Do You Think You’ll ACTUALLY Be Able to Retire?

Transcript

On this episode of the Personal Finance Podcast, do you think you'll actually be able to retire?

What's up everybody, and welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of MasterMoney.co. And today on the Personal Finance Podcast, we're going through the question: Do you think you'll actually be able to retire? If you guys have any questions, make sure you join the Master Money newsletter by going to mastermoney.co/newsletter, and don't forget to follow us on Apple Podcasts, Spotify, YouTube, or whatever podcast player you love listening to this podcast on.

And if you wanna help out the show, consider leaving a five-star rating and review on Apple Podcasts, Spotify, or your favorite podcast player. Now today, we're gonna be diving into the question, hey, do you believe that you will actually be able to retire? And in the second half of the episode, we're also gonna answer a couple of your questions on the Q&A portion of questions listeners have sent in.

We'll be answering those as well. But before we dive into this episode, I just have a quick announcement that we are taking on a small handful of people for one-on-one coaching. If you are interested in one-on-one coaching, you have to make $100,000 per year, or you have to have at least $100,000 to invest.

But if you are interested in that, feel free to shoot me an email, andrew@mastermoney.co, and we can send you back the application to see if you are a good fit. All right, so today we're gonna be talking about do you think you'll actually be able to retire? Now, SoFi did a survey, and they did a survey back in July that was looking into people's traditional retirement goals and what they actually want to achieve with their money.

And there has been some interesting stats that have been coming back onto this survey specifically, because I think there's a lot of different financial goals that are telling for a lot of the country right now. And many young Americans still want some of those traditional American Dream financial goals to be achieved, yet they don't know what to do next.

And so in this episode, I'm gonna dive into some of the interesting parts of these stats, and I'm also gonna talk through how I would achieve some of these goals if I was either, you know, in my 20s, my 30s, my early 40s, or even, you know, anybody else who has some of these goals in place. We're gonna be talking through some of this stuff.

Now, I want you to know something right now is if you set financial goals and you actually have a system to achieve them, I promise you, you're gonna be able to achieve those financial goals. But if you're someone out there right now who is saying to yourself, "Well, I don't know if I can achieve it, and I'm just gonna try to throw mud on the wall and see if it sticks," that never, ever works when it comes to your finances.

I don't care if you're type B with your finances, you still have to systematically try to achieve some of those financial goals. Now, we have a system and a course inside Master Money Academy that we call Master Your Money Goals, and it's simply this. It's simply, hey, let's write down our goals and make sure we have those in place, and let's set up a system in order to make sure that we can accomplish some of these goals.

And so I want you to know that I want every single person out there to have the ability and the confidence to be able to achieve some of their goals. And so today, we're gonna dive into a few of these. All right. First is that young Americans still want some of the traditional money goals. Well, what are some of the traditional money goals?

Well, the study came back and showed that goal number one was to be to own a home. 67% of Americans still aspire to own a home, and 62% of them are confident that they will be able to own a home. So only 5% are still-- don't have the confidence that they're going to own a home, even though they want to own a home.

Another interesting stat was being debt-free. 63% aspired to be debt-free, but only 55% believed they will actually be debt-free. And I think that's an interesting statistic. So some people believe that they will never be debt-free Never in their entire life. That's not what I want for each and every single one of you.

I want you to have the confidence to know that you can be debt-free, that you can do whatever you want in your life. Third is 62% want to retire comfortably, but only 46% believe that they can. Now, I think retirement had the largest confidence gap by far, and fewer than half of millennials and Gen Z actually believe they'll be able to retire comfortably.

So we're gonna talk through some of these different statistics here today. We're gonna dive into how to achieve some of these things and some of the things that you may not have considered if this is part of your goal. All right, so perfect. The first one is only 46% of people think they'll retire comfortably.

Now, why retirement feels less attainable for a lot of people is a number of different things. Number one is if you are younger, it feels pretty far away, and so a lot of people try to push things that are far away out of their mind. I have friends, I have family members who seem as though they have not thought about retirement a single time.

They have not thought about how much they would spend in retirement. They have not thought about, you know, how they would retire. They have not thought about the ways they are going to invest for retirement. And I'm gonna tell you right now, starting as early as possible means that you will have the most comfortable retirement of anybody in your circle.

If you wanna be comfortable retiring, you need to start as early as you possibly can. Now, many of my listeners are in their 30s and 40s, and if you are in your 30s and 40s listening to this and saying, "Ah, it's probably too late, I didn't start early enough," that is absolutely not true. You can absolutely transform your finances pretty quickly.

But if you're in your 20s, my friend, you have the golden egg. You have the ability to be able to use time, and that is the, your most valuable asset when it comes to building wealth. Next is most people don't know their retirement number. Now, I am a big proponent of making sure that you review your retirement number on a yearly basis.

This means every single year, you calculate your retirement number, have an understanding of what that number is, and you can make micro adjustments year in and year out. So let me give you an example of this. Let's say, for example, you decide, "I wanna spend $120,000 per year in retirement. I feel as though that would be comfortable for me."

Well, then you just do the math. Hey, what's the 4% rule? Or you can multiply it by 25, the amount that you wanna spend every single year. So $120,000 times 25 means that your portfolio would need to be three million dollars in order y- for you to be financially free. Now, that's quick back of the napkin math.

There's other nuance that needs to come into play, but that is just a quick way to kinda think about this. Now, every single year, if you track your retirement number, all of a sudden you only have to make micro adjustments On a yearly basis instead of having to take big old swings when you track it every 10 years, or five years, or whatever else.

And so this allows you to just turn up the dial slowly, or turn down the dial slowly without having any stress or worry. So I recommend every single year folks track their retirement number so they can have an understanding of where this needs to be. Now, we're gonna do a deeper dive episode on your retirement number and some of the things to consider, because there are things like healthcare, there are things like Social Security, there are things like pension funds, there are things like additional cash flow that you may have coming in that is going to help you calculate this number.

Maybe you get an inheritance down the line, who knows? But there are things that are gonna help you get more accurate depictions of what this number is that can help you as you start to plan this on a yearly basis. And then what my plan to do is, is for everybody in the Personal Finance Podcast and the Master Money Community, we all track our retirement number on a yearly basis.

Maybe we do it in the same month every single year so that we can all report back, "Hey, my retirement number was tweaked, or adjusted, or came to this," and that could be something I think would be super, super important. So The easy way to think about this, back of the napkin math, but this is not perfect and we will dive deeper into how to make it a little bit more accurate, would be, hey, what's your yearly spending in retirement?

If you wanna spend, you know, forty thousand dollars per year, that's a million bucks. If you wanna spend sixty thousand, that's one point five million. If you wanna spend eighty thousand, that's two million bucks. If you wanna spend a hundred thousand, that's two point five million. You get the picture there.

So every million dollars, you can spend forty thousand dollars per year conservatively, and that's pretty conservative. The four percent rule has been proven to be something that is extremely conservative over the course of the last couple of decades, and so that's something we can dive deeper into.

Social Security, pension money, all that stuff would reduce the amount that you would need inside of that portfolio. So let's say, for example, you started to invest five hundred dollars per month. Well, if you started investing five hundred per month at age twenty-five with an eight percent rate of return, by age thirty-five you would have ninety-one thousand dollars in that portfolio.

By age forty-five, you would have two hundred and ninety-five thousand dollars in that portfolio. By age fifty-five, at five hundred dollars per month with an eight percent rate of return, you'd have seven hundred and forty-five thousand dollars in that portfolio. And by age sixty-five, you would have one million seven hundred and fifty thousand dollars.

Well, this is a great position to be in if you just do that over that timeframe. And the total amount that you would've contributed would've been two hundred and forty thousand dollars, and the growth would've been around one point five million dollars, which is roughly eighty-six percent of the ending value is actually the growth.

And so even if you're young, small amounts of money over time can grow to very large amounts of money. And more than half of that ending balance would be showing up in the last decade. Wow, isn't that cool? So when we think about compounding, one of the interesting things about compounding is it begins to accelerate.

It begins to really, really accelerate the longer your time horizon. And so in this instance right here, the example I just gave, five hundred dollars per month for someone who is starting at the age of twenty-five, so over the course of forty years, the last decade from year thirty to year forty, is where over fifty percent of the returns came from.

And I think that's super interesting when you look at some of this stuff when we think about compounding. So if you are trying to get started, look at five hundred dollars per month. That could get the ball rolling. Rolling. All right, the second statistic I wanna dive into is young adults are optimistic about homeownership.

And in fact, I think this survey was interesting because it was more optimistic than originally anticipated. I think the housing market right now is in chaos. In reality, at the time I'm recording this, interest rates are at an all-time high. Now, this is something that when interest rates are this high, many times I would probably avoid buying a house during that timeframe because if it's above a 7% interest rate, I mean, if we're looking at high interest debt just to get into a home, well, we're gonna be paying significantly more than someone who got into a home, you know, in 2020 during those COVID interest rates.

And so you can see how big of a difference this could be. But 67% aspire to own a home, and 62% feel confident that they will achieve that goal. I think that's reassuring for the country. I think that's reassuring for how people are thinking about housing. But we gotta make sure that we understand what makes buying harder today One is those higher mortgage rates and the rising prices.

Prices are very high, mortgage rates are rising, and so because of that combination right there, it becomes very expensive to own a home. In fact, owning a home right now or buying a home is a luxury. You've gotta be making some pretty good money in most places of the country in order to buy a home. Why?

Because you still have to factor in a lot of the other maintenance costs that are associated with the home. Let me just give you an example right now. I feel like every time I talk about houses, I say, over the course of the last month, I have had a ton of different expenses when it comes to repairs on my home.

That's because they never end. It feels like every single month, a new repair pops up. I've had to repair a number of different things over the course of the last month, in addition to other stuff that I've had to do around the house. And so the amount of maintenance costs that are associated with a home, you gotta factor that in.

It's called total cost of ownership. If you've never done total cost of ownership, it is one of the most important calculations that you need to look at before buying a house. This means it's factoring in things like maintenance costs, things like repair costs, things like capital expenditures, things like insurances, things like your taxes, and every other piece of owning a home.

All of those different areas are gonna be really important, and if you don't run the numbers on your biggest purchase overall, you could make a massive mistake that could cause you to become house poor. I don't want you to become house poor. Nobody else wants to be house poor because then you're stuck inside your house and you can't do anything all day.

You do not want to be house poor. It is going to drive you backwards when it comes to your ability to build wealth, and it's gonna rob you of your financial freedom. So you gotta be very careful when making home purchases. Homes have only appreciated, if you look at the Shiller Index, they've only appreciated anywhere from two to four percent over the course of the last couple of years.

If you look at the difference between that and the S&P 500, it is a very big difference. We just did an entire episode on that last December, so you can check that out as well. We will link that up down below in the show notes, comparing the cost of owning a home versus investing in the S&P 500. Plus, insurance costs are rising, so those costs are, uh, gonna be associated with your home and with your vehicles and everything else in between, but insurance costs are rising every single year, and I think it's really, really important to make sure that you think about that.

Now, across all ages, Americans are about twice as likely to call the ability to enjoy life a marker of financial progress as much as owning a home, so fifty-nine percent versus twenty-seven percent between those two. So the goal before you buy a house is you wanna make sure that you have financial solidity, a foundation in place before you can buy a home.

What does that mean? Well, one, you need to have a six-month emergency fund in place. Not three months, not two months. If you own a home, you need a six-month emergency fund in place. Two is your high interest debt needs to be paid off. You need to have zero high interest debt whatsoever because adding additional liabilities to your balance sheet in addition to having owning a home can be very detrimental and, and cause you a lot of stress and anxiety.

Three is you wanna have the down payment saved. Now, if it's your first home and you wanna take out a FHA loan, I have no problem with that. If you wanna put 5, 10, 15% down, I have no problem with that either. But if this is your second home and you're kinda rolling it into your forever home, I would like for you to have 20% down because it helps significantly, A, with the payments, B, but it also helps you long-term in terms of making sure that you don't have PMI insurance and all these other things.

So having that down payment at 20% if it's your second home I think is important. And then closing costs also need to be saved. Understanding that closing costs are expensive, they are something that you are gonna have to deal with, and I would recommend having those closing costs saved as well. Also, the monthly payment needs to fit in your budget.

If it doesn't fit in your budget, meaning 30% or less of your expenses for all housing costs, then you are overpaying on housing. And I can tell pretty quickly when I look at your budget that if you are spending 40% on housing, you're most likely financially stressed. If you're spending 33% on housing, you're most likely financially stressed unless you're reducing spending in other areas.

Plus, you still need to be able to invest for retirement after the purchase. If you can't invest for retirement after this purchase, then you should not be owning a home because that's your most important thing that you need to be focusing on. And then you need to plan on staying in that home for at least 10 years is my rule.

Some people say seven years. I think it should be 10 years. The reason for that is if the housing market drops and we see a 50% correction, you need enough time to ensure that you can stay in that home so you don't have to sell the home at a loss, 'cause that's a big loss that you could be taking if you were forced to sell a home at a loss.

So you need to make sure that you are going to be staying there for at least 10 years or longer. So homeownership is still part of the American dream, but it is something you're, you're gonna need to consider, hey, what are some of the things that I need to make sure I'm checking off before I do something like this?

All right. The next one is becoming debt-free. So 63% aspire to be debt-free, but only 55% of people believe they will. Now, the real objective is making sure debt never controls your financial life, and becoming debt-free means that you are freeing yourself from the lender. The borrower is a slave to the lender.

I don't really want you to be in much debt whatsoever. And as you begin to get out of debt and become debt-free, the last thing I want you to do is go back into debt. Many times people will fall back into debt because they did not save properly for specific expenses. And when that happens, that is where you can get yourself into trouble because you want before you have, meaning you want a specific item before you have enough cash on hand to be able to take care of it, or you want to do a specific thing before you have enough cash on hand to be able to take care of it.

This is why savings buckets become so important. I have fallen prey to this time and time again. I've thought about it many times where I wanna purchase something, and I say to myself, "Well, I don't have the cash on hand. Maybe I could pull from here or there or a different savings bucket in order to pay for this thing."

No, don't fall into that temptation. And that's what it is. It's a temptation that happens to us time and time again. Save the cash in that category, and then you'll be able to pay for it stress-free, anxiety-free, and not have to worry. Don't fall prey to that temptation. I know how it feels. It's one of those things you want to do.

Or if you go deeper into debt, it's one of those things you want to do. So a couple of things that I think many people should consider if you wanna become debt-free, and if debt freedom is part of your goals, it's part of everyone's goals usually that listens to this podcast, then we wanna make sure that we get rid of some of the debt that makes sense.

So some of the areas are high-interest debt. Any debt above a 7% interest rate, that is a pants-on-fire emergency. I want you to pay that debt off outside of your mortgage. So you need to make sure that you are getting rid of that debt. But we also have things like credit cards. That is an emergency.

Payday loans, typically those are emergencies. High-rate personal loans, those need to be paid off aggressively. They need to be a huge portion of your debt paydown plan. Then we have what I like to call annoying debt, so this is gonna be car loans. This is gonna be lower rate consumer debt or student loans.

These debts are just like, "Ah, I don't wanna make these payments anymore, but I gotta get rid of this debt," and it's a really frustrating, annoying thing. And then there's manageable debt, things like your mortgage or some low-interest debt that you may have on hand. Maybe you have a car loan with a 0% APR, or you have home repair loan for a 0% APR.

You know, there's all of these different things that you could have on hand. Every debt payment, though, is going to rob you of the ability to be able to put it towards your financial freedom or towards things you actually value. And so if you're trying to, you know, move your dollars towards financial freedom, if you're trying to invest more so that you can become financially free, because the only way you can become financially free is investing your dollars.

You can't stuff cash under a mattress. You can't just send cash wherever you want. No, you've gotta invest your money. And so if you are not investing right now and all your money's going towards debt payments, that means you are a slave to the lender. And so we need to get rid of that debt so that you can take control back, control of your finances and control of your life back, so that you can move towards financial freedom.

And that's what I want for every single one of you. I'm excited for you guys to do this because when you start to do this, all of a sudden you feel the pressure start to relieve, and you have the ability to be able to take the next steps. So those are some of the things that I want you to think through.

Now, here's a couple of interesting things. The problem is these are three of the biggest goals that people have in America. Again, they are becoming debt-free, they are owning a home, and they are retiring comfortably. And all three of these goals are competing for the same pool of money. How do you manage it all?

How do you make sure that you're gonna stay on top of this? If you wanna buy a house, and you wanna get out of debt, and you wanna retire comfortably, and you are splitting this between also your lifestyle spending and your, your savings and your investing and everything else, how do you actually make sure that you can accomplish some of this stuff?

Well, first, it's a couple of things. One is to make sure that your expenses are within your constraints, meaning you're keeping your expenses below 60% of your income, your baseline expenses, your main expenses. They are between 50 to 60% of your income, and if you can get it below 50%, you are doing really, really good.

Okay? Secondly is if you can get rid of those high interest debt payments, those need to come next. And when you get rid of that debt, then it frees up cash flow for some of these other goals. But you're gonna have to put these in order of priority. My personal order of priority is obviously high interest debt, then retirement savings, then after that comes housing and any other big financial goals that you have.

So that's the most important thing to think through, is the order of some of these debts, how you're gonna order this, and how you're gonna make all of this work. But here's an interesting stat that came out of this study. In the survey, 72% of Americans said they, they would accept slower progress on financial goals to show up for family, take vacations, and prioritize memories.

And in fact, enjoying life today versus retiring comfortably are in conflict when you have a system to fund both. So you're trying to figure out, "Okay, well, how do I live for now, but also retire one day?" And if you have a system that funds both of these different areas, then you don't have to have this conflict in place.

You don't have to worry about this anymore. If you have an automation system that is sending money towards your fun money, your lifestyle money, the money that you wanna spend and enjoy life with, but also sending money towards retirement automatically, then your stress can be reduced. Spending on what you value works when investing happens first and automatically, and that's what I want most people to know.

If you're investing first, then you're not gonna stress about spending money on other stuff if you start to pay yourself first. I want you to think of it as a bill. You're paying yourself first and then spending whatever is left over. This is a really, really powerful place to be in. But here's the thing, is time is one of the biggest advantages that most people has.

Let's say person A is age 25 and person B is age 35 And by the time they retire, if they invest $500 per month, the person who started at age 25 is gonna have $1,750,000. The person who started at age 35 is only gonna have $745,000. So the difference between starting at age 25 versus starting at age 35 is $1 million.

And so it's absolutely crazy to see the difference there. Or if you reverse engineer this, the person who started at age 25 would only need $500 a month to reach 1.75 million by age 65, whereas the person who started at age 35 would need $1,170 per month in order to reach the same thing. More than double is how much they would have to invest just for waiting a decade.

And so the total amount that they contributed would also be 240,000 for the person who's at age 25 and s- 422,000 for the person who is age 35. So waiting 10 years cost them $180,000 in contributions. And so your income is gonna decide how much fuel you have, but if you can fuel this early and often, as early as you possibly can, even if you're 35, the big difference between 35 and 45 is gonna be massive.

So getting those dollars going and getting them working for you right now is really, really important. So what's the order to consider here? Well, one is making sure you get that free money and getting your employer match. Two is making sure you get at least one month of expenses in your emergency fund so that you can get started as your starter emergency fund.

Three is making sure that you pay off that high interest debt, especially if it's above a 6 to 7% interest rate. Four is fully funding that emergency fund all the way up to three months. Once you get to three months, then you can get to six months eventually is the fully funded one, but at three months you can start investing.

And then investing consistently in things like your 401, your Roth IRA, your HSA, and looking at our investing ladder for that. And then saving for major goals comes next. I think that is the big key for many of us, and you gotta make sure that you're automating this as much as you possibly can. So I want you to feel better about some of those big financial goals.

I want you to feel better about some of the things that are going on right now in your financial life. I know each and every single one of you can do this, but you gotta have a plan in place. And if you listen to this show, you know we are all about frameworks and plans to help you through this process, but I also want to motivate you to take action.

And so every single one of you needs to take action on some of this stuff so that you can achieve these big three goals that this survey has come back and said people want to achieve. Again, it's buying a house, it's getting debt-free, and it's retiring comfortably. Those are three amazing goals that I want for each and every single one of you, but you gotta make sure that you have the plan in place and you're thinking through each one.

Let me know down in the comments below, which one would you prioritize between those three? Which one matters most to you? Or would you rather just live life now and not prioritize any of those? Because I think it is pretty interesting to see how people are reacting to some of this stuff. All right, now we're gonna jump into the scam of the week, then we're gonna get into some of your questions.

All right, so here is the scam of the week that I wanna talk to you. And this week is something that has been growing over the course of the last couple of years, and it is the romance and long-term investment scams. Now, if you haven't heard of these before, they are pretty interesting in terms of how long of a play they have and how you have to be extremely cautious when you're on dating apps.

So dating apps that are out there, things like Tinder or Bumble, there are folks on there who are trying to develop a long-term relationship with someone. And many times they are, you know, establishing relationships with multiple people at the same time, and they meet folks on Tinder, they meet folks on Bumble and some other locations, and they start to have this conversation with you, and you start to develop this relationship.

Maybe you meet up a couple of different times. But their end goal is to try to scam you into investing into either a crypto or something else along those lines. And many people are calling this pig butchering. It's a very interesting term, but that's what law enforcement is calling this, because the scammer spends a long time fattening up its victim before they actually take anything.

And so this is something that I think a lot of folks need to watch out for or be careful f- with, especially if you don't know a specific person. If they begin to talk to you about investments and the ways that they're investing their dollars and how much money they're making with their investments, and it's pretty early on in the relationship and you don't really know this person whatsoever, that can be a huge red flag.

And so if you're on the dating scene or if you're someone out there who is trying to make sure that you're protecting yourself, be very, very cautious of the conversations that you are having with specific people. So here's a couple of red flags to look out for. Someone you have only met online and never in person or a live video call starts talking to you about investing.

They steer you into a specific app or a website that you have never heard of before. This is typically how it happens. And ironically, you may be saying to yourself, "Ah, I'm not gonna fall for that." But if you develop a relationship with someone and you develop some sort of trust with someone, that's where this begins to happen.

The returns are, are gonna look steady. They're gonna look a little high on the higher side, so like a 10, 12, 13% rate of return, and they're gonna ask you to pay a fee before you actually join this website. A lot of times what happens here is once people create these relationships with folks, then all of the sudden they start to stir up urgency.

They start to sh- stir up this urgency, like, "You gotta get in this right now, otherwise you're gonna lose your opportunity. I just want this for us." You know, those types of statements are gonna be what you see when these begin to happen. So- Here's how to protect yourself. I think there's a couple of things that you wanna make sure you do.

One, if someone is giving you investment advice on a dating profile, maybe don't listen to them whatsoever. Two, if it's on an Instagram DM or whatever else, that's another great red flag that I think you need to watch out for. And only invest through well-known brokerages. Listen, if you are getting sent to a website you've never heard of, don't invest in that website.

Don't put your money into that website. Instead, make sure you're only going through well-known brokerages. If it's a crypto that they feel as though is gonna go to the moon, make sure that you go through a Coinbase or wherever else you're actually investing your crypto from. Don't just do it somewhere where you've never heard of the place before.

And in reality, real relationships, real relationships don't come with a trading platform attached. And sometimes you may be listening to it yourself, and a lot of you guys are financially savvy, so you may be saying, "Who would ever fall for this? Who would ever do this?" The number is staggering. It is rising on a yearly basis.

And so we always, when it comes to these scams, wanna spread the word, especially when it comes to financial scams, for you to protect yourself, because I don't want this happening to any of you. I have seen people fall prey to this via email, fall prey to this via text. But when it comes to dating apps and dating websites, if they're developing a relationship, that means they are trying to develop trust with you.

And so you gotta make sure that you are on top of this and you are not falling prey to this. Now, one of the best ways to combat against getting scammed online is removing your personal information from the internet. And so the best way to remove your personal information from the internet is a service that I absolutely love called DeleteMe.

With DeleteMe, what they do is they take your information. If you Google your, your name or your address or your phone number in quotations, you're gonna see your name pop up on all these different websites. What DeleteMe does is it removes your personal information from those data brokers so that they can't have access to your personal information anymore and sell it to other scammers or anybody else.

Because if a scammer gets a piece of your information and they go and Google your name, they can find the rest of the information. It's becoming way too apparent out there that a lot of these data brokers are flying under the radar or they're just not following all the rules that they should be. And so DeleteMe helps remove that personal information, gets it removed for you, and then sends you a report so that you know where your personal information is being removed.

I absolutely love DeleteMe. I have been using it for years. My wife has been using it for years. And it is one of the best services out there for a very inexpensive price in terms of what you get. It would take you hours and hours and hours and hours to do this. So definitely check out DeleteMe. If you go to join deleteme.com/pfp20, you get 20% off DeleteMe by using that.

So thank you so much to DeleteMe for sponsoring the show. Now let's get into some of your questions. All right, the first question is from Nick. Nick says, "Hey, found you for fire topics. My biggest question is if retiring early at 50, what is the order of account type spending to maximize taxes while still qualifying for ACA subsidies?

I wanna understand the year-by-year strategy from 50 to 59 and a half. I'm aware of all the options, but it's hard to digest the literal order and amount to pull, assuming zero debt and trying to maximize for tax efficiency." So the enhanced, you know, ACA subsidies expired, so the 400%, you know, FPL cliff is back.

And so in 2026, that number is about $84,600 for a couple and $62,600 for a single person, and going $1 over means you lose that entire subsidy. So you gotta be really cautious about where your income is and how you're actually making this happen. So the subsidy is based on AGI, not spending or cash, and the cost basis of brokerage and Roth contribution withdrawals don't count as income.

So between ages 50 to 54, if you do something like live off the taxable brokerage accounts and cash, you can sell high-basis shares first, and then any room left after the ACA target goes towards Roth conversions. Now, here's the thing about this, Nick, is each Roth conversion can be withdrawn penalty-free five years later.

So the conversion at 50 funds age 55. Roth conversion ladders are really important to understand, and they are something that if you do mess them up, the tax implications can be big. So I want you to just make sure that you're careful when you're doing Roth conversion ladders. Now, between ages 55 to 59 and a half, you can live off the ladder in the original Roth contributions with 72t as a backup.

And the rule of 55 is not gonna apply if you retire at 50, so we can't use that. So let me give you an example of this. Let's say, for example, a couple spends $80,000 per year from a brokerage at a 50% basis. Now, this creates $40,000 of MAGI, okay? That leaves about $40,000 for a Roth conversion, and federal tax is gonna come out under $1,000.

So after 59 and a half, you could keep converting up until Medicare at 65 to shrink those future RMDs and then reset your MAGI target every single year because the threshold may change. And so it's very important when it comes to this kind of stuff to really think through the process year over year.

So Nick, you're thinking about this in the right way, where if I was gonna do this, I would make sure that I understood the tax implications of it on a yearly basis. So if I'm gonna do a Roth conversion ladder, I wanna make sure that what the first five years look like is probably gonna be a taxable. The next five years is then going to be you living off the ladder.

And then from age 60 to age 65, that's where we can do some additional things and live off any retirement accounts. But then we just need to make sure that we understand the healthcare implications when we go through that decade. So let me know if you have any additional questions on that. I think it's super important for folks to think through healthcare when it gets to their 50s, because that is the biggest surprise for most people.

All right, the next question is from Steven or Stefan. "Hey, Andrew. Two-year listener and love your content." Well, thank you so much. "I'm 45 years old and plan to retire in five years." Amazing. "I ran my numbers a hundred different ways and feel like I'm on the right track. I've never worked with a financial advisor, and I'm not interested in having one.

However, I would like someone to look over my numbers and withdrawal strategies to make sure I'm not overlooking anything. How do I find someone who would do this with me? I feel like most advisors advertise with AUM." So what you're looking for here is an advice only flat fee or hourly planner advisor.

So you're looking for someone who is just gonna do a flat fee to give you a financial plan that can look over your information, and I think it's a, a great question. It's, it's really important to have this in play. And they're-- what they're gonna do is they're gonna re-- they're gonna review your plan once and then never have to, you know, worry about managing your money in the future or have your money in an AUM if you don't wanna go that route.

And so there's a couple of different places that you can look at this. Uh, one is you can schedule consultations with a couple of them, and you can look for a CFP that is only fee-based, uh, interview a couple of them and then kinda think it through that, and expect it to be around two to four hundred dollars per hour, somewhere in that range.

But sometimes it's just one flat fee for the entire plan, so it could be up to like, you know, five thousand dollars for an entire plan to kinda go through your situation and think through that, which is gonna be significantly less expensive than paying, you know, one point five percent in AUM to an advisor or something like that.

Some common blind spots though in your situation that I would ask them about is healthcare until 65, sequence of returns risks, and also not enough money accessible f- before the age of 59 and a half and if you will or will not have that. And then also inflation assumptions can be very, very helpful too.

Now if you wanna talk to someone just for an hour, there are some websites and places that you can do that as well, uh, where you can just talk to someone on an hour-by-hour basis, and they can kinda help you through some of those assumptions. But it's really important, and I think you're thinking about this the right way, to just find someone who is a flat fee or hourly planner that can help you through this process who also has some experience in early retirement.

Since you are retiring early, you wanna make sure they do have that experience in early retirement that can help you through this as time goes on. So really important stuff, and I think that is a great question, but just finding that flat fee advisor is what I would search for, and then interview three to five of them and see which one you like best All right, the next question I love is from Rishi.

So Rishi says, "Andrew, this year, much of my compensation will be in the form of a bonus coming soon. How do you recommend people treat large sum bonuses? Do they put it towards the mortgage? Invest in an ETF? Everyone keeps saying a crash is coming. Love the podcast, by the way." So thank you so much, Rishi.

This is a great question. I think, first of all, let's address the crash, and we're gonna reverse engineer this, okay? So a lot of people say a crash is coming all the time. They've been saying a crash is gonna be coming since 2010, and every single year, everyone has been just pounding the door saying a crash is coming.

A lot of people right now are saying there's an AI bubble. You know, a couple years ago it was the COVID crash. A couple years before that it was, you know, the housing crash. A couple years before that... There were so many different reasons why the market could crash. And year in and year out, there is a plethora Boy, that's a good word.

There's a plethora of reasons why the market could go down or the market could go up, but we don't make investment decisions based on if we think the market is gonna go down or based on if we think the market is gonna go up. Instead, we wanna make our investment decisions based on our investment plan, and we're gonna invest every single month no matter what.

Now, could you get a bonus and you could invest a large lump sum and decide pretty quickly, "Oh, shoot, the market went down right after I invested this"? Sure. People get unlucky all the time. But if that happens, if you stay invested over the course of the long term, you will still end up in a great position if you are a long-term investor if you look at historic returns.

And so we gotta go back and look at historic returns and see, okay, even if the market goes down for some period of time, look at the longest time horizon of the market, in what direction did that market go? It went in one direction, which is up and to the right. And so we wanna make sure that we look at history, we study history, we understand what has happened.

Even if there is pullbacks, it is okay. We just have to control our emotions and make sure that we are on top of our investing so we don't have to worry as much about that stuff moving forward. So that's a perfect question, and I think that's a great starting point. Now, let's talk about thinking through a bonus, okay?

Here is how I think of through a bonus, and I think there's a number of ways that you could spend a bonus, but for many of us, we wanna make sure first we understand if this is much of our compensation, if this is much of the money that we're earning throughout the year, we wanna do the most valuable things with that bonus first, okay?

First, we need to look at our emergency fund. Do we have a six-month emergency fund? If not, maybe a portion of it goes through the 136 method, meaning one month of expenses, then paying off high-interest debts if you have anything above a seven, 6% to 7% interest rate, then to three months of expenses, and then ultimately getting to six months of expenses, okay?

So building out that protection plan of one month high-interest debt, three months, then you can start investing, then six months, okay? That's our goal there, and if you haven't heard the 136 method, I would recommend checking out that episode 'cause I dive deep into how to navigate all of this stuff.

Secondly, though, is then once you have that in place, then you can start to think about investing those dollars. And so I think investing is a really, really important thing, and if you or have not hit the investments that you want to hit your retirement goals for the year, next would be to invest those dollars.

I personally, my favorite order is something like a Roth 401or Roth IRA, then going to something like the HSA Then going to your traditional 401or IRA, and then your taxable brokerage. Those are the places I like to look at that, investing in index funds and ETFs, target date funds, those types of things, and developing a broad-based portfolio based on your research.

Those are some of the areas that I look at. Then after that, if you are hitting your retirement goals, you can spend some of this. You can enjoy some of this money on things that you value. Maybe you want to save some for a house down payment. Maybe you want to pay off your mortgage a little quicker.

Maybe you wanna spend a little bit on something that you like or go on a vacation or whatever else. Nothing wrong with that whatsoever. Or maybe you wanna pay off some low interest debt that's just annoying you. Maybe you got some student loans or you got a car loan there. All that kinda stuff is fine after the investment portion.

Like, once you look at this and you say, "All right, I've got my emergency fund in place, I'm hitting my retirement goals, and I'm hitting my investment goals throughout the year," then you can go and kind of enjoy some of that money. And so a lot of times I like to look at this in a way where, uh, okay, let's say we hit all our goals.

Well, maybe 50% is gonna go towards a bonus towards my wealth building, and 50% is gonna go towards things that I love. I wanna go on vacation, I wanna buy myself a nice watch, I want to just pay down some of the student loan debt that just annoys me that's at a 3% interest rate. That's a great way to look at this, where you can kinda develop a system and a process of the order of operations.

So I would put for you the highest priority outside of, you know, the emergency fund, high interest debt, and investing. What is your highest priorities? Put them in order and then go from there. That's gonna be... That's gonna help you based on your values, make a value-based system outside of those first three, and that'll ensure that you are on track and enjoying some of that money too.

I want you to enjoy some of it. We don't want you just to save and hoard all of it. You need to make sure that you're having a little fun too. So I think that's really important. So congrats on the bonus. I think that's amazing. Congrats on everything that you're doing thus far. And if you have any other additional questions, let me know.

Awesome. Well, thank you guys so much for listening to this episode of the Personal Finance Podcast. Again, if you guys have any questions, feel free to join the Master Money newsletter, and you can respond to any of these, those newsletters every single week, and we will possibly answer your question on the show.

Also, if you wanna work with me one-on-one, shoot me an email, andrew@mastermoney.co. We'll get you set up to fill out an application, see if you're the right fit, and then we can go from there. Also, if you wanna do just weekly group coaching calls with me, join Master Money Academy, because that's what we do inside Master Money Academy.

We have all of our courses there. I do a weekly group call in there where you can ask any questions that you want. I answer them live, and I answer questions every single day when you shoot me messages. So if you wanna be able to message me, talk back and forth, Master Money Academy is the place for there, and we teach you how to build wealth for you, your family, and we teach you how to invest even if you're just getting started.

So thank you so much for being here. I truly appreciate each and every single one of you, and we will see ya on the next episode. Have you ever opened a brokerage account, looked at all the tickers, and then closed the app because you didn't know how it all worked? You're not alone. Most of us were never taught how investing works, so we wait for the perfect moment, but that moment never comes.

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