Motley Fool Money - Mailbag! Maximizing Dividends, Spending in Retirement, Managing a 529

Episode Date: June 20, 2026

Host Robert Brokamp is joined by Fool contributor Dan Caplinger to answer financial planning questions sent in from listeners, including:-How do ETFs affect the recommendation to own 25 to 50 stocks?-How can a new retiree switch from saving to spending after decades of frugality?-Since stock prices drop after a dividend payment, is it a “nothing-burger”?-How to manage a 529 as a kid gets ready to go to college?-Should you automatically reinvest dividends or use the cash to invest in something else?-What to do when you’re getting a late start on saving for retirement?Host: Robert Brokamp, CFP®, EAGuest: Dan CaplingerEngineer: Bart Shannon Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Merry weekend, fools, and welcome to the first mailbag episode of the personal finance edition of the Motley Fool Hidden Gems Investing podcast. I'm Robert Brokamp, though my nickname Around the Fool is Bro, which you'll hear about today, and my colleagues who host the weekday shows have been soliciting questions from our audience for the past few months. And it turns out, y'all have plenty of finance with planning questions. So I thought I'd devote an entire episode to answering some of them and to help me as my longtime partner in crime, Dan Kaplaner. Dan is a former financial planner and trust attorney. And for more than six years, Dan and I have been answering questions for Motleyful premium members during two live shows each

and every week. So I asked Dan to join me for this inaugural mailbag episode. Welcome to the show, Dan. Glad to be here, bro. It's always fun to talk financial planning with you. Outstanding. So this is how this is going to work. So we chose six questions from those that we received, which touched on personal finance as well as a little bit of investing. I will read each question. And and Dan and I will take turns taking a first crack in it, and then the other will add his thoughts if he has any. With all that said, here's the first question. It comes from brother Zach, who wrote in that the fool recommends holding at least 25 individual stocks.

How do ETS play into that? Do they count as one stock, one and a half stocks, or do you count them as completely outside of the 25 individual holdings? Dan, what do you think? So, Zach, I need to update you quickly on the fool philosophy because full CEO co-founder Tom Gardner recently updated that 25 individual stock number to 50. That really reflects the importance of you have so many individual stocks that kind of overlap in terms of industry, in terms of business model.

You don't want to assume that just having 25 stocks is going to give you perfect diversification. That's part of the justification for Tom pushing that number up to 50. So I wanted to get that out of the way first. But to answer the question you ask, how do you deal with exchange traded funds? For me, an ETF counts as however many stocks that fund has a significant position in. So let's take a couple of examples. A lot of people invest in ETFs that track the S&P 500 index. And to me, if you have that one ETF as a position, then you have satisfied the 50 stock requirement

you have a diversified portfolio. I am comfortable with people. If you don't like investing in individual stocks, just picking a broad market ETF like that can get the job done. But not all the ETFs are like that. Some ETFs are more concentrated. I know one popular ETF that concentrates on South Korean stocks. It really has two positions.

Two positions make up half of the entire portfolio. So to me, that's not a diversified portfolio. that ETF counts really closer to just like two stocks for me. And so you kind of have to look at the holdings and make a judgment call. Yeah, and I think it's important to keep in mind the spirit of this rule, right? The guidance is so that you don't have too much writing on one stock or one type of stock, but also that you have enough exposure to other types of stocks, industries, and sectors. So when I look at my portfolio, which is a mix of individual stocks at ETFs and mutual funds,

I use Morningstar's X-ray tool to look at how my portfolio is, actually allocated because that tool can look into the mutual funds at ETS and see which stocks or investments it holds. And so I know, you know, when you add my individual holding in Berkshire to my S&P 500 index fund to whatever actively managed funds I have that have Berkshire, this is the total amount I have in that stock. And you could have all kinds of ETFs, but you're not really diversified because there's so much overlap. So I think that's also important to keep in mind. That's a really smart thing to do because these days, even big market

ETFs are more concentrated than they were in the past. And so getting some kind of tool that gives you that X-ray gives you that look through can be really valuable. All right, let's get to our second question from Matt.

So I've been reading The Fool and investing full of sleep for about 30 years. My wife and I have lived a good though not extravagant life. While I have never made more than $50,000 per year, we have grown our portfolio

to a few million dollars as well as owning a home that is worth more than a million dollars. And we have gold and other assets all debt-free. Wow, that's outstanding, Matt. Now I am 70 and retired, our Social Security dividends, and other income beat all of our expenses. I'm having a hard time switching mindsets from saving mode to spending mode. I can't seem to bring myself to sell shares and withdraw the funds

from the portfolios. What advice do you have for new retirees who need to switch from saving mode to draw down mode? And which accounts from among the IRA Roth, Sep, Joint and Personal should we draw down first? Thanks to the fool for a lifetime of sound investment advice. Well, congratulations. You have done a fantastic job, not knowing everything about your situation, but it sounds like you're in fantastic shape. So congratulations to you, and you probably could feel more comfortable spending a little bit of your money. Just a couple of thoughts. You might want to choose just a really conservative guideline, such as the old 4% rule. I've talked on the show before about how 4% is actually probably too low, should be closer to 5%. And that's for someone who's 65.

So if you, at a 70-year-old, withdrew 4%, that's pretty safe. And very soon, you're going to be required to take some money out anyhow, at least from your traditional accounts, because at age 73, you're going to have to start taking required minimum distributions from your traditional accounts. So you could at least feel comfortable spending that money, which brings us to the question of the order of withdrawals. So the basic rule that you often hear is that you draw down your taxable accounts first, then traditional accounts, and then the Roth accounts. but since you're near your RMD age, you actually might start with the traditional accounts first. And one other thing I'll just add that if you work with

or have considered working with a financial planner, this is a great question for her or him. You might value having that objective second opinion where someone looks at everything and says, listen, you can feel very, very, very comfortable spending this amount each and every year and you're not going to run out of money. Dan, what do you think? The other thing I'll just point out is

you talk about having had a modest lifestyle throughout your career. And if you are comfortable, if you don't have aspirations to spend a whole bunch of extra money, then you might be in a position you're totally comfortable maintaining that lifestyle. You're not necessarily looking to spend a whole bunch more money. But here's the thing that you might consider. Try out some upgrades. If you stay at a certain type of hotel, consider moving to the next upgrade up. If you routinely fly, coach, then consider trying a business class flight. Just try looking at some of those ways to spend your money and see if they have value. Some of them won't, but some of them will. That might put you in a position you're more comfortable spending that money. You've worked so hard to accumulate

and that you've done such a good job investing. You deserve those little luxuries as you enter your golden year. Very well said. built for busy business owners, because you've got bigger things to think about. With Staples Preferred, get free delivery, no minimums. Staples Preferred unlocks up to 3% back, plus 10% savings on print and exclusive wireless offers. One less thing on your plate. Actually, a lot less. Visit staples.ca.comfired. That was easy.

Let's move on to question number three from Casey. When stocks pay dividends, technically their share price drops by the exact amount to offset that since it's coming off their books. So you would have to hope for share price appreciation to come out ahead, correct? Retirees love dividend stocks because it gives them income. Technically, a non-dividend stock could give them income as well by selling the exact same amount of stock each time to create a dividend yourself minus the different tax treatments. And with a bond ETF like the I share zero to three month treasury bond ETF, ticker SGOV,

that doesn't get much share price appreciation. Isn't the dividend payment every month kind of a nothing burger? Because you aren't getting share price appreciation with that. So you're just breaking even. Dan, what do you say? Yeah. So, Casey, you're right. You can't just get rich by buying the stock the day before the ex-dividend date

and then selling it right after collecting the dividend and then selling it right after collecting the dividend and then selling the stock, you're not going to get money that way because you're absolutely right. The share price usually will adjust downward to reflect the dividend that's going to get paid out. However, that's just looking at one day in time. Over a longer period of time, ideally the company is being financially successful. The stock price is rising over time. And in part, some of that is because of the income producing power that that business has. that business is generating income, that cash flow is coming in, the assets of the business are going

up, the share price is going up in line with that. It's exactly some of those assets that are going to pay your dividend. So it's not just that there's share price appreciation just from, I don't know, multiple expansion or investor demand or things like that, is because the business is operating that way. Now, also your point, it is true. Shifting, to dividend stocks in retirement just for the cash flow purpose, it's not necessary. You can just sell shares periodically, as you point out. It's just a comfort thing. A lot of people are more comfortable leaving their shares intact, not selling in retirement. They feel like they are selling off their principal if they sell shares, whereas a dividend payment, it's just income. It's not selling

principle off. It's maintaining the income producing potential of the portfolio. One last thing, you'll notice with that ETF that you're talking about. If you look at the share price trends, often the ETF will pick up like a penny a day. And it'll keep doing that penny a day at the end of the month. It takes all those pennies. It pays them all out in a dividend. And so you can kind of see that makes the dividend payment. It's not a nothing burger. It's really the whole burger. It's the entire point because that's the income that those assets are generating throughout the month. Yeah, I was thinking about this as you could think of like a dividend paying stock or a bond fund as sort of a temporary cash holder, right? Cash comes into it with the dividend paying stock,

it's basically the earnings from the company. It holds that cash for a while and then it gives it to you as the holder of the stock and same with the bond fund, except that cash is coming from the interest paid from the bonds, and then eventually it gets distributed to you. One of the differences, though, with the dividend paying stock, ideally the dividend is growing year after year, if not quarter after quarter. Historically, dividends have outpaced inflation by about one to two percentage of points. So that's part of why the stock price rises because investors are anticipating bigger dividends. But in the end, you're still ending up getting that cash. It's definitely not a nothing burger. All right, let's go on to question number four from Bonnie.

Over 10 years ago, I started contributing to a 529 for both of my sons. My oldest son is now a senior in high school and looking to decide on a university in the next week or so. So it's a very exciting time for us. As I look at as two options, when school is in state, and we would be able to cover the four years of tuition and board with what is currently in its 529. However, the other school is out of state and it will take a bit more than what is in the 529. In all the years I've been listening to the Motley Fool podcast, and it's been many, I've never heard anyone cover the best ways to draw down a 529. I'm sure that there are a few strategies, and I'm curious to know the pros and cons associated

with each, any chance Robert Brokamp could opine on the topic in the near future. Well, Bonnie, I think there's a very good chance, because we're going to look at it now. And Dan and I were both recently in this situation, to an extent we still are. So I think we'll talk a little bit about our own experience. So I'll say what I did with my four kids. So first of all, I would say that once my kids were in high school, I played it very safe at the 529s, so I put them all in cash. That's pretty conservative.

Some folks are comfortable having still a little bit more stocks in the 529s. Once the kids are close to or in college, but I didn't. I wanted to make sure the money was there and that it was very protected. And I didn't want a bare market to cut the 529s and half while they're in college. So that's one thing. What you'll find, too, is in terms of the payments for, the tuition and room and board and other fees paid directly to the school, you can actually have that money transferred directly to the school. So that's very handy. For other items like

textbooks or maybe off campus housing, you can take the withdrawals up to the qualified amounts yourself, but then keep the receipts in case the IRS wants proof of that at some point. And I'll just highlight anecdotally, by the way, that when your kid leaves college, you might notice a slight drop in your household expenses, you know, such as food or maybe extra-critical. right, high school sports cost a lot of money. So some of those expenses will actually go away, which may somewhat slightly offset the cost of going to college. Dan, do you have any tips from your own experience being a dad with a kid in college? For sure. Yeah, the one thing that I will say is make sure that the 529 expenses line up with the year that you take the money out as a withdrawal.

You don't have leeway. There's some other types of accounts like flexible spending accounts for health expenses where you have a little leeway, you do not have the leeway here. Make sure you take that out in the same year. A lot of people in 529 plans, there are now age-based portfolios that kind of do this for you. They make your portfolio you're investing more cautious as you get closer to the age where your child is in college to prevent the exact same scenario that bro was talking about where you're over-invested and the kids in college and suddenly you have a bear market and you're losing a whole bunch of money. So if you have one of those portfolios that's done for you. If you don't, then it's up to you and you need to figure out what to do. The only other thing I'll say is if you have multiple kids and you anticipate having money left over from a 529 for your first child for use in the second child,

sometimes that might change the way that you want to invest because it affects the time horizon. But again, that's a more individualized situation that will vary from family to family. Yeah, and I think what Dan was kind of touching on there is, you know, you may have one 529 with one kid and that kid's going to need more money. But the money in the other 529 for the other kid, maybe they don't need all of that money. So that money can be transferred to the other kid. So you could almost think of these as really one big account to some degree. Exactly. This spring, denim gets a softer, lighter update.

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Do you prefer to have more control where they go and the timing when you purchase stocks? Discussion on dividends and all types of investment accounts would be awesome. So, Zach, I'll just say generally, it kind of depends. There are some stocks that I'm totally fine when they pay a dividend reinvesting in more shares of that same stock. There are other stocks where I'd kind of prefer to take the cash, let it accumulate, and then potentially redeploy it somewhere else. Maybe I'll buy additional shares of that stock, but maybe I'll buy shares of a different stock. It just kind of depends on my level of conviction in that individual stock. And also kind of my time frame for that stock and my investing thesis for

it, there's some stocks that you want to consistently add to. There are other stocks that I'm comfortable taking an initial position, kind of leaving it alone, adding to stocks I've had more conviction in. One thing I'll point out when it comes to different types of accounts, I tend to avoid reinvesting dividends in taxable accounts. Here's why. It's because it makes my tax accounting harder whenever I close out that position. If you reinvest your dividends, you have all these little bitty tax lots every quarter or several times a year that you have to account for when you're calculating your capital gains. Now, admittedly, brokers are supposed to do this for you. Tax software is supposed to make this easier. But nevertheless, I like it when those purchases

in taxable accounts are cleaner. In retirement accounts, not nearly as big of a deal. There's no tax impact. There are more likely to allow things to accumulate, to reinvest those dividends. Also in part because, like, I'm not touching that money. That money is for retirement way down the road. I'll just point out that how you manage your dividends could be a good way to rebalance your portfolio. So if you've become overweight in a certain stock or maybe a certain group of stocks, you might want to stop reinvesting those dividends and then use that cash to buy underweighted assets. And once you're getting closer to retirement, it can be a good way to gradually de-risk your portfolio. I know once I'm within five years of retirement, I'll probably stop reinvesting all my dividends.

Let them accumulate as cash, maybe invest them in bonds so I can grab. get more conservative as I get closer to my retirement date. All right, it's time to move on to our sixth and final question, and it comes from Bill, who writes, I'm 44 and finally started learning about the market. I made lots of mistakes in life, but finally got to a place where I can start saving for retirement and investing. My job now doesn't offer retirement plan. I have about $50,000 in a money market savings account and about $20,000 as my emergency fund in the same money market account. My question is, how will you guys start a retirement plan and investing in the market?

I feel like I'm way behind and might need to take some risks. I believe my risk tolerance is strong. The goal is to retire with enough money to live comfortably. I only make $50,000 gross a year. I know the most important step is to try to find a higher paying job. Any help or advice would be very much appreciated. Well, Bill, so the good news is you do have an emergency fund and some savings, so that is a great start. You are likely a bit behind. Various financial services firms provide guidelines based on your age and as a multiple of your household income. I'll just take a look at T-Roe prices guidelines. They suggest that someone at age 45, so a year from now, should have about three times their household income save for retirement at that point. So you're not quite there,

but you're also not horribly behind either. I'll point out if you're a W-2 employee, you say you have a job. And so if you're actually being, you know, employed by that job, your only choice for retirement plan in terms of like a tax advantage account is an IRA. So you could sock away $7,500 this year in that. If you're actually not an employee of that company, if you're self-employed contractor or a 1099, as they often say, you actually could open up a solo 401k and save more. Of course, you do have that $50,000 in that money market account and that's, you know, pretty safe, but also low returning. So if you don't need that money in the next five years, it could be invested in the stock market. And given that you likely have more than a decade until you retire,

you could be very aggressive with the rest of your portfolio that you save for retirement, assuming, of course, that you're comfortable with the ups and downs that come with the stock market. Yeah, I would just say that if you're relatively new to investing, I would start with a diversified collection of ETFs, maybe large caps, small caps, some international, and then you can move into individual stocks as you gain more knowledge and you get comfortable with the unique risks of owning individual stocks. I'll just close here by saying that, you know, for those who are getting a later start on saving for retirement, one of the most powerful things you can do is just work a bit longer,

right? That allows you to save more, to delay withdrawing on your savings, and to delay claiming Social Security, and for every month you delay Social Security, you get a bigger benefit. So as you consider a higher paying career, which I do think is something to strongly investigate, aim to find something that you'll be happy to do well into the second half of your 60s. I know it's easier said that done, but if you find a new career, a higher paying career that you really enjoy, you may be perfectly happy working well into your 60s. We had the question earlier from someone earned about $50,000 a year and is doing very well, but he retired at age 70 and that can be

very, very powerful. Dan, you have any thoughts? Only thing I'll add quickly is don't be afraid to invest for retirement in a regular taxable brokerage account, you indicate that you have a high risk tolerance. Investing in growth stocks that don't pay dividends, for the most part, you can do even in a taxable account without paying a whole bunch of tax until you decide to sell. And if you're a long-term investor like we espouse at the Motley Fool, then that can be a tax-efficient way to get your money working. Don't be afraid to invest for retirement in that regular taxable brokerage account. don't have to get it all into an IRA. And that's the show. Thank you, Dan, for joining us.

And thanks to Bart Shannon, the engineer for this episode. Thank you all for listening. As always, people on the program may have interests in the investments they talk about, and the Motley Fool may have formal recommendations for our guests. 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. See our full advertising disclosure. Please check. check out our show notes. I'm Robert ProCamp. Fool on everybody.