Have The Rules of Retirement Changed?

Do You Need to Change Your Retirement Plans? The 40-Year Retirement (0:05)

Bo: Do you need to change your retirement plans? Let’s talk about it. Rebie, I am so excited to talk about this because this is a big idea. I think what a lot of people have envisioned and believe and think about retirement may in fact be changing, and I think the numbers are actually going to substantiate that.

Rebie: Yeah. You know, we found this article, the team brought it to us from Kiplinger, and it really caught our eye because it is arguing that the typical 30 years, planning for a 30-year retirement, is not enough anymore. So the new number is a 40-year retirement, which is a lot longer when it comes to planning. So let’s talk about why that may be the new number, that is now what Kiplinger and other people are saying you need to plan for. The first reason is a longer life expectancy. If you just look at the data, life expectancy in the United States has hit a record high. It’s now at a median of 79 years as of 2024, according to the CDC. And to put a little more color on it, we are seeing that a 65-year-old married couple has about a 50% chance that at least one partner will live past 90 years old. And 20% has a chance of reaching 95. So just generally, people are living longer. Should you be planning for longer?

Bo: Let’s pause though. That’s a good thing. I was about to say, while it does put an additional strain on retirement and does increase the amount of time that we have to plan for, by and large it’s a good thing that we’re living longer. I think we’re seeing a lot of technological advances in medicine. I think a lot of people are beginning to pay attention to their health a whole lot more. So we’re going to have a lot longer to enjoy the dollars that we’ve been saving, the wealth that we’ve been accumulating, assuming that we’ve prioritized our health in the right way. So even though it’s a truth and a reality, I think it’s net on net a good thing.

Rebie: Absolutely. It’s a great problem to have, but that is one of the reasons we’re talking about planning for 40 years. The second reason is that people are retiring earlier. Some people want to retire earlier. I think you watching this content have probably seen like we have the FIRE movement, which is more popular than ever, and all the different flavors of that: Coast FIRE, Barista FIRE, all these things. This idea of retiring earlier. While others are actually forced to retire earlier, some really interesting data we found shows that where workers are expecting to retire: if you pull people right now, most people, at least a lot of them, a third of them actually say that they’re planning to retire at 65 or later. So they’re thinking they’re going to retire at a typical or even later age, or maybe even never retire. But then in reality, look at this next chart. Here’s what’s actually happening. The real median retirement age is actually 62 years old. So almost half the workforce leaves it before the age of 65. That’s a pretty significant number. That means 50% of people may be hit with this unexpectedly or maybe trying to get to this earlier number. And that automatically means you’re going to need to plan for a longer retirement, which is where that 40-year number comes in as opposed to a 30-year number.

Bo: Yeah, there’s some dissonance that exists here. I think if we do the math, what is it? 40 plus 20, that’s 60, plus 16, that’s like 75, 76. Three out of four folks believe that they’re going to retire after the age of 65. That’s what they think their plan is. But in reality, when we look at actual retirees today, that’s not the case. Only about 40% of retirees actually retire that late, whether it be because of a decision they made or something they chose or something that happened outside their circumstances. So people are living longer and they’re likely retiring early, at least the numbers are showing that. And so the question becomes: okay, well, if I’m living longer, I’m retiring earlier, that means that I need my capital, I need my portfolio, I need my wealth to be able to last longer. So why is this scary? Why is this dangerous? Why is this a risk? Well, there are a few reasons. The very first of which is just simple mathematics. We know that because of inflation, the cost of things increases through time. You remember, oh, back when I was a kid, a loaf of bread costs X, right? The fact that a loaf of bread or gallon of milk costs more today is a result of inflation. Well, if you think about this, a lifestyle that costs $100,000 at age 60, if we just assume straight-line inflation, 3% per year all the way out to age 100, that same $100,000 basket of goods would cost $326,000. So at a very minimum, if you want to make sure that your purchasing power and your dollars last, you need to make sure you’re doing something to combat inflation.

Rebie: The other reality that exists is the longer that we are invested, the more subjected to market downturns we’re going to be. Now, I already can hear you saying, “Yeah, but we’re also going to have longer for our money to grow. We’re going to have more upside.” And that’s totally true, but we know that by and large, every decade or so, there’s roughly two downturns. Well, obviously more time, more bull market, more upward growth is great, but if you are a retiree and you’re naturally dialing down the risk of your portfolio, you’re naturally moving into a more conservative asset allocation. What’s likely going to happen is rather than you having to go through six or seven downturns over that 30-year time horizon, you’re likely going to be exposed to maybe nine to ten downturns over a 40-year time horizon. And if you get the sequencing wrong, you have bad sequences of returns. Those downturns can end up compounding. And if you get more conservative and if you make cognitive decisions to adjust your allocation, it can be harder to navigate those.

Bo: So we have to plan not just for money that needs to last us 20, 25, 30 years, but money that needs to last us for 40 years. Well, then there’s the reality that if we’re living longer, even though we’re likely going to be healthier, we know that the number one largest expense for most retirees right now is healthcare expenses. So if healthcare expenses was already the biggest expense over a 30-year time horizon, it stands to reason that over a 40-year time horizon, healthcare expenses would also be significant. Roughly $371,000 is what’s estimated that a retiree will spend in healthcare expenses over a standard 30-year retirement. So if we just assume kind of linear math over a 40-year retirement, that number could be as much as $600,000. So everything’s getting more expensive. We’re subjected to more market volatility. We’re going to have more healthcare expenses. And as we age, there are some really unique tax things that happen. When you hit your early to mid-70s, depending on your age, you’re subject to required minimum distributions. If you have tons of assets in qualified accounts like 401ks or IRAs, the government’s going to make you start pulling that money out and you’re going to start losing some of it to taxes. We also know that there is a bit of a tax penalty for surviving spouses. If one of those partners is living to that age and the other’s not, all of the assets for the deceased partner pass to the surviving partner. The surviving partner now has a bigger chunk of assets, more subject to RMDs, but in lower tax brackets due to being in a single filing status. It also affects how your Social Security is taxed. If maybe you were only 50% of your Social Security was subject to taxation or maybe none of it was, now you might be hitting the area where 85% of your Social Security is subject to taxation. And then obviously as you hit 65 and get into Medicare, you’re going to have IRMAA surcharge charges. There’s a lot of different things that can happen over a 40-year time horizon. So you want to make sure you plan accordingly.

Three Strategies for a 40-Year Retirement (9:08)

Rebie: And you know, I’m looking at this list and when I just think about conversations I have had with people who are nearing retirement and thinking more seriously about this, these are all already concerns. What if the market goes down? Well, what are we going to do for healthcare? Well, inflation is going to make our money not as powerful. Oh, well, what about the taxes? I’m not smart enough to do this or I don’t understand all the implications. And so a 40-year time horizon just exasperates all these problems. So now we need to talk about: if this is a reality for some of us watching and listening right now, how do we prepare for a longer retirement? We have three different strategies that you can employ. Strategy number one is our classic three-bucket strategy. So talk about what it is for those who don’t know, Bo.

Bo: Yeah. When you’re saving, when you’re accumulating assets, we generally want you to have three distinct tax buckets that you’ve built up. We want you to have your pre-tax bucket. That’s like your regular 401ks, your regular IRAs. We want you to have your tax-free bucket. That’s your Roth IRAs, HSAs. And then we want you to have your after-tax bucket. Those are the assets that are not tax-incentivized in the same way retirement accounts are, but they’re still subject to favorable capital gains rates. Well, if you have these three distinct tax buckets built up in retirement, you can literally pick and choose what you pay in income tax. So we have tons of clients right now that are retired with multi-million dollar retirement portfolios, living off of multi-six-figure living expense needs in retirement, and yet they’re still paying in the lowest marginal tax brackets because they can pick and choose which buckets they want to pull from. So as you accumulate and even as you get into retirement, if you can think about having those three buckets be fairly robust, it’s going to give you a ton of optionality in retirement.

Rebie: Second strategy, it’s one of your favorites here on the Money Guy Show. It’s about the HSA. You can max out your HSA for medical expenses. So there’s a triple tax advantage to an HSA, and it really comes into play here. Can you explain that?

Bo: Yeah. And actually for a lot of folks, you can actually have a quadruple tax advantage if your employer allows you, you can do payroll deductions into your HSA. You get a tax deduction on the front end for contributions that you put in. If you invest those dollars, they can grow tax-deferred. And when you go to pull them out to pay for qualified medical expenses or to reimburse yourself for prior medical expenses, you can pull them out completely tax-free. So if we know that healthcare costs and medical costs are going to be some of the largest expenses we will incur in retirement, why don’t we use the one account that was literally built to help offset that? So if you are able to participate in an HSA and able to contribute right now, there’s a really good chance you can build that up, allow those dollars to compound through time, and that can cover a big chunk of what your medical expenses will be when you get into retirement. So HSAs are a fantastic tool to use even for the retirement years, not necessarily just now in the accumulation years.

Rebie: Well said. And what’s strategy number three?

Bo: Strategy number three, this is a big one. It’s strategic Roth conversions. This is the one that I think gets a lot of the press. But when you retire, from the age that you retire out to age 63, there’s a window where you can kind of go ham on doing Roth conversions. You don’t have to worry about IRMAA charges and that sort of thing. And then from 63 to 65, you’ve got to think about IRMAA. And then from 65 to 70, you’ve got to think about IRMAA and Social Security. And then from 70 to either 73 or 75, you’ve got to think about Roth conversions. Well, if you can strategically do a tax projection, look at where your income falls every year, you can determine: man, is there some way for me to begin shifting money from my traditional, from my pre-tax bucket, into my Roth bucket? And if I can do that and pay lower income tax rates now, I’m essentially buying down those future RMDs that I’m going to have. I’m giving myself again more optionality later on in life so that I get to pick and choose what I pay in taxes and I get to let my dollars last me that much longer.

Rebie: Love it. So here’s some key takeaways. All of the information we just shared, here’s what you should walk away with. Have a plan for a longer life expectancy and earlier than planned retirements. Maybe that’s your goal. Maybe that might happen to you as you get closer to retirement and you realize you have to do this. So maybe you should have a plan. Consider that inflation, market downturns, healthcare costs, and taxes can threaten your retirement savings. That sounds really harsh, but kind of like I said, this is something that people are factoring in or worrying about anyway. So if you’re thinking about that 40-year time horizon, you definitely want to pay attention to those things. And then lastly, a solid tax strategy. Maxing out your HSA and well-timed Roth conversions can help you prepare for a longer retirement. So in a nutshell, that’s what we took away from the article.

Bo: Yep. I thought it was great and I think it’s a reality. I think a lot of people, and look, we get some flak out there. People like, “Oh, your assumptions are too conservative. How dare you tell people they have to have millions of dollars.” The reality is in my experience, very few people have gotten to retirement and said, “Oh man, I just have too much money. I feel too comfortable. I have too much peace of mind.” That’s not what happens. What ends up happening is people are like, “Man,” and I think we shared this stat a few weeks ago, if you ask retirees what their main source of income was, I want to say it was something like 90% of present-day retirees said that Social Security is one of, if not their main source of retirement income. We want more for you than that. We want you to be able to live the life that you want to live on your terms, the way that you want to live it. So it’s why we encourage you to save 25% of your gross income. It’s why we want you to have 25 times your annual living expenses built up by the time that you get to financial independence. Because if you can do those things, you get to live life on your terms. You get to do the things that you want to do and use your money to allow you to focus on the things that you really care about. And so I think being realistic about the fact that yeah, I’m probably going to be retired for more than 30 years, that means that the onus for saving, the onus for building, the onus for making sure I’m ready for that falls on me. But the great news is you don’t have to do it alone. One of the things that we do here all the time is we want to create tools and means and mechanisms so that our people can do money better. And we announced one of those tools last week.

Rebie: We did. And it’s a perfect case study for kind of getting a check-in, gauging where you are on this retirement conversation. The Know Your Number calculator. It’s free to use. It’s live at moneyguy.com/resources. Whether you’re planning for the 30-year or the 40-year retirement, you can use this tool to help you figure out how much you need for retirement, whether or not you’re right on track, whether or not you’re ahead of the curve, behind the curve. This tool is going to give you a spot check for where you are. You can play with the numbers. You can see what things look like if you change your life expectancy on that timeline. You can change how old you are when you retire. You could retire at 50, 55, 60, and you can see how those numbers change and how all these variables affect your number and your plan. So definitely go check that out. We made that so that you can hopefully apply and somewhat personalize what we’re talking about here on the show. So be sure to go check that out at moneyguy.com/resources.

Bo: I love that we get to share this kind of stuff because we want you guys to be prepared. We want you to know that there is a better way to do money and frankly there’s a better way to retire and we want you guys to participate in that. It’s one of the reasons why every Tuesday at 10 a.m. we like to sit here answering your questions. So right now if you have a question, make sure you get it in the chat. We’ve had some reports that there is a YouTube glitch happening where the chat may or may not be working. Hopefully that is resolved while we’re on this stream. So we’d love for you to get it in the chat if you can. We are also active in the Moneyverse right now, our Discord server. So you can always go to moneyguy.com/moneyverse if you want to chat with us there. We have a whole channel about today’s live stream. We did have some questions come through from the chat on YouTube and from the Moneyverse. So let’s go ahead and start with the ones we have in the queue.

Q&A: How Do You Estimate a Realistic Retirement Spending Target? (17:26)

Rebie: From Andy RDE Doing the FOO. What a username. It says, “Hi, Money Guy team. I’m 36 in the messy middle,” and it sounds like he has a three-year-old and an eight-month-old. “Love to know that the Know Your Number calculator shows we can retire at 55 using $5k per month spending target with retirement 19 years away. How do you estimate a realistic retirement spending target?”

Bo: It’s hard, man. And this is what I say early on in your financial journey, and I would argue 19 years out: you’re still early-ish on. 36 is still very young. One of the things you’re trying to do is you’re kind of playing horseshoes. You want to get close, but you’re not going to be granularly laser precise. You want to be as precise as you can, but this is what I tell people. It’s really hard when you’ve got a three-year-old and an eight-month-old. It’s hard to imagine what next week looks like or next month looks like. You can’t even fathom what next year looks like. So trying to accurately project what 19 years in the future looks like is really, really difficult. So what I would say is: okay, well, what are the things? What’s your standard of living today? And if you’re like, “Okay, well, right now we spend $5,000 per month and we feel pretty good,” all right, that’s awesome. That’s a great starting point. Now, you have to kind of dream and envision: okay, what if I didn’t have to buy diapers and I didn’t have to go buy the car seats and I didn’t have to do the daycare thing, but instead I had time and I was able to travel? How do we like to travel? How do I like to do these things? And you kind of figure out how to squeeze that balloon and what’s realistic. Because most people, I think this is accurate, most people would like to see an increase in standard of living when they retire. When they retire, they’d like to do things maybe they didn’t have time or the ability to do while they’re working. So oftentimes you might see a slight uptick in living expenses in retirement than you did in your working years. Now obviously if you’re a high income earner it changes, but that’s the general idea. So you’re trying to get close. If $5,000 a month is the way that you’re living right now today and it feels pretty tight and it’s hard to do all the stuff you want to do, I’d be careful projecting that out to retirement. What I would do is figure, hey, what if we had an extra $2,000? What if it was $7,000 a month? Okay, well, what does that say? And the reason why we wanted the Know Your Number tool to be free, the reason why we wanted it to be always available, is this is something you can revisit every single year. Every year when you go to do your annual net worth statement, put your net worth stuff in there and then go play with the Know Your Number tool and say, “Okay, well, hey, based on what’s changed in my life, how am I doing, or where am I at on the curve if I want to have $10,000 a month or $12,000 a month or $8,000 a month?” And you can constantly tweak and reiterate. It’s why we tell you early on when you are just in the building phase, early stages, focus more on your savings rate. How do I get to 25%? How do I get to that level? And then as you get closer and closer to that finish line, you can begin, you can continue to refine what the plan looks like.

Rebie: Yeah, that’s how I use the Know Your Number calculator because I am also a proud member of the messy middle, and I like trying different scenarios because it just gives me an idea of where I am, and it’s very motivating. So it keeps you saving, like, “Oh, okay, well, if I do save this much for this year, that’s going to change it in this way and that’s going to set me up better for the future.” And then also, I don’t take it as law for the reasons that you’re talking about, Andy, where you’re doing the FOO, because I know that it could probably change in the next five years. I’m going to have a totally different idea of what things might look like, what we want to do as a family in the future. So I love the tool because it gives me a really solid idea and helps me stay motivated and plan accordingly, but I’m not taking it as the final number because I’m too young. And it’s just, there are going to be other complexities and personal things that come up when I’m closer to retirement that I just don’t know yet. And that’s okay.

Bo: And look, I don’t know why this is on my mind, but I want to share this as just a quick little PSA for those in the messy middle. It’s hard, man. Be careful stressing yourself out too much having to have every single decision figured out for your 60-year-old self when you’ve literally got this three-year-old and this eight-month-old and you’re just like, I am in survival mode. It’s okay to be in survival mode. It’s a really sweet time, the messy middle, to be in survival mode. What you want to do is the best you can, one foot in front of the other. Okay, I’m not running up credit card debt. I’m not making boneheaded decisions. I’m still saving. I’m still building. I don’t have it all figured out. I don’t know all of the answers, but I know the next best thing. And if you can just keep from a financial perspective, just keep doing the next best thing, you’ll be amazed where you start your 30s and where you end your 30s. Or where you start the messy middle, where you end the messy middle, can look very, very different if you can just stay consistent one foot in front of the other. I’ve just gotten a lot of emails from clients and friends and colleagues this way, just like how hard life. Hey, I wasn’t really planning on this, and this thing happened, and I blinked and I’ve never had credit card debt in my entire life and now I’ve got $28,000 of credit card debt just because of life happens. Yeah, man. It’s not ideal, but it happens.

Rebie: The messy middle is messy. That’s okay. You’re not alone. Keep doing the next best thing. Well said. Well said. Thank you for the question, Andy RDE Doing the FOO.

Q&A: Should We Buy Our Second Home Before Selling Our First? (23:00)

Rebie: Next question is from The Boss 81. “Hey, Money Guy team. When upgrading to our second home, we plan to buy with 5% down, then sell our starter home and immediately recast to hit 20% down and eliminate PMI. Is this a good strategy?”

Bo: Should we be pulling up some money home buying rules potentially too? I feel like are they getting too cute with it? I don’t know. I want to know what you have to say before I say anything. It’s not the strategy. Because this is what we say when it’s time to buy a home, your first home, we want you to follow the 3/5/25 rule. You put 3% down on the house. You want to make sure you can live in it for at least five years. And you don’t want the total housing cost to exceed 25% of your monthly gross pay. Now, your question said, hey, we’re leaving our first home and we’re going into our second, but it sounds like what you’re doing is you’re going to buy the second home and then sell the other home. Well, immediately we get into a little bit of a precarious position because what if that first home doesn’t sell? Or what if it sells for less than you thought? If I were to, true to form, be honest and look at your finances, if I add the mortgage of your first home and the 95% mortgage of your second home, is that going to stay below 25% of your monthly gross income? If not, what you’re doing is you’re building a really scary bridge, or you’re not even building a bridge. You have this chasm that you have to jump over and you’re hoping it works and you’re hoping it lands. It makes me real, real nervous, especially for folks early on in their financial journey. What I would rather see, and I know it’s hard in this market, is could you do a contingency offer? Hey, we’re going to buy this house, we’re going to pay this, but it’s going to be contingent upon our current house selling. Is that something that’s possible? Is that something that’s real? Because there are just a lot of things that could go bad. And we’ve seen this happen before where all right, I’m going to buy this home, I can’t miss out, I’m going to put 5% down, and then the first home doesn’t sell and it sits and it sits and it sits, and now I’ve got to carry it and now I’m burning through my cash and now I’ve got to start dropping the price. So now it’s just a domino that can get really, really dangerous really, really fast. Nothing wrong with doing the contingency thing. Nothing wrong if you’re selling a house and getting a bunch of equity out of it and putting it on a mortgage and recasting. But in this specific scenario, I worry or I wonder if you’re being a little too aggressive and you’re putting yourself out there so that if the tide goes out and things don’t go exactly as planned, is it going to come to light that you’re swimming naked out there?

Rebie: Yeah. No, I don’t. I am a risk-averse person naturally. So that actually does worry me. And I don’t know what the housing market looks like in your area, but I’m noticing things sitting longer on the market right now. Like it’s not exactly a sellers market. We have some more data that we might be doing shows on when Brian’s back at the desk. It’s just that is not ideal in my opinion. So I thought that was well said.

Bo: I just noticed Brian’s not here today. Where’s he at? What’s he doing?

Rebie: He’s hanging out in Scotland. Is that right? Hanging out with the Loch Ness.

Bo: He’s hanging out with Nessie right now, which is pretty wild. He sent us some pictures this morning. It’s pretty awesome. So he told me to tell you guys he misses you very much and he’ll be back before you know it.

Rebie: I do miss him too. It’s fun to be at the big desk. It’s an honor, but I like it when the game is better. It’s just the best. Oh, look at that. Brian got to hold a bald eagle. That’s amazing.

Bo: Are you listening? A picture of Brian holding a bald eagle from his trip. That is a giant bird that could absolutely eat him if he wanted to. Like, does it not look like, that bird’s head is as big as Brian’s head? And my man’s got a big head. So that’s wild. That’s wild. I can say that because he’s not here. That was uncomfortable.

Rebie: He’s not. He’ll be like, “Yeah, I watched you guys. It was like the first two minutes.” That actually has happened. Not to throw you under the bus, Brian. It was very funny to me. Should people maybe subscribe to our email newsletter if they are interested in this type of thing? I’m just saying, because we’ve got some pictures we’ll probably share in there, right?

Bo: There are some good pictures. So I have a feeling they’ll make their way into our email list. You can go to moneyguy.com and sign up for that if you are interested. That’s a giant bird.

Rebie: I know. And he looks so happy. Look at him. We love it. We miss you, Brian. Looking forward to having you back.

Q&A: When Is Life Insurance No Longer Required? (27:39)

Rebie: You ready to do another question? So, we’ve got a fun segment in a little bit too. This next question is from Really Bored Man. Sorry you’re bored. Hopefully this is letting you have more fun watching the show. “At what point do you determine that life insurance is no longer required, basically being self-insured? We have $1.5 million invested at 35 and 36 and one kid. We could Coast FIRE to 60 based upon our spend rate.”

Bo: Oh, it’s a great question. All right. So you have to remind yourself what is life insurance there for? If there are people that depend on you, that need your ability to generate income for their livelihood to be sustained, you have an insurable need, right? It’s why when we’re young, we want to get as much term insurance as we can for as low a cost. But it’s a temporary problem. We have this gap where we need that to replace income, but as we save and as we build and as we get to a certain point, we no longer have that risk anymore. As we near financial independence, in your situation you’re 35 and 36 with one kid, you could coast. And here’s what Coast FIRE means: I don’t have to save any more money. I can let my million and a half grow until 60 and then I’ll be able to retire at 60 and live the life I want to live on my terms. What that does not account for is the ages now from 35, 36 until 60. That’s roughly a 25-year timeline where it is required that you have to go out and generate income to be able to survive. Coasting just means that you’re not saving, you’re letting your assets do that, but you’re having to go earn, you’re having to go work, you’re having to pay the bills. If something were to happen to you, it does not sound like a million and a half dollars would be enough to provide for that one kid, to get them into adulthood, and to provide for the life that you wanted to be able to create for them. So given that’s the case, I do not think you’re at the self-insured point yet. Now, let’s fast forward. Let’s say that you get a little bit older and your kid gets out of the house and you’ve got enough money built up that if something were to happen to you or happen to your spouse, you would not need the life insurance to be able to subsidize the life because you have a portfolio built up large enough to do that. That would be the place and the time when you are self-insured. I don’t think right now, when you’re in this place, when you’re planning on coasting, even though you’ve got age 60 covered or 60 and beyond covered, you don’t exactly have 35 through 60 covered. So I would argue that you still have an insurable need.

Rebie: We love term life insurance. Here’s a great thing to do. When I was in my mid-30s, I went and got a brand new life insurance policy because I had gotten some when I was in my 20s and I kind of stacked them as I had kids and had business things and all that kind of stuff. Well, in my mid-30s, I was like, “Hey, I wonder, I should probably get some more, because I want to make sure that if something happened to me, my family’s taken care of and they wouldn’t have to make decisions to sell assets or businesses or anything like that.” And what’s wild is I was still able in my mid-30s to go get a super preferred rating. It was not crazy expensive. I was able to get a 30-year policy to take me well into my 60s, well into financial independence mode. And it was not super expensive. So one of the things you ought to look at is: even though you have that million and a half that’s in place, what would it look like if you just added to it? And then what would it look like if you just went ahead and replaced it? And is there a favorable cost-benefit trade-off there that you ought to consider?

Bo: Right. It is true that the math behind this is interesting and being self-insured. Obviously there’s a place for that, but it’s a low-cost thing. And I think that’s sometimes what I struggle with, like with doing it too early. This is an unpopular opinion. Let’s say that you have a 20-year term policy and let’s say that you’re in year 16 or 17 and you have discerned, hey, I’m financially independent, I don’t need life insurance. A lot of times when we have clients in that situation, they bought this policy 17 years ago, they were 17 years younger, they were much healthier, the premiums are next to nothing. We say, “Hey, even though you are self-insured, you might as well consider paying it out to term because there’s a $2 million benefit here. You’re paying $600 bucks a year for it.” I would hate for you to cancel that in year 17, 18, 19, and then just some fluke, the thing happens on a Tuesday that takes you out. It might have made sense just to pay it to term. So a lot of times we even counsel clients as they get to the end of terms, even if they’re self-insured, continue paying till term, let it expire, let it lapse, and then celebrate that you survived the 20 years or 30 years or whatever it is. And at that point, the price tag on that is just so trivial.

Rebie: It’s exactly right. That’s right. No, but it’s a really good question. Really Bored Man. I hope that that gave you some good things to think about.

Q&A: Should I Drop My Savings Rate to Buy a Car with Cash? (32:39)

Rebie: All right, next question. Then we’re going to do our From the Wings segment, so stick around for that. Andy says, “I expect to need a new-to-me car in the next 5 years. Should I drop my savings rate down to 25% and put more towards saving to buy the car cash, or keep investing into my brokerage and use 20/3/8?”

Bo: Hold on. Did he say drop his savings rate down to 25%? He did. That’s literally what it says. But that’s wrong, Andy. Math or English, but that would suggest your savings rate is above 25%.

Rebie: It might be. I mean, we are talking to financial mutants. That does happen.

Bo: So yeah, let’s say you’re saving 30, 35, 40%. My bias, and look, you can write this down in pencil, you don’t have to write this in pen, this is not gospel: I just don’t love car payments. If you can avoid having a car payment, if you can pay cash, I love the idea of having a paid-for automobile. So if you’re someone who’s saving more than 25% and you have the ability, okay, well, I can just back down my savings rate from 35 to 25, save that 10% for 6 months, 8 months, 10 months, and build up enough to go pay cash. I like the idea of paying cash. The 20/3/8 car buying rule, 20% down, don’t finance for more than 36 months, no more than 8% of your monthly gross income going towards a car payment: that’s really for folks or for stages and stations in life where you can’t pay cash or it’d be really difficult or the opportunity cost of paying cash is just too great that it doesn’t make sense. If you’re not in that situation and you have the ability to save and you have the ability to stroke a check, I like paying cash for automobiles. We give you grace and we’re not of the opinion that if you can only pay cash for a $2,000 car, go buy a $2,000 car. I don’t know that that’s prudent. But if you can save and pay cash for a car that makes sense for you, I like that strategy.

Rebie: Yeah. No, it’s well said, Andy. Thank you for the question.

From the Wings: Headlines — News or Noise? (34:42)

Rebie: Let’s go to our segment for today’s show called From the Wings. I’m going to read some headlines, some current headlines from the financial landscape and maybe more. And we are going to say thumbs up: is this headline news? Or thumbs down: is this headline noise? And why. Are you ready?

Bo: I’m ready.

Rebie: First headline from realtor.com: “New home prices plunge to five-year low as sales falter.” We both say it’s news.

Bo: I say it’s news. I think that home buying is one of the most difficult things, especially for first-time home buyers right now. It’s one of the most extreme things facing folks. And so when I see something that new home prices plunge, now editorial, if I know that home prices are coming down and I’m in the home ownership realm, my ears are up. My spidey senses are going off because maybe this is the chance. Maybe this is the opportunity. Maybe this is where I’m finally able to get into that first home, to cross over that Rubicon. So I definitely think it’s newsworthy. It’s something I want to pay attention to. And it’s something that I want to remind myself: oh, things change. Circumstances change. Economic variables change. The fact that I could not buy a home two years ago does not mean that I can’t buy a home today. I think that’s newsworthy. I think it’s something to pay attention to.

Rebie: Yeah, things really do change year to year. Like I said, I am probably biased to just what I’m seeing in our area, but I’ve noticed a cooling, things sitting longer, prices dropping, and now I am starting to see the headlines like this that are kind of supporting that. So we’re taking note. Maybe we’ll do some more content on it soon. Next headline: “Gambling becomes America’s favorite pastime as Americans spend more on sports bets than movies, arts, museums, and music combined.”

Bo: It’s not news. I’m going to put this guy on. Pardon my language. That’s awful. It’s bad. And here’s what stinks so much: you go into your app and you have like a financial app and maybe this financial app allows you to like round up or buy shares and you’re investing, you’re doing the stuff, you’re following the FOO, you’re doing all the stuff that we espouse here on this show. But then there’s this little popup right there on the right that’s like, “Oh hey, have you thought about like, you know, betting on an outcome? Have you thought about a prediction market? Have you thought about sports gambling?” And it’s right there, and it’s just so easy. It’s just so easy to just, oh, let me just play, let me just nibble. And then playing and nibbling turns into scarfing it down and making it a full meal. And that’s what this says. It’s now America’s favorite pastime, more than going to movies, more than going to the arts, more than museums, more than music. That’s terrifying. Here’s my bold prediction, you can write this in pencil: we’re going to see a headline in the next five years, team write this down, “Gambling epidemic ruining young Americans,” or something like that. Because I think that’s the direction it’s going to go. Because they’ve made it so easy and now even young people are getting so misinformed they think it’s investing. And gambling is not investing. Prediction markets are not investing.

Rebie: And I think that the marketing arms at these companies are telling a different story. And it’s going to lead a lot of people down a really bad path that they’re going to wake up five, ten years from now and be like, “Holy cow, what was I doing in my last ten years? Why was I not building wealth the slow, steady, sure way that people have built wealth for the last 100 years?” Well, and living your life. I said this is news. Not because I think it’s good, but I think this angle that this publication took, good on them. They’re doing the reporting: Americans are doing sports betting more than movies. Like, go see a movie with your friends.

Bo: Yeah. Come on, people. Like, go live your life. So I think I say it’s news because I knew it was more of a problem. The team has been talking about some content surrounding how popular gambling is, particularly with Gen Z right now. And it’s not great, guys. It’s definitely notable. And I don’t want our folks to fall into that trap. I would love for you guys to be the people to show a better way to do money. Hey, quick poll. Y’all, do you guys sports gamble? All right. So we got 33% saying yes. And over there production team. Okay. So we’re like, we’re like one out of ten at the Money Guy Show of people that are sports gambling. I’d be curious to know: are you sports betting? Are you doing arbitrage? Because look, out of the 10 people here that are like astute, sound, unbelievable financial minds, only one of them is doing it. We’re at 10%. And the way that he is doing it, it’s not what this headline is talking about. It’s the most financially responsible thing. But not everybody is going to do it that way.

Rebie: But we’ll talk more on that another time. Got a couple more headlines. From ABC News: “Credit card debt rises to $1.26 trillion, nearing an all-time high.”

Bo: I say it’s not news.

Rebie: No, I think. You said you do. Disagreeing. What does it say? Consumerism.

Bo: We live in. Not only are we gambling and sports betting and doing this stuff, we’re also just racking up tons of debt. Some of that’s maybe related, some of it’s not. This is not good.

Rebie: I feel like this is a tale as old as time. That’s why I said it’s not new.

Bo: Well, it is a tale as old as time until you see “nearing all-time record.” Like, it’s getting higher. It’s getting worse. It’s not getting better. That’s why if you can be a contrarian, if you are a young person out there, if you’re a Gen Z, who are the ones after Gen Z?

Rebie: Alpha.

Bo: If you’re a Gen Alpha, if you’re a Gen Z, if you’re a millennial, even if you’re an Xer, and you look different than your peers and your peers are racking up the credit card debt and they’re racking up the consumption and doing all this stuff and you can look different and you’re not doing that, good on you. The disparity and the discrepancy between what your financial life looks like and what their financial life looks like is only going to get wider and wider and wider until they recognize that when I rack up debt, when I rack up credit cards, when I go out there, all I’m doing is I am literally robbing from my future self to please myself today. Whereas the better method is: I’m going to sacrifice a little bit of my present self so that I can have a much better future self. Those two are the exact opposites, and it sounds like more and more Americans are falling into the wrong side of that equation. So I think this is news. I think if you’re a parent out there and you have young kids, I would challenge you: what is the thing that you’re doing today to make sure that your kids are not part of the statistic in the future? What conversations are you having with them so that they understand how dangerous debt and credit cards and leverage can be? And they do not need to start their financial lives on that path.

Rebie: No, I agree. Maybe my emotions got the best of me because I was like, people have been struggling with credit cards forever and it’s just sad. Like I’m almost tired of hearing about it, but it is just the reality. So frustrating. Well said. And that’s why we’re doing this show. There’s a better way to do money. We’re just trying to let people know how to do it. Show of hands, who uses your credit cards here? Everybody. Everybody raise. Well, not the one guy. Okay, so we have one-tenth of folks here that don’t use credit cards. There’s no shame in not using a credit card. Not at all. And what I think is, but it’s okay, even if you are going to use credit cards, if you’re going to be a credit card person, you don’t carry a balance. We’re not saying no credit cards, don’t do that. We’re saying if you’re going to use them, use them responsibly. Don’t rack up debt. Pay them off every single month. That’s different. Credit cards are not the problem. Behavior is the problem and that’s what we’ve got to fix in this country.

Bo: Absolutely. On a lighter note and on a more exciting note, the last headline says, “Pug Jinny Lou, named world’s ugliest dog. Her floppy tongue is coming to a Mug root beer near you.” We’re going to show a picture of her.

Rebie: Here’s Jinny Lou. She is going to be featured on some limited edition Mug root beer cans.

Bo: Is her tongue always like that?

Rebie: I think so. I think that’s kind of why she’s the ugliest. I didn’t name her the ugliest dog.

Bo: I honestly, how does she eat? Imagine trying to eat if you had a tongue just flopping out all over the place.

Rebie: The team just wrote that in the notes, you guys. That came from the production team, not the writing team. We’ll talk about that later. That’s hilarious. That’s so funny. Oh, man. All right, that has been our From the Wings segment. Thanks for having fun with us. Lots of good ground covered on that segment. I’ll be honest, it made me a little sad. I know we had some sad stuff.

Bo: As a young person, I’m sad that there aren’t young people making better decisions, more well representing themselves for the future. Because in my opinion, the future’s bright. There’s a lot of stuff to be really excited about. It seems like the world as we know it, the economy as we know it, the way that we interact, the way that we do business, the way that we get answers, the way that we share information, the way that we do our jobs, all of that’s going to be so much different five years, ten years, fifteen years from now. There’s a lot of opportunity in that and there’s a lot to be gained from being an investor in that and understanding how to adapt and how to improve your skills. And I just worry that if what our young people are doing is instead of being on the rising tide of that, they’re out racking up credit card debt and gambling and sports betting, gosh, you are just missing it. And I want more young people to not miss it.

Rebie: I agree completely.

Q&A: Home Renovation — Step Eight or Lower My Savings Rate? (46:26)

Rebie: Ready for the next question? Yes, ma’am. Our friend Steve Liv from the Moneyverse asks, “I am debt-free except for my mortgage and saving 25% plus of my income. I want to save for a home renovation, specifically new floors. Does this funding fall into step eight or should I temporarily lower my step six hyperaccumulation down to 15% to fund the remodel in cash?”

Bo: Here’s another plus-25-percenter. Well, personal finance is personal. I’d want to know this: how much are the floors going to cost? If it’s going to be something that realistically you could save for just a few months by dropping down your savings rate and paying for it in cash, I think that’s totally fine. But if it were a substantial thing, let’s say it was like $100,000, but you’re still saving 25%, you’re still doing all that stuff. Yeah, there’s nothing wrong if now is a time where you want to take out a home equity line or you want to get some sort of financing to be able to do that. I don’t think that’s crazy. I do think with these sorts of things, the sooner you can pay cash or the sooner you can pay off the debt, the more quickly you can do that, the better off you’re going to be. But if you’re like, “Man, we’re only going to be in this house for eight more years, I really want new floors. And what I don’t want to do is I don’t want to put new floors in year seven and I only get to enjoy them for one year.” Now, truth be told, you’ve got to figure out why. Are you doing this for home resale? Are you doing this because you want to be able to enjoy the utility of it? I’m all about people improving their homes and making the places that you live the places you want to be. Now, I’m partially that way because that’s what my wife does, that’s what she wants to do. Her love language is do stuff to the house, right? And that’s totally fine. And she’s like, “Hey, I want to live in it, I want to do these things while our kids are young, I want to get to experience these things and sort of things.” Nothing wrong with that. So in your situation, if having to slow down and save up to pay for it in cash is going to meaningfully change your ability or the way you’re going to be able to enjoy the timeline of what you have, I think it’s okay to go borrow. But if it’s not going to change that, we’re talking about a few months and you have the ability to save and be disciplined and pay cash, I just love paying cash. I don’t think that’s crazy.

Rebie: So yeah, he got a quote. He shared with us it could be over $18,000 for these new floors.

Bo: Okay. So again, I don’t know your income, right? Is eight months, how long will it take you to save $18,000? For some folks, hey, I can really buckle down over the course of three, four, five months and do that. For some people it’s going to take me two years to do that. So you’ve got to kind of weigh those two things. What I would love you to do is, okay, first thing you’ve got to do is go to moneyguy.com/resources and play with the Know Your Number tool, because I want to know with where you are today, are you ahead of the curve, behind the curve, or right on the curve? If you’re ahead of the curve, I think you’ve earned your ability, earned your right to back down your savings rate and be able to do the thing, go ahead and tackle it. If you’re behind the curve though, backing down your savings rate: you need to recognize that there is a sincere and severe opportunity cost from backing down that savings rate to pursue present-day, current-day consumption in lieu of building up your financial independence bucket or pot. So go do the Know Your Number course, assess where you are on the curve. You’re obviously far advanced in the FOO. If you are ahead of the curve or right on the curve and backing down your savings rate is not going to derail your curvature, then I think you can totally proceed forth with that.

Rebie: Well said. Good application of the Know Your Number tool. I like that. Thanks, Rebie. If you want to play with that tool and see where you are, if you’re on track or not for your retirement, go to moneyguy.com/resources.

Q&A: How Much Should I Save Before Going Freelance Full-Time? (50:52)

Rebie: Next question is from our friend from the Moneyverse, Faith. It says, “How much do I need to save before leaving my full-time job to go freelance full-time? Six months of expenses on top of my emergency fund or more?”

Bo: There are implications to this decision. So we cannot in good faith, pun intended, give you specific advice here because for different people it means different things. I’ll tell you Brian’s story. When Brian decided he was going to go on his own, he was working making a great income. His wife was working making a great income. What they did is for an entire year they saved 100% of his salary and they lived off of her salary. What they wanted to prove was: can we make ends meet? Can we do the things we want to do just based off my wife’s salary? So when I go on my own, we’ve got cash that we can burn from our savings. But if we burn through that, are we going to be okay? Now in his situation, a little unique, they ended up having a baby and she ended up staying home. So all that timeline got compressed. But they put the time in and put the effort in to save up pretty much a year of earnings in cash, but also had this fail-safe of hey, my wife is working, generating income to be able to pay the bills. What I don’t want to tell you is, hey, okay, save up six months of expenses and go freelance and do it full-time. What if freelance doesn’t take off the way that you thought it was? Or what if you’re making $1,000 a month freelance right now and you need to make $5,000 a month, but when you ramp up, you only get to $2,000 or $2,500 a month, and now all of a sudden you’ve got these six months of expenses. But when those go away and those burn out, well then what are you going to do? What’s your contingency? So I cannot answer your question of how much money to save before leaving my full-time job. But I can tell you this, Faith: you ought to do the 3D plan. You ought to write down, okay, what’s a dream plan? I save up, I leave the job and I just go ball out on my freelance. What does that look like? What’s the down-to-earth plan? Hey, realistically, based on what I’m doing freelance now, when I have more time to do it, realistically I think I can do this. How long does my runway need to be? What can I do? And then what’s the doodoo plan? What if I don’t have the freelance take off? I don’t generate the income. I don’t make the money. How long of a runway do I need? And when it comes to how much should I save before I make this jump, I would, my opinion, pencil, I would only operate on the doodoo plan. If this goes as bad as bad could be, how much of a runway would I need to save to be okay? And I’d save that amount. I wouldn’t do the, “Oh well, the dream plan said I would need one month and the doodoo plan said I would need 12 months. So I’m just going to average that out and come somewhere around six to seven months.” I would go, “No, no, doodoo is 12.” Try to hit 12 months, try to hit eight, whatever that number is. Operate on that and if things turn out better than you expected, that’s great. It’s worth celebrating.

Rebie: I agree. Yeah. And you can still, if the things turn out great and you have the 12 months of cash, great. That just gives you more options like what you can do with that cash in the future. And yeah, I think I’ve seen you in the Moneyverse. I know I think you’re doing some of this freelancing now, because I think that’s a crucial thing: you definitely want to kind of have a lay of the land, be making some level of income, have some clients before you fully jump ship. I think that’s really smart or just at least a consideration, and then that’ll help you make the doodoo plan because you kind of know what you’re already making and what a worst case scenario would be.

Bo: And the only other thing I would add in there is I don’t know your main job. I don’t know your, but it’s worth working through the investigation: how hard is it to get back into that? I was talking with someone the other day and they were like, a data security analyst in artificial intelligence. And they’re like, “Hey, I’m really thinking about taking a five-year sabbatical and then I want to go back.” And I was like, “Hey, that’s great. We can plan for that. We can look at that.” But with how fast all of this is changing and how fast cybersecurity has changed, if you exit and do a five-year sabbatical and the technology keeps moving on and you have not had a finger on that technology, how easy will you be able to enter back? He’s like, “Oh yeah. That’s a great point.” And so you just want to make sure that even on your doodoo plan, on your contingency, if your contingency is I’m going to go back to work, is that realistic? Is that down to earth? Will you be able to get back into that vocation where you exited? That’s definitely something you want to think about.

Rebie: There’s some specificity to your field that needs to be baked into the 3D plan. Love that. I love that. All right, let’s move on to Houston’s question.

Q&A: Refi to a 15-Year Mortgage — Pay It Down Early or Invest the Savings? (55:29)

Rebie: No, that’s not our Houston, right? This is a different Houston.

Bo: Different Houston, I think. Our Houston just had a birthday. Happy birthday, Houston. Happy birthday.

Rebie: “We just refied our 15-year mortgage. Should we keep the original payoff date by paying a little extra or invest the savings? We’re 30 years old, just over $200k income, saving 20% before the employer match.”

Bo: Before the employer match. That’s good. Hold on. Hold on. I’m jotting down my notes. 30 years old. Refi to 15. They just did. So should they keep the original payoff date by paying a little extra or invest the savings that they now have? Just over 200. How much you got saved, Houston? What’s your current balance sheet look like? By doing a 15-year and look, we don’t dislike 15-year mortgages. Don’t mishear me. I think as we have bigger interest rate differentials, they might be more compelling. They have been for the last decade or so. By doing a 15-year, you’re already prepaying. You’re already substantially prepaying your mortgage relative to the 30-year counterpart. So I’d want to know where are you in terms of your wealth building? Because I know that for a 30-year-old, the Wealth Multiplier, you’re looking at 23. I’m going off memory. Check me if I’m wrong on that. For a 30-year-old it’s 23. Oh my gosh, 23. Like a steel trap up here. $1 turns into $23. For a 30-year-old, every dollar you save has the ability to turn into $23. That is some juice right there.

Rebie: Well, if you have a mortgage and you just did a 15-year, I bet your rate’s going to be somewhere with a five in the front. Every dollar you prepay on the mortgage is going to save you five-something cents in interest.

Bo: I would argue that your dollars could likely be used better elsewhere. And but we always say this thing: money, you get to choose your own adventure. If you’re saving 25%, you just told me, hey, I’m saving 20%. So you’re not even really at the savings rate where we would put you in step eight. You’re probably somewhere around step six, step seven, somewhere in that world as it relates to the Financial Order of Operations. So I am going to think that prepaying the mortgage is probably not what’s going to be in your best interest. It’s not the FOO. And I just worry: if you get really, really excited and get to your late 30s, early 40s, you’re going to have this paid-off home and you’re going to be like, “Well crap, now I don’t have, now every dollar that used to, I could have used to save, it would turn into $23. By the time I get to 40, every dollar I saved could turn into $7.” That’s a drastic difference. And I remind my young people all the time: being debt-free is super cool. You know what else is also cool? Having the ability to write a check to be debt-free. And I even had to convince, I’ve got this good buddy, he’s in his early 50s, he’s not here today. He wanted to prepay his mortgage, prepay his mortgage, prepay his mortgage. I convinced him, “Hey, you realize if instead of prepaying that, let’s just take what you’re going to prepay, let’s invest that in a low-cost index.” I’m willing to bet you that the size of that account will cross over the size of your outstanding mortgage balance more quickly than if you were to pay it off directly. And it was right. We did it and the math worked out. So I would encourage you to even think through that way. Maybe I should jack up my savings rate, hit that 25%, start building an after-tax account, and then if I decide at some point in my 40s or whenever I want to pay that off, I can do that. And that’s totally okay. Totally my prerogative.

Rebie: You heard it here first: Bo was right. If Brian, if you’re out there watching, that was the friend. He’s not watching. He’s holding a bald eagle. Look at that giant freaking bird. That bird’s head, I know it’s a little bit of force perspective, but that bird’s head is as big as Brian’s head. And my man’s got a big head. So that’s wild. That’s wild. I can say that because he’s not here. That was uncomfortable.

Bo: He’s not. He’ll only watch the first part of the show. He won’t see that.

Rebie: He is. He’ll be like, “Yeah, I watched you guys. It was like the first two minutes.” That actually has happened.

Closing (59:44)

Bo: Well, speaking of Brian, he’s going to be back here. As much as it was fun being here today, I look forward to him being back here soon, but not this week. In the meantime, while you’re waiting for Brian’s return, go to moneyguy.com/resources because we have tons of free stuff available for you. Free PDF downloads, free calculators, including our brand new Know Your Number calculator. We used to have a whole course around it that you had to buy. We decided it needed to be more accessible and we made it a free version calculator, fully souped up. And now it’s even honestly even cooler because it’s like this cool calculator on our website. We love it. It’s been really fun to hear all the feedback on it. So don’t miss out. Go check that out and find out what your number is. We launched this about a week ago, right?

Rebie: And we have had tens and tens and tens of thousands of people. We’re hoping we’re going to have hundreds of thousands, even millions of people use this tool. So if you’ve not played with it, if you’ve not used it, you’ve not spent some time with it, go do that. And oh, can I just gripe for a second? People like, “Oh, you’ve got to put in your email.” Guys, if you’ve been a long-time listener, we don’t sell your information. We don’t use it for marketing. We’re not doing that. It’s so that we know who our audience is, we know where our audience is. That’s why we have an email on there. We’re not packaging this up to go sell it. That’s not our jam. That’s not what we do. So we want the tool to be out there. We want to be able for you guys to use it. If you’ve not played with it, go play with it. Go check it out.

Bo: And we just so appreciate you allowing us to be part of your financial journey. We could not sit here and do the thing that we do if you guys were not out there listening, learning, applying, and growing your financial life. And we’re just so excited we get to be a part of that. We’re so thankful that you let us be in on your journey. We’re going to keep showing up for you. For Rebie and Brian and the rest of the Money Guy team, I’m your host Bo today. Money Guy team out.