The Ramsey Show - App - Investing To Be Able To Retire Early (Hour 2)

Episode Date: May 3, 2023

Dave Ramsey & Jade Warshaw answer your questions and discuss: "I lost my dream car on a game show!" "How should I invest if I want to retire early?" "Where does my HUD loan fit in the Baby Steps?" "What are my next steps after my wife died?" "What should I do with $125K in the bank?" "Is our rental holding us back?" "Which retirement option is best for me?" Have a question for the show? Call 888-825-5225 Weekdays from 2-5pm ET Join a Personality-led FPU class. Click here! Enter The Ramsey Cash Giveaway for a chance at $3,000! https://bit.ly/TRSgvwy Shop our bestsellers during the $10 Sale! https://bit.ly/TRS10Sale Enter The Ramsey Cash Giveaway for a chance at $3,000! https://bit.ly/TRSgvwy Shop our bestsellers during the $10 Sale! https://bit.ly/TRS10Sale Want a plan for your money? Find out where to start: https://bit.ly/3cEP4n6 Listen to all The Ramsey Network podcasts: https://bit.ly/3GxiXm6 Interested in advertising on The Ramsey Show? https://ter.li/s64ye3 Learn more about your ad choices. https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy

Live from the headquarters of Ramsey Solutions, broadcasting from the pods moving in storage studios, it's The Ramsey Show, where we help people build wealth, do work that they love, and create actual amazing relationships. Jade Warshaw, Ramsey personality, is my co-host today. Thank you for joining us. Open phones here at 888-825-5225. That's 888-825-5225.

Ana is with us in San Francisco. Hey, Ana, how are you? I'm good. Thank you so much for taking my call. Sure. What's up? Okay. So I recently went on a game show and I had the opportunity to play for my dream car.

I got so close, but I lost. And it's just killing me. I'm so sad about losing and not getting this car. So my husband and I talked it over and we want to know, A, can we maybe afford to buy this car so my husband and I talked it over and um we want to know a can we maybe afford to buy this car and b if we can is it a wise thing for us to do because sometimes dream cars are just dream cars right I I am sorry I'm trying to recover from all of this in the moment um what is the car and how much does it cost you know the answer to all of this by the way it's a bmw x3 and it's fifty thousand dollars on the money how much money do you make your personal income oh well to get combined because

i don't work right now it's about 175 a year okay and year. Okay, and the car is $50,000? Yes. What is it? Brand new. It's a BMW X3. Oh, you said that. Okay, all right. So do you currently have debt? No debt. No debt. Do you currently have savings? We have just over $100,000 in savings, yes. And what do you drive right now? A minivan. What does he drive? We just have the minivan. That's it.

You have one car to your name. We have one car to our name. We do have another car that we are kind of borrowing on and off. It's like a little tiny, like a, what do you call it? Like a Honda CRV. We're borrowing it on and off if we occasionally need a second car from my mother-in-law. I'm assuming you're not to a million dollar net worth yet, or am I wrong? Actually, we are. We are because of our house. Okay. We have some 401k. Now, here's our rule of thumb we would

normally say that if you're a millionaire you could purchase a brand new vehicle but we also say that we don't want more than you know you don't want more than 50 of your annual income tied up in vehicles so that's why i was asking what else you have you checked both boxes oh when you got to pay cash. You checked all three boxes. When was the game show episode? When were you on it? About a month ago. And you got the $50,000 to pay cash for it, right?

We do, but then it just drops our savings to about $50,000. Yeah, I got that. But which is still, $50,000 is still three to six months expenses for you, right? Mm-hmm. Yeah, you're still in good shape. So just walk me through. I'll be honest with you. Starting out this call, I was like, this call is crazy. But you do check all the boxes, but you still sound like, I don't know.

Like at first you sounded really excited about it, and now it's almost like as I walked you through it, you're feeling more sobered about it. And now you're feeling like you don't want to. So explain that to me. Well, so before I went on the show, we had sat in this car, we had driven this car and we had said to ourselves, hey, if someone gave us this car for free, absolutely we'll take it.

Is it wise? We weren't sure if it was wise. And so we walked away from the lot several times not buying this car. But then I go on this show and it's right there and I play all these rounds and I'm like 50, 50 percent away from it and I lose it. And I'm like, oh, maybe I do really want this card. Well, the game show aside, I'm sorry you lost, but what game show was it? Can you just say it? Or are you not allowed to? Price is Right. Price is Right.

I love it. Game show aside, I feel like because it was offered to you for free, you were like, yes, I want it. And now that it's not free anymore, you're realizing, man, $50,000 is a lot of money. Here's the thing. You can afford it. you were like yes i won and now that it's not free anymore you're realizing man fifty thousand dollars is a lot of money here's the thing you can afford it you get sounds like you guys have sacrificed to win you've been driving an old minivan if you can afford it and here's the thing if you can't afford that one what if you got a year or two used would that scratch the

itch and and still make you feel like you're being responsible? Because here's the thing, you would be being responsible even if you bought it outright. But right now it sounds like you're dealing in emotion and it doesn't feel responsible. Would it feel responsible if you bought it two years used? I think that would feel better. I think what feels irresponsible is cutting my savings in half. It feels kind of scary to do that. You guys have done a great job with money to get where you are. And so you have good instincts. And this is bothering you.

I used to have a friend on investments. He would say, when in doubt, don't. And you have so much doubt around this. I don't think it's going to bring you as much thrill as it is going to bring you loss of peace. Just you. Again, you've checked every box. You're not violating a single thing that we teach by buying the car. But you've got to sleep at night. You've got to pay cash for it.

But if you're not going to, I'm a little bit afraid just listening to you that it's going to take more from you than it adds to you. You know what I'm saying? I just wanted the car for free. That's what it was. She had the opportunity to have it for free. I'm not the host.

I can't help you with that. I'm on the Dave Ramsey show, the Ramsey show, not the Price is Right. Otherwise, I would just give you the car. But yeah. I get that, though. I would go get, I think i'm with jade because of the hesitation not because of anything else because it's bothering you i think i would go buy a thirty thousand dollar version of this x3 which is a great car by the way they're very cool

um drive that for a while if you guys continue making 175 000 a year and you continue saving money and you continue you'll be able to drive anything you want to drive. The truck I drove over here today, I would never have dreamed I would buy a truck like that, you know, like 10 years ago. And now it's like, oh yeah, it's okay. You know, but I never dreamed, even though I had the money 10 years ago i would never but emotionally i'm you weren't ready to buy it is that emotionally i'm in a different place i had you know there was no angst i went yeah sharon sharon you okay with this yeah let's do it okay kind of a five minute conversation i'm like oh i love it order the dadgum thing you know so but but but the first time i

moved up i remember the angst yeah she's feeling i remember this sense of am i being dumb i don't want to be dumb that's a good that's a good thing to have those breaks on you way to go i think that's part of honestly i think that's part of this process when you buckle down and you're saying no to yourself a lot even if you're saying not now when you finally get to the time that it's now it feels weird i think a lot of people struggle with that actually spending their money yeah oh they do it's uh it's hard and you know if if you call me up and you made eight hundred thousand dollars a year five hundred thousand dollars a year and you had a five million dollar net worth i would tell

you to just go do it now i would tell you go do it but this is a it's 50 of your liquid savings that does get kind of, kind of a moment there and you're catching the throat. And I think it depends also how your net worth is distributed. If all of it's in the house. Most of it is, she said. So yeah, that's a good point too. You know, so you're okay to do it if you want to do it,

but you don't feel good about it. That's what we're observing. This is The Ramsey Show. Jade Warshaw, Ramsey personality, is my co-host today. Thank you for joining us, America. Our question of the day is brought to you by Neighborly, your hub for home services. The Ramsey Show is sponsored by Neighborly. Anything from repairs to maintenance to remodeling, stuff like Mr. Reuter, Mr. Electric, Molly May, you know these names.

They're all part of the Neighborly family. So go to Neighborly.com and get local experts and home service providers to take care of you, and they'll schedule a service today. Today's question of the day comes from Jeremy in the Baby Steps Millionaires group. You can find that on Facebook. I'm 47 years old. If I plan to retire early, like, say, 50 to 55, should I be maxing out my 401k or funding more investments that I can pull from before I turn 60?

My Roth is fully funded each year in January. It's a really good question. You know, I have more questions for you, Jeremy. I would want to know if you have any debt. I'd want to know if your house is paid off. Those are the things that I would prioritize first is making sure that you're out of debt, making sure that you are going from baby step four and five and six. And then if you're in baby step seven, you could do additional funding into different investments. It says that he's funding, fully funding his Roth in January every year. It sounds like he's got extra money. If I were you, I would work to pay that house off. And then from then on, if you wanted to throw money

into, I guess, a taxable brokerage or something that you could get into before you hit 59 and a half, I'm not mad at that. What do you think, Dave? Yeah, the term that people use is bridge investing to make a bridge from 55 to 59 and a half. And so we'll have this other lump in good mutual fund investments that get there. But you're right, that's a baby step seven activity. So if he is at baby step seven and he's debt free, and everything has his emergency fund maxing out his retirement can i also what else can i do or can i even slow down retirement a little bit and throw some at the bridge because i'm going to need something to eat on and build

up a pile of like you said just taxable mutual funds what you're looking for there are what are called low turnover mutual funds and they're mutual funds that don't sell the stocks inside of them very often and so it does not activate the gains for taxes so you don't pay taxes on gains as they occur unless you sell it and that way it's basically a tax deferred investment like a good place to do that kind of a thing it's a no-brainer is an S&P 500 because it's going to have I was looking at one today had a two and a half percent turnover ratio which means that 97 and a half percent of the stocks do not sell in a year so 97 and a half percent of the gains approximately are not going to be taxed in a year so you would that's a low turnover creates the

it's not taxed until you finally do sell it would the fees on something like that be lower as well since it's not since the funds aren't being swapped out as much yeah there will be i mean you can buy it as a no load you can also get it through your smart investor pro if you got a smart investor pro managing your portfolio they can just throw that in with what they're doing it's not a problem at all um i use a lot of high of low turnover mutual fund investing to park money in until i get ready to buy my next piece of real estate's what i do with it so love it uh and it's you know uh i can i can handle the uh volatility uh mathematically and emotionally

of the stock market going up or down and so that but that's at a different place so that's a baby step four thing you're looking looking for a bridge investing. Do not start that, as Jade said, until you're debt-free, though. That's right. Angela is with us in Boston. Hey, Angela, how are you? I'm great, Dave. Hi, Jade.

I'm thrilled to talk to you guys. Thank you for the work you do. Thank you. How can we help? All right. So I'm cleaning up stupid. I came to the Baby Steps maybe two years ago. But before that, I bought my first home.

And it was, you know, by the Baby Steps standards, well out of my pay. So I'm cleaning up what I did. I had a loan modification that was performed. I had an FHA loan and what was done was a partial claim by HUD. So it's a interest free, um, loan of a hundred thousand dollars that was removed from my mortgage balance to reduce my payments. Um, when I fell behind, um, just to keep me in the home. So where I am now is I've paid off about $40,000 on Baby Step 2. I'll be finished with Baby Step 2 in about three months. And I'm just looking ahead to see if I should be paying off this partial claim,

even though it's tied to my mortgage and Baby Step 6, or should I be pulling that in since i have that ability to to pay it down um through hud what's your household what's your household income i make um between 138 and 140 i would i would leave it as a baby step six okay because i would treat it like it's a second mortgage or a home equity loan and we do not pay those off if they're more than half your annual income. Okay. Until you get to Baby Step 6.

Now, when you get to Baby Step 6, you're going to work your way through it. But you said it's an interest-free loan. They carved a piece of the mortgage off, set it to the side, and put a moratorium on it with no interest, right? Yes. I'm in no hurry on that one. Okay. I do want to get rid of it, but I'm in no hurry on that one okay i do want to get rid of it but i'm in no hurry would i

okay would i prioritize the interest bearing portion of the loan before the interest free how would i if they allow it i don't know what their i don't know what the rules are on that kind of a modification but if they allow it yeah you'd pay off your be the last one you paid off of the two okay but uh but i'm not going to keep it like a pet either i mean but we're going to set over baby step six and we're not going to be here eight years from now and still be going 10 years from now still be going no i'm not going to pay it off it's no interest no i do want to get rid of it but um and they may not allow you to do that additional principal reduction on your first mortgage until you get that modification paid. Yes.

It would be logical that they don't allow it. Okay. But who knows with HUD? I mean, you know, logic is a federal government. Logic has nothing to do with this. Exactly. Yeah, the partial portion isn't due until the first mortgage is either paid off or the home is sold. And if you pay off the first mortgage, is it due in full instantly or you have to begin paying on it?

Yes, it's due in full instantly. So I'm trying to match up the amortization. Yeah, you can't pay the first mortgage off then because you're going to have a balloon of $100,000 looking at you. They allow partial, so you can almost just throw money at it to reduce it but it can't yeah you could get it down get it down to 20 000 bucks or something and then reach over and knock off the hundred right okay but that's all at baby step six okay thank you so when did you do this oh dave um when did you do the modification this was in 2018 2019 i'm sorry 2019 and the basis that they gave you this this relief was based on what um hardship i was between jobs

and they the criteria was um my current mortgage balance and payments did not match my income in between, you know, those jobs. So there was a trial period, you know, after I got my new job that I could pay the new, you know, reduced and modified loan. So it was a hardship application. And how long did it take you to get the hardship application through? I haven't seen one of these in decades. I'm really interested in this because it hasn't happened much. You pulled off something pretty unusual. It was a blessing.

You know, I did stupid at the beginning, but it definitely was a blessing to keep me in my home. How much hassle was it to push this through? I would say I was about three payments behind going into four. So it was a loss mitigation through my mortgage company. There was maybe a month of application with documentation, hardship documentation, proof of income. And then there was a three-month trial period where they modified and basically paused my old mortgage. And I had to do a trial payment based on the new modification monthly payment. You had to prove you could make the new payment.

Yes. And then after that was proven, we went into basically a new closing with an FHA, and I closed on my modified loan. And HUD took it off the books of your old mortgage company, too. It's not sitting at your old mortgage company is it yes so if you look at my my um yeah my oh what i owe it's removed from even my credit um yeah it's sitting over at hud hud bought they bought the loan back and redid it that's amazing i haven't seen that in a long time you did a that's a that's a good job good job keep your house and get the mess cleaned up now wow wow this is the ramsey show open bones this hour as we talk about your life

and your money this is the ramsey show thank you for joining us. I'm Dave Ramsey. Jade Warshaw, Ramsey personality, is my co-host today. Justin's with us in San Antonio. Hi, Justin. Welcome to the show. Hey, Dave. Thanks for taking my call. Sure. What's up?

Well, so my question is, well, first of all, I'll start off. At the beginning of December, my wife passed away. We have two young children, a one-year-old and a six-year-old. What happened? Oh, she had cancer. I'm so sorry. She was diagnosed when my son was six weeks old. Oh, my gosh.

And she's been fighting it ever since. So a couple of years, huh? It was just over a year. She was admitted on Thanksgiving, and on Thanksgiving to the day, she was back in. How old was she, Justin? 31. 31? Yes, sir.

And what was her name? Caitlin. I'm so sorry. Wow. Yeah, it's been obviously not what we expected, but we're here. One day at a time. Yes, sir. So my question is, I mean, we've been following the Dave Ramsey plan for, I mean, I've been listening to you for 15 years. We were married for eight.

And so we're debt-free. We don't have any debt other than our home. And so I have a plan with, you know, wife life insurance money and things like that have been coming in. There isn't enough there. Plus what we already had saved and stuff like that to pay off the house. And that's it. We own everything, just this house. The only thing we have debt on.

So obviously my plan was to do that. Um, it was a house that we built. It was her dream house. So kind of points me in that direction to use the money for that. Um, we have other money as well, but just specifically that money.

Um, I just wanted to know, you know, some advice or if I should, in your opinion, if I should just wait or, you know some advice or if i should in your opinion if i should just wait or you know for a few days any more information to judge that well um wasn't my wife i never met her and i still can't breathe just talking to you so i can't imagine what you're going through um uh what we suggest do, if possible, in the loss of a loved one,

is to wait six months before you make any major financial decisions and let some of the biggest and early waves of grief clear so that your mind is thinking clearer. Nothing you have said indicates that you're unclear nothing you've said sounds weird you sound like you're processing this whole thing properly and you've you know you've been fighting it with her for a year so it wasn't like it was a a shock or something so you've had a a period of time to work through some of the emotions at least partially okay uh but there's no harm no foul in parking the money in a cd for six months and just crying right and then you'll um you'll always hurt from this but as time goes along you'll think clearer and clearer and clearer and clearer. Sharon and I have been married 40 years.

If she died the 1st of December, I would not be thinking clearly right now, I can just tell you. And my brain would be in a total fog. And so I love the idea of doing nothing, and I think that's a possibility for you. It's not horrible to pay off the mortgage, but it's also not horrible to just wait a few months and just breathe. Given that it was your dream home with her, she was involved in the building of it, and it might be painful to live there. You might discover that a year from now. I don't know. Did she pass away at the hospital or at home? At the hospital. Okay.

So that makes keeping the home a better idea. It might be harder were she there, right? Right. Yeah, I mean, it's mainly she, you know, everything was too designed for our children. Yeah. Well, you see her fingerprints every time you turn a corner, though. Oh, I mean, you know, we were picture people. We have pictures everywhere. Well, you don her fingerprints every time you turn a corner, though. Oh, I mean, you know, we were picture people. We have pictures everywhere. Well, you don't have those.

I hope you have those forever. But I'm just saying I don't want the house to be a cause of pain, and you kept it only because you paid it off. You follow me? I don't think that's going to be the case. I don't hear anything here that indicates that. But a little bit of time will be clearer on that. If you can wait four, five, six months and park that money in a CD and do as little decision-making as you can

and just give yourself some room to cry, you'll make a better decision six months from now than you will make now. You might make exactly the same decision, and that'll be okay, but it'll be made from a clearer mind that's my only suggestion yes sir i agree i agree wholeheartedly i think that taking the time and just settling is is the way to go and like dave said you're probably going to end up making the the same choice but at least you'll know it was from a place of clarity and not just from that place of, because I think sometimes when things like this happen, you're just, I got to do something. I got to do something, you know? Right. Yeah. I'm sorry, Justin. Absolutely. Amen. Yeah, I appreciate it. Well, we're honored to be part of your family and that you call us in the worst moment of your life and that

we um get to be there with you and walk with you that's powerful and if you need anything else we're still here you call back six months from now if you want to talk about it again we'll talk about it i'll probably remember that call alicia's with me in boise idaho welcome to the ramsey show alicia what's up hey d. Thanks for taking my call. Sure. How can I help? Hey, I've got a question. I am currently on Baby Steps 4 and 7. I am

looking to potentially... 4 and 7? Your house is paid for? Yes, sir. Negative. But it's not my forever home and I plan on selling it. Okay. There's no such thing as four and seven. That's why I was asking. So you're just on baby step four.

And six. She has a mortgage. Well, yeah, okay. Okay. Yes, sir. All right, I'm just trying to understand what's going on. All right, okay, I'm back with you now. You're writing a whole new script for these baby steps.

I was trying to catch up. Okay. So four is completed. We'll checkmark that. But five and six, well, i have still i have a mortgage that i am paying on correct correct um i currently have my goal is to build my forever home there's no such thing year well there isn't no i've lived in four forever homes life changes and your life changes and you're going to move again. But you want to move up in-house and get you a cool house.

I'm okay with that part. Yes. Yes, I do. And I want to build it. Good. And I want to at least have 50% of that cost saved up. Good. Cool.

I have $125,000 sitting in a bank right now. Way to go. What I would like to know is where can I stick that to generate its own, not income, but like build off of it? So it's sitting there making at least a little bit more than what's sitting in my regular bank account. How long before you break ground on the house? As of right now, my projection is next year,

depending upon the market and how all the material and cost is going to be. But right now I'm projecting 2024 and I'm projecting to try to get to 200K. Good for you. You're awesome. And how much equity is in your current home? I've got about 80 in equity, 80,000. So when you sell it, you'll have another 80. So it'll be 280 in. What's the house going to cost you to build? My builder says roughly around 400 to 425. Awesome.

So you're going to have a mortgage under 200 grand, 150 to 200 grand. Love it. You're going to pay that off in just a couple of years. You're a rock star. Way to go. So you cannot, the only thing I do with money on the short term is put it in something like an index fund, like an S&P 500 index fund. That's whatever the stock market does.

In one year, you could lose 5%. You could gain 10%. It's probably not worth it. I would just shop around and try to get a little bit more with a money market or some kind of CD for one year. HYSA? You're not going to. I would rather it be safe for you, the way your mind works after talking to you, than I would you try to make more on it.

And so if you make 2% instead of 1%, that's okay. But you're not going to make 10% without taking risk I don't want you to take. This is The Ramsey Show. Welcome to The Ramsey Show. Jade Warshaw, Ramsey personality, is my co-host. Thank you for joining us. Heidi is next in Phoenix. Hey, Heidi, welcome to The Ramsey Show.

Hi, it's so good to talk to you guys. You too. What's up? My husband and I have our mortgage here in Phoenix, and then we also have a paid-for property that when we moved, we kept it and have rented it out. And as we've talked about our finances, we're just trying to decide if, even though we both like the idea of the rental, if hanging onto that is holding us back from,

because we could sell it and pay off our home that we're living in and have no mortgage, which is the only debt that we're holding onto. But the rental does bring in 1900 a month and there's no mortgage on that property. So our idea was like down the road, it's going to be a great, you know, asset to have bringing an income. We just don't want it to hold us back from progress right now. Okay. What's your household income? He's at about $130,000, and then I stay at home, but I bring in sometimes up to about

$10,000 or $12,000. Okay. Let me tell you what's happened, okay? This did not occur. The reason it's bugging you. Here. The reason it's bugging you. Here's the reason it's bugging you. This situation did not occur as a result of an intentional strategy. It occurred by default.

You moved to Phoenix and rented out your old place. Right. And so, and we know that's true because if you rent it in reverse, you would never do it, meaning let's try this. Where's the rental again? It's in Utah. Okay. Let's pretend we were living in Phoenix with a really nice paid-for house,

and someone came up and said, hey, go borrow on your house and buy a rental in Utah. You would laugh at them yeah okay but yeah you actually you so you didn't actually do that as a strategy obviously but that's the net result of having backed into this by default that's why it's bothering you and what that tells you what that tells me is is i would sell the rental and pay off your house it bothers me because if i if i'm you and i have a mortgage in the home on the home that i'm living in and there there's a house several states away that's debt-free somebody else is living there i want the debt-free mortgage i want to live in the house that's debt-free that's the way i feel about it if you were going to uh borrow on your home to buy a rental that cash flowed $1,900, you would do it in your own town. Right. Yeah. And so I'm going to sell it. I'm going to pay

off your house and I'm going to use your fabulous income and this new peace of mind that you have to say, hey, how quickly can we put aside $150,000, $200,000 and pay cash for a nice rental in our area? And let's begin, if we like rentals, and you said you did, then let's start building up a rental portfolio a little bit at a time. You know how fast you can do that without a house payment? It's really ridiculously fast with your income. I love that plan. And the peace of mind.

You're really, you're just going to breathe deeper. You're going to sleep differently. I mean, it really does happen. Dr. John Deloney talks about this all the time. He quotes a famous psychologist who says the body keeps the score. Yes. And when you carry stress, even if you don't realize you're carrying stress, you're carrying stress, and debt is stress by definition.

Small debt is small stress, big debt, big stress, right? But it's still stress. And so your body is storing that. And what people don't realize is when you have zero debt, that releases all of that kind of stress out of your body. You literally, physically, physiologically have a change. Absolutely. It's ridiculous.

And so that's why we tell people, we try to make it funny and make it stick. Okay, it doesn't work in Phoenix, but we would say, you know, if you pay off your house, take off your shoes, walk out in the backyard, the grass feels different. In Phoenix, it'd be sand. But yeah, I mean, that's, you know, but watch out for the cactus. We act like it doesn't matter, but one of the studies that we did on the state of personal finance did say that 50% of people have said that their finances have had a negative impact on their mental health. Yeah.

And she's not got high stress here. No, she doesn't. But she's just saying, I want to be smart. Yeah. That was her statement. It matters. It's a good statement. Very good statement, Heidi.

And a good question. So that's what we would do in your case. And it doesn't really matter if other people think that's smart or not. What matters is how do you feel when you're done with it? How are you going to feel when you pay off that house and breathe? Rhonda's with us. Rhonda is in San Antonio. Hi, Rhonda.

How are you? I'm great. How are you guys? Better than we deserve. What's up? Good. I have a question about retirement. I'm a teacher, taught for for 15 years and left the profession about

five years ago. So I have three choices and how I can do this. I can wait for 11 years, which I'll be 66 and I'll get about $1,600 a month and medical. I'm eligible to purchase medical. I can take it now in June early and get $650 a month, or I can take out the lump sum of $59,000 and roll into a Roth or some investment. Ding, ding, ding. So 11 years gives me medical, which I'm self-employed right now, and I'm paying for myself. So which one of those mathematically sounds like a good plan?

Well, without running it, I can't tell you in detail for sure, but here's what I do know. And it works almost every single time I run my calculator, like 97% of the time. If you take the $59,000 and you were to invest that in good growth stock mutual funds, and the stock market has averaged 11.8% since it began, and let's say it didn't do that well and you only made 10% on it. You're going to end up with more than the other two options because it will grow to enough in 11 years to give you more than $1,600 a month income.

And it will today provide you right around $600 a month. That's about what it would do. So it's about the same today on that. Now, here's how I know that that almost always happens. You're dealing with a pension fund, and pensions are regulated highly by the federal government. And what they're allowed to invest in is very limited. And so they have to, by regulation,

run these calculations at 6.5% or 7%, somewhere right in that range. And so the income that your lump sum is producing and it will grow to produce will is all calculated on about seven percent if you instead invest it at 10 or 11 percent obviously you're going to be seven percent and the income that it's going to produce is going to be greater than 7%. The other thing that happens that just makes the formula completely blow up is you die. Right. When you die, the pension goes away completely. Right. When you die and there's 60,000 or seven years from now, there's 120,000 or seven years after that,

there's 240,000, which is probably what's going to happen in your mutual funds in an IRA that you transferred this lump sum to. When you die, they don't keep your money. That goes to your heirs. It's private property. So that blows the math. So all of that would trump health insurance quarter of a million dollars probably trump's health insurance yeah sure that makes sense yeah

and so yeah you're going to be buying your own health insurance whoop-dee-doop-dee and you would not do the 650 monthly and then just invest that i did you said eight percent even in a Roth? But even with the fact that... I wouldn't go to a Roth because a Roth is going to make this taxable. Oh, really? It's earned income. It is earned income. I can't roll it to a Roth?

If you can roll it to a Roth without it being taxed, but I don't think you can. I think it has to go to a traditional to keep it from being taxed. It has to go to IRA. Okay. Yeah, Roth IRA. Okay, I don't know that. Yeah, click Ramsey Solutions. Click on the SmartVestor Pro and sit down with one of them.

They'll help you do the rollover. And they can advise you and tell you exactly what's going to happen. And they can even run these numbers to show you. And if it doesn't turn out the way I'm saying, but it will. I would be shocked, yeah. Yeah, because it's just the regulations put this together makes you go do it this way so yeah you're better off if you're alive and you're a whole lot better when you die and tennis you're not better but your heirs are better

they either get zero or if you live 14 years it's a quarter million yeah i'm yeah option three for the win ding ding ding ding ding ding, ding, ding, ding, ding, ding. Yeah. Yeah, yeah. And what's interesting is, she's a teacher, obviously, but 78% of the companies have done away with pensions. Pensions are almost gone. Yeah. Almost no one in the private sector offers a pension. About the only place you still find it is in the antiquated governmental halls of stupidity that's not shocking yeah so yeah i mean so teachers have it you know but you don't find you know going to work for a tech company they don't offer you pensions they don't just don't do it it's that simple hope that helps you folks this This is The Ramsey Show.

Dave here. You can find all of our shows with the Ramsey Network app on your smartphone. It's the only place to listen to the entire back catalog of episodes. Download the Ramsey Network app in your favorite app store today.