Motley Fool Hidden Gems Investing - Should You Retire Sooner, and Is Your Fund Winning?

Starting point is 00:00:00 Robert Brokamp Is your mutual fund winning and should you retire sooner? You're listening to the Saturday Personal Finance Edition of Motley Fool Money. I'm Robert Brokamp, and this week is part two of my conversation with financial advisor and author Wes Moss about his years-long research into what makes for a fulfilling retirement. But first, let's look at what happened last week in money. And we start with chaos at the IRS. President Trump recently fired IRS Commissioner Billy Long, who had been on the job for less than two months. He will be temporarily replaced by Treasury Secretary Scott Besant, who apparently doesn't have enough on his plate already. This transition makes Besant the

Starting point is 00:00:50 seventh person to become the head of the IRS so far this year. The seventh. Meanwhile, a quarter of the IRS's employees have left or been let go in 2025. This comes after the passage of the One Big Beautiful Bill a month ago, which requires the IRS to provide guidance, issue regulations, and update publications regarding the myriad changes enacted by the new law. It could be an interesting tax filing season next year. The immediate consequence of all this turnover and reduction in staff is that it may take longer to get official clarifications from the IRS, either via their publications or if you're just trying to get anyone on the phone. It could also mean fewer audits. Listen, I don't want to be audited more than anyone else,

Starting point is 00:01:31 but I also don't love the idea of people getting away with not paying their lawful share. According to a recent article in Barron's that highlighted this likelihood of lower audits, the IRS collected $5.1 trillion in 2024 taxes, but estimates that there's another $700 billion that goes uncollected. Speaking of audits or what the IRS calls examinations, know that in the vast majority of cases, the IRS will contact you via regular old snail mail. Anytime you receive an email or a text from the IRS, it's actually probably a scam. Don't click on any of the links, don't download attachments, don't reply with any personal information. If you do get a letter in the mail about being audited from the IRS, respond immediately. There's actually an official

Starting point is 00:02:17 appeals process for audits, but if you wait too long to respond, you lose your right to appeal. Our next item comes from Peter Malouk of Creative Planning who wrote this in a recent post on X, credit card debt is the silent killer. Over 12% of balances are 90 plus days delinquent near the highest level in 14 years with interest rates north of 21%. Nothing destroys wealth faster." End of quote. You may have heard that credit card debt is at an all-time high, which some experts find alarming, whereas others say that, well, considered relative to today's current GDP and income, today's debt levels actually aren't anything to worry about. But I certainly find the increasing levels of credit card delinquencies

Starting point is 00:03:00 concerning, and the rise in the average credit card rate is remarkable. According to the Federal reserve, the average rate is 21.2%. Three and a half years ago, it was below 15%, and then it began to take off. In fact, before the spike that began in 2022, the last time the average credit card rate was above 16% was 1995. Why are rates so high? Well, banks will tell you that they need to charge those rates to compensate for all the defaults. Of course, someone has to pay for all those credit card rewards and TV commercials. The bottom line, in my opinion, is that banks get away with charging these high rates because they can. Of course, you don't have to pay those rates if you keep your spending in check and you pay off your balance each month. If

Starting point is 00:03:43 you have a card charging a high rate or maybe offering modest rewards, look for a better deal. Many websites these days offer credit card reviews, offer special deals, including one here at The Motley Fool, which you can find by visiting fool.com forward slash money credit-cards. Now we come to the number of the week, which is 90. That's how old Social Security turned this past Thursday. President Franklin Roosevelt signed the Social Security Act into law on August 14th, 1935. Here are some current stats on the program according to the Social Security Administration. The average monthly retirement benefit is $1,975 $23,700 a year. That represents 31% of the income of Americans aged 65 or older. For almost half of

Starting point is 00:04:31 people that age, Social Security is their number one source of income. For 12% of men and 15% of women, Social Security accounts for at least 90% of their income. Your Social Security benefit will be determined by the 35 highest earning years of your career adjusted for inflation, or that of your spouse if you're married and your spouse earned much more than you over your careers. The amount you receive will also depend on when you claim benefits. The longer you wait, the bigger your benefit up to age 70. To help you determine the best claiming strategy for you, check out some free online tools such as OpenSocialSecurity.com and the T. Rowe Price Social Security Optimizer. Another tool that costs $49 but is still worth considering,

Starting point is 00:05:15 many professional financial advisors use it, can be found at MaximizeMySocialSecurity.com. Up next, I talk with Wes Moss about the value of super activities in retirement when Motley Fool Money continues. starting at just $1 all day, every day, now until December 31st. I'm participating in A&W locations in Ontario. Wes Moss is a certified financial planner practitioner and the author of What the Happiest Retirees Know. Last week, I spoke with Wes about the financial resources and habits of the happiest retirees. This week, we discussed the non-financial keys to a fulfilling retirement

Starting point is 00:06:13 and whether more people should retire sooner. You found out that a happy retirement isn't just about how you spend your money, but also how you spend your time. So what does your research say about the day-to-day habits of the happiest retirees? There's something I have referred to for many years now called core pursuits. Core pursuits are essentially hobbies on steroids. Joe Salsihai from Stacking Benjamins. I ran into him at some VIP event. Of course, he would be there for that. It's like an event you should be at. I think it's at FinCon. And he goes, you know, I really love those super activities you talk about in your book. And I said, Joe, that is such a great name for it. But I give him the credit for that. But

Starting point is 00:07:03 they're super activities. That's just how I do this once in a while. I like them. So it's those core pursuits, super activities, hobbies on steroids, the more of them we have, the better, number one. But the other thing is I measured recently the amount of time we spend doing them. And there is a big difference between the amount of time we spend during our week between the happy and unhappy retiree camp. As you may imagine, the happy retiree camp spends more time on those core pursuits they love. Now, it doesn't really matter. Yes, there are certain categories that I show to, to lean people towards or a higher propensity to land in that happy group. Yes, there, there are some specific categories around that, that seem to work

Starting point is 00:07:47 even better than other categories, but most importantly, it's about the amount of time we spend doing them. Happy retirees. And again, I measured the time I looked at how many hours do you spend doing this and doing that? And whether it's an athletic activity or an adventure activity or a creative activity, et cetera, having retirees spend about 280 hours a year more than the unhappy group. That's it. That's a, that's weeks and weeks and weeks if you add it all up. And so it's, it's 40% more time doing the things they love doing those super activities. And that is extraordinarily important. The other part of that is that if I, if I were to dive in to what is bringing people joy in retirement.

Starting point is 00:08:32 Many of those activities, Robert, are social. And there is a real sense, and we can maybe talk about this even further, but if I look at those categories, I categorize nine different, let's call it categories of core pursuits. Seven of the nine in answering the question, what brings me the most happiness

Starting point is 00:08:55 when it comes to retirement, had something to do with socialization it was with doing xyz with friends doing with friends and family doing with family so it was striking to me and this was this took a long time and it's funny i tried to i actually tried to use ai for this and it didn't work because it was too much data but i got open-ended responses from and the reason it didn't work is that many of the responses i got that were open-ended in the in the latest research had multiple things in their answer it was i like to garden but i also what i really love is my weekly bi-weekly walking group with my friends and neighbors so what what a what a i couldn't decipher for me was when somebody had

Starting point is 00:09:42 two or three different things in one sentence so the i gave up doing it that way and literally just went through and read every single response and categorized where it landed, even though there were two or three things. And I wanted to get the essence. What was the most important person that this respondent, what is the most important aspect of this person's respondents retirement life that brings them the most joy? So I manually calculated all, put all of these into different categories. And what really struck me is that over and over and over again, I have a social category. So some people literally just said, I just love to socialize and love to hang out with my friends, hang out with my family. So there were some that were purely social. But many of

Starting point is 00:10:28 those other groups were, I like to volunteer with my friends at church. I like doing my part-time job because I'm with my friends and my colleagues. So there was this real, this real heavy ingredient of socialization that permeated through many of the different core pursuit categories. And it's just so important. You talk about people taking walks with friends. Sometimes people play tennis, golf. It's a social activity, but it's also a physical activity. Did you find any connection between happiness and just general exercise, getting outside, getting up and doing things yes the answer is yes they're the the happy group now it is not a massive difference in the amount of time because again i measured the amount of time these two groups spent in

Starting point is 00:11:21 these different categories and the great news is and this is what i'm writing about in in this most recent book that i'm writing i think maybe you'll give me a title for it but it should probably be called the retire sooner method. You like formula, but it's really a method to retire sooner. And it's about the five secrets of America's happiest and least happy retirees. But what I'm writing about is that some small changes call it 15 minutes a day, more in active, the active category activities. It doesn't matter what it is. What can be biking, yoga spin class a lot of hiking in my in my research people love to hike there's a lot of golf tennis pickle but these are categorized as as physical activity there is something about that

Starting point is 00:12:10 that tips people even further into the happy category versus the unhappy group so yes it works it matters but it's not as big of it of an uplift as people might think The name of your podcast is Retire Sooner. And it does seem that there's a general trend these days for people to say, like, you know what? You shouldn't put off retirement. You don't know how long you're going to live. You don't know what kind of shape you're going to be in in your 60s, 70s, or 80s. You should take advantage of the time you have while you can.

Starting point is 00:12:44 So do you think people should be retiring sooner? Without question. yes more than ever you know i was listening to i had a long drive recently back from michigan to atlanta it took you know 15 hours and one of the audiobooks i listened to it was called outlive and it was long and there's only so much my wife could handle but it was pretty i found it pretty depressing i know it's a really good book but so much of the book is just how often people die and the four horsemen of heart disease, cancer, autoimmune. I mean, it just, it was a, it was a depressing listen, if you will.

Starting point is 00:13:30 And as I'm listening to it and yes, of course, the whole point of the book is that you can fight against that and maybe outlive your, your, you have a, have more of a life, a health span and maybe a lifespan extension. But it just made me think how many Americans should be retiring as soon as they're financially ready to do so, and understanding some of the other things we talk about, which is the lifestyle side of retirement. The other thing, Robert, that I think is also fascinating from the research, my most recent research study, and I'm looking at,

Starting point is 00:14:05 again, general happiness baseline in America. What do we do to be above that baseline? And what activities and habits do we do that lands us below that baseline? And we want activities that bring us above the happiness baseline it's called happiness alpha if we're if we're talking finance today the there is a there is a massive jump just getting to the point where you say yes i no longer have to work i'm retired in happiness in america just just getting into that new mode of now i'm done and we know and we know this and we're in a an amazing work culture and that's why we love investing in America. One of my themes on the retire senior podcast is the army of American productivity. We get up every day and we work and we, everybody in the labor force just

Starting point is 00:14:54 pushes the peanut just a little further up the Hill. And you have 166 million people doing that. You've got an, you've got an amazing economy, like no other place in the world. Now only about one in five of those people really love what they're doing. The rest of America either hates their job, absolutely hates their job, or they're just doing it because they have to. And that's the reality. It's expensive to live in America, but it does create a powerful army of productivity. And the, even though we have this great work culture, all you have to do is, you know, hop on LinkedIn for five minutes and you're going to see, you know, I get your five to nine routine. I, what is it? I saw something just the other day. It was, it was my five to

Starting point is 00:15:38 nine routine before my nine to five job, which they get up, you do a cold plunge, you run 10 miles, you do yoga, save the world. And then you go and then you do your nine to five, right? We get up. The reality is that work on a human level ranks really, really low on the things that we would love that we want to do. If we were, it were totally up to us. It ranks just above being sick in bed, Robert. So to some extent, it does make sense that the very act of tipping into retirement is in itself a happiness booster. You mentioned earlier that people are concerned about outliving their money, even multimillionaires. There are studies that show there are people who are retired and could spend more than they do, but they don't. So how do you, as a financial advisor,

Starting point is 00:16:33 help someone get over that hurdle of saying, according to your analysis, they have enough to retire, but they're nervous. They're anxious. They say things like, well, I don't know how long I'm going to live. I'm worried about long-term care. What's it take to get someone to say, no, you've been saving for this for decades. It's now time for you to take advantage of it. you've you've got to put it in black and white or black and white in color is fine it's got to be it's got to be written down whether you draw it out you analyze it through artificial intelligence whether you use a one of the more sophisticated software programs that exist today to map out your cash flow that is that blueprint seeing it on paper and putting in the right variables which

Starting point is 00:17:21 are not that complicated inflation expected rate of return amount of spending you you put all that together and as long as you are utilizing and i've written about this several different times and i i believe so strongly in this you understand how you're able to max out your withdrawals without running out of money abiding by i call it the four percent plus rule if you're if you're able to understand that and map it out which is not doesn't need to be overly complicated so it's it's preparation and it's some education having the confidence around some of these really important rules of thumb i think if you understand that and i think that's an advisor a job for an advisor to do when they sit down with folks if they're uncomfortable to help them understand that

Starting point is 00:18:11 as long as you're mapping this out and you're using conservative long-term assumptions then people should have the confidence and and not the fear of running out of money and i and that's a huge part of the overall equation is that planning takes away so much of the anxiety as long as you have enough resources to make it work it's time to get it done fools and this week we're focusing on funds you know there's approximately 40 trillion dollars invested in u.s registered mutual funds and exchange traded funds according to the investment company institute and it's plate you gotta try breakfast at a and w you gotta try breakfast at a and w and what better way than with a delicious pret organic coffee

Starting point is 00:19:00 starting with just one dollar all day every day now until december 31st you gotta try breakfast at a and w at participating a and w locations in ontario roughly evenly between actively managed funds and index funds, even though the evidence is clear that most actively managed funds fail to beat a relevant index fund. Morningstar threw more evidence on this pile in its recently released mid-year active passive barometer report, and here's what it found. Over the 12 months ending on June 30th of this year, only 33% of actively managed funds beat a passively managed peer. That figure drops to just 21% when you stretch out the timeline to the past decade. And fees really matter.

Starting point is 00:19:49 The percentage of actively managed funds in the cheapest quintile had a success rate that was 12 percentage points higher than the funds in the priciest quintile. Now, I'm not saying you shouldn't own actively managed funds. I own several myself. But you should check their performance once a year or so to make sure they remain in the minority of outperformers. So here's what to do. Line up the performance of your fund with that of an index fund that is in the same category. You want to make sure you're doing an apples to apples comparison. So for example, if you own an actively managed small cap value fund, compare its performance to a small cap value index fund from a firm like Vanguard or iShares. And if your actively managed fund isn't

Starting point is 00:20:29 beating the index fund over the past five to 10 years, then it might be time to part ways. Now, if the fund you own is in an employer-sponsored account like a 401k, you may not have a choice, right? You're limited to the funds offered by the plan. But if the actively managed choices in your plan aren't keeping up, make some noise. Reach out to your benefits administrator and the company that operates the plan. They have a duty to offer you low-cost investments that at least match the performance of their stated benchmarks. And that's the show. Thanks to Dan Boyd, who's engineer for this episode. As always, people on the program may have interest in the investments they talk about, and The Motley Fool may have formal recommendations for or against,

Starting point is 00:21:08 so don't buy or sell investments based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. I'm Robert Brokamp. Fool on, everybody.

Motley Fool Hidden Gems Investing - Should You Retire Sooner, and Is Your Fund Winning?

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