BiggerPockets Money Podcast - 200: Episode 200 Special: A Personal Finance Masterclass with Kyle Mast

Episode Date: May 28, 2021

We love when guests come back on the show, especially when that guest is Kyle Mast. You may have heard him back on episodes 41 & 84, but now he’s here to celebrate our 200th episode with us! Scott and Mindy have come up with their own questions to ask Kyle ranging from retirement accounts, to asset allocation, to the future of cryptocurrency, and more. If you’re worried about retirement, Kyle has you covered. We go over some great topics like whether you should choose a traditional 401(k) or a Roth 401(k). From there, we talk about whether a pre-tax account or a post-tax account makes the most sense, based on your income, tax bracket, job security, and more. We’ll also touch on HSA (health savings accounts) which are a fan favorite as well as a tried-and-true winner for almost anyone who qualifies for one. Post-retirement is another topic that rarely gets discussed on the show (since we’re all so focused on getting wealthy, not deploying that wealth). If you’re worried about hitting required minimum distributions soon, you may have the ability to save hundreds of thousands of dollars in the long run with some tips from Kyle. We’ll also talk about diversifying your accounts now so you can be nicely positioned upon retirement. Lastly, we talk about inflation, rising house prices, tech stocks, and (Mindy’s favorite, of course) cryptocurrency. All of these are incredibly relevant right now and it’s great to hear from someone as neutral as Kyle on the pros and cons of each. In This Episode We Cover Traditional 401(k)s vs. Roth 401(k)s and the tax implications of both Looking at your retirement accounts from a long or short term position Taking the 401(k) match whenever a company allows you to Required minimum distributions and the 4% rule Solo 401(k)s and and retirement accounts for entrepreneurs  Cryptocurrency, stocks, real estate, and precious metal allocation And So Much More! Links from the Show BiggerPockets Money Facebook Group BiggerPockets Forums Finance Review Guest Onboarding Scott's Instagram Mindy's Twitter BiggerPockets Money Podcast 41 BiggerPockets Money Podcast 84 BiggerPockets Money Podcast 118 Mad Fientist BiggerPockets Money Podcast 120 with Michael Kitces Nerd's Eye View Check the full show notes here: https://www.biggerpockets.com/moneyshow200 Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast show number 200. 200. We are bringing back certified financial planner Kyle Mast to talk about things you should be considering on your journey to financial freedom. Don't know what comes up later on. And if you have a million dollar $4.1 or pre-tax IRA, you don't have a million dollars. You have a million dollars minus tax. What you have in there, there's a liability built into that account still.

and that needs to be mitigated somehow. Hello, hello, hello. My name is Mindy Jensen, and with me as always is my Paragon of Virtue co-host, Scott Trench. Is that a signal, Mindy? Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story

because we truly believe that financial freedom is attainable no matter when or where you're starting. That's right, whether you want to retire early and travel the world, going to make big-time investments in assets like real estate, start your own business, or deal with the good problems that come from becoming wealthy early in life. We'll help you reach your financial goals and get money out of the way so that you can launch yourself towards those dreams. Normally, Fridays are Finance Fridays where we dive into a listener's financial situation

and see what sort of ideas we can give them to consider that may further them down the path towards financial independence. But today is episode 200, and we wanted to do something really fun for this momentary. We brought back a show favorite, Kyle Mast, to come in and give us some things to think about on our journey. And frankly, some of these questions are rather selfish questions because they're questions that I have. And I figure that if I have them talking about financial freedom all the time, I'm sure other

people have had them too. So Scott, without further ado, let's bring in Kyle. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments. the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal

finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code Pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle. Achieve your financial goals for good with Monarch, the all in one tool that makes money management simple. Use the code Pockets at Monarch.com for half off your first year. That's 50%

off at Monarch.com code pockets. I love Matt, said no one ever. Nobody starts a business thinking, you know what would make this more fun, calculating quarterly estimated taxes. But somehow every small business owner ends up doing it. Your dreams of creating, selling, and growing get replaced by late nights chasing receipts, juggling invoices, and wondering if that bad sushi lunch with Scott counts as a write-off. Change all that with Found. Found is a business banking platform built to take the pain out of managing money. It automatically tracks expenses, organizes invoices, and even preps you for tax season without you doing the heavy lifting. You can set aside money for business goals,

control spending with virtual cards, and find tax write-offs you didn't even know existed. It saves time, money, and probably a few years of life expectancy. Found has over 30,000 five-star reviews from owners who say, Sound makes everything easier, expenses, income, profits, taxes, invoices even. So reclaim your time and your sanity. Open a found account for free at found.com. That's F-O-U-N-D.com. Found is a financial technology company, not a bank.

Banking services are provided by lead bank member FDIC. Don't put this one off. Join thousands of small business owners who have streamlined their finances with Found. Audible has been a core part of my routine for more than a decade. I started listening years ago to make better use of drive time and workouts, and it stuck. At this point, I've logged over 229 audiobook completions on Audible alone, and I still regularly re-listen to the highest impact titles. Lately, I've been listening to Bigger Leaner Stronger for Fitness, the Anxious Generation for Parenting

Perspective, and several Arthur Brooks' audiobooks that have been excellent for mental well-being. What makes Audible so powerful as its breadth. Beyond audiobooks, you also get Audible Originals, podcasts, and a massive. back catalog across business, health, parenting, and more, all accessible in one app. If you're looking to turn everyday moments into real progress, Audible has been indispensable for me over over 10 years. Kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP Money.

Kyle Mast, welcome back to the Bigger Pockets of Money podcast. I'm so excited to have you on again for our very special episode 200. Thanks for having me back. It's always good to talk to you guys. I appreciate the chance. Today is a bit of a selfish episode for me because these are questions that I have based on some of my personal situations right now. And I thought, well, if I have these questions, I bet other people have them too. So I figured what better way to get them answered than by Kyle the Master of Everything. So, oh, Kyle Master of Everything. Did you catch that, Scott? I made a pun. That was pretty good. I like that.

Okay, let's jump right into it. I have the option at work to contribute to a traditional 401k or a Roth 401k. And I've always thought that I should contribute to a traditional because then I reduce my taxable income. I pay less taxes. The world is all wonderful. But Scott here contributes to the Roth 401k and we had a rather lively discussion over which one was better and we're not sure.

So Kyle, which one of us is right? Oh, both of you probably. When does it make sense to choose Roth over traditional? Yeah. So you have different kind of different factors. And I always will ask people what your ultimate goal is. You know, if your ultimate goal is you're going to retire in three to five years and in three to five years, your income is going to plummet. So you're both working right now or one person is working right now and your income is higher. Putting that 26,000 into your 401K for those three to five years till retirement pre-tax non-roth is probably the best way to go.

Just because your income so high right now, if you're thinking of it, you're a traditional retiree, you're going to retire in those three to five years. You can start pulling that money out in a way lower tax bracket than you're in right now in general. So that's maybe a base case when people think of a retiree working a typical nine to five job. However, the Roth accounts, Roth IRAs and Roth 401Ks are very, very specific. special. The fact that you can put something in and get tax-free growth forever for the rest of your life anyways is a big deal. And it's becoming a bigger deal as we have programs in our country that

are maybe a bit underfunded. I don't want to get too political. I'm just, I want to talk about numbers. But if you look at the math of things, there's two ways to pay for social programs. You either raise taxes or you raise inflation. And you print money, inflation happens, or you raise taxes to pay for those programs. Either way, if you have money in a Roth account that's growing tax-free, all that growth helps you hedge against that inflation or the printing of money or the raising of taxes because you don't have to pay taxes on it. That's more of a long-term game.

And maybe if you're in a higher-income bracket and you're paying a lot of taxes anyways and contributing to a pre-tax account will save you on taxes, but you have a long-term goal of giving some money tax-free to your kids or you just know you believe that. taxes will go up in the future, then you want to go with a Roth. I'm, I am partial to a Roth for in many, many cases, unless there are other specific things you want to stay below a tax bracket, like for a health care subsidy qualification if you're self-employed. You know, that might be a reason you want to stay below a certain tax bracket. There's other reasons you'll want to stay below

a bracket. You know, this last year, we had these stimulus checks that came out and there's huge incentive to stay below the 150,000 mark for a jointly filing a couple. So that would be a reason to stay under. You know, there's everything from enhanced child tax credits this year, a lot of different things. So it really depends on the situation. But in general, I don't want to, I'll say I lean towards Scott's opinion in general. You know, if you're, if you're thinking of building long term, long term good, stable wealth, I would envision, and people have said this for a long time, it's taken a long time to happen. But I would envision that the Roth accounts will be less and less available from governments,

not just in our country, but in the future they may say, okay, there's a cap on this Roth account. You can't put any more in it because you just have so much in there. You can't contribute to Roth accounts anymore, but everything that you've put in them is okay. Things like that could happen. They eliminated the Roth IRA stretch, which is basically you could have a million dollars in your Roth IRA pass it to your kid, and they have to take a required distribution from it based on their life expectancy, they wouldn't pay tax on it, but they could take out just a little

bit each year for their whole life and let it grow the whole time. That was eliminated. So now there's a smaller time frame when your kids get to take it tax free, but they can't stick it in there for their whole life and let it grow. So that's just the precursor, in my opinion. And there's other people would agree with me and people who disagree with me that maybe down the road, more stuff like that will happen to where Roth IRAs and Roth 401Ks aren't as available. So yeah, any questions on now, that's a kind of a broad sense of it. I just want to chime in and say, I agree completely with the analysis. And that's kind of exactly how I think about. Yeah, that's exactly how I think about. If you're, if you're like running a formulaic approach to FI inside of a spreadsheet and saying,

I make $100,000 or $150,000 a year and I'm going to retire with $1.2 million in the bank across my retirement accounts and my after tax brokerage accounts. And I'm not going to earn another penny. you know, I'm going to retire at 35 or 40. I'm not going to earn another penny until I formally retire, hit retirement age and get Social Security or whatever. Then the 401K makes a lot of sense to me because that's when you do things like the Roth conversion ladder. And that's where the mad scientist's approach really comes into play and a lot of those types of things. And inside of that formula, the 401K makes a lot of sense because, hey, I'm able to reduce my taxable income now, in a lower tax environment in the future.

I'm going to be able to do that. But to me, and in spite of all the things you can argue inside of that, like, are tax rates going to go up? And even though you're in a $150,000 tax bracket today or whatever the tax bracket is at that way, at that income, maybe they're higher for the $30,000 or $40,000 that you're going to withdraw every year in retirement and you're still going to pay more in overall taxes because you're not actually arbitraising those tax rates. So even if you get outside of that argument, the big thing for me is a simple and perhaps

I don't know, aggressive arrogance about my life and the way this is going to go where I just don't see a world in which I fail to earn income below a really low tax bracket in my adult life, even if I stop working for a number of a period of years because I plan to have investment income, real estate income, side hustles that happen to generate money, those types of things. I am married. My wife may work because she loves it, not because she has to. So there's so many different ways that this could go. For me, I just feel like the Roth is the safer bet. Even though I'm in a high tax bracket, I think they're going to be higher in the future in a general sense. And I believe it's unlikely that I'm actually going to go on and earn very little money.

Mindy, you're financially independent. Have you stopped earning income even outside of the bigger pockets job? No, I have two full-time jobs. I'm also a real estate agent and in this market that is a full-time job. Yeah. So I'm glad we had this discussion, Scott, when we did, you know, a while back because it started me thinking, oh, I'm reducing my taxable income, but I'm only reducing it by $19,000, which, and I know this sounds so snobby and I don't mean it to be, but when you're selling a lot of real estate, you're making obscene money. And when I'm reducing it, it's only by a small amount. So what's the point when I could be making that as a Roth contribution and paying no taxes on it as it grows

tax-free for a while. And what really got me thinking about this and saying, well, I have to have Kyle on episode 200 is one of the guys at work is early 20s. And we just had this big change to all of our retirement plans. And he reached out to me and he said, should I choose the Roth or the regular? And I'm like, huh, I don't know, Kyle. Or I don't know, that was Colin. I don't know, Colin, I'm going to have to ask Kyle. So in the context of a younger person who has so much time, maybe he's not even considering early retirement, he's just going. Let's say he makes, you know, sub $100,000 a year, not married, no kids, it seems to

me that the Roth would almost be the smarter choice because he's got so much time to let it grow. When can I start taking distributions from my Roth 401K? Tax free. Penalty free. Yeah, so I'll back up a little. We'll come back to that. So I should say, I didn't say at the beginning, of course, you know, I am a financial professional and what I'm saying here is, and I know you guys do a disclaimer, which is awesome. But I don't know everyone's situation. So I'm trying to give general advice here. So just keep that in mind as I, this is not specific to someone's situation. But someone younger, it gets a lot easier to make that Roth decision for sure, even if they make a lot of money when they're younger. You know, if someone comes out, they're, build a business in three years and they're making a lot of money. If you think of paying the taxes when you're that young as an investment itself,

them investing in paying their taxes ahead of time, then boost the return of that Roth account. And you can think of that later in life too, but it's just a lot easier when someone's in their 20s. When you have 70 years of life left, potentially, that really makes a huge difference in what that is. And another thing as Scott was talking, you know, that formulaic approach, that really needs to be taken in account.

There are significant savings in our tax system to be able to keep your income below a certain bracket. Not everyone is doing two or three jobs, side hustles. You know, there's a teacher, there's even a doctor, you know, different pay scales, but they do one thing and it's, and then they retire and that's it. So you have to take those variables into account. But what I've seen is the Roth accounts provide so much flexibility later on. So if you retire and you say, I have a couple rental properties, I'd really like to buy some more rental properties.

Oh, one came up down the street. I know this neighborhood. That's a smoking deal. But I've got to pull $200,000 out of my taxable 401k account. That's going to bump me into a higher bracket. I'm going to have to pay more in health insurance because I'm not to Medicare. It just blows things up if you want to jump on an opportunity. If you're 60 and you have 200,000 sitting in a Roth, say you have a million sitting in a Roth, but you want to pull 200,000 out to buy a,

a smoking deal on a rental property for passive income and diversification, you can do that. And there's no consequence. You have 200,000 sitting there. You pull it out in one day, you know, have it wired to your bank account. It's done. So that's there. I've seen that a few times where that has over the years made me even more support the Roth accounts because you don't know what comes up later on. And if you have a million dollar 4-1K or pre-tax IRA, you don't have a million dollars. You have a million dollars minus tax. What you have in there, there's a liability built into that account still.

And that needs to be mitigated somehow. And we can talk about this. I think we might address RMDs in a little bit. So required minimum distributions. And there's some strategies there. But the Roth account, you know, once you hit 59.5, 401K, Roth IRA, you can pull it out tax free, always, penalty free as well. Before that, the Roth IRA account is, and I've done this personally to buy a rental property with a Roth IRA account.

This is, I'll get a little bit personal here. So this is what I've done into a financial planner's portfolio a little. With a Roth IRA account, you can pull out all of your contributions at any time, tax-free, penalty-free. So if you put in $50,000 over time, it grows to $80,000, you can pull out that $50 without any penalty at any point. You can also pull out $80,000 as long as you put it back in within $80,000. 60 days. Once a year, you can do an indirect IRA rollover. So if you need to do something with a rental property and you need to find financing somewhere else, you can pull money out, put it back in. That can be an IRA or a Roth IRA. But that is a strategy that can be used. Those contributions can be pulled

out of a Roth IRA if needed. I'll often even have clients that are building emergency funds and not fully funding their Roth IRAs. I will tell them to put that money into their Roth IRA. put it in the cash account at it at vanguard so it's not going up or down but at least have it in the Roth so you're taking advantage of those Roth contributions or even a little bit more than the cash account so it's getting some but they can always pull out if they put $5,000 in and say over a few years they have $20,000 in there and that's they want that as emergencies anything above the $20,000 you invest more aggressively but the $20,000 originally that you put in you can keep it really conservatively invested and pull it out whenever you want but all

interest, all the growth you earn in there is tax-free in the meantime. So that's, every year that you miss contributing to a Roth IRA and a Roth 401K, you can never go back and do it again. So you just want to make sure that you're making that decision with your eyes wide open. I think that there's a, for me, there is a case for why not to contribute to a Roth. And it was in a very brief window of time. And it was, I am 24 years old. And I have the opportunity as a single 24-year-old to house hack in a duplex in Denver, Colorado. And that is a two or 300 percent annualized return in average market conditions. It was for me with a lot of risk there.

And that was the only time I did not contribute to the Roth IRA was when I felt that my first $20 or so $1,000 would be put to better use in that. And maybe I could have still done it and kept the $8,000 I had left over after the purchase in the Roth in my savings account, but that was my emergency reserve, or at least that was how I was thinking about it. But that was the time when I didn't do that. And from then on, yeah, I think the goal is that at $69.5.60 to have several million dollars in that Roth, if possible, because that's yours. There's no, the government can't take that. There's no taxes. There's no, it's just spendable liquidity. Yeah, I think that's, it's always a trade, you're always weighing tradeoffs,

short term and long term. You know, and in your situation, the tradeoff for you to not house hack would have been a bad one. You know, that when you're looking at the returns that you can get with a low down payment, you living in the property,

paying less for your mortgage, someone else paying your mortgage down. I mean, that outweighs the 70 years of tax-free growth in the Roth IRA because real estate has its own tax advantages that you can facilitate. And with that type of return that you can get with a primary resident loan on it,

that makes a huge difference. But that's what you, you always have to weigh those tradeoffs and just make sure that you are very intentional about that instead of just 5% to the pre-tax 401K, don't even worry about it. How does the math change for you with the match? Like the 401K matching?

Yep. You mean, like, give me a scenario, like the math as far as the priority of what to contribute to or? Yeah, I think the traditional, we've talked about this a million times in the podcast, but I want to see, we just way over-emphasized the Roth and got a nice little tirade about how wonderful it is.

But that doesn't eliminate the fact that a 401k match is still free money. And our conventional, I guess, advice that we've talked about on the BP Money show here many times is if I get a match, I take the match and then I max the Roth IRA. Is that kind of still how you're thinking about it? Yeah. So a couple pieces there. usually if you have a Roth 401k available at an employer, usually the match that they have will match.

It will be pre-tax dollars that they do, but you can do your Roth, say you do 10%, and they'll match half of that. So they do five in pre-tax dollars. So you want to do that. You know, if your personal choice is, I think the Roth is better, I'd like to do that. You do it in that fashion with your Roth 401K instead of doing the pre-tax 401K. If you don't have the option of the Roth 401k, you don't have the option of the Roth 401k, you only have the traditional 401k at your employer, then I usually do, and this can be different

for people, there's more flexibility with a Roth IRA, but I usually do say take that match. That's free money and that's a, you know, even if they match 50% of it, that's an instantaneous 50% return. You know, it's not even annualized return. Like it's like infinite math. It's there right away. So I usually do say that. And usually the match isn't very few employers match a whole lot of 401K.

So you usually, if you're serious about saving for retirement, you know, your employer might match three to five percent, do that and then go to your Roth if you're really passionate about the Roth. Again, your situation could be different. You could say, I want to max out my Roth IRAs first for the flexibility that they have, because I can draw out contributions anytime I want to, because I can invest them in other things that my employer plan does not offer. There's other nuances there, but like you said, in general, match.

probably should take priority. Great. And then there's a growing debate about the HSA in relation to all of these different things. And so I have the privilege of being able to maximize my Roth 401k and my HSA. But if I had to make a choice between the two, where would you start between the two of those? Oh, goodness, man. This is, you're just dialing right in on me. It depends on this situation, but the HSA is very valuable. You know, that when you pay no tax at all. if you do it right. So that would be my, oh, boy, I think I'd still probably do the match

because that free money that gets in there and gets growing for you, even if it's pre-tax, and then your HSA, and then the Roth IRA, again, it depends on your situation. It depends on health insurance, too. You know, if one spouse has access to the HSA, someone else doesn't, there's numbers in there that it can mess with. But the HSA, that is the account that I see people overlooking the most, which is unfortunate because it is it's in a lot of employer plans and a lot of younger people that are

healthy the numbers make more sense for them to pay lower premiums higher deductibles if you are smart with your money put into that hSA and if you do it right you can get all that money out tax free and there's a whole debate around taking it out right away when you have medical expenses or saving the receipts and then taking it out later in retirement to do your optimization of tax brackets and things like that that's you know that that you need to read a lot of madfifes for that and he'll that'll be all outlined for you but that we'll we'll link to that this is a whole rabbit hole we can spend the whole hour on this but yeah the hSA i want to make sure i i i love that take the match then the hsa then the roth after that and uh hopefully you know that matches in your

roth as well there but i i think that that's exactly the way i think about it for my personal finances yeah i want to jump in on the hsa thing just for a minute so my family is we have the benefit of being very healthy. We go to the doctor very few times a year. And I think that's really important to consider. If you have a chronic illness, if you are just somebody who gets sick frequently, the HSA might not be the best plan for you, especially if you're not making a lot of money right now and you have that high deductible.

But we don't use our health care. So there's no reason to have the great policy that we never use when we could have the HSA where we are able to, because we're a family, we're able to save, is it $7,200 in the HSA every year? That sounds right. It's, I mean, it's a lot of money. Yeah, it adjusts up a little bit each year. I think it is 71 or 7200. I'm not sure which one it is right now.

If you're married. If you're married. If you're married. If it's a family, I think it's cut in half if there's just one of you or two of you. But still, that's a huge. That's more than my Roth IRA right now. So I am maxing that out. And because we're healthy, we're not going to the doctor very frequently.

I save my receipts so that my account just continues to grow. And then when I retire, the first thing I'm going to do is cash in all of my receipts. Again, it's like a prescription here or a, you know, $40 doctor visit there. It's not $100,000 in transplant surgery or something because that, you know, would be a bit a bit more difficult to cash flow. But it's, you know, it's these little receipts, but they add up. And as soon as I come home, I scan it into the system. I put it into my online folder, so I never lose it, fingers crossed.

And then my plan is once I stop working, I'm going to be able to just cash in, you know, it's probably $1,000 of receipts right now. But down the road, that'll be, you know, my account has grown. And then when I've got $50, $100,000 in my HSA, pulling out $1,000 is not such a big deal. But when I only have $2,000 in my HSA, pulling out $1,000, is a huge ding to it. So if you can forego withdrawing it, that's the best way to go about it, in my opinion. Yeah. So the HSA, with everything, there's risk. So with every strategy that you implement, there's risk. And so I just want to point out for people like in your strategy,

Mindy, it's the most optimal strategy to let that money stay in there and grow. But you actually pointed out a risk in there. If you lose your receipts at any point, that's going to be a tough one. You know, you could get new receipts, which later in life, you most likely will have more medical bills and that'll be fine. You can pull money out that way. The other thing is legislation change could say you can't go back indefinitely 30 years to use your receipts. Most likely if something like that happens, they'd have a grandfathered period where you could pull everything out in time because there'd be such an uproar. But those are, those are any time that you can harvest a tax-free gain or guarantee a tax-free gain, but choose not to.

there's a little bit of a risk there. So basically, if you put money into an HSA and you have a medical expense, if you pay that off tax-free with tax-free money, you've just ensured that that went through tax-free. No risk in the future it's already done. If you're waiting to optimize that, let the account grow. It's a great strategy, but you have a risk of at some point in the future, you are not totally realizing the benefit of that account

until you do it down the road and something could change. Just for people to keep in mind, A lot of times, I would say 90% of the time I usually tell people, if they're not a financial independence podcast listener, to just pay for your medical expenses out of your HSA. You know, the benefit of the time that you spend tracking the receipts, unless it's something you enjoy doing and you're good at and you keep track of it, I tell them just pay for it. But for Mindy, this is what you should do, keep the receipts. but just want to make sure people understand that kind of. I will say that those listening are probably really good at the spreadsheets. Everybody we talked to is like, oh, I've got spreadsheets from 1984.

Not me. Except Scott. Okay, let's switch gears then and let's look at post-retirement. So the setup to this question is a bit of a bit of a chore, but just bear with me because it's really good. There's this thing called the Rule of 72, which in an that shell says, assuming a 10% return on your investments, your investment, your nesting, will double every seven years. And of course, past performance is not indicative of future gains or mileage may vary, blah, blah, blah. But if you're 30 years old and you have $1 million,

that means that $37, you'll have $2 million. 44, you'll have $4 million, $1 million, $1,000,000,000, you'll have $16 million, and $62 million. Again, just going by these numbers, you're going to be hit with some pretty hefty RMDs. According to current legislation, $32 million is a really nice problem to have, but you started at age 30 with a million dollars. And I hear people saying, oh, well, you're withdrawing it all the time. So we had Michael Kitsis on, episode 120, and he's showing. We talked some about his amazing article, the ratcheting safe withdrawal rate, a more dominant

version of the 4% rule. And he says that in many cases, the portfolios are exponentially larger 30 years out than when the person initially retired. So he says, in fact, not only do 90% plus of retirees finish with more than their starting principle after 30 years by following the 4% rule, the typical retiree actually, finishes with many multiples of their starting wealth with this spending approach. Over two-thirds of the time the retirees finish with more than double their initial principle.

And the median wealth at the end of 30 years is almost 2.8 times. And one in six finishes with more than quintuple the initial wealth. So let's talk about RMDs. Let's talk about thinking about them now. Because I think a lot of people, didn't we discuss the Roth? Moving on, next question. Not everybody. Diff it, Scott.

Not everybody's in a Roth. Some of us have some money in a 401K because we didn't have this discussion with Scott 17 years ago when we were first starting to contribute to our 401Ks. So let's talk about the RMDs. Other than, you know, if you've got your $32 million in your traditional 401K because you hadn't listened to this episode until right now, Scott, we're not here to make people feel bad for past mistakes that they've made, including me, how do you mitigate or reduce your RMDs? I mean, and again, totally acknowledging that this is a really great problem to have.

But I want to pay less tax if possible. Yeah. What we're saying here in some is you're going to be, if you retire with a million or two million by the age of 40, you're going to be so rich by the time you reach to traditional retirement age, as long as that balance isn't really declining too much, that you're going to have crazy problems in terms of wealth transfer tax and required minimum distributions, those types of things. So, yeah, I think it's a great thing to noodle on.

Yeah, okay, so I tried to make some notes while you're asking that really prolonged question to make sure I try to get touch it all. So a couple things, we make sure. So the Kitsis article versus the rule of 72, So we're kind of talking about two different rates of return there. So that rule of 72, you're assuming a 10% return, which, you know, if you're in the broad stock market, you're going to get 8 to 12% depending on what time period it in. If you're looking at historical, you know, who knows what will happen in the future, but we can only look at what's happened in the past.

So that's assuming a 10% return, the withdrawal rate will reduce that. So, you know, if you're doing a 4% withdrawal rate, your return is less than that each year because you're pulling some out. you're not going to get that doubling as fast. So those numbers will not double quite as quick, but the same principle will still happen. And in his article, even with that 4% withdrawal rate, and listeners, if any of you want to nerd out and you have not read his stuff on 4% rule,

you need to read it. I mean, it is top-notch stuff. But that's a real problem. And as financial planners, we run a Monte Carlo analysis for a lot of clients and people to see what's the problem. that we can retire with 5,000 a month at this point in the future and it runs a thousand scenarios and you get this statistical curve and it shows you all these different scenarios.

But what happens is we run it so conservatively because people just want to make sure they're guaranteed that they're going to be retired or be able to retire. And that's what the 4% rule came from. The research behind it was run so tightly that we want to find that rate that people can feel really comfortable retiring at. But when you do that, it turns out that most of the people just end up with a lot of money. So there's several ways to mitigate that. And, you know, to anyone who has a lot in a pre-tax account, good job. You know, there's definitely nothing wrong

with that. The Roth IRAs weren't available until sometime in the 90s. I can't remember. And the Roth 401ks were not even available until later. So you actually can't have to contribute to those accounts for that long of a period of time unless you start to do some conversions and really build those accounts up. But the biggest thing to do is try to have tax diversification. We already talked about HSAs. We have pre-tax accounts and Roth IRAs. If you can have all of these different pieces, when you do start taking income to try to pay as little tax as possible, you can fill up tax brackets with certain amounts of income. You know, fill up the first 80,000 in taxable income with your taxable amount. So you're in the low bracket for or your pre-tax accounts,

or it's all taxed. And if you need more, pull some out of your Roth or your HSA. So you want to have those different accounts. It's not bad to have these pre-tax accounts where you paid less tax or you defer the tax while you were working when you're in a 30% bracket, say, federal and state,

and then you're not working and you can take it out at 15 or 20%. That's a real thing. That's definitely worth it. But so that tax diversification is huge. The other thing is you really got to think about what your goal is for the money. So people really need to. to think about, okay, I'm laser focused on financial independence in the next five years or in the

next 10 years. But what happens when I have quintuple the amount of assets or even double the amount of assets that I need at age 70? So at age 70, you're getting close to the RMD age, the required minimum distribution. They upped it to age 72. So age 72 is when you have to start taking a percentage out of those pre-tax accounts. There's a percentage calculated on your life expectancy. You got to take it out. you pay tax on the full amount. It's a little over 3% in the first year of the account balance that the balance of the account was on December 31st of the prior year. That's how they calculate it.

And each year you get a new calculation. So you need to think about the amount of income you need. But what are your other goals? Are you charitably inclined? Do you have lots of kids? You want to give them a bunch of money? Do you have lots of kids? You want to give them no money?

You want their last check to balance? Like these are things that you have to think through and you can make decisions now, whether you're 60, 50, 40, 30 years old that affect that. So if you, I work with a lot of clients that are more giving minded. So if your goal is to be able to give charitably to your church, tithing, things like that, where anything where there's a 501c3 involved, at age 70 and a half, you can do what's called a qualified charitable distribution. So as soon as you turn age 70 and a half, I have clients right away you do all of your giving to charities from an IRA. And the reason for that is you put the money in tax, pre-tax, it grew tax deferred.

And if you send it straight out of your IRA account, can't come to you in the mail or into your bank account, has to go straight to the charity. If it goes straight to the charity, it's tax-free distribution, which is just wonderful. And you can do, I think the limit is $100,000 a year that you can do right now. So if you are very charitably inclined and you have, say, say for example, you have five rental properties and you have a Roth IRA balance and you have an HSA balance and you have a little tiny pension. And then you have a million dollar 401k balance.

So we're talking about someone who's done fairly well, saved pretty well. You're not going to need that 401K balance most likely. Most likely by the time you stop working, those other assets will cover you. And you can get money out of those very tax efficiently. you could probably, if you're giving inclined, you could probably eliminate your entire 401k balance over the rest of your life and have a lot of fun doing it and have a lot of impact on your community, people around you by using that account and not have the government get any of it and have the charities get all of it. So there's some real, that's a wonder, that's the best way that I know of to get rid of that account or to reduce that required minimum distribution. And that qualifies for the minimum distribution. So if you have to take 35,000 out of that account because that's your required minimum distribution,

you can send that to your local community center, the Red Cross, and that takes care of it for the year. Next year, same thing or another place or split it between a few. But that's one of the most wonderful ways that I see clients doing that, that I've done a good job saving. And boy, it's a lot of fun when someone has saved so well and have felt like they can't give. And all of a sudden, they have more than they know what to do with. and they can just write checks and make a big, big difference. Okay, several questions about that. You threw out the $100,000 limit.

Is that per year or per donation? Per year. Okay. And that is, let's see, that's tax. Oh, RMD taxes. If I were to take that $100,000 as my RMD, I would pay taxes on that. Yeah. So say you lived in Oregon where I live and you're in the 22% tax bracket. So you take that $100,000 out. You pay $22,000 federally and you pay another 9.9 organ. So you're paying 31% in taxes on that $100,000. So you're getting $69,000 of that $100,000. If you instead have other income that you can live on and you're giving inclined anyways, I'm not saying to give away money so that you become destitute and don't have retirement funds. But if you're giving inclined anyways, do not give from your Roth IRA account.

Do not give from your checking account unless it's to a person or not a charity. But if it's a charity, have that $100,000 sent directly to the charity. It all goes to the charity. Zero tax, gone. This is awesome. And I'll state it arrogantly. This is a much more likely problem for most people who are achieving fire than running out of money, I believe, given the way we've built all this stuff up. the 4% rule, you talk about how conservative the 4% rule is.

The 4% rule is literally the inverse of it is 25 times your savings. Of course, 25 times your savings is going to last 30 or more years in most scenarios if you eke out even a little bit of return, right? And we've already had this discussion a million times, but we'll go over a few points in case it's the first time you're listening to this discussion. But the 4% rule of retirement also assumes things like you never earn another dollar from any other activities. You never get Social Security.

You have no pension. You have no, your spending stays perfectly flat and does not change in the event that you have a bad year with your investments. It assumes you have no cash cushion, like no six months to 12 months or two-year emergency reserve. It assumes you have no rental properties, all that kind of stuff. So you have a much higher probability in my mind of having way too much money at the end of your life than not having enough, according to the principles that we discuss here with this. And what a great solution. You're going to have to figure out a way to give it away

versus giving it to Uncle Sam. So I think that's awesome and a great approach. That said, I do want to get one little snarky comment in here. And you don't have to play the game of giving away $100,000 out of your 401k and not avoiding paying tax to Uncle Sam if the money's in a Roth. Because you could just give the money away if it's in the Roth. And it's the same deal. That's exactly right.

Just a little, a little storky side comment there to add into the discussion. That is true, but you also would have paid, if you know you're going to give anyways, you would have paid tax for the privilege of that Roth earlier. So if you know you're going to be giving inclined, so I'll go personally for me again here. So I have some rental properties. I have a business and I have retirement accounts. And I have basically my pre-tax retirements and I have a solo 401K. And this is something I advise for a lot of clients.

And we can talk about that type of account too, which it's amazing. but basically the pre-tax money that me and my wife are saving at some point in the down down the road I just want to be a guy writing checks like that that's all I want to do I don't we don't live on very much we don't need very much to live on so that type of thing if you know you're going to do that it can help you now those pre-tax accounts are valuable now so reduce your tax now save it and then there's that much more in there growing for these charities that you have in mind down the road but you don't have the flexibility that you would with a Roth but I guess my solution, the optimal way would be to have Roth and have pre-tax accounts because then if you want to

give money to your neighbor that lives across the street that their water heater went out and they have no money to take care of it, you can do something like that. Or if, you know, something bigger. You know, if you want to give someone $20,000 and not have a tax consequence, a person is not a 501 C3. You can't deduct that on your taxes. So you wouldn't get that qualified charitable distribution, but with a Roth type of account, you could do that. So having both of them is the, probably the best way to go for that flexibility. Tax season is one of the only times all year when most people actually look at their full financial picture,

including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch.

Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code Pock. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves in Edle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple. Use the code pockets at monarch.com for half off your first year.

That's 50% off at monarch.com code pockets. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. When it comes to hiring, Indeed is all you need. That means you can stop struggling to get your job notice on other job sites. Indeed's sponsor jobs helps you stand out and hire the right people quickly. Your job post jumps straight to the top of the page where your ideal candidates are looking.

And it works. sponsored jobs on Indeed get 45% more applications than non-sponsored posts. The best part? No monthly subscriptions or long-term contracts. You only pay for results. And speaking of results, in the minute I've been talking to you, 23 people just got hired through Indeed worldwide. There's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash bigger pockets. Just go to Indeed.com slash bigger pockets right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash bigger pockets.

Terms and conditions apply. Hiring, Indeed is all you need. When you want more, start your business with Northwest Registered Agent and get access to thousands of free guides, tools, and legal forms to help you launch and protect your business all in one place. Build your complete business identity with Northwest today. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They're the largest registered agent and LLC service in the U.S. with over 1,500 corporate guides who are real people who know your local laws and can help you and your business every step of the way. Northwest makes life easy for business owners. They don't just help

you form your business. They give you the free tools you need after you form it, like operating agreements, meeting minutes, and thousands of how-to guides that explain the complicated ins and outs of running a business. And with Northwest, privacy is automatic. They never sell your data and all services are handled in-house because privacy by default is their pledge to all customers. Visit northwest registeredagent.com slash money-free and start building something amazing. Get more with Northwest Registered Agent at Northwest Registered Agent.com slash money-free.

Marvel Television's Wonder Man, an eight-episode series, now streaming on Disney Plus. A superhero remake, not exactly what we'd expect from an Oscar winning director. Action! Simon Williams, audition for Wonder Man. I'm going to need you to sign this. Assuming you don't have superpowers. I'll never work again if anyone far now. My lips are sealed.

Marvel Television's Wonder Man. All eight episodes now streaming. Only on Disney Plus. Okay, you mentioned the solo 401K, and I want to talk about that, but I just want to quote Michael Kitsis one more time from this article, which is, yeah, if you want to nerds eye view.com and just read everything because Michael Kitsis does, just assume that all the math is done. correctly because it is and he does all the math for you. I think he really just loves doing all of this,

like every scenario is right there and it's so great. But he says in this article, in only 12 of the 115 rolling 30 year time periods did the retiree finish with anything less than the original principle? Only 12 of 115. That is kind of kind of. really amazing. I don't even know what percentage that is. And that's not even zero. You know, that's just less than what you started with. So you're still fine. You know, like that still means people would be fine with that. Most people would be, you know, if I have a million dollars when I retire or two million dollars when I retire, if I end with zero, but I can live the life that I want to through retirement, that's fine. And that's a much rarer scenario than that 12. Yeah. And I believe that was one,

one time out of 115. It went. And it was like they retired. at the end of the 60s, followed by a huge period of inflation in the early 70s. And in that one time, they dipped below zero when he did the math. Yeah. If you want to hear Mindy and I in violent agreement with Michael, you can listen to Bigger Pockets Money podcast episode 120, where he was a guest with us. That was a fun one. That was a really fun episode.

Okay. Since you brought up the self-directed, okay, did you bring up self-directed, self-directed, Solo 401k or just self-directed? Just solo 401K. So there's, yeah, I'll define some terms, I guess. That would be good. So a solo 401k is the retirement vehicle, just like an IRA, just like a 401K, just like a Roth IRA. A self-directed IRA, Roth IRA, or solo 401K is one that you use kind of an alternative

custodian to be able to hold real estate or something fancier or non-typical pay. asset like stocks or bonds in that's not I won't go into that there's just so many tax issues that you really if you go self-directed with accounts you really need to know what you're doing or talk to a tax professional that can kind of let you know of the tax issues that could potentially come down the road because if you use loans and there's there's just different things you need to be aware of the solo 401k is just a simple 401k account that a self-employed individual can set up and you can't have any employees it has to be just you it can be you and your which is actually it's probably the most optimal way to do it because you can do in just an

amazing amount of contribution so you can for a solo 4 1k instead of having so if you're self-employed and you do you don't have a 401k like you would at a normal employer you can do your IRA your Roth IRA 6,000 a year you your spouse that's it uh 7,000 if you're over age 50 solo 401k depending on how much you make you can put up to 57,000 a year into the account so you can do as you're the employer and the employee so to try to keep it as simple as possible you as the employee can put in the maximum 19,500 a year but then you as the employer can match up to 25% of your salary into that account up to a total amount of the two to be 57,000 now there's some other calculations depending on your structure if you're an S corp or if you're a sole proprietor

this is something that you'd want your tax prepare to just run a calculation for you. and say, how much can I contribute to my solo 4-1K? When do I have to have it contributed by? Because there's different deadlines depending on your entity structure. But this is something that if you do a side hustle or, you know, if you're a real estate professional, depending on the structure of the work that you're doing and the income that you're making, many people miss out on this. And you can do a Roth solo 401K.

So you do 19,500 in Roth contributions. The match is pre-tax. You can match that, but that has to be pre-tax. But it's a huge accelerator of retirement account. If you are self-employed, you have complete autonomy on how much you make, how much you pay yourself, how much you contribute to this account. If you start a business on your own and it really takes off, this is an account that you do not want to neglect looking at. Can you do this in addition to working for an employer? So, for example, Mindy is both a bigger pockets employee and a real estate broker.

So can she set that up for both business, for the second business and contribute to both? And how does that math work? She can. The math is still 57,000 total over all the accounts. So if you had five. And does that include the HSA? No, it does not include the HSA. The HSA, you can only have one HSA, though.

You can't have an HSA at five different employers. So I'm going extreme. So I'll say five different employers. You can only do 19,500 in individual contributions as salary deferral from your paycheck. That's 26,000 if you're age 50 or older. And then 57,000 is the max that you can do of everything combined at your five different employees between employers between your contributions and your employer contributions. So if you work somewhere that you work for someone and you're getting.

a match, you're getting some of your own contributions in there, you need to take that in account to what you do on your own side business. But no, it's not, you can do both of them. You just can't do $57,000, $57,000. You know, you can't do one for each different employer. So if I have a cool like $120,000 just lying around after all my expenses every year, I can put $7,600, $7,000 into the HSA, and then I can put in $57.5 and then my spouse can also put in 57 and a half across these things if I do it right and meet meet all the dot all the eyes and cross all the T's across these different ventures. Yes, your spouse has to work in the business. So it's not just like the Roth IRA or the IRA where you can contribute to it if they're

not working. And that would be something that you would want to make sure that you can prove. You don't want to just say, well, she does my bookkeeping or he does my bookkeeping and, you know, they write a check or like you need to actually have something that shows that you can pay them $50,000 and they can contribute a certain amount to the account. But yes. So if you have, you have a, say you have a couple that's fairly successful and they run a business together. And it's just the two of them, which is, you know, more and more, especially with this last year with COVID, a lot of working from home, a lot of businesses, a lot of overhead has been eliminated. This type of scenario is is very common or becoming more common, I should say, to be able to

have a business that is growing and be able to contribute a lot to it. So it's, you definitely, there are things that you need to be aware of. It's a little bit of a unique account. It has to have a plan document, but usually you can go to a custodian like Fidelity, an investment company, and they have a boilerplate one. So it's really not something to be intimidated about. But you at least just need to know that you should check into it. And a lot of times you'll find that you'll have to actually push a tax preparer to make sure that they know what you're talking about because a lot of them will instantly recommend a SEP IRA for a self-employed individual, which is another type of IRA where you can contribute a little bit more than an IRA,

but it's nothing compared to a solo 401K if you really want to get serious about socking stuff away. So you just want to make sure that you're having. I just had this conversation on Saturday. Today, happy tax day, everyone, as we're recording this, I know this is going to come out later. But yeah, where we had to make sure the tax prepare, they put a SEP IRA on. the tax returned and said, no, we want a solo four and K. And it went from a 16,000 and change contribution to a $42,000 contribution that we were able to do. So that's, you just want to make sure that you ask about it. And then you'll be able to, you should be able to be directed either by a

financial planner or a tax preparer into how you and how much and what you need to do to make it happen. So this is how you contribute $100,000 a year to a qualified charity at retirement and to your neighbor's cat's surgery as well with the tax optimized giving strategy for both. Yes. Yes. So I just have one thing to point out because I don't know that people are thinking about this, but the 19,500 that you contribute as your personal contribution is also income that you have to earn.

You have to earn the 195 in order to contribute it. But 25% of that is 48. So you can kind of automatically contribute $24,375 to your 401k just by maxing it out and earning that income through your self-directed. So your minimum kind of goes up. And that's even before the age 50 bonus contribution. So that's just another way to think of that as well. My husband and I have a self-directed solo 401K because we want to do real estate in it.

And that's what we do. And I max out, we max out his contributions first because he's retired and doesn't have another job. And then we max out mine if we can. And if not, then I've got bigger pockets to put into or contribute to the their 401K, which is a nice problem to have. Yes. So that's a very good point. So just to paint like a real simple scenario, say you work at a job and you make 80,000 a year.

But then you have a and you do a little bit of contribution. Say you do no contributions to their 401k plan. keep it real easy, but you have a side hustle where you make 25,000 a year. Not nearly as much, but you can basically put away that 25,000 entirely into your solo 401k real roughly. You know, you're 19,500 in income and another whatever you said, you did the calculation for 4,000 in change on top of that as that 25% employer match. So you can basically, if you're doing this side hustle and you really, that's meant to help you save for retirement with a solo 41K, you can just scoot all of that money, not spend any of it, even though you're only making $25,000 a year at it, which I say only,

that's a big deal. But compared to a full-time job, it's on the smaller end, but you'd be able to throw it all into the solo 401K. That's the power of the solo 401K. You can do so much despite, you don't have to make $100,000 to $200,000 a year to put a lot into it, especially if it's a side gig. Yeah, it's 25% of your income that your company can match. So that's all tax-free, and that's just a bigger contribution to my retirement account.

Yeah. And again, make sure you have a tax preparer, calculate that for you because there is a different calculation for a sole proprietor versus something like an S-Corp. So the sole proprietorship, it's kind of wonky. It's like a calculation of between 20 and 25 percent because you have to back out self-employment taxes and do kind of some weird things there. but the general idea is it's about 25% of a match. Yeah, I do want to underline that tax preparer thing.

And in this instance, a tax preparer is not your local H&R block guy that you walk or girl that you walk into and say, hey, let's do taxes. This is somebody that you are paying a nice amount of money for their tax expertise. You do not want to cheap out on this particular one. You don't have to see them every single year and have them recalculate all this. stuff and, you know, rack up $10,000 in tax preparer bills every year. But it's definitely worth paying for. All right. I have a hard pivot and change a question here. So this is, I think, the third theme of the show here, but that I want to get into. And it's a whopper. Kyle, stocks are very high right now. Real estate prices are going up like 20, 24 percent year over year.

and we think inflation is coming, so I can't stick money into my savings account. Otherwise, the dollar is going to lose value. Do I invest in crypto? Do I invest in wood or other commodities, since they're shooting up? Bond yields are at historic lows. Do I invest in debt? Which asset class, how do I think about asset classes in a general sense right now in 2021? Man, these are hard questions.

come on softballs softballs um so i'm glad you asked it actually i have written down here inflation discussion because it's it's a real a real thing that we we need to consider now and for people thinking about their retirement and any financial planning in general so basically for the last three to five years there have been a lot of people saying you know or actually since since the great recession when a lot of money printing first happened there have been a lot of calls for inflation from conspiracy theorists to normal people. You know, like there's just people across the board have said there's money printing. We'll probably see inflation.

We haven't seen it for so long, but we're actually starting to see it finally. And it's not not surprising with the volume of money printing compared to the volume of the money supply. But so during that time, I'm a junkie for reading like historical financial books. And I like reading about like Zimbabwe had a major hyperinflation crisis. Germany had one in the past. There's several countries that have had that we've, this, this tape has played out before.

And basically what happens is the people that own assets survive and do okay. And we're talking extreme scenario, like super high inflation, that people that hold cash lose. And that's a very oversimplification of it. So I'll kind of maybe break it down a little bit. The people that hold assets, and by assets,

I mean good assets, not something that not only, only holds value, but also produces income in the meantime. So that can be stocks in your portfolio. That can be rental real estate. That's that I'm not including gold in that or precious metals. I would say those are good for a portfolio, especially if it helps you sleep good at night, but it's also a store of value.

You know, it's something that as inflation goes up, most likely gold and silver will go up in the dollar amount that it takes to buy them. They don't go up in value. They go up in dollar pricing. They hold the same value, just like a lot of assets. Whereas something like real estate, and I love that this is bigger pockets because I can emphasize real estate a little bit more. But that goes up in value, but you can also force value in it. You have a little bit control there.

And you can also reinvest dividend or rental income into it to help force some of that. So that's the mitigation strategy. Oh, go ahead. Would you lump into that precious metals discussion, crypto, and specifically like a Bitcoin? I would I would not lump it into the same one, but it, it would be another, I would say it would be another good diversification piece, especially in the digital economy that we live in. The problem, and I am not, a lot of financial planners are very much against crypto. I'm not completely against crypto. I'm very cautious on crypto. And this is an interesting time because everything is doing well. You know, real estate, stocks, crypto is just, you know, if you follow dope,

Dogecoin, my goodness, you know, or Elon Musk and what he says, but I mean, what's it up 24,000 percent in in 2021? And this is not a recommendation. Now, I don't want everyone after this podcast to go out and buy Joegecoin. It started up as a joke. Yeah. So, so you just have to keep that in mind. And these things have happened before, you know, and everyone talks about the tulips, you know, that people were buying and arbitraging tulips. And so there, these things happen and they go up, but we do live in a time where digital transfer of property, digital blockchain, you know, and I'm not an expert on this stuff for sure, but this is becoming a reality. So holding some of that could be a good idea.

I'm not going to say that you need to hold it. I don't think I would go that far to say that. But I personally, I own a little bit, but it's mostly so that I can talk about it decently and walk people off the ledge when they want to throw their whole life savings into it. But I would say it's different than gold or silver because the biggest risk that I see with cryptocurrency is that it goes against sovereign nation's money supply. And all the government has to do is say we outlaw crypto because it no longer allows us to inflate our currency, to allow us to keep the monies.

monetary policy where we want it. Like our Federal Reserve, every country has a central bank. The crypto vans are screaming at their car radio is now saying, that's exactly right. That's the whole point. Yes. It's true. And that's, you know, but if you can, it then becomes a black market, which becomes a whole other thing.

But, you know, gold was outlawed in the 30s. I can't remember. And then it didn't, you know, you couldn't own it for a couple decades. So there's some of those things where it's kind of a personal choice. and some people would say, you know, you should just buy guns. You know, guns would be, they're going to hold value and they go up or precious metals, guns, lumber, you know, planted timber forest. There's all these different things that you can do. So basically, now I'm kind of going on a tangent.

I'll try to back it up a little bit. Basically. 21, money grows and trees. Yes, it does. So, okay, so that's a good segue. So right now, people are awash in cash in many ways. People that have done well at saving have put themselves in a good financial, place. A lot of people are definitely hurting, but a lot of people that have investment accounts

or some real estate are doing well. What people need to think about right now is what should I do now to make sure that if things change, I have some stability. So this last year is a good lesson in the reason to have cash. You know, despite inflation, having cash, you know, March last year, I didn't know if I was going to get rent payments for six months or, you know, on rental properties. So having cash, even though you're going to lose value to inflation, you still need to have it. And you just, that's just a risk that you need to be okay with. If you hold six months to a year in cash reserves and you know that that's going to be worth 5% less at the end of the year, 10% less at the end of the year because of inflation,

that's okay if you have other assets that are appreciating in the meantime. That's your hedge to be able to make mortgage payments, to be able to make house payments to be able to pay for food if you lose your job. Like that's that's the risk you're mitigating. I can't give the advice of what you should do. I would say with inflation looking like it's going to happen that Roth accounts get more valuable because they inflate the assets inside them tax free and assets that are real, which means real estate, gold, I would maybe say crypto in there.

Maybe. I don't know that. And I'm just, I'm in two camps here. Some people are going to love me and somebody who are going to hate. me. I don't know that I would call it a real asset yet. I think it's got some way a ways to go. Some people currency, right? It's a currency like gold was like gold, Bitcoin, dollars, euros, you know, yen. They're there are currencies, right? So that's the. Yeah. Yeah. So I guess maybe, maybe I rephrase that. I wouldn't necessarily call it a good store of value yet if we compare it to

gold or something to store the value against inflation. It could be, but that's why you diversify. I'm I'm more partial to things that you can force the appreciation on you know like passive investing in the stock market you can't force the appreciation but you can you can make good tax decisions there but in real estate you can force you can put your your sweat into it and you can find deals you can make improvements so being able to do to do that is is a good thing and you know having having control of your own income is this is something that maybe doesn't talked about as much and even in the retirement planning in the later years having a side business that you can fall to if you lose your job you know like if you have your own business and you work

with 20 clients your graphic designer or financial planner or whatever you do you have 20 employers three of them could fire you and you still have 17 if you you work for a company you have one employer they fire you you have zero income and if you're in the five community and you have your own business and you have 20 clients and if you're you follow the five principles you're basically you're probably living on the income of 10 or 12 clients so the eight is extra so if you you lose eight clients you're still in the same position so that's another way that people could mitigate risk if you can and and i would say real estate rentals would qualify as a side business your stock portfolio starts to qualify as a side business because it starts creating its own income but any

other way you can add value and in retirement you talk about a way to make sure your retirement portfolio lasts for you or you don't outlive it if you just work five hours a week in retirement to bring in a little bit of income it's amazing what a part-time job will do to the numbers that you don't have to take out of a retirement account to keep you afloat and it also gives you something to do i mean if you if you're a halfway motivated person that saved well for retirement you're not going to want to just stop and do nothing completely hopefully during that time, you spent the time to try to find something that's enjoyable to still add value to people and society.

That's my little soapbox. I'll step down now. Okay. You brought up crypto. Scott brought up crypto and you didn't immediately say, what a horrible investment. Never, ever, ever, ever, ever, ever, ever, buy it ever. I am not a fan of crypto, but it's also because I don't understand it. I'm not asking people to send me a letter telling me all about it.

I don't really want to understand it. But I can also identify with people who are watching Dogecoin go from a complete joke to what is it like 60 cents, a coin or something or like it, what did you say? 600% appreciation. And you feel like you're missing out on something. If I was not in debt and was wanting to test the waters on crypto, as a financial planner, What sort of percentage of my nest egg would you suggest testing in crypto? Because my pat answer is just only by however much you want to lose completely.

That's a good answer. I would say the stage that cryptocurrency is right now, it's not old enough to think of it as a good store of value, as a good asset allocation for your portfolio. For me, the best thing that can happen to people when they try to start investing in single stocks to try to do stock picking or invest in currency. The best thing, and this is this is kind of mean to say, but what I would love to happen is for them to lose 50% of their money right away. Because it gives people the emotional anchor to say, this is a real thing that I don't have control over. The worst thing that can happen is you invest in Dogecoin at 0.002% and it goes to 50 cents.

And you think, wow, I'm a genius. You know, I've got $200,000 from, my $2,000 and now I'll invest in three more other cryptocurrencies and now I'd lose it all. So, so I would say your answer is spot on, only invest what you want to want to lose as a percentage. That's really hard. It just depends on, you know, a lot of people have like an investment portfolio, but a lot of people have pensions or things. So it's hard to, I would say, no more than 1%. I mean, if you have $100,000, don't put more than $1,000 in it. I mean, literally only the amount that you you won't feel if it's gone. And here's, so maybe here's the case for it.

If you put $1,000 in and you picked the next doge coin, great. You're going to do well. You might regret not putting your whole $100,000 in, but that's like winning the lottery, you know, one in 350 million. I just, I want to make sure, you know, and I'm kind of thinking maybe I should have come down more on cryptocurrency, but I just, it's not something that is going away. in some former fashion from what I've been seeing and from what I've been reading. I really question, and this is Ray Dalio and Warren Buffett,

and some of these large hedge fund managers that have seen cycles for years and have studied history, a lot of them are saying the government has the ultimate control. You know, governments have the tax control. They have the military control. Like, we live under the government of where we live. and if a cryptocurrency gets out of hand, we're already seeing it with China a little bit,

if it gets out of hand to where everyone's flowing out of the U.S. dollar into a currency and they can no longer manipulate or help the economy in the way that they want to, they're going to say no more Bitcoin. They're going to say, or only for these transactions, and it's just, it's not, it's kind of a fact. I would be very surprised if everyone just kind of went from the dollar to Bitcoin. It's basically it can't be done.

The U.S. wouldn't let it happen because they'd go bankrupt. Moving on from the Bitcoin and crypto discussion here, we just talked about inflation. And your answer was in an inflationary environment, which tentatively looks like what is happening currently and may happen in the future. Real assets, stocks, real estate, things you can touch, things you can hold, things that have real value with these tapes. types of things, commodities, things where the supply is limited. The crypto, Bitcoin people will argue the Bitcoin supply is limited. Those kinds of things tend to do well. And my kind of big next question is, if we think we're in an inflationary environment

and all these asset classes are reasonably high, but that they're going to go much higher, they're going to inflate in this environment, is the answer not to take out a tremendous amount of debt and put it at on a fixed 30-year term on things like real estate and those types of things, is that not the logical next step and answer in managing your portfolio? As scary as that sounds. Yeah, it's very counterintuitive to how a lot of personal finance has been taught, but we do live in a debt-driven economy now. It's kind of somebody, I read a book and someone used the term instead of capitalist, it was like debtorist or something, something like that. But basically,

The way the economy functions, credit forces a lot of things. Anytime you take out debt, you gain risk because there's a liability of you to pay that back. So you take that 30-year mortgage out. You've got to have the cash flow to pay that back. However, if someone has good cash reserves to cover payments for an amount of time for unsuspected things that would happen, like a pandemic, something like taking out a 30-year mortgage at 3% is a very good financial move. I think we will not see rates like this in the future.

I just think we're kind of at an inflection point, and I hesitate because I'm getting into my personal opinion and what I think is going to maybe happen. But if you look at where we're at now and making good financial decisions, what you're talking about taking on long-term debt at historically low rates is a good financial move. If you have the cash reserves to cover unforeseen events, You don't want to over leverage yourself.

That's just not smart. But if you have, I would say right now, it's less important to pay off your mortgage. I would say there's, you should be, you can consider that in some ways. And you actually, I listened to an episode that you guys just did recently with someone who had a pension that was affected by earning income and paying off a mortgage may be a good route for that.

So there are instances that it really, that can make sense. but I think you're spot on, Scott. I think debt is cheap right now. And because the U.S. government has debt itself. It's in the U.S. government and other governments. I'm not, I shouldn't even single out the U.S. It's in their interest to inflate the currency because it makes it easier for them to pay off their own debt, any country.

And we can ride that wave if we have good long-term fixed debt because then you're on the side of the policymakers that are kind of pushing the same agenda as the, has the increase increasing the inflation to be able to reduce the value of the debt. Yeah, I think that's terrifying to take this to logical conclusion on a personal finance podcast, but that there's no escaping where that next step goes, right? If you can capitalize and feel like you can manage not to go bankrupt, then, and you believe yields are low at historical lows and inflation is,

coming, then the answer is blindingly obvious. It's take out as much 30-year fixed rate debt as you can and back it with real assets and cash flow that can sustain it. And now you're borrowing with dollars that are expensive today and paying them back with dollars that are cheap later. And as interest rates rise, the equity value of that debt declines. That's another topic. We can get into a whole other show on the inverse relationship between interest rate

and bond equity value. But that's the math, right? And so that's something to think about. We'll let everybody just kind of leave it there, I guess, and think about it, as we say again to the end of the show here. But that's terrifying and interesting. Yeah, one last thing on that. Maybe a caution for people that have pensions as a large part of their retirement or even Social Security as a large part of their retirement. Those are wonderful things to have.

I mean, there aren't many people that have many more and they really help. But those are things that get hit pretty hard by inflation. historically. Other countries that have gone through not even hyperinflation, just higher inflation. You know, the inflationary cost of living increase that's done on Social Security, they come out with it every year. It never feels like the right amount for retirees. It always feels low. And that's a way that they can mitigate the overfunding or the underfunding of Social Security. And with pensions, you know, if you have a pension that is based on a fixed dollar amount and you get 10, 20 years into your retirement, that's going to feel like a lot less if we have

four to 10% inflation or, you know, the 70s, 80s you have in the teens to 20% inflation. It's not, we've had so low inflation for so long, we kind of forget that it can happen. And it might not. You know, it definitely might not. But we just have to, like you said, you got to do the math and think about what would happen in that case. So a lot of people think in a time like this, things might crash. You know, I should pull everything out of the stock market because everything's so high.

But you just got to be careful with that because if you want to hedge against inflation, you need to have something that inflates over time. And stocks do that. Real estate does too, but just your stock portfolio because prices go up. Other smart investors try to plow their cash into companies that have goods that they can raise the price on, you know, so Netflix can bump their monthly thing up by $2 a month. People don't care. They pay $2 a month, but they just increase their revenue by 10%.

That's inflation. And you want to be able to ride that somehow. you pull everything out and put it in cash and just having a conversation with the client tomorrow in a meeting and that's what they want to do. And I have to try to talk them down from that. And it's a hard thing to wrap your mind around. You just want to make sure that you realize that if you don't, if you're not invested in something, you're going to be hurt in the long run. Well, look back at March. March 2020, it was riding high and then it, you know, crashed. But then what was it? Two months later, it was back up almost to the same.

same high that it was in February, I think was the absolute highest. We talked to the mad scientist right after that big crash. And he said, you know, I thought that I was going to be able to just ride this out. But this really freaked me out seeing such a dramatic drop so quickly. So I'm going to reevaluate how much I'm in stocks and bonds. But I'm not going to pull everything out. He was just going to reevaluate his asset allocation. And, you know, I think that is a really great little tight time window.

Look, if you were up here in February and you thought, oh, it's so high, I should pull everything out, you miss the drop, sure. But then you also miss the growth again. And what are we at now? I don't know. I don't pay as close attention to the stock market as my husband does. He gets up every morning and reads all the numbers. And because I'm not taking my money out right now. so it doesn't really matter what it's doing right now, you know.

But I mean, I get what he's saying that he wants to miss the big drop. But when is it going to drop? What day is it going to drop? I want to know so I can pull it out. I made the spectacular prediction that it would drop on March 14th. And I think it dropped on the 13th because I forgot about the leap year. But then, yeah, I. I was actually just guessing.

I don't know if you guys could tell when you were listening to that episode. I was completely guessing. But I called it spot on. So if he knows, you know, I'd love to know what day it is. Because then I'll pull my money out, wait until it drops and then put it all back in. But until then, yeah, it just goes up and down. So, Kyle, that's a perfect segue to that. That's exactly what you do with your personal money, right?

You put it, you know, look for highs and lows. You sell high, buy low. Oh, yeah. regular repeated basis all the time yeah that's i'm just no problem yeah where where are you investing your money and we don't have to get specifics just that in a kind of general ballpark and across which asset asset classes maybe a glimpse into your strategy yeah so i basically what we've been talking about we have roth i raise i have a solo 401k um and it's long-term aggressive high stock portfolio um I I I for me personally I believe in a basically perpetual portfolio I don't want to ever reduce the risk on my portfolio I want to be something that I pass on as a giving organization to my kids so it's it's going to be I'm not I don't plan to ever back even when I'm 70 years old I'm just going to keep letting it ride because I the discussion that we've had so far I think the dollar amount will be at a point where there's no there's no reason to do that even if the market drops by

an incredible amount, why would I dial it back if my lifestyle is super small compared to the portfolio? So from an investing standpoint, you know, I'm a little, and this is not advice for anybody. For me personally, I am, I'm more heavy small stocks because historically they have done well. They've done better in the long run. You have to stay in them for at least 20 to 30 year timeframes to benefit from that. But when I think of my portfolio as an endowment portfolio, that should live forever. And that's how I invest it. And then so I do, I do investments in retirement accounts for a lot of for the tax advantage purposes, the Roth IRA, the future qualified charitable giving. So I try to max those out so that we can do that. But the wealth building is

real estate for me. We have rental properties. And again, in Ohio and Florida, and these are not recommendations of where you should go to invest in properties. But I think, I think real estate, and that comes from personal experience working with clients, honestly. When I look at clients that have built good wealth over the time, over a long period of time frame, a lot of them it's real estate. Some have done it in investments. And that's becoming more popular. with the FI movement. But when I look at clients that right now are in their 50s, 60s and 70s that have substantial wealth, it's well-placed real estate investments and where they've forced equity on it. And that's what I, you know, I want to, I want to teach my kids that. That's kind

of the idea behind that in the long run. I want them to be able to do whatever they'd like to do from a work standpoint, but from a financial standpoint, I think some of these little investments on the side, like a couple real estate properties and you're set. You don't have to make that much money. You just let it get paid off and you're done for retirement. A lot of people, real estate is too much work and you need to really learn and know the market and know what you're doing. But for me personally, I love it. But I do the, I do kind of across the board. And I have, I think I have four or five thousand dollars in crypto, which from a net worth standpoint is, which is now worth like $40,000 or $50,000. No, no, it's worth $5,000 now. So, so I, yeah, no,

I'm not, I didn't, yeah, I don't even know. I won't even say which ones I'm in, but it is, it's to keep, it's so that I can talk to clients about it so that I can see it going up and it going down. And so that I get, you know, anything you invest in, you, you research on the internet, you get news feeds, you get information on it. So the more I am in different things, the more information I get on things and I can talk semi-intelligently about them. And, you know, it's hard to the crypt, yeah.

Crypto is just, it's a unique industry right now. We'll see where it is in a year from now. Okay. Well, that, I think that kind of wraps up our episode. I asked all the questions that I really wanted to talk to you about. And I'm really, really pleased with the way that this discussion turned out because this was super helpful for me. I really think that the Roth option is the best choice for me. And I'm going to make sure that Colin listens to this.

So he can hear you say that it's probably a really good option for him too. And of course, you should do research, as everyone listening should. If you want any more information about this, Google is your best friend. We will have a lot of links to the things that we discussed in the show notes, which can be found at biggerpockets.com slash money show 200. Yay, I'm so excited. Kyle, thank you so much for your time today because this was fabulous. Kyle has been on previous episodes number 41 and number 84.

So if you would like to hear his answers to our famous four questions, he's got some really great ones because he's so smart. Kyle, Master of All the Things. Thank you so much for your time today. We really appreciate you. Thank you. This was a great discussion. Always a pleasure.

Thanks. Okay, that was Kyle Mast, dropping all the knowledge bombs. Scott, what did you think of the show today? I loved it. I think we had a great debate. I love the Roth discussion. I love the discussion about what to do with too much money at the end of your life and how to plan around that because people don't really think through that. But if you're going to achieve FI and you're going to be conservative about it and go by the 4% rule and maybe have a couple of other secrets, you know, up your sleeve like a pension or rental properties or whatever in addition to that 4% rule, you're probably going to end your life much wealthier than wherever you start your.

retirement from. And that's something to plan around or at least to know what's up. And I know the options, the good options that will accrue from there. And then, of course, I really love the discussion about where to invest here in 2021 with every asset class seemingly high and inflation on the horizon. What a conundrum. What a fun challenge at the strategic level. I learned a lot from talking to Kyle, as I always do. But, you know, Kyle is not the only source of information. He's not the end-all, B-L, and he doesn't know all the tricks and tips. So we would like to invite you to join our Facebook group, which can be found at Facebook.com slash groups slash BP money. And come in and share your tips and tricks.

The Roth 401K, I thought, was a fantastic discussion. It has actually changed the way that I am investing in my 401K. We've actually maxed out my husband's 401k this year. So since it's self-directed, we're going to go in and see if we can pull back those contributions and re-contribute into the Roth category just to get a little bit more into our Roth 401ks. But I'm super excited for everything that I've learned today. And I would love to hear your tips as well. So please join us in our Facebook group so we can chat with you too. Yeah, and this is the fun stuff. I mean, like we talk about a lot of things that are, you know, there's always black and white and gray. There's always gray in the world of personal finance.

But sometimes we can get to a little bit closer to black and white when we're hearing about certain expenses like, hey, you've really got to cut back expenses here if you want to build wealth. The fundamentals just aren't there. Today was all gray. And this is the kind of fun stuff to discuss in the Facebook group because there's going to be a lot of smart people who will disagree with Kyle and me and maybe Mindy on a couple of these things in terms of the approach with Roth versus 401. Okay, there is no right answer. You're guessing at future government policy and your future income, your present versus future income states 30 years down the road in some cases. That's literally the guess that I'm making right now with the Roth versus the 401K. How can you possibly have a concrete right answer?

No way. There's an art. And I'd love to get pushback or feedback or debate and dialogue about the right versus wrong there. And especially on the crypto side as well, as a lot of you are aware, I've had an evolution of thinking on the crypto side over the last couple of years. to my embarrassment and all that kind of good stuff. I would like to say I have had an evolution of crypto so people don't bombard me with, oh, here, let me show you all the great things about crypto. But I am looking for a crypto expert to come on and explain it to us,

explain it like I'm five, so that we can share this information with our listeners so they can make their own decision when armed with the facts. Okay, Scott, should we get out of here? Let's do it. from episode 200 of the Bigger Pockets Money podcast. He is Scott Trench and I am Indy Jensen saying, thank you for listening these last 200 episodes.

And here's to at least 2,000 more.