Afford Anything - Q&A: Help! I’m STUCK On A Financial Tracking Hamster Wheel

Episode Date: July 12, 2024

#522: Emily Anne is worried about her obsessive tracking behavior. She’s in great financial shape but struggles to shake the constant compulsion to check her accounts. What should she do? An anonymous caller and his partner plan to use geo-arbitrage to retire early before reaching their financial independence number. Can they have their cake and eat it too? Kevin and his wife are having second thoughts about their Delaware Statutory Trust (DST) real estate investments. How do they back out without compromising their estate plan? Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode. Enjoy! P.S. Got a question? Leave it at https://affordanything.com/voicemail For more information, visit the show notes at https://affordanything.com/episode522 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, you're familiar with the concept of geo-arbitrage, right? Oh, I love it. Yes. For people who haven't heard of it, five seconds. What is it? Go. You move to a place with a lower cost of living so that you're able to live the same lifestyle, but on a lot less. Okay. And where would you go if you had to do that? Let's say you needed to do it for like a year. I like my time in Bali. I thought that was really fun. I go back to Indonesia. Oh, beautiful, beautiful. All right. Well, we're going to talk to a couple who wants to retire on $3 million. They are close, but they're not there yet.

And they want to geo-arbitrage in order to get to that $3 million mark. Sweet. Welcome to the Afford Anything podcast, the show that understands you can afford anything, but not everything. Every choice carries a trade-off. And that doesn't just apply to your money. It applies to your time, your focus, your energy, your attention to any limited resource that you need to manage. So what matters most and how do you make choices accordingly? That is what this show is.

all about. My name is Paula Pan. I trained in economic reporting at Columbia, and I am the host of the show. Every other episode-ish, I answer questions that come from you, the community. And my buddy, the former financial planner, Joe Sal C-high, joins me to do so. How's it going, Joe? It's going good, but I think you pronounced $3 million wrong. Aren't you supposed to do that old movie, Austin Powers? Three million dollars. Three million dollars. I believe it was $1 million in the movie, but I think that inflation. It would be tons of inflation. Just horrible. So we're going to talk to the $3 million couple or the aspiring $3 million couple in a moment.

But first, we're going to hear from Emily Ann, who is obsessed with checking her account balances. Hello, a big fan of the show. I'm someone that has been very into checking my finances pretty much since my first job and keeping very careful track of everything that I spend and save. and I use Mint for probably almost 10 years, was a really big fan of it. And then when they just shut down a month or two ago, I switched over to Monarch. And Monarch's actually probably been even better. They give more insight into different categories of spend and really good experience with that.

But I think if anything, I've become a little obsessive over it. I check it more than once a day often, even if nothing's changed. And I'm probably checking it too much. My finances are fine. I think I save the right amount. I'm actually in a really good spot, and I don't need to be spending all this time on the apps. And I'm wondering if you have any advice for letting go a little bit,

some of the obsessive tracking behavior, and maybe looking at it more holistically. I haven't really been able to do that on my own, but I'd love to hear if there are any tips for taking a step back and maybe letting some of it go. Emily Ann, I love your question. So first of all, full disclosure before we get started, Monarch is a sponsor of both this show as well as Joe's show. So we're double sponsored here. That disclosure out of the way. First of all, the good news is if you're going to be obsessed with checking some type of financial account, I'm glad that it's your Monarch account, which is your budgeting account, rather than your investments accounts. Because if you had called and said, I'm obsessed with checking my Robin Hood balance, I'd be like, uh-oh, red flag, red flag, uh-oh.

And the reason for that is if you had called and said, yeah, I'm obsessed with checking my investment account balances, I'm obsessed with checking Robin Hood, what that would signal to me is that you are likely to be trading too much. And what we know from the data is people who trade far too often end up underperforming the market because you're just, you're touching your account too much, you're selling in and out of positions. You are likely to miss the small handful of. days when the market makes its biggest moves. You're likely to buy it the wrong time. You're likely to sell it the wrong time. In investing, the set it and forget it model is the best one. And the more you check your investment account balances, the less likely you are to set it and forget it. You are literally not forgetting it.

I'm glad you're not doing that. What you've talked about, which is checking your checking account, is on balance the healthier of the two vices. But it is still, can we say this word on air, Joe? Can we say it? Oh, boy. Oh, boy. It is still a form of financial.

And then the word I'm going to use is starts with the pee and rhymes with corn. It totally is. Right? It totally is. Well, what did I say to you the second we got on? I got an alert from Monarch and I exceeded my insurance budget by six bucks. Broke, broke, bankrupt. Right? Yeah, you, that's exactly. It is precisely what Joe said to me the moment that we started, that we connected online. He was like, man, I exceeded my insurance budget. Six bucks, Joe. I'll mail you six bucks, but I'm going to send it to you in pennies.

Perfect. I'll feel so rich. I'll walk around with that jingling in my pocket. Yeah, you'll swim through it like Scrooge McDuck. Because nothing says I'm loaded more than a pocket full of pennies. Right. Someone hasn't graduated from the 1940s yet. I am also addicted to Monarch. And listen, they make it really easy. I mean, you, you go on to your Monarch account and there's this fireworks looking thing and it says, let's look at how you've done. And then a bunch of slides about how you've done since the last time if you want to. And they make it so sexy and so fun. that it's easy to overcheck. So I did a few things. And it's funny because I share mine with my spouse, Cheryl, and I keep telling her to turn off the notifications because she has notifications for Monarch on. And Monarch sends you these wonderful, fun notifications.

Which if you listen to my ads, you know are totally customizable. Yeah, they are. Which is why, Paula, I change mine so that I, mine are email only. So I get my notifications on email only and there are days when I'm like, I need to turn those off too. But I don't really want to because it's so damn fun. It is fun. And so I don't know that I'm the right person to answer this because I'm also over checking my monarch. However, I will tell you this, what I'm experimenting with right now.

And I literally, I just started two days ago, an app called Brick, which takes everything that's on your, device on your phone, on your computer. It takes all the stuff and it makes it inaccessible so that I can't be my own worst enemy. So do I know, do that for social media as well. Yeah. And do I know really how Brick works or anything about it? Am I endorsing it? Absolutely not. Absolutely not. But I will say that this idea of playing with different solutions, I think is a great choice. A, the fact that she called us and said, listen, I got this issue. I think. that's step one, right? Step two then is start playing with solutions. But I also don't know, Paula, if Brick is the answer as much as if I slow down my notifications and I think more about living

and less about checking up on my life. And I think about these other things. Like, have you ever had something that you were obsessive about, but then you got so, you were having so much fun with something that was so much more meaningful in your life that you just forgot. Like it just kind of went away. So I kind of think, you know, there's that old psychology trick where they say, don't think about an elephant. Well, how the second you say, don't think about an elephant, guess what you're going to think about all the time? But you never would have thought about it in a million years had you not brought that up. So I think telling yourself over and over, don't think about Monarch, don't think about it.

You're going to think about it more. Well, so Cal Newport, the professor from Georgetown, he's a computer science professor from Georgetown who studies. I'm right. Yeah, obscure guy. Author of eight books, he's been on this podcast three times, and he studies focus and distraction. And one of the things that he's done, he's actually done studies with several of his students and several of his followers. In one study, he encouraged every, he had everybody wipe their phone. He specifically focuses on social media, but the lessons translate to any app that you're checking obsessively. He had his students wipe their phones of all social media apps, all news-related apps, because a lot of people check the news obsessively. He had his students wipe their phones of all of those apps. And what he discovered, and this is not peer-reviewed data, this is just an anecdotal classroom experiment. What he discovered was that for a handful of the students, the simple act of taking out their phone and opening some type of an app was muscle. memory that they needed to do. And so when they removed social media and news from their phones,

some of the students started obsessively checking the weather app. And for about a week, they could tell you the weather in Addis Abba and Cape Town and Mumbai and Shanghai, Jakarta. They could tell you the weather in any part of the world. Yeah, exactly. And that lasted for about a week and then after that, the habit started to fade. So that was one thing that he discovered was that level of cold turkeying it and having a bad week, but doing it by virtue of removing the temptation from yourself did have an effect. And then eventually when the students did put social media and news back on their phones, they, at least for some time, had mitigated the behavior because they had broken the muscle memory. That was one unofficial study that he

carried out. Another one that he carried out, though, and Joe, this goes to what you said, was he ran a separate experiment. This is several years later where he asked his followers, again, to do the same thing to remove social media from their phones. What he found was that the students who tried to white knuckle it did not last for the full 30 days. But the ones who engaged in what he referred to as substitution, and that was what you were talking about, Joe, substitution of app checking behavior with some alternative behavior, like they took up karate. or they rediscovered the library or they learned how to play chess, that substitute of behavior gave them something to occupy their minds. Yeah. The issue with the substitute of behavior is that so much of the time, you know, if you want to learn how to play chess, you're going to have to sit down for at least 30 minutes or an hour and learn, this is the bishop, this is the rook. but if you quickly want to check an app, you press the elevator button and then you check that app while you're waiting for the elevator to show up, right? App checking behavior appears in the margins of our lives, whereas substitute of behavior often requires a discrete block of time.

And that's why it's such a hard trade. It occurs to me that another way that I break myself of habits is by becoming more educated about truly what it's doing. Like if I think that it's bad, and listen, I don't think there's anything bad with checking your budget. Maybe if it's distracting you from a bunch of your life, then it is. But this idea of checking things compulsively can be destructive. And I'm thinking about a woman who I've referenced here before, Catherine Price, who has a book called The Power of Fun. And she begins that book by talking about just the science behind what your phone is doing to you on a scientific level. Like the fact that it's more difficult to get a dopamine hit in other periods of your life because you keep going back to your phone hitting this button.

Again, the P word, right? I'm going and I'm hitting the button and I'm addicted to this particular thing. But scientifically, and what it's doing to our brain is we're having more trouble becoming enamored at all with other people. pieces of our life because of the fact that all of our dopamine is being used through our phone. And when you start reading that science and you see how destructive it is, in fact, Catherine has another book, which is called How to Break Up with Your Phone. And it also begins with the science. I think about Dr. Peter Atia, right?

And the whole idea of outlive. I mean, I don't think there's anything in Peter Atia's book that we haven't heard before. Really, sleep is good for me. But the fact that he puts it in a way that I get the science behind it makes me more likely to focus more on my sleep because I understand it. So I think maybe Paula, even diving into the science behind, why do I have this compulsion with my phone and then seeing how incredibly destructive it can be to other areas in my life, not monarch, but the compulsion. That could be a key to, I think understanding for the adult mind is a great way to change behaviors. With all of that said, there are two potential underlying behaviors here. One is app checking compulsion, which could be expressed as compulsively checking Monarch, yes, but it also could be expressed as compulsively checking social media or news or the weather app or any other type of app.

So the act-checking compulsion is one potential underlying behavior. And that's the piece that we've just discussed addressing. The other potential underlying issue is some type of anxiety that you may or may not feel about your finances. So my question to you, because I don't want to make any assumptions about your feelings, my question is, do you have underlying anxieties about your cash flow, your budget, your checking and savings account balances, your level of spending? Do you have underlying anxieties that there might not be enough money or that you might not be stewarding your money well enough or that you feel as though you're quote unquote bad with money? Do you feel worried? Do you feel shame? Because those emotions could play into the reason that you want to check your balances so often. So essentially what I'm asking when taking a step back is, is this compulsive app checking or is this financial anxiety?

Or is it a combination of the two? My suspicion is that it's a combination of the two. or perhaps that a baseline of financial anxiety then gives way to the behavior of compulsive app checking. And then I think there's definitely something much, much deeper going on at that point, which frankly may involve then a professional. There's a whole industry called financial therapy, which I think is a wonderful industry, and I hope it grows because we need more psychological professionals who are trained in specifically financial therapy because money is such an overwhelming source of stress,

both at the individual level as well as it's one of the leading causes of divorce. So there's an inextricable link between how we feel about our money and how we feel about ourselves, our relationships, our lives. That said, just to give you a broad overview, we are taught so many messages about about money that are negative. We're taught that money is scarce, that it's hard to come by, that you might grow old and be poor, and then you have to live alone eating cat food under a bridge. We're taught to be afraid of running out of money. We're taught that money is scarce and rare, and that everybody wants to take it from you. And sometimes, Paula, not even that, just conflicting.

Right? The pursuit of money is evil. And yet, let's go to Instagram and people living lifestyles of the rich and famous where they clearly have a ton of means is a great thing. And I need to aspire to that. So greedy yet awesome. Right. If you pursue money, then you're selfish and you're greedy. But if you don't, then you're a loser.

Yeah. Yeah. Just this whole mixed message garbage. Right, exactly. And so that can lead to a lot of financial anxiety, that social messaging. And in addition to that, if you have ever had any life experiences, and Emily Ann, I don't just mean you, I'm talking to the entire audience right now, if you've ever had any life experiences where things got really bad for a while, and maybe you were on the verge of losing your home or getting evicted or having to choose between paying the electric bill versus buying groceries, or if you found yourself at any point paying 27% interest on a credit card bill, and you felt like you would never be able to dig yourself out of this hole. Like, there are so many real life experiences that people have had if your car ever got repossessed. Those experiences, even if they were 20 years ago,

30 years ago, 40 years ago, I have no idea how old you are. But even if they were long, long, long ago, those wounds can still affect you. Heck, it might not have even happened to you. Maybe when you were a child, you witnessed a parent go through something like that. And that wound stuck around, right? That could be a source of underlying financial anxiety that then leads to compulsive app checking behavior. So I would spend some time journaling, meditating, discussing it with a professional if you think that's appropriate. But I would spend some time digging into the underlying root of what is triggering this anxiety.

We're planning, by the way, in the fall to do a multi-episode series with the financial psychologist Dr. Brad Clantz. So make sure you're subscribed to this podcast because this fall we are coming out with it'll be at least a three-episode series where we really deep dive into financial psychology, financial therapy, that relationship between cognition, emotion, behavior, and money. So Emily Ann, I hope that helps. And thank you so much for your question. We're going to take a moment to hear from the sponsors who allow us to bring you this show at no cost to you. I actually have no idea what's about to play next, so it's going to be really funny if it's a monarch money ad.

It is a great F. What can I say? It's addictively good. Let's see whether or not that's what plays. The holidays are right around the corner, and if you're hosting, you're going to need to get prepared. Maybe you need bedding, sheets, linens. Maybe you need serveware and cookware. And of course, holiday decor. all the stuff to make your home a great place to host during the holidays, you can get up to 70% off during Wayfair's Black Friday sale. Wayfair has Can't Miss Black Friday deals all month long. I use Wayfair to get lots of storage type of items for my home, so I got tons of shelving that's in the entryway, in the bathroom, very space saving. I have a daybed from them that's multi-purpose. You can use it as a couch, but you can sleep on it as a bed. It's got shelving. It's got drawers underneath

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no matter who or where they are. From November 25th to December 2nd, your donation will be doubled. That means every dollar goes twice as far, to help build a future where no one's seeking help is left behind. Donate today at camh.ca.ca slash giving Tuesday. Welcome back. Our next question comes from Kevin. Hey, Paula and Joe. Love both your shows. This is Kevin. We're retired 69 and 70. Several years ago, we sold a very highly appreciated Southern California home we used to live in, but then rented for 10 plus years. No longer wanting active rental management, we did a 1031 exchange into Delaware Statutory Trust

DST investments. A couple have already liquidated, and we have done subsequent 1031 exchanges to defer capital gains and depreciation recapture, ostensibly until it becomes an estate issue and goes away. One of the main lures of the DST was totally passive mailbox money. Internal costs and fees are non-trivial, though. As I continue to monitor the DST slash NNN market, I'm not entirely excited about continuing 1031 exchanging for the total portfolio. One may liquidate in a couple of months, and although it would generate taxable income and gains, not very significantly so.

We'd still be short of Irma and N IIT thresholds. We're both in great health, and although there are no guarantees, we don't see the estate piece happening anytime soon. Does it make sense to strategically reduce our DST exposure over time to simplify our overall portfolio, particularly for our kids when the eventual estate events happen? Thanks. Love your thoughts. Kevin, thank you for the question. And I have to say before we start, Paula, that when he said that he moved it to a Delaware statutory trust, I know, 95% of our audience went, what, what? So we'll get into that first in a second.

But then he said, and then I looked at the fees and the fees weren't inconsequential. I actually, Kevin, I say this a lot. People say that I laughed out loud a lot. I truly laughed out loud when you said this. I completely laughed out loud because we were discussing this question before we started recording too. Yeah. I got part way through.

I was like, okay, this is pretty cool. And then he said, but the fees and I laughed. And he said, not inconsequential. And they're not. But this is, I want to broaden this out before we really focus on this particular issue because I think there's a lesson here for all of us, Paula. Everyone listening. If you think you have a perfect strategy, if you think you have a strategy with no downside, you haven't explored that strategy enough yet. We're not implying that Kevin thought that.

No. But every strategy has an Achilles heel. And DST does some wonderful things, but it has an Achilles heel. And I think that people initially get enamored with Delaware statutory trust options and go, wow, this is fantastic. And then later on, they take a look at the fee structure and go, oh, wait a minute. And it doesn't make it bad, by the way. This can still be a great option for the right person.

but every investment strategy has an Achilles heel. And the only reason I'm bringing that up is the number of times in our community that I've been in an online forum and people come across in a way that implies that they have all the answers, that they have this magic ability to find the right, perfect, no downside investment is bigger than I'd like it to be. There's a larger proportion of people that do that. In fact, there's a discussion right now on one of the major forums about diversification and how diversification is ridiculous because you need to be all United States stock

because that's where the action is. And that is horrible. Oh, that's happening on one of the big online forums? Yes. One of the social medias. And that is going to end poorly for a lot of people. under diversifying, unless you really know what you're doing, will end poorly. And by the way, even if you know what you're doing, there's a probability that it will still

end poorly. However, people that know what they're doing, they know what the risk is. So they're happy to take this under diversification risk. But I'm now getting way far off this question. So let's go back to the question. Kevin's wondering where his question went. I will say, though, Joe, to what you just said about, under diversification. And Kevin, sorry, I know this is not your question, but since we're here,

we have an interview coming up with Michael Kitsis, the famed financial advisor, where we talk about this issue exactly, where I ask him, hey, people have diversified into international and into small cap, and none of those are performing very well. Does that mean that they should refrain from such diversification? Does that mean that they should focus on the U.S. entirely. So we address that question and he gives some arguments, Joe, that support what you just said, that diversification is necessary. Even when we think that U.S. stocks have the best prospects moving forward, diversification is still necessary. Sorry, we've really strayed from Kevin's question. Yeah, because that makes you want to go further down that rabbit hole, but let's not do that.

Yeah, right. Let's get back to Kevin's question. So the big question people are wondering is Kevin sold this property in Southern California, highly appreciated into Delaware statutory trust. What the heck is that? Well, Delaware, to keep this very simple, Delaware passed this mechanism by which you can use a tax shelter called a 1031 exchange to pay zero tax by transforming this single property investment into much more of a real estate investment trust type investment, a diversified real estate position managed by someone else and go from, I myself have to manage this property or I have a property manager, no matter what, I'm actively involved to literally what Kevin said. I hand the money to somebody

else. That person does all of the management and then I get what Kevin called mailbox money. I just get a check in the mail and everything is fine. It either makes money or it doesn't, but I'm not involved. I'm just a passive, completely 100% passive investor. It's a fine mechanism. If you really want mailbox money, that is great. However, when you get into passive real estate investing, the fees involved for people to do that for you can be huge.

Now, don't get me wrong, the returns can still be huge, can still be very, very big. There are people in real estate land who know what they're doing. They have a history of doing it well, and they are going to charge you, and you still might make good money. However, we're all smart enough to know. The more money I pay him fees, the harder it's going to be for me to make money. So you worry about that. But what I like is that Kevin's not even as worried about that. He's worried about the complexity that is involved with this type of investing, which I love that question.

Is this unnecessarily complex? Is the key to his question? And the answer to that is yes. And by the way, before we get into that, I want to go into the fees because there's some people in our community, Paula, who are yelling at their device going, no, no, no, I'm in this reet that has very, very low fees. It is almost no fee. In fact, you look at the Vanguard real estate index, very, very low fee. The internal fees of what they invest in still are high. The Vanguard putting it together is incredibly low. So if you dove into the underlying fees behind the, the fees of the real estate investment trust that Vanguard is investing in or some of the other low cost options are investing in, they're still at the heart of any real estate transaction. There's a ton of fees. It is almost impossible to get around fees and just think about any time you've bought or

sold a house. Even if you're a professional, there still are appraisal fees. There are all kinds of transaction costs. Yeah. You can't get away. There's no way in. hell. Just think about this logically. There's no way in hell that your Vanguard REIT is charging, and I haven't even looked it up, but 0.04% or whatever the ridiculously small number is,

the internal fee of these underlying investments still is going to be a decent number, maybe not as high as some of these, a Delaware trust. Ooh, the expense ratio on the Vanguard Real Estate Index Fund Admiral shares is 0.13%. So the actual fees, right? So it sounds like a low expense ratio, but the actual fees, it's basically the cost of doing business, right? If you think about Coca-Cola has a certain cost associated with bottling and distributing its products. Any company has costs associated with it, and the same is true in real estate. So, yes, it's true that a given fund may have a low expense ratio because the brokerage that is offering that is charging a low fee for the broker's services.

But behind that, the cost of operating that trust is still high. And we right now are using the example of a Vanguard REIT in order to broaden out the question and make it applicable to the entire audience. But to Kevin's specific question, which is about a Delaware statutory trust, these are analogs where the high fees associated with a Vanguard REIT that don't appear on the surface when you simply look at the expense ratio is analogous to the high fees associated with the Delaware statutory trust that may not be immediately obvious, but that do become evident over time. I think I can go two different ways on Kevin's question. number one, if he's going to spend the money and he could spend the money, but it's inside a, what I truly think of over time, Paula becomes a tax trap for a lot of people. Annuities do the same thing. It's a tax trap because of the fact that to get at this money, you're going to have to pay

a bunch of money and deferred taxes. You decide never to spend the money. In fact, there's been significant research to show that a lot of people that have annuities live on less because they don't want to touch the tax trap. And that is disturbing because if it's truly about having more life, spend the money and pay the tax. But we avoid that. So, Kevin, if you're going to spend the money, I think getting out of at least piecemeal out of the Delaware statutory trust for your lifestyle is a decent thing. But you said specifically for a state planning. Here's why that might not be a good idea for estate planning. Don't get me wrong. I think

what I would do is I would do, you ever, you ever see those movies, but tonight says, Paul, if she's seen a movie. Yes. Well, you did mention Austin Powers at the top of the show, and I have seen that one. So, yeah, and you didn't even notice. I, I didn't. I didn't. I thought you were normal for a second. I don't know what I did there. But you have heard of these movies where, you know, the family's sitting around and they put the video, into the old time video player. And there's a guy in a smoking jacket. And he says, if you're watching this, I'm dead. And here's all of the beyond the grave things that I'm going to talk about.

That trope has been used lots of times. I think Kevin telling his heirs to get rid of this immediately and feel free to invest in other things is a great idea. The problem, Paula, is this. These reits that he's purchasing, and I'm just guessing, that it's a reed inside the Delaware statutory trust. These reeds he's purchasing have a net asset value price, have a share price. And his heirs are going to get, depending on his estate planning, his heirs will probably get a step up and basis when he passes away. So if he takes this out and pays the tax and he wasn't going to spend the money, his kids would essentially have the tax wiped out because he passed away.

So if he's going to spend the money, I think I could. get rid of it. I think I would talk to a professional. I'd talk to a CPA. I would talk to somebody who is a professional in the world of taxation and the world of estate planning. So either a CPA or a good estate attorney or maybe both before he sells these and pays a bunch of tax that had he left it, assuming that it meets his goal, if it meets his return goal, regardless of the fee, and he's doing well. And it also depends on the size of a tax. Paul, in some instances, I would advise people back when I was a financial planner, pay the tax. Because if those fees are high enough, I think using a low-cost investment that we can at least equal it.

And then the chance of us beating it over time is better because we're paying lower fees. Well, then by all means, I'll pay the tax and I will make it up hopefully very quickly. But I want to kind of do some math on where that crossover point would be. You know what I mean? He's going to take a hit today. but how long would it take me to recoup that? I don't know the answer to that. But that's certainly Kevin the road I would go down if I'm looking at these fees.

What I'm hearing, Joe, is that if he plans on spending the money in his lifetime, then he should take the hit. If he does not plan on spending the money in his lifetime, then leave it as is. That's the basic advice. But my gibberish there at the end was all around. I want to know the size of the tax hit. I want to know how long it would take me to make it up, how long would it take my heirs to make it up.

It might make sense to break those rules. But in a very general basis, if I understand his tax situation the way that I think that I might, and he might be doing some crazy stuff that he didn't tell us about, but if it's very straightforward, if his heirs are going to get a step up in basis, then keeping it might be the better option. If he's going to spend it during his lifetime, to your point,

than taking the hit and please spend the money is the better option. The thing that struck me when I heard his question, he talked about how he and his spouse are ages 70 and 69, and they're both in very good health. And what we know, broadly speaking, is that in retirement, they say your 60s are your go-go years, you're full of energy, you're full of vitality, you're young, your 70s are your slow-go years, your vivacious. as you were in your 60s, but you still have a lot of energy. And then your 80s are your no-go years, where you're probably more apt to hunker down and keep it mellow and not spend quite as much, not go on as many adventures.

Now, of course, these are generalities, and your mileage may vary. But what struck me is that, Kevin, you and your spouse are so young, you have a level right now of, of youth and energy that in the year 2034, when you're 79 and 80, you may not have this level of enthusiasm at that time. So I would think carefully about how you want to spend the next decade. The next decade provides opportunities that are unique at this.

era in your life. Can we address also, Paula, some of the jargon in Kevin's question? Besides, we just went through DSTs, which sounds like some kind of a disease, but it turns out it's just Delaware Statutory Trust, which depending on the fees could be a disease, but maybe different. Ouch. Yeah, we have Irma, he mentioned, and knit. Net investment income tax. So both of these taxes are taxes that are for high-income individuals. When it comes to the net investment income tax, that's for individuals making over $250,000. High-income individuals also have a surcharge applied to some of their Medicare, if they're eligible for, if they're a Medicare age. And that is what Irma is all about.

So these are taxes for high income individuals. Irma stands for income-related monthly adjustment amount, and it's a surcharge on your Medicare premiums for Part B and Part D. I'm not going to go too much into those. We actually tackle Irma in a really interesting question we received recently on the Stacking Benjamin show. So we dive into it. But this is a 20-minute discussion.

The episode is episode SB 1524, 100,000. of 524. And the title of the episode is how to score 8% on your money and maybe regret it. Because we spend most of the time talking about high yield bonds and how high yield bonds can be a trap. But near the end of the episode, we get a question from Tom who asks about Irma. And we spend a lot of time defining it, going over how it works, going over how if you're somebody receiving Medicaid and you're a high income individual, it's definitely something you want to be well versed in. So we won't go into that deep dive here, but if you do want to hear the deep dive, we will link to that episode in the show notes. Show notes, of course, are available at afford

anything.com slash show notes. Wow. Imagine that. I know, right? See, I'm good at titling. Though your title is better, how to score 8% and regret it. Yeah. Well, and again, people see 8%, Paula. We talked about people see these things and they're like, oh, this sounds good. Delaware, just statutory trust. It can be good, but there can also be high fees. You see 8% on paper. You go, oh, yeah, cool. Maybe not. All right. So we will link in the show notes to that if anybody wants a deep dive into Irma. But zooming out and taking the 30,000 foot view for Kevin's question, number one, those thresholds don't apply to him. So nothing to worry about there. He's not at those thresholds yet. And number two, the root of his question is what should he do about this

DST, which our answer really hinges on estate planning and when he's going to spend the money. Exactly. Do you want to spend this in your lifetime or do you want your heirs to get the step-up basis? Who is going to spend the money and when will it be spent? Those are the guideposts around what his next steps are. So thank you, Kevin, for the question. You know what I love about your question is on the surface, it sounds like a question about how to manage a real estate trust and how to manage tax, you know, trusts and taxes. But truly, it's an estate planning question. And what is estate planning? Estate planning is life planning, right? Estate planning is, how am I going to spend my golden years and what do I want to leave to my heirs? So what sounds on the surface like a question about, you know, trusts and taxes is actually a question about what are my spending goals for the next 30 years. So thank you, Kevin, for the question. Up next, we're going to hear from someone who wants to geo-arbitrage until they reach the

$3 million portfolio that they need for an early retirement. But first. We know you love the thought of a vacation to Europe, but this time, why not look a little further to Dubai, a city that everyone talks about and has absolutely everything you could want from a vacation destination, from world-class hotels, record-breaking skyscrapers, and epic desert adventures, to museums that showcase the future, not just the past. Choose from 14 flights per week between Canada and Dubai. Book on emirates.ca. Today. Black Friday is here at IKEA, and the clock is taking on saving

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offers won't last. Shop now at IKEA.ca.ca.combs to life. Welcome back. Our last question comes from an anonymous caller, and Joe, you know what that means. What does it mean, Paula? Well, we give every anonymous caller a nickname because it's boring to simply say, next question comes from anonymous.

Generally, we base those often on movies I've seen or TV shows that I've watched. You know, a TV show I've wanted to watch, but I've been traveling extensively is Furiosa. Not a TV show. It's a movie. It's a prequel to Mad Max Fury Road. But I'm going to go back to Mad Max Fury Road, which if you haven't seen Mad Max, And I haven't. This is a fantastic movie.

In fact, it's an action movie that was up for Academy Awards. And you're like a Mad Max movie up for Academy Awards? Yes, it's that good. So it stars Charlize Theron and stars Tom Hardy, who plays the part of Mad Max. So let's call him Tom, because Tom Hardy does a great job in this movie. Just with his facial expressions, like the entire movie, Paula, he's screwed. But he says maybe four words. the entire movie. But he has such great facial expressions, you can tell what he's thinking,

which is, I'm screwed. Nearly the entire movie. And Paula's making faces right now saying, I'm screwed because I know nothing about this. If you're watching on YouTube, you can see my facial expressions and it's won. What? Yep. Yes. I have no idea what you've just said, but what I know is our final question today comes from Tom. Hi, Paula and Joe, Opaul as well. I have a bit of a math thought problem that I was hoping you could help me figure out. My partner and I currently have a fine number that's around $3 million. And I realize that that's going to change as we get closer to that.

But for now, that's the number that we have. However, we're only approaching $2 million. And all of that money is in VTSAX. And so the thought problem I was hoping you could help me think through was that the idea is we would use geo-arbitrage now, so to move somewhere that is a much lower cost of living and withdraw less than 3% of our current net worth, so the 1.8 million that we have in VTSAX. Over time, because we're taking out less than 3%, our portfolio will still continue to grow, and at some point get closer to our original $3 million number.

And at that point, we have the option to move back or to move somewhere else that's a higher cost of living. To me, it sounds a little bit like Coast Five, but we're actually taking out some money instead of just leaving it. And I just want to make sure I'm not missing any obvious problems with this plan, especially because it involves pulling the plug on full-time work. Now, we would be open to maybe doing some part-time work in this new location, which would lower the number even more. We're a little bit flexible. Anyways, we'd love to hear your thoughts. Thanks.

Tom, I love this plan. So first I'm going to talk about why I love it, but then I'm going to talk about all of the obstacles, red flags, things that could blow it up and go wrong. And I'm not saying that to be a Debbie Downer because I do love the plan, but I'll kick off with talking about why I like it so much. The goal that you clearly have is to retire early. And I use retirement in the income cessation sense of the word. So it's clear from your question that you and your partner want to, leave your jobs, stop earning an active income, and then move on to the next phase of your life. And by virtue of geo-arbitraging, you can do that now. The trade-off is that rather than do that in the United States, you'll be in Costa Rica or India or Bali or Bali, right? Or Nepal. Let me make a plug for my home country. Nepal is a beautiful place. Highly encourage it. Or Estonia, you know, you're going to be living and having a great adventure in some other part of the world. That's a beautiful thing. It's a great, great way to be able to bring your costs down and enjoy your life. And I know many people who have retired either early or at the traditional age and have done so by virtue of moving to Quenca, Ecuador, or moving to Merijin, Colombia, or moving to all of these places that are very popular with expats.

What I'd like you to do is model out on a spreadsheet how much money you plan to withdraw and how much you expect your portfolio to grow given the amount that you're going to withdraw. So let's say hypothetically that you draw down 2% of your portfolio. All right. Based on that assumption, how much do you expect your portfolio to continue growing in actual numbers? model that out so that you have modeling based on a given set of return assumptions when you think you will hit that $3 million mark. And do this, you know, anytime that you're doing, that you're modeling, of course, you're rooting that modeling on a bunch of assumptions.

So I want you to make a whole bunch of different model portfolios. I want you to make a series of models with different withdrawal assumptions, maybe from a low end of drawing down only 1.5% to a high end of drawing down 3%. Model it out with a huge range of withdrawal assumptions. That's one step. And then the next step is model it out with a huge range of return assumptions. So based on both the withdrawal assumptions, a range and a range of return assumptions, what does it look like?

What's the worst case? what's the best case, and by virtue of creating models with that assumption range, you'll have a sense that probabilistically you're going to fall somewhere in the middle of that range. But you'll also have a sense of what the probabilistic boundary lines are around worst and best case scenarios. And as long as you are comfortable within that probabilistic range, then I think it's a great plan. There are, however, a couple of red flags that you should watch out for. The most critical being, the need to come back to the United States unexpectedly. This often happens if you have family members who might become sick and therefore

you may want to come back to the U.S. in order to spend time with them. And that means that you have to not only unexpectedly pay for last minute flights, but also depending on your family structure, you may or may not need to find a place to live, possibly for months, if you have a family member who becomes ill. And in addition to that, you'll need a vehicle, you'll need transportation, you'll need health insurance in the United States. You'll need all of the living costs associated with suddenly having to come back to the U.S. And that's one of the things that can blow up a plan. Depending on what country you are going to, you might also face challenges related to political stability, challenges related to currency conversion risk, fluctuating currency conversion, challenges related to the inflation rate within the country that you are going to, because a lot of countries outside of the U.S. have not controlled inflation to the extent that the U.S. has. In other words, there is still runaway inflation in many countries around the world that has not yet been solved. and challenges related to the local language and to overall loneliness while you're there.

Depending on where you move, certain places are easier to move to than others, and certain places have a bigger expat community than others do. But that being said, I mean, what I like about the plan is that you have the capacity to bounce around. Maybe you discover that you don't like Tbilisi as much as you thought you would, but you love Vilnius or vice versa. One other risk. There's also the risk that you might move to a place. And I mentioned inflation, but beyond inflation,

that its living costs rise drastically. I mean, not just in terms of currency inflation, but with Tbilisi, for example, the cost of rent in Tbilisi rose dramatically, well outpacing overall inflation, rent specifically rose dramatically after Putin invaded Ukraine because so many Russians then came into Georgia, Georgia the country. And so sometimes you will be living in a place. And I actually bring up to Belisi because I know somebody who is living there. And he actually moved to Estonia because his rent was about to double.

So occasionally that can happen. where you're living somewhere, but the cost of rent or the cost of groceries or the cost of gas rises dramatically in a very short period of time, outpacing overall inflation in that nation, and that could trigger a move. But as long as you're flexible and you're willing to move, just like my friend, he moved to Estonia, then that is a deal-withable problem. But it does mean that you then have to create an entirely new friend group, build a new social circle.

If you have pets, you have to bring your pets and figure out what the quarantine rules are around transporting dogs or cats across country lines. There's a whole bunch of hassle that comes with it. Our brains will often bring up a laundry list nearly about a third as long as what Paula just brought up. No, I'm joking. Yeah, I know of everything that could go wrong. But our brains will. I mean, a lot of people that listen to. a show like this, right? Part of it is our neuroses of what am I missing? What are the things that

could go wrong? And it's funny because I got some great coaching on this, which was to take out a just a regular sheet of paper because the idea of tactile of actually writing it out is actually cathartic. But write out every one of these things, but only use the left half of the page. on the right half of the page then your brain is brilliant enough to bring all this up. Your brain is also brilliant enough to think of what are the things I can do to mitigate this risk. And once you do this exercise, your brain then quits being your enemy and begins being your friend and you go on offense, which is so, so, so powerful.

And some of these issues are solvable. I'm thinking about when you were talking about the idea of loneliness as an example, Well, I've been through this. I didn't geo-arbitrash, but I did decide that I was going to be a digital nomad. And I realized because I playtested it that that was not for me. So if you're able to play test it at all before you make this a permanent move, I would highly recommend that. That will help you realize where the loneliness is going to come from, where the problems might occur in the future. If you can do it for a month or six weeks or two months before you make this a permanent move,

thinking about a friend of mine, Tess Viglin, and if you know that name, you know that she used to be the host of NPR's marketplace. But Tess moved to Vietnam because she thought, Paula, to your point, that that was going to be a phenomenal move. And for the first two months, it was really good. And then it wasn't because the expat community was not big enough and people that were from Vietnam while being very accepting of her being there. And this is Tess's feeling, her very personal feeling about her individual experience. This won't be everyone's. Was she got this feeling.

The locals kept looking at her like, when are you leaving? Like, it's very nice of you to be here. We like you being here. But when are you going? She didn't feel that next door in Thailand. She ended up moving to Thailand and loving it in Thailand, and live there for a much longer period of time. But I think how you connect with a country, how you connect, is going to be a very individual

thing. And to the extent that you can playtest that, I really like it. Man, you hit the nail on the head, though, earlier on. There's so much modeling, Paula, that needs to happen here. People ask, when's the right time to work with a fee-only financial planner for one meeting just to dive in? This might be that case. because having a portfolio that is as oversimplified as your VTSAX portfolio,

I think that the danger of taking assets out of that investment to your detriment at the wrong time versus more of a bucketed strategy, one that has a little nuance to it, I think could be a big, big, big difference in your overall returns. Could it have huge implications. And the bad news is we can't predict those implications. People that don't know me know that I think VTSAX is a wonderful place to start. I think it's a horrible place to be when you have $2 million. But I truly don't think we need to get into that.

I do think that for this episode, it is definitely a time to do some more comprehensive scientific modeling. I think, Paul, you nailed it. And then rethink at least the short-term portion of that portfolio to better reflect the possibility that I might begin taking withdrawals. Yeah, I agree Tom would benefit from more portfolio diversification. The popularity in the fire community of an all VTSAX portfolio was largely driven by a book called The Simple Pactivity. to wealth written by J.L. Collins, who is a very good friend of mine. He's been on the show before on this podcast. And Tom, I'm not saying that you're, that I have no idea if that's where you learned it from or if you learned it elsewhere, have other motivations. But if you read a simple path to wealth by J.L. Collins, he emphasizes that this is a simple path. It is not the most optimal path. It is the simplest. So when J.L. Collins wrote that book, he was writing a guide for his daughter who has no interest in money, no interest in financial management. She doesn't want to think about it. She doesn't want to have

anything to do with it. So J.L. Collins wrote this book for her. And he wrote this book to answer the question, if you do not want to think about your portfolio ever, what is the simplest possible thing that you could do that has a decent probability of not steering you wrong. And the answer to that was VTSAX. And that is a great, great solution for somebody like his daughter who just doesn't want to think about it. I love it for everybody just starting out. We even go to these strategies often when we're starting out that I think are misplaced. I think there's room for these robo-advisor companies. I think they're fine. I think they're missing. I think they're marketed to people that don't need some of the things that they give. Like what 25 year old needs

tax lost harvesting? Like give me a break. No, they don't need that. And yet we see these companies market to 25 year olds and that's one of the big things they offer. The great thing VTSAX does is it takes this idea of what investments should I be in that everybody freaks out about when they're first starting out. Which investment's right for me? Oh my goodness. There's so many to choose from. There's this huge world. You watch CNBC or Fox business. You're like, you're overwhelmed. These talking heads just keep spewing all of these different investment. We've done it today. We talked about Delaware statutory trust. Are you kidding me? And I was talking about high yield bonds earlier and oh, 8%. All of these different investment opportunities. What I love about the simple

path to wealth, for everybody that hasn't read it. And, you know, you're just starting out especially, read it because that freak out factor goes away. You're like, I don't need to freak out about any of this. Right. I just put it in this very, very simple investment that is a wonderful place to begin. It's a fantastic place to begin for so many reasons, but mostly because it's pressing the easy button in the appropriate, perfect way. Love that book when you're starting out.

Exactly. But Tom is not starting out. Not at all. Right. So Simple Path to Wealth is great. you're a beginner and you're investing your first $50,000. But Tom is at the end of his journey, he's on the precipice of retirement and he has a portfolio of $1.8 million. So I agree some more sophisticated strategies, some more diversification would be very beneficial. That being said,

going back to the geo-arbitrage, love it. And it's such a powerful accelerant because you get to have an incredible lifestyle on a fraction of the cost of what that lifestyle would cost you in the United States. You can move to Turkey, right? You can move to, I won't just start randomly naming countries, but wow, there's so many options. So many options. But I love, and this is the through line of this episode, we always find one. The through line is if his goal is to lower costs, and you're doing that to lower cost, you have to think about what's the Achilles heel. And Paula, you went through a bunch of them. What are the potential Achilles heel? And it doesn't mean you shouldn't do it.

It just means I want to have thought about those beforehand so that when that bad thing occurs, I've already thought about it. I may feel uncomfortable, but you know what I mean? I feel comfortable with the fact that I'm uncomfortable because I've already considered this. And I can do an orderly path to the X. it. I can avoid panic later on because panic creates stupid decisions in the future. And we don't want that. So the fact that you've pre-considered what the Achilles heels might be, especially when the biggest Achilles heel is prices going up. I mean, to me, that is the number one thing. I'm doing this to lower my cost of living. What could make that go poorly? Coming back to the United States,

runaway inflation, political events, like what are all these things that could go wrong? And then what might my next move be after that? Just great. This modeling idea is so, so good. So good. Right. Also, make sure you have a great plan for where your snail mail is going to go. A lot of people overlook that because they think, I just get junk mail in my snail mail, so who cares? But if you ever have legal notices, certified mail, the infrequent but very important notices will often come by snail mail. So make sure that you have a good plan for that. Sorry, I know that's a little bit in the weeds, but it's an important piece of being an expat overseas. Well, nothing's important in your snail mail until that one thing comes that was incredibly important.

Exactly. Exactly. Yeah. But go for it, man. Go for it. Tom, I love the plan. So please. Me too.

Please call back and let us know where you end up. And also, it's okay to try a bunch of places. Go, go move, spend a month in a bunch of different countries until you find the one that you really love. So I think, I think you should like bring your favorite podcasters with you, especially if there's beaches involved. Or mountains. I think, I think that's a great. It's a great policy to bring your favorite podcasters along to check. out with you. Yes. And call back and let us know where you go, where you end up. We want the update. We want the details. So thank you, Tom, for the question. Joe, we've done it again. I can't believe it. I told you before we started. We jumped on. I said, number one, Monarch money told me that I'm $6 over on my insurances. Bankrupt. And number two, I love these questions. I said, I love it. And I did. They were great. They're amazing. And we found a through line once again, the Achilles heel.

Joe, where can people find you if they'd like to hear more of you? Oh, you will find me and a detailed discussion of Irma. That is a fun episode. We do a deep dive into how bonds work and why some of these great returns you see in bonds sometimes can really have some huge Achilles heels if you don't understand interest rate risk. We really go into interest rate risk in that episode along with this detailed discussion of Irma, trying to have a little fun.

with it because of the fact that, well, for most of us, you know, getting in the weeds about Irma is pretty difficult. So if we can crack a few jokes as we do Irma, the way we do on the Stack & Benjamin show, it makes it more palatable. So come join us, three days a week. Perfect. And we'll link to that in the show notes. That's our show for today. If you got value from what you just heard, please do something incredibly important. Share this episode with a friend a colleague, a neighbor, an acquaintance, with your high school classmates, with your college roommate, share it with your second cousin's grandma, with your person who watches your dog, share it with everybody that you know because that is how you spread the message of financial

independence, of great financial health, of taking charge of your money and your life. So thank you so much for sharing this. You know, it's hard for podcasts to get discovered in podcast players. So the way that we spread this message is through you. So thank you for helping share this incredibly valuable message. As you know, here on the Afford Anything podcast, we talk about the five pillars of fire, fire with two eyes, financial psychology, increasing your income, investing, real estate, and entrepreneurship. And we touched on many of those five today. So please, if you think that those five pillars are important and they're worth sharing and they're worth teaching,

please spread the word far and wide. Now, don't forget to subscribe to this podcast in your favorite podcast playing app. Actually, I think technically the word these days is follow, not subscribe, because it's free. So I guess I don't know, I don't know why. They change the vernacular on me from time to time. But subscribe, follow, pick your favorite verb on YouTube, on Apple Podcasts, on Spotify, on any favorite podcast playing app that you enjoy. While you're there, you can also leave us up to a five-star review.

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And I'll meet you in the next episode.