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1:00

Terms apply. Welcome

1:05

back to Asken Advisor. I'm Krista Divias

1:07

here with Wes Moss. Hey Chris,

1:10

Adebias. Aspen Advisor is where we

1:12

go deeper on all things investing. We

1:14

here at Team Clark, I hope to

1:16

serve you in every way we can

1:18

with Clark Monday, Wednesday, Friday, and West

1:20

with us on Tuesdays. And if you

1:22

have a question for Clark or West,

1:24

you can go to clark.com/ask. And people

1:26

have questions and they're getting more

1:29

and more complex. They're getting tougher.

1:31

feels like we're kind of on a

1:33

roller coaster right now with the stock

1:35

market and everything and today you're going

1:37

to talk about a couple of things

1:39

that are affecting us a lot that

1:41

and then inflation right inflation we need

1:44

to talk about inflation we've I don't

1:46

think we've done a segment around that

1:48

it's always around us and it's scary

1:50

but it's necessary so we'll talk about

1:52

that too but okay but maybe we

1:54

just start with the market I was

1:56

watching I didn't watch this whole movie but

1:58

for some reason it was on, I don't

2:00

know if it was Netflix or one

2:02

of the many subscription video on demand

2:04

apps on our television and the movie

2:06

was Brother Where Art thou? Have you

2:09

ever seen that? I have not seen

2:11

that one. I'm not going to say

2:13

it's George Clooney's finest role but he's

2:15

kind of the main guy in it

2:17

and there's this kind of hapless group

2:19

of guys going around and I don't

2:22

remember exactly what they're trying to do

2:24

but they're walking on this riverbank and

2:26

I think I remember this because of

2:29

the song. So powerful in this and

2:31

I I think I had the brother

2:33

where art thou soundtrack and This

2:35

goes back to the song of

2:37

safety that comes from sirens as

2:40

in this alluring Song that you

2:42

might lead you astray just like

2:44

in the movie brother where art

2:46

there all these guys are walking

2:49

down the riverbank and they there's

2:51

these three women kind of kind

2:53

of rise out of the water

2:55

and they sing this magical magically

2:58

seductive alluring song. It's like, wait

3:00

a minute. Oh, wow. And the

3:02

actual singers, they're not in the

3:04

movie, but it's Allison Kraus and

3:07

he's a phenomenal singer and I

3:09

think Jillian Welch and Emmy Lou

3:11

Harris. So they're like the most

3:13

beautiful country voices of all time.

3:15

And this is this song and they

3:17

are sirens and what happens is these

3:19

three call them hapless guys that are

3:21

on this adventure. ending up down

3:24

by the riverbank. They end up getting

3:26

passed out. They wake up, dazed and

3:28

confused. One of their buddies is missing.

3:30

I think it's peed, he's gone. And

3:32

they listen to the song of the sirens,

3:35

which is kind of, it seems like a

3:37

good idea, but you end up in a

3:39

bad spot. And I think that's what

3:41

happens when we go through market turmoil.

3:43

And there's been a lot of market

3:45

turmoil. in 2025. I mean, you cannot

3:48

go more than five minutes if you're

3:50

watching the news, which I don't always

3:52

recommend always watching the news. You're going

3:55

to have heard about tariffs and tariffs

3:57

and tariffs and the stock market's been

3:59

reacting. like a roller coaster. And

4:01

there's been some real fear created

4:03

in 2025. We've had a couple

4:05

really placid years in the stock

4:07

market, some really strong gains, not

4:09

a lot of big pullbacks, but

4:11

2025 we've seen that. So what

4:13

happens is that when we go

4:15

into these tougher times and they

4:17

get a little scared and worried

4:19

about the economy and we're worried

4:22

about the stock market, that siren

4:24

song of come to safety. really

4:26

starts to be louder and louder.

4:28

And that song of safety is,

4:30

hey, just sit this thing out

4:32

and go into just wait this

4:34

whole thing out in cash. As

4:36

investors, we don't always think of

4:38

it as, well, maybe I'll have

4:40

some cash. It's really, we naturally

4:42

go to, I just want to

4:44

protect everything. I want to just

4:46

make everything safe because this whole

4:48

safety thing sounds really good right

4:50

now. And it's just a human

4:52

emotion that drives us. And that's

4:54

why we've seen, and there's been

4:56

multiple reports throughout the year, and

4:58

I'm sure this is only going

5:00

to be exacerbated as the tariff

5:02

worries kind of accelerate, more and

5:04

more people are taking money out

5:06

of just regular balance. Yes, they're

5:08

taking money out of stocks and

5:10

putting them to money markets or

5:12

cash. They're also taking out balanced

5:14

accounts or targeted funds have been,

5:17

we've seen money pulled out of

5:19

even a balanced account and just

5:21

go to cash. And that feels

5:23

okay for the really short run.

5:25

But what happens is when we

5:27

listen to that song and it

5:29

says, well, A, the world is

5:31

scary, go to cash. B, hey,

5:33

this time is different. It's another

5:35

real theme in that song. And

5:37

that is what makes every correction

5:39

character character characteristically scary. Is that

5:41

the sirens are saying, go to

5:43

safety. And they're also saying, because

5:45

this time it's different, and this

5:47

time it's worse than ever, and

5:49

this thing is gonna be harder

5:51

to come back from, and we

5:53

just naturally extrapolate to, wait a

5:55

minute, maybe they're right, maybe they're

5:57

right. So maybe it would feel

5:59

good to go to cash, and

6:01

it does feel good to cash.

6:03

The problem is that. Markets inevitably

6:05

recover, or they at least have

6:07

in the past. There's no guarantee

6:09

of that, but the American economy

6:12

figures a way out to kind

6:14

of move forward, and then markets

6:16

recover. In fact, a lot of

6:18

the best days in the market

6:20

we see, biggest gains, usually come

6:22

right around the biggest losses. So

6:24

it's fear, wait a minute, it's

6:26

not that bad. And sitting anything

6:28

out ends up... really having our

6:30

money stagnant and then we don't

6:32

build wealth. And here's how I

6:34

think we avoid those sirens and

6:36

avoid that allure to just go

6:38

to cash and keep everything in

6:40

safety. One, and hopefully I think

6:42

a lot of our listeners probably

6:44

have the following one. If you

6:46

have some sort of plan, remember

6:48

your financial plan is not predicated

6:50

on the market steadily and perfectly

6:52

going up every year. It's just

6:54

not. It's part of financial planning

6:56

as the understanding that markets do

6:58

go up and down. and there

7:00

is volatility. So if you have

7:02

a plan, I think it helps

7:04

you avoid the riverbank here and

7:06

avoid the song of the sirens.

7:09

Number two, you're already diversified. If

7:11

you're listening to this show, you're

7:13

probably not like a hedge fund

7:15

that went all in on one

7:17

specific sector, didn't get all in

7:19

on a few stocks that were

7:21

doing really well, only to have

7:23

that unravels so quickly that you

7:25

see really big losses. So that

7:27

just simple diversification. really goes a

7:29

long way to helping you avoid

7:31

that alluring song that ends up

7:33

putting you into cash, missing out

7:35

on markets. And then three, I

7:37

think it's always a good reminder,

7:39

corrections are really normal. They are

7:41

a fundamental part of the market.

7:43

Really without them, you wouldn't have

7:45

the average nine, 10, 11% rate

7:47

of return we've seen. There's really

7:49

no asset that's just a nice,

7:51

easy guarantee walk in the park

7:53

to have that bigger rate of

7:55

return. So along with. these great

7:57

returns we see over time naturally

7:59

comes some volatility in a little

8:01

bit of pain otherwise everyone would

8:04

participate so this time even though

8:06

the situation, every time is different

8:08

and the market goes down for

8:10

a new reason, it's not different

8:12

fundamentally because markets do eventually recover.

8:14

So the sirens job is to

8:16

shake you out of the market,

8:18

scare you, and we just have

8:20

to remember the long term of

8:22

the market. If you go back

8:24

to the early part of the

8:26

20, the year 2000, right after

8:28

dot com, the SB of 100

8:30

was at 1, 1,400. here we

8:32

are today around 5500. That's an

8:34

incredible more than double, more than

8:36

tripling of the market over that

8:38

period of time with lots of

8:40

ups and downs. So we just

8:42

remember that and we have to

8:44

stay, we have to stay patient

8:46

and participate and that's how we

8:48

build wealth. We've got to be

8:50

able to cover our ears to

8:52

not listen to that song of

8:54

safety that's sung by the sirens

8:56

because they're there to make sure

8:59

you don't grow your wealth over

9:01

time. All right, well we have

9:03

some questions and of course you're

9:05

going to have some related ones

9:07

with everything going on This came

9:09

in from Catherine in North Carolina.

9:11

Hi West. I'm really enjoying Ask

9:13

West Moss. I'm 55 and my

9:15

husband is 56 I would like

9:17

to retire this year But with

9:19

the recent market downturn my husband

9:21

is reluctant to stop working We're

9:23

100% in equities in stock. We

9:25

should have shifted to a less

9:27

aggressive portfolio sooner. We had about

9:29

two million dollars in retirement assets

9:31

earlier this year. We were advised

9:33

to start shifting about 20% to

9:35

cash money market. Right now, we

9:37

only have 41K in cash. My

9:39

husband can't bring himself to sell

9:41

stocks at a loss to convert

9:43

to cash. Therefore, he thinks he

9:45

needs to keep working and wait

9:47

for the market to recover. Next,

9:49

I have a pension that I'm

9:51

eligible to draw on this year

9:54

with. different options. $1,600 per month

9:56

for life or $3,000 until age

9:58

62, then it decreases to $800.

10:00

$3,000 until age 65, then it

10:02

decreases to $2.50. My pension is

10:04

not adjusted for inflation. An

10:06

advisor said, we're okay to retire

10:08

and we could withdraw more than

10:10

4% using guardrails. Our living expenses

10:13

are around 60 to 70,000 a

10:15

year. We would like to spend

10:17

more time traveling, home

10:19

improvements, etc. I plan on

10:21

working part-time, which will bring in about

10:24

25 to 30K a year. I would

10:26

love to hear your opinion. Whoa, Catherine,

10:28

in North Carolina, there's a lot there.

10:31

A couple of things. So right out

10:33

of the gate, it makes me think,

10:35

is I'm kind of taking some notes

10:37

here as you're reading this through Chris,

10:39

so you guys are young. They're really

10:41

young. And sounds like you've, getting

10:43

to that 2 million number when

10:46

you're doing some planning, that number

10:48

works for you. Just like we

10:50

were saying earlier, financial plans are

10:52

not predicated on a perfect straight

10:54

line as these assets going up.

10:57

So a financial plan knows that

10:59

you're going to have these big dips.

11:01

The only catch to that, and

11:03

this is I think what you

11:05

were trying to accomplish by having

11:07

some balance, is that you don't

11:09

want to go into retirement 100%

11:12

inequities. For this exact reason, because

11:14

then you almost get beholden, you

11:16

become... kind of a prisoner of

11:18

how well the market does. I mean,

11:20

you're trying to plan your life

11:22

and the next 30 years, 40 years,

11:24

the market could care less about

11:26

your plants. So the market says, oh,

11:29

well, we're down 20% or your assets

11:31

are down from what, 2 million down

11:33

to 1.8. They could go to 1.7,

11:35

1.6, depending on how big of a

11:37

correction we have. And then now, all of

11:39

a sudden, you're totally beholden to that.

11:42

And the market just says, oh,

11:44

oh, sorry, sorry. you were supposed

11:46

to retire and now those numbers

11:48

just don't work anymore. That's why

11:50

you really do need that balance going

11:53

in and that's why having 30 or

11:55

40% or even 50% now you're I

11:57

think you're pretty young to have 50%

11:59

in safety. assets. But even having

12:01

a couple years worth of dry

12:04

powder and thinking about your

12:06

spending need of 70,000 you're going

12:08

to be making 25 so you

12:10

really only have a need of

12:12

50,000? Three years of dry powder is

12:14

$150,000. So on two million that's

12:17

only a seven or eight percent

12:19

waiting towards that. So it's

12:21

almost as you started to

12:23

get some balance this market

12:26

didn't cooperate. I would lean towards

12:28

the following. Your husband, I think

12:30

his instinct is similar to what my

12:33

instinct would be, which is, hey, we

12:35

planned on having about 2 million. It's

12:37

not just the number, but also

12:39

a diversified 2 million, where at least

12:42

some significant portion of it is

12:44

in safety. So if I were Catherine, I

12:46

would probably say, hey, let's just

12:48

postpone this, let's keep working, keep

12:50

saving, and allow the market to

12:52

recover. You don't want to go right

12:54

in retirement in the middle of... kind

12:57

of economic turmoil if you haven't

12:59

already had balance. Balance would have

13:01

solved for this, but you got caught a

13:03

little quickly here or just a little bit

13:05

too late. So I like the idea of

13:07

just working a little while, it gives time

13:10

for the market to recover, save a little bit

13:12

more, and then I think you're in good

13:14

shape. If I think about the bigger picture

13:16

spending numbers, and I did some math

13:18

here, you've got this low pension amount

13:20

that goes forever, something like $1650 for

13:22

the rest of your life. And then

13:25

you have these tricky options of $3,000

13:27

or $3,500 until 62, and then the

13:29

number goes down. Or till 65, and

13:31

the number goes way down. Really

13:33

depends on how long you live. If

13:36

you're only planning for the next

13:38

10 years, just take the highest

13:40

number that lasts for seven to

13:42

10 years. But if you're going to

13:45

live till 90, and you're trying to

13:47

have some longer term protection,

13:49

that a lower number times, call it 30

13:51

or 35 years to get to 90. That

13:54

of the options that you cited has

13:56

the largest amount of cash that's

13:58

given to you even if you

14:00

adjust it for inflation. So it's got

14:02

the highest net present value as well.

14:04

I think that's the choice you have

14:06

to make. If you've got a bunch

14:08

of, if you think you're going to

14:10

be living into your mid 80s or

14:13

90s, I wouldn't discount that option one,

14:15

which was the lower amount, but it

14:17

lasts forever. The last piece of the

14:19

equation here, from what I can tell,

14:21

even if I inflate you're spending to

14:23

80, and you're going to have Social

14:25

Security and in 10 years or so.

14:27

Call it 50 between you and your

14:29

husband that that covers most of the

14:31

spending and the gap is only 30,000

14:33

Let's call it 40,000 Well, even if

14:36

your portfolio only gets back to two

14:38

million forty thousand dollars on two million

14:40

per year It's super low withdrawal rate.

14:42

So I think, and that's probably why

14:44

you guys are thinking about retiring so

14:46

early already, is that your withdrawal need,

14:48

if you really start doing the math,

14:50

it's pretty low on a percentage basis.

14:52

And that's an awesome place to be

14:54

when you head into retirement. So I

14:56

think you're really close anyway. If it

14:59

were me, I would, you hadn't quite

15:01

finished your retirement and investment planning because

15:03

you really want to diversified portfolio by

15:05

the time you start having to pull

15:07

a little bit from it. Maybe work

15:09

a little longer, I think your withdrawal

15:11

rates in a super safe place. And...

15:13

I can't answer all the questions perfectly

15:15

here, but I think that gives you,

15:17

at least I think I'm giving you

15:20

my opinion on most of these. Don't

15:22

discount that lower option that lasts for

15:24

life. And I would just add in

15:26

a little something. If you do keep

15:28

working, your husband keeps working, don't put

15:30

off the home improvements in travel. I

15:32

mean, while you have the higher income,

15:34

maybe now is the time to do

15:36

some of those things because people put

15:38

off travel and things like that until

15:40

they're older. And I've actually done research

15:43

on this Krista where the home improvements

15:45

are, here's one retirement more than a

15:47

pothole. This is like one. of those

15:49

jungle traps that you're running along and

15:51

you fall through and there's a bunch

15:53

of bamboo spikes here. It's called a

15:55

renovation in retirement. That is the worst

15:57

possible thing you can do after you've

15:59

stopped working. If you're going to do

16:01

housework and it's going to be kitchen

16:03

and bath, which you think you have

16:06

a budget, it never works out exactly

16:08

that way. It can bleed higher and

16:10

more expensive. Happy retirees, one of the

16:12

things that they know to do is

16:14

take care of the bigger costs while

16:16

you're still working. All right, we'll go

16:18

to another question from Roger and Connecticut.

16:20

Hi, Wes, I often hear advisors, in

16:22

my opinion, overly pushing Roth and Roth

16:24

conversions. Don't get me wrong. I'm all

16:27

for Roth's. We've personally done Roth conversions.

16:29

But I cringe when I hear advisors

16:31

talking about converting overtime, everything to Roth.

16:33

I think it's better to have a

16:35

balance of Roth and tax deferred accounts.

16:37

If you converted everything, you would be

16:39

at least... throwing away the standard deduction

16:41

and low first brackets. Also, to qualify

16:43

for ACA insurance, you need some income

16:45

or you would need to go on

16:47

Medicaid. With the balance of Roth and

16:50

tax deferred money, you can choose your

16:52

tax bracket and have a lot of

16:54

flexibility. Beyond my own finances, should we

16:56

be lucky enough to have excess money,

16:58

I can QCD some qualified money into

17:00

charity of my choice, avoiding tax completely.

17:02

In my opinion, Roth and Roth conversions

17:04

are awesome, but you should never convert

17:06

it all. Am I wrong? And if

17:08

so, how am I wrong? Roger, you're

17:10

becoming like a Jedi night when it

17:13

comes to managing your tax bracket. And

17:15

I love hearing that. I think part

17:17

of it is just to get heard

17:19

sometimes in financial media. Roger, you got

17:21

to take a really strong position. You

17:23

know, there's people that I've interviewed on

17:25

my show that write books about Roth

17:27

conversions and... They write an entire book

17:29

about why it's the only option you

17:31

should ever consider. And the real world

17:33

is it's really rarely ever like that.

17:36

Sure, having one in a raw...

17:38

of course we know

17:40

is great because

17:42

it's tax -free money,

17:44

grows tax -free, comes

17:46

out tax -free, but

17:48

there's a really high

17:50

cost to put

17:52

money into a Roth

17:54

and you are

17:57

throwing away some things.

17:59

You brought up

18:01

a couple of good

18:03

points. If you

18:05

have zero income, then

18:07

you're right. First

18:09

of all, you don't

18:11

need income to

18:13

pay for a supplemental

18:15

plan or a

18:17

healthcare plan. You can

18:20

be on ACA,

18:22

healthcare. As long as

18:24

you can pay for it, you

18:26

can be on it. But if

18:28

you have zero income, and that's

18:30

hard to do too because you're

18:32

gonna at some point have social

18:34

security. you have zero income, then

18:36

you do run the risk of

18:38

ending up looking at Medicaid. So

18:40

I think that being able to

18:42

control your income, having a regular

18:44

IRA can help with that. Now

18:46

I don't think you need to

18:48

manufacture your income because there's gonna

18:50

be enough in retirement with social

18:52

that you're not gonna have zero

18:54

income. The second part is that

18:56

the two things that really stand

18:58

out is when you're managing your

19:00

tax bracket, the standard deduction does

19:02

work. Now this is gonna be

19:05

different for everybody. Consult your CPA

19:07

for your particular situation. I'm not

19:09

a CPA, but I'm always looking

19:11

at my tax brackets. And I

19:13

have definitely known families that I've

19:15

worked with that let's say somebody

19:17

was in a student year or

19:19

have very little income. They were

19:21

way away from social security. The

19:23

standard deduction help them do a

19:25

Roth conversion. So you're right in

19:27

a big sense that that standard

19:29

deduction kind of gets wasted if

19:31

you have zero income. And you

19:33

can utilize that if you keep

19:35

your tax brackets really low to

19:37

even do future Roth conversions because

19:39

you can utilize that. The other

19:41

piece here is if you're charitable

19:43

minded, the QCD, the qualified charitable

19:45

deduction that you can start at

19:47

70 and a half from your

19:49

regular IRA, that goes away if

19:51

there's no IRA money. So you

19:53

don't wanna imagine the amount of

19:55

money you're saving by doing a

19:57

charitable gift from your IRA. You

20:00

don't need taxes on that. Everything's

20:02

in a Roth. You've kind of guaranteed

20:04

that you're going to pay taxes on

20:07

the money to get it into the

20:09

Roth, and then you're giving the money

20:11

away. So just for that reason alone,

20:13

you may want to keep some regular

20:15

IRA money if you're cheerably

20:18

inclined, and you're going to

20:20

give away dollars after age 70 and

20:22

a half. So short answer, you're not

20:24

wrong at all. Roth is great, but

20:26

the balance here absolutely can

20:28

work for you long term. Help

20:30

us understand inflation, which has been

20:32

frustrating so many people. So frustrating.

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discover.com/credit card. Welcome back

23:32

to Ask and Advisor, West Moss, along

23:34

with the Krista Divias. So much fun

23:37

to be here with you. You're such

23:39

a pro when it comes to

23:41

all this stuff. Oh my gosh, no

23:43

I am not. I feel like you

23:46

should just answer the questions. Absolutely. You

23:48

really could. You could probably answer a

23:50

lot of these. I don't think so,

23:53

but I do learn something for

23:55

sure every week, and I've gotten some

23:57

great feedback from other people who are

23:59

absolutely enjoying. yourself. So we're going to

24:02

get into a controversial topic and it's

24:04

called inflation and we all know about

24:06

it. We all think about it.

24:08

I just remember the last couple of

24:11

years I do a radio show in

24:13

Atlanta called Money Matters and at some

24:15

point I think we started calling inflation

24:18

matters because that's the only topic inflation

24:20

inflation. So I want to talk

24:22

here for a minute about how to

24:24

beat inflation, how to think about inflation

24:27

and how to protect yourself from inflation

24:29

when it comes to retirement. So first

24:31

of all, we had this long stretch

24:34

where we didn't really worry about

24:36

inflation. We had about a 10-11-year stretch

24:38

after the great financial crisis where we

24:40

had really low inflation because we had

24:43

a rough, not a great economy. But

24:45

it lasted for a really long time.

24:47

You can call it globalization or whatever

24:50

the, there's a lot of reasons for

24:52

it. And we almost forgot that

24:54

inflation was a problem. It was so

24:56

mild. I think even in 2009 we

24:59

actually had one year of deflation prices

25:01

went down about a half a percent

25:03

for just that one year. And then

25:06

we have a bunch of years

25:08

where it was one, one and a

25:10

third, one and a quarter. I think

25:12

this also manifested when it came to

25:15

Social Security. You know, we had big

25:17

inflation back in 2022 and 23 and

25:19

people got big raises for Social

25:22

Security and it was because we had

25:24

big inflation. And people had forgotten that

25:26

their Social Security was even tied to

25:29

inflation because we didn't even notice a

25:31

1.1% bump in your Social Security check,

25:33

right? It was just, we just

25:35

got lulled to sleep for almost a

25:38

decade that there was almost no inflation.

25:40

It was actually below at the Federal

25:42

Reserve even once, which brings me the

25:45

point that inflation is absolutely necessary. It's

25:47

like salt, right? If you, you're

25:49

the right, a little bit of salt

25:51

in a biscuit. makes for a great

25:54

biscuit. A little bit of salt in

25:56

a stew makes for an amazing stew

25:58

without it. Like remember we used to

26:01

have wars over salt. It's a big

26:03

deal. But the minute you dump salt.

26:05

into a stew or into a

26:07

biscuit. It ruins everything. So it's very

26:10

much something, it's an ingredient we want

26:12

to manage and that's exactly what the

26:14

Federal Reserve does. They don't have a

26:17

target of zero inflation, they have a

26:19

target of 2% inflation. Because if

26:21

you have steadily rising prices in a

26:23

manageable way, they price stability, but it's

26:26

price stability at 2% every year. And

26:28

it kind of has this gentle nudge

26:30

for all of us to go out

26:33

and spend because we know that

26:35

things are going up in price. We're

26:37

not rushing to the store to get

26:39

avocados because we think they're going to

26:42

go up by 2% over the course

26:44

of the year. But we have this

26:46

general sense of things get a

26:48

little bit more expensive. So it's very

26:51

healthy for the economy to have this

26:53

pinch of inflation. Now as another example,

26:55

and I'm not going to say this

26:58

is a good thing, but... We see

27:00

if you go back to the

27:02

beginning of 2025, the tariff worries of,

27:04

hey, wait a minute, I think prices

27:07

are going to jump a lot for

27:09

X, Y, Z car. We saw sales

27:11

for cars go through the roof because

27:14

people are trying to get ahead of

27:16

the inflation. And just as an example,

27:18

it motivates us to go spend

27:20

today. So it's a really good thing

27:23

to have. We just don't want a

27:25

salt block in our stew. It kind

27:27

of ruins everything. So we need it.

27:30

Back in the vernacular in America, investors

27:32

who didn't talk about it for

27:34

a really long time and forgot about

27:36

it, the reality here is that even

27:39

at two, two and a quarter, two

27:41

and a half percent inflation rate, it

27:43

wilts the purchasing power by 20, 30,

27:46

40% depending on how long your

27:48

retirement is. And I think of it

27:50

through, go back to a car example,

27:52

if you only had dollars for specific

27:55

items, imagine if you only had a

27:57

wallet for food. And so you had

27:59

food dollars and you had gasoline

28:01

dollars and you had car dollars and

28:04

you had and if you let's you

28:06

go back to 2020. And I think

28:08

about where inflation was for. cars. We

28:11

had a decade of car prices not

28:13

going up. It actually went down

28:15

a little bit. If I had $30,000

28:17

in my car wallet and I was

28:20

eyeing let's say a entry-level Lexus, that's

28:22

a happy retiree car so I used

28:24

that. If I waited for two years,

28:27

imagine it's we're talking about dollars in

28:29

your wallet. They're not invested in anything.

28:31

They're actual, it's in your car

28:33

wallet. Now, two years later, because of

28:36

all the supply chain disruptions in the

28:38

pandemic, now that same car went from

28:40

30 to 40. But your wallet still

28:43

only has 30 grand in it. So

28:45

your car dollars, they didn't change,

28:47

but they became way less affected. They

28:49

essentially wilted by 25%. But now that

28:52

was a rapid example. We had big

28:54

inflation in just a two-year period. But

28:56

it happens to almost every category. and

28:59

it happens pervasively over time. So

29:01

I want us to remember that it's

29:03

a part of the equation. It's not

29:05

as though we didn't have inflation. Now

29:08

we had inflation, we're gonna go back

29:10

to no inflation. That's not the case.

29:12

It's always there. Hard of the

29:14

Fed's mandate. So what do we do?

29:17

The very simple answer is you have

29:19

to invest your assets in areas that

29:21

inflate along with inflation. Your main quarterback

29:24

for this probably the best historical example.

29:26

of something has given us a

29:28

rate of return above the rate of

29:30

inflation. So remember, if stocks are up

29:33

10% and inflation up three, your real

29:35

rate of return is only seven. So

29:37

the main quarterback in being able to

29:40

fight and get a rate of return

29:42

above inflation has been historically broadly diversified

29:44

equities. I think of it in

29:46

terms of categories to see how that

29:49

works. Why do stocks protect us from

29:51

inflation? Think about these sectors like health

29:53

care. Think about sectors of utilities. As

29:56

their cost goes up, they pass. it

29:58

on to you and we just

30:00

have to keep paying more as consumers

30:02

that goes back into earnings companies now

30:05

have more money because they've passed on

30:07

the price to us. Well we can

30:09

now be the beneficial owner of that

30:12

company that continues to have more

30:14

earnings because they're inflating their prices along

30:16

with inflation. Potato chip company if you're

30:18

making potato chips and potatoes become 10%

30:21

more expensive and now your end chip

30:23

costs. 10% more, what do you do?

30:25

That yellow bag of potato chips

30:27

is just 10% higher. And if you

30:30

don't own the potato chip company, then

30:32

you've now been hit from inflation with

30:34

no sort of recourse. So we've got

30:37

to own the potato chip company, if

30:39

that makes sense. And we've got

30:41

to own a broadly diversified basket of

30:43

companies that are able to inflate their

30:46

prices along with inflation. And we've got

30:48

to be the owner of those companies

30:50

to benefit from that. And that's how

30:53

we protect. Stocks are your main

30:55

quarterback. I would put real estate into

30:57

that same category. That's been very effective

30:59

to hedging its inflation. And I think

31:02

about there's a recent billionaire list. I

31:04

don't know, have you seen this? No.

31:06

Bruce Springsteen is on the list. Okay,

31:09

the boss. The boss is on the

31:11

list. The boss is on the

31:13

list. His royalties from those. Hit movies

31:16

like terminators You think that yeah? Terminators

31:18

franchise. You think that really gone there?

31:20

No, supposedly back when he was Mr.

31:23

Universe You got a little bit of

31:25

Mr. Universe money. What did he

31:27

do with it? He bought California real

31:29

estate Way back in the 70s So

31:32

the path to being a billionaire is

31:34

not saving. It's about investing and I

31:36

don't know the exact properties he bought

31:39

but I think he bought a

31:41

lot of it and it's worth a

31:43

ton of money today And that inflated

31:45

along with inflation for that 40-year period.

31:48

So real estate does that. And then

31:50

I would say more of your defensive

31:52

line. This is not a high-powered

31:54

offense, but owning bonds at least can

31:57

keep you. pace with inflation and maybe

31:59

a little bit of a real rate

32:01

of return. So if inflation is three

32:04

and bonds are paying you four and

32:06

a half, you're not only keeping

32:08

up of inflation, but you have a

32:10

little bit of a real rate of

32:13

return above that. So collectively you've got

32:15

your quarterback that stocks in real estate,

32:17

you've got your defensive line called that

32:20

fixed income or bonds, and collectively that

32:22

grouping should keep us ahead of inflation

32:24

because we own assets that inflate.

32:26

along with inflation, and it's not going

32:29

away. Okay, let's go to questions. Cal

32:31

and Georgia wrote in with this one.

32:33

I'm 28, married with two kids, and

32:36

my wife and I max out our

32:38

Roth-I-Rays and contribute 15% of our

32:40

income to 401ks. My parents recently retired

32:42

early, but my siblings and I are

32:45

concerned that they didn't account enough for

32:47

inflation and may run out of money

32:49

in their 70s or 80s. We want

32:52

to set up a long-term family

32:54

savings or brokerage account that we can

32:56

all contribute to over the next 15

32:58

to 20 years. This would create a

33:01

safety net in case they need financial

33:03

help later, which could also be when

33:05

my kids are starting college. What's

33:07

the best way to structure something like

33:10

this? Should we use a joint investment

33:12

account, trust, or something else? Any advice

33:14

on the managing contributions, investments, and tax

33:17

implications would be greatly appreciated. I just

33:19

have to say, wow, most people

33:21

would not think of doing this for

33:23

their parents and have the foresight to

33:26

realize this could be a huge problem.

33:28

It's pretty cool, it's interesting though, you

33:30

know, Cal's 28, Cal, you're now making

33:33

some good money or you're waxing out

33:35

some of your retirement plans, and you're

33:37

thinking about your folks who, it

33:39

sounds like they retired early, but without

33:42

a lot of money. So I don't

33:44

understand that one, but I'm all for

33:46

retiring sooner, but if we don't have

33:49

the money to do it, then it

33:51

really is gonna be the burden

33:53

would be on. the kids to help,

33:55

which is cool that he's able to

33:58

do that. And he's got siblings through

34:00

that. So you've got multiple people that

34:02

are able to... to this. So naturally

34:05

he's thinking, okay, well let's open

34:07

up an account, let's all put money

34:09

in, it'll grow over time, it's a

34:11

safety nap. And I'm just going to

34:14

assume, I don't think Cal said how

34:16

many siblings he had, but I'm going

34:18

to assume, I'm going to assume,

34:20

I'm from a family of four, I'll

34:23

assume he has two siblings. You have

34:25

three people to try to help with

34:27

this safety nap. And Cal has two

34:30

kids. and then Cal's sister's gonna have

34:32

kids that are middle school and

34:34

high school and then his brother's gonna

34:36

have kids in middle school and high

34:39

school. And one of them is gonna

34:41

say, I want my kids to go

34:43

to private school so I don't have

34:46

enough money right now to contribute to

34:48

the joint account for mom and dad.

34:50

And then one of the citizens

34:52

is to say, well, I'm not setting

34:55

my kids to private school. My kids

34:57

go to public school. So I have

34:59

more money. So that's your choice. So

35:02

you still have to contribute. And wait

35:04

a minute. We get this joint

35:06

tax return. And it's now three people

35:08

have to sign it. And somebody just

35:11

got a bunch of interest. And wait

35:13

a minute. I didn't realize it was

35:15

so tax expensive because we all are

35:18

on this joint account. And so

35:20

and so and so stopped contributing. Yikes.

35:22

Absolute nightmare. If you collectively with your

35:24

siblings, start a joint account, which sounds

35:27

awesome and noble, but it's also a

35:29

recipe for absolute sibling disaster. So how

35:31

do you do it right? As

35:33

though I've been speaking from experience from

35:36

this, I've seen this happen a lot.

35:38

I bet you have. Because what is

35:40

a guarantee. is that everyone's life will

35:43

change financially and everyone's financial priorities change

35:45

and everyone's different kids. But the

35:47

priority to take care of the parents

35:49

still remains. Question is who's most responsible?

35:52

How do you keep it fair? How

35:54

do you keep it equitable? A couple

35:56

ways to do it. One, in my

35:59

opinion, you never would want to do.

36:01

a joint account. It gets complicated and

36:03

then imbalanced and people have taxes

36:05

and people stop contributing. So the way

36:08

to do this would be to open

36:10

up a family trust where you write

36:12

the rules to begin with. So you

36:15

set up some sort of guideline that

36:17

is, hey, we're just going to

36:19

start this here, we're all going to,

36:21

we all agree that we're going to

36:24

each put in $10,000 or whatever it

36:26

is, $50,000 each. And then we're just

36:28

going to let that grow, and here

36:31

are the rules of the rules

36:33

of the trust. the money goes to

36:35

our parents. And an estate planning attorney

36:37

can do that for you. And it's

36:40

about laying out the guidelines today so

36:42

that you don't have these sibling rivalries

36:44

down the line and these family

36:46

issues that will inevitably come up because

36:49

we're talking about money and priorities. And

36:51

everyone's always are going to eventually be

36:53

different even if they're almost exactly the

36:56

same today. So that is one way

36:58

to do this is to kind

37:00

of prescript the rules. And that way.

37:03

I think will really help long term

37:05

not have any sort of family divide.

37:07

The second way more practically the way

37:10

I could see doing this and this

37:12

isn't necessarily perfectly fair either because

37:14

let's say you're making a ton of

37:16

money and you're paying 40% in taxes

37:19

and your sibling is making good money

37:21

but paying 20% in taxes. It

37:23

takes you more earnings to end up

37:26

with $1,000 at the end of the

37:28

day to give to mom and dad.

37:30

But we're also trying to help mom

37:32

and dad here. So I think that

37:34

it may be a more practical way

37:37

to think about this. And I've seen

37:39

this work is that everybody at some

37:41

point when they need the money, which

37:43

also should give you a long time

37:45

here, 10, 20 years before they start

37:48

running out. It allows you to save

37:50

money and increase your earnings over time.

37:52

Then you start supplementing the parents once

37:54

a month. Everyone says, we'll all chip

37:56

in $1,000 a month. And that helps

37:59

fill the gap. between what mom and

38:01

dad are getting and what they really

38:03

need. And that's kind of an easier,

38:05

more palatable way, I think. May not

38:07

be perfectly fair because everyone's tax

38:10

rates are a little different. But this is

38:12

a charitable endeavor here. It's a

38:14

charitable act. So I would look at it

38:16

as if you're going to do it now,

38:18

you're going to want to look at some

38:20

sort of trust formation, you're going to have

38:23

to talk to a state planning attorney

38:25

attorney to do that. Otherwise, think

38:27

of it more practically down the. over

38:29

the course of time. I would also, just

38:31

one other thing, I would have them,

38:33

I would pay for them if you can

38:35

find a fiduciary who's willing to do an

38:38

hourly sit down with the parents. they may

38:40

need a reality dose of what they're going

38:42

to need to save and spend in

38:44

order to maintain their money over time and

38:47

look at their social security in the whole

38:49

picture. And then maybe they can get on

38:51

the kind of budget that would enable them

38:54

to sustain themselves. Like I don't know if

38:56

they've done something like that, but I

38:58

would definitely recommend that as well. That's

39:00

a really good point. There's got

39:02

to be some transparency. When you've got

39:04

a bunch of siblings and you've,

39:06

mom and dad retired, retired early.

39:08

Maybe they have plenty of money coming in.

39:11

Maybe they have 10 grand a month coming

39:13

in, but mom and dad are twirl in the

39:15

world and they need 20 grand a month. Now

39:17

are all the siblings going to be willing to

39:19

kick in for that? So it always goes

39:21

back to kind of these priorities. If it's

39:24

really look, hey, mom and dad just don't

39:26

have enough money and then they've got to

39:28

be able to just live and then it's a

39:30

different conversation. So to your point,

39:33

Chris, that the transparency with the

39:35

family. It's so important and I think

39:37

you're right, if you sat down with

39:39

the CFP or a fiduciary, they can

39:41

really get you some clarity around

39:43

their financial situation, which I'll give you

39:46

clarity around how you really can help. Okay,

39:48

Ryan and Wisconsin wrote in with

39:50

this one, are there any advantages

39:52

to dollar cost averaging more frequently?

39:55

I currently buy index funds once

39:57

per month. The market can change

39:59

drastically. over a month, so I'm wondering

40:01

if weekly or even daily buys would

40:03

be a better way to smooth the

40:06

ride while still being an average meet

40:08

the market investor. Okay, Ryan. There's

40:10

no way to know this because we

40:12

don't know how the market is going

40:14

to ever react into the future, right?

40:16

So if you were to say I

40:19

want to really dollar cost average and

40:21

you were starting in 2007, then slower

40:23

dollar cost averaging would have

40:25

been better because the market went

40:27

down for two straight years. If

40:29

you were deciding a dollar cost

40:31

average in early 2020 when the

40:34

pandemic bottom came, then dollar cost

40:36

average would cost you money. So

40:38

forget, more frequently, you

40:40

want to do this all in one

40:42

lump sum. We should really talk about

40:44

this as a larger segment. But there

40:47

is no perfect answer because we

40:49

don't know how markets are going

40:51

to react. So there are plenty

40:53

of studies around this. Around 70% of

40:55

the time. Seven out of ten, but

40:57

there's three out of ten where this

40:59

doesn't work. Putting money to work

41:02

faster is better, because markets do

41:04

have the propensity that they're

41:06

up over time. So the quicker

41:08

you get money invested, the higher

41:10

the probability, and no guarantee here,

41:12

that your money has a better rate

41:14

of return. So to answer your question,

41:17

I would say, invested when you have

41:19

it, particularly when you're younger, and

41:21

sooner is better. That would be

41:23

my short answer to that really.

41:25

more complicated than it sounds question.

41:27

And we'll definitely do that in

41:30

the future. Mark that down. Lisa

41:32

and Texas says West recently mentioned

41:34

phasing into retirement. Aren't Social Security

41:36

benefits driven by the beneficiaries annual

41:38

earnings? Well, reducing earnings or cutting

41:41

those in half for the final

41:43

years of a working history adversely

41:45

impact annual benefits. Not necessarily, Lisa.

41:48

Remember, Social Security takes your top

41:50

35 years and then they average

41:52

them. It really depends, but for a

41:54

lot of folks, when you worked really

41:56

early on, you've got some really low

41:58

years in there. And even if

42:00

you're scaling back to half time and

42:03

you're phasing in a retirement, I call

42:05

it the retirement gray zone, your 2025

42:07

earnings that are kind of working half

42:09

are still probably replacing some of the

42:12

really low years. Right, if we work

42:14

from age 20 to age 65, I

42:16

mean, that's 45 years. So we get

42:18

a lot of years you can cancel

42:20

out that don't even matter. We're only

42:23

taking the top 35, and that's what

42:25

your Social Security payments are predicated upon,

42:27

and of course your age. So usually

42:29

it does not hurt. It sounds like,

42:31

wait a minute, I'm making less at

42:34

the end, and now it's going to

42:36

reduce my Social Security. Usually the formula

42:38

really doesn't have that big of a

42:40

negative impact. Because again, we can look

42:43

at the best 35 years. And even

42:45

part-time work may be replacing some of

42:47

the smaller years way back when you

42:49

were young working. Super young working. Well,

42:51

thank you so much Wes. Thanks everyone

42:54

for tuning in today. We really appreciate

42:56

it. We will be back tomorrow with

42:58

a new Clark episode. Hope the rest

43:00

of your day is fantastic. Today's

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episode is sponsored by Smart Travel, a new podcast

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Coyle. We're travel writers at Nurd Wallet, and we

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