She’s 64, Broke, and Wants to Day Trade – Here’s What I’d Tell Her (Money Q&A)

Transcript:

On this episode of the Personal Finance Podcast, we're gonna answer your questions on this money q and a.

What's up everybody, and welcome to the Personal Finance Podcast. I'm your host Andrew, founder of Master money.co. And today on the Personal Finance Podcast, we're gonna be answering your questions on this money q and a. If you have any questions, make sure you join the Master Money Newsletter by going to master money.co/.

Newsletter. And don't forget to follow us on Spotify, apple Podcast, YouTube, or whatever podcast player you love, listening to this podcast on it. If you want to help out the show, consider leaving a five star rating and review on Apple Podcast, Spotify, or your favorite podcast player. Now today we're gonna be diving into your questions on this money q and a, and we have a bunch of great ones here today.

The first one is, should. 67-year-old mom take a hundred k lump sum pension, or $720 per month for life. The second one is, how does tax loss harvesting actually work, and is it worth doing? Then we found our dream home, but the seller won't move out for months. How do we buy the house without becoming homeless in the process?

The next one is why use a high yield savings account for emergencies instead of a brokerage? And how do retirement rules actually work with Roth versus traditional contributions? Plus, my 64-year-old mom is thinking about day trading to catch up for retirement. She's been a single caregiver her whole life.

What should someone in her position actually do to build financial security? And then lastly, I'm 47, contribute 15% of my 401k and have no Roth savings. Should I cut my 401k down to the match and start maxing out my Roth IRA to create tax free income in retirement? And so we're gonna dive into each and every single one of these questions.

Without further ado, let's get into it. All right, so the first question is, hi Andrew. I love your podcast. Thanks for all the great info. I'm helping my mom with her retirement and she just retired at 67 with $70,000 in her 401k, $8,000 in an HSA, and an emergency fund of $20,000. Plus a pension option of either a hundred thousand dollars lump sum or $720 a month for life.

Now she's in good health, owns her home and car, and gets $1,500 a month from social Security just enough to cover her monthly expenses. Here's my questions. Should she take the pension as a lump sum or monthly payments? And if lump sum, how should she invest it and should she roll over her 401k into an IRA or leave it with her former?

Employer would love to hear your thoughts on the matter. Thanks so much for your time. So first off, shout out to you for helping your mom with this. You're doing exactly what wealth builders do, which is take care of their family, ask great questions and look at the big picture. So I want to break this down, uh, step by step with each one of your questions.

So here's the deal. Your mom is being offered either a hundred thousand dollars upfront or $720 per month for life. Now let's look at the $720 per month for life for a second. So she's aged 67 currently. So you're saying she's in good health. She at least has decades and decades ahead of her. Uh, still going forward.

67 is young. If you are in good health in today's day and age. So that's $8,640 per year, guaranteed if she takes the $720 per month for life. Now, if she took the a hundred thousand dollars upfront and she decided to utilize that a hundred dollars per month for income, if we look at something like the 4% rule.

Then we can see, for example, even if she's taking four or 5%, she's gonna be withdrawing about four to 5% every single year. Based on her age, she can probably actually withdraw a little bit more because she's 67. Uh, if she wanted to, we could even bump it up to 5%, but that'd be four grand per year. And then you adjust for inflation every year thereafter.

So it's only the starting year that you start with four grand, then you're gonna adjust for inflation every year there. After. And so if you do a little bit of math here, it's looking like if she took the $8,640, that'd be like an 8.64% return on her money that she can then go and use going forward. Now, that's a very solid payout, is being able to take that $720 per month.

And have that guaranteed for life as long as it's guaranteed. Guaranteed is the key word here. If this is a government job that she worked, maybe she was a teacher or something along those lines, and it a hundred percent is guaranteed, then that is a very solid payout, especially if she's healthy and she expects to live a long time and doesn't need the money immediately, which it sounds as like her social security may cover a lot of her expenses and she wants guaranteed income with no investment risk.

That 720 per month pension is likely a great deal. To consider. Again, this is not investment advice, but I would consider that if I were in your shoes. 'cause it's essentially like buying an annuity and you can't get an 8.6% guaranteed withdrawal rate in the open market safely whatsoever. And so in her shoes, that is something you could think through.

But if she wants more flexibility or control over her money and plans to leave more to heirs, like if she wanted to leave more to her kids, um, or is willing to invest and manage the a hundred K wisely. The lump sum could be better, but only if she invests it well and manages the withdrawals carefully.

Typically, 4% or less is kind of what most people do. I think you could almost bump it up to 5%, and so there's a lot of little different variables there, but it's a little more complicated to do it that way, and so if your expenses are covered and guaranteed income is valuable to you, then I think the monthly pension is really hard to beat.

But if you want more control and growth potential, then the lump sum plus an IRA gives you flexibility, but it adds some additional. Risk. So that is the way I would think about that is seven 20, every single month is a great solid pension, as long as that thing. Is guaranteed. That was the considerations that I would make.

Now, if you did decide to take the lump sum, uh, we'll talk about, you know, how to invest that lump sum here in a second. But you also say that she has a 401k and what to do with that 401k. So she has $70,000 in her 401k, and so you have a few options. You can leave it with your employer, which is fine if the fees are low and the investment decisions are solid.

We've talked about that a number of different times. Is. If you wanna leave it with your employer, you do have to have low fees. You do have to like the investments that are in there, uh, but some plans are gonna limit your flexibility and charge more after retirement. That's one key I want most people to know is after you retire, if you keep your plan with your employer, they could charge higher fees, and we definitely do not want to take that on.

The second option though, is to roll it into a rollover IRA. This is what I did when I left my job is I rolled my money into a Vanguard Rollover IRA, and this is usually the best move for most people. Why? Because one, you have more investment choices, meaning you have more options that you can choose from, that you may be more interested in, and that also fit your investment criteria.

Two is a lot of times you can roll them into another location like Vanguard, fidelity, which have lower fees. If you go with a brokerage like those, one of those two. They're gonna have really low fees, really great investment options. Three is, it's easier to withdraw and you can actually manage the withdrawal management when you want to use that money than it would be with your employer's 401k.

And there's also better beneficiary options. So if you wanted to make sure, uh, that you had all your beneficiaries lined up and in a row for estate planning purposes, there's a lot better options with those two brokerages than with something like a traditional 401k with an employer. So, unless the 401k is ultra low cost and easy to manage, I would do the rollover IRA.

That's what I specifically did, uh, with my old employer, is I just rolled it over into a rollover IRA. Now, if you decide to invest the lump sum and or the IRA, there's a couple of things that you could consider when you go and do that. So, if you wanted to take the lump sum instead of the monthly payments, if you.

Kind of went through all those scenarios that we just talked about and you said, nah, I still wanna take the lump sum. Then there's a couple of things that you can do. First is you can keep at least a year of cash on hand up front, uh, would be the first consideration, just to have that available, um, so that you can think through that.

And then after that you can look at the portfolio option that best suits you. So for someone who is in retirement, you wanna have a little more bond exposure, typically, uh, depending on what your risk tolerance is. Most people like to consider more bond exposure because it reduces volatility, meaning how up and down the market is when it comes to your investments.

And so usually in retirement, you don't want a lot of friction within your investments because you're drawing on this money. You're living on this money. So when you are in the stages of your working career, you are trying to grow this money as fast as possible, but once you hit retirement, you're trying to preserve this money, you are in preservation mode.

And so because you're in preservation mode, uh, having a little more bond exposure is typically what most people like to do. And so you could do something like a 70 30 portfolio. You can do one, like a 60 40 portfolio, meaning 60% stocks, 40% bonds, 70% stocks, 30% bonds. There's arguments out for people out there to do a 90 10 or a hundred percent of ETI, something like that.

Uh, but those are some of the considerations just to think through. I am more conservative when it comes to this stuff when you hit retirement age because I just think, you know, why risk it for a few extra percentage points when you could just have a portfolio that kind of helps you ride out the waves, if that's your risk tolerance.

So it depends on what your risk tolerance is. You can also use target date funds. Target date funds can help you through that. If you utilize the target date fund, just know and understand what the glide path is, meaning where that is going to land every single year. So if you are someone who is going to choose a target date retirement fund, say for example of 2030, there's gonna be probably too much bonds in that portfolio, at least from my risk tolerance.

Um, and so you just wanna make sure that you understand that portion of it. As well. But I like to look at, you know, having a portfolio that kind of suture risk tolerance, has a little bit of growth so that you can get that growth going and still is able to withstand inflation, withstand crazy market shifts so that you can utilize that money.

Now if you utilize the lump sum, again, you can look at the 4% rule as how much you can withdraw. So if you took a $70,000, for example, rolled it into something else, you can withdraw another $2,800 per year, uh, with that $70,000 starting in year one. And then every year thereafter, you can increase it by the inflation rate.

It adjusts by the inflation rate. So that is gonna be the, the. Next thing to think through. So your mom's actually in a strong spot because she has no mortgage or car payment. Her expenses are covered by social Security, and she has some savings to work with to help her through this. And so now it's all about keeping life simple and locking in that guaranteed income where it makes.

Sense, and then minimizing fees and protecting against big markets, wings and the protection against those big markets. Wings really happens with your asset allocation. And so because you have some of those options there, I think you are in a great position to have a fun, happy retirement and that is a great, great thing.

So. Kudos to you for helping your mom through this process. Those are some of my thoughts just on that specific situation and how I would think about it and how I would consider it. But do your own research, look into her risk tolerance and kind of see where she lands. That is the biggest, biggest factor overall.

Thank you so much for sending in the question, and feel free to expand on any other questions that you have about it. Uh, beyond this, if you have any. Alright, so the next question is from Courtney. And Courtney has a great question. So, how does tax loss harvesting work? So I'm gonna actually break this down step by step, and I'm gonna do this in a very simple way.

We've talked about tax loss harvesting in the past a little bit, and we've done a deep dive. I'm gonna do this at a bird's eye level so that a lot of people understand how this works and if it is something that you wanna do, we'll kind of get into that as well. So first, what is tax loss harvesting? So tax lost harvesting is a strategy where you sell an investment.

At a loss on purpose, literally on purpose to reduce your tax bill. And so the goal is maybe you have a bunch of gains in a portfolio in one direction, and so to offset some of those gains, then you want to sell some of your losses so you don't have as high of capital gains. And so that loss can be used to, again, offset capital gains from selling other investments for profit or offset up to $3,000 of your ordinary income if your losses exceed your gains.

Or they could also carry forward extra losses to future tax years indefinitely. So an example of this, let's say you bought a fund for $10,000 and it dropped to $7,000. If you sell it, you're harvesting a $3,000 loss, and now you can reduce your taxable gains or income by that $3,000. So that is the simplest way to put it, is literally, it's just a way to reduce your taxable gains.

Now. The second question though is do you stay outta the market after selling? No. So the trick to this is you buy a similar fund right after to stay invested because if you just make this sale, you're just accepting the loss. But what you really are trying to do is kind of take advantage of a loss as it's happening, and then you have to buy a similar fund right after to stay invested.

That's how the strategy actually works. But you can't buy the same fund, or it'll trigger what is called the wash sale. Rule. So the rule says that if you buy the same or substantially identical investment 30 days before or after the sale, the IRS will disallow the loss. And so, for example, if you go out and you sell VOO because VOO had a loss during, you know, tariff concerns or whatever else, okay?

And it had a 30% loss. You sold VOO during that point in time, and then all of a sudden you go back and buy VOO again. They're not going to allow that because of the wash sale rule. So what you could do is instead you could sell something like VOO and then buy SCHB or ITOT instead, which is similar but not identical.

And so those are. Different funds that would help you through that process. So who should use tax Lost Harvesting? It is best for investors in high tax brackets and people with large taxable brokerage accounts and or those who regularly sell investments or half capital gains. It is less useful for people, obviously in a Roth, IRA.

Or 401k holders only because these accounts are tax sheltered and long-term buy and hold index fund investors who rarely ever sell their funds. Also people in lower tax brackets, the savings is going to be similar. So for those who are in lower tax brackets, if you have small accounts, it's really not worth your time and energy.

What we wanna do with our money is make sure we are. Simplifying our money. And so if you don't have big accounts yet, or if you don't have big swings or gains or losses yet, then it's really not worth your time and energy to do this yet for most people. Now, how can you do this? Or is it worth it? If you have losses in a taxable account and gains to offset, then it might be worth a tax-free savings.

But don't harvest. Just to harvest. You gotta ask yourself a couple of questions. Am I investing in something similar immediately is number one. Number two is, am I saving a meaningful amount in taxes? Because if you're not, it is not worth all of this effort, all the paperwork to file it, all the headaches that come about.

In fact, if you don't have a lot of gains, it may cost you more in accounting fees if you use an accountant to file your paperwork, than it would just to not do this whatsoever. And then will this keep my long-term plan on track is the third question. So sometimes it's not worth the complexity for a $200 tax benefit.

If you're gonna save a couple hundred bucks, I don't think it's worth it. You need to be saving at least four figures to make this actually, uh, make sense for most people. Now, quick tips if you wanna do this is look for meaningful losses. So over a thousand dollars is the common threshold for most people.

Reinvest in non-identical funds. Track everything for tax time because that is gonna be the most important thing. Otherwise you're gonna have a big headache. Or lastly is you can use a RoboAdvisor, so betterment or wealth front. All those different roboadvisors that are out there, their big pitch is that they do this for you.

And so if you really wanna get this done and you really think that tax loss harvesting is for you, you could use one of those platforms. They're gonna charge you their fee, which typically their fee is like 25 basis points or 0.25%. So you're paying a little more in fees, but they're doing the tax loss harvesting for you.

And their pitch is always, Hey, the tax loss harvesting is going to offset the fee that we charge. I have never, you know, data tested some of those platforms. And so for most people out there, I know some close friends who have big finance podcasts. They love some of those services, but I personally haven't used them, you know, in any recent time period at least.

So tax loss harvesting doesn't make you. Money, but it does save you money on taxes, which is the entire goal for most people, which is the final takeaway. So that's how I want you to think about this, but you can think about it as trimming a few weeds while letting the rest of the garden grow. Just don't rip out your plants by accident is kind of the thought process that I typically have with tax loss harvesting.

But again. Most of you out there. Simplify, simplify, simplify at first. Get everything else in order before you start doing stuff like this. Uh, make sure you have your house in order first. So, great, great question. Thank you so much for sending it in and if you have any other questions, please let me know.

Alright, the next question is from Jake. Love the podcast. Listen to it all the time. Great insight on what should be doing with our money. I have a question that I can't find an answer to. My wife and I have a house that will make us $200,000 plus when we go to sell it. We have a family of three and found our dream home that will allow us to put 20% down and pay off her student debt.

The hiccup in this whole situation is that the person selling the house wants to live in the house until her new house is built, leaving us houseless because we need to live somewhere. How come when I talk to lenders, they only allow. 60 days and then we have to be living in it. Is there any way that you know of that we can buy this house and not be without a house?

So this is a great question and something I had to deal with. So I built a house, uh, in 2020 and I had to deal with this situation where I had to sell my house and figure out what I was going to do in between. So there are a lot of different scenarios here and. A lot of things that you wanna definitely consider.

So when you buy a house using a primary residence, mortgage lenders require you to occupy within 60 days of closing because these loans come with better interest rates and lower down payments than second homes or investment property. So lenders want you to ensure that you're actually going to be living there and not using it as a rental or flip.

So it's part of their risk management. Occupancy fraud, which is a serious issue for a lot of lenders that are out there because they've had this happen in the past where people say, Hey, I am going to occupy this home. Then they don't occupy it for years because they're using it as an Airbnb or something else.

So if you say you'll live there and then don't, you could be in breach of your mortgage terms, so just. You know, that's what happens to a lot of lenders. I'm not saying you would ever do that, but that's what happens and that's why that rule is in place. Uh, depending on the lender. Now, there are some lenders out there who may allow you to do this.

You just gotta talk to a couple different ones. Um, but here's the problem is the seller won't move yet. So in your case, first of all. The first solve to this equation is to ask the seller, Hey, we will buy this house if you leave, but we're not gonna buy this house if you don't leave. And kind of do it in a way where they have a buyer in place, but you need to leave.

Now if they're not willing to leave whatsoever and you're making over $200,000 from your current home sale and you found your dream home, what you can do is a couple of different things. And here's four creative ways to do this, is delay. The closing is number one. So you would sell your house, you would go find a rental or stay with family for two months, uh, short term.

And then you delay the closing until the new home is ready. So what you can do is either delay the closing, you know, for a couple of months, and that doesn't violate the occupancy rule, but it may not be ideal for the seller because they may want the cash. Now that might be their goal overall. And the risk of interest rate changes while you wait could be the second part of that equation Now.

My assumption is that in the future, interest rates are going to go down. Uh, but, and Jerome Powell has kind of stated over the course of the last couple of months that their goal is to reduce rates twice. But they do have flexibility currently, and they're not stating which way they're going to go. And originally when the year started, their intention was to reduce rates.

Right now they are not sure what to do because of all the tariff, nonsense and everything else that's going on all at the same time here. So there's a lot of things going on. Uh, that could help reduce rates. But if I was a betting man, I would say, uh, they were gonna reduce rates over the course of the next couple of months.

Now, option two is to do a seller rent back agreement. So post occupancy agreement so you can close on the house now and then legally rent it to the seller for a short period. This is one that I like a lot. Uh, a lot of deals I've seen done this way. And so this is common and legal, but it's only capped at 60 days to stay within those mortgage rules.

And so. Either you can draft a post occupancy agreement where the seller becomes your tenant for a short time and they pay rent, or it's deducted from the sale price, which is my favorite way to do it. And then you retain insurance coverage as the new owner. But the problem is if they wanna stay more than 60 days, then your lender may not allow it to under the primary residence loan.

And so because of that. You would have to come up with some creative solution to make this happen, maybe 40 to 60 days prior to them closing on their other house. So here's the deal, is you would have basically some sort of letter of intent that states, okay, we're gonna close 40 days before your home is ready.

Okay? That gives you a 20 day cushion, and then you're gonna close 40 days prior to they rent the home back to you for 40 days at a daily rate, and or you could do it at the rate of the entire stay. And then from there, if they. Breach that agreement. There is some sort of impactful penalty. Maybe they take a chunk off the price, maybe five 10 grand off the price if they actually breach that.

And there's a couple of things that you can put into place there. Option three is you can buy it as a secondary home or investment property. Probably not the route that I would go, but it is an option. So if the seller insists on longer than 60 days, you can buy the house using a loan for a second home or investment property.

Uh, the cons there are you're gonna have higher interest rates in a larger down payment and you would need to qualify for this type of mortgage. And then option four is to sell your house rent in a short term Airbnb and or corporate rental or furnish, month to month apartment, and then close on a new home and move in when it's ready.

And that is the one that you would have to have an agreement with first, right of refusal on the home with the homeowner in order for you to even be able to do this, but you could set up the right agreement to put it into place that when the home. Is ready, then you can actually move into that house.

Now, this is a big, big thing that a lot of people have to deal with, especially when folks are building homes and or they're trying to move into their next house. A lot of folks deal with this back and forth. Now, I asked for this, okay? As a seller, when I was selling my home, I asked if they would rent it back to me and they said no.

So you also have the power to say no. I don't know how competitive the environment is of this house that you're purchasing, but you can say, Hey, I'm not buying this house unless you leave. And so then it's their job to go out and find a rental. While the next house is getting done. So when they ask for this, a lot of times I would say no first and see what happens.

And then beyond that, unless there's a bunch of different offers and then beyond that, then I would kind of go from there down the list of these options. And so the one we did was we sold the house and then we waited a couple of months for a house to be built, uh, by staying, you know. We actually stayed with family for two months and then from there then moved into our new house.

But if we didn't have family in the area, I would likely have just gone out and rented a house. Uh, we had neighbors who were also building a house who went out and rented apartment for a couple of months. They had a family of five and they just jammed into an apartment and kind of made it work for a couple of months.

Uh, it just depends on what you wanna do because if this is gonna be your forever house, uh, it may be worth some short-term sacrifices to make all this work. So listen, I hope that is helpful and if you have any other questions on that, please let me know, but I think that. Is something a lot of people have to deal with.

And congratulations by the way, on your home equity and even being able to have this option. That is absolutely amazing. All right, so the next question is from Emmy. So, hi Andrew, big fan of the podcast. I have a few questions for the next q and a. You mentioned in your 1 3 6 method that you highly recommend a high-yield savings account.

Why do you not recommend keeping this in a brokerage account? The average s and p 500 returns are higher than most high yield savings accounts, which would help me hit a six month goal faster. Or is it just to prevent needing cash in a bear market and incurring a loss? Number two is most retirement rules.

I've seen state that you want 75 to 80% of your pre-retirement income. Is this before or after? Taxes. And then the third question is, similarly, are there retirement tools out there that will take into consideration contributions to both Roth 401k and traditional 401k? It seems like many of these sites ask how much you're contributing, but never specify whether it's pre or post tax.

Thanks so much for all the help. So, hey, Emmy. First of all, this is a fantastic question. Three fantastic questions, honestly, and these are great that you are even thinking through this stuff. So let me go through each and every single one of these. So number one is why do I recommend a high yield savings account instead of a brokerage account for the 1 3 6 Method?

So the reason for this for. Is, you nailed it on your guess is the goal of an emergency fund isn't for growth, it's for stability and access. And so because of this, you know, the s and p 500 historically returns seven to 10% annually, but it also has wild swings as we have seen, you know, during COVID OVID, or if you have looked at the 2007, 2008 recession, and if your emergency fund hits during a bear market, you can be forced to sell at a loss is number one.

But number two is also. Your emergency fund is there for job loss. Okay, let's go back and look at the Great Recession. For example. This is an example in 2007 and 2008 where a huge portion of the US workforce lost their job and they lost their job A, because the market was tanking. And so all of a sudden everything started to collapse all around them.

And so if you lose your job and then all of a sudden you have a six month emergency fund, and what happened during that timeframe? Well, the market pulled back almost. 50% and when it pulled back 50%, if you had your emergency fund invested, you would only have half of your emergency fund in place. So let's say for example, you had a six month emergency fund.

All of a sudden now it is a three month emergency fund. And so you have that three month emergency fund in place and you're going out and looking at a job when jobs are scarce because everyone else is also getting laid off and nobody is hiring. And so this is a situation that you definitely do not wanna be in and or what if a different emergency comes up during these timeframes when there are pullbacks and then you had to sell during those pullbacks?

So it is definitely a risk we always recommend, you know, if you're gonna utilize emergency money. If you need to have that money available at any point in time, then you always want to keep it in a safer place. And so that's why we always talk about that because a high yield savings count earns a safe, predictable three to 4% right now at the time recording this and ensures your money is there when you need it.

No selling, no losses, no stress. It is just there. So yes, it's about avoiding the cash crunch in a crash scenario. Uh, and that is the, the main reason for that. Okay. Second question. The retirement rules that say you need 75 to 80% of pre-retirement income, is that before or after taxes? So this number is based on your gross before tax income.

But the idea is that in retirement, many people no longer pay for things like payroll taxes or mortgage payments or work related expenses, so their actual spending is going to drop. But that said, your personal target should be based on your actual lifestyle costs, not a blanket percentage. And so to think about this.

I would use the 80% rule as the starting point, but then build a more personalized number using your personal real expenses. And so because of that, you gotta think through what you want outta life. This is why we talk through kind of some of the dream scenarios so you can build out a dream scenario of what would my dream retirement look like?

What would I be doing day in, day out, and how much money I would be spending. So I know, for example, for me, I would shift if I was completely retired, I was not working, which I don't think will ever happen. But if I was not working. And I was not doing something day to day, I know I would be spending more money in certain areas.

An example of that would be golfing. I love to golf. I am a terrible golfer, but I love to do it. It is so fun for me to go out and go golfing and I don't get to golf as much as I want to. And that's 'cause I have little, you know, I have a lot of things going on at the same time. But I absolutely love doing it.

So if I was completely retired, I know I'd be spending more money on golf. I'd be researching clubs, I'd probably be buying clubs. I'd be playing golf a lot more, which is not cheap. If you haven't looked lately, it's. It's like 50 bucks every time you go play in my area. And so that would be a scenario where I'd be spending a lot more money in certain areas.

So if you have hobbies or you have interests, or you have things that you know you'll be doing in retirement, make sure you're factoring some of those numbers in. Maybe you wanna travel. And that's another thing that I'd probably be doing is traveling a lot more. And so if you wanted to travel, that's an expensive.

Thing that you would have to add into your budget and go look at that. So look at some of the things that would shift also when you hit that retirement number. Just to think through how you would have your dream retirement scenario and then see what you can leave out. Maybe, you know, you can afford anything, but you just can't afford everything.

Uh, and so you just gotta make sure that you understand which of those things to pull in and pull out. And then are their retirement calculators that account for Roth versus traditional 401k contributions. So most online tools are overly simplified. So my friend Rob Berger actually introduced me to one of these tools and one is called Bolden, B-O-L-D-I-N.

It called, it used to be called New Retirement. And so Bolden, uh, will let you input types and run the clearest path that can simulate your withdrawals and tax impacts more accurately. So the thing about Bolden that I like. Is that it has a lot of advanced features that a lot of other tools don't. Now, the thing about Bolden is it does have a cost associated with it.

And so if you want some deeper stuff, you're probably going to need to pay a little bit more. I think Bolden is about 12 bucks a month, uh, to B-O-L-D-I-N. I have no affiliation with them, but I have, you know, used them in the past before and they have some pretty robust tools that you can use. Also, another one, uh, that you can look into is empower.

And so empower kind of helps you, uh, with a lot of this retirement planning as well. But that's the way I would think about that, is kind of using some of those more powerful tools. If you're thinking about it as much as I think you are, then Bolden is more than likely gonna be worth the cost for you. Um, but you, I think you could test it out with a free trial.

And they do have a free tier as well, a basic tier. Which has their retirement calculators, and it's a great way to kind of put together, you know, a mini plan there. But at their $12 tier, they have a lot more, they have, you know, detailed charts. They have Monte Carlo analysis, they have detailed budgeting and income planning.

So all this stuff we're talking about right now, you can actually do inside of Bolden, uh, which is kind of cool. So all of those things are to say, uh, I think you're doing a great job thinking about this kind of stuff, and let me know what you decide on the emergency fund. I'd like to see if you think it's worth the risk to try to get growth faster.

For some people it is. For some people it isn't. But it just depends on what you are trying to do, uh, in your current situation. So thank you again for those questions. Those are great. And if you have any others, please reach out. Alright, the next question is, I'm a 28-year-old and my mom is 64 and she's been a single parent focused on caregiving and survival and hasn't had much chance to build.

Retirement savings. She recently mentioned being interested in day trading because she feels like time is running out. She's a registered nurse, started a side business as a grief coach, owns her home and is still financially supports two of my siblings. She does have a 401k and a Roth IRA, but I don't know the balances.

What's your tips for someone who is. Older has limited retirement savings and is feeling pressure to catch up quickly. So this is such a powerful and important question. And first of all, kudos to you. It sounds like your mom kind of had to take the reigns and as heroic as she cared for others her entire life.

And so there's a lot of big things that we gotta talk through here that we can chat and kind of think through for your mom to consider. One is avoid day trading. Okay. Day trading for most is not the answer. And if you've ever heard me talk about this before, I used to think day trading was the answer.

When I was really young, I would day trade and I would lose every single time. And I was very well educated on the subject and still did not make what everyone promises that they would make. So day trading might feel like it's a shortcut to catching up fast, but it is one of the riskiest. And least reliable ways to build wealth, in my opinion.

In fact, over 90% of day traders lose money in the long term, and volatility is way too high. And one mistake can permanently derail a fragile financial situation. So I remember when I was day trading, I would go out there and I would have a bunch of good days in a row. And then all of a sudden one trade just goes south and it goes south so fast that you can't control it.

And so you have, oh, sure you have stop losses and those types of things in there, but you have these bigger losses that just don't make a ton of sense. What I always found with day trading was everybody can tell you when to get in and nobody can tell you actually when to get out. And so instead, I would focus on stable long-term strategies that preserve and grow what she has, even if it's modest, even if it's modest as a starting point, you can help preserve and grow that over time.

Number two is I would get a full picture of her finances. So before making any decisions, I would help her get clarity on a couple of different things. How much is in her 401k, and how much is in her Roth, IRA. Secondly, does she own her home outright or does she still have a mortgage if she owns it outright?

That's a great situation to be in and a great starting point. Next is you gotta figure out what her monthly income sources are and what her monthly expenses are. So she has a nursing job. Amazing. She has a side business and what is her Social security estimate? So when it comes to your social security estimate, you can go to ssa.gov and enter in your information and they will give you an estimate of how much you would make in social security.

So she's already at the age where she could start taking it if she wanted to. Um, and so that's gonna give you the baseline numbers. When you know how much social security you're gonna be getting every single month, then all we need to do is fill in the gap. Now, let me give you an example of this. Okay?

Let's say for example. That she needs to have $6,000 per month. Okay. I'm just throwing a number out there. I don't know what she actually needs, uh, but let's just say she needs $6,000 per month to live. Okay. Well, if you go to ssa.gov and you log in there, and if she's been working a long time, she might have a decent amount coming in and Social Security.

So let's say for example that she has $3,000 coming in for Social Security. We don't know exactly what she has. It's probably closer to like two, 1500 to 2000. Um, somewhere in that range. Maybe it's 2,500, but. Let's just say, for example, for argument's sake, to make the math easy. Let's just say she has 3000 coming in and she needs another $3,000.

Okay? So if you need another $3,000, then you would need $750,000 invested. That is what the 4% rule would state in order for you to draw down on your portfolio. That's what it would state, okay? Now, a lot of retirees don't need that much, but it depends on where you live and your location and all those different things.

So you wanna get a full picture of where you start, and it's again, how much is in the 401k and IRA. If her home is paid off and owned outright, that's gonna reduce her expenses. And then what are her monthly expenses and income sources? So she's got those income sources and how much is she gonna have in social security?

Those are big, big things to understand. Now, if she's able and healthy enough to work a few more years delaying that social security could be helpful. And if you delay it till age 67 to 70, it could boost her lifetime benefits significantly. And ssa.gov will actually show you those numbers, which is great when you log in there.

And then continuing part-time work as a nurse or expanding her grief coaching business could provide income well into retirement, especially online. So that could be very, very helpful as well, is you can set up things, you know, to help people with grief coaching, for example, online, and you can expand your business.

Much more than even locally. So if she's only working locally, um, doing this online could be really, really helpful. And it could turn the timeline of three to five years left into maybe 10 to 15 years of flexible income, meaning she could make her own schedule. Maybe she works one to two days a week, uh, which will relieve a lot of pressure going forward.

I think the business of the being a grief coach. Could be the place to kind of spend some additional time. That's the place that I would think about this is how can I make some extra income that'll fill in the gaps? Because once you know those gaps, let's say for example, we keep our example rolling. She has 3000 coming in.

She needs another $3,000. Could she make $3,000 per month as a grief coach to fill those gaps in? That is the big question. Now, the social security would get impacted by the income, so we just have to weigh all of these different things out. Now. Number four is to keep investing consistently. So as time goes on, continuing to use things like low cost index funds and target date retirement funds inside of her 401k and IRA is a great move for most people.

And then just sticking to a balanced portfolio. And maybe it is, you know, like we talked about in the earlier question, maybe it's a 60% stocks, 40% bonds, maybe it's a 70% stock, 30% bonds, or if she wants high growth short term. Um, looking at some other aggressive portfolios is another thing that you can do.

But it has to fit your risk tolerance. You have to stay invested long term in that portfolio. And again, remember. You can withdraw at least 4% every single month in retirement. So she's at the age where she can easily withdraw 4%, probably a little bit more depending on what her tolerance is. So however much she has in there, let's say she has a hundred thousand dollars between her two accounts, she can draw down 4,000 additional dollars per year from those accounts to help fill in some gaps.

Now if your mom is still supporting two children, I don't know the situation there, but if there is a way, if they're adult children or if there's a way to create a transition plan, that could be great. If they're not adults, obviously, you know, she's, she wants to continue to, to care for them. That is great.

Um, and she may, in her situation, she may also benefit from just talking to a fee only financial planner, meaning someone who could set up a financial plan for her. To help her through some of this transition because she has so many variables and factors coming into play that could also be very, very helpful.

But your mom's story is heroic and she's cared for others her entire life. So the next chapter is about caring for herself in doing this, not through risky shortcuts, but through smart and intentional steps that preserve her wealth and can help preserve her peace of mind. She does not have to get rich quick.

She still has some time here, but she needs just a plan for a clear path forward. That is gonna be the big key overall in the way that I would think about this. So those are just some of my thoughts on the situation, but if you have any other questions, please reach out to me, uh, and I'll help any way I can.

Alright, the last question is from Jeremy. So I'm 47. I make a hundred thousand dollars and I contribute 15% to my 401k, which has a balance of $470,000. Amazing, amazing stuff there. My employer matches 6%. I have no consumer debt, a $200,000 mortgage and a three month emergency fund. I don't currently have a Roth account, and I'm worried about going into retirement with no tax free income.

Should I lower my 401k contributions to 6%? Max out my Roth IRA in my fifties and slowly bumped the 401k contributions back up over time. Alright, so great question Jeremy, and this is an amazing way to think about this and the answer is I would definitely consider it. Now, again, this is not financial advice, but I would definitely consider that because it's a smart tax diversified move, uh, that you could be doing.

So you're in a great financial position. You have no debt outside of your mortgage. You have that $470,000 in tax deferred savings, you have a healthy income and 15% contribution rate, and you have that emergency fund in place. So this is a strong foundation, and now it's time to start to optimize. So right now, your entire retirement is in pre-tax money, which means it will be fully taxed in retirement.

So that's one thing to consider. So this gives the IRSA lot of control over your future income, which is why I like the Roth IRA so much is because. If tax rates rise, your withdrawals could cost more than expected in a 401k. Whereas in a Roth IRA, you've already paid tax on that money, you're not gonna be paying taxes again.

And so you thinking about this, that is a great way to think through this. So adding the tax free bucket, which is the Roth, gives you that flexibility and control over your taxable income in retirement, having flexibility. As you know, I talk about this all the time, is one of the biggest keys when it comes to retirement, and so this is gonna give you an additional bucket of that tax free growth.

So you could research something like this is having this phase strategy of dropping a 401k to 6% to get the full match and then use that freed up cash to max out a Roth IRA. Which is $7,000 at the time. Recording this, if you're eligible for the a thousand dollars ketchup, and then you're gonna be eligible for the a thousand dollars catch, starting at age 50, which will allow you to start contributing 8,000 plus.

It'll probably be higher on the limits by then, uh, which would be great. And then between age 50 to 59, you can continue to max out the Roth. And since your limit will rise to $8,000 a year, once you hit 50, you can get more money into that account. And then you can gradually increase your 401k contributions as your income and margin allows.

And so this way you're building up a solid Roth IRA alongside your 401k to give you that flexibility when it's time to withdraw. Now a bonus thing that you could do is you could consider Roth 401k contributions if your employer allows. So check your current 401k plan to see if it allows for Roth contributions, because many of them do now.

So most places have the Roth 401k options, not all, but most do. And you could split that 15% into something like 8% traditional, 7% Roth. If you want to diversify inside of your 401k, and I would try to bump up this number, so if you could, I would try to bump that up to 20% as a well most wealth builder, we want them to start two 20%.

Uh, but you may be, you know, allocating dollars somewhere else as well. Uh, but that would accelerate the Roth balance without giving up employer match or contribution space. And so it allows you to kind of do both. So see if there's a Roth 401k option as a bonus, and then you can aim to access three different tax buckets.

So you could think through the taxable brokerage account. Which is long-term flexibility and lower capital gains. But if you plan on working until 59 and a half, then it's not completely required. Then you could think of the tax free bucket, which is the Roth IRA, and then the tax deferred bucket, which is your traditional 401k.

If you have all three, you're in an amazing shape when it comes to retirement because you have flexibility in retirement. But amazing jobs so far. You are in a great spot. You're gonna see all those portfolios are gonna start to accelerate and I would continue to tick up the savings rate as you get closer and closer to retirement, depending on how much you need.

Also, you know, factoring in social security and thinking about that number as well is going to help you decide on what number you need to arrive at. Uh, but you still have tons of time, uh, to build wealth here, so that's absolutely amazing. And I love, I love, I love what you're doing here and how you're thinking about this.

So congratulations again, uh, to you, Jeremy, on building up that wealth, and you are in a good spot to really accelerate it here. So really excited to hear what you do. So if you have any other questions, please let me know. And thank you all for listening to this episode of the Personal Finance Podcast.

Again, if you have any questions, please reach out to us via the Mastermind newsletter. We will answer as many as we possibly can on the show. Thank you for investing in yourself. 'cause that's exactly what you're doing when you listen to this podcast, is you are investing in yourself. And don't forget to check into Join Master Money Academy.

We will be launching that very soon here and really, really excited for that. So if you wanna join Master Money Academy, uh, get ready for that. It is gonna be the best place to learn about wealth building and having a community of wealth builders. So really, really excited for that. Thank you so much for being here and we will see ya.

On the next episode.