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Go Roth Now Before It's Too Late? And Other Listener Questions | AMA #7 - E108

June 04, 2025 / 01:22:17

In episode 108 of Personal Finance for Long-Term Investors, Jesse Kramer addresses listener questions on various financial topics including whole life insurance, the financial implications of being single versus married, Roth versus traditional accounts, healthcare costs, and economic uncertainties.

Jesse discusses the downsides of whole life insurance, explaining why term life insurance is often a better choice. He answers questions from listeners Cole and John about the penalties associated with inherited accounts and the suitability of life insurance as an investment.

Bridget's question about the financial upsides and downsides of being single versus married leads to a discussion on shared expenses and tax benefits for married couples. Jesse highlights the advantages of being single, such as control over finances and flexibility.

Listener Al inquires about whether to contribute to Roth or traditional accounts, given his substantial retirement savings. Jesse emphasizes the importance of tax planning and suggests a balanced approach to contributions.

Corey raises concerns about healthcare costs in retirement, prompting Jesse to explain various healthcare options, including employer-sponsored plans, COBRA, and ACA coverage, as well as Medicare details.

TL;DR

Jesse answers listener questions on insurance, marriage, retirement accounts, healthcare costs, and economic uncertainties in episode 108.

Video

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Welcome to personal finance for

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long-term investors, where we believe

00:00:04

Benjamin Franklin's advice that an

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investment in knowledge pays the best

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interest both in finances and in your

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life. Every episode teaches you personal

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finance and long-term investing in

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simple terms. Now, here's your host,

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Jesse Kramer. Hello and welcome to

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episode 108 of Personal Finance for

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Long-Term Investors. My name is Jesse

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Kramer. I'm a former aerospace engineer

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turned writer and podcaster talking

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about personal finance. And for the past

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three and a half years, I've been a

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career changer, too. I'm no longer

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working on uh spacebound satellite

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systems, but instead working directly

00:00:37

with busy professionals and retirees at

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a fiduciary wealth management firm in

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Rochester, New York. And here in episode

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108, it's going to be an AMA episode.

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And as always, listeners, I encourage

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you to send in your AMA questions to my

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email address,

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[email protected]. And if you want

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to listen to my past AMA episodes,

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they've been my most popular episodes

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I've put together. I've put them all in

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one place on my blog. So, we'll throw a

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link in the show notes, just one link,

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and that way from that page, you can

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find all my AMA episodes. Today's

00:01:06

questions, today's AMA questions, we'll

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cover thoughts on whole life insurance,

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something that many of you have probably

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had pushed on you, but we'll discuss why

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it's usually a bad fit. We'll talk about

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the financial downsides of being single

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versus being married. You know, or the

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pros and cons of a long-term

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relationship. Are they worth it from a

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financial point of view? We will answer

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a question from a big earner and a big

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saver who has important questions on

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whether to utilize Roth or traditional

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accounts and what about health care

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costs. One listener pointed out and

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asked today about all the major

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financial impacts in our lives.

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Healthcare costs might be the least

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discussed by the general public. So

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we'll dive into healthcare details

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throughout the various stages of life.

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And the last question today, two

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listeners asked me questions about this

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year's interesting regime of tariffs,

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uncertainty, possible recession, other

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economic ramifications. We'll talk about

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that topic a little bit. Let's start

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though with a customary review of the

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week. This one comes from Spidey 314 who

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left a five-star rating and a review on

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Apple Podcasts and said, "Outstanding

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voice of reason in a crowded market of

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finance podcast. Jesse's podcast is an

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excellent resource for both beginners

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and experienced folks alike in the realm

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of personal finance. Not only does he

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give solid and well-th thoughtout

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advice, but he also shares his evidence

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so you can draw your own conclusions. He

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takes the time to give well-rounded

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responses to his listeners questions, as

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well as bringing in other industry

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experts to discuss various topics. I've

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learned something new from every

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episode, even if it's a topic I've

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already heard discussed before. Well,

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Spidey, thank you for the kind words.

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Shoot me an email to jesse at

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bestinterest.blog. We'll get you hooked

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up with a super soft t-shirt. And I will

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announce we've got new t-shirts coming.

00:02:41

not branded for the Best Interest

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podcast, but instead branded for

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personal finance for long-term

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investors. So, listeners, if you want to

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get your free t-shirt, leave a rating

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and review, and eventually we will get

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to you and mail you out that t-shirt.

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But now, on to the AMA. Question one, as

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I alluded to, it's a twofer because I

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got very similar questions from both

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Cole and John. Thank you guys for the

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questions. Cole asked, "Hi, Jesse. An

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insurance agent is telling me that my

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current accounts will get penalized when

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I pass away and that my children will

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have to pay those penalties. Instead, he

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is suggesting a whole life insurance

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policy. For details, the current

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accounts are an IRA with my kids as

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50/50 beneficiaries and a taxable

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account which goes to my kids in the

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will 50/50. What are these penalties and

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is this the place where whole life

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insurance makes sense? And then listener

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John asked a different whole life

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question. He goes, "Jesse, I know it's

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probably time for me to consider getting

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life insurance. Some people I've talked

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with say financial adviserss don't like

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the idea of life insurance for some

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reason. What are your thoughts on life

00:03:40

insurance as an investment? So, two

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awesome questions, guys. These questions

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probably rhyme with some of the

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questions floating around our other

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listeners heads. A few things to unpack

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first. So, let's discuss the different

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types of life insurance, whether that's

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pure insurance or using insurance as an

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investment of some sort. Let's also make

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sure we talk about the penalties from

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Cole's question, right? And we have to

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answer this bigger question. Do certain

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account types get penalized when you

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pass away? And is life insurance the way

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to circumvent these penalties? And then

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from John's question, we we want to make

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sure we address why do some financial

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adviserss love life insurance while

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others seemingly do not? What exactly is

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going on there? Okay, first things

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first, there are two major categories of

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life insurance, term and permanent. Term

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and perm. The difference is right there

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in the names. Term life insurance has a

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specific time period, a specific term

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attached to it. It's common to see, for

00:04:31

example, 30-year term policies. If you

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die within those 30 years where you hold

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the policy, then your beneficiary or

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beneficiaries get the payout of the life

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insurance. But if you don't die within

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those 30 years, then nothing happens

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except that the insurance premiums that

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you've been paying all along the way,

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you've lost those premiums and you have

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nothing to show for it. Term insurance

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is what I'd call pure insurance. Right?

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What I mean is there's a premium that

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you pay in exchange for the insurance

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coverage. you shift your risk, the risk

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of your death in this case, away from

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your balance sheet and onto the

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insurance company's balance sheet. But

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if that risk, your death never occurs,

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well, the insurance never pays out.

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Nothing ever really happens, and all

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you've done is pay money for nothing in

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return. But that's the way pure

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insurance works. Now, permanent life

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insurance, as the name implies, lasts

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forever, as long as you keep paying your

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premiums along the way. Most of the

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time, permanent life insurance policies

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will go by one of their subnames, I'll

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call them. For example, whole life

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insurance or universal life insurance or

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variable life insurance. These are all

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types of permanent insurance. And

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permanent insurance is more than just

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pure insurance because somewhere someone

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along the line thought that there was a

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problem with term insurance. You know,

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as we've already discussed with term,

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you might be paying $2,000 a year as

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your premium for 30 years. And if you

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don't die, you get nothing back. If you

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die in year 31, you get nothing back.

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So, you might be paying tens and tens of

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thousands of dollars over the course of

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a term policy. But if you don't die, you

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don't get anything in return for that.

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Now, I would argue that having your risk

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covered along the way is the point, and

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that risk is covered whether you end up

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dying and realizing that risk or not.

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But still, some people would say, "I

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want something back. If I'm putting

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money into the insurance policy, I

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demand to get something back." Like I

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said, someone in the insurance industry

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thought to themselves, "Well, first,

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let's make an insurance policy that

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never dies, right? It's a permanent

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policy. And second, let's make it more

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than just pure insurance. Let's add a

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compounding real value to this product,

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a cash value or an investment aspect to

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the policy." So every year a portion of

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the insured person's premiums will grow

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this cash value of the policy. So

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perhaps at age 60 or 70 or 80 the person

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the insured person they'll say to

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themselves you know rather than waiting

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to die and rather than having my

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beneficiaries receive the benefit of my

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policy why don't I start spending some

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of this cash value myself. So in that

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way it's not only life insurance that

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will pay beneficiaries upon someone's

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death but it's also a savings and

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investing account all tied into one.

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Now, is one better than the other? Is

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term better than permanent or permanent

00:07:13

better than term? Well, first I'd

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encourage you to do some of the math and

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or you can trust my math here because

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both term and permanent life insurance

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policies provide death benefits, provide

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insurance. I've been saying pure

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insurance all along. Really, what I mean

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there is a death benefit, right? It

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ensures you against a specific risk. So,

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in that way, they're the same. They both

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provide a death benefit. The permanent

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policy though has a much higher premium,

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a much higher premium in order to fund

00:07:38

the cash value or the investing side of

00:07:40

the policy. In other words, a permanent

00:07:42

policy is going to be much more

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expensive over your life because it has

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this compounding cash or investing side

00:07:49

attached to it. So, our math problem

00:07:52

becomes pretty clear. Would I rather pay

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the higher premiums of the permanent

00:07:56

policy and let the insurance company

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control my investments or would I rather

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pay the lower term premiums? I'll keep

00:08:03

the monetary difference of the premium

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values. I'll keep that in my own pocket

00:08:07

and then I'll invest that money myself

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according to the traditional investment

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tenants that I discuss here on personal

00:08:13

finance for long-term investors or that

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I write about over at the best interest

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blog. Now, by my math, if you look over

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a 30-year timeline where you could

00:08:21

choose, for example, to invest $500 a

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month into a whole life policy, or you

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could put that $500 a month into a more

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traditional investment account, the

00:08:30

difference in the final portfolio value

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between those two scenarios will be on

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the order of $1 million. The person who

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chooses to invest the money themselves

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and not throw the money into a whole

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life policy. the person who invests

00:08:43

themselves will have an additional $1

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million after 30 years. That's why I

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avoid whole life policies and that's why

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I don't recommend that my clients or or

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that you listeners go out and get one.

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We can take a more cynical point of view

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as well. And the cynical point of view

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is to say, well, why are whole life

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insurance policies pushed so hard by

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insurance companies in the first place

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and by the salespeople of those

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companies? Why are the term policies

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recommended usually by people who don't

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have a dog in the fight? And this is

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getting back to part of John's question.

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I think if you asked an insurance

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salesperson, they would probably

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recommend whole life or another

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permanent life insurance policy all day.

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They would push push push. They would

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even go so far as to use dishonest

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numbers to do so. I could go on social

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media and find five of these people in

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the next 5 minutes. And for reference, I

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almost guarantee that one of the things

00:09:33

they would do is show you stock market

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returns without including dividends. And

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dividends are one of the only two

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components of the way that stocks

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produce returns. So to show stock

00:09:42

returns without dividends is a pretty

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fundamental error. And yet in almost

00:09:46

every whole life insurance sales pitch

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that I've ever seen, that's exactly what

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they do. Meanwhile, virtually all

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financial educators that I know, they

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recommend a simple term policy.

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Virtually all of the independent

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fiduciary adviserss who I know,

00:10:01

including my own colleagues, we

00:10:02

recommend simple term policies. The

00:10:05

people who don't have a dog in the

00:10:06

fight, the people who don't earn money

00:10:08

off of insurance commissions, they

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almost always recommend term policies.

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And the people who are legally obligated

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to offer best interest advice to their

00:10:16

clients, well, they recommend term

00:10:18

policies, too. Now, the only curiosity

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that I've found in this space and I

00:10:23

think that you might find in this space

00:10:24

is when someone say like a CFP, a

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certified financial planner who happens

00:10:29

to work at an insurance company, right?

00:10:31

CFPs, they have an ethical fiduciary

00:10:34

obligation. It's part of the CFP

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training and part of their kind of their

00:10:38

uh commitment to the CFP values. It's an

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ethical fiduciary obligation. It's not a

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legal one, though. So when an insurance

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salesperson gets their CFP, some of them

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will do the right thing and essentially

00:10:49

stop selling whole life policies because

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ethically they realize that it's not in

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the best interest of their clients and

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they feel like following through on that

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commitment they made. Others though will

00:10:58

find a justification in their minds that

00:11:00

the whole life policy somehow fits into

00:11:03

the best interests of that particular

00:11:04

client. It's very interesting. So that

00:11:06

is a corner case where you might find

00:11:08

someone who is labeling themselves as a

00:11:10

fiduciary. They do have an ethical

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fiduciary obligation, but importantly

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because they aren't working for a

00:11:16

independent fiduciary firm, they don't

00:11:18

really have a legal fiduciary

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obligation. That's worth understanding

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the difference there. And therefore,

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they might actually push whole life

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insurance policies, even though I would

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argue that they shouldn't. Once in a

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while though when somebody is clearly

00:11:31

dealing with federal estate tax limits a

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permanent life and policy a whole life a

00:11:37

universal life something like that a

00:11:38

permanent policy can make sense so this

00:11:41

would be for reference we talked about

00:11:42

you know what's a federal estate tax

00:11:44

limit that I just referenced for a

00:11:45

married couple it's someone with

00:11:47

approximately $30 million or more

00:11:49

dollars for a single person someone with

00:11:50

approximately 15 million or more dollars

00:11:52

in their taxable estate for them and for

00:11:55

the sake of liquidity needs upon their

00:11:57

death a permanent policy might might

00:12:00

make sense. But importantly, that's not

00:12:02

because the permanent policy leads to a

00:12:04

greater net worth for that person.

00:12:06

That's not the reason why we do it. It's

00:12:08

not because it's going to make them more

00:12:09

rich. Instead, it's because a state

00:12:11

taxes are due within 9 months of death.

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And the permanent life insurance policy

00:12:16

provides a tax-free payout upon death.

00:12:18

It's tax-free. Yes, these insurance

00:12:21

policies, both term and whole, provide

00:12:24

tax-free payouts because the payouts are

00:12:26

not considered income. They're instead

00:12:28

considered a return of capital. And I

00:12:31

think that's just important to point

00:12:32

out. The federal government, the IRS,

00:12:33

the tax experts, they don't treat life

00:12:36

insurance payouts as investment income

00:12:39

because there often aren't enough gains

00:12:41

in there to justify that. They simply

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classify them as a return of capital

00:12:46

that the insured people have already

00:12:48

committed into the insurance policy.

00:12:50

It's not a way to become rich. It's just

00:12:52

a way to return money to yourself over

00:12:54

time. That's what these permanent life

00:12:56

insurance policies are. Many wealthy

00:12:58

people, many people flirting with these

00:12:59

estate tax limits, they might be very

00:13:02

asset rich, but there are plenty of

00:13:04

times where they're cash poor and they

00:13:06

simply can't liquidate, say, a $50

00:13:08

million business to pay their estate

00:13:10

taxes. So instead, something like a

00:13:13

permanent life insurance policy can

00:13:15

provide that liquidity when needed upon

00:13:17

death to help pay for estate taxes.

00:13:20

Again, if you think this corner case

00:13:22

applies to you, I'd recommend working

00:13:24

with a trusted wealth management team

00:13:26

and a trusted estate attorney to help

00:13:28

you plan all this out. But for what it's

00:13:30

worth, just because you hear to yourself

00:13:32

that someone with millions and millions

00:13:34

and millions of dollars happens to be

00:13:36

owning a uh permanent life insurance

00:13:38

policy, that doesn't necessitate that

00:13:40

you ought to own one, too. But speaking

00:13:42

of death, we need to go back to Cole's

00:13:44

question because Cole asked as part of

00:13:46

his question, "Do certain accounts get

00:13:47

penalized when you die?" Cole

00:13:49

specifically mentioned his IRA, which

00:13:50

I'll assume is pre-tax, traditional IRA,

00:13:53

and he also mentioned a taxable account.

00:13:54

Well, the taxable account is easy. When

00:13:56

you die, Cole, all of the assets in that

00:13:58

taxable account will receive a step up

00:14:00

in basis, and your children will inherit

00:14:02

those assets at that stepped up basis.

00:14:05

Now, in layman's terms, this negates any

00:14:07

capital gains taxes. You won't pay them

00:14:10

coal, your estate won't pay them, and

00:14:11

your kids won't inherit those taxes.

00:14:13

They essentially disappear. We've talked

00:14:15

about this idea before on the podcast

00:14:17

because it's certainly a little

00:14:18

controversial on a on a macro tax level.

00:14:20

So, Cole, your kids could choose to sell

00:14:23

those assets on the day they inherit

00:14:24

them. They won't pay a penny in tax. Or

00:14:27

they could keep those assets for the

00:14:29

long run, let them grow, in which case

00:14:31

their capital gain will be measured

00:14:33

against the value when they inherited

00:14:34

them, not against the value at which you

00:14:37

bought them coal. To summarize, I guess

00:14:39

the gains that you realized while you're

00:14:41

living coal, those gains become taxfree

00:14:43

once you die. So, any sort of penalty on

00:14:46

that account is a mistruth or a

00:14:48

misunderstanding from the insurance

00:14:50

salesperson. But now, what about your

00:14:52

IRA, Cole? Again, I'm going to assume

00:14:54

it's a pre-tax traditional account. So,

00:14:56

those dollars have never been charged a

00:14:58

penny of income tax. That's the way that

00:15:00

pre-tax traditional accounts work. You

00:15:02

get a deferral on your income tax. So,

00:15:05

when you die, Cole, and leave that

00:15:06

account 50/50 to your two kids, they

00:15:09

will receive the account via what's

00:15:10

called an inherited IRA. And based on

00:15:12

some recent changes to the tax code over

00:15:14

the past say 5 years as of this

00:15:16

recording the most recent the most

00:15:18

current policy I should say is that all

00:15:21

inherited IAS must be emptied within 10

00:15:24

years of the date of death of the

00:15:26

deedent which is basically the same as

00:15:28

10 years from when the kids inherit the

00:15:30

money. So for example in this example

00:15:32

the kids they they've got to empty the

00:15:35

account within 10 years and because

00:15:36

these are all pre-tax dollars that have

00:15:38

never been taxed they're going to owe

00:15:40

taxes. So the kids might choose to

00:15:41

withdraw a fraction of the IRA every

00:15:43

year, one/10enth in year 1, 1 nth in

00:15:46

year 2, 1/8 in year 3, etc., etc.,

00:15:49

trying to kind of even out those

00:15:51

distributions over the 10 years. And

00:15:53

each of those withdrawals being from a

00:15:55

pot of money that's never been taxed,

00:15:57

each withdrawal will be considered

00:15:58

income for the kids, and they will pay

00:16:01

income tax on that money based on their

00:16:03

current year tax situation. If they

00:16:06

happen to be really high earners, well,

00:16:08

that income tax is all going to get

00:16:09

taxed at the marginal rate that they're

00:16:11

paying, which is going to be a pretty

00:16:12

high amount. If they're very low

00:16:14

earners, maybe they're still children,

00:16:16

they might not be earning much at all.

00:16:17

They're going to pay a very low

00:16:19

effective tax rate because that's the

00:16:21

only income they'll have. This is not a

00:16:23

penalty, though, right? They're going to

00:16:25

pay income tax out of the IRA

00:16:26

withdrawals because you never did, Cole.

00:16:29

It's just fulfilling the agreement that

00:16:30

we all take with the IRS in the first

00:16:32

place on these traditional accounts.

00:16:34

Give us a tax break upfront and we'll

00:16:36

make good on the income taxes later. Is

00:16:39

the income tax to your kids, Cole? Is it

00:16:41

so severe that you ought to consider a

00:16:44

whole life insurance policy? Personally,

00:16:46

I don't think so. The main reason is

00:16:47

that whole life insurance policies are

00:16:49

funded with after tax dollars and

00:16:51

eventually the payout again as we

00:16:53

already discussed is taxfree because

00:16:54

they're considered a return of capital

00:16:57

not as earnings or income. In other

00:16:59

words, the IRS has looked under the

00:17:00

hoods of these policies and said, "Yeah,

00:17:02

there's not really much growth here.

00:17:04

This is just the insurance policy

00:17:06

returning your own premiums back to you.

00:17:08

So, we're not going to tax it as growth

00:17:10

because it's not growth." So, just as we

00:17:12

talked about in one of the last AMA

00:17:14

episodes, some people hate the idea of

00:17:16

taxes so much. They're so diametrically

00:17:18

opposed to taxes that they'd rather be

00:17:21

in a situation with less money as long

00:17:24

as that situation helps them avoid taxes

00:17:26

along the way. they'd rather keep 100%

00:17:29

of their grape instead of 50% of their

00:17:30

watermelon. That doesn't make sense to

00:17:32

me and that's why I don't think it's

00:17:33

going to make sense for you, Cole, to

00:17:35

follow this whole life insurance advice

00:17:37

at all. I'll leave that up to you and

00:17:39

your own personal taste or lack thereof

00:17:41

for taxes. So, anyway, thank you, John,

00:17:43

and thank you, Cole, for the great

00:17:45

questions about whole life insurance.

00:17:46

Let me know what you think. Question two

00:17:48

is from Bridget, who wanted to ask us

00:17:50

some thoughts on all the financial

00:17:51

upsides and downsides of being single

00:17:54

versus being married. Now, Bridget, the

00:17:56

unfortunate truth is that much of our

00:17:58

financial world is tilted toward

00:17:59

benefits for married couples, as some

00:18:02

benefits that single folks simply don't

00:18:03

have. Some of these benefits are written

00:18:05

into law or into tax codes. Others are

00:18:08

more what I would call benefits of

00:18:09

circumstance that happen to play out in

00:18:11

a way that that favors being married.

00:18:13

And I don't know about you, but the

00:18:15

first place that my mind jumped to when

00:18:16

I read this question, Bridget, was what

00:18:18

I'd call economies of scale. You know,

00:18:20

married couples, they get to share

00:18:22

houses. They get to share utilities.

00:18:24

They share homeowners insurance. They

00:18:26

split grocery bills. They probably get

00:18:28

to cook a little bit more efficiently.

00:18:29

They only need to furnish one living

00:18:31

room and one kitchen and one foyer,

00:18:33

etc., etc., etc. But there are other

00:18:35

household and budgeting items, too. Two

00:18:38

incomes typically boosts the approval

00:18:40

odds of receiving a loan and uh what the

00:18:42

limit on that loan can be. Having a

00:18:44

better debt to income ratio as a couple

00:18:47

for joint applications certainly helps

00:18:49

too. Spouses and families typically have

00:18:51

cheaper per person health insurance

00:18:53

costs and in some cases including what

00:18:55

my wife and I do in our house actually

00:18:57

personally. So I'll just say you know we

00:18:59

coordinate our benefits across two

00:19:00

plans. You know in our personal case the

00:19:02

cheapest thing is for is actually for my

00:19:05

wife. My wife doesn't take on her health

00:19:08

insurance at all. Her employer actually

00:19:10

offers her a small stipend but then they

00:19:13

have to go off and kind of buy their own

00:19:15

health insurance on the open market

00:19:17

using that stipend. and she chooses not

00:19:19

to do that. Instead, using my company

00:19:21

insurance, we're on a partner plan, like

00:19:23

a husband plus wife plan. We could be on

00:19:26

a family plan to include our child. But

00:19:29

again, just looking at the numbers and

00:19:30

trying to understand the best fit. In

00:19:32

New York, there's a system called Child

00:19:34

Health Plus, which if you're not

00:19:35

familiar with Child Health Plus, Child

00:19:37

Health Plus is a terrific program anyway

00:19:40

you cut the cake because on one hand, it

00:19:42

offers extremely comprehensive health

00:19:44

insurance to people I think it's under

00:19:46

the age of 19 and it's means tested. So,

00:19:49

under a certain income threshold, child

00:19:51

health plus is very, very affordable and

00:19:54

it's, you know, a certain multiple of

00:19:56

the poverty line. But even at where my

00:19:58

wife and I are, where our family are, we

00:20:00

don't qualify for the means tested

00:20:02

portion at all. We pay full price for

00:20:04

Child Health Plus. But still, you

00:20:05

compare full price of Child Health Plus,

00:20:08

it's still a terrific deal when compared

00:20:11

to private health insurance, and it

00:20:12

provides just such a wide array of

00:20:14

coverage for our daughter. So anyway,

00:20:16

when you're married and you have two

00:20:18

potential health insurance plans to

00:20:20

choose from, you can make a a really

00:20:22

optimal choice for your family. But the

00:20:24

benefits extend from there. I think

00:20:25

another big marital benefit has to do

00:20:27

with taxes. Usually married filing

00:20:30

jointly on your taxes results in a lower

00:20:33

effective tax rate due to wider tax

00:20:35

brackets than filing uh single. In

00:20:38

almost all scenarios, a married couple

00:20:39

will pay less tax by filing jointly. And

00:20:42

then married couples also have two times

00:20:44

the standard deduction, which on its

00:20:46

face probably shouldn't matter because

00:20:48

two individuals would each be able to

00:20:49

claim their personal standard deduction

00:20:51

otherwise. But this matters though when

00:20:53

a married couple is going through some

00:20:55

sort of outlier working arrangement.

00:20:56

Perhaps one spouse is taking time off to

00:20:59

raise the kids. Perhaps one spouse is

00:21:00

retired early. Something I know happens

00:21:02

in this community that we talk about

00:21:04

when one person chooses to retire early.

00:21:06

They aren't collecting any income. Well,

00:21:08

as a married couple, they still get two

00:21:09

times the standard deduction. If they

00:21:11

were filing singly, well, you don't

00:21:13

really get to utilize your standard

00:21:14

deduction if you're not earning income.

00:21:16

But in these corner cases, you do, and

00:21:18

that's pretty nice. We can also look at

00:21:20

retirement and investment benefits.

00:21:22

Spousal IRA contributions. For example,

00:21:24

a non-working spouse can contribute to a

00:21:27

traditional or Roth IRA using their

00:21:29

working spouse's income. Now, this one

00:21:31

isn't that big of a deal, but it's a

00:21:33

small bonus. It's a nice bonus that some

00:21:35

married couples do get the benefit from.

00:21:38

And then there's uh social security,

00:21:39

right? Spousal and survivor benefits.

00:21:41

This one is huge. We covered it deeply

00:21:43

in episode 86. It was our second AMA

00:21:45

episode. Survivor benefits are pretty

00:21:47

easy to explain. If your spouse dies and

00:21:50

their social security benefit is higher

00:21:52

than yours, then you get to start

00:21:53

collecting their benefit amount. Spousal

00:21:56

benefits are somewhat similar, but they

00:21:57

kick in during life. They typically

00:21:59

occur when one spouse had a very full

00:22:01

and high earning working career, while

00:22:03

the other spouse had limited or no

00:22:05

working history. The non-working spouse

00:22:08

can receive up to 50% of the working

00:22:10

spouse's social security benefit as the

00:22:13

spousal benefit. So, yes, just to be

00:22:15

clear, even if someone says, "Well,

00:22:17

listen, I've worked my entire life, but

00:22:19

my husband, he was the stay-at-home dad,

00:22:22

right? I was the partner in the law

00:22:23

firm. My husband was a stay-at-home dad.

00:22:25

He basically stayed at home for 20 years

00:22:27

with the kids. Doesn't have much of a

00:22:28

working history. And on his own, he's

00:22:30

only going to be able to collect 500 in

00:22:32

Social Security per month, where I, the

00:22:35

longtime law partner, I'm going to get

00:22:37

to collect 4,000 a month in Social

00:22:39

Security." Well, actually, your husband

00:22:42

is going to be able to collect half of

00:22:43

what you collect. So, once you start

00:22:44

collecting your $4,000 a month, your

00:22:46

husband's going to step into the $2,000

00:22:48

a month spousal benefit. Pretty cool.

00:22:51

Moving on, estate planning is easier,

00:22:53

too. At least there are things you can

00:22:54

do kind of easy estate planning as a

00:22:57

couple. Something like you can label

00:22:59

your accounts joint tenency with rights

00:23:00

of survivorship, and that can kind of

00:23:02

smooth the asset transfer or to transfer

00:23:05

on death. You should get a will anyways,

00:23:07

don't get me wrong, but many localities

00:23:09

default their spouses as the heir, which

00:23:12

reduces any possible probate

00:23:14

complications. And then there are some

00:23:16

longerterm, probably more intangible

00:23:18

benefits, too, to being married. Maybe

00:23:20

having a full-time accountability

00:23:21

partner in spending and saving who will

00:23:23

actually get upset at you if you spend

00:23:25

2,000 or even more on camping gear or

00:23:28

Christmas decorations. That's probably a

00:23:29

good thing for your personal finances.

00:23:31

It's not a hard and fast rule, but

00:23:32

married couples are probably more likely

00:23:34

to do financial planning to save for

00:23:36

retirement, to use outside resources to

00:23:38

secure a better long-term financial

00:23:40

future because they're bouncing ideas

00:23:41

off each other. Okay, you're feel free

00:23:43

to argue on that one. I could suppose

00:23:45

someone could look at me and say, Jesse,

00:23:47

I know some couples who refuse to talk

00:23:48

to each other about money because it

00:23:50

just leads to arguments. So maybe it'll

00:23:51

be a bad thing. I'm willing to be

00:23:53

flexible there. But then all of this

00:23:54

compounds. I think all of these benefits

00:23:56

that we just talked about, even if only

00:23:58

half of them are true for a particular

00:24:00

couple, all those benefits will compound

00:24:02

with each other. Married couples are

00:24:04

statistically able to accumulate more

00:24:07

wealth due to the way that all these

00:24:09

factors compound over time. Now, I do

00:24:12

think there are some pretty big

00:24:13

financial benefits to being single or at

00:24:14

least, you know, tangentially financial

00:24:16

benefits. First and foremost, I think of

00:24:18

sole control. It's hard to have a

00:24:20

disagreement over saving and spending

00:24:22

when you're the only one in control

00:24:23

with, you know, full autonomy over your

00:24:25

income and expenses. If you happen to be

00:24:27

a child-free single person, you're

00:24:29

avoiding the major costs tied to

00:24:31

parenting, which I think now are

00:24:32

estimated at 300 to

00:24:35

$325,000 per child over 18 years. Also,

00:24:38

if you're single, there's no keeping up

00:24:39

with your partner's habits or

00:24:41

expectations or the expectations of

00:24:43

their family or friends, which is huge.

00:24:45

That's a big one. There's a career and

00:24:47

earning flexibility, too. As a single

00:24:49

person, you can more easily choose to

00:24:51

relocate for a higher paying job or just

00:24:53

relocate because you feel like it.

00:24:55

There's no need to compromise on career

00:24:57

or geography because of what your

00:24:59

partner wants. On the housing front,

00:25:01

being single does have its perks.

00:25:02

Mainly, I think of the freedom to

00:25:03

minimalize without needing a partner's

00:25:05

consent. You can downsize or co-house or

00:25:08

house hack. You can live in a lower cost

00:25:09

of living area without needing to

00:25:11

consider your partner's preferences.

00:25:13

Retirement planning. There are probably

00:25:14

some benefits to being single. For

00:25:16

example, it's easier for a single person

00:25:18

to qualify for Roth IRA contributions. I

00:25:20

know that one. Than for a married

00:25:21

couple. It's also easier usually to plan

00:25:24

for retirement using one person's life

00:25:26

expectancy using one person's RMD

00:25:28

schedule, one person's social security

00:25:30

timeline, etc., etc. It's just easier to

00:25:32

plan for retirement solo. There's no

00:25:34

risk of divorce. Last I checked, if

00:25:36

you're a single person, and that is a

00:25:38

pretty big one. Divorce is a very

00:25:39

expensive struggle that many people go

00:25:41

through. So, in short, there's lower

00:25:44

complexity. There's more control and

00:25:46

there's more flexibility to being

00:25:48

single. All else being equal, I just

00:25:50

think that the numbers, the sheer

00:25:52

numbers, there are more benefits to

00:25:53

being married. There are pros and cons

00:25:54

of each. And Bridget, I forget exactly.

00:25:57

I think in your question, you let me

00:25:58

know some of your thoughts on it. Point

00:26:00

being is try to make the most of your

00:26:02

situation. And I think in either case,

00:26:04

there are some little things that we can

00:26:06

do to try to maximize our marital or

00:26:08

relationship status for our personal

00:26:10

finances. Thanks, Bridget. Here's a

00:26:12

quick ad and then we'll get back to the

00:26:13

show. I still remember it was 2019 and a

00:26:16

guy from Fidelity came in to speak to my

00:26:18

then employer about personal finance in

00:26:20

general and about our 401k plan in

00:26:22

particular. There were 60 or so of us

00:26:24

who attended, mostly 50 plus years old,

00:26:27

clearly with retirement on their minds.

00:26:29

And nothing against this individual from

00:26:31

Fidelity, but unfortunately the guy just

00:26:33

didn't really know what he was talking

00:26:34

about. It ended up being a major

00:26:36

disappointment. And a bunch of my

00:26:37

colleagues afterwards said in short, you

00:26:40

know, man, we're really thirsty for good

00:26:42

financial retirement information. Where

00:26:44

do we go find it? Now, does that sound

00:26:46

true, listeners, for you and your

00:26:48

colleagues? Last year, either in person

00:26:50

or via Zoom, I spoke to about 800

00:26:53

employees at 11 different organizations.

00:26:55

Sometimes about personal finance in

00:26:57

general, sometimes about specifics of

00:26:58

their retirement plans, sometimes about

00:27:00

the the nitty-gritty details of social

00:27:02

security and withdrawal planning and

00:27:04

retirement math. The point being, if

00:27:06

you're interested in inviting me to come

00:27:08

talk money to you, to your colleagues,

00:27:10

where you work, that is absolutely

00:27:12

something I'm interested in talking to

00:27:13

you about. Simply drop me an email to

00:27:16

[email protected] and let's start

00:27:18

a conversation. Question three is from

00:27:20

Al from Philadelphia. Al is in a great

00:27:22

solid financial position. He and his

00:27:23

wife are about 50 years old each with

00:27:26

very stable, rewarding, and lucrative

00:27:27

jobs. They're experts in their field.

00:27:29

They make over a million dollars a year,

00:27:31

which on its surface might not be

00:27:32

something that all of us can relate

00:27:34

with, but the problem facing Al and his

00:27:36

financial plan is something all of us

00:27:38

can relate to. In short, Al's got a

00:27:41

bunch of money saved for retirement.

00:27:42

Almost all of it is in traditional

00:27:44

pre-tax accounts, and they're

00:27:46

contributing close to $200,000 a year

00:27:48

into their retirement accounts. As of

00:27:51

now, it's all pre-tax, and they plan on

00:27:53

working till they're 70 years old. But

00:27:56

the question, Al's question is about the

00:27:58

Roth 403b option in his life. He's got a

00:28:01

tremendous significant amount of money

00:28:03

saved in traditional retirement

00:28:04

accounts. It's only going to grow more

00:28:06

and more over the next 20 years. And

00:28:08

then there's this shadow of large

00:28:11

looming required minimum distributions

00:28:13

in Al's future retirement. So should Al

00:28:16

start worrying about those large future

00:28:17

RMDs and thus start contributing more

00:28:20

Roth dollars starting today? That is the

00:28:23

question. And really, it's a Roth versus

00:28:25

traditional question. Again, for those

00:28:27

newer to the podcast or to the world of

00:28:29

retirement planning, RMDs are required

00:28:31

minimum distributions. Traditional

00:28:33

retirement assets, which are tax

00:28:35

deferred, right? We've never paid a

00:28:36

penny of income tax on that money. The

00:28:39

IRS wants its money eventually. Just a

00:28:41

couple minutes ago in an earlier

00:28:42

question, I think it was Kohl's, we

00:28:44

talked about, well, if you die with

00:28:46

these assets and you leave them to your

00:28:48

kids, your kids will eventually have to

00:28:50

pay the income tax on that money. But

00:28:52

even if you live eventually you will get

00:28:54

hit with what are called RMDs. The IRS

00:28:56

wants its tax. They have these required

00:28:58

minimum distributions which say when you

00:29:01

hit a certain age and for day's retirees

00:29:03

it's age 73 or 75. When you hit that age

00:29:07

you will be forced to take a

00:29:08

distribution out of your traditional

00:29:10

retirement account and thus you will be

00:29:12

forced to pay income tax on it. And what

00:29:14

Al is pointing out is that for him and

00:29:16

for his wife and for their family that

00:29:18

RMD is going to be quite large. They

00:29:20

have $6.5 million in retirement accounts

00:29:22

today with another 20 years before they

00:29:25

want to retire. They could easily

00:29:27

realistically have $20 million in their

00:29:29

traditional retirement accounts by the

00:29:30

time they retire. And that would result

00:29:32

in an RMD on the order of

00:29:35

$750,000 to a million per year and

00:29:38

they're only going to go up from there.

00:29:40

Those RMDs will place Al and his family

00:29:43

in the very highest tax brackets almost

00:29:45

assuredly. I can't guarantee it, but

00:29:47

almost assuredly. So Al is asking why

00:29:49

not just put money into Roth accounts

00:29:51

today, pay some tax today, but then

00:29:54

never have to worry about RMDs again.

00:29:56

RMDs apply to traditional investing

00:29:58

accounts, retirement accounts. They

00:30:00

don't apply to Roth accounts. So here

00:30:02

are my thoughts for Al. If we knew with

00:30:04

certainty what the future state and

00:30:07

federal tax rates would be, then this

00:30:09

exercise answering Al's question would

00:30:11

be easy. It would be child's play. Well,

00:30:13

for financial planners, it would be

00:30:14

child's play. But unfortunately, we

00:30:16

don't know what those tax rates in the

00:30:18

future will be. So the way I see it is

00:30:20

there are two ways then to solve Al's

00:30:22

problem. The first one that I'll walk

00:30:24

through now is probably my preferred way

00:30:26

of solving the problem. And that's to

00:30:28

admit that I don't know what the future

00:30:29

rates will be, but I assume they will

00:30:31

resemble today's rates. I don't know

00:30:33

exactly, but I assume they'll resemble

00:30:35

today's rates. And if that's the case,

00:30:37

then Al should make as many traditional

00:30:40

pre-tax contributions as he possibly can

00:30:42

right now. Because even if he does and

00:30:44

he ends up with really high RMDs in the

00:30:46

future, it'll just end up being an even

00:30:48

trade, right? He'll save approximately

00:30:50

43 cents on the dollar today, allowing

00:30:53

him to avoid taxes today, grows the

00:30:56

money taxfree in the qualified accounts,

00:30:58

and then later he will pay 43 cents on

00:31:00

the dollar when he withdraws that money.

00:31:02

But if there happens to be even a sliver

00:31:04

of tax planning opportunity sometime in

00:31:07

the future for Al in his future

00:31:08

financial plan, then what'll happen is

00:31:10

he'll be saving 43 cents on the dollar

00:31:12

today to pay much less than 43 cents on

00:31:15

the dollar later. That's good. That's

00:31:16

what we want. That's that tax arbitrage

00:31:18

that we're going for. So by saving the

00:31:20

maximum today in his current highest tax

00:31:23

bracket that he's in, he at least opens

00:31:25

up a door for potential tax arbitrage

00:31:27

later. Now, in Al's case, those

00:31:30

arbitrage years, it might only be from

00:31:32

the time he retires at 70, which is what

00:31:34

he said, until RMDs start. You know, if

00:31:36

the tax law doesn't change for Al, his

00:31:38

RMDs will start at 75. So, he might only

00:31:40

have 5 years to do this tax arbitrage.

00:31:43

If his wife retires, she's a little bit

00:31:45

younger, according to Al's email. Maybe

00:31:47

she'll have a couple extra years until

00:31:48

her RMD age, a couple extra years for

00:31:50

tax arbitrage. But here's the thing, Al

00:31:53

and his wife might change their minds

00:31:54

between now and age 70. Right. For them,

00:31:56

it's 20 years away. I mean, what if they

00:31:58

look at each other in age 64 and they're

00:32:00

like, "You know what? We've got $18

00:32:02

million right now. We're burned out of

00:32:05

work. I know we told Jesse 14 years ago

00:32:08

we were going to retire at 70, but we

00:32:10

reserve the right to change our mind and

00:32:12

we're going to go retire. Let's go enjoy

00:32:14

life." Well, at that point, they'll be

00:32:16

in their mid60s and they'll have 10 plus

00:32:18

years for RMDs. During those 10 years,

00:32:20

they are going to crush Roth

00:32:22

conversions, paying only, you know, I

00:32:25

say only, but paying only 22 or 24 or 32

00:32:28

cents on the dollar at the federal

00:32:29

level, thus minimizing much of their

00:32:32

future RMD tax liability. So, the point

00:32:35

being is that because they find

00:32:36

themselves in the highest tax bracket

00:32:38

today, my first instinct is to say

00:32:41

maximize your traditional contributions

00:32:43

today. Save as many tax dollars as you

00:32:45

can today because you never know how the

00:32:48

future will unfold. You never know where

00:32:50

there'll be those little slivers of tax

00:32:52

planning opportunity and odds are they

00:32:54

will save money later. They will find

00:32:57

ways to arbitrage their taxes later only

00:32:59

if they give them the opportunity

00:33:01

starting today, which is why you max out

00:33:03

your traditional account. But I will

00:33:05

admit there is a second way to

00:33:06

potentially solve this problem, which

00:33:08

listen came from my brain. I I get it. I

00:33:10

think it makes sense. And the second way

00:33:12

is is to say that you know some pretty

00:33:14

smart people they look at our current

00:33:16

tax landscape here in the US which is

00:33:18

kind of historically low tax rates as

00:33:20

compared to history low income tax rates

00:33:23

low capital gains tax rates. They also

00:33:25

see our national debt which we talked

00:33:26

about I think in episode 102 which is

00:33:28

too high. Even though as I discussed in

00:33:30

episode 102 it's not purely bad but

00:33:33

listen the national debt is probably too

00:33:35

high. And those smart people say well if

00:33:37

I'm a betting person tax rates are going

00:33:39

to go up in the future. Tax rates are

00:33:41

low, debts are high, we need to balance

00:33:43

that scale. We are going to raise tax

00:33:45

rates to start paying down the debt. And

00:33:48

if you believe that, and if you're one

00:33:49

of those people, listen, I totally get

00:33:51

it. But for that reason, those people

00:33:53

would say you want to lock in your Roth

00:33:55

dollars today, right? You want to pay

00:33:57

taxes now at today's quote unquote low

00:34:00

rates because you'd only owe more in the

00:34:03

future. It's a totally fair argument.

00:34:05

What happens if today's tax brackets,

00:34:07

which in order are 10, 12, 22, 24, 32,

00:34:11

35, and 37%. What if they expand out to

00:34:15

something like 15, 20, 25, 30, 40, 50,

00:34:18

60%. What happens if the middle quote

00:34:20

unquote brackets go from 22 and 24 to 30

00:34:24

and 40? What happens if the highest tax

00:34:26

brackets go from 37% up to 60%. Would

00:34:30

you want to save 37% today in order to

00:34:33

pay 50 or 60% on your RMDs later? No

00:34:36

way. You wouldn't want to do that. The

00:34:38

problem, of course, is that we can't be

00:34:39

certain about those future tax brackets.

00:34:42

It's all a guess. But Al, or any of you

00:34:45

listening, if that prospect that I just

00:34:47

outlined, if that scares you a little

00:34:49

bit or if you think there's some

00:34:50

validity or some truth in that or if

00:34:52

that's a future that you would kind of

00:34:54

kick yourself knowing that part of your

00:34:56

brain thought that was a possibility and

00:34:58

you ignored that possibility. If that's

00:35:00

you, then I recommend you split the

00:35:02

difference and you hedge your bet and

00:35:04

you admit that no matter what the future

00:35:06

throws at you, you'll be half right and

00:35:08

half wrong. In other words, what I'm

00:35:10

really saying is split your annual

00:35:11

savings roughly 50% between traditional

00:35:14

accounts and Roth accounts. So yes, what

00:35:17

that means basically is no matter what

00:35:19

the future tax regime throws at you,

00:35:22

half your money will be a tax arbitrage

00:35:25

and the other will be a tax loss or

00:35:27

maybe 100% of your dollars will be

00:35:29

completely neutral. in any future year

00:35:31

where your traditional dollars end up

00:35:33

being tax arbitrage, that means that

00:35:34

your Roth dollars were actually a losing

00:35:36

arbitrage and vice versa. So yes, these

00:35:39

two answers, as I've just outlined in

00:35:41

this question, that's a bit talking out

00:35:43

of both sides of my mouth. Do I want to

00:35:45

pretend like I know what the tax future

00:35:46

will be or do I want to admit that I

00:35:48

have no idea what the tax future will

00:35:50

be? But that happens a lot in the world.

00:35:52

It happens a lot in the world of

00:35:53

financial planning simply because we are

00:35:54

not fortune tellers. We do not know the

00:35:56

future. But still for Al, for any of you

00:35:58

listening, I think it's really good food

00:35:59

for thought for you and and your

00:36:01

families. And to preempt some questions

00:36:03

for you listeners, the Roth versus

00:36:04

traditional math, it's a constant topic,

00:36:06

but the math is clear. It is all about

00:36:08

tax rates and tax arbitrage. You take

00:36:11

today's tax rates and you compare them

00:36:13

to the tax rates in the future. And not

00:36:14

just the governmental tax rates to be

00:36:16

fair, but more importantly, your

00:36:17

specific tax rates based on how you

00:36:20

expect your income will change over

00:36:21

time. Occasionally you will hear someone

00:36:23

talking about Roth dollars and they'll

00:36:25

say something like, "Well, would you

00:36:27

rather sacrifice 20% of an acorn or 20%

00:36:30

of the whole oak tree?" And the premise

00:36:32

is that by paying 20% of the acorn, it

00:36:34

must be better because an acorn is

00:36:37

smaller and you'd rather pay a smaller

00:36:39

amount with fewer tax dollars. It's this

00:36:41

convoluted metaphor that basically says

00:36:43

Roth is better. With Roth contributions,

00:36:45

you're paying the tax now and then

00:36:47

letting it grow taxfree. And with the

00:36:49

acorn metaphor, you'd rather quote

00:36:51

unquote pay 20% of the acorn, the tax

00:36:53

now, and then let the oak tree grow. You

00:36:56

you pay a tax today on a smaller amount

00:36:59

and then you let it grow. But the acorn

00:37:01

and oak metaphor, it's kind of stupid

00:37:03

and it never seems to explain the fact

00:37:05

that if you lobbed off 20% of an acorn,

00:37:08

then your subsequent oak tree would grow

00:37:11

up 20% smaller. In fact, it would be the

00:37:13

same exact size as the full-grown oak

00:37:15

tree that you had just lpped 20% off at

00:37:18

the end of its life. Like, the math is

00:37:20

crystal clear. I don't know how else to

00:37:22

say it. Just pull out a spreadsheet,

00:37:24

just pull out a pencil and paper, and

00:37:25

start with $1,000, have it grow by 10%

00:37:28

per year, lop off 20% at the very end of

00:37:31

the analysis, and now start with the

00:37:33

same $1,000, lop off 20% down to 800,

00:37:37

and go through the same investment

00:37:39

growth, you're going to end up with the

00:37:40

same amount of money. So, don't worry

00:37:42

about the acorn or the oak tree. Simply

00:37:45

understand the tax rates that you're

00:37:46

paying today against the potential tax

00:37:48

rates you'll be paying in the future and

00:37:50

then assign your traditional and Roth

00:37:52

dollars accordingly. Okay, on to

00:37:54

question four from Corey. So, Corey

00:37:56

wrote in and said, "Jesse, I've gotten

00:37:57

very serious about personal finance

00:37:59

recently and consumed a large amount of

00:38:01

personal finance content over the last

00:38:02

18 months, but something I've noticed to

00:38:05

be lacking is how to plan and account

00:38:07

for health care costs during all phases

00:38:09

of your retirement planning." I think

00:38:11

most people would agree that it

00:38:12

represents healthcare represents a huge

00:38:14

aspect of an individual's or family's

00:38:16

financial picture. And I think the

00:38:18

argument could be made that on average

00:38:19

it is a poorly understood topic by the

00:38:21

general public. Corey, I think you're

00:38:23

making a great point and I'm happy to

00:38:25

admit that on average or maybe, you

00:38:27

know, when I compare myself to maybe

00:38:29

some of the other topics, some of the

00:38:31

other like, you know, knowledge areas

00:38:32

that I'm familiar with that I know my

00:38:35

fair share about portfolio this and

00:38:37

account type that and tax planning, you

00:38:39

know, saving on taxes, when to claim

00:38:41

social security. I've got my facts down

00:38:43

in those areas. But when it comes to

00:38:45

Medicaid or Irma or the ACA or some of

00:38:48

those ideas, I can poke my way around. I

00:38:50

can kind of talk my way around those

00:38:51

topics, but not nearly to the same depth

00:38:54

as some of the other retirement topics.

00:38:56

So, your question kind of caused me to

00:38:58

dig a little deeper into this question

00:39:00

of healthcare, or at least deeper than I

00:39:01

had before. So, I'm going to present to

00:39:03

you my best understanding of health care

00:39:05

costs during all phases of your

00:39:07

retirement planning. So, first,

00:39:09

healthcare costs while working.

00:39:10

Typically, while working, we have an

00:39:12

employer sponsored group plan. It might

00:39:15

be a high deductible plan or an HDHP

00:39:17

which qualifies us to then open a health

00:39:19

savings account or HSA. It might be

00:39:21

worth defining some terms here like

00:39:23

premiums or deductibles or co-pays or

00:39:25

out-ofpocket maximums. Right? These are

00:39:27

all terms that we hear thrown about the

00:39:29

healthcare world. Premiums. Think of

00:39:31

premiums as your monthly membership fee

00:39:33

for having health insurance. You pay

00:39:35

your premium every month whether you go

00:39:36

to the doctor or not. It's the cost of,

00:39:38

you know, staying in the club so your

00:39:40

insurance is active and and ready to use

00:39:42

when you need it. A deductible is how

00:39:44

much you have to pay out of pocket each

00:39:46

year before your insurance kicks in and

00:39:49

starts helping. So, for example, if you

00:39:50

have a $2,000 deductible, it means that

00:39:53

the first $2,000 of medical bills on

00:39:55

that insurance plan, you pay yourself.

00:39:58

And after that $2,000 deductible is

00:40:01

reached, then your insurance starts to

00:40:03

chip in. A co-ay is a fixed amount that

00:40:05

you pay when you receive certain

00:40:06

services. So, for example, your

00:40:08

insurance plan might have a $30 co-pay

00:40:10

every time you visit your primary doctor

00:40:12

or a $10 co-pay for a prescription. So,

00:40:15

that means well, and usually for what

00:40:16

it's worth, co-pays kick in even before

00:40:18

you've met your deductible. So, you

00:40:20

know, a doctor's appointment might be

00:40:22

300 bucks, but if your co-pay is 30, it

00:40:24

means you pay the first 30 and then

00:40:26

depending on if you reach your

00:40:27

deductible or not, the rest might be

00:40:29

covered. And then most plans do have an

00:40:31

out-of- pocket maximum, which as the

00:40:33

name implies, it's a ceiling. the most

00:40:35

that you'll have to spend in a given

00:40:36

year on covered health care. Once you

00:40:38

hit that number, insurance then pays

00:40:40

100% of covered expenses for the rest of

00:40:42

the year. It includes what you pay

00:40:44

towards deductibles and co-pays and co-

00:40:46

insurance if your plan has that too. An

00:40:48

interesting example would be back in

00:40:50

2024 when thankfully going into 2024 my

00:40:54

wife and I knew that my wife was

00:40:56

pregnant and we knew that she was going

00:40:58

to be giving a birth to a baby around

00:41:00

June of 2024. And so we were able to

00:41:03

look at our options going into 2024 and

00:41:05

understand, okay, the cost of giving

00:41:07

birth at the University of Rochester

00:41:09

Medical System is X. And therefore, will

00:41:13

we hit our out-ofpocket maximum on our

00:41:15

healthcare plan? We did. And anyway, it

00:41:17

just allowed us to compare and contrast

00:41:19

different plans and to plan ahead and to

00:41:22

figure out how much giving birth to a

00:41:24

baby would cost with all the prenatal

00:41:26

costs associated with it, some of the

00:41:28

post-natal costs associated with it.

00:41:29

Anyway, it's important to understand

00:41:31

these different terms because when the

00:41:32

real world comes calling, it matters,

00:41:34

right? It matters in our healthcare. It

00:41:36

matters in our budget. The HSA account

00:41:38

that I referenced earlier, health

00:41:39

savings account, if you haven't heard of

00:41:41

it, it is an amazing account with a

00:41:43

so-called triple tax advantage because

00:41:46

you get to invest tax deferred dollars

00:41:48

at the front end. So, the money that

00:41:49

goes in is tax deferred. You can then

00:41:52

invest the money in the HSA in mutual

00:41:54

funds and the like index funds. It'll

00:41:56

grow taxree. So, that's the second tax

00:41:58

benefit. And then when you spend that

00:42:00

money on health care costs, on qualified

00:42:02

health care costs, the withdrawals are

00:42:04

taxfree, too. So that's the third tax

00:42:06

benefit. So a really cool account. And

00:42:08

for what it's worth, if you don't end up

00:42:10

using the money on health care costs

00:42:12

once you turn, I think it's 65. Once you

00:42:14

turn 65, you can essentially use an HSA

00:42:16

account as if it were a traditional IRA.

00:42:19

So you will have to pay income tax on

00:42:20

your withdrawals if you're just using

00:42:22

the withdrawals to fund retirement

00:42:23

instead of funding healthcare costs. but

00:42:26

you've gotten the tax deferred

00:42:28

contributions and the tax-free growth

00:42:29

the whole time. So, it's a really nice

00:42:31

account. And then, if you're not

00:42:32

familiar with this loophole on HSAs, it

00:42:36

probably is worth me reiterating it

00:42:38

here, which is, you know what, if you

00:42:39

want to, you can use your HSA kind of on

00:42:42

an annual basis to help pay your

00:42:43

healthcare costs, right? You put the tax

00:42:45

deferred money, maybe you choose to

00:42:47

invest it, maybe not, and then when your

00:42:49

son Bobby has to go to a doctor's

00:42:51

appointment, it's 250 bucks. You just

00:42:52

put down your HSA card, you pay the 250

00:42:55

bucks that way, and essentially what

00:42:57

you've done there is you've saved

00:42:58

yourself probably 20 or 25 cents on the

00:43:00

dollar in taxes. So, you get this nice

00:43:03

little discount for using your HSA. But

00:43:05

the loophole and the really interesting

00:43:07

and cool and probably better way of

00:43:09

using your HSA account is to instead say

00:43:12

for Bobby's doctor's appointment, what

00:43:14

did I say it was 250 bucks to say, "I'm

00:43:16

actually going to pay for this doctor's

00:43:18

appointment out of pocket. I'm going to

00:43:19

write a check. I'm just going to put

00:43:20

down my credit card. I'm going to pay

00:43:22

using after tax dollars out of my normal

00:43:24

bank account. Then I'm going to keep a

00:43:26

receipt and I'm going to keep that

00:43:27

receipt for a really long time and I'm

00:43:29

going to keep really good records. I'm

00:43:31

going to let my HSA continue to grow.

00:43:33

I'm not going to spend my HSA dollars

00:43:35

this year for Bobby's medical expenses.

00:43:38

Instead, I'm going to let the HSA

00:43:39

continue to grow because it's got the

00:43:41

tax deferred growth. And those tax

00:43:44

deferred dollars are kind of precious in

00:43:45

our financial plan, right? any qualified

00:43:47

dollar has this little bit of a precious

00:43:49

aspect to it because of the tax-free

00:43:51

growth and because of the tax deferral

00:43:53

on the front end or the lack of taxes on

00:43:54

the back end, whatever it may be. So,

00:43:56

you let your HSA grow for some

00:43:58

indeterminate amount of time and it

00:44:00

might be decades in the future where you

00:44:02

say, you know what, I'm going to now

00:44:04

start to benefit from these HSA dollars

00:44:07

and I'm going to go back in time to

00:44:09

2025. I'm going to pull out that

00:44:10

receipt, including the $250 receipt for

00:44:13

Bobby's appointment in May of 2025. And

00:44:16

here in the future, decades in the

00:44:18

future in 2045, now I'm going to

00:44:20

reimburse myself for that 2025 expense

00:44:24

using my HSA dollars. The nice thing is

00:44:26

instead of doing the reimbursement in

00:44:28

2025 itself, where you really didn't get

00:44:30

any benefit of compound growth in your

00:44:32

HSA, you've now let your HSA compound

00:44:35

for, in my example, decades, and you've

00:44:38

really benefited from those qualified

00:44:40

precious dollars compounding in a tax

00:44:43

deferred or a tax-free way. And only

00:44:46

after that compounding has taken place

00:44:48

do you choose to utilize the dollars and

00:44:49

reimburse yourself. If you actually

00:44:51

throw that scenario into a spreadsheet

00:44:53

and see the kind of value that you

00:44:55

acrew, it's huge. It's really cool. And

00:44:58

all else being equal, you can afford to

00:45:01

pay for this year's medical expenses out

00:45:03

of pocket instead of using your HSA. In

00:45:06

the long run, you'll be better off for

00:45:07

it. So anyway, that's pretty cool. Well,

00:45:09

back to Corey's question now. when we're

00:45:11

talking about work related health care

00:45:13

or you know how we have health care

00:45:15

during our working years. If you do

00:45:17

leave your job for any reason, including

00:45:18

to retire early, it might be worth

00:45:21

diving into what's called COBRA

00:45:22

coverage. See, I didn't know this before

00:45:24

putting this recording together. Cobra

00:45:26

apparently stands for the Consolidated

00:45:28

Omnibus Budget Reconciliation Act. Not

00:45:31

that anyone cares, but anyway, when you

00:45:34

hear COBRA, what you should think of it

00:45:35

is it's a federal law that gives you the

00:45:37

right to keep your employer sponsored

00:45:39

health insurance for a limited time

00:45:42

after you lose your job or after you

00:45:44

experience another qualifying event. So,

00:45:46

you can use COBRA if you lose your

00:45:48

health insurance because of quitting, if

00:45:50

you get laid off, unless it's for gross

00:45:52

misconduct, apparently. If you reduce

00:45:55

your work hours and that kind of

00:45:56

eliminates your access to healthare, if

00:45:59

divorce or legal separation means you

00:46:01

can no longer use your spouse's

00:46:02

healthare or if an employee dies. Let's

00:46:05

say I die and my family's on my

00:46:07

healthare through work. Well, my family

00:46:10

still through the Cobra Act, my family

00:46:11

still has access to my healthcare

00:46:13

coverage through work. Usually, it's 18

00:46:16

months is the time period that COBRA can

00:46:19

last for if you've lost your job or had

00:46:20

your hours reduced. It's 36 months for

00:46:23

events like divorce or death. But the

00:46:26

catch with COBRA, if you didn't know

00:46:27

this, is it's very expensive. When

00:46:29

you're employed, your employer often

00:46:31

pays a big chunk of your monthly premium

00:46:33

on your health insurance. But with

00:46:35

COBRA, you pay the full premium yourself

00:46:38

plus a 2% administrative fee. So, if

00:46:40

your employer was paying $1,000 a month

00:46:42

and you were only paying $200 a month,

00:46:45

under Cobra, you now pay the whole

00:46:47

$1,200 a month. Right? So the idea is

00:46:50

that you still have access to the plan

00:46:52

if you want it. You can still maintain

00:46:54

access to your same doctors, your same

00:46:55

providers, the same hospital system if

00:46:57

you want it. It's not like you get cut

00:46:59

off completely from insurance. Cobra

00:47:01

gives you 18 to 36 months to figure out

00:47:03

what's next. But it is pretty expensive

00:47:05

along the way. That's really the benefit

00:47:07

of Cobra. And for some early retirees,

00:47:10

it might make sense for them to at least

00:47:11

look into Cobra as the short-term stop

00:47:14

gap between the day they retire and

00:47:16

whatever is next. But speaking of

00:47:18

retirees, let's actually dive into

00:47:20

health care costs as an early retiree.

00:47:22

What if you reach FI, financial

00:47:24

independence? You want to retire at age

00:47:25

45 or 50. You have no more work

00:47:27

sponsored plan, but you still have

00:47:29

decades before age 65, which is when

00:47:31

Medicare kicks in. And we will dive into

00:47:33

Medicare in a little bit. The answer for

00:47:35

almost all early retirees is to go

00:47:37

shopping on the ACA exchanges. That's

00:47:39

the Affordable Care Act or Obamacare,

00:47:41

right? The ACA provides health care for

00:47:43

all. Your ACA costs or premiums will be

00:47:46

based on the following. First, your age.

00:47:49

Younger is better than older as to be

00:47:51

expected with most health insurance. ACA

00:47:54

costs will be uh determined based on

00:47:55

where you live due to local medical

00:47:58

costs and competition amongst private

00:48:00

insurers. ACA costs will be determined

00:48:02

based on tobacco use. Again, I think

00:48:04

it's understandable how tobacco use can

00:48:06

affect health insurance costs. And then

00:48:07

the last one which is kind of a it's

00:48:09

probably the most important one for this

00:48:10

conversation or it's most you know

00:48:12

apppropo of this conversation is

00:48:14

household size and income. It's huge

00:48:16

especially from a financial planning

00:48:17

point of view. There's something called

00:48:19

they call it the premium subsidy also

00:48:21

called the ACA tax credit. The lower

00:48:24

your income and the bigger your family

00:48:26

the more help you will get paying your

00:48:29

ACA premiums. And this goes back and and

00:48:31

kind of when I think of this, it goes

00:48:33

back to the puzzle piece metaphor or the

00:48:34

spiderweb analogy or metaphor of

00:48:37

financial planning that all these

00:48:38

different concepts they fit together and

00:48:40

they interact. You know, they fit

00:48:42

together like puzzle pieces or they

00:48:43

interact like a spiderweb and they can

00:48:45

compound in beneficial ways or they can

00:48:48

compound in detrimental ways. And so to

00:48:50

get cheap or even free ACA health care

00:48:53

in early retirement, you can do that by

00:48:56

keeping your income sufficiently low.

00:48:58

You won't be working and collecting W2

00:49:00

or 1099 income anymore. So, so that'll

00:49:02

be easy. You might want to do some Roth

00:49:05

conversions though in early retirement.

00:49:06

Or you might want to do some capital

00:49:07

gains planning in the 0% gains bracket.

00:49:10

Or maybe you choose to utilize 72T

00:49:13

substantially equal periodic payments

00:49:15

from your traditional accounts. That

00:49:17

way, you can access your traditional

00:49:18

accounts before age 59 and a half. These

00:49:21

are all tools that early retirees might

00:49:23

choose to do. The problem though is that

00:49:25

all of those smart things might

00:49:27

negatively affect your healthare costs,

00:49:29

right? By increasing your income, you're

00:49:31

no longer going to get access to cheaper

00:49:34

ACA credits. So, how do you optimize

00:49:36

that problem? Well, that's a fun

00:49:38

question, or at least I think it's a fun

00:49:40

question. That's the kind of question I

00:49:41

get to answer at work, right? That's the

00:49:42

heart of financial planning. Now, there

00:49:44

is a second interesting conversation

00:49:45

here, but I'll save that for the show

00:49:47

notes. I call it benefits hacking. It's

00:49:49

I wrote an article about it a couple

00:49:50

months ago. The idea is that a lot of

00:49:52

public benefits are based on income or

00:49:54

net worth or sometimes both. ACA is

00:49:56

based on income. So someone could retire

00:49:59

early with millions and millions of

00:50:01

dollars in net worth but almost no

00:50:03

income and then they get free

00:50:04

healthcare. Now is that a genius move?

00:50:06

Is that an immoral move? Is it somewhere

00:50:08

in between? Do we hate the player? Do we

00:50:10

hate the game? So anyway, I'll throw an

00:50:12

article in the show notes that dives

00:50:13

deep on that topic. But anyway, I do

00:50:15

want to dive into an example of ACA

00:50:18

costs. But still, I think, you know, we

00:50:20

can do that while also fast forwarding

00:50:21

to health care costs in in quoteunquote

00:50:23

the gap to Medicare. So really here,

00:50:25

what I'm thinking about is someone who's

00:50:26

58 or maybe they're 62. They've got a

00:50:28

pretty normal age for a retiree, but

00:50:31

they still are too young for Medicare

00:50:33

and they want to retire from their

00:50:35

full-time job. They no longer get a work

00:50:37

sponsored plan. The answer here is still

00:50:39

going to be ACA. But it's important to

00:50:41

realize that ACA premiums do rise pretty

00:50:44

sharply with age. the costs can pretty

00:50:46

easily exceed $1,000 per person per

00:50:49

month without subsidies. So for, you

00:50:51

know, a married couple who's retiring,

00:50:53

their cost of ACA without subsidies

00:50:55

could easily exceed $2,000 a month for a

00:50:58

couple for two people. And the ACA

00:51:00

subsidies, they change annually, both

00:51:02

because your age is changing, right?

00:51:03

You're getting older, but also due to

00:51:05

changes, refinements in the ACA cost

00:51:07

structure itself. So if you're worried

00:51:10

about how to plan for your personal ACA

00:51:12

costs, look no further. There are some

00:51:14

terrific calculators out there. One's on

00:51:16

healthcare.gov, like the government

00:51:18

website. Another really good one is at

00:51:21

KFF.org. We will throw that link into

00:51:23

the show notes. KFF is a independent

00:51:25

health policy think tank. So, I went

00:51:27

out, I ran a simple test in the KFF

00:51:29

calculator, looking at someone here in

00:51:30

my state of New York. I'm going to say

00:51:32

they retired early at age 50 and they

00:51:35

decided to realize $80,000 in income. So

00:51:38

intentionally they realized $80,000 in

00:51:40

income between some of the smart

00:51:42

planning tools that I mentioned before,

00:51:43

Roth conversions and and realizing

00:51:45

capital gains in the 0% tax bracket.

00:51:48

They have a family of four, but only the

00:51:50

parents will be on this plan. It's my

00:51:52

hypothetical. The kids, I'll mention,

00:51:53

will be on the New York Child Health

00:51:55

Plus plan. If you're a New York resident

00:51:57

and you're not aware of New York Child

00:51:59

Plus, it's definitely worth checking

00:52:01

out. Happy to tell you why my family is

00:52:03

using it. And if you're not in New York,

00:52:05

you might want to see if your state has

00:52:06

a similar program to New York Child

00:52:08

Health Plus. Anyway, back to the answer.

00:52:10

I've I've shared with you the details

00:52:11

about this family, right? Age 50

00:52:13

healthcare for the two adults and

00:52:16

$80,000 in income. With those facts,

00:52:19

I'll say this family will then have 80%

00:52:22

of their monthly ACA costs covered by

00:52:25

the premium tax credit, leaving a

00:52:27

monthly cost of them of $284. Now, I

00:52:30

don't know about you listeners, but that

00:52:31

number is pretty low. surprisingly low

00:52:34

to me. So, this early retired couple,

00:52:36

they need to budget about $300 a month

00:52:39

for their health care costs for two

00:52:41

adults. If your income is too low, you

00:52:45

actually won't qualify for ACA anymore

00:52:47

cuz you will be have such low income

00:52:49

that you'll qualify for Medicaid

00:52:51

instead. Now, while Medicaid is free,

00:52:54

there are some downsides. Mainly,

00:52:55

Medicaid providers can be limited in

00:52:57

some areas. Timely access can be a big

00:52:59

issue. So, I know of a lot of people in

00:53:02

the financial independence community or

00:53:04

early retirees who are very big

00:53:06

proponents and and really bigger

00:53:08

proponents of the low premium ACA plan

00:53:11

rather than the free Medicaid plan

00:53:14

because the ACA plan gives them more

00:53:16

access to more providers, more

00:53:17

flexibility. So again, in summary,

00:53:20

whether you are a very early retiree,

00:53:22

like age 40 or 45, or simply you're a

00:53:25

retiree at 58 or 60 or 62, and it's

00:53:28

before your Medicare age of 65, the ACA

00:53:32

is probably going to be your way

00:53:34

forward. And as long as you kind of

00:53:37

maintain some controls over your income,

00:53:39

you're probably going to get some pretty

00:53:40

nice premium, some tax credits, some

00:53:42

premium tax credits, and your actual ACA

00:53:45

cost will be reasonable. Not free, but

00:53:47

reasonable. And last, let's talk about

00:53:49

health care cost once Medicare kicks in,

00:53:51

once we turn 65. Medicare could probably

00:53:54

be, and maybe will be actually an

00:53:56

episode entirely onto itself. I might

00:53:58

have a Medicare expert on at some point

00:54:00

to really dive deep on Medicare cuz it's

00:54:02

confusing. I've had to learn and relearn

00:54:04

about Medicare multiple times. I find it

00:54:06

to be a pretty confusing topic. The

00:54:07

first reason why is that there are

00:54:09

multiple parts of Medicare and not every

00:54:12

person needs or wants or pursues all the

00:54:16

parts of Medicare. So part A, Medicare

00:54:18

Part A, covers hospital care and skilled

00:54:21

nursing and hospice, home health. Most

00:54:24

people get part A for free as long as

00:54:27

they or a spouse paid Medicare taxes for

00:54:29

at least 10 years. Most of us have

00:54:32

qualified for that. Most of us get part

00:54:34

A completely for free. Now, part B,

00:54:36

Medicare part B is medical insurance.

00:54:39

And this is the big part that most

00:54:41

people are aware of. When most people

00:54:42

say Medicare, or at least when they

00:54:44

think of what Medicare does in their

00:54:46

lives as a retiree, really what they're

00:54:48

thinking of is Part B. It covers

00:54:50

doctor's visits, outpatient care,

00:54:52

preventative services, stuff like that.

00:54:54

And part B has a premium. It has a

00:54:56

monthly premium, a monthly membership

00:54:58

cost, which ends up, at least as of now

00:55:00

2025, it's around $180 a month. However,

00:55:03

that premium is subject to something

00:55:05

called Irma. We've talked about Irma

00:55:07

before on the blog and on the podcast. I

00:55:09

R M AAA Irma to be blunt is an extra

00:55:13

tax, an extra part B tax that high

00:55:16

earners must pay. So Irma has the

00:55:18

possibility of increasing your monthly

00:55:21

Medicare part B payment from $100, I'm

00:55:23

sorry, $180 per month to as much as $600

00:55:26

per month. Now, I don't want anyone to

00:55:29

get too freaked out because in order for

00:55:31

your Irma to increase your total cost

00:55:34

that high, I'll just run through some

00:55:35

numbers. Your Part B premium is $185 a

00:55:38

month. I think I said a 180. It's

00:55:39

actually 185. Now, if you as a couple

00:55:43

earn above

00:55:45

$266,000 a year up to

00:55:48

$334,000 a year. So again, as a couple

00:55:51

in retirement earning more than a4

00:55:53

million a year, that's a lot of

00:55:54

retirement income. Your part B premium

00:55:57

instead of being 185 a month will

00:55:59

approximately double, actually exactly

00:56:01

double to $370 a month. Okay, maybe that

00:56:04

doesn't sound too fun, but it does mean

00:56:06

that you're earning a quarter million

00:56:08

dollars a year in retirement. If you, as

00:56:10

a couple, again, are earning more than

00:56:14

$386,000, but less than 3/4 of a million

00:56:17

per year in retirement, then your Part B

00:56:20

premium balloons up to $592 a month. So

00:56:23

again, $592 a month is more than triple

00:56:27

the base premium for Medicare. It's a

00:56:30

lot. That's a big increase. But I think

00:56:32

I've maybe mentioned this on on the

00:56:33

podcast before where the people who are

00:56:35

subject to the biggest Irma taxes are

00:56:38

also the people who can absorb it the

00:56:40

best. I mean, granted, you're free to

00:56:42

have your own opinion on taxes and

00:56:43

progressive and regressive taxes and the

00:56:45

way the tax system works, but the last

00:56:47

Irma threshold, if you're making more as

00:56:49

a couple, more than 34 of a million

00:56:51

dollars per year in in retirement, then

00:56:53

your part B premium is going to be $600

00:56:55

a month. So, you multiply that by 12,

00:56:57

right? you end up getting 7,500 8 grand

00:57:00

a year for Medicare. So if you're

00:57:02

earning 34 of a million dollars or more,

00:57:05

you'll have to spend 8 grand or about 1%

00:57:08

of that on your Medicare premiums. To

00:57:10

me, it's not the biggest deal in the

00:57:12

world, but feel free to argue with me

00:57:14

there. Anyway, so that's part B and

00:57:15

that's Irma. Part C of Medicare is often

00:57:19

called Medicare Advantage. And these are

00:57:22

private insurance plans that are meant

00:57:24

to replace Medicare parts A and B. And

00:57:28

they often include added benefits on top

00:57:30

of Medicare A and B like dental or

00:57:33

vision or prescriptions or fitness

00:57:35

perks, etc., etc., etc. So, you would

00:57:38

still pay your Part B premium here, but

00:57:41

then you'd get all of your services

00:57:42

through a private plan. And then part D,

00:57:45

Medicare Part D, is prescription drug

00:57:47

coverage, usually costing around $30 to

00:57:49

$50 a month. You need to enroll into

00:57:52

Medicare. We all need to enroll into

00:57:54

Medicare. And the window to do so starts

00:57:56

3 months before you turn 65. And you

00:57:59

must enroll. A late enrollment, and I

00:58:01

think you get 7 months to enroll. Don't

00:58:03

quote me on that. But a late enrollment

00:58:04

leads to lifetime penalties for Part B

00:58:07

and Part D. So you want to enroll. To

00:58:09

make matters a little more confusing,

00:58:10

there's also something called Metagap.

00:58:12

It's a supplemental private policy meant

00:58:14

to cover some of the gaps as the name

00:58:17

would imply some of the gaps in Medicare

00:58:19

such as covering uh co- insurance

00:58:21

charges in Medicare often providing

00:58:23

broader provider access especially I you

00:58:26

know when you think of someone like a

00:58:27

snowbird I deal with snowbirds a lot

00:58:29

someone who spends their summers or the

00:58:30

nice parts of the year here in upstate

00:58:32

New York cuz they're probably an upstate

00:58:33

New York native but then in the winter

00:58:35

and the kind of nasty parts of the year

00:58:36

up here they go to Florida snowbird

00:58:39

something like Metagap can be really

00:58:40

helpful where they can get their

00:58:41

provider in Florida. When they're in

00:58:43

Florida, they have their provider in New

00:58:44

York when they're here. So, some

00:58:46

retirees opt to get part A for free,

00:58:49

like we already discussed. They pay

00:58:51

their part B premium plus Irma for part

00:58:54

B. They then get a metagap plan to do

00:58:57

things like cover co insurance and

00:58:58

deductibles and to fill in those gaps

00:59:00

and then they pay for part D for

00:59:02

prescriptions. But other retirees, they

00:59:05

opt for the Medicare Advantage plan,

00:59:07

which was part C, because that includes

00:59:10

part A and part B and usually includes

00:59:13

part D as well. It includes some sort of

00:59:15

prescription coverage. The median

00:59:17

retiree spends about $5,000 per year,

00:59:20

which includes both the Medicare

00:59:22

premiums and any out-of- pocket costs.

00:59:24

So, the median the median retiree spends

00:59:26

about $5,000 per year on all these

00:59:28

costs. I do think there's one more

00:59:30

retirey topic specific to retirees worth

00:59:33

covering here, which is the question of

00:59:35

nursing homes, extended care, and other

00:59:37

options that we've all probably heard of

00:59:39

and we've all heard can be very

00:59:40

expensive. The generic term that I'll

00:59:42

use is long-term care or LTC. LTC,

00:59:46

long-term care, refers to non-medical

00:59:48

help with everyday activities like

00:59:49

bathing, dressing, toileting,

00:59:51

transferring in and out of bed or a

00:59:53

chair, eating, and continents. And when

00:59:55

someone needs help with two or more of

00:59:57

those activities of daily living,

00:59:58

they're typically eligible for LTC

01:00:01

services. Home care is services brought

01:00:04

into an individual's home, like personal

01:00:06

aids or visiting nurses or physical

01:00:07

therapy. It's the most flexible and the

01:00:09

least disruptive of LTC care. It's not

01:00:12

typically covered by Medicare unless

01:00:14

it's short-term and medically necessary.

01:00:17

Next on the list are assisted living

01:00:19

facilities. So assisted living

01:00:21

facilities usually help people who have

01:00:23

those those ADL needs, activities of

01:00:25

daily living in a residential setting.

01:00:27

The residents in an assisted living

01:00:29

facility, they still maintain pretty

01:00:30

good independence. There's no

01:00:32

aroundthe-clock nursing, and this is not

01:00:34

covered by Medicare. Next is memory

01:00:37

care, and that's specialized assisted

01:00:39

living for individuals with dementia or

01:00:41

Alzheimer's. There's a higher cost due

01:00:43

to supervision and safety. And then

01:00:46

last, nursing homes or skilled nursing

01:00:48

facilities. Usually there's 24/7 care

01:00:50

including medical supervision. It's for

01:00:52

individuals with serious health needs or

01:00:54

a total loss of independence. Medicare

01:00:56

pays short-term, usually up to 100 days

01:00:59

if qualified. And then after that, the

01:01:01

individual or the family has to pay out

01:01:03

of pocket or rely on Medicaid. Now, the

01:01:06

cost of these things, now granted, I

01:01:08

will say these are 2024 national

01:01:10

averages, and these costs can vary

01:01:12

wildly by location. And I'll say

01:01:14

personally, these costs that I'm about

01:01:16

to list out to you, they seem a little

01:01:18

bit low to me based on my understanding

01:01:20

of the costs here in in Western New

01:01:22

York. Maybe where you are, these costs

01:01:24

are actually higher than what you're

01:01:26

expecting for a home health aid. And

01:01:28

that's about 40 hours a week of home

01:01:30

health services. The monthly cost is

01:01:32

about $5,500 a month. For an assisted

01:01:35

living facility, about $5,000 a month

01:01:38

for a memory care unit, about $8,000 per

01:01:40

month. and for a private nursing home

01:01:43

room about $10,000 per month. Again, I

01:01:46

actually think those costs are a little

01:01:47

bit low, but I found a source that cited

01:01:50

those as 2024 national averages. So,

01:01:53

Corey and any other listeners with

01:01:55

similar questions, there's certainly a

01:01:57

lot to learn when it comes to how we're

01:01:59

going to pay for healthcare throughout

01:02:00

our lives, but the information is

01:02:02

certainly out there, especially when it

01:02:04

comes to how these medical costs might

01:02:06

impact our cash flow planning and our

01:02:08

overall financial plan. So, I hope this

01:02:10

answer helped you out. Here's a quick ad

01:02:12

and then we'll get back to the show.

01:02:14

Serious question. Why do podcasters

01:02:17

constantly ask for ratings and reviews?

01:02:19

Yes, they do help highlight our shows to

01:02:21

new listeners. They help strangers find

01:02:23

us on Apple Podcasts and Spotify. It's

01:02:26

totally true and a good reason to ask

01:02:27

for ratings and reviews. But I have

01:02:30

something more important, at least more

01:02:31

important to me. I want to know if you

01:02:34

like this stuff. I want to know if you

01:02:36

like my podcast episodes, my monologues,

01:02:38

my guests, the information I share with

01:02:40

you and the stories I tell. I want to

01:02:42

improve and make your listening more

01:02:43

enjoyable in the process. So yeah, I

01:02:46

would love to read your reviews. And

01:02:48

sure, if you throw a rating in there,

01:02:49

too, that's great. If you like what I'm

01:02:51

doing, please share it with me. It's

01:02:53

such a great feeling to read your

01:02:55

feedback. I'd love to read your review

01:02:58

or see a rating on Apple Podcasts or

01:03:00

Spotify. Thank you. And last question

01:03:03

five, the last question of today's AMA

01:03:05

episode is another twofer. It's really

01:03:07

two questions in one from Brian and Dan.

01:03:09

Brian asked for my general thoughts on

01:03:12

everything that's tariffy and economic

01:03:14

going on here in 2025 so far. And then

01:03:16

Dan asked for my thoughts on the best

01:03:18

investment strategy during a recession.

01:03:20

Now granted, I'll say I'm I'm recording

01:03:21

this on May 14th. I think this episode

01:03:24

is going to come out in either late May

01:03:26

or early June. And as of today, I'll

01:03:29

actually pull it up right now. the S&P

01:03:31

500. Okay, it's down a little bit today.

01:03:34

Just a tiny bit so far, but year to

01:03:37

date, it's actually up year-to date,

01:03:39

right? We've recovered that much from

01:03:41

the tariffy lows of April that we're

01:03:43

actually up year to date. And when I

01:03:45

compare to where we were in midFebruary,

01:03:47

which is the high so far this year,

01:03:48

we're about 4% off the highs. So again,

01:03:51

we'll see what happens over the next 3

01:03:53

or 4 weeks by the time this episode

01:03:54

comes out, or we'll see what happens by

01:03:55

the time you personally happen to be

01:03:57

listening to this episode. But right now

01:03:59

we've been kind of climbing this wall of

01:04:01

worry over the last couple weeks and

01:04:04

quietly or maybe not so quietly

01:04:06

recovering from the volatility that

01:04:08

midappril early and midappril saw after

01:04:10

the initial tariff announcements and

01:04:12

then you know retractions and etc etc

01:04:15

etc. Brian, for a bigger take on

01:04:18

tariffs, I'll point you back to the

01:04:19

episode I released on April 14th, which

01:04:21

is a deep dive into a lot of tariffy

01:04:23

topics. But the uh short answer is this.

01:04:25

As I speak these words, the balanced

01:04:27

portfolios, the diversified portfolios

01:04:29

that I manage for myself and that I

01:04:31

manage for others are down maybe 1%

01:04:34

since their highs in February. Again,

01:04:35

the S&P is only off four or 5%.

01:04:37

International stocks are up. Bonds are

01:04:40

flat. So, portfolios are only down 1%

01:04:43

since their highs in February. They're

01:04:45

actually up 3% on the year. They're up

01:04:47

four to 5% from April 2nd, the day when

01:04:50

President Trump officially announced his

01:04:52

initial tariff plan. So despite all the

01:04:54

questions and all the chaos, most

01:04:56

portfolios are actually doing just fine,

01:04:58

which is again, it's kind of crazy in

01:05:00

and of itself. And it just goes to show

01:05:02

that often the public discourse and the

01:05:05

public dialogue and the headlines and

01:05:07

the concerns that are flooding our minds

01:05:10

don't always actually match what's going

01:05:12

on in our portfolios. And it's really

01:05:13

important to remember that. Now granted,

01:05:15

will it stay this way for the rest of

01:05:16

the year, let alone for the next, you

01:05:18

know, 3 weeks before this episode

01:05:19

actually releases? I don't know. And

01:05:21

also, it's like, do I think it's

01:05:22

actually a good lesson that all of this

01:05:24

economic uncertainty resulted in

01:05:27

basically a 6 week period that was peak

01:05:29

to trough and then back to peak? I don't

01:05:32

think so. I don't think that's actually

01:05:33

a good lesson. In my opinion, it's too

01:05:36

short of a recovery period. And it's not

01:05:38

that I encourage, you know, self

01:05:40

flagagillation and pain. It's not that I

01:05:42

want people to have to go through really

01:05:45

hard times. I don't. But I do think as

01:05:47

long-term investors, we need to live

01:05:49

through some periods of real investing

01:05:51

loss in order to understand what we've

01:05:54

signed up for. And depending on who you

01:05:56

ask, I mean, maybe, yeah, 2022 was a

01:05:59

pretty good year of investment loss.

01:06:01

Those early months of COVID was a pretty

01:06:03

distinct and sharp period of investment

01:06:05

loss, even though it didn't last that

01:06:07

long. All I know is that 6 weeks isn't

01:06:10

that. Instead, I think it's easy to walk

01:06:12

away from these past six weeks with

01:06:13

maybe the wrong lesson, which is that

01:06:15

not only do markets always recover, but

01:06:17

they do so in, you know, two months. I

01:06:19

think that's probably a bad lesson and a

01:06:21

bad takeaway, but hey, this is what the

01:06:22

world has thrown at us. This is what

01:06:23

history has, this is how it's played out

01:06:26

this time. So anyway, I think it's worth

01:06:27

pointing out that the market has always

01:06:29

recovered so far. And as we've seen this

01:06:31

year, many investors nerves are really

01:06:33

on a hair trigger, which is why markets

01:06:36

can fall really quickly, but then also

01:06:38

recover really quickly and then

01:06:40

certainly possibly can fall quickly

01:06:42

again. And I think this is a great time

01:06:45

to discuss what I call the casino

01:06:47

analogy or I I wrote an article where an

01:06:50

alien walks into a casino. So an alien

01:06:52

walks into a casino. He's never been

01:06:53

there before. That's the idea, I

01:06:55

suppose. His first stop is the poker

01:06:56

table and he sees players being dealt

01:06:58

cards. They're wagering chips. This

01:07:00

dealer maintains the flow of play. Some

01:07:02

players are winning, some are losing.

01:07:04

The alien's kind of struggling with the

01:07:05

rules. Then he ambles over to the

01:07:07

blackjack table, right? So he sees

01:07:09

similar things, similar players. There's

01:07:11

a similar dealer, the same exact 52

01:07:13

cards, the same exact multicolored

01:07:15

chips, and he's asking himself, you

01:07:17

know, how is this different than poker?

01:07:19

You know, I traveled 50,000 lighty years

01:07:21

to see this. So the alien the alien

01:07:23

understandably is is a bit confused. And

01:07:25

I think if you put yourself in the alien

01:07:27

shoes and just think about how many

01:07:28

unique games can be played with a deck

01:07:30

of cards. So the the International

01:07:32

Playing Card Society estimates there are

01:07:33

over a thousand unique card games with

01:07:35

the standard 52 card deck. And each game

01:07:38

strategy of course is dependent upon its

01:07:40

specific rules and goals. Folding kings,

01:07:43

folding a set of kings or a pair of

01:07:44

kings would be crazy in Texas Holden

01:07:47

poker, but discarding two kings makes a

01:07:49

lot of sense if you're playing Jin Remy.

01:07:51

So the same action can be genius or can

01:07:53

be folly depending on the context,

01:07:55

depending on the game, depending on the

01:07:57

rules. Most average investors bear some

01:07:59

similarity to the alien. Wall Street

01:08:01

happens to be their casino where there

01:08:03

are stocks and bonds and alternatives

01:08:06

taking the place of cards and chips and

01:08:07

dice and the assets can be bundled

01:08:10

together into mutual funds or into funds

01:08:12

of funds kind of like Russian nesting

01:08:14

dolls. And then television experts are

01:08:16

out there shouting about puts or calls

01:08:18

or double levered funds. this thousands

01:08:21

of assets, thousands of strategies and

01:08:23

many different games, right? But most

01:08:25

investors, they fail to ask themselves,

01:08:27

what game am I playing, and why am I

01:08:29

playing that game? Am I playing poker?

01:08:31

Am I playing blackjack? Or am I playing

01:08:33

one of a thousand other variations? And

01:08:35

what tactics or what assets make sense

01:08:38

in my particular game? Am I in it for

01:08:40

the long haul? Or am I in it to play to

01:08:42

make a a quick buck? We kind of get

01:08:44

caught up in some of the intoxicating

01:08:47

vapors of Wall Street and too many

01:08:49

investors, we end up mimicking the games

01:08:51

that we see other people playing, right?

01:08:53

We pour money into popular investments

01:08:55

despite decades of research concluding

01:08:57

that's actually probably the wrong

01:08:59

precisely the wrong behavior to be

01:09:00

following. The smartest strategy is

01:09:03

always going to be a function of us and

01:09:05

our life and our goals and our

01:09:07

timelines, not necessarily a function of

01:09:09

of what the crowd is doing. And other

01:09:12

investors, some investors, they go to

01:09:13

extremes. They take on way too much risk

01:09:15

or they avoid risk altogether. They go

01:09:18

allin or maybe they play not at all. And

01:09:20

how much risk ends up being right? Well,

01:09:22

of course, it depends on the game that

01:09:24

we're playing and the goals in our life.

01:09:26

So, why don't more investors understand

01:09:28

this, right? Why don't more investors

01:09:30

understand their smart strategy? Why

01:09:32

don't they know their reason for

01:09:33

investing in the first place? I think

01:09:34

it's because there are no clean lines on

01:09:37

Wall Street. In the casino, I think the

01:09:39

lines are pretty clearly drawn. Poker is

01:09:42

over here, blackjack is over there, the

01:09:44

slots are in the corner, roulette is

01:09:46

over here, etc., etc. There's similar

01:09:48

games, sure, but they're clearly

01:09:49

demarcated. There's no confusion about

01:09:51

what game you're playing. But that's not

01:09:53

the case on Wall Street. There are no

01:09:55

clear lines. The market is wide open to

01:09:57

any participant looking to make a deal,

01:09:59

and we're all trading the same financial

01:10:02

instruments on the same markets all at

01:10:04

the same time, right, concurrently. It's

01:10:06

as if every game at the casino was

01:10:07

played off of the same deck of cards or

01:10:10

played off of the same pair of dice. It

01:10:12

would be total confusion, total chaos.

01:10:14

Imagine that, right? A table of poker

01:10:16

players and a table of blackjack players

01:10:18

trying to play their games while only

01:10:20

looking at a single deck of cards. Well,

01:10:22

Wall Street is exactly that chaos,

01:10:24

right? We have one shared marketplace

01:10:26

for both conservative retirees and for

01:10:29

tick- tock Robin Hood gamblers alike.

01:10:32

We're all playing together off the same

01:10:33

deck of cards. Roughly 60 million shares

01:10:36

of Apple trade every single day. Some

01:10:38

are going into 401ks, some are going

01:10:40

into index funds, but other shares of

01:10:42

Apple are being wagered in risky options

01:10:45

contracts. The same exact game pieces,

01:10:48

but vastly different games. Half the

01:10:50

market thinks that Apple's price is a

01:10:52

smart price to be buying Apple today.

01:10:54

The other half of the market thinks that

01:10:56

it's actually a smart price to be

01:10:57

selling Apple today. So again, the same

01:10:59

exact players, but wildly different

01:11:00

opinions. Some of us are in it for the

01:11:02

long haul. other people are making daily

01:11:04

bets. So again, the same players, the

01:11:06

same casino, but vastly different

01:11:08

timelines. When my uncle Jim Kramer, no

01:11:11

relation, but possibly an alien, when

01:11:13

he's hollering on TV, is he shouting

01:11:15

about your specific game that you're

01:11:17

playing? Probably not, right? If you're

01:11:19

listening to this podcast, I'd argue you

01:11:21

are playing a much longer term game than

01:11:24

what Uncle Jim Kramer is yelling about.

01:11:26

But it's all too easy to feel some sort

01:11:28

of familiarity with what he's saying.

01:11:30

You know, you're saying to yourself, "I

01:11:31

own stocks. this is probably advice for

01:11:33

me. And you might assume that Jim's

01:11:35

advice does apply to you, but it

01:11:37

doesn't, right? We have to know our

01:11:39

game. We have to learn our personal

01:11:40

strategy. And then we have to stick to

01:11:42

it. We have to ignore the other people

01:11:44

playing their games cuz most of them are

01:11:46

probably aliens still struggling with

01:11:48

the rules. So anyway, that's that

01:11:50

article. And one of my takeaways from

01:11:52

2025 so far is remembering that analogy.

01:11:55

Lots of investors playing lots of unique

01:11:56

games, following their specific

01:11:58

mandates, their specific timelines.

01:12:00

their actions are a function of their

01:12:02

games, not my game, though, and maybe

01:12:04

not your game either. They might be

01:12:06

panic selling or maybe in April they

01:12:07

were panic selling and maybe now they're

01:12:09

panic buying because they're playing a a

01:12:11

shorter term, higher risk game, and

01:12:13

we're playing a long-term game. Don't

01:12:15

let their actions pollute their way into

01:12:18

into your game. And then Dan asked about

01:12:20

the best investments in a recession. So

01:12:22

Dan, personally, I approach this

01:12:24

investing problem by trying to

01:12:26

understand someone's financial goals,

01:12:27

the timelines to those goals, and then I

01:12:29

I recommend we use the best appropriate

01:12:31

investment with a specific risk and

01:12:33

reward profile based on those timelines.

01:12:36

So goals first and then timelines and

01:12:38

then how much risk and reward do we need

01:12:40

to take and how much reward do we need

01:12:42

to seek based on the timelines in

01:12:44

question. When it comes to a recession

01:12:46

specifically, I wonder to myself, how

01:12:48

does a recession fit into those

01:12:50

timelines? So depending on where you

01:12:52

look, where you get your data from,

01:12:54

there have been about a dozen recessions

01:12:55

in the USA since World War II. Most of

01:12:58

those have lasted less than a year, and

01:13:00

all of them have lasted less than 2

01:13:02

years. Meanwhile, I only think of stocks

01:13:05

as an example. For me, stocks are an

01:13:07

appropriate investment over 10 plus year

01:13:09

timelines. So, right off the bat, if I'm

01:13:12

worried about a recession this year,

01:13:13

which might last into 2026 or maybe even

01:13:16

into 2027, I am thinking on a different

01:13:19

timeline than what my stocks are for,

01:13:21

right? Instead, I'm thinking more on a

01:13:23

bond and cash timeline over 1 to2 years.

01:13:26

So, how do bonds how do cash perform in

01:13:28

a recession? Well, cash is cash. It

01:13:30

maintains its nominal value, but it does

01:13:33

lose purchasing power to inflation.

01:13:35

There's not much we can do about that.

01:13:36

Does inflation increase or decrease

01:13:38

during a recession? In most cases,

01:13:40

inflation goes down during a recession,

01:13:43

which is actually a positive outcome, if

01:13:45

you will, if we're looking specifically

01:13:46

at the cash on our balance sheet. And

01:13:48

then what about bonds? Well, bonds also

01:13:50

lose purchasing power to inflation. Not

01:13:53

good. But recessions are almost always a

01:13:55

reason for the Fed to lower interest

01:13:57

rates. And when interest rates go down,

01:13:59

the value of the bonds we currently own,

01:14:01

the value goes up. So, in that way,

01:14:03

recessions are actually a good thing for

01:14:04

bonds in our portfolio. As I mentioned

01:14:07

in the the tariff bonus episode that I

01:14:09

referred to earlier, I think cheering

01:14:10

for a recession is very dumb. It's a

01:14:12

very dumb thing to be doing. But if all

01:14:15

we're doing is hyperfocusing on the cash

01:14:17

and bonds that we own, a recession

01:14:19

actually isn't that bad. And if we're

01:14:21

thinking about the stocks that we own,

01:14:23

as I just alluded to, yeah, over the one

01:14:26

to two years it'll take for a recession

01:14:28

to play out. I don't think we should

01:14:29

expect our stock portfolio to do well.

01:14:31

But we're not owning stocks for 1 to two

01:14:34

years. were owning them for 10 plus

01:14:36

years. And if you're there playing at

01:14:38

home and you're thinking to myself,

01:14:39

well, why don't I just sell my socks now

01:14:41

and I'll buy back once the recession is

01:14:43

done? Like, duh, Jesse, isn't that the

01:14:45

way to do it? There's some really

01:14:46

interesting research data when it comes

01:14:49

to getting the timing of a recession

01:14:51

right. Again, this is this is a market

01:14:52

timing question ultimately, right? And

01:14:54

the simple fact is that the market

01:14:57

because it is filled with, you know, the

01:14:58

market is nothing more than the

01:15:00

summation of all investors and doing all

01:15:02

their buys and all their sells. And

01:15:04

these investors are trying to be pretty

01:15:06

smart with their money and they're

01:15:07

trying to peer through the fog of the

01:15:09

future to see what the future will hold

01:15:11

for them. Basically, they frontr run the

01:15:14

end of the recession. That's the best

01:15:15

way to put it. And on average, the

01:15:17

market hits its bottom about 6 months

01:15:20

before the recession hits its bottom,

01:15:22

before the economic indicators hit their

01:15:24

bottom. So if you're sitting there

01:15:26

waiting for the economy to bottom out,

01:15:28

if you're sitting there waiting for

01:15:30

gross domestic product to turn around

01:15:32

and start going positive again, odds are

01:15:34

you missed the boat in the stock market

01:15:36

by about 6 months. And odds are you

01:15:38

missed the returns in the stock market

01:15:40

by 20 to 25%. In other words, getting

01:15:43

that timing right in order to time the

01:15:45

recession right, it's really hard to do

01:15:47

as with all market timing, and I just

01:15:49

don't think it's worth trying in the

01:15:50

first place. I recently finished a book

01:15:52

though, Bill Bernstein's book called

01:15:53

Deep Risk. And the book outlines, it's

01:15:55

really short book. And I will say it's

01:15:57

pretty dense for being like a 50-page

01:15:59

book. I'd say unless you are the most

01:16:01

hardcore of investing nerds or even an

01:16:04

investing professional, I'm not sure I'd

01:16:06

recommend the book. But if you are a

01:16:07

super hardcore investing nerd or you are

01:16:10

an investment professional, by all means

01:16:11

go read Deep Risk by Bill Bernstein. The

01:16:14

book outlines a framework for

01:16:15

understanding the four most serious

01:16:17

long-term threats to investors wealth.

01:16:19

These aren't short-term risks like

01:16:21

market volatility. Bill Bernstein would

01:16:23

say what we're going through right now,

01:16:24

what we went through in 2022, what we

01:16:26

went through in COVID, and even what we

01:16:29

went through in the great financial

01:16:30

crisis, he would call that a shallow

01:16:32

risk because it only lasted a couple

01:16:34

years, 3 years, 5 years, something like

01:16:37

that. But instead, the long-term, the

01:16:40

multi-deade risks or potentially the

01:16:42

permanent impairments of purchasing

01:16:44

power, those are deep risks. So

01:16:47

Bernstein breaks down these four

01:16:48

different types of deep risk and then he

01:16:50

discusses the the asset classes or the

01:16:52

strategies that we can use to mitigate

01:16:55

those risks. The first one is inflation

01:16:57

risk which I think is pretty

01:16:59

straightforward to understand. And the

01:17:00

way to defend against inflation risk is

01:17:02

with stocks especially global equities

01:17:05

with tips. Those are treasury inflation

01:17:07

protected securities and with real

01:17:09

assets like real estate, commodities,

01:17:11

resources, that kind of thing. So

01:17:13

inflation risk fairly straightforward.

01:17:15

Now, this next one, when it comes to

01:17:17

recessions, this is kind of what we're

01:17:19

talking about here. Deflation risk. A

01:17:22

broad decline in prices paired with

01:17:24

falling wages, reduced business

01:17:26

activity, higher debt burdens, right?

01:17:28

Since debts are harder to repay in

01:17:30

deflated dollars. An example of this

01:17:32

would be the Great Depression, right? A

01:17:34

normal run-of-the-mill recession is not

01:17:36

going to be anything close to this. But

01:17:38

if we have some sort of extended

01:17:40

recession, okay, maybe we have some sort

01:17:42

of deep deflation risk that's worth

01:17:44

thinking about. And in that case, the

01:17:46

best defense for deflation risk in our

01:17:48

portfolio would be a long-term treasury

01:17:50

bonds, a highquality fixed income, and

01:17:52

perhaps a modest allocation to gold.

01:17:55

Now, Bernstein is cautious about the

01:17:57

gold, and I am not exactly enthusiastic

01:17:59

myself. I'm open to it, but not

01:18:00

enthusiastic about it. But one thing

01:18:02

that is interesting is that the defense

01:18:04

against inflation risk and the defense

01:18:06

against deflation risk, as we would

01:18:08

expect, they're kind of polar opposites,

01:18:10

right? If you're worried about

01:18:11

inflation, the last thing you want to

01:18:13

own are long-term bonds. But if you're

01:18:15

worried about deflation, then yeah, you

01:18:17

want to own long-term Treasury bonds.

01:18:19

They tend to gain value in deflationary

01:18:21

environments. The third risk is

01:18:24

confiscation risk which is the risk of

01:18:26

the government seizing or destroying

01:18:27

wealth via you know nationalization or

01:18:29

punitive taxes or outright

01:18:31

expropriation. So think of like Russia

01:18:34

1917 when the communists came in and

01:18:36

took over or Argentina and Venezuela in

01:18:39

more modern times. The defense here is

01:18:42

international diversification and that's

01:18:43

holding assets literally outside your

01:18:45

home country. It's not enough just to

01:18:47

own, you know, a a domestic mutual fund

01:18:50

that happens to house international

01:18:51

assets, but actually holding those

01:18:53

assets outside your home country, owning

01:18:55

foreign stocks and foreign funds to

01:18:58

protect against domestic policy risk

01:18:59

mainly. And then, yeah, global

01:19:01

custodianship in extreme cases like an

01:19:03

offshore or foreign bank account. I will

01:19:05

say the confiscation risk is I think the

01:19:07

hardest one to implement logistically in

01:19:09

your life. I'm just describing it and

01:19:12

this next one to round out the four deep

01:19:14

risks. The fourth one is devastation

01:19:16

risk. So the risk of war, of natural

01:19:18

disaster, of societal collapse that

01:19:20

destroys infrastructure or institutions

01:19:22

or entire economies. So that might be

01:19:25

something like Germany or Japan after

01:19:27

the world wars or Syria or Lebanon or

01:19:30

other war torn countries right now. The

01:19:32

defense against that risk would be

01:19:33

geographic diversification, foreign real

01:19:36

estate, hard currency holdings and then

01:19:39

also I mean planning for your physical

01:19:41

safety. you know, for a truly

01:19:43

catastrophic risk, some things go beyond

01:19:44

finance. So anyway, in the book,

01:19:47

Bernstein talks about building a

01:19:48

portfolio where you you take into

01:19:50

account those four risks. Maybe not in

01:19:52

even amounts. It's not a quarter each of

01:19:54

your portfolio, but the very least that

01:19:56

you consider those risks. You consider

01:19:58

how real they might be in your life and

01:20:00

you consider whether you want to build a

01:20:02

portfolio that defends against them. So

01:20:04

going back to Dan's question about

01:20:06

recession, that's the closest thing here

01:20:08

to deflation risk. And again, as I

01:20:10

alluded to, cash and bonds are something

01:20:13

that you're going to want to pay

01:20:14

attention to going into a recession.

01:20:16

Specifically, Bill Bernstein talks about

01:20:18

long-term treasury bonds, highquality

01:20:20

fixed income like cash or CDs or

01:20:22

short-term bonds. And Bernstein admits

01:20:25

that a modest allocation to gold, if

01:20:27

that's something that you're interested

01:20:28

in, that can be worth doing going into a

01:20:31

recession as well. So, Dan, those are my

01:20:33

thoughts. Personally, I know recessions

01:20:35

are possible and my financial planning

01:20:37

process takes that into account. And I'm

01:20:39

not going to change anything in my

01:20:40

portfolio just because we might enter a

01:20:42

recession this year because that idea,

01:20:45

the idea of, well, we might enter a

01:20:47

recession this year. That idea has

01:20:49

always been true, right? Every single

01:20:50

year since I or you have been investing,

01:20:53

that has been true. We might not have

01:20:54

realized it at the time, but that risk

01:20:56

is always there in the background. And

01:20:58

and you know, a good financial plan and

01:21:00

a good portfolio takes that into account

01:21:02

anyway. But if you wanted to tweak

01:21:04

something small and specific for the

01:21:07

fear of a recession, I'd look into the

01:21:09

idea of decreasing your stock allocation

01:21:11

and increasing your bond allocation.

01:21:14

Okay, listeners, thank you for powering

01:21:16

through with me here on episode 108. As

01:21:18

always, please send in your questions,

01:21:19

your AMA questions to my email, jesse at

01:21:22

bestinterest.blog. Awesome ways we get

01:21:24

to learn because a rising tide lifts all

01:21:26

ships and an investment in knowledge

01:21:28

pays the best interest. So, thank you

01:21:30

for listening to Personal Finance for

01:21:31

Long-Term Investors. Thanks for tuning

01:21:33

in to this episode of Personal Finance

01:21:36

for Long-Term Investors. If you have a

01:21:38

question for Jesse to answer on a future

01:21:40

episode, send him an email over at his

01:21:42

blog, The Bestinest. His email address

01:21:45

is

01:21:47

jessevestinterest.blog. Again, that's

01:21:50

jessevestinterest.blog. Did you enjoy

01:21:52

the show? Subscribe, rate, and review

01:21:54

the podcast wherever you listen. This

01:21:56

helps others find the show and invest in

01:21:58

knowledge themselves, and we really

01:22:01

appreciate it. We'll catch you on the

01:22:02

next episode of Personal Finance for

01:22:04

Long-Term Investors. Personal Finance

01:22:07

for Long-Term Investors is a personal

01:22:09

podcast meant for education and

01:22:11

entertainment. It should not be taken as

01:22:13

financial advice and it's not

01:22:14

prescriptive of your financial

01:22:16

situation.

Episode Highlights

Free T-Shirt Offer
Listeners can receive a free t-shirt by leaving a rating and review on Apple Podcasts.
“Leave a rating and review, and eventually we will get to you and mail you out that t-shirt.”
@ 02m 49s
June 04, 2025
The Case Against Whole Life Insurance
Whole life insurance policies are often not worth it due to limited growth and tax implications.
“There's not really much growth here.”
@ 17m 02s
June 04, 2025
Financial Benefits of Being Married
Married couples enjoy various financial advantages, from shared expenses to tax benefits.
“Married couples are statistically able to accumulate more wealth.”
@ 24m 04s
June 04, 2025
Pros of Being Single
Single individuals have more control over finances and avoid the complexities of marriage.
“There's lower complexity, more control, and more flexibility to being single.”
@ 25m 48s
June 04, 2025
Locking in Roth Dollars
It's wise to secure your Roth contributions now to avoid higher future tax rates.
“You want to lock in your Roth dollars today.”
@ 33m 55s
June 04, 2025
Understanding Healthcare Costs
Healthcare is a significant part of financial planning, yet often misunderstood.
“Healthcare represents a huge aspect of financial planning.”
@ 38m 14s
June 04, 2025
The Power of HSAs
Health Savings Accounts offer a triple tax advantage, making them a valuable financial tool.
“The HSA account is an amazing account with a triple tax advantage.”
@ 41m 43s
June 04, 2025
Understanding ACA Costs
An early retired couple could pay as low as $284 a month for healthcare under ACA.
“That number is pretty low. Surprisingly low to me.”
@ 52m 31s
June 04, 2025
Long-Term Care Explained
Long-term care includes various services from home care to nursing homes, often costly.
@ 59m 42s
June 04, 2025
Understanding Your Investment Game
Most investors fail to ask themselves what game they are playing and why. It's crucial to identify your personal strategy and goals.
“What game am I playing, and why am I playing that game?”
@ 01h 08m 27s
June 04, 2025
The Chaos of Wall Street
Wall Street operates like a chaotic casino where everyone plays different games with the same assets. Understanding your game is essential.
“Wall Street is exactly that chaos.”
@ 01h 10m 24s
June 04, 2025
Recession and Investment Strategy
During a recession, it's important to consider your investment timelines and adjust your strategy accordingly. Stocks may not perform well in the short term, but long-term strategies remain vital.
“I’m not going to change anything in my portfolio just because we might enter a recession this year.”
@ 01h 20m 40s
June 04, 2025

Episode Quotes

Key Moments

AMA Episode00:44
Listener Review02:05
Marital Financial Benefits17:54
HSA Benefits41:43
Long-Term Care59:42
Game Strategy1:08:25
Market Chaos1:10:24
Long-Term Focus1:14:36

Words per Minute Over Time

Vibes Breakdown

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August 06, 2025

01:20:06

How to Be Smart About Inheritance Planning | AMA #8 - E113

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November 12, 2025

55:31

Retire Confidently With A Proven Drawdown Framework | AMA #10 - E121

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57:50

"Tax-Free Retirement" - Smart Strategy or Overhyped Gimmick? And Other Listener Questions | AMA #...

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December 10, 2025

50:11

Dying With an HSA, Mystery Mortgage Math, & Should DIY Investors Hire a Planner? | AMA #11 - E124

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November 05, 2025

34:18

Marketing Algorithms Are Coming For Your Retirement Dollars | John Dinsmore - E120

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October 08, 2025

01:26:40

The Only Free Lunch in Investing (Maybe) | AMA #9 - E118

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28:14

Retirees' Mistakes and Wake-Up Calls: Expectations vs. Reality - E106

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46:47

Why Trump Accounts Fall Short (AMA, E135)

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54:51

Controversial Retirement Money Topics | AMA #14 - E132

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37:43

"Is My 100% S&P 500 Portfolio Wrong?" | AMA #1 with Jesse - E81

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October 22, 2025

40:22

Special Needs Children: How to Protect Their Future and Yours - E119

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February 04, 2026

41:18

The Financial Planning Process, Step-By-Step | AMA #13 - E129