Rich Habits Podcast - Q&A: Scholarship Brokerage Account, Interviewing Financial Advisors & Retiring at 46

Starting point is 00:00:00 Hey everyone and welcome back to the Rich Habits podcast question and answer edition. These are our Thursday episodes where every Thursday we're coming at you, answering your questions as if we were in your shoes going through whatever you might be going through. You all ask us questions all the time in our DMs on Instagram at Rich Habits Podcast, as well as email us questions all the time at Rich Habitspodcast at gmail.com. I think this episode, Robert, does a pretty good job of getting some email questions and some Instagram DM questions. And it's going to be a fun one. We've got six or seven teed up for you. And as always, these questions are all about everything. I mean, there's no theme. There's no

Starting point is 00:00:40 consistent, you know, straight through line as to if it's a Roth, if it's just whatever you ask us. That's what we're doing here. And we're so grateful that so many of you ask us questions all the time. So if you want to get featured on the episode, ask us a question. Again, Instagram DMs or email. Yeah, we love these episodes. And today's episode is pretty technical. A lot of really in-depth questions. And the only thing I want to add is always remember if you submit a question, give us your age, because that helps us understand the situation better, personal finances, personal, and help answer it better so we can know where you're at in your financial journey. But other than that, we love the questions. Today is going to be a great

Starting point is 00:01:20 episode. 100%. Now, we need to remind you guys, July 10 at noon Eastern time. It's a Friday. Friday at noon. You're going to be just fine. You can take off work a little bit. We've got an exclusive webinar. We are hosting, again, July 10 at noon Eastern time, it's a Friday, all about public's AI agents. You all know they came out with AI agents a couple months ago. You can use these AI agents to facilitate investments and trades and different things inside your public brokerage account. But a lot of y'all were like, hey guys, I'm kind of overwhelmed. I don't know how to build these. I don't know what's going on. I don't know how to connect it all. Walk me through it. And so after so many of those questions, we said, Robert, let's go get the chief operating officer at public, Stephen Sykes, to join us for a webinar workshop with you all all about these AI agents.

Starting point is 00:02:09 It's completely free. We're going to talk about how to build an agent. We're going to talk about the different strategies you can use. We're going to talk about what these agents can't do. And then you all can come up on stage on the webinar and tell us what you want us to build. And Stephen's going to build it right in front of you completely for free, all live. like it's going to be great so please please please use the link in the show notes below to register for the webinar once you register you can add it to your google calendar you're going to be just final

Starting point is 00:02:37 notifications all that stuff email reminders everything and then join us july 10 at noon eastern time for this webinar it's going to be so much fun robert i can't wait yeah i think for everyone listening today you need to understand the importance this is totally free you're going to learn from the pros and you're going to just advance your knowledge of how these agents work so dramatically in that 45-minute period. So please put it in your calendar and make sure you understand the importance of this if you're going to level up your investing knowledge without having to figure it all out on your own because so many people reach out to Austin and I. I really want to get involved in this, but I don't know how.

Starting point is 00:03:18 I don't know where to start. I don't understand it. This is the event for you. We're not going to sell you anything. It's just an awesome event to provide you guys. more value within the Rich Habits podcast and the Rich Habits Network. I want to emphasize that because normally whenever people sign up for webinars, it's like really cool and fun.

Starting point is 00:03:35 Then at the end, they're like, but wait, give me $5,000. Right. Literally this is just a free webinar. We just, we like convince Stephen to take time out of his busy Friday and be like, dude, jump on with a bunch of us, a couple hundred of us here from the Rich Habits podcast and explain these AI agents because a lot of people are asking. And he was like, all right, we'll do it. Sounds like fun.

Starting point is 00:03:55 And so that's what this is. So again, link in the show notes below to register for that webinar, our AI agent webinar with public.com, taking place July 10 at noon Eastern time. Speaking of public, you guys got to go check out Public because it's the investing platform for those who take investing as seriously as we do here on the podcast. On public, you can build a multi-asset portfolio of stocks, spawns, options, cryptocurrency, and now they're generated assets which allow you to turn any idea into an investable index using AI. And it all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year,

Starting point is 00:04:32 you can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one-of-a-kind index, and even lets you back-test it against the S&P 500, all with just a few clicks. Generated assets are like ETFs with infinite possibilities. They're completely customizable. They're based on your thesis, not someone else's.

Starting point is 00:04:50 So go to public.com slash rich habits, transfer your portfolio, and get started. That's public.com slash rich habits. Paid for by public investing, full disclosure, and the podcast description. So our first question is coming from Hallie. Hallie says, hi Austin and Robert. My name's Halley. I'm 19 years old and I'm about to enter my sophomore year of college.

Starting point is 00:05:12 I have a recurring scholarship that, in addition to helping pay for school, sponsors two brokerage accounts. One is a personal account that I have complete control over and will keep after graduating, from the scholarship program, but the other is owned by the scholarship foundation. They disperse $10,000 into this account, and it's up to me to manage it, and additional disbursements will be made during my junior and senior year, with a total of $20,000 being dispersed by the foundation. So I have to manage this account, and whatever gains I make, I get to transfer to my personal account up to $10,000. Only approved stocks from the S&P 500 can be used, so my question is, What stocks do I invest this money into over the next three years so I can take advantage of that $10,000?

Starting point is 00:06:02 Thank you and really appreciate your guys' show. Robert, what a weird but also fun situation. Have you ever heard of something like this? I have heard of something like this. I knew a woman 25 years ago that got a similar deal like this because she had one brown eye and one blue and the founder of this foundation had the same thing happen with her eyes. So she created this program for students that had the same eye situation. I know it sounds crazy, but it was very similar to this.

Starting point is 00:06:31 But what an incredible, incredible opportunity for someone like Hallie here to get this money working for her at such a young age. With that being said, I personally would just invest in the S&P 500. Maybe the NASDAQ that's allowed and do something like with VOO, rather than trying to select individual stocks, especially for such a short period of time, I think it'd be very tricky to pick the right stocks to get the maximum value in gains over a two or three year period. So I'd rather see Halley take this money, invested in VO, maybe add QQQ if she's allowed, call it a day and go about getting her degree, getting through college, and rock and rolling,

Starting point is 00:07:14 and then transfer that $10,000 when it's over into her. her traditional brokerage or as much as she can in the Roth IRA because she'll be like 21 at that point. But that's what I would do. But what a cool situation. Yeah. I mean, you're essentially asking, hey, do I try and do some single stock picking to try and make 10,000 knowing that that 10,000 can be given to me? Or do I just park it in an index and maybe make 10, 20, 30, 40 percent, historically speaking, over that three-year period of time? I'm always leaning toward the index because it's really hard to single stock pick. Now, if this was, you know, some sort of class or you were getting, you know, something like that,

Starting point is 00:07:54 that's a different story. I mean, at the end of the day here, you have an opportunity to make a couple thousand dollars from just parking this in the index for the next probably two or three, four years, whatever your kind of timeline is here on this, depending on graduation and like, you know, timing around that. Whereas I don't know if you're still going to make a couple thousand dollars if you put it in the wrong stock. Like, let's say, for example, you put it into, into it, the company that owns QuickBooks, So their stocks down 40, 50, 60% just this year, right?

Starting point is 00:08:19 So it's like if you put it in the wrong one, you're not going to get that any part of that $10,000 that you could get if you just put it in the S&P. Now, some suggestions for you. Go listen to episode 171 how Wall Street value stocks and how you can too. Maybe you're majoring in finance and you know, you want to learn more about how Wall Street thinks about earnings per share, operating cash flow, net income, you know, margins, things like that. maybe that's going to help you navigate this as an exercise in the future, but to just double down on what Robert said, I would just park this in the S&P. I would just have it trickle up into the right over time. You make your, you know, 10, 20, 30 percent over the next couple of years and be done with it. That's how I'd approach this. Now, the other aspect that I think is just as important, Robert,

Starting point is 00:09:08 is something that you called out. Focus on your school. Focus on graduating. Don't spend six hours, eight hours, a week trying to research stocks and trading and everything to make your 10,000 or whatever it might be, $10,000 in the grand scheme of things of your entire life is a drop in the bucket. But having a good foundation at your college, being involved in different types of extracurriculars or clubs and societies and things like that, the networking aspect, you know, going to office hours, getting good grades, that is going to compound for you post-graduation 10 times more. than a $10,000 lump sum could be invested. Like, I'm telling you, college and using it the right way to get that,

Starting point is 00:09:55 you know, your networking, to make friends, to get the job and like do all that stuff is way more important than $10,000 is going to be at the age of 21 or 22. Couldn't agree more. 100%. Our next question comes from Jason M. Jason says, I have concerns about my investments versus my credit card debt. I'm 44 years old and I'm on course to max out my Roth IRA for the first time. September. Thank you for that. I also invest, though, in my Roth TSP. I have some other investments in

Starting point is 00:10:22 stocks and high-yield savings from public.com, but in total, I invest $1,100 every two weeks. I have almost $15,000 of credit card debt. Most of it, not all of it, is at a 0% interest rate, but I sometimes feel like I should stop investing to pay these credit cards off, but I get FOMO. Please give me your advice. Thank you so much for helping me understand finances a little bit better. podcast was the first financial podcast I ever listened to. Really good question, Jason. A couple things here. Yes, you can't out invest high interest debt. And I understand that some or most of this, 15,000 is at 0% interest. But that is an introductory rate. That 0% is going to go away eventually and it's going to skyrocket to 18, 22, 27% APR and you're going to be stuck paying interest

Starting point is 00:11:10 on thousands, if not, you know, $10,000 plus of credit card debt. Now, here's a lot. Now, here's what I would do if I were in your situation. I would audit the amount of money I have in non-retirement accounts. Think normal taxable brokerage, think high-yield savings, right? Just like, what money do you have accessible to you that is not sort of locked up behind a 10% early withdrawal penalty, right? So once you do that, you mentioned the high-yield savings account here, some other investments on public, then I'd say, okay, I don't want to touch the stuff that's in my, I actual retirement accounts. I'm not going to borrow from my future to pay for today. But what I am going to do is I'm going to say I've got $1,200 here in some NEO's funds on my public account in a

Starting point is 00:11:56 normal taxable brokerage. And I've got $4,500 in a high yield savings in my public account that's earning a little bit whatever. And I'm also investing $1,100 every two weeks, so $2,200 a month. How should I think about now making sure, yes, I've got some money in an emergency fund, but also coming to the realization that I can't out-invest high-interest debt. Maybe I should pause my $2,200 a month investing that I contribute to this Roth TSP, take that same $2,200, and now push it toward the high-interest credit card debt. Maybe I should sell the Nios investments or whatever ETFs or stocks you have in a taxable brokerage account here on public. Not a retirement, just that normal taxable bridge account, maybe sell some of that and put that toward this credit card debt. Because what's going to happen is you will eventually. come out of this zero percent interest rate. It's going to be 20, 25, 30 percent, depending on whatever the terms are of these cards. And you're going to look around and say, wait, I just invested $24,000 this year. That was great. It made me 12% in the markets. But my $15,000 cost me 30% in interest. I'm going backwards. I should have just taken that $22,000, $24,000 I invested throughout the

Starting point is 00:13:14 year and put it all on that credit card debt so I didn't go backwards during the same period of time. That's my take on this, Robert. What did I miss? You didn't miss anything. The key for me when I see this question from Jason is FOMO. So many people and I deal with this all the time on one-on-one calls or in DMs and stuff is people will be like, well, I've got $32,000 invested over here, but I've got $18,000 in credit card debt at a 30% interest rate. That just doesn't work and you already touched on it. You can't out invest high interest debt. So the easiest way for anyone listening that's in this situation, Jason, I hope you're listening, is take the amount of months you have left before the zero interest turns into normal interest

Starting point is 00:13:57 because like Austin said, this is an introductory rate. So let's say it's seven months you have left on whatever. If it was an 18 month term of zero interest, you've got seven months left, divided by the amount of balance you have right now. and that's what you need to be carving out every single month to get rid of this so it doesn't get to the end. And then all of a sudden you're like, well, I have $11,000 left, but I'm just going to go ahead and pay this high interest rate because I have FOMO. Get rid of all that. You have to get ahead of this before that introductory rate goes away so you don't go back into trying to out invest high interest debt.

Starting point is 00:14:33 That's the only thing I would add. Do the math, figure it out and get rid of it. Here's the other math that Jason needs to do, specifically as it relates to the FOMO, and I don't blame you, Jason, because I get FOMO too. Everyone gets FOMO. It's part of being an investor. You get emotional. We're emotional creatures as human beings. But let me be very clear on this, Jason. You are simply pausing your investment contributions for a year or maybe two. So not only you can pay off this high interest credit card debt, but you can also fully fund an emergency fund inside of your high yield savings on public so you don't have to find yourself back in high interest credit card debt. But you can also fully fund in emergency fund inside of your high yield savings. So you don't have to find yourself back in high interest. You can. You can also fully fund inside inside inside inside of your high interest. So you can. So you can. So you can interest credit card debt in case of an emergency. You're not swiping the credit card or selling investments in the future. You are starting to invest now. Let's pretend two years into the future at the age of 46 with no high interest credit card debt and a fully funded emergency fund of three to six months of expenses. So now between the ages of 46 and 66, so that 20 year period of time,

Starting point is 00:15:34 let's pretend you're starting at absolute zero in your TSP in these Roth accounts and things like that, if you contribute that $2,200 a month or $1,100 every two weeks, which actually, because the number of weeks in the year is going to be more than that, but regardless, you will have $1.3 million at 66 years old, starting from zero, assuming an 8% annual return, which, in my opinion, is adjusted for inflation, right? Two and a half, three percent inflation. Stock market does 11-ish, 10.5, 11, 12% per year, right? This is adjusted for inflation.

Starting point is 00:16:08 $1.3 million starting from scratch at age 46. So don't feel FOMO. You're not missing out. You're going to be a millionaire as long as you continue to say, okay, let's not go into this high interest debt. Let's live below our means. And let's ensure that we have a plan and a foundation to start upon. Wow.

Starting point is 00:16:26 Yes. Thank you for adding that. That is a really, really good take to put a bow on that question. So our next question comes from Kevin P. Kevin says, Hey, Robert Nostin, your show literally changed the outlook and motivation. for my wife and I, and we can't thank you enough for finding a way to make finance and investing so fun and relatable. Let's go, dude. Thanks so much. I'm so excited to see that. Kevin says, I've been a

Starting point is 00:16:47 police officer since I was 18 years old, and I'll be retiring from being a police officer and move on to the next stage of my life in five years at the age of 44. Okay, so that means Kevin is 39 right now. Kevin says, I have a 457 city pension plan with about $100,000 in it. When I retire, I plan on rolling it into my Roth IRA and I know in order to do this I have to pay taxes on that $100,000 as normal taxable income. My question is, does it make more sense to do that all at once in one single year? Or should I spread it out over a couple years to avoid a heavy tax hit? And then finally, should I consider the time of year I'd do a rollover like this? Thank you all so much.

Starting point is 00:17:34 Keep rocking and rolling with the amazing job you two are doing. Kevin P from Philly. Kevin P. Love it, dude. Love it, love it, love it. So, Robert, we talked a little bit about this one before we started filming. Maybe let you kick this one off. Yeah, I mean, we did some math here for Kevin, and we believe, and Austin helped me out here with all the details, but we believe that the better move is to not take it all at once

Starting point is 00:17:57 and to take it over time so you stay in the same tax bracket because all of a sudden, if you're getting this $100,000 rolled over into one year of, income, it's likely going to change your tax bracket and cause you to pay more taxes. So I like the idea of taking it out in chunks, maybe over two or three years to keep yourself in the same tax bracket. And then we did the math on putting it into the traditional brokerage versus the Roth IRA and the math maths in your favor long term because of your young age of putting it in the traditional brokerage account over that time frame of that two or three years. And that way you end up with more money in retirement by I think it was around $40,000 or $50,000 by going that route. What did I miss,

Starting point is 00:18:43 Austin? So if our friend Kevin here essentially saying, hey, I've got $100,000 and I could roll it over into a Roth IRA and pay taxes on that $100,000, or I can roll it over to a traditional IRA and not pay any taxes on that $100,000, what do I do? And if I do the Roth IRA, should I roll it over one year, two year, three year, four year, five year, how should I think about that? If you do the Roth IRA, you're thinking about having, we assumed a 20% effective tax rate on this $100,000. And when you separate from being a police officer, I believe you are able to withdraw some of this money, penalty free. So let's call it a 20% effective tax rate on this $100,000 of a roll over there. So let's say 80,000 of this hundred actually comes and stays invested in your Roth IRA, that 80,000 from age 44 to 64,

Starting point is 00:19:38 I think turns into about $400-ish,000, where if you rolled over the entire $100,000 into a traditional IRA, yes, you will owe taxes on all of that money in retirement, which by the way, comes out to about $494,000. So about $95,000 more because of that $20,000 difference. But does does that $95,000 more offset the taxes you'll pay on that $495,000 total? If you are assuming an effective tax rate of 15% in retirement, then yes, you will come out ahead by choosing the traditional IRA option. If you are assuming a higher effective tax rate, 20%, 25%, 30%, right, then it's much more advantageous to choose the Roth IRA option because all 400-ish-thous thousand will be given to you

Starting point is 00:20:27 and you won't have to pay any taxes on it. I think this is very much a who knows scenario. And depending on what taxes will look like in 20, 30, 40 years, all I know is that taxes go up, which feels like federal income taxes go up every year. State income taxes feel like they go up. So having some clarity and having this all in the Roth IRA could be the best option, assuming a higher tax bracket than 15% in retirement.

Starting point is 00:20:54 Again, I don't know. We're just making some assumptions here with some of the math. But it's totally up to you on the situation. But I think to answer your question around the how many years to roll it over, you are not losing out on compound interest by rolling over $20,000 a year into a Roth IRA. Let's say you rolled $20,000 over into a Roth IRA. The 80,000 delta that's still in the 457 plan is still invested. So it's still growing for you. So there's no FOMO, there's no missing out.

Starting point is 00:21:21 There's no compound interest like what's going to happen here. You're still going to be just fine. So I would probably roll it over three, four, five years, roll it over to a Roth IRA if that's the route you want to go, get it invested as soon as possible into the S&P and the NASDAQ and the Dow Jones and the things we talk about and let it grow for you over time. We're talking about, you know, $10, 20, 30, $40,000 in retirement, which is nothing to sneeze at. But I got a feeling our friend Kevin here is going to be a multi, multi-millionaire in retirement that $40,000 will be a rounding error in his net worth. So our next question comes from Brock. Brock says, hi Austin and Robert. I love the show. I've been watching for the past few months and I've enjoyed every episode. My question is, I have a financial advisor with Edward Jones. I'm 21 years old. I've got $25,000 in a Roth IRA. $96,000 in a taxable brokerage account. The fees aren't extreme, but I do have the head knowledge to invest myself. I'm curious, what are your thoughts on if the fees are worth the squeeze? I like that. Fees are worth the squeeze. What do you guys think for context? Both of my accounts are invested into the NASDAQ and the S&P 500.

Starting point is 00:22:26 Thank you for any advice. Robert, what's your take on this? Yeah, Brock, congrats. You started early. You're crushing it. You're doing all the right things. And I don't think the juice is worth the squeeze for you at your age. Now, we have a family office, Crowe Capital, wealth advisors.

Starting point is 00:22:42 They do great. But that's down the road further. If you have the head knowledge right now and you know what's going on and you're just investing in all the right things, I don't know if that 1.5 to 2% on your size account actually makes sense for you, especially if you already have done your homework. You've obviously gotten into QQ, VOO, I don't know what else you own. I don't think it is worth it. I think you could go out on your own and keep an eye and think about this.

Starting point is 00:23:10 At the current size of your portfolio, let's assume $2,300 a year in fees on that portfolio. if you take that same $2,300 and make 8% over the course of 30 years, you're going to have around $230,000, $240,000 in money saved by going it alone. Now, do I think advisors are important for people as they get above that $1,2 million threshold? Absolutely. Because that's when it gets really interesting and you want to make sure that you're really structuring things well and you're doing all the right things from tax advantage accounts

Starting point is 00:23:45 and real estate and trust and all of that. But when you're just getting started, you know, that first 100,000 or 200,000, I don't think the fees are worth it, especially for someone that's already taking care of the knowledge base of understanding what they're doing. Yeah, Brock, we're talking about hundreds of thousands of dollars, which if you kind of back into it,

Starting point is 00:24:06 that's a fifth of your total portfolio value in 25, 30 years into the future. That's going to just be paid out in fees to an advisor. I completely agree. if you are someone who is just getting started and you are literally just dollar cost averaging into index funds like QQQ, V-O-O-D-I-A, all the normal stuff here, in my humble opinion, you don't need a financial advisor. Now, you need a financial advisor when you do some mistake planning, when you have to think about secession plans, when you have to think about total financial picture with taxes and

Starting point is 00:24:39 business ownership and different, like, sure, go get a financial advisor for that. But at the age of 21 or at the age of any age, right? Let's pretend they're 51 years old. And they have $100,000. Go park it in the S&P, dollar cost average. You can do this on public.com. And it's super, super simple and easy. There's no reason you need to have, in my opinion,

Starting point is 00:24:59 one to one and a half percent fees to have someone click a couple buttons for you. Now, yes, I agree. It feels good to have a money guy, right? It feels good to have someone in your corner that can talk you off the ledge when you're saying, hey, I want to withdraw this money because I'm going to go buy a Rolex, right? But you're smarter than that, Brock. You listen to the Rich Habits podcast will be the people to talk you off that ledge and keep you straight and trending up into the right from a net worth perspective over a long period of time. But as someone who, if you can live below your means and invest consistently, building wealth becomes inevitable.

Starting point is 00:25:33 Yeah, and the only thing I'll add to that is, Brock, if you haven't joined the Rich Habits Network, I'm going to give a plug here for us. We have a lot of really smart people in network that can help you with all of these types. of things and there's a seven-day free trial that you can utilize right now and go in and kick the tires and check it out. So think about that as well because then you're not paying anyone to help you do the things you're already doing. 100%. Yes. If anyone wants to join the Rich Habits Network, seven-day free trial, you can check it out completely for free. Stick around, leave, no sweat off our back. It's all good. There's eight hours of video coursework. We do a live stream every Tuesday night for two hours. We just started doing these Friday. lunchtime office hours. Robert, myself, jump on for a little bit. Like, it's, there's just so much more access to what Robert and I are doing and talking about and giving you guys the playbooks on our own portfolios. What we're investing into, we invested into SpaceX, like four separate times before the IPO. Like, we're investing and doing some really fun stuff over there. So again, go check out the Rich Habits Network. You can just Google Rich Habits Network. You can click in the

Starting point is 00:26:35 show notes below, just figure out how to find the Rich Habits Network. It's super easy to find rich habits network. So our next question is coming from Ashley. Ashley says, I'm going to start a new job mid-July. This means I'll go from making 71,000 a year to 90,000 a year with a 10% bonus every year after that. My question to you is do I cash out my current retirement to pay down my debt when I leave my job? My current 401k has $11,000 in it. I'm 42 years old with $50,000 in debt. The debt is $24,000 in credit cards, 11,000 in car debt at 8.5%. 15,000 in student loans at 7%. And my 401k is the only retirement I currently have as I divorced a couple years ago and lost access to my railroad retirement. I've already paid off almost $17,000 in debt since January 1st of this year. And this bump

Starting point is 00:27:27 and pay, I'm confident I can keep paying down my debt to the tune to $2,500 or $3,000 a month. I just want to make sure I'm making the best decision. And I could really... really use some advice. You guys are great and I love your podcast. Ashley, do not do anything with that 401K. Keep it invested. First off, make sure it's invested correctly. Log in your 401k account. Make sure it's in things like the S&P, like the NASDAQ, like the Dow Jones. Make sure it's not in things that have high expense ratios, mutual funds of like, I don't know, the Russell small caps or midcaps. Like just make sure you are tracking the benchmark indices that we all know and love. Like that's step one. Assuming yes, no, keep it all there. Do not do anything with it, let it grow over time,

Starting point is 00:28:12 but do not contribute to it either, right? Pause those contributions. You said that you are feeling like you can pay down your debt, $2,500, $3,000 a month. That's great. Let's make sure that $3,000 a month that's going to the correct debt. Think about the avalanche method when it comes to paying off your total debt picture. The avalanche method prioritizes the highest interest rate first, which in this scenario is going to be that $24,000 of credit card debt, then the $11,000 of car debt. And then if you want to pay down the student loan debt at 7% you can, it's kind of on the fence there. I'm not really convinced just yet until you get more invested. But definitely those credit cards.

Starting point is 00:28:51 And yeah, that card debt at 8.5% should probably go as well. Here's what has to happen. You need to sit down here now at 42 years old. You got a great foundation, great income, $3,000 a month of extra margin. let's go put it to work. So over the next eight months, that credit card debt wiped out. And then call it another five months after that, card debt wiped out. And so now you're at this place where, and a year from now, let's call it the end of summer 2007, you are going to be a completely unrecognizable person when it comes to your financial picture. And then it's time to get

Starting point is 00:29:27 really, really aggressive about that investing. That same $3,000 a month that you were using to pay down your debt. Let's make sure that's now moving and grooving up to the match with the 401k, maxing out the Roth IRA, getting it in your bridge account. Like that's same money. It's already in your budget. You're already moving it and grooving with it. Let's now redirect it away from the debt, the high interest debt, and get it invested in working for you because you're going to be 43, 44, 45 and you're going to have a massive, massive nest egg in retirement because of the actions you're now taking here in your early to mid-40s. What an incredible breakdown. And the number one thing for Ashley here, the only thing I'll add is this. You have to get to a

Starting point is 00:30:07 baseline of zero first before you can start building wealth. We alluded to this a little earlier in the episode. So many people tried to out-invest high-interest debt and they go for years, sometimes decades where they're carrying $30, $40, $50,000 worth of high-interest debt, but they're over here investing, making 8 or 12%, but they're paying out 25%. Ashley, do exactly what Austin said. get all this wiped out over the next 18 months, live below your means, get to zero. So you have a zero net worth, not a negative net worth, and then start rebuilding with that same 2,500 to 3,000. And your life will change so dramatically when you start doing this after you get to zero. Now here's what to get excited about, Ashley. Once you're now, call it 44 or 45 years old,

Starting point is 00:30:52 and you've got this 11,000 in your 401K. Maybe it's growing a little bit. Doesn't really matter, though, right it's it's doing its thing and you start taking this three thousand dollars a month and you start investing it in the index funds and etiaps we talk about averaging an 8% return over a 20 year period of time by the time you're 65 years old you'll have 1.8 million dollars in your retirement nest egg here that you can use in retirement that's great rock and roll and that's adjusted for inflation so that's what i want to make sure you have this idea of hope and excitement because there's a world where in your 60s, you've got 1.8, 2, 2.2 million dollars of a nest egg here, depending on what the markets do. Like, I don't care how you feel right now. You might feel down. You might feel

Starting point is 00:31:38 frustrated. Like, I'm strapped with all this debt. I don't know how to get ahead. I feel, no, you're doing great. $3,000 a month in margin. You just got this new job. We're going to get the bonus. Like, so much to be excited for Ashley, we are rooting for you. Austin, before we get into our next question, I would just want to give a quick shout out and a reminder for everyone that We are doing a free webinar with Public on July 10th at noon Eastern. This is going to be so incredible. We're going to help you guys live build these AI agents, explain to you the importance of these agents,

Starting point is 00:32:10 and we're doing all of this with Stephen Sykes from public. So we're going to give you the inside scoop of why this is so important moving forward. And also, shout out to generated assets. If you have a public account and you haven't played with those yet, you definitely need to go in, play around, and let them build you a couple things so you can get ahead of this webinar and I promise you it's completely free.

Starting point is 00:32:32 We're just here to provide value and help all of you get rid of the anxiety around AI and what these agents can do for you because we always say personal finance is personal and you can build your own agent to help you figure out where to go with your money in the future. 100%. The AI agent webinar slash workshop completely free.

Starting point is 00:32:52 Link in the show notes below. It's incredible. We can't wait to see. you all there. We're going to have so much fun. Now, our next question is Bruce from Austin, Texas. Bruce says, I've got a question. I'm an engineer working in the semiconductor field. I make 300,000 a year. My net worth is over a million. Do you recommend I use wealth managers or advisors? And at what point should we leverage wealth advisors? What should we be looking for when we're shopping for a wealth advisor? And if not, what tools or guidelines do you advise we stick to in order to stay

Starting point is 00:33:21 on top of our finance game without a wealth advisor? Thank you so much. Robert. Bruce, your high earner. You should focus on that. I think anyone, and I mentioned this earlier in the podcast, anyone with a net worth of a million dollars or greater should have a wealth advisor. I just think it's a really good move because they're going to see things you're not going to see. They're going to make sure you're diversified well. They're going to make sure your tax structure because at a million dollar net worth and making 300k a year, you're always going to be worrying about taxes. So they're going to help you build a plan that's going to help you keep more money. You guys, have heard me for years say it's not what you make, it's what you keep. And when you get to that level of net worth and above, I definitely think the right wealth advisor is a great play to help you keep your eye on the prize and build the right structures and tax elements to make sure you're growing in the right direction. How do you pick a good one? First, you make sure they're a fiduciary. What's a fiduciary? This just means that they're operating under the premise that they're going to do what's best for you with fair fees and not be charging you commissions on the ins and outs when they make

Starting point is 00:34:32 purchases. They're not going to sell you items that are better for them because they make more commissions. They're going to have your best interest in mind and make sure you do this research because not all of these firms that are out there, even the large firms operate as fiduciaries any longer. That would be the number one thing I would look for. But also find someone that understands your desires and what you want to achieve. And if they don't ask you the right questions in the first meeting, hey, what are your goals? What are your dreams? What do you want your life to look like at 55, 65, 75, 75? If they're not asking you those questions, I would not go with them either because you want someone that can become your advisor and your friend along the way to help you make all the right decisions.

Starting point is 00:35:16 I think that's a great call out. And to answer the second question of, if not, what tools or guidelines do you advise we stick to in order to stay on top of our finance game without a wealth advisor one you should be tracking your net worth probably on a monthly if not quarterly basis i think everyone should be doing that right if you don't know which direction you're going then like what are we doing here so track your net worth monthly or quarterly i would also consider checking out hello necterine dot com jeremy schneider we had him on the podcast i think he was like one of our first guests back in the day but he created a platform that essentially said all of these fiduciary advisors are looking for fee-only hourly clients. They're not actually going to custody your money from you. They're just

Starting point is 00:35:55 going to share their perspective over an hour or two-hour phone call. They'll build you out a financial plan. It's just, it's fee-only. There's no percent of assets under management. There's no nothing. So that's a really cool platform to go check out. We've heard really good things about it from inside the Rich Habits Network. I've never met with an advisor over there, but we've had a ton of people in our network and just people that listen to the show that have and had really good experiences. So maybe if you don't want to have your money in custody of someone else, but you do want to pay 500 bucks to have a fiduciary financial advisor, you know, sit with you for an hour and a half or two hours or whatever it is and review your stuff. Like you could do that. Maybe some check-ins that way.

Starting point is 00:36:30 I'd also think if I were you, I would review what I do is I review my portfolio every six months. And I say, okay, am I performing the S&P? Am I outperforming the S&P or my underperforming the S&P? And that six months sort of check in gives me a little bit of a reality check as to like, okay, why am I doing this? This is clearly not working. Or wow, this is really working. Maybe I need to take some profits or do something a little bit over here to take advantage of this better. So to kind of recap here, hello nectarine, track your net worth, and twice a year or so, do a little bit of a portfolio review deep dive for yourself. Our last question comes from an anonymous listener. They say, Hi, Rich Habits podcast. I'm 32 and I'm on track to retire at 46. I'm maxing out my traditional IRA

Starting point is 00:37:17 and 401k right now with no match, and I'm putting the rest into a taxable bridge account. My net worth says I can retire at 46, but my bridge account says I'll run out of cash at 52, leaving about a 7.5 to 8 year gap before I can touch my retirement funds penalty-free at 59.5. So my question is, should I dial back these 401K contributions now to build a bigger bridge account, even if it means more taxes paid today, or keep maximizing tax shelters and accept the 10% early withdrawal penalty as the price of early retirement. Please keep me anonymous. Thank you all for the financial education you share.

Starting point is 00:37:54 It was a good question. What'd your take, Robert? Yes, I think they already know the answer here, and I'll give my take. I would pause the 401K contributions because there is no match, and I would definitely, definitely build up a bigger bridge account because that's going to help you if you retire early, because we always say you don't want to be a net worth millionaire and be broke because you decided to retire early, but all your money is tied up. And you definitely don't want to get into a situation we're paying these early withdrawal penalties of 10%.

Starting point is 00:38:22 That is not what we want to see. So I think you're on the right track. Build the bigger bridge account. Build that up over the next few years. So you can retire and have a big enough nest egg that is available to you when you retire. And you don't have to wait to get that money without penalties. So yes, you can pause those 401K contributions and take all the money you're using to max out, which is, you know, $20,000, and putting in your bridge account, yes, you'd have to pay taxes on that.

Starting point is 00:38:50 So I understand it's with the tradeoff there. If you also wanted to look more into the Rule 72T, the substantially equal periodic payments or SEPP, essentially what that allows you to do is withdraw money from your retirement account before the age of 59 and a half without the 10% penalty, but it's very rigid, very rigid, which is why we don't talk about it here on the show. Essentially what you're doing is you're using a calculator the IRS gives you to tell you how much you can withdraw. And you have to continue to withdraw that amount no matter what for at least five years or until you're 59 and a half. So if you're doing this starting at the age of 52, you're going to have to withdraw this amount.

Starting point is 00:39:32 There's no exceptions every single year for that seven year period of time, which obviously is much more rigid than a bridge account where you can do whatever you want in it. So like there's different ways to approach this. personally, I wouldn't do the 72T. I would do the bridge account. I would pause those 401K contributions. I've obviously let that grow, you know, do what you got to do there. And then start really beefing up the, or maybe go both. Maybe you can go half and half.

Starting point is 00:39:56 Like, it's totally up to you there. But make sure your bridge account, because you can tweak the bridge account to be incredibly tax efficient, specifically with these NEO's funds, like, holy smokes. They are so tax efficient with their return of capital in the section 1256 contract. So when you are in that early retirement age, 45, 46, 47, whatever you end up being there, you can really take advantage of some of these tax efficiencies in a bridge account, which might not be afforded to you if you do the 72T. So like there's a lot of different things to consider. I choose bridge account.

Starting point is 00:40:26 I choose flexibility. I choose autonomy versus having the IRS tell me what I have to do. And if I don't, then it's going to blow up my face. 100%. And don't forget anonymous listener. Pause that 401K. those contributions with no match probably are underperforming the benchmarks of just the S&P 500. So don't forget that step either.

Starting point is 00:40:47 Thanks, everyone for tuning into this week's episode of the Rich Habits podcast, question and answer edition. We can't wait to see you at our AI agent workshop on July 10 Friday. It's an awesome Friday. It's going to take place at noon Eastern time. So during your lunch hour, you just pop into the webinar, get to learn a little bit about AI agents. And we're going to be talking about different types of strategies. talking about how to set one up live, show you guys all the different nuances of them. It's going to be completely free.

Starting point is 00:41:15 It's fun. You've already got 270 of y'all hanging out with us. We're probably going to be joined by five or 600 of y'all, like we always do. We love hanging out with you guys and chatting it up. It's so fun. So please join us over there. There's a link in the show notes below. Register.

Starting point is 00:41:29 It's completely free. We're not going to sell you something. It's literally just us convincing public to say, hey, y'all should come talk to our podcast listeners because they got questions about these AI agents. and we think you should answer them on our behalf. And so that's what we're doing here. So join us July 10. Can't wait to see you there.

Starting point is 00:41:46 We'll link in the show notes below. And always remember personal finance is personal. We all have friends and family members and coworkers that might be struggling with their mindset of their business or their finance. Share the podcast. It's free for you to share the word. You know, we try to bring a ton of value every week throughout all of the episodes, the Rich Habits Network, and the newsletter.

Starting point is 00:42:07 And you can help us by sharing to us. other people that might need a little nudge in the right direction financially. Thanks, everyone, for tuning into this week's episode, and we'll see you tomorrow for our Rich Habits Radar.

Rich Habits Podcast - Q&A: Scholarship Brokerage Account, Interviewing Financial Advisors & Retiring at 46

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