How Much Do You ACTUALLY Need To Retire?

The Big Announcement: Know Your Number Is Now Free (0:06)

Brian: Your patience has been rewarded. I’m the worst at keeping secrets. So today we get to do the big reveal.

Bo: Brian, I am so excited because this is something that, frankly, we’ve been planning to do for a while, but we come up with an idea of a thing that we want to do, but then it takes time and it takes build and it takes effort, and it takes all the people in the background working. And it’s been hard for us to keep this under wraps, but it is something I think I can say that we are both so, so, so excited.

Brian: So I don’t want to keep them waiting anymore. So before we give you the new thing, we have to sadly share with you that for, and first, thank you for everybody who supported us over the years. We had a course called the Know Your Number course and sadly we are actually taking that course away. It’s going away. And here I need to give you a little context. The Know Your Number course: are we taking this away because it was a failure? No. The reality is it was the biggest revenue digital revenue generator we’ve ever had. On itself, it’s a six-figure annual business. So you’re like, why in the world are we taking this away, Bo?

Bo: We’re taking it away because we listen to you guys. And you’re like, man, this is valuable. This is good, this is helpful. This answers questions that I’ve always had, and it gives me some actionable steps to know what I should be doing, what I should be changing. And you guys have said to us it’s so valuable, so helpful, that we decided, well, we should take the course away. We should no longer let it be a course. We should no longer have that be something available on the website for you to go buy. Instead, this is the thing. Look, we always say on every show when we get the questions, it always comes down to: are you ahead of the curve, behind the curve, or right where you’re supposed to be? And it’s so valuable. That’s what the course is.

Brian: Remember, I always wanted Millionaire Mission in the book to be the tip of the spear, meaning that if you didn’t know anything about money, go grab this book. And this is going to essentially main-line all that great information. But then a lot of the courses, like the FOO course and even the Know Your Number course, were to help you accelerate your journey. But so often we say, are you ahead of the curve, behind the curve, or right where you’re supposed to be? Instead of having that in a course format, why don’t we actually open this thing up and make it a completely free calculator right on the website? And we put a lot into this. This thing has been months in development because we wanted to make sure that this gave you the right motivation, the right feedback, so you could definitively answer: am I ahead of the curve, behind the curve, or right where I’m supposed to be?

Bo: That’s exactly right. Know Your Number is now going to be available to everyone. So if you have a question, you have a friend who has a question, you have a loved one that has a question about where am I, where should I be, where am I going? It is going to be a free calculator along with our other calculators out there on the website. We’re so excited about it. We wanted to demo it for you. Let’s run through it together. Let’s assume that you’re someone out there and you are 25 years old, just starting out on your financial journey, and you’re planning on retiring somewhere around normal retirement age at 65. Let’s say that based on what you’re doing right now, the lifestyle you’d like to have in retirement would equate to roughly $5,000 per month in today’s dollars. And let’s assume that by now you have already saved and invested $10,000. First job, 25 years old, $10,000. And let’s assume that on average you’re saving about $12,000 a year, about $1,000 a month. The question becomes: am I ahead of the curve, behind the curve, right on the curve? So you hit calculate. And what you’ll see is this unbelievable output that lets you know that your retirement number at age 65, to live the life that you want to live on your terms the way you want to live it, is right at about $4.9 million. And guess what? Based on your inputs, you’re actually on the trajectory to be able to retire a little bit earlier. You’re actually going to hit your financial independence number at 62 years and four months, even before your 65-year-old time horizon. And we actually show that to you graphically and visually.

Brian: But wait a minute, Bo. For a lot of you out there, you’re realizing the typical American doesn’t even start saving and investing until they’re in their 30s. This is somebody starting in their 20s and saving $1,000 a month. It doesn’t surprise me that they’re ahead of the curve. How about somebody that’s more in the messy middle?

Bo: All right, let’s go. Messy middle. Let’s assume you are 33 years old, planning on a standard age 65 retirement. You think that for retirement you want to spend probably $6,000 a month. You’ve currently saved up $100,000 of investment assets, and you’re saving $18,000 a year, about $1,500 a month. When we go to calculate that, boom, your financial independence number: $4.6 million. And again, you are right on the path. You’ll actually hit financial independence at 64 years and ten months. So just slightly before your 65th birthday, we would argue you’re right on track. So we’ve done somebody who was ahead of the curve, now we’ve got somebody right on the curve. How about somebody who’s actually a little behind? Maybe you didn’t discover our content until you were 40 years of age. You’re 40 years old, you want to retire at age 65, that’s only 25 years. You still want to spend $6,000 a month. Let’s assume you only have $50,000 in an investment portfolio, but you’re committed to doing this, so you’re going to save $24,000 a year, about $2,000 a month, basically maxing out your 401k balance. What you’re going to see is that your retirement number at 65 is about $3.8 million, but you’re not necessarily going to be on track to hit that. You’re actually not going to be able to hit that financial independence number until you’re 73 years old, almost 74. So what would need to happen? If you could increase your savings by an additional $1,500 a month, you would then be able to hit your goal retirement age. We want this to be a useful tool where you can play with the inputs. We even have an advanced mode where you can change and adjust the assumptions so you can figure out where you are on your financial journey.

Brian: I hope you can tell this is going to be powerful for you to put your own information in. So I’d encourage you to go to moneyguy.com/resources. Get in there and start playing with this thing. We wanted to make sure that everybody feels like they know exactly where they are in this journey, so you can make corrective adjustments to your portfolio ASAP today. Now, maybe for some of you, maybe you’re closer to miser versus mutant and you’re way ahead of the curve. This is going to be your indicator to start living your life a little bit better.

Bo: When we took the FOO course, the initial version was $250 to get in. We were like, no, no, no, this is too valuable to put a high ticket price on. We dropped it down to $49 because I want more people to have this. It’s not about the revenue or profit. It’s about helping people accelerate their journey. This is the next part of that abundance cycle: if we can give you this free tool and let you go out there and figure out exactly where you are, you’re probably going to have the opportunity to accelerate your journey. Hopefully you’ll remember when your life gets complicated who planted the seeds. That’s what we’re trying to do: while your life is simple and you feel like you have it all under control, we want to give you all the tools to accelerate the journey. But when success creates complexity, we’ll be there waiting for you with the porch light on. We genuinely believe there’s a better way to do money. And the more that we can equip you, the more that we can help you do money better, cheesy as it sounds, we feel like we are kind of making the financial world just a little bit better. So yeah, we walked away from some revenue here, but frankly we felt like it was the right thing to do. If you haven’t had a chance to play with it, go play with it at moneyguy.com/resources. Tell your friends about it. There’s no cost, absolutely free.

Brian: And I can add one more thing. When people try this, they’re going to quickly realize we only ask for your email address. So if you’re somebody filling this out, you might be like, what do they do with that? Are they selling that email list? No, we do not sell access. But I will tell you what you get. You get our weekly newsletter, which if you look at the open rate on that newsletter, it is out of this world because I’m part of it. Every week I look because I want to see where the team is going to pick on us, because every week there’s usually a little Easter egg where they’re having a little fun at our expense, which I love. By the way, if you’re not self-deprecating, you’re not a good time. But it is one of those things: go out there and check it out. We literally are trying to connect with our audience so we know who you are. I wish that when I started this all back in 2006, I would have started collecting your email addresses. It would have saved me a lot of stress. It’s just so we’re connected to our financial mutants. It’s not to go sell it to anybody or anything like that.

Bo: Can I just put one thing out there before I get to the question? This tool is supposed to be a guide. It’s supposed to be one of the things you can use to help make financial decisions. But this tool is not a full financial plan. This tool is not customized to your unique situation. Yes, you can put in your variables and your stuff, and we want to be as useful as possible. But don’t mishear us: this is not a replacement for you actually doing the work of running the numbers and stress testing the plan to make sure that your plan is in place. This is supposed to be a spot check to let you know: am I ahead of the curve, behind the curve, right on the curve? It’s not, “Oh hey, I put some numbers in there and I think they were kind of right and it said I can retire at 52.” That would not be a wise decision on your part. So make sure you don’t skip the work of doing the work when it comes time for financial independence.

Rebie: Well stated. If you are playing with the Know Your Number calculator right now, I am excited to hear what you think. I love seeing the chatter about it. I’m really glad to see you’re liking it so far. We are going to be talking about it and answering questions about it in the Moneyverse throughout the day today. So if you haven’t joined already, that’s our Discord server for financial mutants. Go to moneyguy.com/moneyverse. It’s free to join. We’ll have a thread going about Know Your Number so we can talk about what the tool, just like Bo said, should be used for, should not be used for, and what kind of assumptions went into it. With that, let’s talk about some financial questions from the chat.

Q&A: Do Clients Actually Spend Less Later in Retirement? (13:50)

Rebie: Are you guys ready? Oh, I’m ready, ma’am. All right. J Till Swag says, “Hey, Money Guy team. I have to imagine I’ll be spending more money at 65 in retirement than at 85. Have you all seen the same thing with clients, and how does that affect planning?”

Bo: Yes, yes, yes, yes, yes, yes, yes, yes, yes. This is why we say that safe withdrawal rates are a wonderful back-of-the-napkin planning solution. If I can draw 4.7% in the first year of retirement and increase that with inflation every year, I’ll be okay all the way up to age 95. That’s great academically and theoretically, but practically it looks very different. Most of our clients, most of the folks that we interact with and help cross through that threshold, will have some form of go-go retirement period, a slow-go retirement period, and then likely a no-go retirement period. But oftentimes that no-go retirement period, you replace the going with medical expenses or other costs. And so you want to make sure you factor that out. That’s why just saying okay, 4% is my number, that’s what I’m sticking with, I think you’re doing yourself a disservice. Because in reality for our clients that are retired, there’s a season where they might have a 6, 7, or 8% withdrawal rate. Then there’s another season where we might have a 2, 3, or 4% withdrawal rate. And then there’s a season where RMDs kick in and the withdrawal rate changes again. It’s much more dynamic than that.

Brian: So it absolutely does affect the planning and the viability and sustainability of your plan. Yeah. For our retiree clients, I run scenarios every year. That’s kind of what I do with a lot of my retiree clients: we are updating the scenarios every year. Because it’s so fun to go through the celebration with them. Some years you’re planning for a wedding because a couple just got engaged. You always do health checks on what’s going on with their cars because they’re replacing them. And then big trips where they’re taking the whole family. We model all of it. And then you even take into account the market performance. So every year the variables are changing and we’re kind of the dashboard to make real-time adjustments. So you don’t have to feel like what you set with a 4% safe withdrawal rate is just a static thing. When you actually cross into retirement, it’s going to be an annual process. Remember, we’re also stacking in Roth conversions and the planning changes throughout it every year. We’ll do a kind of a preliminary plan at the beginning of the year, but then at the end of the year, we’ll say, “Hey, we can’t do as many Roth conversions because you had extra income show up from this.” So we make those type of adjustments in real time, and it’s powerful. But I do like people thinking about different phases of life. And without a doubt, take into account the age and the scenarios because it is true: once you’re past like probably 80, you don’t see as much big travel and big fun things. There’s a much more slow pace, but you fill in the gaps nicely. Unfortunately it’s medical expenses and other things that kick in that still are quite expensive. Great question, J Till Swag. Appreciate you being here.

Q&A: Self-Employed — Solo 401k or Brokerage Account? (16:51)

Rebie: Next question is from Braden. It says, “I am self-employed and have a good income. I max out mine and my wife’s Roth IRA as well as our HSA. Should I open a solo 401k or invest in a brokerage account? Liquidity would be nice.”

Bo: Oh, you see, you threw in that last little part that now makes it where it’s going to be harder to answer this for a broad group. Whenever we face a question of what should I do next, we have a handy dandy little guide that will help you. Will you hold the thing up? We have the Financial Order of Operations. It’s a nine-step process that lets you know what you should do with your next dollar. And you already gave some clues. You said, hey, I’ve maxed out both mine and my wife’s Roth IRA, and we’ve also maxed out our HSA. That tells me that immediately you’re at the place where you have satisfied step five of the Financial Order of Operations, and now you’re moving into step six.

Brian: But has he really satisfied step four? He said he’s self-employed. And his next question closes out with, “A little liquidity might be helpful.” Because look, the easy answer is saying, yeah, go get a solo 401k, because not only do you get to max out all the salary deferrals for yourself, you also get to do the profit sharing contribution. It is massively important from a tax planning standpoint. It’s really a great little hack for self-employed individuals. But there is a burden that self-employed people have: if things go sideways or you go through a season where maybe the revenue or profit is not what it was in better times, you better have enough capital to get you through that. And that’s why for cash reserves, you hear us say 3 to 6 months. But for a self-employed individual, you might need to boost that cash reserve out because you’re not just thinking about your household 3 to 6 months. You might need to be thinking about the payroll of the company, the obligations of the company. So you might balloon this thing up well beyond six months. I’m just saying: do that work first as part of step four before you get into the really sexy sizzle stuff of getting into the solo 401k.

Bo: And I’m going to argue: because you’ve already told us that you and your spouse are contributing to Roth IRAs, that gives an idea of where your income is or likely the top threshold of where your income could be. If you’re not yet saving 25% of your gross income and you’ve already made sure that you have step four in there, whether that’s six months or likely more for a self-employed individual, I do think the solo 401k is a great tool to implement on your path to financial independence. Because when you really want to start thinking about the taxable brokerage account, the after-tax liquidity is once you get into step seven and you’re beginning to think about how you’re going to use these dollars. That is very different for someone in their 40s who’s thinking about exiting the workforce in the next ten years versus someone who’s 28 who’s just dreaming about it. I think the Financial Order of Operations can be your guide, because the tax savings associated with a solo 401k, whether it be on the pre-tax contributions going in today or even potentially the Roth contributions you could do, can be wildly valuable for you over the long term. I don’t want to see you just prioritizing liquidity today by doing the brokerage account and missing out on that huge tax-incentivized savings.

Rebie: Love it. Braden, thank you for the question. Thanks for joining us on the live stream. In case you’re interested in our rapid fire segment that will be coming up later in the show today, we are taking all rapid fire questions straight from the Moneyverse. So if you are in the Moneyverse, you can get there by going to moneyguy.com/moneyverse. It’s free to join and you can post your question in the live stream thread. We’ll be doing that later in the show. But until then, let’s keep going.

Q&A: Buying Down Your Mortgage Rate — Is It Worth It? (22:51)

Rebie: Chelsea 904 has a question for you. Ready for it? Yep. “How would you think through buying down your interest rate? Would you base it off how long it takes to get that money back?”

Bo: This is a great question. I have friends who’ve asked this because all of a sudden, oh, I could do this thing: buy down my interest rate when I’m buying a house. What do you think about this? It’s a math equation. And I think we have a resource out on moneyguy.com/resources about how to know when you should refinance. I think that’s a thing we have. And while this question isn’t specifically around refinancing, it’s the same sort of math equation. To buy down points is going to have some sort of economic cost. It’s going to cost me $1,000, $2,000, $3,000, whatever that number is. Well, when I pay that economic cost, there’s some benefit I’m going to get. My monthly payment will be this much less because of the interest savings. Then the question becomes: how many months of that interest savings does it take for me to recoup the cost that I paid to buy those points down? Well, if it seems likely that you’re going to be in the house longer than that amount of time, I think buying down points makes a lot of sense. If it seems likely that you’re not going to be in the house that long, or maybe it’s going to take 15 years to recoup the cost, perhaps that is not something that makes sense for you to front-end.

Brian: Well, you want it to be. There’s a balance there because it’s not just how long you’ll be in the house. You have to ask yourself: is the market going to adjust enough to where I could do like a zero-cost refinance? That’s why I would love for this to be a short turnaround time. This needs to be less than 3 to 4 years. I mean, 3 to 4 years, it’s really a no-brainer when it’s that quick. I’ve seen opportunities where you can buy it down or do a refinance where you’re like, oh, I could recoup this in less than three years. It’s a much easier decision because three years will go by in a blink of an eye. If you have to get beyond five years, I’m like, man, there’s a lot of things that could happen in beyond five years with interest rates and so forth. So it’s not as compelling. There’s one other little sweetener. Now most of us take the standard deduction these days. But if you do itemize or you’re close to itemizing, realize that if you’re buying down the rate on the purchase of the house that you’re moving into, you can immediately deduct that in the year of purchase. If you’re refinancing, that has to be amortized over the length of the loan. That’s just another little tidbit. It doesn’t really come into play as much as it used to because the standard deduction is so high for the majority of Americans now.

Rebie: Chelsea 904, thank you for the question. You don’t hear a crazy thing I do? I have not fact-checked this, so this could be totally wrong. But I read in the comments that you know why the gimbal was invented? It was invented to follow Rocky up the stairs on the running scene. Is that true? We got a thumbs up from the team! Isn’t that cool? So did Sylvester Stallone develop this himself? You know, if you look back on that movie, they kind of guerrilla ambush-styled a lot of those. The live scenes, they were out in the crowds running up like they didn’t get permission to do all that. And I think Philly came out on top, honestly. Well done, Stallone. If people want to know if this is a live stream: oh yeah, it’s a live stream. If you don’t know if we read the comments: oh yeah, we read the comments. Anything goes here, including financial advice. There’s lots of that.

Q&A: How Does a Loan from Parents Fit Into the FOO? (27:22)

Rebie: Some of that goes to Cody B, who has a question for you guys. It says, “Hey, Money Guy team. How does money owed to others fit into the FOO? I just graduated college and took a loan from my parents to relocate to a new job. Should I prioritize the loan or focus on step four? I have no other debt.”

Brian: Man. What? I would also be curious, Cody: what interest rate did they put on this? Did y’all even talk about that? Or is love the consideration here, and they’re not even counting on you to pay them back?

Bo: Cody, if you can give us that information, what are the terms of the loan? That’d be helpful. I think it’s interesting. So often we want baby birds to launch. We think that it’s great. We want you to be able to stand on your own two feet, fly, get out of the nest. But some people have this desire to be independent so much that they want to be independent almost at the cost of realistically recognizing what their circumstances are. And this is what I mean. Let’s assume that Cody’s parents are independently wealthy and this was a mechanism by which they were able to help him, like, “Hey, we’re not just going to do it for you, but we’re going to give you this money to help you get on your two feet, and we want you to pay us back, but we can be super flexible on terms.” If that’s the case, I think Cody would be well served to still prioritize his other financial matters. Do I have my deductible covered? Am I getting my employer match? Have I fully funded my emergency fund? Am I saving for the future? And am I factoring in this debt as part of the Financial Order of Operations? Now that’s one side of it. On the other side, if your parents are not in a fantastic financial situation and they really put themselves in a position that is less than ideal in order to do this, then I think the metrics are different. I think the priority has to be different. Where are your parents in terms of how they loaned you the money, and where are you in your financial circumstances to be able to prioritize those two things? I think 0%, no terms, pay it back when you can. Okay. See, what I’m just thinking: what I’d rather you do is that instead of funding your Roth IRA, instead of working on step four, instead of paying high interest debt?

Brian: This is a teachable moment here. Like I detailed in Millionaire Mission: once I got out into adult life, I got my butt kicked a little bit. The math wasn’t math anymore in adulthood once you took into account car payments, rent, and everything else. And I ended up running up some credit card debt and got in that situation where I had to borrow several hundred dollars from my parents. Now, several hundred dollars doesn’t sound like a lot, but I remember driving to work because I had like a 35-minute commute, and you would hear on the radio station that they were paying bills or giving away $1,000. And I was like, that literally would change my life. $1,000 would change my life. So that few hundred dollars from my parents changed my life when I called them and had to do that hat-in-hand moment that I wasn’t doing good. Now, I made the promise that I wasn’t going to get myself in that situation, and I paid them back. They told me I didn’t have to pay them back, but I felt like it was a principle thing. If it’s less than $1,000, I think you pay it back. You prioritize it because the opportunity cost on your future self is just not that big for less than a thousand bucks. And it’s just a principle thing: pay your parents back very quickly, and the Wealth Multiplier for a 20-year-old is 88. If it’s over $1,000, I still want you to pay it back within 18 months. I just do, because I think you have to be serious, and I want you to feel the weight of it. Because I look, if you’re going to stand on your own feet, stand on your own feet. And that’s where I consider that the inception point: I actually started living like a financial mutant when I got so down. I was just like, this is, I’m going to be different now.

Rebie: Yeah. But bring the question back up again. Didn’t Cody say this was to help with relocating for a new job? He had to relocate and they gave him some money to relocate. So I think it’s probably going to be less than $3,000.

Bo: Yeah, I’d be curious to know that. Look, I don’t fully disagree. Here’s what’s not okay, Cody: I borrow money from Mom and Pop, but then I’m still going to go out to eat and casually live my life and do all this other stuff. I think you’re missing the plot there. But if the alternatives are, I’m a young person, I’m trying to fund my emergency fund, I’m trying to build up my Roth IRA, I’m using that money for other well-intended purposes, oh man, I don’t love that either.

Brian: But can I tell you, because I’ve had people I’ve let borrow money from me: if you have money outstanding with anybody, doesn’t even have to be your parents, and then they go borrow $6,000 or $7,000, and then you find out they’re still going on Royal Caribbean cruises and doing all kinds of stuff, you’re like, why did they borrow money from me? If they can make these lifestyle decisions, it shows me they’re not serious about fixing their situation. You have to show that you’re an altered person, and I think you want to get that cloud off of you. So pay it off.

Rebie: Somebody just commented, “Just talk to Mom and Dad.” Yeah, true. What is their take on it even if they’re trying to be nice. But really, there’s going to come a point where they’re going to be like, wait, he’s spending on this, he should be paying us back. You kind of have to know your family.

Bo: Like $400 bucks a month, paying back Mom and Dad over a year versus $100 bucks into a Roth, hey, I’m going to pay you guys $50 bucks a month.

Brian: My parents didn’t want it to be a loan. They just said, hey, I’ll help pay for your relocation.

Bo: No, but see, then that’s different. That is enabling. When it’s a loan, it’s a zero. But they could have said, and they said that is kind of what they did. But is it not enabling if you never have to pay it back, you know, pay it back when you can? No, I don’t know.

Brian: But look, I’m very happy with my 23-year-old and how she’s doing. But I did make her pay half of her first car. I felt like we’ve had lots of conversations, especially since she was 15. You have to, you know, and look, I didn’t want to, because the way I grew up is different than where my daughter grew up. And if you grow up with some form of abundance, you still need some type of scarcity in your life so you understand how money works. Otherwise you end up with these false, weird things. How many rich kids who got just pampered, and then they get the shock and awe and they realized their best life was with their parents? That’s not good either, because then you don’t know how to enjoy work. You don’t know how to be productive. You don’t even know how hard it is to build wealth because you’ve had shock absorbers your whole life. And see, I think that even just your $50 or $100 bucks a month could go a long way.

Bo: Yeah, that’s like, I’m fine with that. Like Brian saying, oh, you got to pay this off in 12 months. I don’t know how much it is. I wish you’d told us how much instead of $1,500.

Brian: Then I would tell you to prioritize it because the opportunity cost is just big. If you put it in especially if he’s, you know, 88 times over in the Wealth Multiplier, but it also if it changes your behavior, there’s going to be more of a multiplier effect from the changed behavior versus just paying back the loan. I just think if you have favorable loan terms, there’s nothing wrong with, okay, you heard it from Bo, taking your time. But don’t take predatory shark rates just so you get your money back faster. Otherwise just give it to him as a gift.

Rebie: Let us know what you think in the comments. That was a spicy one. Agree? Disagree? Want to fight?

Brian: Maybe we fought a little bit. Fun, I like it. Yeah, look, it’s the only one that has an adult child. I think I get a little more leeway.

Bo: Oh my goodness. I so hope that she needs to borrow money at some point. And she’s like, hey Pop, I need to borrow some money. Okay baby, I hear you. And then she’s like, hey Pop, I just worked this year. I really want to fund my Roth, but I think I’m going to pay you back instead. You’d be like, oh yeah, yeah, yeah. Pay up. No, keep going in that Roth. Zack, look at him. He knows I’m wrong. So yeah, there’s some nuance here because it is true: funding your Roth and going out to eat a bunch is totally different. It all depends on the behavior.

Rebie: And you don’t want that hanging over your head. That’s where I’m like, maybe I’m empathizing with Brian a little. But anyway.

Brian: if you chew your kids’ food, okay, it makes it easier to digest.

Bo: I’m going to say I’m thinking of a person who was unbelievably talented, a person from our past. But he was always so unwilling, because his parents were successful. He always felt like he had to do it on his own. And he was unwilling to accept the fact that he had an opportunity not available to others. And that was the mistake in that situation. And this is why you’ve got to have conversations with your kids when they’re in the house. Don’t wait until they’re adults. We also know other successful families. If you don’t start having financial conversations with your kids, they don’t know how money works.

Brian: I knew this person. You and I have two people that we’ve had shared with us. The first one, he should have used the family wealth to help him take his business to the next level. But he was so just in the shadow of the success of the family that he was like, I’m going to do everything on my own, to a detriment. And look, I never had those opportunities, so I was a little jealous that he could have. And it hurt the business. The other one, we know he didn’t have good conversations with his children and he sheltered them and pampered them. And then as they got to be adults, now they’re flopping in the wind on how the world works. And he’s like, if I’d just had more conversations, I wouldn’t be having this difficulty that I’m having right now. Because when you get spouses involved, when your kids get old and they get married, it gets even more complicated. So you better go ahead and start planting those seeds so that they can sprout and your kids actually know how money works. I do agree with that communication with the kids. Don’t chew your kids’ food. Let them learn to eat and digest the food themselves, and even maybe hunt and gather the food.

Bo: You know, my daughter’s not there yet, but I’m not even just planning on her paying for half. I’m going thirds. I’m going to make her have a car payment. I’ve told you this. This is a car payment. And if she wants a nice car, she better go babysit or go to her job. Whatever her thing is, she better be making money. She’s got to make that car payment. I’m 100% doing that.

Bo: I can’t wait to watch y’all. Y’all go ahead and notate this.

Rebie: Saying that is the same as you being like, they may be paying back that loan. That’s the same. No, it’s just the opposite. Like, that’s why I like the idea of having the car payment. Am I wrong?

Brian: No, I’m just saying. We’ll see if Bo does this. He’s awesome. Look, I will say his girls share a room, which I love.

Bo: My girls are still in the same bedroom. Really? Just roughing it. Not out of necessity, out of like, that’s what they want. So mom wanted to move on but everybody’s going back. This is really a seven-minute question? Hey, it was a good conversation. I liked it, it was interesting.

It Does Not Depend Rapid Fire Segment (39:11)

Rebie: But with that we are going to move on to our “It Does Not Depend” rapid fire segment, Moneyverse style. All of the rapid fire questions have been pulled from our Moneyverse Discord server. So thank you for joining the server and being active. No more questions from Cody. Thanks, Cody. Remember during this rapid fire segment you cannot say the words “it depends” and you only have a combined 30 seconds to give your answer. At the end we’ll revisit anything you feel really needed more explanation. But for now we’ll jump right into rapid fire with 30 seconds on the clock.

Rebie: First question: at what income or net worth do permanent insurance tax strategies become viable, if they do at all?

Bo: It’s net worths above the estate tax limit, so it’s going to be well above $30 million for a household, and only in the circumstance where liquidity does not exist, meaning it’s a closely held business or closely held real estate and you need the insurance for liquidity for estate taxes.

Brian: Yeah. It’s going to be a small subset of the population, probably less than 0.1%. And I would argue that really good planning can even replace the need for permanent insurance if you plan well early at those wealth levels.

Rebie: Next up: can you roll over the Roth portion of a Roth 401k into a Roth IRA and the traditional portion plus employer match into a solo 401k to avoid pro-rata rules?

Bo: Yeah, I mean, you can do all those things. And matter of fact, a solo 401k is a great workaround, assuming you have the income source that is independent so that you can start doing backdoor Roth conversions. That’s a great way to get around losing the ability to do backdoors. And you just want to make sure when you call your custodian to do those rollovers, you’re very explicit about: hey, I want the traditional to go into this account and the Roth to go in this account. Because if you screw it up and it all goes into the Roth account, you’re going to get a really ugly 1099 at the end of the year and a really nasty tax bill. And don’t sleep on the 5500 filing if it gets over $250,000.

Rebie: That was close. Next question: for saving for children, Trump account, 529, UTMA, or parent’s brokerage with it earmarked for children. Which one would you choose?

Brian: Well, I mean, they all have different purposes. I don’t care what your politics are: if you’ve got a baby in the house and you’re not doing a Trump account, because of what Michael Dell and some of the other wealthy people have added, these things are incredible. Trump account for the free money first. If you’re saving for college, 529. Any other purpose, UTMA is a great solution for kids so they can be unconstrained. First car, first time home, all that kind of stuff. I would go in that order.

Bo: That’s what we call an alley oop.

Rebie: I like that you got that in 30 seconds. Nicely done. Next: how do you know when your savings habits are moving into financial miser territory, and how do you walk yourself back from that? Is there a point where you’re doing too much?

Bo: Yes. It’s when you’re having an adverse effect on the ones that you love. When you and your spouse and your kids, other people are at odds because of finances, and it’s not because of scarcity, it’s because of behavior and decisions. So one of the things you want to go back to is: what’s the why? Is the big pile of money the goal, or is it to use my money as a tool?

Brian: Yeah. And go to moneyguy.com/resources. We have the Know Your Number calculator now so you can actually see if you’re ahead of the curve, behind the curve. Use the analytics from that. And then also maximize the family memories so you don’t have regrets in the future.

Rebie: Fantastic. Next question: when checking if our balances are healthy against Money Guy age milestones, for example 40 needs three times your income, can we include the pension’s net present value?

Brian: He’s thinking about this one. He wants to say it. He wants to say it depends.

Bo: Oh man. Pass. Personal finance is personal. If you have a really easy way and you get a statement that says this is what the value is worth if you were to take the lump sum today, potentially you can use that. I think in most circumstances though, you would not use the pension, and you’d have to do a personal analysis to determine where you are.

Rebie: Put an asterisk on that one. Making a note that Brian passed on that question. All right, next rapid fire question: “At the risk of sounding FOO-ish, would it make sense to fund a 529 before hitting 25% retirement savings if there is a significant tax benefit? For example, in Indiana, a 20% tax credit on contributions up to $7,500.”

Bo: You need to go to moneyguy.com/resources and do our Know Your Number tool to see if you are ahead of the curve, behind the curve, or right on the curve. Because if you’re behind the curve, I would argue that getting the FOO out of order is foolish because no matter how good that tax benefit is, it doesn’t matter if you don’t have enough money for retirement.

Brian: You know what happens if you do the FOO out of order? It just doesn’t work. So definitely take Bo up on the offer. Go play with the Know Your Number calculator and you’ll know right where you are at moneyguy.com/resources to get the calculator.

Rebie: Next question: who is more stressed, treading water Bo or rapid fire Brian?

Brian: I think they’re probably pretty balanced. It’s just that the only difference is if I screw this up, there’s no peril on my life. Whereas Bo, he’s giving it all he’s got. So I would say Brian is more stressed. But here’s why: he’s got 30 seconds to answer these rapid fire questions. When I tread water, I tread water for 13 minutes and six seconds. So I’m just living life in life.

Bo: Well said. All right. Back to some financial questions. There’s the picture. If somebody turned it into was it spaghetti or mashed potatoes that they had Bo swimming in? Mashed potatoes. That’s what it was. I am going to take another picture in the pool. That’s going to be me, just sunglasses on hanging out, to send you guys so we get a new picture instead of that. Oh, and my wife and I did the treading water challenge. I did 50 minutes. She did an hour. An hour of treading water. I think she could have done more. That’s actually impressive.

Brian: Wild. Let’s be real. I stopped at 13 minutes and six seconds. I had more in the tank, I stopped there. Y’all see that picture? Does that look like he’s got more in the tank? This is where his muscles don’t float. That’s the whole comedy here. He’s got these big beautiful muscles that make him look like a weight in the water. Okay, we’re still in the rapid fire segment. I just remember we got a couple more. 30 seconds back on the clock.

Rebie: “I am ahead of the curve and in the messy middle. What are some reasonable bedazzled ideas in this phase of life, because Brian, you always say bedazzle your basic life in the messy middle?”

Brian: Don’t wait to make memories. We’ve done the thing where we went to Disney and spent like a gazillion dollars. We’ve also done the thing where we went to a local state park here in Tennessee. Super inexpensive to stay at, beautiful, tons of trails, tons of stuff. The kids absolutely love that. So there are things in your states you can do that are easy.

Bo: Yeah. I would look at national parks. There are a lot of fun. I think some of the road-show museums that you can drive within a few hours of your house to go see things, because the road trip can be just as much fun as the actual place you’re going to. Love it.

Rebie: Last but not least: “When does arbitrage not make sense? Like a 0% APR for 60 months is such a good deal for a new car, rather than getting the same car that is two years old, that is cheaper but the percentage rates are so expensive and it makes less sense from a warranty and powertrain perspective.”

Bo: Get the 0% for 60 months and just pay it off in 36. Right? Like, that’s the answer I would give. Just because you have the opportunity to finance at a low interest rate and that’s available, if that’s the better deal for the car, do it. But just pay it off in 36 months. The interest rate is just one of the elements of this big calculation. The big thing is making sure you’re not buying a car bigger than what you can afford based on your income. That’s what the 36 months keeps you honest on.

Maybe It Does Depend Segment (47:54)

Rebie: We are now going to go into our “Maybe It Does Depend” segment where we get to revisit some things. First up, we’re going to read that pension question again. “When checking if our balances are healthy against Money Guy age milestones like needing three times your income at 40, can we include pensions or a pension’s net present value?”

Brian: You could, because a lot of sites do. If it has a rollover provision, then you can count that money. What I worry about is when it’s just a promise for the future, you can get yourself into some problems there. And that’s where the “it depends” comes in: is this something that the Pension Benefit Guaranty Corporation is also going to insure? Because really the way retirement planning comes together when you get closer to retirement is: what’s the actual living expenses that I’m trying to replace? It’s just when you’re younger, you’re using income as a threshold because you’re so many decades from retirement that the numbers can get wild. From a planning perspective.

Bo: Let me share a math crime that’s really easy for people to do. Say you’re employed and you work with a pension that says hey, I get 2% of my highest three years for every year that I work. So if I work for 30 years and I assume that my income is this, my pension benefit is going to be X dollars. Well, if I take that pension benefit starting at age 55 or 65 and I calculate the net present value of that income stream based on my life expectancy all the way out to today, I have overstated what I’ve actually accumulated up to this point. Because one of the things that was dependent upon that is: I’ve got to work for 30 years, I’ve got to have my income increase, I’ve got to do all these things. That is not an accurate representation of where you are today. So if you’re using net present value based on some future working earnings record, I’d argue you’re doing that wrong. We see people screw this up with Social Security all the time. You go out and pull your Social Security statement. That number is giving you assumes that you work until full retirement age. If you’re someone who’s going to leave at 50, 52, or 55, you better account for the fact that in Social Security you can have goose eggs on all those years. Your benefit will not be the same. Don’t miss out on that.

Brian: All right. Do you feel like you’ve said what you need to say on that one?

Bo: Yeah. Wonderful.

Rebie: The last one about the arbitrage: we talked about the car, specifically the question. I kind of felt like there was more to it, like is this a general rule on when arbitrage makes sense? Because you could do this on other things. Reasonable cars. It says: “When does arbitrage not make sense? Like a 0% APR for 60 months is such a good deal for a new car rather than getting the same car that is two years old, that is cheaper, but the percentage rates are so expensive and it makes less sense from a warranty and powertrain perspective.”

Bo: If you could run them back and tell me the difference in the purchase price, knowing nothing and not knowing how much depreciation, having those two years: the brand new car at 0% sounds way better. Yeah, you just pay it off in three years. But you still got to come up with the 20% down, you still got to follow all the rules.

Brian: When we set rules, it’s to try to give you some boundaries so that you don’t just spend like every other American in the world does. We’ve tried to create boundaries so you can still save and invest for the future and not have regrets. So your 50-year-old version of yourself looks back and goes, “Well done, 20-something. Well done, 30-something.” Because there are so many distractions and cars are a big one. Most kids when they graduate college, I think about all my friends who had paid-for cars and then they immediately get their first paycheck. You know what, let’s go upgrade this so that we can impress people who really don’t care.

Bo: I’m always amazed: even though conventional wisdom has always been buy used, buy used, buy used, a lot of times it makes sense to buy new. A lot of times it is more economically viable, especially depending on the way that you utilize automobiles. So every time you go to buy, I would never default to one answer: oh, I’m only going to buy a three-year-old car. You have to do the assessment every time. But if all you’re saying is that the two-year-old car is cheaper, not knowing what that delta is, cheaper alone is not reason enough to make you lean towards the used car.

Brian: You have to do the math. The biggest thing is: keep your ego in check because cars are one of those things where a lot of people make ego purchases. We have seen situations, Toyota and Honda specifically, where the used one seems like it’s only like $2,000 or $3,000 less than what a good negotiator can go buy new for. Then take that into account. But don’t use this to say, “This is why I have to go load up and get my family a brand new Suburban.” Those big SUVs, oftentimes buying used you can get a much better deal because of depreciation. It definitely depends. There are unique circumstances.

Rebie: You heard it here first. Thank you for expounding. That concludes our rapid fire segment. Thanks everybody for playing. It was fun.

Q&A: Backdoor Roth IRA When Income Increases — How Does It Work? (53:43)

Rebie: All right. We are going to do another question from Tom. Remember that time we got in a fight over a question way back when we started? And a couple times today. Okay, let’s go ahead and hit us up with Tom. He says, “I look forward to this every week, so thanks for that. How does one approach a backdoor Roth IRA when their income increases, and how does that work with preexisting Roth IRA funds? I preordered the book last week.” I love that he sandwiched the question with two compliments. It obviously worked because here we are talking about it. But what do you have to say to Tom?

Bo: Well, let me answer your question in segments. How does the backdoor Roth affect your current Roth dollars? It doesn’t, which is a great thing. There’s no impact on what you have going on. Currently Roth IRA has no bearing or impact on what goes on if you’re going to do the backdoor Roth. What you have to be worried about with the backdoor Roth is any of the other IRAs that you have outside of a Roth IRA and outside of an inherited IRA. Those are the two that don’t matter. The SEP IRAs, the SIMPLE IRAs, the rollover IRAs, any of those: those are the ones that factor in. And if you have those type of accounts and you try to do a backdoor Roth, you’re going to recognize that when you go through Form 8606, it actually becomes a taxable conversion based on the pro-rata rule. So you have to do some account movement, account manipulation. You’ve got to get all of those IRA assets into some sort of a qualified plan, a 401k, a 403b, a 457, some type of account that you can roll that into so that you have $0 in outside IRA assets. And once you do that, now you have the right account structure to be able to start doing the backdoor Roth. Do we have a resource flowchart about the backdoor Roth? That’s probably getting confused with the “what to do with an old 401k at your old employer” flowchart. We do have the downloadable “What to Do With Your 401k.” I think the backdoor Roth flowchart may have been a slide or an illustration in a show a while ago, to be honest. You know what? If you go to moneyguy.com, our search function has gotten so good that if you type “backdoor Roth” in, all the backdoor Roth stuff will just come rushing up to you so you can go do your own investigation. We have spent how many hours, days, weeks, months making sure it works that way. So there’s a lot of content to go through. We’re always iterating and trying to make it more findable for you on moneyguy.com. So always use it as a resource because we are actively making it better for you for this reason.

Brian: As the old guy on the panel here, you know, I notice in our comment section, like whenever we have react videos, everybody tries to figure out the age of the editors because they’re like, “Oh, what generation are you?” One millennial? Two millennials, three millennials, and a Gen Z? Is that right? Okay. All right. So you’re all the better for it, you know. He’s like, “I’m going to spill all the T because the comments are so good when people give the proper credit.” Because the team, the editors, do make sometimes I wonder how they do it. They typically create some pretty awesome content. Wild. We make it very fun. Even if we’re the butt of the joke sometimes. Please keep it fun. Remember, self-deprecation is a good thing. If you’re not self-deprecating, you’re not a good time. Something like that. Well, you heard it here first.

Closing (59:25)

Rebie: Thank you to everybody who asked a question today, both in the YouTube chat and in the Moneyverse Discord channel. We really, really appreciate hearing from you and you are really part of the show. You are making this content with us when you ask these questions. So thank you so much for doing that. We will be back next Tuesday at 10 a.m. Central live streaming, answering your questions some more. And until then, make sure you check out moneyguy.com/resources, which is particularly exciting today because we have a brand new Know Your Number tool. Go check out your retirement number. And remember, instead of continuing to make this a paid course and profiting off of it, we made it free because we’re just crazy like that and we want you to have access to it. So go check it out at moneyguy.com/resources.

Brian: Good show. I felt like we just loaded it up. Free stuff everywhere. Make sure you’re getting that. Get in there. Get that newsletter as well because I love watching that hit the inbox every week on Saturday morning. I’m your host Brian, joined by Mr. Bo, Rebie, and the rest of the content team. Money Guy out.