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Welcome to personal finance for
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long-term investors, where we believe
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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
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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
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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.
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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
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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
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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
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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
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the cash value or the investing side of
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the policy. In other words, a permanent
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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
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attached to it. So, our math problem
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becomes pretty clear. Would I rather pay
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the higher premiums of the permanent
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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
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the monetary difference of the premium
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values. I'll keep that in my own pocket
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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
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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
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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
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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
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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
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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
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returns without dividends is a pretty
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fundamental error. And yet in almost
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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,
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including my own colleagues, we
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recommend simple term policies. The
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people who don't have a dog in the
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fight, the people who don't earn money
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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
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clients, well, they recommend term
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policies, too. Now, the only curiosity
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that I've found in this space and I
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think that you might find in this space
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is when someone say like a CFP, a
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certified financial planner who happens
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to work at an insurance company, right?
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CFPs, they have an ethical fiduciary
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obligation. It's part of the CFP
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training and part of their kind of their
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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
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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
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find a justification in their minds that
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the whole life policy somehow fits into
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the best interests of that particular
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client. It's very interesting. So that
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is a corner case where you might find
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someone who is labeling themselves as a
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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
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independent fiduciary firm, they don't
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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
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dealing with federal estate tax limits a
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permanent life and policy a whole life a
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universal life something like that a
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permanent policy can make sense so this
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would be for reference we talked about
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you know what's a federal estate tax
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limit that I just referenced for a
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married couple it's someone with
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approximately $30 million or more
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dollars for a single person someone with
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approximately 15 million or more dollars
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in their taxable estate for them and for
00:11:55
the sake of liquidity needs upon their
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death a permanent policy might might
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make sense. But importantly, that's not
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because the permanent policy leads to a
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greater net worth for that person.
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That's not the reason why we do it. It's
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not because it's going to make them more
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rich. Instead, it's because a state
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taxes are due within 9 months of death.
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And the permanent life insurance policy
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provides a tax-free payout upon death.
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It's tax-free. Yes, these insurance
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policies, both term and whole, provide
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tax-free payouts because the payouts are
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not considered income. They're instead
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considered a return of capital. And I
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think that's just important to point
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out. The federal government, the IRS,
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the tax experts, they don't treat life
00:12:36
insurance payouts as investment income
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because there often aren't enough gains
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in there to justify that. They simply
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classify them as a return of capital
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that the insured people have already
00:12:48
committed into the insurance policy.
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It's not a way to become rich. It's just
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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
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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
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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
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01:21:30
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01:21:31
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01:21:33
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01:21:36
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01:21:38
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01:21:40
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01:21:42
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01:21:45
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01:21:47
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01:21:50
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01:22:04
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01:22:07
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01:22:09
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01:22:11
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01:22:13
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01:22:14
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01:22:16
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