The 401(k) Numbers Are Lying to You

The Lies Behind 401k All-Time Highs (0:06)

Bo: There are lies and then there are 401k number lies. Brian, I am so excited about this because sometimes a piece of information or a headline or an article will come out and at first blush you’ll think, okay, this is good. This is awesome. But I love that we get to sit in this spot where we get to look behind the numbers and determine: is this actually a good thing or is there some creative accounting going on?

Brian: Well, it’s also the context. Always be careful. Numbers are great. We are big math people, but you need the additional context to kind of know what’s truly going on. And what’s all over the headlines right now is 401ks are hitting all-time highs. That sounds pretty good, but there’s a catch. And that’s what we kind of want to cover today because I want to make sure you don’t fall into a trap of overconfidence. This is not the first time we’ve covered this. It’s just today it’s going to be with 401ks. In the past it’s been on net worth with the FRED data. There are all kinds of behavioral traps that we just want to make sure you’re immune to.

Bo: Yeah. So Vanguard recently released their study. This is the How America Saves 2026 report. They looked at defined contribution 401k balances and what the median balance of 401ks are. They look at this over the course of every year. And what you can see is since 2022, it’s been increasing. Median balance in 2023 was $35,000. Median balance in 2024 was $38,000. Median balance in 2025 was $44,000. So you might say to yourself, “Holy cow, the median balance of 401ks are increasing. That must mean that people are listening to the Money Guy Show. They’re beginning to take heed that they need to save for their future and they’re beginning to save more.” But that may not be the truth.

Brian: Well, there’s also, if you look at this, it’s kind of a curious thing. This is almost more like the Warren Buffett quote of being greedy when others are fearful and fearful when others are greedy. And the fact that you look at this and go, “Wait a minute. Why was it so high in 2021? Why did it get its teeth kicked in in 2022? Man, what a recovery or what a savings strategy in 2023.” And then let us go ahead and let the cat out of the bag. If you overlay the S&P 500’s performance, what do you know? This is less about the behavior of good savings and investing habits and more about just what is going on in the financial markets. And that’s something to be celebrated. Look, I’m happy the markets are going up. But when you find out account values are going up less than what the rate of return is from the general market, we have a disconnect from the behavior of actually what creates the dollars in your bank and in your investment accounts. Now look, don’t mishear us. We’re not saying that we don’t like seeing account balances go up, but we want to be careful that when you see that there was a 16% increase from 2024 to 2025, you don’t think it’s because people have finally realized they need to be saving more. It’s likely more driven by how the market performed. And the data would actually substantiate this. We know that from the FRED data that the national average savings rate across the average American has now dropped to 3%.

Bo: Yeah. And look, an average savings rate of 3% is disgusting. And this is the part that I hate because we’re optimists. I am Mr. Good Time Rock and Roll. But I am one of those people that when I see a troubling trend, and it’s always about the behavior of saving and investing, Americans are notorious for liking to consume and spend. And look, there are industries out there trying to help facilitate that or grease the skids. But I’m here to tell you there’s a better way to do money. You need to actually intersect what your goals are, what your desires are for what you want this money to do. And if you start early and do it often with your savings rate, you can find that actually the heavy lift is just the behavior and the discipline, but the hard work is going to be done by your actual investment dollars through compounding growth. But you are missing it all if you don’t start saving and investing.

Brian: You said that if you start early, it doesn’t have to be super hard. And so you may be saying, “Okay, well, maybe if we think about the average American, maybe we have a younger workforce and maybe this 3% savings rate actually just represents the fact that there are a lot of young people and housing has gotten expensive and inflation has gotten expensive. But maybe it’s okay.” And don’t mishear us: we want you doing something. If you’re going from zero, any sort of improvement is improvement. But even at a young age, even at 20, 21, 22, a 3% savings rate is not going to get the job done. And you don’t have to guess on this. If you just go to moneyguy.com/resources, we have a great deliverable: How Much Should You Save? Even if we took the most optimistic scenario possible, a 20-year-old who discovers the Money Guy Show and starts saving and investing and wants to have a normal retirement at 65, they still need to be saving and investing 6%. So maybe 3% is enough if you work for a company with a dollar-for-dollar match at 3%. But that’s not the majority of people, because we know the typical American doesn’t even discover investing until they’re typically 30 years of age. So that puts you well into the double-digit savings rate. So go with that knowledge and use that knowledge to make you better. And then harness the power of compounding growth. That’s the part that gets me excited: when you get to retirement, if you do this right, it could be 85 to 90% of your account value that is not what you saved and invested. Yes, that was the hard work early that you did, but it’s the compounding growth. It’s the hard work of your army of dollar bills so you don’t have to work so hard with your back, your brain, or your hands.

Bo: So the key takeaway here is that when it comes to building wealth, we want you to not be a passive participant. But don’t mishear us: if you can do this early and if you can get your money working for you, your money is going to be the active part, it’s going to do a lot of the heavy lift for you. But you have to be active in the sense that maybe I just started out, maybe I got my first job, maybe my employer match is 3% and so I’m going to do 3%, so I’m saving 6% total. But maybe next year I get a pay raise or a bonus or I change jobs and I want to increase it from 3% to 5%, and then from 5% to 7%, and then 7% to 10%, and 10% to 15%. If you can just do slightly better over time working towards that 25% full savings goal, then you can write your financial future. I love that we get to sit here. I love that we get to see these articles come out and we get to celebrate the fact that 401ks are hitting all-time highs, but also be realistic that that’s likely more because of market performance than participant behavior. We can encourage you guys to do better. And that’s why we love that every single Tuesday at 10 a.m. Central we can show up right here to speak to the things you care about, answer your questions, and give you our takes on your situation. So if you have a question you want us to weigh in on, we have the team out in the wings collecting your questions because we really do believe that there is a better way to do money. So with that, creative director Rebie, I’m going to throw it over to you.

Rebie: I’m excited to dive into some questions. We’re going to kick it off with DVO6912. He’s first up.

Q&A: When Will Target Date Fund Returns Diverge from the S&P 500? (8:52)

Rebie: It says, “With target retirement date funds, how soon till 65 will people notice their returns no longer match the highs and lows of the S&P 500?”

Bo: Well, you see, it depends, and I get to say that right now. It depends on what target date retirement fund you’re talking about. For those who are not familiar, a target date retirement fund is basically a basket of holdings set to adjust automatically on some specific time horizon. So if you think that you might retire in the year 2045, then you would go buy the target retirement 2045 fund. And we like the index versions of those. What’s going to happen is while we are many, many years away from that target timeline, it’s going to be more aggressive. And more aggressive means it’s likely going to have a higher equity composition than fixed income or risk-off composition. As such, it’s probably going to more closely mirror what’s going on in the S&P 500 or the broad index that target retirement fund is allocating to. But as time moves on and as the allocation gets more and more conservative, you’re going to see more of the risk-on assets get decreased and more of the risk-off or risk-reduced assets increase. As that happens, you’re naturally going to have a larger tracking error between the MSCI All World Index or the S&P 500 index because you’re taking some risk off the table. Now, when that happens in a target date retirement fund depends on which fund family you’re using because they’re not all the same. Fidelity’s are different than Vanguard’s are different than Schwab’s. So it’s worthwhile to go look if you are using a target retirement fund. You should go look at their composition and see if you can determine what the glide path is to make sure that it matches what your ultimate timeline is.

Brian: Yeah. And I think if I was just giving you an answer off the feeling of when will you notice? I think likely probably in your mid-40s. If I was just giving you a finger in the air to tell you where the wind’s blowing, probably in the mid-40s. But that’s probably also because remember there’s the make wealth phase, there’s the maintain wealth phase. And once the portfolio has reached a substantial size where you need to start thinking about the tax efficiency of your portfolio and how you’re going to use this money, because maybe you’re in step seven of the Financial Order of Operations, you very likely will be graduating from these index target retirement funds. And that might be in your late 30s or early 40s. At that point, that’s when I would love for you to consider getting more specific and nuanced with your investment strategy. And that’s probably a great point to take the relationship to the next level. That’s why I don’t like it when 20 and 30-year-olds, who need to be focusing more on the behavior of their savings rate and their investments, get caught up in the noise of all the different crazy investment options. When you just go buy a simple index fund that will accomplish those goals, you don’t have to waste the mental horsepower. You can focus on what really matters and own your time during those periods. But then there comes a point where you’ve reached enough level of success that now you can’t ignore the set-it-and-forget-it anymore. You need to actually take an active role, get into the tax efficiency, get into the asset allocation. There is a graduation point on that. And by the way, with Fidelity, and I’m doing this off memory so maybe they’ve changed this, but it was somewhere around 25 to 30 years in the future. Even though they put different tickers in different years, if you look, the allocations are exactly the same, meaning they only go so far out on the aggressive side. Once you get too far out, 25 to 30 years in the future, they don’t change the allocations anymore. It doesn’t mean it’s the same fund. What it means is they’re going to start in the same place, but the glide path will begin at different time periods. Vanguard, Schwab, and Fidelity are the three biggest kind of providers of index target retirement funds. They all have different risk profiles, and you ought to go look at their different holdings and take an active role in choosing which one kind of reflects what you like.

Rebie: That was great. DVO6912, thank you for the question. Happy you’re here. Can I give two celebrations for our audience this week? First of all, we announced the Millionaire Mission paperback, and I was really proud that once again y’all showed up. We immediately started charting on Amazon as the number one finance book. Pretty awesome. And if you want to be part of that number one book in finance, we are offering some perks if you go and pre-order the paperback of Millionaire Mission. So go to moneyguy.com/millionairemission. If you go pre-order the paperback, you’ll get some special edition, limited edition Millionaire Mission or Money Guy merch, plus all kinds of perks. It’s just a huge thank you and being part of the mission and getting that book to more and more people.

Brian: I know that sometimes we don’t have the razzle-dazzle controversy that puts us on all the lists, and that’s because I remember even when we were bringing Millionaire Mission out, the publicist we hired said, “So what’s your counterculture claim? Because that’s what’s going to make you stand out. That’s what the press is going to like.” And I was like, we just tell people how to be good with money. She goes, “No, you’ve got to have a controversial thing that’s really going to catch the headlines.” And I’m like, we’re good with money on purpose. I don’t want to be the one that creates sensation just for the sake of sensation. And I know that works against us, but that also should give you some peace of mind that somebody’s actually out here trying to help you be better and educate you instead of just razzle-dazzling to get the clicks. Because in this new modern world, sometimes it’s hard to tell: is somebody rage-baiting you or actually trying to help you be better? I can wholeheartedly and I sleep good at night knowing we want you to be the best version of yourself.

Q&A: Got a Raise — Should I Buy a Tesla Now or Pay Cash in a Year? (17:06)

Rebie: This one’s from Bo Hansen Spotter. It says, “Hi, Money Guy team and those in the wings. I got a raise and I’m fighting for the lifestyle creep urges like the Green Goblin is in my head saying, buy a Tesla. Should I give in if it fits 20/3/8 or pay cash in a year?”

Brian: Well, okay, hold on. There’s so much here. For those of you that don’t know, when it comes to buying a car, whether new or used, if you can’t pay cash, because we always love the idea of paying cash, and you need to finance, we like to subscribe to the 20/3/8 rule. It suggests: I’m going to put 20% down. I’m not going to finance it for any more than three years or 36 months. And the total of all my car payments will not exceed 8% of my monthly gross income. Now however, there are two caveats that sometimes we forget to mention. One is that you need to make sure that your monthly savings is greater than the car payment. If you are only saving $500 a month for your future self but you’ve got a $1,000 car payment, you’re likely getting it out of whack. That’s caveat number one. But caveat number two is 20/3/8 does not apply to luxury vehicles. If you’re going to buy the nicer vehicle, if you’re going to get the upgraded trim package, we would argue that paying cash is the best solution, or else you might consider looking at a different car. And so one of the questions we have to ask Spotter is: is a Tesla a luxury automobile?

Bo: They got out of that game, bro. I don’t know if you heard, they closed down the luxury factory. That’s the Model X and the S, so they can start making all the robots. So is Model Y a luxury? Is Model 3 a luxury?

Brian: I think it’s luxury only in the fact that, well, if you’re looking at a minivan, is a minivan a luxury? And I want to get back to the answer because look, what’s funny is we have a great video editor who’s on paternity leave right now and we haven’t heard from him. And then last night he starts sending me messages and it’s all about the Tesla because he had a chance to test drive with full self-driving. And I was like, if the public knew how legit full self-driving was, they would be shocked. Especially if you’re out there buying expensive Mercedes, BMWs, Range Rovers and other things, and it doesn’t drive you home, you’re going to be like, what am I doing? But it does come back to how dire is the need. Because if you have a perfectly good car that’s getting you to work and you could just say wait a year, that probably is going to work. But if every morning you go out there and say a little prayer like, “Lord, if you will let this car crank up and get me to my job,” then you’re probably at the point where this is a need more than a want. I’d also be curious about your current behavior. If you’re already saving 20 to 25% for the future and this is just more of you trying to figure out if you’re going to give yourself this little luxury, then I would say go enjoy yourself and do this thing for yourself. But if you’re somebody who’s not even loading up your Roth IRA yet and you’re out there test driving Teslas, it’s back to: is this a need or a want and how does this fit in? And then the last question: what’s the interest rate your bank is offering? What’s the opportunity cost of how that plays out when you’re laying it against 20/3/8 versus cash? All those things kind of will layer the cake so that you can know the answer that fits your specific situation.

Bo: I agree with everything you just said. But I have a conflict of interest. I like Teslas. Nobody is shocked. I also own Tesla stock. Not that that’s really pushing my decision, but it is something. Well, here was the question though: should I give in and do 20/3/8 or save cash and pay for it in a year? 20/3/8 is really supposed to be this mechanism that allows you to get into transportation. If you have the means to be able to save cash for a year, or even to be able to buy a car and pay it off in a year, I really like doing that. Me personally, I’ve set out to do 20/3/8 a bunch of times and I can never do it. I just don’t like car payments. I am averse to car payments. So if you have the ability to pay cash, that’s where I am going to fall because in my opinion, those cars always drive so much better when they’re completely paid off. Oh well, what about the arbitrage, what about the interest rate? I don’t want to major in the minors. If I can have that car payment gone and one less thing to think about, I think that’s a win. So if you’re in that situation where you can pay cash, I like the idea of paying cash for it.

Brian: And I was just going to say EVs in general depreciate a lot too. So if you buy this, you need to go in with your eyes open knowing this is going to be something you plan on staying with for a number of years. And especially if you’re going to go look at used ones, make sure it’s got hardware four. That’s the thing I always tell people. Don’t get caught up looking at how cheaply you can get into one. If you really want to maximize full self-driving, you need hardware four. One of my buddies has a Tesla, and the computer tells you how much of the time the car has been driving you versus you’ve been driving. I think in the last six months to a year, his car has been driving him 70% of the time.

Bo: Well, I bet in the last two months it’s gotten really good. For me in the last month and a half it’s probably 60-plus percent. I don’t really drive anymore. Wild.

Rebie: Well, Bo Hansen Spotter, great conversation starter. Thank you for the question. Bo, you had a story.

Bo’s Daughter Learns About Investing (23:51)

Bo: Oh, yeah. So we were sitting at dinner the other night and my oldest daughter started this trash can business where she’s making money, and we’ve just been saving it, putting money in a savings account. I’ve taught her about how interest works. So every month I have the statement mailed to us on purpose because I want her to be able to open the statement and look at it and see. And her mind’s like, “Oh, this is incredible.” So I said, “Hey, when your account hits a thousand bucks, here’s what I want you to start doing. I want you to start investing. You know what investing is?” And she’s like, “No, what’s investing, Dad?” And I walked her through it and explained that, “Hey, you can actually be an owner in a company.” And she threw out some stuff. We mentioned Starbucks. “Yeah, you can own Starbucks.” She was like, “What about this, Dad?” I was like, “Yeah, you could own Lululemon.” And so my nine-year-old is sitting right there and she’s like, “Barrett, you have to do this! You have to do this!” And I was like, “Baby, that’s awesome. This gets you excited?” And she goes, “Yeah, are you kidding me? If she owns Lululemon, we can just walk in there and get whatever we want!” Oh my gosh, no. Okay, pause. Pump the brakes. So by the end of this conversation, my daughter was ready to own Amazon, Lululemon, Starbucks, and there was one other one. She had discovered a hack. She was like, “This is going to be the greatest thing in the world.” So I had to walk that back. But she’s so excited because I told her, “Hey, every single month when you make a decision to invest some money, I will match it dollar for dollar.” So you put 20 bucks, I’ll put 20 bucks. I will get her eventually to index funds and the S&P 500, but we’re going to start with me letting her pick some individual stocks just to understand what it feels like to own them. And I’m super excited about that.

Brian: There is a dorky hack you can do. I remember we could probably do content on this: if you want to drink Starbucks forever for free essentially, you basically take the dividend yield, figure out how much it costs for whatever your drink is, multiply it by however many times a month you’d want to go buy the coffee. You can back into how much of the Starbucks stock you would need to buy to essentially make it perpetual as an investor. It’s kind of a fun little dorky thing you could do down the road. I’ll tell you what I’m going to struggle with: she’s thrown out some companies and I’m like, “Oh, that’s not a good stock.” But reality is also, when does the S&P 500 just come in? Because I love the idea of the education, but at some point you’re just buying the market instead. But look, these are building blocks. She’s 11. I’ve got to get her to understand what this is. And here’s what will really happen: I’ll have her pick two or three. Some of them will do poorly and I’ll be like, “Do you recognize that instead of buying this stock that did poorly, we could have just bought the S&P 500, which is like this basket of all the good ones.” I’m laying the groundwork.

Rebie: I feel like this is a monumental occasion because I’ve always heard Brian talk about how he proudly did the dollar-for-dollar match with his daughter. Are you not doing a custodial Roth IRA?

Bo: We’re not overcomplicating it. And why are you not doing a custodial Roth once it’s earned income? Because, and I don’t want to say why. Well, I mean, I’ll say why. In order to be able to do a custodial Roth, you have to file a tax return where you’re showing income. Don’t incriminate yourself. You see what I’m saying? This trash can business, it might be a hobby right now. You know what I’m saying?

Brian: Oh boy. You all heard it. We probably have some listeners out there. I do have one dear client of mine who works for the IRS and I’m going to get an email after this. I’m scared of the branch of governments with the guns, so just be careful.

Q&A: State That Taxes Income But Not Retirement — Does That Change My Roth Strategy? (28:12)

Rebie: Well, hey, I’m going to go to the next question, but first, make sure you get your rapid fire question submissions in. Put them in the YouTube live stream chat if you’re watching live and we will be collecting some questions for Bo and Brian to answer rapid fire style. Just put RF at the beginning and we will know that’s for that segment. But first, we’re going to go to FedEx Pope’s question. It says, “Hi, Money Guy team. I live in a state that taxes income but not retirement income, including Roth conversions. Is there any reason I should use a Roth IRA instead of loading the pre-tax 401k and converting it?”

Brian: Well, okay. So this is not uncommon. States like Georgia, which we know because we live there, will have a large exclusion on state income tax for retirement income, where up to a certain threshold of retirement income you don’t have to pay any state income tax. You’re still going to be taxed at the federal level though. So it’s not like it’s completely tax-free income. So there are still merits. I think what Pope is asking here is: well, if I’m not going to be taxed on that income in the state, why shouldn’t I just save in pre-tax and pull it out state tax-free? It’s only going to be state tax-free, not federal tax-free. But it brings up a good point. You have to pay attention to what your marginal rate is, total marginal rate. And that’s why we always say: you add your federal plus state marginal. If y’all don’t know: there’s effective rate and there’s marginal rate. Effective rate is kind of like, you add up all of your income, you figure out what you paid in taxes, and you do a quick math calculation. That’s your effective rate. Marginal rate is what the next dollar you earn will be taxed at, because we’re in a progressive tax system. So as you’re going up through the different tax rates, you want to know what you’re in and what every next dollar is taxed at, because then you can figure out: is this a high number? Is this a low number historically? Where does this fall? And that’s why we always say: if you’re really young, obviously we love Roth IRA and compounding growth for young people. But as you get older, you might realize in your peak earning years you’re going to be paying 30-plus percent marginal rates if you add your federal and state together. You’re like, “Well, wait a minute. Just because of exactly what FedEx Pope brought to the attention, when I retire, not only is my federal rate going to go down, but now from the state that I live in and retire in, it will be zero.” Think about it: if you lived in a state where you’re in the highest federal tax bracket of 37% and you live in a state like California where it could be up as high as 13%, you could literally be at a point where 50 cents on every dollar you make is getting taxed. But you could potentially retire, move to a state like Georgia or a no-income-tax state like Tennessee, Florida, Nevada, or Texas, and when you’re pulling that money out because you have no earned income, you could be at 10%, 12%, even 20%. So doing Roth conversions at that point makes a ton of sense. That’s why we say 30-plus percent is your marginal rate: maybe you ought to do pre-tax and play the arbitrage when you retire. If you’re somewhere between 25 to 30%, take into account your age and other factors personal to your situation. And if you’re under 25%, let’s go ahead and load up those Roth dollars and really maximize the tax-free growth opportunity right here in this moment.

Rebie: Well, thank you FedEx Pope for the question. We’re going to go to Donald M’s question next.

Q&A: Should I Pay Off the Credit Card or the 401k Loan First? (31:51)

Rebie: It says, “In step three of the FOO, is it better to prioritize a credit card with lower interest of 4% or a 401k loan with a higher interest of 9% first? Given the balances are similar. 401k loans do not show up on credit.”

Brian: Okay. So he’s giving a counterpoint. He’s worried about his credit and he has two different types of bad debt. I know my answer. I want to think about why it’s my answer. Well, it is interesting. Whenever I see somebody say they have a credit card with a low interest of 4%, that means this has to be like a balance transfer or some opportunity that somebody gave them. So this is a moment in time. There’s not a credit card out there with a 4% rate for the next five to six years. Then you get into the argument of: is this step three of the Financial Order of Operations or step nine? But I’m here to tell you: credit card companies will offer you teaser rates, but they’re kind of like mirages. It feels like you’re getting something good, but you’re still trapped in the desert. I worry about credit cards trapping people because they spring a trap where you go from 4% all of a sudden to paying 26%. You’d be like, how did I get here? I think where I’m landing: I would prioritize the credit card. I would pay the credit card off first even though it’s a lower interest rate, because we believe that credit card use is okay but carrying a credit card balance: no way. No matter what the interest rate is, I want you to pay that off. Now, if you’re looking for a mathematical justification: when you’re paying interest to a credit card company, you are paying interest to an outside third party. It’s disappearing. On the 401k loan, technically you’re paying interest to yourself when you pay that back. Now, the bigger issue is the opportunity cost of those 401k dollars being gone. But I’m going to argue: if they’re roughly the same balance, I want you to relentlessly and ruthlessly cut everything out of your budget you can to get out of step three. Because as soon as you get the credit card paid off, the very next step three item would be that 401k loan. I want to see that credit card balance at zero off your balance sheet, and then work on the 401k loan. That would be my recommendation.

Bo: Yeah, because there’s going to be a time certain. Credit card companies are not out there so generous like, “Oh, we like your credit score. Here’s your 4% forever.” Those don’t exist. There are sometimes certain limitations. It’s a teaser rate. It’s a trap waiting to be sprung.

Rebie: All right. Thank you for the question, Donald M. We appreciate you being here. I am just getting ready for our “It Does Not Depend” rapid fire segment where Bo and Brian work together to answer your question in under 30 seconds. They can’t say “it depends” during those 30 seconds. And then if there’s something we really need to get back to, clarify, or make sure we truly educate around, we will follow up in our “Maybe It Does Depend” segment. So stick around for that. Without further ado, are you guys ready for rapid fire?

It Does Not Depend Rapid Fire Segment (35:48)

Brian: Oh, so ready.

Rebie: Let me get to a new screen. We’ll get 30 seconds on the clock. And here is the first question: take a 4% mortgage on a potentially crummy new build or a 6.5% on an older, better quality build. Which would you choose and why?

Brian: I would be careful letting something like an interest rate dictate a lifestyle decision that I’m going to make. For most people, home is the most valuable, most expensive thing you’ll ever spend money on. You want to make sure that you buy something that’s worth the money. Don’t let the interest rate wag the investment dog. It’s too valuable of an investment for you to choose based just on the interest rate.

Bo: Look, I chose my first house because of the square footage. Didn’t think about distancing and commute and it hurt me.

Rebie: Love it. Next question. “My wife and I are in the final steps at 55 and will retire in the next few years. What should we be focused on to retire into our best life?”

Bo: What do you like to do outside of work? So many people focus on the dollars and cents and don’t think about what they’re actually going to spend their time doing. So don’t go beyond just travel and golf and the fun stuff. Think about what are actual hobbies and things you’ll be doing to occupy your time.

Brian: Yeah. Most people have a very clear idea of what it is they’re retiring from, what it is they’re leaving. We want our retirees to have a very clear idea of what they’re retiring to. How am I going to spend my days the rest of my life? And how can I use my resources to allow me to do that?

Rebie: Well said and right on time. Next: “You talk about HSAs a lot, but not FSAs. HSAs aren’t possible for everyone. Are FSAs worth exploring?”

Bo: Sure. FSAs are great. For those who don’t know, an FSA is a flexible spending account. You defer some money from your paycheck to pay for medical expenses. But in most circumstances, you have to use it all by the end of the year. It’s use it or lose it. The reason we like HSAs is they can be invested for the long term. FSAs are short-term, temporal, intra-year solutions.

Brian: Yeah. Flexible spending accounts: if you know you’re going to do LASIK in a coming year or you have a procedure or other things, I love the fact that you can be proactive with using it, but it is use it or lose it. So keep that in mind as you plan.

Rebie: A financial advisor question. It says, “Our financial adviser has the majority of our funds in money market. We max both Roths. We’re married. Minimum to get the 401k match. We’re in our mid-20s with extra money past current investments. Should we move more into brokerage for ETFs?”

Brian: It’s difficult to give specific investment advice. One thing I would say: if you have a big portion of your portfolio in money markets inside of retirement accounts, that’s likely not going to be the best solution for you. You may want to consider looking for a different solution. A great place to go look for that solution might be aboundwealth.com/become-a-client. In your 20s, if you’re decades from touching those assets, I want those army of dollar bills working, not trapped in cash. Cash is primarily for emergency reserves and keeping your life out of the ditch when you’re young.

Rebie: Next question. “Should I file jointly with my wife? I can contribute to my Roth IRA without doing a backdoor, but we wouldn’t if we filed together.”

Bo: No. Now, I need more details. I’m about to be out of time on the jointly versus single. It doesn’t necessarily work that way. I would not let the Roth decision drive whether you file jointly or separately. What I’d do is have your accountant run it both ways. Here’s your tax burden if you’re married filing jointly. Here’s your tax burden if you’re married filing separately. And determine which one’s most advantageous for the household from a tax cost standpoint.

Rebie: We’ll come back to that. Okay. “What step of the FOO is buying the paperback of Millionaire Mission a part of?”

Brian: Ground rule, baby. Yeah, that’s a great one. Look, we all need an instruction manual. You don’t try to assemble IKEA furniture without an instruction manual. Money is the same way. It’s the whole reason it’s called the Financial Order of Operations. Just like you have to follow “Please Excuse My Dear Aunt Sally” to solve a math problem, you need to do the same thing with your finances. Where can they go get Millionaire Mission right now if they want a copy?

Bo: I would go to moneyguy.com/millionairemission. It’ll list all the retailers. And if you do it right now, it’s a pre-order and you get perks.

Rebie: Okay, over 30 seconds. Next question. “Is there ever any reason to use mayo or sour cream when making mashed potatoes when butter and milk are so perfect?”

Brian: It’s all of the above. I mean, I actually use every one of those things. I love making mashed potatoes. Mayo and sour cream. I don’t use mayo. I use sour cream though. I’ve used sour cream in my mashed potatoes. I like buttermilk too. I put it all in there.

Bo: I don’t put mayo in mine. Like, as while you’re making it?

Brian: While you’re making it. That’s why when you go to restaurants, you notice the garlic mashed potatoes or sour cream. It adds a little extra. You’re like, “Man, why isn’t my stuff at home as good?” Because they put stuff in it.

Bo: Never made mashed potatoes. Couldn’t tell you how. I’d assume you mash potatoes, but outside of that, no idea how to do it. How much butter?

Brian: Four sticks of butter. I don’t know. One stick of butter? How many potatoes do you need? I have no idea. We should do a vlog where Bo makes mashed potatoes and swims.

Bo: Why are you throwing darts? I can swim. It’s just so easy, basically. Okay, let’s move on to the next rapid fire question. There’s the photo of Bo swimming. Legend.

Rebie: Legendary. Oxygen to my lungs. Next rapid fire question. “Should someone who’s in a high tax bracket but young still use a Roth 401k instead of traditional in the expectation that tax rates might be a lot higher in the future?”

Bo: Without knowing more about your circumstance, we don’t think it’s either/or. We think it’s a both/and. We love you doing pre-tax if you’re in a high tax bracket, but then structuring your accounts in such a way that you can do things like backdoor Roth, because odds are in the future you’ll have an ability to convert Roth dollars at a lower tax rate.

Brian: Yeah, that’s a big ditto. I want you doing both. Take advantage of the tax arbitrage on the 401k, but then make sure you’re backdoor Roth-ing. You’ve got to have the right structure. The new verb: backdoor Rothing.

Rebie: All right, last but not least. “Hey, Money Guy team. I’ve inherited an IRA and I need to withdraw down to zero in the next six years. How should it be rebalanced if I’m trying to draw down an equal portion, one-sixth each year?”

Bo: Well, is that a personal choice? That’s the first question. Why are you choosing that? Because you could defer it for the six years. And I need to know more details. But I would think if it fits into the overall allocation, I wouldn’t get too cute trying to adjust the allocation because in most circumstances when you take those distributions, if you’re just going to reinvest, your allocation can stay true inside the IRA to outside the IRA. I don’t think you have to overthink it.

Maybe It Does Depend Segment (43:42)

Rebie: Good thing is, it’s time to go to our “Maybe It Does Depend” segment, where now that we’ve answered rapid fire, we will go back and make sure we’ve said all that needs to be said.

Brian: Look, on an inherited IRA: if it’s a small balance, there are no tax consequences when you have to sell to make your annual distribution. So if it’s a small balance, I would just have it in the holding and then when I take my annual distribution, fine. But if it’s a large balance, then you could build that into the asset allocation and distribution plan. What’s the minimum you have to take and what’s the opportunity for growth? Don’t skip out on that planning method either.

Bo: Yeah. I don’t think I would try to have it be a standalone allocation inside the inherited IRA, because unless you’re using these dollars for paying for your expenses, meaning you’re an older person at financial independence, I would have the allocation there match your total allocation, not individually standalone. And then you just take the distribution and redeploy. Take the distribution, redeploy. I don’t think it has to be more complicated than that.

Brian: So we had a couple more to talk through. One was the young couple who had the majority of their funds in money market. They have a current financial adviser. Red flags. Ding ding ding ding. If that’s not your emergency fund, that tells me that your financial adviser is likely trying to time the market, or you hired a financial adviser too early. If all of your capital is in emergency reserves because that’s where you are and you’re just beginning the journey and you hired somebody, that’s one thing. But if this financial adviser, assuming you have an emergency fund, is trying to time the market, hey, “We’re going to build up cash and when there’s an opportunity, markets are at all-time highs, we’re going to build cash and redeploy it,” my opinion is that’s a losing proposition. I would rather try to, instead of beating the market, be the market and just load it up and dollar-cost-average into the index funds.

Rebie: That was good clarification. And then another one was about should I file jointly with my wife and there was the backdoor Roth consideration.

Brian: Look, most of the time it’s going to make sense to file jointly because the tax code is written in a way where it basically splits it. The reason you don’t typically file separately is there are unique situations where maybe your spouse has horrible credit, they made horrible decisions, and people are calling at all hours, and you’re like, “I don’t want to be attached to that.” Or, you know, they’re doing criminal activity and you don’t want to be attached to that. I’m just giving you reasons you typically separate. But for the lion’s share of people, you’re going to probably file a joint return unless there’s something you’re trying to avoid. And because they were saying they qualify most people with their contribution on their single income to do Roth but when they went married they no longer qualified, that’s letting the tail wag the dog. I would not let that be the driving factor. I would figure out if you could do account structure and do backdoor Roth by doing traditional IRA contributions non-deductible, and then if you have the right account structure, you can convert it into Roth. The other situation I’ve seen: deductibility of student loan interest. I’ve seen that before where spouses might file separately. But it’s not about any one thing. You have to look at the entire tax picture together and figure out: collectively, if we’re married filing jointly, what is our total tax burden? Or if we’re married filing separately, what is our total tax burden? And in most circumstances, you want to go with the lowest tax burden. Most tax preparers, it’s just a click of a button assuming they did the data entry right. Most tax software you can just click a button saying, “Hey, run this as separate versus joint and let me know the differences in taxation.” Well said.

Rebie: All right. That completely concludes our rapid fire segment. We’ve got time for a couple more questions. I’d be curious: did anybody put what our counterculture move or what we do differently is?

Brian: There were a few thoughts. One was: not having an aggressive counterculture thought is counterculture right now. I was like, respect. Somebody said saving 25% of your gross income, that’s a counter truth. I will say that is, I guess. But then I mute it down because I say that counts your employer match. Even we’ve had content friends who’ve done content picking on 25%, but I think if you find out most employers are doing 3 to 6% matching, all of a sudden you’re below 20% and you’re like, oh, maybe it’s not as crazy as it sounds. We’re just showing you the math. And it used to be counterculture that we in a lot of circumstances prefer 30-year mortgages over 15 and we say 3 to 5% down payment on your first house as opposed to 10 or 20. That’s a little bit counterculture. Also, we say you shouldn’t pay off your house early a lot of the time. Yeah. That’s kind of interesting. It’s fun conversation. It helps us with marketing because we’re just trying to help you be better, not be sensational.

Q&A: If You Win the Lottery, Does the FOO Still Apply? (50:22)

Rebie: All right, we do have a final question. This question is from JQ42. It says, “Shower thought. If you win the lottery, does the FOO still apply or does income that year prevent you from contributing to Roth IRA and other stuff? Does the FOO still apply if you win the lottery?”

Bo: Well, let’s assume for a second you don’t win the lottery. Let’s assume that you get a big bonus, or you sell a big asset, or something happens where there’s a windfall in your financial life. What likely happens when those things take place is you’re going to move through the Financial Order of Operations much much more quickly. If you have a huge sum of money, you’re going to go through and say, “Okay, where’s my emergency fund? Do I have a deductible covered? Yes. Am I getting my employer match? Already done. Do I have all my high interest debt knocked out? If I have it, go knock it out. Is my emergency fund fully funded? Great. Now, Roth HSA, can I max that out? Can I max out the HSA? Am I on a high deductible? Can I do the Roth? Can I do a backdoor Roth? Then to the 401k, then to step seven, then to step eight, then to step nine.” You likely might just run through the FOO in a very compressed timeline, but I would argue it still applies. It’s still going to be a checklist for what to do with your next dollar. It’s just that now if it was a million dollar windfall, when you pay off the $30,000 of credit card debt, now it’s $970,000. When you load up the emergency reserve with $40,000 or $50,000, now it’s all of a sudden $930,000. When you do the Roth for you and your spouse, you’re going to end up down to about $910,000. And then when you max out the retirement, you’re going to run through the steps and you’re going to have about $900,000 left. And then you’re probably in step eight going, “Is this when I kind of reward myself with a lifestyle choice?” Now, you don’t go crazy because you don’t want to be a typical lottery person that turns into a statistic where you went and bought too big of a house. Do something for yourself, but just don’t get hog wild with it to where you’re like, “How did I go and blow through this money and now I’m back to being broke?”

Brian: You want to tell them our windfall rule of thumb? It’s 10%. Windfall, right? Like, in our practice, as we’ve seen this with clients, you get a big windfall. Maybe it’s an inheritance, maybe you sell a business, maybe you sell a piece of land, there’s some other capital transaction that takes place. We always try to encourage our clients: hey, chisel off 10%. Let’s call that blow money. I don’t care. Like, hey, 10% if I get a million dollars is $100,000. I’m going to spend that on the thing that maybe is not the best financial decision. Okay, I’m going to go buy the boat, or I’m going to do the renovation, or we’re going to go on the trip. I think it’s okay so long as you make sure you cordon off that 10% and don’t let the 90% begin bleeding into the 10%. Get it out of your system. You’re essentially blowing the carbon out of the system. And what’s really the problem is the lifestyle you create for yourself that’s not sustainable. That’s what you often hear. I think it’s a Morgan Housel quote: when people say they want to be a millionaire, they really don’t want to be a millionaire. They just want to go spend a million dollars. And that’s why lottery dreams typically end up broke. Because they don’t have the skill set to know how do you actually maintain and build and keep and be a creator of wealth versus just a consumer of the money you inherited. Spending a million dollars is literally the exact opposite of being a millionaire. But that’s what people daydream about when they have lottery dreams. They usually daydream about how they’re going to spend the money, not how you maintain it and keep it. Well, good thought, JQ. Thanks for the question. Also, first thing if you win the lottery: go to aboundwealth.com/become-a-client. Reach out. We’d love to help you navigate that well.

Bo: Do we have any lottery clients? We’ve had a few that have hit some big jackpots, but none of them turned into clients. I think because when we sit across from someone who’s thinking about hiring us, we try to be really good about not telling them what they want to hear. We want to tell them what they need to hear. We’ve done this before. Somebody will sit down with us and they’ll be like, “Yeah, I’ve got a million and a half dollars saved up for retirement. I’m going to retire next year.” Like, awesome. Great. How much do you spend a year? Oh, well, my income is probably around $250,000. We kind of spend that a year. And we’re like, “Oh, that’s going to be a problem.” We want to help people make wise decisions, but also be realistic about where they are and what their money can do for them. So that’s why we haven’t landed the lottery winners.

Q&A: Does the FOO Apply at Any Income Level? (56:07)

Brian: And the original question was, does the FOO apply? A lot of people who win the lottery don’t have any financial backing. So the Financial Order of Operations is a great place to start just to get acclimated with how should I be making these decisions, where should my mind be as I think about how to navigate this. It transcends all wealth levels, all experience levels, all knowledge levels. It really is. We think of it like an all-weather Swiss Army knife. That was my first thought: yeah, follow the FOO. Let’s do one more though. I don’t want everybody to think we filibustered out of one more question.

Q&A: Getting a Pilot’s License as a Career — Should I Feel Guilty? (56:43)

Rebie: Let’s see if we can get a few more in. Donald H does have a question for you. He says, “I’m 24 years old with a wife and a kid, on an $80k income, and we are at a 25% savings rate.” That’s really incredible. First of all, so good job. He continues to say, “I’m working towards getting my pilot’s license to make a career.” Oh. Oh. Oh, career.

Brian: Did you see the emotional roller coaster? I wasn’t sure what to think on this question. I saw “career” and I was like, “That sounds great.” And the question is: should I feel guilty for using most of our extra dollars towards this?

Bo: If it were a hobby, if you’re like, “I just want to go fly.” Well, first of all, why do we say you should save 25%? Because we want to free you up from guilt above and beyond 25%. If you’re saving 25% for your future, building towards future financial independence, what you do with your next dollar, you get to choose. That’s why we love that number. It lets you spend guilt-free on those things. And so if one of those things is becoming a pilot and getting your license, I’m okay with that. And I think even in this, it’s kind of interesting. You’re not so much doing it because it’s a hobby or a pastime. It’s something that you vocationally want to do. I consider that as like an additional investment in your future self.

Brian: I agree, with one asterisk: wife and a kid. Just make sure this is not you throwing your will around as, “Hey, I asked this question on the Money Guy Show, they agreed with me.” Meanwhile, your spouse is upset that they’re using old towels and not going on vacation. Because money is only a tool, and I don’t want you to exert the power of “they came on here and asked this question.” It needs to be a little bit of a discussion. Make sure everybody feels heard in the marriage as well.

Bo: Love that. Well said.

Closing (58:45)

Rebie: Well, time is up and we do have to move on to the next thing. But you watching or listening don’t have to. You can go to moneyguy.com/resources to take advantage of all of our free stuff: downloads, calculators, plus courses, tools, an archive of past episodes. So please take advantage of that. We made that for you. And remember, if you want to pre-order Millionaire Mission on paperback, go to moneyguy.com/millionairemission. Be sure to take advantage of the pre-order perks that are live this month as a big thank you for helping us on our mission of getting great personal finance ideas to as many people who need it and who will listen.

Brian: You crack me up, Bo, because I mean we are so bad together. Bad and great at the same time. It reminds me of the last time we had the SEC do an inquiry with us. Our compliance consultant was like, “Hey, when we get on this phone call, I just ask one thing of you guys: don’t whisper, because they can hear you.” And then while Rebie is going through things, Bo’s over here whispering. And by the way, first of all, I’m old enough that I can’t hear anything. If you’re not talking directly to me, I can’t hear. I got a little chuckle thinking about that phone call because we got off with the SEC and she was like, “I told you guys not to whisper. We could hear everything y’all were saying.” By the way, it’s all fine. There was nothing we should have been embarrassed about. It’s just Bo and I can’t help but talk to each other when we’re in a room together. But I love what he was whispering about because we had a little B-roll moment that ran by. We had it show all the tools, all the things. Please take advantage of the free stuff. We really do want to invest in and love on you to where you come here, learn, apply these concepts, grow, take advantage of all the free stuff we’re doing, because we know if you do this right, the payoff comes when all these simple behaviors create the success that leads to the complexity that you go, “Man, now this seems much more complicated than I could have ever imagined. I don’t know what I don’t know.” And it seems like instead of me doing this in a novel approach, this is my one time through. Let’s find somebody who’s done this literally thousands upon thousands of times. That’s when we’ll leave the porch light on. We work with people all across the country. I’m your host Brian, joined by Mr. Bo, Rebie, and the rest of the content team. Money Guy out.