This 401(k) Trend is ABSOLUTELY DEVASTATING (And Getting Worse)

The 401(k) Trend That Could Devastate Your Retirement (0:05)

Brian: There’s a trend with 401(k)s that is going to be devastating for many, many people if they’re not careful.

Bo: Brian, I am so excited to talk about this because I think this is something that we can improve and something that we can change and something that we can make you guys aware of. It is no secret we love 401(k)s for many financial mutants out there. It is one of the most powerful wealth-building tools that you have in your financial tool belt. And yet there are some people who in our opinion are screwing it up and may not even realize it.

Brian: Why do we love 401(k)s? First of all, free money from your employer. Anytime somebody’s going to prime the pump and give you free money, you’ve got to get in there and get that. They’re also automatic, meaning if you’re trying to make the good habits as easy as possible, there’s not many things that are more automated than setting up a 401(k). I love all the tax benefits, and now that you can do Roth with your 401(k), over 80% of employer plans now offer Roth contributions. There’s just so many things to get excited about. And then to find out that people are just cutting the knees out from this wealth-building opportunity makes me sad.

Bo: Most millionaires that reach millionaire status actually do so inside of their 401(k) account. It’s the first account that gets them into the two-comma club. According to Fidelity, right now there are 665,000 Americans that are 401(k) millionaires. That’s up from 537,000 at the end of 2024 and up from 422,000 at the end of 2023. So things are moving in the right direction. 401(k)s are getting bigger because they are such amazing tools and vehicles. And yet there is this alarming and frightening statistic that exists. I’m actually of the opinion that this probably does apply to financial mutants, because right now, Brian, for every single dollar that flows into a 401(k), 40 cents of that comes out as a premature withdrawal on average.

Brian: It is important for financial mutants to understand this because I think even financial mutants fall into this trap. If you get into moments where you’re trying to cut the corner, we just reacted to a bunch of content this morning where people were using home equity lines to pay for cars and 401(k) loans to buy boats. Silly stuff. So it’s important to cover these things, not only so you guys can be the ambassadors, because I guarantee every one of you has friends and family that are falling into this trap. We can only reach so many people. I’m counting on financial mutants to also use these stats and data points to make sure people are avoiding these traps.

Bo: We’ve seen this with our clients, and by the way, our clients are cream-of-the-crop folks who’ve made good decisions, and even they have fallen into the trap early in their careers where they change jobs and that $20,000 they had in their 401(k) gets distributed instead of rolled over. When you distribute that, you pay ordinary income tax and a penalty. And then there is an alarming statistic taking place that I think has become too easy of a release valve to activate. Right now, 6% of workers in 401(k) plans, according to Vanguard, took a hardship withdrawal last year. There’s a special provision where even though you’re not supposed to be able to pull money out of a 401(k) while you’re participating in it, there’s a carveout that says in case of emergency you can do this. And I think too many people are doing it.

Brian: Context matters here. Pre-pandemic this was around 2%. Now we’re at 6%. It’s gone up every year for the last six years. There are too many people out there who are looking at the piggy bank of a 401(k) and basically robbing their future self of the opportunity. We’ve got to make sure people know to be careful. Some of the tax legislation has made it way too easy. I understand the noble intent behind the narrative, but at the end of the day this will create the ripple effect that you’ll have less money in the future if you’re not careful.

Bo: You’ve heard us harp on this before. We really dislike 401(k) loans. These hardship withdrawals are even more devastating because you’re actually taking the money out. You can think about a 401(k) loan as putting your soldiers on the sidelines. With a hardship withdrawal, you’re actually taking them out of the game altogether. It’s a costlier option over the long term. We talk all the time about the wealth multiplier. We say that for every $1 a 20-year-old invests, it can turn into $88 by the time they retire. But when you flip it around and think about the alternate of that for someone who pulls a dollar out of their 401(k), think about how that magnifies on the negative side.

Brian: We’ve done the math for you. The average hardship withdrawal in 2025 was around $1,900. To put that in perspective, for a 30-year-old, they’re basically taking $44,000 from their retirement for that $1,900. Was that singular cost worth $44,000? For a 25-year-old it’s close to $84,000. For the 20-year-old, so, this is for the cast of Stranger Things. You know, started out as little kids, but they stretch this out so long. it’s $168,000. You can see how the impact of this compounds. You want to keep your army of dollar bills working.

How to Protect Yourself: Emergency Reserves and Avoiding Lifestyle Inflation (7:48)

Brian: So we’ve lamented and shared the trouble. How do people protect themselves? How can you share this with friends and family so they don’t fall in the trap? Let’s avoid the desperate decisions. The first thing you do is be proactive, not reactive. We love emergency reserves.

Bo: One of the top reasons cited for why people pull out hardship withdrawals is not for travel. They say it’s for avoiding foreclosure and eviction, or perhaps medical expenses. Even when the unknown unknowns come your way, if you’re doing the right things, you can stave off that desperation by being proactive. If you have a properly funded emergency reserve with three to six months of needed living expenses in liquid cash, when that medical thing comes or when the job loss happens, you don’t have to go to your 401(k). You have cash right there to protect you when you need it most.

Brian: I know financial mutants fall into the trap of thinking that cash is trash, but you can turn emergency situations into just inconveniences if you have an emergency reserve. Step one of the Financial Order of Operations is getting your deductibles covered. Step four is fully funding that three to six months. If you’re trying to figure out whether three months or six months is right for you, it all depends on how easy it is for you to replace a job and how many people are counting on this money. If you have highly marketable skills, it’s only you in the household, and you have access to other break-glass resources like Roth IRAs, maybe three months works for you. But if you’re the single family income, you have a difficult-to-replace job, or you have a mortgage or really high fixed costs, probably closer to six months. So, make sure you’re paying attention to those things so you can really avoid exactly what we started this thing to close the loop. Those desperate decisions that make huge mistakes.

Bo: And another thing we want you thinking about while things are good and feel comfortable: be aware of lifestyle inflation. Not all lifestyle inflation is bad. We want your lifestyle to increase over time. We want your 30s to look better than your 20s and your 40s to look better than your 30s. So long as you do it inside the parameters. That’s why we have rules like 20/3/8 for buying a car. If you buy a car inside of 20/3/8 or a house inside of 3/5/25, you’re going to prevent yourself from having such a big lifestyle that when something comes your way, you don’t have to start reaching into your 401(k). You did not lifestyle your way out of financial security.

Brian: And don’t get the Financial Order of Operations out of order. You know what happens if you do the Financial Order of Operations out of order? OOF. FOO doesn’t sound the same as OOF. So let’s make sure we get the Financial Order of Operations done in the right order. You too can go download your own copy. Go to moneyguy.com/resources. We’ve done the heavy lift for you. This thing is all-terrain, all-weather. It will tell you exactly what to do with your next dollar.

Bo: Sometimes we just need a reminder. We love that we get to sit here and be that voice of reason constantly reminding you that there is a better way to do money. If you want to be someone who is constantly reminded and you’re not subscribed to the channel, make sure you subscribe right now so you can know when we have fresh new content coming out.

New Resource: The Parent’s Guide to Raising Financial Mutants (12:30)

Rebie: Calling all members of the messy middle — this one is for you. Right now on moneyguy.com/resources, there is a brand-new resource called the Parent’s Guide to Raising Financial Mutants. This is going to help you find a lot of the things that we talk about here and there, all in one place, all about parenting. Everything you need to know about things like being financially prepared to have a child, wealth-building strategies and account types for kids, tax credits, how to teach your kids about money, and more. Go check it out. It’s free, moneyguy.com/resources. And I’m going to be completely honest with you — it’s a very robust free resource. It’s like 15 pages of content. It’s beautifully designed and really easy to navigate. We really just wanted this to be a great place to point parents and members of the messy middle, or anyone who thinks they’re about to enter that stage of life.

Bo: Can I share a real-world thing that happened to me last week? I was in a van with seven other entrepreneurs, and an email came in with our parenting guide right as it released. Somebody asked me a question about kids and getting them excited about investing and custodial Roths. I said, “Let me give you a copy of this parent guide, and let me show you this.” I pulled out my phone, went to moneyguy.com/resources, and pulled up our wealth multiplier. I said, “Okay, how old is your kid? 13? You said he’s got some birthday money. Let me show you what that $4,000 your 13-year-old has could turn into.” And then I went to our compound interest calculator and said, “You said your kid is cutting grass right now. Let me show you what happens if he saves.” Their eyes were just this big. If you have people in your life that you want to get excited about personal finance and want to see the light bulb go off, that is exactly what our tools on the website were built for. I actually did this in real time with real human beings and it was awesome.

Rebie: Shout out to you for living the perfect like example Money Guy scenario.

Brian: Do y’all get a visual though of Bo like adult church camp. Like they’re all in this mini van. They’re all just van riding down. Every time a semi rides by, they’re like trying to get the semi to blow the horn. I just — it cracks me up. I had all kinds of visuals going off there. That’s fantastic. What type of vehicle was it?

Bo: It was like a big touring van, you know what I mean? Where you’ve got — I guess probably 12 seats, but in the back you can put all the storage stuff.

Brian: So is this like a hospitality type van where you know it had leather seats and a big TV up front?

Bo: It was nicer than the van that we took on retreat, but it wasn’t like, you know, it just gets you from A to B like a box truck.

Brian: We basically just told everybody, “Bring your own folding chair and jump in.”

Rebie: You did. You were like, “Don’t pack too much. There’s only so much room.”

Bo: The parenting guide is awesome. Do you recognize how much we can change the world if we begin by changing the kids, the next generation? As I was explaining this to everyone, there was this kind of, “Why don’t they teach you this in elementary school? Why don’t you graduate college knowing this?” If I would have known all this back then — we have an awesome opportunity to do that. I hope that we change the future financial mutants of the world.

Q&A: I Bought a Car Outside the 20/3/8 Rule. What Now? (16:20)

Rebie: First question is from Michael. He says, “I bought a car with 20/6/8 before becoming a financial mutant. I am two years into the loan term. Should I count it as a learning experience and keep the car, or adjust and sell according to the rules?” What if you found Money Guy and you’ve already made some mistakes and you’re trying to back into where you start in the FOO and the car-buying rules?

Bo: Let me reverse-engineer some math here. You said you bought with 20/6/8. So you put down greater than 20% — I love that. The eight, based on the six-year amortization you did, was that it was a fancy car. Now here’s what I don’t know: how close to 8% was it? It could have only represented 2 or 3% of his gross pay. The very first thing I would do is recalculate how much I’m paying on the car if I were going to get it inside that 36-month time frame. He said he’s two years into the loan term. What would I have to do to have this car paid off in the next year, so that it’s done inside of 36 months? And can I do that without going above 8% of monthly gross income? If the answer is no, then I want to start thinking through how much do I owe, what’s the interest rate, should I potentially pay more on it to get it paid off in one month? I don’t necessarily think you have to sell the car. That may be something, but I don’t want you to default to the idea that the only two options are keep the bad decision going or sell it. There’s probably somewhere in the middle that could potentially make sense.

Brian: If you don’t course correct now, you’re basically dragging this bad decision on for another four years. The time lost is what drives me crazy. The wealth multiplier is definitely impacted, and four years is too long. Self-correct as soon as possible. I’ll give you a little grace — if you look at this and think you can’t correct it in 12 months but maybe in 14, that’s something. But if you look at it and there’s no extra money in your budget to get this thing back under 20/3/8, then you might have bought too much car. And if you go through the actual exercise and do the math and triage your situation, and this is what’s keeping you from funding a Roth IRA and actually building your army of dollar bills, then sometimes you have to do some tough love. Part of the hedonic treadmill is that when you have good decisions, you’re supposed to spread those out as much as possible, squeeze every ounce of goodness and dopamine from things like new cars and new houses. But when you’re dealing with bad consumption decisions, cut it off. You’ll get back to your base level of happiness that much sooner if you make the hard decisions earlier, rather than stringing along the hardships that come from getting your financial life in order.

Q&A: What Message Would You Give College Students About Building Wealth? (22:54)

Rebie: Next question is from OG Laminated FOO. “I am a 24-year-old college student preparing a speech for my classmates on financial literacy and the power of compound growth. What message would you focus on to actually help change their futures?”

Bo: The number one thing I would try to get across, whenever I give a speech or a talk, I always think about what small nuggets I want the audience to take when they leave. The big nugget I would want them to take away at 24 years old is just do something. You don’t have to do everything right. You don’t have to get every decision perfect. But if you can just start doing something, the 24-year-old that starts doing something, even if it’s not perfect, is going to be way better off than the person who waits until 30 and does everything perfect, just because time matters that much. If it’s $20 a month, $40 a month, $50 — whatever the number is — just start doing something to begin saving for the future.

Brian: I would remind them of the three ingredients to wealth. Nobody builds wealth without ingredient number one: discipline. You have to live on less than you make. If you can live on less than you make, that creates margin, which leads to having money — ingredient number two. And if you put that money to work with enough time, the most valuable of your wealth-building ingredients is that magical component of time, especially for somebody in their 20s. Compounding interest and compounding growth really is the eighth wonder of the world. Your money can truly work harder than you can with your back, your brain, and your hands.

Rebie: Well, hey, before we dive into our next question, submit your rapid fire questions. Drop them in the live chat. Put RF at the beginning of the question so we know that you want them to answer it in 30 seconds or less. I do have a little twist for it today. So we’re going to try that. Stay tuned. We’ll do a question or two more.

Brian: That’s probably why she was in the office. Instead of sitting in that early content meeting, she’s there. What’s the twist?

Rebie: You’ll find out when we start the rapid fire segment.

Brian: Probably hammering in spikes.

Rebie: Just a little twist, but I think you’ll like it.

Bo: What would you do if she actually brought out the shot caller? She’s like, “Hey, we ordered this.”

Brian: I mean, I’m the one that put on the sunglasses last week and the mullet.

Rebie: I feel like he’s down for, you know, an adventure.

Bo: You know what? After that show, we both donned the mullet and the other accoutrements. Did we put that on socials, Matt? Was that out on social? Yeah. So if you’re not on our social or email list, you miss out on all those little moments.

Rebie: I will tell you our Saturday newsletter has some great behind-the-scenes stuff and all of our awesome financial content.

Brian: On social media they put out the sexiest man alive with me and a mullet. It is now the picture of one of my group threads with all my boys. I go on a golf trip once a year with all my neighbors from Georgia. I love that trip. It’s coming up in like a week and a half, two weeks. Now that’s what they’re totally picking up on. The memes are strong with our marketing team.

Q&A: What Should I Include in a Document for My Spouse in Case I Pass Away? (27:08)

Rebie: Next question from SethMcFOO. “I’m starting a document for my wife with everything she will need to know if I pass, like life insurance, accounts, etc. Any suggestions for how to structure this and what to include? We’re 30 years old in the messy middle.”

Brian: Bo and I just had a conversation about some of this yesterday. One of the things that has been great — let me start with the foundational piece. Do a net worth statement. A net worth statement is magical as a communication tool because it also leaves behind the breadcrumbs of what you have. Now let’s get into the nuts and bolts of how you get access to your accounts if something should happen. We use a password manager. I wanted to make sure my wife could get into all of our primary accounts if something happened to me. And the thing is, everybody’s now using two-factor or multi-factor authentication. What I found is that both my bank and my primary custodian allowed me to add my wife’s phone number in addition to my phone number for security purposes. So now if she were trying to use the password manager to get into an account, she’s not going to get kicked out because she couldn’t pass the multi-factor.

Bo: I do the exact same thing. I do a net worth statement and list out all the stuff we own, all the assets, all the liabilities. I also put on there where they are. So I don’t just have “Roth IRA” — I’ve got “Fidelity Roth IRA” and I’ll even put the last four digits of the account numbers so she has some identifying information to find the right account. I cover all the institutions we use. Where do we bank? Where are our investment accounts, life insurance, where’s the actual policy, where’s the digital record of that? And then I go through it with her. Hey, if I get hit by a bus, who are the first phone calls you’re going to make? Something happens to me — very first phone call, call Brian. And then I kind of work through down that list. I’m the one who navigates the majority of our financial life, and I want her to know how she can get access to everything she’s going to need. It’s all on the net worth statement and on the footnotes page. I go over things like safes and where documents are housed — I make sure she understands how to get in there, what she needs to know, and where everything is.

Brian: By the way, if you’re like, “Oh my gosh, I don’t even know where to start with a net worth statement,” we have a free one. Go to moneyguy.com/resources. And if you want the same one Bo and I use, go to learn.moneyguy.com — we have a net worth tool there. Don’t skip the footnotes page, because that’s where you lay out all the life insurance, the kids accounts, and all the other things Bo was covering. I even have a section for the people we work with — your life insurance agent, your property and casualty insurance agent, your CPA, your attorney who did the estate documents. That stuff is very helpful so you’re leaving behind breadcrumbs. And if you’re ever stuck with a situation where somebody passed and you don’t know what they had, tax returns are a great forensic tool to figure out where all the financial resources and assets are.

Boo: Another silly one that just started happening this past year — I’m helping out a client who unfortunately lost her spouse, and one of the things she struggled with was not knowing all the credit cards that were in his name and the business name. So I just started keeping an inventory: here’s all the stuff we’re attached to, and if something happens, these are all the places you need to go look.

Brian: I put that in the footnotes because I didn’t want to clutter up the net worth statement with credit cards we’re paying off monthly. But that’s actually smart — I need to add that to mine. The password manager would help on that a little bit too, but it’s just helpful to know, okay, there are five cards, here’s where they all are.

Q&A: We’re in Step Five But Our Housing Costs Jumped to 33% of Income (32:28)

Rebie: Next question from TumblerEnthusiast. “My wife and I, both 27, are in step five. An escrow shortage made our new payment 33% of our gross income. Should we move on to step six, or prepay principal to eliminate PMI and drop from 6.5% to 5.75%?”

Brian: There are several reasons housing is hard right now. We even have a show coming up to help people navigate this unique time. Because you’re 27, it’s not uncommon that people stretch things at the beginning of their career, especially with a house. I’d ask you: if you leveled out your income over the next three years, are you closer to 25% then? My pay in public accounting went from an apprenticeship where I wasn’t making a lot to getting big jumps when I got my certifications. I’d be curious if you have something in your career that will help minimize this over time. I’d also ask if other things in your current situation might give you a little grace, like if you live in a high cost-of-living area but have great public transportation and don’t have the 8% going to a car loan. But if you go through that exercise and you don’t have any of that, we’ve got a bigger problem then.

Bo: At 6.5% or 5.75%, neither of those is high-interest debt for a home — I just want to throw that on there. What I’m more curious about is the escrow adjustment. If your mortgage payment was originally inside of 25%, the escrow adjustment jumping it up by 8% seems significant. I’d want to really dive into what changed. Perhaps your insurance got a lot more expensive and caused the escrow underfunding. You may want to shop your homeowner’s insurance. I did this myself recently — the last two years, I shopped all my property and casualty insurance and was able to save thousands of dollars a year. As a result, when I got my escrow notice, I got a refund check and my payment went down. If it went up because your property taxes went up significantly, I’d ask: is that accurate and reasonable? Is that something I should appeal? A lot of people don’t realize that if you’ve received an appraisal that doesn’t match market, you can appeal the property tax record. Say, “You said my house went up in value this much. I don’t believe it did. This is what the tax rate should be.” Try to dive into why it was such a significant increase year-over-year. And then exactly what Brian said — if it’s unlikely you’ll get any reprieve there and your income won’t grow to where it’s affordable, now you’ve got to begin making some decisions.

Rapid Fire: It Does Not Depend (35:60)

Rebie: All right, we are going to dive into our rapid fire segment. The rules are: Brian and Bo have a combined 30 seconds to answer your question and they cannot use the phrase “it depends” or any similar phrases, or their time is canceled. And I have an added twist today — if you can work in a dad joke, a pun, or any kind of joke, you get 10 points. Whoever has the most points at the end of the round wins. At the end, we will let you have our “Maybe It Does Depend” segment where you can explain whatever you didn’t get to say.

Rebie: First question. Have you guys ever second-guessed the order of the FOO? If so, which step was it and why?

Brian: Mortgage debt has been the hardest one recently, just because when we saw interest rates go up to 7%, that hurt a little bit. But Bo and I had a conversation and I felt very comfortable that no, we don’t consider mortgage debt as high-interest debt because you have the option to refinance.

Bo: We also struggled a little early on with how to prioritize Roth versus HSA, and we decided to put them all in the same bucket.

Rebie: Next question. Why is ESPP in step two? Wouldn’t it be bad if the stock went down below the 15% discount? I can put 15% of my pay into this, but it would block a lot of my other savings.

Brian: Remember, on a lot of these ESPPs it’s the lower of the beginning of the quarter or the end of the quarter. So if it went down 15%, you’d probably be the beneficiary of the lower purchase price. And remember, dont’ do OOF, don’t miss the fact that we want you to have a process to where you’re actually turning that money into other investments.

Rebie: Next question. I am 25 years old and recently got married. I have two times my income in life insurance through work, but should I be looking at a term policy as well?

Bo: Oftentimes yes. A good rule of thumb is that you should have 10 times your annual income in term life insurance coverage. That’s a rule of thumb, not a hard-and-fast rule, but that’s a good place to start.

Brian: And let me give you a secret to marriage. Yes ma’am. That was his dad joke.

Rebie: I thought he was going to bring it back to life insurance, but that did not happen. Uh, zero points for that one, but I really respect [laughter] the effort. Thank you for playing along. Next question. What is your favorite step of the FOO and why?

Brian: I like step five. I like the tax-free growth and I like the Armageddon reference at the beginning of that chapter in Millionaire Mission.

Bo: Step seven. Do you know why step nine is afraid of step seven? Because 7 ate 9.

Rebie: Next question. I have access to both a 403(b) and a 457(b). After capturing my employer match, how should I prioritize contributions? How does the 457(b) having a Roth option change the three-bucket strategy?

Brian: Without saying the bad d-word, I would go 457 because you can get access to it earlier — it doesn’t have an early withdrawal age attached to it. And oftentimes 403(b)s also have Roth options. I’d want to see if both your 457 and 403(b) have Roth options, but holding them side by side, I’d lean toward the 457 because you get access earlier.

Rebie: Next question. Do you see yourself ever signing up for a prediction market for entertainment purposes only?

Brian: I had an associate show me the arbitrage you can run on these things, but when I found out how quickly the providers limit your bets when they realize you’re running systems, no.

Bo: Prediction markets are more like gambling to me. It’s not a whole lot different than going to a casino. If that’s something you get utility out of and it’s not causing you to go in a bad direction, that’s fine. But it’s not for me.

Rebie: Next question. What are your thoughts on investing $500,000 from a 401(k) in a private real estate fund? I still have $1.5 million left in my 401(k).

Bo: There’s a lot of nuance there. When you’re using qualified assets and try to invest in private equity, there are some unique things that take place.

Brian: The nuance — I mean, personal finance is personal. We’ll leave the porch light on for you.

Rebie: Next question. If I want to buy a house in the next five years, what’s the best place to put the down payment?

Bo: Cash is king for expenses that are going to happen inside the next five years. If you’re at 60 months out, building up liquid cash for known expenses is likely the best decision.

Brian: Why did the chicken cross the road? To get to the other side.

Rebie: Last one. If you have the full cost of a house, should you put 20% down and invest the rest, or pay in full and invest the would-be mortgage payment?

Bo: Mathematically, you will come out better investing the larger balance earlier because it has longer time to grow. If you’re just going to pay it in full and then invest the monthly payment, it’s going to be very hard for that monthly payment to ever catch the lump sum you invested.

Brian: If you’re under 45, finance it. If you’re over 45, pay cash.

Maybe It Does Depend: Deeper Dives on the Rapid Fire Questions (45:10)

Rebie: That concludes our rapid fire segment. Brian did win with 20 points. Now let’s move on to our “Maybe It Does Depend” segment. Question two, Bo, you didn’t get to finish the ESPP answer.

Bo: ESPPs don’t all operate the same. A lot of folks will choose to invest in their ESPP, take advantage of the 15% discount, buy the stock, and then immediately sell. That’s going to be a short-term capital gain. You pay ordinary income tax on the discount element plus on any gain that exists. But even doing that, you’re coming out ahead because it was free money — it was 15%. You pay ordinary income tax on it but you’re still net positive. If you have a plan where you have to hold the ESPP for a year or 18 months, there could be some risk and you have to assess that on your own. But if you have the ability to liquidate automatically, I’m not as concerned about the stock price because right off the jump you’re going to be in the black.

Brian: The other one was question four about the 457(b). Sometimes your employer will structure it so the match is associated with the 403(b) and the 457 is kind of an additional add-on plan. So if you have a match from your employer, get in there and get that free money first, and then consider switching over to the 457. I don’t want you to miss out on the dollar-for-dollar match just so you get into the better structure for early access of the 457.

Bo: And for the question about 20% down versus paying in full: mathematically, if I had $100,000 to invest versus $500 a month, it’s going to be very hard for that $500 a month to ever catch the $100,000 invested. So mathematically that likely makes the most sense. However, if you’re near retirement or towards the end of your accumulation journey and you have a big portfolio already built up, there’s nothing wrong with paying cash for a house. We have clients do this all the time. But it’s very much situationally dependent on where you are and what your ultimate financial goals are.

Brian: If you visualize the journey to wealth building, from age 20 to 45 is the make-wealth phase, and from 45 all the way to when you land the plane for retirement is the maintain-wealth phase. What people miss out on is this: if somebody came into a windfall of half a million dollars and put it all into the house, and then their behavior never started creating their army of dollar bills, they didn’t really make the wealth. They bought a house. And when you reach retirement, you have to sell the house. I like for a young person, let’s build your army of dollars so you actually make the wealth. So many Americans never actually build the wealth. Now, if you’re 50 years old and came into this $500,000, then yes, let’s derisk. Pay cash for it at that point because the wealth multiplier is also much lower and the opportunity cost is so much lower. What drives me crazy is when I find out a 30-year-old isn’t funding their Roth IRA, isn’t maxing out their 401(k), but they pay cash for a house. You think you’ve derisked, but the risk is that you never built wealth. There’s a balancing act to make sure you build wealth in the background so your army of dollars can help you own your time that much sooner.

Bo: And for the person with $2 million in their 401(k) asking about the private real estate fund — that would definitely depend. I’d want to look at your full financial plan, run Monte Carlo simulations, look at all your goals, and then do the due diligence to find out how the private placements are created. A lot of people are sold off the sizzle of “this is what rich people do.” I’d need to know how much of the managing partners’ and general partners’ own money is in the deal, how much of their mom’s money is in the deal, what the annual operating cost percentage is, and how all of that fits into your own personal goals.

Rebie: That’s good stuff. That’s why you guys are so good at what you do. I like it. All right, we do have time for at least one, maybe two more questions. So, are you ready to dive in?

Bo: Can I share one thing?

Rebie: You can.

Bo: You know what’s really hard about dad jokes. My kids and I — my family —

Brian: This is why Bo had a head start on me. He has books.

Bo: We went on this vacation, right? Just like us. Little state park. It was awesome. It was wonderful. And we ate at Cracker Barrel because we’re awesome. And at Cracker Barrel there was a whole display of dad joke books right there. And my kids were like, “Dad, dad, dad, we want to get all this candy.” I’m like, “No candy.” But they’re like, “Dad, can we get this?” And I’m like, “All right, we’ll get the joke book.” And so we got it. And I love a good joke. I love dad jokes. I think they’re fantastic. My kids also love reading them. And they don’t listen to the show, so this won’t hurt their feelings. They are horrible at delivering. Do you know how bad it is? Like when they’ll read the joke and they’ll say the punch line, but they kind of say it wrong and then I connect the dots on what the punch line was supposed to be and then I’m just sad because they missed a huge opportunity to deliver the joke. We did this all the way from Kentucky to Tennessee. That part was just for free.

Brian: That’s what you’re supposed to be practicing. I know you teach sound inflection with voice and other things. This is the mentorship. You were like seven, eight, nine. That was dynamite. I thought that was actually really good. I mean I was impressed. I was like oh — not worthy. I was really impressed with that because it fit within the Financial Order of Operations too, right? It was good.

Rebie: I mean Bo only took one swing but it was a good one.

Brian: Hey, I’ve done no tangents today. Can I give one tangent? I wore this shirt on purpose because it is Masters Week. I get very excited about Masters Week. That was my tangent.

Rebie: That’s the shortest tangent you’ve ever gone on — that you’re excited for Masters Week. You’re allowed to say that. Love that. Great. All right, let’s go to another question, guys.

Q&A: Should I Be Worried About Being Out of the Market During a 401(k) Transfer? (54:25)

Rebie: Next question from “What’s Up, FOO.” “I’m 35. I have about 40% of my investable assets in an old employer 401(k). If I move it to my new 401(k), the money will be uninvested for about a week. How do you think about this?”

Bo: This happens sometimes. When we move assets, companies will require you to liquidate, cut a check, mail a check, deposit the check, and then reinvest. I have clients ask me, “I’m so nervous about time out of the market.” At the end of the day, it’s a little bit of a coin toss. What if you sell today and the market’s up, and over the next four days the market goes down and then you buy back in? You basically accidentally timed the market in the right way. It could also go the other way. But even if that did happen, if you fast-forward a year, three years, five years, ten years, twenty years out into the future, those four days probably will not have made a significant difference.

Brian: This is noise — not something to worry about. But here’s what you can do to set your mind at ease. Research the actual process so you can create contact points. If you know you’ll have to place a trade to sell, how many days before the check will be sent? You can follow up. Was the check cut on the day they told you? Was it sent? When is it supposed to arrive? You can call to make sure the receiving custodian received it. You can shepherd the process so that less stuff is likely to fall apart. And when in doubt, always try to transfer assets in kind. A lot of times you can request that. If I’ve got a 401(k) at Fidelity and I’m moving it to a rollover IRA at Fidelity, oftentimes if the investment options are publicly traded, they can do an in-kind transfer. You owned the S&P 500 over here — you can just move it over there. It’s a much more efficient way to transfer and minimizes that friction of being out of the market for any period of time. So ask your provider if transferring assets in kind is an option.

Q&A: Can I Use the 20/3/8 Rule for Windows? (57:45)

Rebie: Last question from Home Renault 20-3-8 — and you will see why that is his username. “If windows will be $30,000 to $40,000, more than we would spend on a car and would last longer, can we use the 20/3/8 rule? I’m in step six and over $1.2 million saved, under 40.”

Brian: The 20/3/8 rule is normally for buying a car that you really just need for your family and can’t pay cash for. Just because the $30,000 to $40,000 is similar to the purchase price of a car doesn’t make it the same transaction. That said, I love that you’re a financial mutant creating systems to pay this off in a reasonable time. You’ve built $1.2 million and you’re under 40 years of age. You do whatever you want on paying for those windows.

Bo: There’s nothing wrong with financing home improvements, especially energy improvements like windows. It’s not like you’re putting in a pool. You can determine based on your own financial situation the appropriate way to finance that. Should you finance it over three years? Should you put 50% down? Nothing wrong with that. I love the idea of you doing the improvement and paying it off quickly as opposed to dragging it out over the rest of your mortgage. But don’t expect to see a new slide on the Money Guy Show with the 20/3/8 for windows.

Rebie: You heard it here first. There will not be an official rule for buying windows with leverage.

Closing (1:00:35)

Rebie: Just because we turned the cameras off today does not mean the fun or the personal finance talk has to stop. Go to moneyguy.com to see our full archive of content, plus tons of free resources to help you continue the conversations. A special shout out to our brand-new parenting resource, the Parent’s Guide to Raising Financial Mutants, at moneyguy.com/resources, where you can find that and more for free. We’ll be back next Tuesday live at 10 a.m. Central here on YouTube.

Brian: I want to thank the production team for helping me avoid crisis. We got down to about 2% on the battery. I’m happy to report we’re sitting at 14%. Just like we pulled this thing up, you can pull up your personal finances and live your best life with the Financial Order of Operations. I’m your host Brian, joined by Mr. Bo. Money Guy Team, out.