Afford Anything - Q&A: We Just Had a Baby and Lost Half Our Income

Episode Date: June 17, 2025

#617: Austin and his wife are worried about moving to a single-income household while supporting two kids. Should they free up cash flow by paying off a car loan, or tighten up and stay the course? Paul has been retired for seven years, but still can’t shake his anxiety about not having enough. Is there a good way to know when he’s finally escaped the dreaded sequence of returns risk? Jonathan wants to build up his taxable brokerage account, but he’s having trouble letting go of the tax benefits of a Roth IRA. How does he get past his psychological hurdles? 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 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, how many miles did your most mileage car have? Oh, I think $245,000? Oh! Made it a long way. Well, our caller today has got you beat. Oh, show off? 260,000 miles and going. Wow, there's a flex.

Yeah, but this caller is going to have to replace that car soon and has some debt-related questions associated with that. We're going to tackle that today. We're also going to tackle a question from a caller who is, wondering about sequence of returns risk. We often talk about avoiding it, but how do you know when you're out of the woods? How do you know when you have avoided it? We're also going to answer a question from a caller who's deciding between the mathematically sound decision versus the psychologically comforting one. We're going to tackle all three of those in today's

episode. Welcome to the Afford Anything podcast, the show that knows you can afford anything but not everything. The show covers five pillars. Financial Psychology, increasing your income, investing, real estate and entrepreneurship. It's double-eye fire. I'm your host, Paula Pant. I trained in economic reporting at Columbia. Every other episode ish. I answer questions from you, and I do so with my buddy, the former financial planner, Joe Sal C-high. What's up, Joe? Hey, what's going on, Paula? Wow, that was a long, hey, hey, hey. Hey, hey. Wow. What I like about today's three questions is that even though they're about a wide range of topics, we got sequence of returns risk, We got math versus psychology and we've got an old car that just keeps going.

I think there's going to be a common thread. We're not going to tell me what the common thread is. We're going to have to unearth it on our own. And we'll start with this first caller, Austin. Hi, Paula and Joe. This is Austin from Minnesota. Shout out to Joe and the SB crew, of course. I'm calling because we're at a transition point for our family.

We just had another child and a decision. decided to go down to one income. I'll share some details before asking the question. My wife's 29. I'm 31 with two kids. The income after the reduction is going to be 150,000 base with a 20,000 bonus. Savings is at about 52K between emergency and sinking funds. We spend just shy of $7,000 a month. Our investments are about $500,000 in retirement, tax advantage accounts to 401k IRA Roth, pretty even split between pre-tax, post-tax, honestly. $150,000 in taxable investments, $12,000 in cross-bult $529s for the kids. Our house is valued probably between $560,000 and $575,000.

We've had some recent renovations and things, so I'm not entirely sure of the value there. $390,000 mortgage at a 5.07% arm that's due to start adjusting in late 2029. We have a car loan at 16,000 at a 5.97% rate student loans that are just around $20,000 at and below 4%. They're all federal loans. So here's the question. With the reduction in income we're looking at, we've identified the car loan as a potential opportunity to improve cash flow. It's $570 a month. We're looking to get a $5,000 windfall from vacation time payouts and other bonuses during this transition. We also have a paid off car running strong at 260,000 miles on it.

I love this car to death. But I'd love to get it to 300,000 miles, but you never know. So really, do we pay off the existing loan or should be trying to manage it? it to work to buy the next car in cash? Do you even go as far as taking a few thousand of taxable investments out of the market to pay for this? That's probably the most painful part of the question, but I'm honestly curious. I feel like we couldn't get another sub-6% rate for a used car loan right now, and we're likely to spend around 18 to 27,000 onset purchase when the time comes. However, $570 a month would make a big difference and we can get right

back to saving most of that amount for the next car, even with the reduction in income. Again, it's about a $16,000 loan we're talking about. Thank you both for all you do. Look forward to hearing what you think. Thanks. Austin, first of all, thank you for the question. And I want to take a moment to highlight some of the achievements that you've made before I get into answering the question.

So first of all, $500,000 in long-term retirement assets at the age of 31 and 29. So you are, I'm going to call it, Joe. This guy is Coast-Fi. Awesome. Yeah. I mean, because, and here's, for the people who are wondering, how did we come to that? Here's the math behind this. So you and your wife are an average age of 30, right?

If you've got $500,000 at the age of 30, let's use rule of 72. We'll assume an 8% rate. So that means your money doubles every nine years. That means if you've got 500,000 at the age of 30, you'll have a million at the age of 39. You'll have 2 million at the age of 48. you'll have $4 million at the age of 57. And if you want to call it at that point, you certainly can. But if you want to stay in the workforce for another nine years,

you'll be doubling to $8 million by the time you reach traditional retirement age. I don't love. Generally, rules of thumb. But I will say the rule of 72 for me has always been a lot of fun. Yeah. Just because I can take a look at this stuff that I've done, No matter how old you are, if you're in the first few years of saving, you're like, I haven't done anything. But then you pull out the rule of 72, Paula, and you look at, especially for those

financial independence goals when you got a little bit of time, you're like, you know what? This is going to double three times or maybe only twice or maybe only once. But heck if it's going to double once and you've managed to cobble together $3,000, it's really $6,000. And it's a nice confidence booster. Yeah, absolutely. So I want to commend you on that because to have $500,000 in retirement assets at the average age of 30, that's incredible. So huge kudos to you on that.

In addition to that, you've got $12,000 in $529 plans for your kids, and your kids are really young, right? You've got another $150,000 in taxable brokerage assets. You've got a tax triangle that's built out as well. So you've got a good amount in taxable, and then you're pretty evenly split also between tax deferred and raw. In terms of the long-term game, you're doing a lot of things right. Now, with all of that said, let's turn our attention to your question, which is, what do you do about these cars? Because you've got two cars.

One car is paid off, free and clear, and it's got 260,000 miles on it, which is awesome. Love that. Love that you love the car and want to drive it until it's beyond 300,000. You've also got another car with a $16,000 note on it at just shy of a 6% interest rate. Don't love that quite as much, but we are where we are. Here's the crux of the issue as I see it. As much as I love the fact that you've got this car with 260,000 miles on it, the reality is that car could crap out tomorrow.

When you've got a car that's that old with that many miles, I'm with you. I hope that you can drive it until it hits 300,000 miles. I hope you can drive it until it hits 350,000 miles. But, Joe, you had a car that went to 200 and you said 40,000, 45,000? Yeah, made it a long way. So what happened at the end? We ended up donating it. No, but how did you know it was time, I should say?

Oh, it stopped running completely. Yeah. I mean, it was definitely the time. A friend of mine had joked with me that I was going to bring along a screwdriver to take everything else out of the car, have a screwdriver that I could use to just scratch off the VIN number and then take off the license plates and leave it along the side of the road. It didn't get that bad. But it was a car that definitely had done its work.

So we donated it. It no longer ran and got a little text donation. I think it was $300. But Joe, I'm betting you had aspirations to drive that car to $300,000 and beyond. Oh, 100%. Normally, if we thought this was an event that would be. maybe a year out, two years out, getting rid of that loan. The loan on the other car.

Yeah, so you could recapture that 500 bucks. I think it would be a good idea. But this sounds to me like it could be right on top of us. We don't know. It could be. And for that reason, I don't think I go that way. Oh, Joe, you and I agree on something. Shut the front door.

Yeah. Unfortunately, it's true because I think the exact same thing. The reality is that this car with 260,000 miles on it might not make it to next week. I hope it does. But I think we've got a plan for the idea that that car purchase is imminent. And given that, it doesn't make sense to pay off a $16,000 car loan at a 6% rate when there's the possibility of having to take out new debt that might be hovering as soon as tomorrow. I mean, heck, by the time this episode airs, is that car still going to be running. Right?

Death is imminent. I mean, I hate to say it that way, but that's how you've got to plan financially. And so, Austin, my number one priority is that I don't want to see you take out any new debt. And given that you have a car purchase that might have to happen any minute now, I want to see you build a fund for that next. car. And I know from your question, you've indicated that, hey, you know, if we pay off the existing car, it's got a $16,000 loan on it. We have a $5,000 windfall coming in. So minus that, we've got 11 grand to pay off. If we pay off that additional $11,000, then that's going to free up $570 a month. True. But at $570 a month, it's going to take you 28 months to recoup that $16,000.

There's a pretty good chance you're going to need this money sooner than 28 months. There's a pretty good chance that that car is not going to last for 28 months. Not to mention that 28 month calculation, that only covers the 16,000 that you'd pay off. It doesn't cover the amount that you would pay for the next car, which, as you said yourself, and the question is 18,000 minimum and could be even higher than that. So we're talking about an additional three years of saving at a rate of $5,000. $570 a month in order to be able to buy that next car in cash. That's too long. What do you propose he does then to come up with the $18,000 plus dollars for the next car?

I would first take that $5,000 windfall that they're expecting and put that into a fund that's dedicated to buying the next car in cash. And Joe, I'm curious to see if you and I are going to agree on this. So what I would do, because I really don't want to see him take out any new debt, I would only buy a car, that next car, the replacement car, I would only buy a car at a value at which I could float it in cash. If that means that I've got to buy a $5,000 car, that means $5,000 car. And what I would do with that realistically is the grown-up with the kids drives the newer car, which is the $16,000 car. And the grown-up without the kids, the grown-up who's driving by themselves takes the $5,000. a car. Wow. Yeah. I'm on board with that. We could talk more about that and why I like that,

even though Austin may think initially that that is suboptimal and not at all what he wants to do. There's one thing I might do, which is I'm looking at all these pots of money. And to your point, Paula, he is coast five, right? So my question is, if you actually begin with the end of mind and you timeline out these goals, are some of the goals possibly overfunded? Because when I was a financial planner, there were times and people with Austin's saving acumen would come in and I would go, listen, you're not going to need all this money you have in this pot over here. So we can either increase the goal, we can move it up or we can dedicate the money to something else. So there is a possibility, Paula, that some of this money that's sitting there might be able to augment the $5,000

that he has coming in so that he could initially start off much closer to that $18,000 number that he really wants. If we're pulling from money that's sitting there, that would have to come from one of three places. It would have to come from either his cash reserves, which represent about he's got a $7,000 spending rate. His emergency fund plus sinking fund represents about seven months worth of expenses, give or take. Option A, he could pull from the emergency slash sinking fund, which is seven months worth of expenses. I don't love that because seven months is about where you would want your emergency fund to be, right? Six months, really. So, Seven is pretty close of where you'd want your emergency fund to be.

So I don't love pulling from there. That's option A. Option B, I dislike the most, right? I love less. I dislike the most. Option B would be pulling from the principal portion of any Roth contributions. I'll put that out there because it is technically a possibility, but I'm going to immediately eliminate it because I can't stand that idea.

And then option C is pulling from taxable brokerage account. So of the three, ABC, cash Roth taxable. where should that money come from? Clearly, if he can swing at the taxable brokerage, should be number one, but there also is a fourth move that he can also make, which is if he's overfunded some of these goals

and he can slow down the saving, he might have more cash flow also than he knows that he has. Ah, both from contributions not made yet. Yeah, so maybe there's an opportunity there too. And it might end up being a combo of those things. So taxable brokerage is number one. Emergency fund for me is number two, if the cash flow thing doesn't end up being a possibility.

I do not love. I never have love the name Emergency Fund. And here's a rant, Paula. I've only done a couple times in the last 15 years. I've never liked it. Rant time. Rant time. Well, it's not that big of, it's not that big of rant, though. Because when I was a financial planner, I always called it a cash reserve. And in the financial planning community, we called it a cash reserve. When I moved over to this side of the microphone, everybody called it an emergency fund. All the financial influencers called it. it of emergency fund. I don't like emergency fund because I don't think that's what it is. I think it's an emergency slash opportunity fund and I see people sit on money that's either losing money slowly to inflation or it's keeping pace barely with inflation and they're missing on an opportunities because they don't want to spend that money because that's for a quote emergency. I don't think that's what it is. I think truly that, you know, we're going to talk about sequence of returns risk later on. Sequence of returns risk is really bad if you don't have any assets to pull from, right? Very few assets to pull from. And like we'll talk about with the future

color, it gets better. And that's going to be the crux of the question. It gets better when you have more assets. You don't have to worry about as much. For Austin, Austin does have these suboptimal places he can pull from while he's rebuilding it because of the car purchase. So for me, digging into the quote emergency fund, aka cash reserve for part of this car purchase. If, and this is the big if, if he's ahead on the goals and we know that pulling from there means I could, if worst case scenario happens, pull even more money that was slated for a different goal and I don't have to worry about it more than pulling from a suboptimal spot. So I pull money from my quote emergency fund for this.

And then something really bad happens and I need that money. And I have to go to this place. I don't want to go. Well, that's way better than taking a loan. It's not targeted for that, but it's not the end of the world. If he's ahead of the game, I do like pulling from the emergency fund. You know, Joe, I'm going to throw out another alternative, though. Oh, gamble.

What about? Go to the casino. Ooh. Exactly. put it all on red. After you have a reduction in income, your future income, your new income, is going to be, you said, 150,000 base plus about 20,000 bonus. So your future income is going to be 170,000 a year. Now, I assume that you're referring to pre-tax income. So ballpark, let's shave 50 grand off of that. That represents around a 30% rate. So that's supposed to represent federal and state and local.

Again, I don't know your tax rate. I don't know even what state you live in, so I don't know if you have to pay state income tax or not. But we'll just take a 30% ballpark as a round number, right? So, Shea 50 grand off of that. Your $170,000 income goes to $120,000, $19,000 as your take-home pay. So $119,000 rounded up to $120, that's $10,000 a month. You've stated that your expenses are $7,000 a month. So after tax you're taking home 10K, you're spending 7K, I see a gap of 3K there.

I see where this money for this next car could come from. And Joe, to your point, you're coming at it top down and I'm coming at it bottom up and maybe we're actually talking about the same pot of money. Because maybe in his mind that 3K differential is currently what's dedicated to long-term retirement assets. Yeah. Possibly, I don't know. But maybe that's where that additional 3K is going. but I certainly see a gap of $3,000 between what you make and what you spend. And in addition to that, yeah.

Well, but remember, Paula, they're going to one income. No, no, but the new income is going to be $170 total. Oh, but the new income, right, right, right, got you. Right, right. The new income is $170 total. Yeah. So, yeah, that $3,000 gap, I think that could be put towards saving cash for the next car. And I'd like to see you fully fund a pay cash.

for the next car bucket before you pay off the other car. Because what would make the least amount of sense, in my view, is paying off the other car at its just sub-6% rate and then being in a position where you have to take out a loan again three months from now, four months from now. That doesn't make any sense. So create a bucket of money. Seat it with the $5,000 initial windfall that you're planning on receiving. continue to contribute to it monthly with the gap between what you earn and what you spend,

because it sounds as though there will still be a gap, and continue doing that until you have at least 18,000 saved, if that really truly is the lowest amount that you want for that next car purchase. Or said differently, continue doing that until you have a sufficient amount of money that that's the money you're going to use for your next car, and you're going to pay cash for the next car. And once you've done that, and once you have a buy the next car in cash bucket fully filled, then pay off the old one. But Joe, I think this is the first time you and I have ever told a caller to save less for retirement.

Back it down, show off. Well, and to be clear, we don't mean forever. But you are so well funded for the long term that I think both of us fear that you have funded the long term at the expense of the short term. Well, but here's the thing, Paul. That's for living the same lifestyle. It appears he's living now. Maybe he has big goals, big dreams. Maybe it's something that we don't know about there.

But I think calculating all that out to make sure makes sense. But yeah, on the surface of it, he can, over the short run, probably back down the amount that he's saving and put it toward this car. And then jack it back up again later. Yeah. And I will say, it took me a long time to get comfortable with the idea of. of not fully maxing out every single retirement account. Because for my 20s, I took enormous personal pride in that. Like, I kind of made it my personality.

And as I've gotten older, I've come to realize that there are some years where I have to choose between fully maxing out the retirement coffers and putting money towards other objectives. And particularly when you've done a good job in your 20s of building up those retirement savings, Austin, as you have, what you've given yourself in your 30s and beyond is breathing room to be able to back off of that a little bit because you front-loaded it in your 20s. So celebrate that win. It's a great place to be. Absolutely. So thank you, Austin, for the question. And congratulations on the second child. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and efficient.

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Our next question comes from Paul. Hi, Paul, and Joe. My name is Paul. I've been listening for a long time. I love these episodes where the two of you get together and go back and forth on some of these questions that listeners bring to you. I've got one here that I haven't heard discussed, and so I'd love to hear your thoughts. We always talk about sequence of returns risk, but how do you know when you have escaped that risk? Here's our scenario. I'm 59, and my wife is 52. This July, I'll turn 59 and a half,

so I'll get full access to my retirement accounts without penalty. We have approximately $3.3 million spread between my traditional IRA at 1.6, my Roth IRA at 700,000, my wife's Roth at 384,000, her set by IRA is 48,000. We have 54,000 in brokerage account, $51,000 in cash. We own our house outright. I left work in 2018 at the age of 52, and at the time, we had about $1.7 million spread between the portfolio and cash. My wife also no longer works. So how do you know? How do we feel comfortable enough knowing that we have escaped that sequence of returns risk?

Our lifestyle cost us about $70,000 a year? How do we know when we can just really feel safe and no longer worry about this? We'd love to hear your thoughts. Thanks. Paul, thanks for the question. And this is a big question, Paula, that if people aren't thinking this, They should be wondering about this because it's an important part of good financial planning. So let's talk about what sequence of returns risk actually is.

Sequence of returns risk is this idea that you retire on the wrong freaking day. January 1st, 2008. And everything goes bad the second that you retire. And now the market goes down and you have a bunch of money that's in the financial markets and you're pulling it out at the wrong time, which under normal circumstances, Paula, our portfolio would be able to heal just through time and not touching it. But you're in the spot where if you don't touch it, you don't eat. Yeah, exactly. And I think 2008 is the perfect illustration of sequence of returns risk.

I mean, if you had retired January 1, 2008, your portfolio would have plummeted 50%. And if you didn't have cash reserves to pull from, you would have had to sell when your portfolio was totally beat up, which means you're selling low, you're locking in the losses, and your portfolio forever from that point will be damaged by the fact that you've had to harvest in October 2008. It could be really ugly if you happen to just choose this wonderful event at the wrong, wrong, wrong, wrong time if your timing is really bad. So that's exactly what Paul is worried about. And how do you know when you're above that? Well, and the answer is, you know you're above it when you've so much money to reach the goal that you can have the worst sequence of returns and you're still going to be okay. Like that is the exciting moment.

Well, how do we know when we have enough money to do that? And the cool thing for Paul and for everybody listening, there is some software that will lead you down that path. And it is called a Monte Carlo simulation. And it is this software that some pieces will look at a thousand different iterations of if the market does this on day one and this on day two and this on day three. And then it randomized it is it again, a thousand times, 10,000 times, 100,000 times. And different Monte Carlo simulations will look at more and more. So if you really want to throw one, ask that question, how many different random, scenarios are you looking at to see whether my portfolio will weather that storm or not.

All you do with the Monte Carlo simulation, you put in where all your money is. And then it... Do you have to give them your social security number and your mom's maiden name? If you do that, it might be a scam. All right. Put in all your money. Yes. Put in all your money, the type of account that it's in, and then hit go.

and it will then run through all these randomized scenarios. So it will try to predict the future for you. The output from this is a percentage chance that without changing anything, you're going to be okay, just based on the past, right? The past doesn't equal the future, but based on all the things

that could possibly change about the market, this is the percentage, you're going to be okay. Most people, when they look at a Monte Carlo simulation, if they're not used to doing this very often, are looking for 100% certainty, or at least 90, 95% certainty. And I've seen people freak out at 95% certainty. It could be in that 5%.

What professional financial planners will tell you is you're looking for a number closer to between 80 and 85% certainty. And the reason for that, Paula, is the fact that if you find out when you run the Monte Carlo simulation, that there's a 20% certainty that you're not going to be okay, and an 80% certainty that you will be,

most of that remaining 20% where you're not okay, you're off by a little. You're not off by a ton. So you may be able to make some small changes to your lifestyle that have big impact over the fact that you're going to live this change for the next 20 years. So maybe instead of spending $3,000 on a vacation, you spend $2,500, you leave the other $500 in the market, something like that, which doesn't

seem like a lot of money, but magnified over 20 years ends up being a nice chunk of money. So most financial planners will tell you that if they see 80%, they feel really good. Under normal circumstances, even if they see 70, 75% chance, they feel pretty good that you're going to be okay. If you're younger and you have a lot of business experience and your expertise are in areas where you could jump back in and go back to work and you're happy with that, certainly a 70% probability is fine because if you're okay with going back to work, well, then great. Fantastic. If you're not, I think looking at 80, 85% is good. But Paul, to directly answer your question, if you see 90 to 100%, I think you're going to be A.O.

when it comes to sequence of returns risk without changing a thing. So where can Paul find the software that is available to run a Monte Carlo simulation? The best software is available through financial planners. So you're going to find great stuff there. But if you want to just take a cursory look, we went to Portfoliovisualizer.com when we were talking about the efficient frontier over the past year. Guess what? If you go to Portfolio Visualizer, look off to the right and click down on tools,

Under portfolio simulation, Monte Carlo simulation, and they have some rudimentary tool. So if you want to get just a first look at that, I think you can just go to Portfoliovisualizer.com and it will be free. Right. And we're showing, for those of you listening via audio, if you want to check out our YouTube video, we're showing a demonstration of that on the screen right now. That's a great first place to look. And that's probably where I would send Paul. Well, I won't even say probably because I'm here and I have the microphone. Paul, that's where I'm sending you. I am sending you there. If it's borderline, I think that's when you bring in the pro. And certainly if Paul already works with a pro and Paul gets this as part of his annual fee,

ask the pro to do that as part of your overall financial planning. But let me ask Paul's question in a different way. Paul retired in 2018. It's now, breaking news, 2025. given that Paul is seven years out of the workforce and given that his wife, though I don't know how recently she retired, but she's also retired from the workforce, given that length of time, are there any rules of thumb that say, hey, if you retired January 1st, 2000, well, okay, granted there was a market crash that happened in 2000, 2001 as well.

So that also would have subjected due to sequence of returns risk. But let's say you retired January 1st, 2002. And you've got another six years before 2008 happens. All market started declining in 2007, though, right? But you've got five years before the market begins declining in what we now know is the Great Recession. For those people who retired January 1st, 2002, were they out of the sequence of returns risk window at the time that the Great Recession began in late 2007, early 2008? The answer to that is yes. These simulations show that the most damage to your portfolio happens in the early years.

So what some professionals will do early on in a portfolio's life, meaning the time that you retire, if you're close to your goal, you barely have a safe withdrawal rate, they will lower the risk in your portfolio to compensate for the first few years because of the fact that when you look at surviving a long period of time, damage up front is by far the biggest damage you can do. And if your portfolio isn't damaged during those early years, damage to it in subsequent years, because you survive those first few years are not going to be nearly as big. Now, if you've overspent and you're still at that maximum safe withdrawal rate, the sequence of return risk will persist.

What the Monte Carlo simulation will show in those instances where you're, not going to make it. Most of the time, the reason you didn't make it is because those first three or four years were awful. We're absolutely awful. So in other words, during those years, if you survive those years and you actually had a good market and up market, now you have fewer years to live. None of us gets out of here alive. Financial planning is the only field in which that's considered a good thing. Well, the good news is you've got fewer years to live. That's right. late news. Let's put that a better way. Your portfolio doesn't have to withstand as much. How about that? That's the kind of gentler way to say, you're not going to live forever. You're going to die soon.

Sooner. Hopefully not soon, but sooner. Sooner. So your portfolio doesn't have as long of a trek anymore. And it lasted those years, which means your safe withdrawal rate number is probably higher now, Paula. but you're happy living on the amount that you're living on currently, that being the case, you're going to be fine if you continue to maintain the same lifestyle that you had when you began retirement. With all of that said, I mean, this might be too simplistic, too reductive, but could we state that you mentioned three or four years, could we state that three, four, five years is a rule of thumb barometer assuming that you don't overspend?

If, if you don't overspend. Yes. Yes. So if Paul did these calculations that said, I'm going to be okay to retire and I'm under that safe withdrawal amount and I haven't seen the sequence of return risk, I would bet if he ran it today, he's much more certain. The Monte Carlo simulation will look way better today than it did then. Yeah. And given that he retired in 2018 and has seen, with the exception of short duration events in 2020 and 2022, Paul has, for the most part, between 2018 and 2025, seen predominantly an upmarket in his first

seven years of retirement. Oh, yeah. And cumulatively, it's been up into the right, right? Yeah. Yeah. In a big way. So based on the timing. He's probably looking good.

Yeah. Yeah, Paul, run the Monte Carlo simulation. But if you were good enough to retire then and the math worked out at that time, I think the math is working out a lot better now. So thank you, Paul, for that question. And congrats on your retirement and on your wife's retirement. Next, we're going to answer a question from a caller who's wondering, should he pick the mathematically sound decision or should he pick the psychologically comforting decision?

We're going to address that next. 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 ticking on savings you won't want to miss. Join IKEA family for free today and unlock

deals on everything from holiday must-haves to cozy at-home essentials, all the little and big things you need to make this season shine. But don't wait. Like leftovers at midnight, our Black Friday offers won't last. Shop now at IKEA.ca.ca.com slash Black Friday. Ikea. Bring home to life. It's week two of Canadian tires early Black Friday sale. These prices won't go lower this year. So you're lying on the floor? Save up the 50% November 13th to 20th. Conditions apply, details online. Welcome back. Our final call today comes from Jonathan. Hey, Apollo and Joe. This is Jonathan out in sunny, Spokane, Washington, and I have a financial psychology question for you. So here's the situation. I've invested enough into my Roth and pre-tax accounts such that I don't need to contribute to them anymore.

They'll grow to the number that I need by age 59 and a half. I'm sure there's a term for this situation. Wink, wink. Anyhow, I've got 7,000 per year to invest. for at least, say, the next 10 years. And I want that money to be accessible before age 59 and a half. So I could put it into a Roth. I could take those contributions out tax-free, or I could put it into a taxable brokerage. I know if I put it in the brokerage,

I'm going to pay more in taxes, but I know if I put it into the Roth, I'm going to struggle a lot psychologically pulling money out of that Roth. Do I bite the bullet, pay the taxes, not deal with the psychological stress? It won't be that significant, but still. Or do I just put it in the Roth and save myself a few bucks on the tax side of things? How should I think about this? Thanks in advance. I love this question, Jonathan, because I feel your pain. I alluded to this in my answer to Austin's question earlier in this episode when I talked about how, in theory, putting money into

a Roth account and then withdrawing the contributions is a possibility. But in practice, it's a possibility that I and pretty much everybody who's listening to this in the afforder community all collectively feel queasy about. If I can be so bold as to make an assumption about the majority of people listening, I think we all really don't at a gut level like that idea, because money in a Roth, we're so conditioned to keep it in the Roth, since the Roth has such amazing tax treatment. So the idea of pulling contributions, we all know that we can do it penalty-free, but we don't want to. That's frustrating. It's even more frustrating with annuities, because annuities traditionally high-fee instruments, they don't all have to be, but

most are. And the annuity industry knows, Paula, that with annuities, it's, first in last out, meaning that annuities are tax deferred, not tax-free like a Roth. And when you grow money, you've got to take out all the growth before you touch your principle. And the annuity industry knows that the science behind that is once you put money in an annuity, you don't take it out because you're going to pay a ton of tax on any dollar that it makes, which fortunately is a lot less than other places because the fees are so high, you make less money. But I know, right?

Oh, man. A little sarcasm there. Joe's idea of good news. I know, right? Right. Great news is your product sucks so bad that there's not going to be a bunch. But it is a problem. Is that the through line of these answers?

Joe has a weird idea about what constitutes good news. Right. Good news. You're going to die. Great news. Your product sucks. Yeah. No, not at all.

I'm like the grim reaper today. But seriously, there is a mental. issue with, I've got this tax treatment. What if I need it more next year than I need it this year? So I'm going to go ahead and I'm going to leave that alone because of the tax treatment. And then you don't end up ever spending that money and whatever joy it might have brought you. How I think I would approach this is with a one-two punch. I'm in favor of doing the thing that is psychologically most comforting because at the end of the day, we as messy imperfect humans are our own big. biggest obstacle. And the more that we can work with our nature rather than against it, the more we set ourselves up for success. That being said, the reason I say I take a one-two punch here is I also would interrogate the premise that you will always feel the way that you do right now. Remember how earlier in this episode, actually, in the answer to Austin's question, I talked about how when I was in my 20s, I took a lot of pride in maxing out every retirement account every year, max out my 401k, max out my back to a Roth IRA, max out my HSA. I took so much pride in that. It was beyond an activity. It was an identity. Partially it's because for a big chunk of my 20s, I couldn't. I just didn't make enough money to be able to do so. So once I finally could, that was, why wouldn't I? Right? That was my

status symbol. Look at me with all of my maxed-out retirement accounts. And part of it was a deep, deep sense of identity as the type of person who does that. The notion of not maxing out, fully maxing out, all available long-term tax-deferred or tax-advantaged accounts was at its core a threat to my own core sense of self. So of course I would never do that. Of course I would never suboptimally contribute to all my tax-advantaged accounts, right? That's not who I am. But over time, my sense of identity shifted. And with that shift in identity came a deep and true shift in my attitude, my feeling, my approach to how much money I need to put into tax-advantaged accounts today. Back to Roth IRA, HSA, workplace tax-deferred account, all of the above.

It's funny because when you look at the CFPs list of different types of risk, that risk, Paula, which I think is a huge risk that often frightens me when I'm in online forums and I hear people talking about things in a very permanent way, really isn't addressed in their list of risk. Like the closest might be horizon risk where the horizon of you needing this money changes. And it's because for some reason or another, you need it differently. but what I love that you got to there was what's behind it, which is I've changed. My life has changed so much through the years and my feelings about security, my feelings about my risk tolerance, my feelings about what makes me happy have certainly changed. There's things that no longer bring me joy that used to bring me a lot of joy. And then there's other stuff that I absolutely love.

Who knew that I would get to 57 years old and realize how much I like? olives. I didn't like olives at all. And now I just freaking love olives. I'm so excited to go to Greece and just have so many olives. I can't wait. But I think that's a real thing when people talk permanently about I'm 27 years old and I think I would love for the rest of my life living in a tent in the woods. And so I'm going to drop out because I'm financial independent on that lifestyle. I'll tell you at 27, I felt that way. At 57, I couldn't do that in a million years. So I think it's difficult for us to rerail back on to where we're headed with Jonathan's question into, I think that if you're naturally a saver, if you're naturally careful with your money,

there's never going to not be a little bit of pain. Like you don't overnight become a spender. don't overnight go yolo you're just it's not going to happen it's not going to happen it's part of your gene pool so for me paula i don't know i think that this all begins with how you look at spending i think this is a deeper conversation on how you think about spending money, much more than it is a tax question. Because frankly, if I make the thing that I'm spending money on valuable enough that it is a core to that personality that you're talking about, I don't care what account it comes out of.

This is the thing I've wanted to do my entire life. And you know what? It is worth it no matter what pot it comes out of. And if we're spending money that way, then certainly I want to get the best tax treatment impossible. But I think I have to work through that roadblock first. Right. Because if Jonathan does the most mathematically sound thing, he would put all of this money, as he stated in the question, into Roth accounts, enjoy the tax advantage that accrues, and he'd withdraw the contribution. And to the extent that he would have to withdraw the contribution for basic food,

shelter and clothing, anyone would do that just for the need to survive. I think where the challenge comes in is can he overcome the psychological barrier that would perhaps prevent him from going anything above subsistence? Because the risk is that he hamstrings himself and he hamstrings his life because he just can't bring himself to take out anything above subsistence. And that's not a life that we want for him. And that's not a life, I assume, that he wants for himself, right? It's not an optimal life. And remember the distinction between being optimized and being optimal. I think in that scenario, by the way, that very much deserves professional help. From a financial planner or from a therapist?

I think a financial therapist. I don't think a financial planner. Financial planners, since I've left the business, are finally getting what. what we need it all along, which was help on the behavioral side. And now the behavioral component is one module of the certified financial planning coursework. But ask any CFP. It still isn't anywhere near the amount of behavioral work they do. And so they're not adequately trained. I think most wannabe.

And over time, they get a lot of experience in that area. So you might find decent help. But I think in that case, Paula, we go with somebody who's been specifically trained to deal with this because this is not a financial issue. Right. Jonathan, one thing that I would probably do is, and this is my answer to a lot of questions, is spreadsheet it out or run it through a couple of calculators, assuming certain set of assumptions around what your contributions are and what your return assumptions are, what would be in dollars and cents the actual difference between scenario A and scenario B? The difference between the Roth scenario and the taxable scenario,

if you were to make those contributions and let them accrue in these two different types of accounts with different tax treatments. This is going to be an exercise of making assumptions, and maybe you run a couple of different scenarios so that you find a range of possible outcomes, so a best case, worst case, and midcase range. But I want to know what is the actual dollar amount that we're talking about? How much more would you make if these were Roth contributions? So I'd want to know what that number is. And then on the flip side, I would want to continue to interrogate the question of how certain are you that you will feel in the future the way you feel today with regard to that reluctance to take out Roth contributions. And to ask that same

question in a slightly different way, what could you do to make yourself more comfortable with the idea of withdrawing Roth contributions. And if you think through that and you think, you know what, here are a list of things I could do, here are a list of tactics, but I'm not entirely sure that these tactics are going to be effective. You come up with that list of tactics and then assign a probability to it working out. Maybe you go through all the tactics and at the end of all of those tactics, you still feel the same. No amount of self-hypnosis or affirmations. or any list X, Y, Z tactic here, right? Maybe no amount of those tactics are actually going to work out.

And you think that there's a significant probability that even with effort, with concerted effort, you might still feel that reluctance to ever pull that money out of Roth accounts. If that's the case, then I think you have a probabilistic answer. I am no expert in this area, but I have had a lot of experience, like a lot of people, that have guided people through the saving and spending process, I think when the goal is bigger than the money, then that's your fulcrum. That's the leverage you need to apply to the situation. If it's not, then I think we go back to Vicky Robin. Why am I spending the money in the first place? If it doesn't matter which account you pull it out of, then I think the goal was bigger.

If it does matter, then my question is, was it worth even pulling out your wallet if this account was better than that account? Like, really? I continue to return to spending based on your value system. You know, Vicky Robin is notoriously frugal, but our mutual friend, Paulette, convinced her to buy a hot tub. Yeah. Even Vicky Robin convinced her to buy a hot tub. That's what a great persuasive writer. Paulette Perhatch is. That's why she gets the big gigs with the New York Times. Yeah. But it was exactly that question of your money or your life. Which is funny, just repeating Vicky's words back to her. Mm-hmm.

That is funny. But it's not true. Right. If I think about the biggest things in my life that I truly want to do, I'm not going to obsess about Roth versus non-qualified. But if I'm buying something that I'm a little sketchy on, well, then I start parsing that more. But to your point, Joe, that is actually the thing that worries me because what if Jonathan gets to that point and he decides nothing is worth it? Nothing's worth it.

And so then he lives this very pauper, ascetic subsistence lifestyle. If that is you and it suits you and you get incredible joy from that, then. great. Make sure that you've got a donor-advised fund or some good charitable organizations or a nice estate plan and live that life. But if you recognize that that's a problem, then I think, Paula, then it's time to bring in the financial therapist. They're wonderful. You and I have talked to financial therapists before on our shows and in our careers. These people can really help and they have a lot of compassion. They've seen this situation a thousand times. So, So where it feels very unique to you and me, to them, they understand what you're dealing with.

You can have the comfort of working with somebody who not only has the training to help you, but they've seen it before. And I'm glad, by the way, Jonathan asked this question because there are tons of people, especially in a community that loves to nerd out about the stuff you and I talk about Paula. Yeah. These are the people that worry enough about the type of. of questions Jonathan asked that we think a lot more about our money and not enough about the value train. Yeah, not enough about what's it all for. Yeah, yeah, yeah. Sometimes it gets so fun keeping track of optimizing our money and doing the right thing that we forget. There's a reason why I'm actually doing this thing. I follow a lot of the fire-related subreddits.

Oh, you know what? It was in a Henry subreddit, actually, the high income not rich yet. Someone posed a question. He made, I think if my memory serves me correctly, somewhere, something along the lines of 500,000 a year. And his expenses were under 3,000 a month. I mean, there's just massive, massive, massive delta between his income and his expenses. And he was asking if he should buy a fancy car, like a really fancy car. It was something that he was kind of dreaming of. which he could easily do in cash a bazillion times over. And people were recommending, like, maybe buy less of a car, maybe by, you know, we thought about getting a used one, right?

Like, so many people in the comments were missing the notion that this was an indulgence that he could easily afford to buy three or four of them. And were instead, in the comments, trying to find ways for him to frugal back or cheap out on this one splurge that he really wanted and that he easily could get. So I think that's a perfect illustration, Joe, of what you were talking about. People will often deny their own dreams because, well, I know it's my dream, but it costs a lot. Were people saying, just buy the car, buy the car, buy the car, like 500 comments? A few people were, but a lot of people were saying maybe buy a lesser car.

That doesn't do it for me. Yeah. It's either buy the car or don't buy the car. the car at that point. Don't buy the car because the car doesn't mean anything, but having a lesser car that you don't care about as much to spend the money on something that you're always going to view as suboptimal. Yeah, it's like the worst of both worlds. I think it's a horrible answer. Yeah. Either buy the thing that lights you up or don't buy anything. Right. If you're going to go, go all out. Yeah. Yeah. That just buy the lesser car is the worst answer. That's so bad.

So Jonathan, we don't have a clear answer for you, but we have a clear answer. have a few different prisms through which you can look at this. Yeah, I think that gives them some direction on how to look at it and think about it. I don't know that he would have said, put the money in the Roth. Like he would have accepted that as the answer. Yeah. Flip a coin. That's right.

Next question. Yes. Heads Roth, tails, taxable. And we're out of here. But that could be part of the answer too. Flip a coin, see how it lands. See how you feel about how it lands. and use that as information.

Well, you've heard me talk about how I use that in client meetings. Right. How do you want the coin to land? Yeah. I flip a coin. They can't decide. And then when I flip the coin and ask them, which one do you hope it is? 99% of the time had an answer.

And then they get pissed at me because I take the coin and put it in my pocket. And they go, whoa, what was it? And I go, it doesn't matter. We figured it out. Yeah. You wanted it to be heads. Yeah. You know?

But you don't know. until the moment of the coin toss. I do a modified version of that. I see how it lands and then I immediately assess like what is my feeling about it. Yeah, because there's all there's an immediate, instantaneous feeling about the outcome of how that coin flip landed. Right. So what is the immediate visceral reaction? Are you disappointed that it landed heads? Are you disappointed that it landed tails? Like what's that instant gut feeling? I take stock of that because that feeling is information. that's a data point. So thank you, Jonathan, for the question. Thank you for inspiring this discussion. Joe, we've done it again. Such great questions. And I love the fact that we had a

psychological question in there. We had with a sequence of returns, how to use the tools, and a really good financial planning question around purchasing the car. And so much of what we talked about in the answer to Austin's question was foreshadowing around what we were. we ended up discussing in the answer to Jonathan's question. One led to another, led to the next one. Exactly. Just like we planned it. Just exactly like we planned it.

Joe, where can people find you if they'd like to hear more of your planning wisdom? The Stacky Benjamin Show is a great place to find us three days a week every Monday, Wednesday, and Friday. And on Fridays, you will find the Paula Pant on most of those episodes rocking in these great discussions. these chatty discussions about financial planning topics, often the same topic we talked about all week long and just kind of bringing it to a nice warm community close on Fridays and also rocking the trivia in the worst way possible. Yeah. The thing I do want to draw attention to, though, is Austin gave a shout out to stacking

Benjamin's and I know why he did that, Paula. He did that because he's in Minneapolis, St. Paul, or at least he said he was. And that's where we have our only. Or at least he said he were out. It's where everybody wants to be from. He claims to be from Minneapolis, St. Paul. Right. He probably is in Des Moines.

We all know he's from Lexington. He's throwing us all off. But in Minneapolis, St. Paul, we have the Stacking Benjamin's Meetup Group. And so they meet once a month. They have a Facebook group. If you just put in Stacking Benjamin's Twin Cities, if you're in the Twin Cities, I talked last week about these great documentaries, Pete and Rebecca Davis. And they're great movie, join or die.

In August, they're going to do movie now. They're going to get all the stackers together, the afforders together in the Twin Cities and have popcorn and have fun watching this great documentary that in the first half is about how we need to join things more for our community. But the whole second half is forget community. You are 50% less likely to die this year if you belong to one of these clubs, a group, something that's bigger than you, a phenomenal movie about what it truly means to have a happy retirement. But Joe, that takes away your good news. You're going to die sooner.

Good. Right. So come watch this movie. Come watch this movie. Watch the movie because we want more longevity risk. Oh, wow. Yes. Way to raise the stakes. You're welcome, America, especially Twin Cities. So if you're in the Twin Cities, join our media group, a great group of people that meet once a month. Awesome. Awesome. Well, thank you so much for being part of this community. Thank you for being an afforder. If you want to talk virtually online with other members of this community, go to afford anything.com slash community. That's afford anything.com slash community completely free. You can organize into different spaces based on what you're interested in, maybe retirement planning, maybe debt payoff, maybe

saving for college, maybe general pursuit of FI or Fire. So you can organize based on interests and it's a great place to meet like-minded people, share ideas, ask questions. Again, that's afford-anything.com slash community. Thank you so much for being an afforder. I'm Paula Pan. I'm Joe Salci-Hi. And we'll meet you in the next episode.