitions exist because it's easy back of the napkin math, but your annual spending will fluctuate over the span of your life. If you were to graph your spending over your adult life, that graph, would change year over year, month over month. And so many people stake their FI number to where that data point existed at the time that they learned about the concept of fire. But in the graph of your life, that data point is one random point across the graph. That's the reason why it never made sense to me to define FI as 25X year annual expenses. And that's why I instead

like to define it in a far more amorphous way, in which FI is the point at which your potential passive income is enough. But that opens up the rather philosophical question, enough for what? And I think you allude to this when you talk about how you'll reach Coastfire in the next year or two. So for people who are listening who have never heard the phrase Coastfire, Coastfire is the concept that if you never contribute a penny to retirement accounts ever again, you'll totally be okay. And it sounds as though, by your estimates, in the next year or two, you're going to hit that.

And that frees you up from the obligation of having to work at a job that provides a certain income threshold just so you can sock more money away for retirement. It frees you up from the obligation of having to keep your budget under a certain dollar amount. so that you can put more money towards retirement, it gives you that freedom because you've got this huge line item in a person's financial planning budget that is, at the time you reach FI, check, taken care of. And that gives you an enormous level of flexibility.

So all of the options that you listed, hiring a cleaning service, taking a one-year mini retirement, buying a vacation home that you subsidize via Airbnb, or switching to a lower paying job, all of those options, and many, many more that I'm sure you didn't even have time to list or may not have even thought about yet. Those are all fantastic options once you have that greater degree of financial flexibility built into your budget. And that's what Coastify, and you can't see me, but I'm putting this in air quotes. That's what Coastify creates, but really it's not about the FI. It's just about the flexibility. FI is a super,

up way of talking about the concept of making sure you have a safety net and giving yourself financial flexibility. And as long as those are the principles that you are working towards, those are the principles that you are achieving, then it doesn't really matter how a Reddit thread might define one version of FI versus another. Yeah, sometimes I feel like, especially with people that have been in lots of discussions about the fire movement, that there's almost a negative side to that. I feel like we spend a lot of time talking about what this definition is and what this definition isn't. Like, what is it, what does it really mean? Which, if we back away from fire or coast fire, any of those words, we think about the reason, and this is what

I think Ginger really asked, why would I continue putting more money away? after that point. And the only reason is certainty. That's it. Because once she gets to the point that she has enough to do all these amazing things, and I'm with you, Paula, I think these things are so amazing, mostly because when you can visualize your goals, you're much, much more likely to achieve them than if you just, you know, when I was a financial planner, people would say, oh, I want to travel. Well, where do you want to travel? Because traveling halfway around the globe versus exploring northern Michigan are going to be two totally different budgets, two completely different budgets.

And I know people that traveled for a few years and just got tired of it, you know, and then things, the goals, the goals changed. So the only, the only reason to keep saving beyond that is that certainty, because what Ginger needs for her family would be then to be able to. almost glad bag this money up, set it off to the side, and never touch it until you get to the point that you now are going to stop working, right? That you're going to need to lean on it. That's the only downside is that for some reason she might have to go into that bag

earlier than the date that she thinks and has to take out some of that money. And we see things change all the time. You're saying the risk would be that she might have to raid those funds early. Yes, yes, that is the only risk. Now, would I take that risk and do the things that she's talking about? Absolutely, I would do that. Because I think that these life experiences is she's talking about for her, I mean, experiential learning for her kids. You can just hear in her voice all the taking a mini retirement, the vacation property where they can spend. I mean, these are granular, granular visualized goals. And I got excited hearing those goals. So I would definitely do. that. But I also want to know every plan has a downside. What's the downside of this one? It is that you might have to go grab that money earlier. Yeah. The other potential risk is that she may have miscalculated the amount that she needs in retirement. And so, Ginger, the way to offset that risk, and what I would recommend that you do regardless is if you are in a job that gives you a 401k match or a 403B

match, take the match. Even after you reach Coast FI, take the match. So so long as you're doing that and your spouse or partner is also doing that, you'll naturally be continuing to save money in traditional retirement accounts. Yeah. And that brings up, I guess, something else, which is that over my life, my goals have changed, my ideas have changed. I was listening to another podcast for entrepreneurs last week. And the guy was talking, he actually mentioned the Afford Anything podcast. Oh, excellent. During it, yep, it mentioned Afford Anything and Stacking Benjamins, which was really cool. It's called startups for the rest of us. But he was talking about how there are people, and we know people that have these very aggressive goals in their 20s, in their

early 20s and he said, I'm older now. When I was 23, I'd want to live in a tent my entire life because it was pretty cool to live in a tent. He kind of talked about how he's a little too boogie for that now, Paula. But your goals change and your feelings change. And over time, once you lock the lid on your savings, you've locked in a certain lifestyle that you are not going to be able to exceed. And by the way, once again, that's okay. Just knowing it ahead of time that you've put the lid on that lifestyle X-point is something I want to know ahead of time. Right. Exactly. So, Ginger, I would recommend continually reassessing on an annual basis if the amount that's in your retirement accounts still keeps you at Coast Phi based on the retirement projections, the age

of retirement, the expected lifestyle, based on the best of your ability to calculate. what you might need in retirement. And so long as you keep checking in with that number to make sure that your assumption that you've saved enough is accurate, so long as you're doing that, then once you've saved enough for traditional retirement, you've saved enough for traditional retirement. And you can move on to other goals. You can move on to other things. Fundamentally, all of these constructs, FI, R.E, Coast-Fi, Buristafi, Lean Phi, Fat, these are boxes, these are containers. They're present in order to give a name to a concept,

in order to give a name to an idea so that people can wrap their minds around a different way of thinking. But don't let the boxes hold you in. The definition of these different terms is not meant to be a prison cell. And so if you want to manage your money, according to the principles of building a safety net and according to the principles of creating financial flexibility in your life. If you want to manage according to fire principles, then don't worry about what box something fits into. The boxes don't matter.

These constructs are there to serve you, not the other way around. $15,000 in an account for your child that's not born yet is amazing. Yeah. Is absolutely fantastic. I have a very close friend that saved very aggressively early in his life. And I said, how do you do that? He said, you know what motivates me? And Ginger seems to be this type of person to me.

I just don't like saving. So I'm going to try to do all of it now so that later on I don't have to save anymore. And all I could think about was my friend the whole time Ginger's talking about why. When I have enough, why would I? And that was always my forensical. Speaking of some of the numbers that people use in the fire movement, did you see the new piece out about a month ago from Vanguard research? No. It talks about updating the 4% rule.

Yes, this is an ongoing conversation among retirement researchers. I know Dr. Wade Fow has also talked on this podcast about updating the 4% rule. Yeah, and they talk about especially for people because Ginger mentioned the fire movement for fire investors who may have a, you know, a 50 year retirement horizon of using their money. And I know this is not specific to Ginger. Ginger doesn't want to spend her money now from her portfolio. She wants to later. But if somebody's pursuing a very early retirement and then living on it for 50 years, over a 30 year retirement, according to this Vanguard piece,

which Paula, I'll give it to you so you can link to it. Your probability of success is 81.9%. Your probability, if you extend that to a 50-year retirement, is only 36%. So using the 4% rule, if your goal is the RE part of the fire movement, is a big mistake. is not something that you should use. And they have a few other things. They have five things

that you should do. And some of them are really interesting. One, Paula, you kind of referenced, which is have a dynamic spending plan where your spending plan changes every year, partly based on how your funds have done, right? I remember having a discussion with a mutual friend of ours, Paul Merriman, where Paul said that, you know, in years when things go really well for the market, they will do those overseas trips. And in years when the market doesn't do really well, they'll see the greater Seattle area. Right. Exactly. Which, which, which by the way, I've done Paul Merriman long enough to know, he's probably okay with the around the world trip at any time. But I think he makes a good point that the dynamic spending plan, depending on how things are

going, is a really important thing if you're going to try to live for 50 years on your money. The second piece, and we'll address this later again in the show with another question, is you may have to be a little more aggressive, actually, with your investment strategy. Because that 4% rule, my understanding is, is that it's based on more of a 50-50, stock bond split, right? Yes. And you can't be that conservative with a 50-year time frame. You just can't afford to be that conservative if you're going to try to make the 4% rule work. Those are a couple of the important points. Right.

which makes sense because if you do have that longer time horizon, then your timeline to withdrawal is longer for the end of those funds. Yeah. So the 4% rule for context was created through an analysis of, as Joe said, a 50-50 stock bond split in a retirement portfolio over the span of 30 years. So when this rule was developed, and by the way, for people who are listening who are wondering what the 4% rule is, because I realize we haven't defined it.

It is the notion that if a person retires, they can draw down 4% of their portfolio per year, adjusted for inflation, so 4% in year one and 4% adjusted for inflation every subsequent year, and they have a high probability of not outliving their money. So that's based in some very rigorous research that was done by a man by the name of William Bengin. but that research, again, was done looking only at a 30-year time horizon and assuming a 50-50 stock bond split. That doesn't mean it's not applicable to people who do want to retire early. It simply means, as Joe said, maybe in years when the market is down, you only withdraw 3%. Or maybe you supplement your retirement with a little bit of additional funds as well from some freelancing, from some consulting.

Well, and a big one is change your asset allocation. to not use that allocation. Right, exactly. So a combination of all of those are typically what people in the fire movement embrace in order to massage the 4% rule for a longer time horizon. What is interesting in this white paper as well is the discussion around you can't look at the last 10 years and also just allocate that way. You have to project into the future.

And by that, Vanguard certainly is not saying, and I'm going to yolo my way through Bitcoin, right, to early retirement. They're actually saying that having things like international funds in your asset allocation is super important, even though when you look at the last decade, international funds, for lack of a better term, got their butt kicked by the U.S. stock market. So especially dangerous for younger investors. younger investors will look at a 10-year time horizon and go, I'm hiding, there's no way I'm investing in international. And Vanguard cautions against that and says, you know, if we look at the world and the emerging middle class in many areas of the world, there is so much potential in the rest of the world that you can't ignore that in your portfolio for the future.

And it would be dangerous to do so. Right. Exactly. So we will link to this report from Vanguard in our show notes, and the show notes are available at Affordainthing.com slash episode 332. Or if you want the show notes sent to you directly, head to Afford Anything.com slash show notes. Subscribe to our show notes. You will get updates with timestamps of all the questions and synopsies of every episode.

That's Affordanithing.com slash show notes. So, Ginger, the answer to your question is, essentially, do whatever you want. Don't worry about having to mold yourself into the constraints of the traditional definitions of fire, coast, f, barista, phi, lean, phi. It's quite literally an answer of think outside the box. These concepts exist as platonic ideals, but they're not meant to corral you in. the concepts are simply discussion points or thought-provoking ideas that help you facilitate your own financial strategy. And at the end of the day, optimizing your finances with an eye towards

principles rather than optimizing for semi-nebulous conceptual definitions is the healthier and more holistic approach. So thank you, Ginger, for asking that question. Speaking of withdrawal rates, speaking of the 4% withdrawal rule, we have an upcoming question. We're going to take a quick break for a word from our sponsors. And when we come back, our next question comes from someone who wants to draw down his portfolio at a 2% withdrawal rate. 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.

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Free shipping, members-only sales, and more. Terms apply. Don't miss out on early Black Friday deals. Head to Wayfair.com now to shop Wayfair's Black Friday deals for up to 70% off. That's W-A-Y-F-A-I-R-com. Sale ends December 7th. Our next question comes from Wilson. Hey, Paula. Really enjoy your podcast, especially these Ask Paula episodes where you and Joe really have great debates and discussions, in general, banter back and forth. I think it's really, really helpful for the audience, especially for listeners like myself.

My question today is really around the decumulation phase, where I know there's a lot of information out there. and discussion around how to accumulate wealth, but when you finally pull the trigger and retire, how to actually withdraw money still confuses me a bit. I think that you and Joe often talk about landing the plane or a glide path and that people are often too quick to get conservative with their money as if they're going to spend all the money at once when they retire. So my situation is that I'll probably be retiring, hopefully, with about a 2% withdrawal rate that I'll need for my expenses. So I know that's a very favorable position, and maybe I'm just overthinking this, and maybe the sequence of returning risk for 2% is just not high enough to worry about.

But is the idea that I can pretty much invest in 100% stocks at that point and continue that because of the social withdrawal rate that even if the market takes a drop, perhaps I'll only still be drawing, let's say, 3% or at worst, 4% in a given year. The other thought I had was maybe splitting the difference. If I take half of my money, So with that, I'll only be withdrawing 4% of half of my money and kind of traditional 6040 portfolio and you're kind of living off of that. And then taking the other half, assuming that that will just go to my errors and continue to invest aggressively with that second half. So I just wanted to see the thoughts that you and Joe had on the strategies. Thank you.

Wilson, thank you for the kind words. And when Paula and I, little on fact, when we get on here, we say, let's have some. general banter back and forth. We actually use that term. Let us have some general banter. I love your question about decumulation because to Wilson's point, Paula, he's 100% right. Everybody talks about how you're going to put the stuff in and nobody talks about how you're going to take it out, right? Or some people do, but there's so much less discussion around taking it out.

And I think it goes back to Stephen Covey's stick analysis. that when you pick up one end of the stick, you pick up the other end. So when you pick up the stick, you want to know both sides, just generally have an idea. So even people that are way far away, don't fast forward. This is for you. The earlier you know the different decumulation strategies, the better off you're going to be to make your decision. And I think there's three that I really like. Well, there's actually a fourth one.

Why don't I start with the one that I don't like? Okay. And this is the one that people do, especially people. that are aggressive Wilson and they have a lot of money in stocks and you talked about well hey if I have an all stock portfolio let's say and I'm only doing a 2% withdrawal rate versus a 4 percent well then I probably don't have to worry about it I would tend to agree with that statement by the way but what I don't want to do is guess where the market is and when the right times are to take money out so what some people try to do is they try to look at the market and go wow the

market's pretty high right now, so I'm going to take a bunch of money out today, and I'm going to sit that money in cash. And then I'm going to wait until the market's high again next time, and then I'll pull more money out, just to make sure that I have enough for a reasonable emergency fund and enough money to live for X number of months. The reason I don't like that strategy is you're always going to second guess yourself. You're doing the exact thing. in reverse that we tell people not to do when they put money in, which is don't pick a day because you're going to be wrong. And so you're going to Monday morning quarterback yourself, you're going to say, oh, I shouldn't have taken out today most of the time. Or you're not going to

live your life. You're going to go, you know, the market just doesn't seem that good now. So I'm going to leave it in. And no, don't play that game. Essentially, you'd get caught up in market timing. Absolutely. Yeah. So don't play that game on the sell side either. I would do. the same thing you did when you put it in, which is dollar cost average the money out. I might pick like you do with rebalancing just a couple times a year and take it in much bigger chunks. I wouldn't do a monthly withdrawal system. Maybe quarterly? Yeah, yeah. Something that is less often and take a little more. What that does, this strategy, if your money's not in an IRA, that's what we call taking a capital gain strategy. And generally, it is a,

a lower tax hit than other strategies. Now, if the money's in an IRA, it's gonna count as income either way. So it doesn't matter which of these you use if your money's coming out of IRA funds. But that's number one. Number two is to then always just keep a really large cash cushion in place

and use like a once a year approach. Instead of quarterly or twice a year, go to once a year. Now, the upside there is that now, you are being much more conservative with your money because you have so much cash sitting there. If for some reason you want to take money before the year is is up, let's say that not market timing, but you see that the market's way ahead of where you needed to be before your next withdrawal, you can go ahead and take the next one early then.

So you can be a little more conservative. Obviously, the bad news is you're going to have a lot of money sitting around in cash. And there is the propensity to do what I just said. Play this little sideline market timing game when it suits. you, right? Which can end up messy. The third one would be to switch your allocation and you switch your allocation to more of an income-driven allocation where maybe you're still in stocks, Paula, but now you're moving to stocks that pay a larger dividend, or maybe before you preferred stocks that didn't pay that large a dividend. If you are outside of a tax shelter, like an IRA tax

shelter, the problem there is dividends are going to generally be at a higher rate than a capital game would be. Right. You could end up with a little more tax friction. If it's inside an IRA, though, that makes it very conservative because now instead of reinvesting the dividends that you have from your investments, you're having the dividends feed this cash cushion and you're living off the dividend income stream that your portfolio creates. Right, which allows you to keep more of your principal balance intact, your principal contributions intact. Yes. People generally prefer that one because they like the feeling that the mountain isn't slowly, slowly evaporating. When you do...

Mountains evaporate? That's kind of mixing the metaphor, isn't it? I think, what's the word for disintegrate? Yeah. The mountain being shoveled away a little bit at a time. How about that? Mountain being removed? I don't know.

There's got to be a geologic term for this. If only there was a place for us to look that stuff up. Mountain disintegrating. Erode. Erode. A road. Yes. A road is the word.

Erode. We're exhausted, Wilson. We can't answer the rest of the question. We have to take a break now. However, when in the past, I've done analyses of one versus the other, frankly, in a capital gains strategy, if you're touching it at a quarterly time frame or once a year, while you're eroding at the principle every time you touch that, Cash.

Nice word. Thank you. I just came up with that. The mountain is rebuilding itself through the fact that you're more aggressive in your approach. So in other words, the capital gains approach where you're not using investments that pay high dividends, those types of companies tend to appreciate more quickly, right? If a stock pays a high dividend, you're not going to see that stock appreciate very much. So your strategy with capital gains really is going to come out. very close to the same. But I'll tell you that the dividend strategy feels better for most people.

Like, okay, I still have all these shares. So those are three ideas that I had for a decumulation. So to summarize, one idea would be a dividend investing strategy, which allows more of the principal contributions to stay intact, but probably won't appreciate at the same rate that a not-so-dividend-focused portfolio would. So that's option one. Option two would be, a quarterly withdrawal that allows you to adjust your drawdown amount without getting caught up in market timing. So, for example, by having a four fixed days per year, heck, you can tag them to the estimated quarterly tax payment dates, right? You've got four specific dates per year. Those are the dates when you make your withdrawal. You can withdraw less or more depending on how the market's

doing, but those are your dates you're not going to market time. That's another option. That's another option. And then the third option would be keeping a large cash reserve and drawing down only once a year in a big annual lump sum. Yeah, there actually is a modified version when Wilson talked about landing the plane. So if you think about buckets, there are some financial advisors that will use an approach that's a little more complicated where you look at the timeframe in which you need money. So all we talked about was moving money into the immediate bucket right there. But there's another move you can make as well, which is you've got long-term money, medium-term money and short-term money, moving money from long to medium and money from

medium to immediate and making both of those moves. So in other words, keeping some money in that capital gains strategy if you don't need it right away and you don't need the dividends from it, moving some money to assets that are much more conservative but are still growing. Maybe these would be more of a bond strategy that a lot of advisors really don't love, but still gives you the chance for a much bigger dividend, but there will be some wiggle versus your immediate funds, which should be in like a high interest savings account. And you pair, by the way, the bond funds that you use with very boring stocks. So stocks that also pay a big, big dividend, something like utility stocks, railroad stocks, something that's value-oriented stock position.

That's where we'd actually be closer to that 50-50 stock bond split that we were talking about earlier would be in that middle bucket if I was playing the three-bucket game. Right. And Wilson sort of alluded to that in his question when he was talking about a two-bucket strategy in which one bucket would be money that he would invest aggressively because it's the portion of his portfolio that he intends to leave as a legacy. And the other bucket would be invested at a 60-40 stock bond split because that's the portion of his portfolio that he intends to live on during retirement. Even within the context of, and I like Wilson's two-bucket strategy,

Wilson, even inside of that context, I can see incorporating the three-bucket strategy into your two-bucket strategy. So the portion of the bucket that is 6040, the portion of the bucket that you intend to live on during retirement, I could see then overlaying a three bucket strategy onto that so that you can divide that money up based on whether you intend to use it in the short, intermediate, or long term, given that even a traditional retirement is 30 years, or at least you should plan for that much. You know, money that you're dealing with in a year or two is going to be handled very differently than money that you intend to spend in year 29. That specifically is what I want to make sure that everyone hears that I definitely don't want to

gloss over. This whole strategy that Wilson's talking about, which is the effective piece of the strategy, is you're investing money based on when you're going to need the dollar. So it's almost like a YNAB strategy, right? If you aren't familiar with YNAB, it's a program called you need a budget. A lot of people that use it, love it. But the strategy of that type of budget is every dollar has a purpose. And I know when I'm going to spend that dollar and I know where I'm going to spend that dollar. And you're telling your money what to do ahead of time. This is almost the same thing with

your retirement money. We don't know specifically when I'm going to use it like I do in a YNab, but I know about how much I'm going to need for the next five years. I know how much I need for five to 10. And I know how much I need for older than that, which is why. Which is why. I'm And this brings up a problem in personal finance. Sometimes you will see people that will say, well, an 80-year-old should not be invested in tech stocks. And that, Paula, is crazy talk. Right. Because if the 80-year-old doesn't need the money for themselves and they're investing for the people that are going to inherit that money, they may be looking at a whole different time frame that has nothing to do with them.

So an 80-year-old could be in Bitcoin, right? An 80-year-old could have a crypto strategy. Age is irrelevant. What really is relevant is when is that dollar going to be spent? Right, right, exactly. And I'm glad you brought that up because I think part of what I hope that we emphasize on these episodes is the decoupling of age from timeline. Decoupling. Yeah.

Another great word. Like erode. I love that. That was a throwback to a few weeks ago when we talked about the decoupling of diplomas from skills. Yes. So, Wilson, those are a handful of options for how you can manage this retirement money. And I think the takeaways of all of the options that Joe has just laid out, of these options that we've just discussed, there isn't any one that is universally a better or worse approach. Each has its own merits, and the one that you choose at the time that you retire

may or may not end up being the one that you stick with throughout a 30-year retirement. Over the span of three decades, there's a decent chance that your strategy will change, and that's fine as well. So long as the strategy is deliberate, the thing that you want to avoid, as Joe said at the beginning of this is market timing, making decisions impulsively based on emotions about what's happening. And particularly when you're in the decumulation phase and you can't compensate for mistakes by just earning more, those emotions can dominate your decision-making

to a greater degree than you might have experienced during your working life. And so what matters is having a clear strategy and having a protocol for if and when that strategy will change. But all of these strategies that we've laid out, they've all got their upsides. So pick whichever one resonates with you most. Thank you, Wilson, for asking that question. We'll come back to this episode after this word from our sponsors. Our next question comes from Jennifer.

Hi, Paula. I had a quick question. I'm having a really hard time figuring out. So I'm trying to scale my home-based business and include financial independence and real estate in that equation. So basically, I have a home-based, low-stress, doggy daycare in a rental house that's very small, only like 800 square feet, and I've been completely booked for several months for years and have been trying to find a different location or several different locations

to scale my business. However, in Austin, Texas and surrounding areas, it's near impossible. So I'm having a really hard time finding affordable places to scale my business that are residential business and also affordable. So I was wondering if maybe duplexes would be the good way, if wholesalers would have the type of properties I need or how I could go about scaling my business in a way that doesn't cost several million dollars. Thanks so much for your help.

Bye-bye. Jennifer, thank you for the question. And first of all, congratulations on the success of your doggie daycare. That's fantastic. One thing strikes me immediately upon hearing, your question, which is that what you need is additional space, space greater than the 800 square feet that you're currently in, so that you can expand your client roster, take on more dogs. Wait, so what you're saying, Paula, is you want her business to go more to the dogs.

He's here all week, folks. Tip your waist down. So, Jennifer, what you need is more space, but where your mind went was something that would be very capital intensive. Where your mind went was buying a property, a duplex, an off-market deal that comes from a wholesaler, there's no need for you to buy something. You can rent something where you don't need to worry about coming up with a giant down payment and getting seven figures in financing. You can simply, for the cost of a security deposit and first month's rent, move into a bigger space. And what's great about renting is that if it doesn't,

work out, you can leave. If you, for some reason, don't get the clients, and it sounds like you very much will, but if for any reason you don't get sufficient clients or for any other reason it doesn't work out, you can either finish out the lease or you can sublet it, or heck, you can break the lease and pay a one-month fee as an early termination fee, and then you're done. There's no reason to jump to duplexes, wholesalers, a million-dollar property, when the solution would be to rent a space that is even 1,200 square feet, which would be a 50% increase over what you have right now. If you want to decrease your risk in making that move, then what I'd recommend doing is you mentioned you've got a wait list going, you have more

demand than you can accommodate. I would ask the people, you know, the demand that's coming in, the people who want their dogs at your doggy daycare, ask them to put down a deposit. And that's the money that you could use for your security deposit in your first month's rent in this bigger place. Plus, with a deposit that they put down, you now have more assurance

that when you move into the bigger space, you'll be able to take in more dogs because you have people who have pre-committed to buying your services, using your services, once you've expanded your ability to provide those services. So by functionally pre-selling those spots, you're able to defray some of the risk.

You're able to get the budget in hand, in pocket, to be able to kickstart this new enterprise. I mean, moving is expensive. There's going to be moving fees. There's that security deposit, right? You'll be able to have the budget from those pre-sold spots to be able to cover that. And, you know, for the cost of a few thousand dollars,

most of which comes from the deposits that your new business puts down, you can glide into this new place with very little or perhaps nothing out of pocket. I remember when I first went into business and I was thinking about buying a place. I actually had a mentor show me what most businesses do, which is exactly, Paula, what you're talking about. In fact, later, when I was a financial planner, a good investment for both tenant and for landlord was a concept which we don't need to go into too much here. It's called a triple net lease. And that's usually big box stores do this.

Commercial spaces do this. Yeah. Yeah. And the reason they do that is because best buy is fantastic at the business of logistics and selling electronics. They know the pieces. They know how to get them into your hands. That's what they're good at. They don't want to own the property.

They want to be able to focus on their business and only their business and have somebody else take care of the rest. So taking a cue from what bigger businesses do, I think it gives her much more flexibility. And to your point, takes this expensive area she lives in that makes it somebody else's problem. Exactly. Jennifer, in your case, you wouldn't need a triple net lease because that's something. thing that's seen only in the commercial world. And since what you're looking for is a residential space, cool, get a residential space. Obviously, make sure that you clear it with the landlord ahead of time.

You know, make sure the landlord knows how you intend to use this space. That's just part of any negotiation. Yeah, and I didn't mean to introduce jargon there. I just wanted to introduce that just in the way that this is very popular. I mean, it is a very common concept and it makes a ton of sense. be good at what you do and focus just on the mission, which is the great doggy daycare. Right, exactly. Yeah, and to your point, Joe, it's very normal for businesses to not own the property or the space that they're in.

Paul, let's talk about this business in particular, though, because the lessee might have an issue with the fact that it is a doggy daycare. I know when I was a landlord, one of my tenants had a dog and didn't tell me, she had a dog. And I didn't find out until much later. And I had hardwood floors and the dog ripped up, just ripped up my hardwood floors and really caused some damage. One piece of advice I love whether it's being in business or thinking about any potential conflict you have is to remember Sun Su's advice in the art of war, which is the best battle is the one that you never fight, right that is the best battle so going in knowing that you have a doggy daycare what's a potential problem

that a lessee might have that you may rip up the place right now you can use that to your advantage though there is a type of lease that traditionally is called a a double net lease which means that you're going to be responsible for some of the upkeep inside of the house or of the property that normally the landlord takes care of and i'll tell you why this is good on one hand jennifer's gone oh my goodness, this is going to cost me money. It might. However, you can negotiate a lower rate because of the fact that you're not asking the landlord to take care of the property while you're there.

Your promise is that the property is going to be an X condition with Y things. And if I'm a landlord and I know that the tenant is going to take care of some of the potential problems that we have and I have a lease that reflects that, I may be willing Paula, to give away something for that. Right. And Jennifer, when I say that, you know, this is part of any negotiation, I mean, going to the landlord and saying, hey, I would love to rent your place, here is the business that I run. And so here is the stipulation under which I am renting your place. I need to continue to be able to run my business. Sure, there might be some contingent of landlords who are not

willing to negotiate and their answer is a hard no. But there's also a contingent of landlords who say, All right, well, the answer is maybe I'm worried about damage. I'm worried about X and Y and Z. And that's where you and the landlord sit down. You have that negotiation. And fundamentally, what that means is that you discover what their concerns are and then address each of those concerns. So that might mean putting down a bigger security deposit, for example.

That might mean having certain types of insurance for any damages or claims that take place, on your property. I mean, there are many issues that you and the landlord can discuss, but again, that's just part of any lease discussion. I'm excited for her. Yeah, I'm very excited, Jennifer. Your business is doing well. Well, and I also think that this solution crosses off a huge hurdle for her. And I'm with her. The Austin area is so expensive. and owning that property, it would be so frustrating. I have this great business. I want to expand this great business.

I can't afford to do that. This gives her a lot of new, fun possibilities. Absolutely. So thank you, Jennifer, for asking that question. Well, Joe, we're at about the hour mark, so I think we should call it for today. What? No. I know, right?

Say it's not so. It is so. We had some meaty questions. We did. Yeah, we had some absolutely. meaty questions, which I love because then we get to deep dive into those answers and really explore the nuances of each answer. And these questions involved a lot of planning, a lot of good planning questions.

Right. Which I think the idea, going back to the first question of visualizing your goals are important. Also, thinking outside of, you know, the common terms that we throw around in the financial space and thinking about your situation individually, thinking ahead of time about the other side of the stick, right, about not just putting money in, but how am I going to take it out? I think that's big. Right. Thinking about principles rather than boxes or constructs.

Which really brings up then Jennifer's issue and backing up your viewpoint so that your lens is wider. Really, it's kind of what we did with Jennifer, wasn't it? Right. just widen the lens. Yeah. I mean, essentially we said,

all right, what is the specific goal that we're trying to achieve? And specifically, it's have additional residential space such that she can expand her business. I was reading about this just yesterday, Paula,

in Harvard Business Review. They were talking about how that's a common problem in business is that the managers are asking the wrong question. And because they ask the wrong question, they get the wrong answer. So everything, I think, and we do this so many times when you and I sit here together,

we challenge the premise of the question. And I think that's also an important thing to always do in your planning is ask yourself, am I asking the right question? Or is there a different question that maybe is hidden? And a great way to do that, to look at that, I find is the tactile, for me, the tactile approach of actually writing out every question out there. Benjamin Franklin, who apparently is a guy I like a lot because I have this podcast called stacking Benjamin's, Ben had this approach where he would Ben Franklin everything, right, where he'd have the positives

and the negatives. And then he had the very simplistic, well, whichever one is longer decides whether I do it or not, I don't espouse that half of it. But I have found that taking all of the positives and writing them out and all of the negatives and writing them out sometimes leads to better decision making, often leads to better decision making. Right. The modification of that that several previous guests on the show have talked about is then weighting those. So you write out positives and negatives and then you assign a particular weight to each of those.

Right. They got that from me. I'm sure they did, Joe. And speaking of getting things from you, where can people find, find more of you if they would like to get more pearls of wisdom, more eroded mountains. You can find more of me and sometimes Paula at the Stacking Benjamin's podcast every Monday, Wednesday, and Friday. And I'm super excited about the week, Paula, that we had last week. We did History Week on the Stacking Benjamin show. Sometimes we have shows that are very, very much

strictly about your money and other times we have topics that are very money adjacent. And on History Week, we talk about some people who made lots of money, but also those were at different times of their life. But in some cases before that, in some cases after, they had a real effect on all of our lives because Major General Mary Eater wrote a wonderful book called The Girls Who stepped out of line, which is stories of women who changed the course of many people's lives during World War II. And then on Wednesday of last week, we talked about why Longfellow lied. You're familiar with Longfellow's most famous poem, Paul Revere's ride? Yes. One if by land, two if by sea. Right. Longfellow wrote that much, much, much later,

around 80 years later and made a bunch of money and had a whole career really based on that as his most famous poem. And it turns out it's not completely factually correct. So we dive into the history of and the lessons around why maybe that had happened. And I think there's a lot of cool takeaways. But that and much more, Monday, Wednesdays and Fridays on the Stacking Benjamin Show. History Week on the Stacking Benjamin's podcast. You know, the Discovery Channel has Shark Week. Yeah.

We have History Week. Right. I like it. Well, thank you so much for tuning in. This is the Afford Anything podcast. If you enjoyed today's episode, please do four things. Number one, subscribe to the show notes. You can sign up at Affordanything.com slash show notes to get a synopsis of every episode delivered directly to you.

Number two, make sure that you hit follow in whatever app you're using to listen to this, Spotify, Pandora, Apple Podcasts, make sure you hit the follow button. Number three, while you're there, please leave us a review. These reviews are incredibly helpful in allowing us to book amazing guests. And finally, number four, last but not least, share this with a friend or a family member. It's a single most important thing you can do to spread the message of good financial health. Thanks again for tuning in. My name is Paula Pant. You can find me on Instagram at Paula Pant.

That's P-A-U-L-A, P-A-A-N-T. This is the Afford- Anything podcast, and I will catch you in the next episode. Here is an important disclaimer. There's a distinction between financial media and financial advice. Financial media includes everything that you read on the Internet, hear on a podcast, see on social media that relates to finance. All of this is financial media. That includes the Afford- Anything podcast. this podcast, as well as everything afford anything produces.

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I've been monologing for a bit, so you take it. For a bit.