#201 – Retire Sooner Conference Part One: Are You Pushing A Mower Or Riding A John Deere Lawn Tractor?

Wes Moss [00:00:39]:
Your host, Wes Moss today in studio, Mallory Boggs joins us, who was just reminded to be close to the mic during the quote pod by Marissa I.

Mallory Boggs [00:00:51]:
Love the shortening of podcast to pod.

Wes Moss [00:00:53]:
It sounds so much cooler. Podcast is such a long word.

Mallory Boggs [00:00:55]:
Such a long word.

Wes Moss [00:00:56]:
I had a dream, and in that dream we had this giant retire sooner conference. It was a multi day conference, a little bit like Fincon or Podcon or any of the conferences that have been shortened to con, just like dragon Con, which is famous in Atlanta. If you live in Atlanta, you know that once a year, all of the folks that like, I guess, I don’t know why it’s dragons, but it’s maybe dungeons and dragons, but costumes all flood downtown Atlanta in a parade of amazingness. But so back to the dream. I had this idea that we have a retire sooner conference, which is not a terrible idea. We probably should do it. It’s a big lift. I don’t know if I’m going to do it overnight, but I thought to myself, if we had one of these conferences, and let’s just say the afternoon session on the first day, what would we do? I’d want five of my favorite podcast guests to be up on a panel answering questions from retirees and would be retirees or early retirees, or retire sooner, folks going over the main questions that plague so many of us over and over again.

Wes Moss [00:02:07]:
So with that in mind, that’s a set. That is what today’s episode is, the five questions that retirees need answers to when they’re thinking about going into retirement. Now I’m talking about things like, how do you do retirement planning? What does that really look like? Is it on a pad of paper? Is it on a fancy software program? What about Social Security? When should I take it? These are the age old questions. Do I have enough? What do I need to do to start saving? How much can I spend during my retirement? What are the main ideas, the five questions retirees need answers to, need to know, and all in the context of this thought I had, that we should probably doing a giant symposium. Instead, we’re just doing a retire sooner podcast. Today. We’ll answer these, I really have ten, I think, burning questions. I don’t know if we’ll get to all ten, but we’ll get to many of them that I would arguably say are among the very most important that we need answers to on our retire sooner journey.

Wes Moss [00:03:12]:
Mallory, what do you think? I know you’re excited of the thought of a conference.

Mallory Boggs [00:03:15]:
I’m so excited. I think we need listeners to write in and tell us if they would be interested in attending or, or go to our Facebook group, the retire sooner Facebook group, and we can start a thread over there, give us suggestions on who we should have on the different panels and what, what kind of breakout sessions we should have. I think that would be so fun.

Wes Moss [00:03:34]:
Would it be better to do the retire sooner conference or a happy retiree conference?

Mallory Boggs [00:03:39]:
I feel like a happy retiree conference if we’re bringing in all of our guests that we have, typically, because they’re a little bit more focused around the lifestyle side of things and bringing more purpose to your life. And I feel like that would also, it would open things up. You wouldn’t have to be as focused on retirement as necessarily, it’s just like a really great life.

Wes Moss [00:03:56]:
Don’t we have both?

Mallory Boggs [00:03:57]:
I like that idea.

Wes Moss [00:03:58]:
We have mornings for money, we have mornings for money, afternoons for lifestyle, followed by happy hour.

Mallory Boggs [00:04:04]:
Oh my gosh. The happy retiree hour.

Wes Moss [00:04:07]:
You mean happy retiree hour. I think it would work really well. All right, so we’re here. So I’m picturing a giant ballroom. I’m picturing five people on stage, probably guests from the retire sooner podcast over the years. You’re up there moderating. Maybe I’m on the panel as well. And we’re essentially asking, we’re answering questions that have been submitted over the course of the last year or more.

Wes Moss [00:04:31]:
We’ve been doing retire sooner podcast. Now we’re in year three.

Mallory Boggs [00:04:34]:
Yes.

Wes Moss [00:04:34]:
So we’ve gotten tons of questions over the years. And by the way, would love to answer those questions so you can continue to send those through our, ideally, send.

Mallory Boggs [00:04:43]:
Them over through our website. If you head to retiresunerteam.com or your wealth.com comma, just head to the contact page. Those forms come straight to the retire sooner team.

Wes Moss [00:04:52]:
All right, well, number one on the list, since we’ve got a panel, how can I ensure my retirement savings is gonna last through my entire retirement?

Mallory Boggs [00:05:01]:
I mean, that is an age old question that I think everybody needs to have answered before anyone can retire comfortably. But that’s also.

Wes Moss [00:05:09]:
That’s almost too broad of a question. I don’t know.

Mallory Boggs [00:05:11]:
I don’t know. It is too broad. But at the same time, it’s the ultimate question.

Wes Moss [00:05:15]:
How about this, number two? When should I start taking my Social Security benefits?

Mallory Boggs [00:05:18]:
Oh, that one. Yeah, that’s another tough one.

Wes Moss [00:05:21]:
How do I manage my healthcare costs for retirement?

Mallory Boggs [00:05:23]:
You know, I will tell you, my mom continued working with the school system until she reached, like, the pension she worked with GRS. Yeah. Because they have a wonderful benefit with you. Continue your healthcare through them. That’s a big question for so many people.

Wes Moss [00:05:37]:
Is downsizing or relocating in retirement a good strategy? Zachary?

Mallory Boggs [00:05:41]:
You know, that is when we had.

Wes Moss [00:05:42]:
Stretching my retirement savings.

Mallory Boggs [00:05:44]:
Ooh. I mean, we’ve talked with people about this before. We’ve talked with experts about it. We’ve talked to people who are curious about it. It’s a big question for a lot of people.

Wes Moss [00:05:52]:
Do I need to adjust my investment strategy as I transition into retirement? Tax consequences should I keep in mind? How should I do? How should I do a retirement plan? And how do I account for inflation? Let’s start there. Let’s start there.

Mallory Boggs [00:06:05]:
Yeah. The big boogeyman that we’re all feeling. I was just talking with a buddy yesterday about the fact that concerts in the last two years have doubled in cost. I swear. And even the smaller shows.

Wes Moss [00:06:16]:
Yeah, it’s hard to tell, though, because you never know what a baseline price is. Because if somebody is, I don’t know, making a comeback or they’re already really hot, you don’t know what that baseline ticket price is. What was the example?

Mallory Boggs [00:06:27]:
Well, so the example. Cause I’m thinking about smaller shows. There’s this artist that’s coming to town who had a big album back in the early two thousands. It’s called say anything like the 1980s movie kind of, but it’s just abandoned. Anyways, they’re coming here to the eastern. And their ticket prices, they’re just doing an album recreation. So they’re just playing that entire album. That’s all they’re doing.

Mallory Boggs [00:06:49]:
And tickets are $40 for that. That’s crazy high.

Wes Moss [00:06:53]:
Oh, crazy high.

Mallory Boggs [00:06:55]:
Yeah. Like, that should be a $20 ticket in my mind.

Wes Moss [00:06:57]:
Yeah, maybe that does sound double now. It’d be cheap if it was Chris Stapleton.

Mallory Boggs [00:07:01]:
Be so cheap. It was Chris Stapleton.

Wes Moss [00:07:02]:
So you just don’t know what level these artists are on or level of popularity at any given time. How do I, how should I do a retirement plan and how do I account for inflation? All right, so the, this would be my first thought around this, is that a little bit of retirement planning goes a very long way. First of all, number one. Number two, nearly all successful investment planning and financial planning and retirement planning, nearly all of it is in the context of some sort of goal. So we have to know what we’re driving towards to understand if we’re on track or off track. So if you’re just saving money to save money, which for a lot of people makes sense. I’m just saving and I’m going to, and I’m in the beginning stages of saving, then, yes, it’d be better if you had some sort of long range plan. But at least if you’re doing that, it’s still okay to really be satisfied and happy and content that your plan is working or your investments are working.

Wes Moss [00:07:59]:
It’s got to go back to solving for some sort of goal. It can be as simple as a month amount per month. I know I need $5,000 per month in spending money in retirement on top of my Social Security, and maybe I have a pension and maybe my wife or my spouse has a pension. So we’ve got three grand coming in from here, and I need another five grand in any given month after taxes. But I also, and this is a key factor when it comes to this planning, is that I need that, that $8,000 number per month that can’t be static because we know that over time it’s not going to be enough in three years and it’s not going to be enough in five years. So you’ve got to adjust that higher for inflation. A couple of competing things we need to at least understand where we’re starting, meaning how much money I have today. And then, of course, how much I’m saving.

Wes Moss [00:08:48]:
Got to put an assumed rate of return, even though the market’s average around 10% a year. If you’re 100% in stocks, you don’t want to put in such a high number when you’re doing your planning. So we can be more conservative. I’ll usually cut that number in half, or even more than half. I’ll cut it down to four, four and a half percent to do planning, sometimes five, depending.

Mallory Boggs [00:09:08]:
That’s really helpful to hear because I feel you always find those calculators online and it’s like, tell me how much you need for retirement, and it’s like, put in your investment number and you’re just like, well, I don’t know.

Wes Moss [00:09:17]:
Right. The market’s done ten, it’s done eleven.

Mallory Boggs [00:09:19]:
Maybe if I put it in 20, it looks really great.

Wes Moss [00:09:22]:
Looks really good. And it’s funny, when I was first early, my very early days in the investment business over 20 years ago, it was kind of on the heels of the really successful 1990s, where after a certain period of time, and this happened with inflation, after five years or seven years or ten years of something being the way it is, even though it might be abnormal, it becomes the way it is. It kind of retrains a generation, and with almost no inflation for 15 years, arguably, there’s a whole generation of folks that kind of forgot that inflation was a real problem over time.

Mallory Boggs [00:10:01]:
I’m raising my hand over here.

Wes Moss [00:10:02]:
Sure. You’re like, what do you mean, inflation?

Mallory Boggs [00:10:03]:
When the prices go up just naturally.

Wes Moss [00:10:06]:
Concert tickets, stock market in the eighties and the nineties, just so good and so, such an amazing run that it wasn’t uncommon. I remember being an intern in college doing financial planning or helping with financial planning, and those plans were run at what I think today are crazy numbers, 8% a year, 9% a year. But that was also in the context. The market had been averaging almost 15% a year for a long time. So it’s to some extent, it’s all relative. And so we’ve got to pick an assumed rate of return as well. I like that number to be conservative. If everything’s better than the number you plug in, then your plan is ahead of schedule.

Wes Moss [00:10:46]:
It’s on track or beyond on track. So again, we can be conservative with our assumptions, but then we don’t want to. We have to be measured around inflation, because if you now are putting in an assumed rate of return of, let’s call it four and a half percent, and you put inflation in it, 4%, if you think it’s going to be, then it’s really hard to even make a plan work. It’s really, really difficult to do that as your expenses are growing almost at the same rate as your assets would grow. So we’ve got to be somewhat measured. I don’t think that number is one and a half anymore for inflation. I think putting four is maybe too high. We also have to remember that we don’t spend linearly with inflation, meaning that if we’re putting in a 4% inflation number and we need $100,000 a year, we know that for the rule of 72, if we are using 4%, that means money doubles in 18 years.

Wes Moss [00:11:44]:
So if you start by saying, I need $100,000 at age 60, then in 18 years, at 78, that means you need to double it. Now you need to be at 200, and then in 18 more years, you’re going to need to be at 400,000. But are you really going to be spending $400,000 a year in your late eighties, in your nineties? And the reality is people back down on their spending over time. So inflation also can run rampant if you plug in a CPI number or inflation number and a retirement plan that makes your spending look crazy too far into the future. Now the question is, how do you logistically do it? Where does this get done? Where’s this ethereal retirement plan that magically appears? So you’re in the media world, media financial. You’re not an active live financial advisor. You don’t do that for a living.

Mallory Boggs [00:12:36]:
No.

Wes Moss [00:12:36]:
So for someone that’s not a financial advisor, what do you think? Like, where do you think you go to get this said plan, Wes?

Mallory Boggs [00:12:44]:
This is when I come to you and I’m just like, hey, I have a question.

Wes Moss [00:12:48]:
What do you think people think? If you’re not talking to an advisor that does this, where do you think people get a quote plan you mentioned online?

Mallory Boggs [00:12:56]:
Yeah, yeah. I mean, I’ve definitely, I’ve seen some really great tools out there. I know there’s other really great podcasts like ours that are really centered around retirement. And you’ve talked to some of those folks, I think, before as well. So I think there’s a lot of great resources that are available to us. And I think it’s a matter though, of just finding someone that you trust and where you agree with what their philosophy is, because that can differ so much, especially from the best, because there’s.

Wes Moss [00:13:22]:
Enough variables that it’s not just black and white. Yeah, there were two variables. Maybe it’s a plug and play, but when you start thinking about the amount you’re saving, are you increasing the amount you’re saving every year? Your future income streams, are they going to be able to go up along with inflation? What is the inflation rate you’re going to plug in? What’s your assumed rate of return on your different assets? Are you potentially can look at your real estate at appreciating at one level or one rate, and your retirement account at another rate and your cash at another rate? So imagine we start getting your future spending amount. What is that going to be in retirement? And then, of course, after taxes, what is your tax rate going to be? So if you think about that, I just listed out almost a dozen different variables anytime you have more than a. Just a small handful, there’s always room for interpretation. And this is why I think it’s a little bit tough for people to simply go and do a retirement plan online because you’re thinking, well, wait a minute, if I just got one of these a little bit off, maybe it’s excuse the whole thing. And I think that’s the one thing I would say about financial planning, particularly when you’re using software. So let me go down maybe some of the options here.

Wes Moss [00:14:33]:
Number one, I’ve been to multiple websites where you can do some sort of financial plan or some sort of budget. And whether that is vanguard or I was looking at it this week, investor Dot gov has a really good, straightforward future savings calculator. So at least that’ll maybe settle part of it. I’m putting away x amount per month. I’m going to assign this rate of return. This is generally what it would be in ten years and 15 and 20 and 30 years. Then there are online calculators that, we have one on our website. We’ve got a simple version and a detailed version on yourwealth.com where you can go to the tools section and find retirement calculator.

Wes Moss [00:15:16]:
Pick the simple version, pick the complicated version. But even if you’re doing it just, you’re doing it in a vacuum, you’re still kind of wondering, hey, what am I doing here are all my variables, right? Because again, anytime we’re doing a forecast that is way out into the future, we know it can’t be overly accurate. There’s got to be.

Mallory Boggs [00:15:39]:
There’s things that you just can’t account for. You think about how much has changed just in the last year. You know that things will continue to change.

Wes Moss [00:15:45]:
Well, imagine you’re, think of it this way. Imagine you’re launching a rocket and you’ve got a little rocket, and you know that it’s going to go forever. You’ve got this magical rocket. You’re a mini Elon Musk Mallory, and you point it up, you’re like, I want it to go right to the moon. Imagine if you’re two degrees off. So you’re just two degrees off, and you fire off your magical Elon musk rocket, and it looks like it’s going right to the moon. However, you’re just two degrees off. Might seem totally fine in the very beginning, but by the time you get up there, you’re hundreds or thousands of miles off target.

Wes Moss [00:16:22]:
And it’s the same thing with long range math. Your variable is a half a percentage off might not. It might not sound like anything but way out into the future. In year 20 and 30 and 40, in a retirement plan, you could be 10,000 miles off target.

Mallory Boggs [00:16:37]:
And I think that’s why so many people get intimidated, even by the idea of planning.

Wes Moss [00:16:41]:
Wait, I thought that was a pretty good analogy.

Mallory Boggs [00:16:43]:
I loved that. I thought that was great. Also, it kind of reminded me of third body problem on Netflix. If you all have watched that recently.

Wes Moss [00:16:48]:
Never even heard about that.

Mallory Boggs [00:16:49]:
Oh, it was like this big Sci-Fi thing. Anyways, there’s a rocket, gets slightly off course. That’s all you need to know. So it made me think of that. But coming back to this, I think that potential failure and then just the fact that it can be so wide is why so many people get intimidated and end up just deciding to shove cash to the side, hopefully, but just not worry too much about getting it.

Wes Moss [00:17:08]:
At least I’m doing something. And by the way, something is better than doing nothing.

Mallory Boggs [00:17:13]:
Well, oh, and I will say too, as somebody who I do appreciate a good budget, and I try so hard to get an accurate budget, but I don’t know if I’ve ever budgeted accurately for a single month ever. You know what I mean? I get, like, the general parameters, right? But then there’s always something pops up and there’s some kind of emergency over here, and somebody’s birthday comes up and, you know, you gotta go celebrate. Like, you know, it’s never, it’s never 100%. And that’s just like, you know, for the upcoming month.

Wes Moss [00:17:36]:
Here’s some more online versions. There’s the money wise. The website has a new retirement section that has different financial planning options. One of them is called Planner Plus Live, where you even get some Zoom meetings with a representative on how to use the software. That’s a little less than $400 a year. Vanguard still has a straightforward calculator they call their retirement nest egg. There’s a website called count about that has a fire or financial independence. Retire early.

Wes Moss [00:18:11]:
They have a retirement planning widget there as well. So there’s lots of different options today.

Mallory Boggs [00:18:16]:
And I want to come back and defend the calculator we have on your wealth, because you were like, you can also do, you can do the simple version or the complicated version. The complicated version is the detailed version. It just gives you more ideas on the kind of things that you need to budget for. It’s all pretty simple. It’s just a matter on if. Do you want to spend two minutes or do you want to spend ten minutes.

Wes Moss [00:18:34]:
I love both of them, but I always err towards making things simpler rather than more complicated. And we’ll go through this then. There are a couple of companies that provide what I would consider highly robust financial planning software to financial advisory firms. One of them is Moneyguide pro. Another one that I’ve used for many years is called emoney. And these can be used just like a regular online calculator if you want to just put in the simple variable so it doesn’t need to be overly complex. And that’s really where I like to start, is I want to keep. I want to make retirement planning as simple as possible.

Wes Moss [00:19:15]:
Then you can build on that and say, I have five houses and each house has a certain amount of rent, and I might sell each house, one house in five years, one house in seven years, etcetera. Plan for different income streams to be turned on at different times. Phased out. Working where you don’t just retire one day, but you work for a period of time. We call this the retirement gray zone, as we kind of ease into retirement, so we don’t fully just turn off our income. And then, of course, many of these, including Emoney, will run what are called Monte Carlo simulations that try to take away some of the linearness of retirement planning. If you plug in a 4.7% rate of return, then software runs it out at 4.8% or 4.7% every single year over and over. But the market doesn’t work that way.

Wes Moss [00:20:04]:
We get some years that are wits, feast, or fam. We might get up 20, down ten, up seven, down five. So the market works in a very different way, even though in the end, we typically will find a. In the end, we have to pick a number that the market will, on average, compound. At Monte Carlo simulations try to account for that, and it reruns your retirement variables over a wide variety, really thousands of different market environments, which can try to help solve for the sequence of returns. Meaning that the market does really well when I retire, and then it does poorly in the end, or it does really badly in the beginning and then makes up for at the end. Well, that matters because we’re using money every single year. Markets might not want to cooperate.

Wes Moss [00:20:48]:
So a Monte Carlo analysis is going to run those hundreds or thousands of scenarios and give you a probability of success. We keep hearing that inflation is coming down. For the past three years, the common man inflation gauge is still up over 20%. That’s necessities like food, gas, utilities and shelter. How can you possibly keep up? Well, one option is income investing. That’s using a combination of growing stock, dividends, bonds for more cash flow, and other areas that can be a hedge against inflation. Look, inflation is tough. Let us help you overcome it.

Wes Moss [00:21:23]:
Schedule a time directly with our team@yourwealth.com. Dot that’s your wealth.com dot. So that’s using financial planning software. And whether you do that on your own or there’s some online version of that, or you end up with a, or you sit down with some sort of financial advisor to help talk through all those variables, I think those are all really important and very helpful options because we’re driving towards a goal. Here’s what we’d like to do in the future. Here’s how much money we think it’s going to take in the future. And here are my baseline set of variables I can start with today. And you make it really, really simple.

Wes Moss [00:21:59]:
And I think that, to me, can be the most powerful. Now, taking that one step further, I like to draw out retirement plans on one extended page, literally draw it out with a physical timeline. And luckily, over the years, my smart tablet’s gotten a little smarter, so that instead of a wavy line, I can now draw really straight lines and arrows and just drop in different years, different ages, we know we’re going to get Medicare at 65. We can assume we’re going to take Social Security, let’s say at 66 or 67, or wait till 70. We make that decision. We know we’re starting them out today. We give it up a conservative baseline rate of return, and we can say, okay, in seven years or ten years when we’re ready to stop working, here’s how much we’re going to have in our nest egg. And then pretty simply, we use the 4% plus rule from that.

Wes Moss [00:22:52]:
So we’ve got our nest egg, we use the 4% plus rule. We know what that is, 4% of the value. That then increases for inflation every single year over time, provided we have at least 50% in equities, the other half, or potentially a little less than that in some sort of safety assets like fixed income bonds. And then we see what that 4% rule kicks out on any given year. We know our income streams that have kicked in from Social Security, pensions, et cetera, and we get a total spending number. It’s a gross number. Not as in, no, that is gross, but as in pretax, apply an assumed tax rate. Typically, and this is part of the wonderment of financial planning into the future, is that we tend to overestimate our future tax rate.

Wes Moss [00:23:46]:
Now, you can make the argument that tax rates are only going up in the future. The reality is, the way I’ve seen this play out over really decades, is that when we’re in our high earning working years, guess what? We’re also in our highest tax bracket years. Then we get into retirement, and we’re able to manage how much money we’re pulling out. We’re able to manage our income, we’re able to invest for dividends, which, by the way, have a really favorable tax rate relative to when you’re in a really high earning years, at least for in general terms. And anything with taxes, there’s always an exception. But in general, our taxes on dividends and long term capital gains are much more favorable than our highest federal income bracket back when we were working. So we apply a sensible future tax rate. If today it’s 35 for you, maybe in the future it’s only going to be 20, may only be 15, and we end up with a net number at the end of any given year or any given month.

Wes Moss [00:24:44]:
And that in itself should then be the financial roadmap in black and white on a piece of paper or on a tablet drawn out, that can then fund all of the core pursuits, time with family, trips, travel, all the things we want to do out into the future as happy retirees. And the reason I like the exercise of drawing this out, and I think this is because I spent some. I remember doing a renovation on a house many years ago, and I was always fascinated, sitting down with the architect, and I loved the architect, drawing out what we thought we were going to do for, let’s call it any given room, the kitchen. Hey, I want to kind of see what map this thing out. And the real timeness and the tactileness of physically putting pen to paper or magical pen to pad, automatically involves you in your own planning, and it sticks, and it invests you in this plan, as opposed to just a computer spitting it out for you. It invests you in understanding. Okay, I think I get this. We’re starting here.

Wes Moss [00:25:53]:
We’re going there. We’ve got a couple of really important variables that we’re assuming. They could be right or wrong, but these are our assumptions today. We’re solving for all the big things like inflation and maxing out what we can withdraw or pull out without running out. And I feel comfortable with that. And I can see it on paper. And whether that’s you drawing it out with someone, you drawing it out on your own, with your spouse, or going through a lengthier financial planning report. That might be 15, 2030, 50 pages.

Wes Moss [00:26:25]:
As long as you’re involved in that process, I think it really sticks and it gives people clarity around what they’re trying to do. And to me, that is a huge portion of the battle when it comes to financial planning and investing, which we know on its surface without any direction, can be even harder. All right, next question on our list. Mallory, next question I’m going to for our symposium, the retire sooner confrance. Yes. I feel like there should be a band in the pit playing or something, some orchestral.

Mallory Boggs [00:26:59]:
That would be cool.

Wes Moss [00:26:59]:
So I live in, speaking of orchestra, I live in Atlanta, near where the symphony is. If you’re near the midtown area. And I noticed what’s cool is that at church, it’s not just a normal orchestra of people playing. It’s a bunch of people that play in the actual symphony because I guess it’s close enough and they do lessons nearby. And so that’s gonna be probably incredible. It’s like a symphony. It’s not just your.

Mallory Boggs [00:27:34]:
My chorus teacher growing up used to.

Wes Moss [00:27:35]:
Say, it’s not your average chorus teacher.

Mallory Boggs [00:27:37]:
Yeah, yeah. She was always like, guys, we sound like a church chorus. You got to pick it up. You got to sound better than that. So yours is probably setting a different bar.

Wes Moss [00:27:45]:
It’s pretty cool. Anyway, I like this one because I actually just read, I just read an article in the Wall Street Journal that it’s attacking financial advisors. Oh, no, that’ll address this as well. So this is number nine on my list here. Should I pay off my mortgage? My answer is yes. In every which way you can getting towards your ultimate retirement age. We’ve done research around this. Very simply, there’s something very powerful about getting rid of a mortgage because you have this financial peace of mind.

Wes Moss [00:28:18]:
One of the podcasts we’ve done with doctor John Delaney from the Ramsey network, he’s really a psychologist and talks about, really, he’s a relationship guy. He talks about marriage a lot. He’s really kind of a phenomenal, enthralling YouTube channel, talks a lot about relationships. But when he talks about the money side of our psychology and how we can be burdened by debt, and if we’re burdened by debt, then we’re not the owners of our future. We’re beholden to this payment and this payment and the car payment and the student loan payment and the mortgage payment, which is kind of the big, it’s the elephant in the room when it comes to debt payments. For most Americans, it’s our biggest cost. And he just makes a really good point, is that we don’t have full mental freedom until we step out of debt. Now, that’s coming from a psychological perspective.

Wes Moss [00:29:14]:
The research that we’ve done now for years has shown something very similar that says as years to pay off mortgage come down, levels of happiness in retirement go up. So we kind of get this phenomenon of light at the end of the tunnel. As years to pay off mortgage go down, you get closer and closer to not having to write that check to Wells Fargo every single month, the big check. And once that’s gone, there’s this great sense of freedom, which we believe leads to higher levels of happiness and retirement. So the answer is, one of our statistics around this is that is retirees who are within five years of paying off their mortgage are four times more likely to end up in the happy retiree camp. So our research shows that it’s in so many ways beneficial, and arguably more beneficial because it’s psychologically beneficial to get rid of the mortgage. The other argument around that is that when interest rates were low and the vast majority of Americans have locked in low mortgage rates, we have another question here about moving and retirement. There’s not a whole lot of moving going on, because about 80% of baby boomers want to stay in their home for the long term.

Wes Moss [00:30:21]:
They don’t want to sell and downsize. They don’t want to go into another community. They want to be in their home. Two, we know statistically that the vast majority of America has, has locked in low mortgage rates under 5% in a lot. Most cases under 4%, in a lot of cases, under 3%. So the cost of capital technically isn’t all that high. So, from a math quote, math perspective, mortgages make sense, particularly when they’re that low. Now, a new mortgage today at seven or 8%, that feels like it doesn’t make as much sense.

Wes Moss [00:30:56]:
But just because the math makes sense doesn’t mean it makes sense financially. Meaning that if I’ve got this burden and I’ve got this obligation, then I have less freedom to make career changes or start a business, or again, maybe just the economic freedom of the peace of mind, that leads to more happiness getting rid of a mortgage. So we’ve long advocated in our writing and here on the show that if we can, we want to be able to set up a plan to get rid of the mortgage by the time we’re, let’s call it in our early sixties, around our retirement date. It doesn’t have to be the exact year, but the sooner the better. The way to do that is most often either doing accelerated payments over the course of the loan, an extra payment or two per year can knock, let’s call it a decade off a 30 year loan. That’s one. Number two is to essentially chunk down the mortgage or get rid of the mortgage, or at least the final part of it, using the one third rule. The one third rule, even if you have a really low rate, says that even if you’re making seven, eight, 9% a year in, let’s call it investments, other investments, it’s still, in my opinion, better to get rid of the mortgage as long as you’re not using more than about a third of your after tax money.

Wes Moss [00:32:10]:
I don’t think it makes sense to pull a bunch of retirement money out to do that because then you are paying huge taxes to do that, typically, usually to pay 100, 200, $300,000 off what’s left on a mortgage. In order to get that out of an IRA, it creates a massive tax, it creates a tax tsunami, we call it, and we don’t want to do that. We don’t want your effective rate to go up and then have a third or more of your IRA money that you pull out, that you’re trying to pay off a mortgage that just doesn’t work. So we look at after tax money, after tax savings, and we don’t want to use all of it because we also don’t want to go to retirement with no after tax savings, even if we have IRA money, 401K money. You really want to have an ample supply of after tax money that you can get to in a tax efficient way. If you have a big cost, if you need a new roof, a new H Vac system, that’s 1020, $30,000 cost, a new car. You don’t want to only rely on your retirement money, iras, 401 ks, because the tax consequences can be huge. So there’s a lot of power, arguably, that after tax money is, or you could certainly argue this for a Roth IRA where we have no taxes to pull it out.

Wes Moss [00:33:27]:
But after tax savings is that very special cushion that we a can pay bigger bills without impacting our taxes all that much or having our tax rate go all that much higher. So we say the one third rule, if you can get rid of, if you’ve got $600,000 in after tax savings, you have $200,000 left on the mortgage. We say in a lot of cases, go ahead and get rid of the mortgage. So there’s psychological, and there’s financial benefits to doing that.

Mallory Boggs [00:33:59]:
So in my mind, we’ve been talking about this for so long, I’m all in. But what in the world is a Wall Street Journal arguing?

Wes Moss [00:34:06]:
Oh, okay, so I forget. That was my point. Wall Street Journal article, for years has, has talked about the conflicts between broker dealers and RIAs registered investment advisors. And it’s, they’ve always had, for years, for 20 years, the RIA model, the registered invested advisor model, has always been, has been the unconflicted group. So that group doesn’t get commissions. So a broker dealer can buy and sell something and get commissions to do it, or there can be sales incentives. And many, many years ago, I was in the broker dealer world in the early years of my career. And that’s true that they run the broker dealer firms.

Wes Moss [00:34:47]:
Even though some of their revenue model is to charge a percentage of assets under management, there’s still a whole lot that goes on with selling of XYZ fund that may create a commission. So the Wall Street Journal, for years has advocated that a fee only advisor is only compensated through a percentage of assets. And there is no conflict because there’s no sales commission to buy XYZ fund. There’s no incentive to get paid to do any given product. So it arguably is a much less conflicted model. And the RIA is looking for the lowest cost and the best investments because they want the assets to be as high as possible, because they’re only compensated as a percentage of assets as one main way rias function. And again, I’ve been in the RAA world for years and years. Of course, Wall Street Journal has to come out and say this week, but there’s still a conflict there, even in the RIAA world.

Wes Moss [00:35:45]:
And they mentioned that rias could be conflicted because they want to manage people’s money. And there may be a conflict by saying, don’t pay off a mortgage because we still want to manage your money. You’re making 8% over here. Your mortgage is only three, so never pay off the mortgage. First of all, that’s not how we’ve looked at it for years. We’ve advocated for years get rid of the mortgage not at any cost, but at sensible cost. If it’s the right time and you’ve, and the location of where your accounts are, IrA versus not IRA money, if it makes sense, do it. But the thought of an RIA telling someone not to get rid of a mortgage just because they don’t want to lose the investments to manage, I guess it’s possible but it’s not something that I’ve really seen in our industry.

Wes Moss [00:36:38]:
I think that when you’re a financial advisor and you’re looking out for the big picture for a client and to pay off a mortgage for a couple hundred thousand dollars doesn’t necessarily, doesn’t really move the meter for what the RIA firm is really earning. They also had some sort of study that said that people with advisors tended to take Social Security earlier than later, again blaming the RIA as conflicted by saying, we’d rather you take Social Security early so you don’t withdraw your assets. The thought that someone taking Social Security for $2,000 a month versus waiting for $2,200 a month having something to do with an account value, I just don’t see that that comes into the conversation. Hypothetically, there could be a little bit of a conflict there, but I just don’t buy it, particularly here that, you know, we’ve been, I’ve been, I’ve been advocating and pounding the table. Even if you have a low mortgage rate, we want to get rid of it as soon as humanly possible. It leads to a happier retirement. Most people that I can think about over the years that tended to take Social Security a little bit early and not wait till their FRA, full retirement age or the max of 70, they do it for a lot of different reasons. These are people that say, I don’t even know if Social Security is going to be there.

Wes Moss [00:38:00]:
I don’t feel comfortable waiting an extra six years before I start taking it. I’d rather just take what I can get now. And that is a totally valid argument. Now, I don’t think Social Security is going to run out, but it doesn’t mean that other people don’t. And if it gives them that sense of insecurity by waiting, that’s also a psychological decision that people can factor in. Yes, mathematically, it does make more sense to wait all the way to your 70. However, the break even is a pretty long time. You’ve waited to take Social Security for anywhere from a few years to even six years, because you could.

Wes Moss [00:38:36]:
Or even eight years, you could have taken it at 62. And people will say, well, gosh, I don’t know if I’m gonna live until my much past, my early eighties and when I’m just breaking even. So there’s a lot to think about on all these topics.

Mallory Boggs [00:38:50]:
What’s interesting is I feel like this reminds me a lot of one of your lessons from the psychology of money that you pulled out around the idea that everybody’s crazy.

Wes Moss [00:38:58]:
No, nobody that, nobody.

Mallory Boggs [00:38:59]:
I’m sorry. I’m sorry. Nobody’s crazy. Because it’s. So much of it really just has to do with. We have our reasons around money, and it’s really just finding kind of that peace and what works best for you. And that comes back to the mortgage, paying that off. That’s a huge piece of it.

Mallory Boggs [00:39:13]:
It’s really just knowing that you don’t have to write that monthly check, but you do have to just figure out how to do it financially, soundly. And so I think having.

Wes Moss [00:39:21]:
Nobody’s crazy.

Mallory Boggs [00:39:22]:
Nobody’s crazy. So maybe they think Social Security’s going away, but nobody’s crazy.

Wes Moss [00:39:28]:
I feel like Morgan Hausel could have made that one. Everyone’s got a point.

Mallory Boggs [00:39:31]:
Yeah, that would be.

Wes Moss [00:39:32]:
But nobody’s crazy is a much better. It’s a much better lesson, and we remember it more memorable.

Mallory Boggs [00:39:37]:
Yeah.

Wes Moss [00:39:37]:
Very easy to remember.

Mallory Boggs [00:39:38]:
I’m not crazy.

Wes Moss [00:39:39]:
Here’s another way to look at it. Morgan Housel will say that personal financial decisions are rarely made from spreadsheets. They’re made where they’re made at the dinner table. If we want to spend on something, or if we’re contemplating on spending on something in a family, it’s usually a family discussion, and it goes beyond just the financials. All right, number one on this list. We’re skipping all around on these. How can I ensure my retirement savings will last throughout retirement?

Mallory Boggs [00:40:08]:
I think I know why this is the first one on that list. I feel like this is the first question everybody wants to know.

Wes Moss [00:40:15]:
Number one, money fare running out?

Mallory Boggs [00:40:17]:
Yeah. I mean, like, you know, what’s even the point of saving if it’s not going to last?

Wes Moss [00:40:21]:
Or I think also it’s hard for people to even get to the point where they feel like they can amass enough. That’ll. That’ll really move the meter in retirement. And that’s why there’s so many people in America that just simply live on office Social Security. So I think there are a couple of things here, and this is a broader question, but it touches on a lot of really important points, and I’ll bring up the three that I think answer this. Number one, there’s gotta be some sort of plan that involves huge diversification so that we don’t take on any one specific stock rest. Number two, we’ve talked about this. In my mind, this is, again, there is no perfect rule, but to me, this is as good of a rule of thumb you can have when it comes to making your money last.

Wes Moss [00:41:00]:
And that’s the 4% plus rule, which, by the way, includes, even during retirement, having at least 50% in stocks, again, diversified because of inflation. So that brings up a couple of really important points. And the stock part of that, Mallory, goes into number three, which is being a tomorrow investor.

Mallory Boggs [00:41:22]:
I think this is one of my favorite lessons.

Wes Moss [00:41:24]:
We’re looking beyond the valley here. We’ve got it. We’ve got to be investing for tomorrow, not today. And that brings up this example I’m going to go through in just a second.

Mallory Boggs [00:41:35]:
Have you seen an ad right now where it’s like, tomorrow’s not scary? Not investing for tomorrow is scary?

Wes Moss [00:41:41]:
I have seen that. It’s the ETF for the Nasdaq. I think it’s maybe Nasdaq 100. And it is a good ad because it’s a mini, it looks like an Alexa that almost clearly knows what’s happening with the person that lives there. It’s this woman walking around getting breakfast, fighting or trying to get out the door for work. And then this futuristic Alexa says, hey, did you forget something? And the ad makes it look like they’re about to lock the person in. But then this futuristic Alexa says, I think you forgot your keys. And it’s like, oh, come by.

Wes Moss [00:42:16]:
Thank you for helping me. And the future isn’t scary. Robots aren’t going to lock you in your home. They’re going to remind you where your keys are so you can get out. Now, couple that with it was just this week or so, Elon Musk says that within a year, generative AI will be smarter than people, and then within five years, generative AI will be smarter than all of humanity. So that is a little scary. It is a little scary.

Mallory Boggs [00:42:46]:
That’s a lot.

Wes Moss [00:42:46]:
That’s a little scary, but also scary. Not to, but if you think about the investment implications there, I think of all of the old line industries utilizing technology like they have for years to get better and more efficient, more profits, more earnings. So I look at all of this new scary technology as helping nearly every sector get better. Now, we’re way off track there, because you brought up a commercial that I.

Mallory Boggs [00:43:11]:
Love, and it’s great because it truly showcases the idea of being a tomorrow investor. And even with the scary stuff that Elon Musk is saying, I think it’s easy to even look at him and say, if you believe that he’s able to do half the stuff that he promises, you should definitely be invested for tomorrow.

Wes Moss [00:43:26]:
It’s funny. Sam Altman, who is the guy that started chat GPT likens it today to not so, oh, a slightly incompetent assistant.

Mallory Boggs [00:43:42]:
I would say that’s pretty accurate.

Wes Moss [00:43:43]:
That’s pretty accurate.

Mallory Boggs [00:43:44]:
That’s pretty dang accurate, isn’t it?

Wes Moss [00:43:45]:
It can do lots and lots of things, but none of them are ever all that great.

Mallory Boggs [00:43:49]:
No. And on top of that, and you gotta be very specific and really direct. And it takes so much time and effort just to get something out of it. But still.

Wes Moss [00:43:56]:
But again, six months from now or a year from now, maybe it will be an amazing assistant. And then two years from now, it’ll be smarter than all of us.

Mallory Boggs [00:44:03]:
Well, you know, we still have the.

Wes Moss [00:44:05]:
Off on switch, don’t we? So, one, we know we need this massive diversification now, going back to this lasting through retirement. We’ve done whole episodes on that. And that’s really 4% rule. Start out with your retirement balance times 4%. That’s a nominal number that you can then take an increase for whatever inflation is every year, provided that you have at least 50% in equities and in a balanced portfolio. Really 50% to 70%, call it even 75% in equities over time. That’s where you get that hedge against inflation. But that brings us up to my third point to answer this question, and that is about being a tomorrow investor.

Wes Moss [00:44:46]:
The operative word there is investor, not just saver. It’s so difficult to get to a point where we have total economic and financial freedom just by saving our way there. It can happen. You can save 40% or 50% of everything you make. You can be ultra frugal throughout your entire lifetime and all through retirement. And that is one way to do it. And I’ve seen people do it, but it is the really hard route. It’s choosing the steepest, toughest.

Mallory Boggs [00:45:17]:
It’s kind of like the people who get the push mower as opposed to, like, an electric one. Right? Like, you can mow the grass.

Wes Moss [00:45:22]:
Oh, I was thinking that the mowers, not just the push mower, but the blade mower that is manual when you push it.

Mallory Boggs [00:45:30]:
Yes, that’s what I’m picturing.

Wes Moss [00:45:32]:
The wheels spin the blade even faster than the wheels going.

Mallory Boggs [00:45:36]:
Yeah, okay. Same thing.

Wes Moss [00:45:37]:
No engine. You’re talking about the no engine lawmaker.

Mallory Boggs [00:45:39]:
No engine. Just all, like, just all manual, no help. That’s saving.

Wes Moss [00:45:45]:
I think that’s a good analogy for that. It works and it can work, but it doesn’t ever get. Nothing ever gets easier. It’s still just manual labor every single step of the way. Which brings me to this is a. I did an article called the something like the $2 million difference, and it’s essentially this story between Jack and Jill. And we’ll make Jack is the saver and Jill’s the investor. Now, they’re both savers because they’re both going to put money away.

Wes Moss [00:46:12]:
But one’s an investor and one is not. One is just essentially squirreling money away at money market rates. We’re going to pin that on Jack depending on what you go back. If you go back and look at market history for the s and P 500, you’re going to find different rates of return over different time periods. But I just picked the last 20 some years or so. I went to call it 2004 until where we are in 2024. It’s a little over 20 years, and it almost nails exactly the annualized rate of return, including dividends, 10.06% average annual rate of return for the s and P 500. So I think it’s fair to use just around 10% number when it comes to the investor side.

Wes Moss [00:46:59]:
So Jill will get 10% average annual return, and Jack is going to get just 1% because he’s having money sitting money market. Even today, with high interest rates, a lot of banks are still paying virtually zero.

Mallory Boggs [00:47:12]:
It’s so annoying. I can look at my high interest savings bank account versus paying you, what.

Wes Moss [00:47:16]:
Four and a half or 5%?

Mallory Boggs [00:47:18]:
Exactly. And I’m like, oh, wow, this thing’s popping off. And then I look at my normal bank savings account, and I’m just like, ooh, almost nothing. I think that they took money out.

Wes Moss [00:47:26]:
.3. Let’s just assume Jill’s going to get her 10% a year on, on average, over time, Jackson get 1%. They’re both going to save the same amount of money. They start with zero, and then they add $1,000 a month every month for, let’s do 30 years. So they’re going to save. We know what, that’s 360 months. So $1,000 a month about. They’re going to save about $360,000.

Wes Moss [00:47:50]:
Both of them the same. And there’s a. There’s obviously a very big difference between the two over time. The first few years, if you look years one through six, there’s barely a difference between the two, because Jill investor still hasn’t had a whole lot of compounding time yet. But then it starts to really pick up and the difference becomes stark. And then, of course, as you go out into year 30, so they started at age 30, now they’re age 60. It becomes a dramatic difference. So the 360 they each saved for Jack at 1% a year, on average, annual rate of return over time ended up to be $419,000.

Wes Moss [00:48:28]:
So still just saving $1,000 a month. Now, it’s still a lot of money, but just saving the manual cylinder lawnmower way still ended with over $400,000, 419,000, according to my, I think, ussavings dot Gov. But Jill, on the other hand, ended up with 2.2 million. So it’s almost a $2 million difference because one was an investor, the other was a saver. And this is a stark example and extreme because it’s over a long period of time. One person’s getting 1%, the other person’s getting 10%. So there’s a big difference there. But it’s not unreasonable to think of a stock oriented investor doing exactly what Jill did over that period of time.

Wes Moss [00:49:12]:
It took her until year 23 to get to that million dollar level, and then that continued to compound. Again, these are just. This is just for illustration purposes. She ended up with over $2.2 million. Jack barely crested 400 grand. So there’s a lot of lessons in here. One saving a loan is the cylinder manual lawnmower method. Jill, on the other hand, even though it took a lot of work for her to save the same amount of money over time, she was on a riding mower.

Wes Moss [00:49:43]:
Sometimes that’s a little. Little scarier. Maybe there’s a little more danger. You’re not falling off a cliff when you’re using the manual push mower. You ride a little too close to the edge on your. On your John Deere. Maybe you fall into an embankment. I’ve had to pull my dad’s tractor out of the creek bed, mowing our field with a bush hog.

Wes Moss [00:50:02]:
So there’s some. Maybe a little more danger that goes along with it. By the way, my dad just sent me photos of that tractor.

Mallory Boggs [00:50:07]:
You’ve been talking about this for months, finally.

Wes Moss [00:50:09]:
He’s been telling me six months he was gonna send me photos, and he finally did it. We were texting about something else, and you could tell he was feeling a little guilty about it. Cause he kept saying, oh, I’ll get in there. And, I mean, look at this.

Mallory Boggs [00:50:23]:
This is the tractor that you said. He thought it was from the 1920s and was still running, but maybe it was more like the 1920s.

Wes Moss [00:50:29]:
I still don’t really know. Now that I see it. It is maybe even older than. Oh, my estimation was it was more like 1950s, from what I remembered as a kid. And I was googling around and finding similar pictures. But you take a look at this and see, does that look like. How old does that thing look?

Mallory Boggs [00:50:48]:
Oh, my gosh. This is like the first tractor.

Wes Moss [00:50:53]:
Yeah, but it’s been painted green many times.

Mallory Boggs [00:50:57]:
And it’s John Deer green.

Wes Moss [00:50:58]:
It’s John Deere Green.

Mallory Boggs [00:50:59]:
So appropriate. Oh, this is.

Wes Moss [00:51:01]:
But it is older than I even remember it looking. Wow.

Mallory Boggs [00:51:05]:
That is like, it straight up looks like one of the very first tractors probably ever made.

Wes Moss [00:51:09]:
Yeah. And the John Deere logo is many iterations ago. It’s not anywhere close to what the John Deere logo is now. Maybe this episode will be, are you using a push mower or riding a John Deere?

Mallory Boggs [00:51:23]:
I love this concept where it’s the saving versus investing, the push mower versus the John Deere. But with that. Wes, I’m so sorry. We are coming up on time. I know you had two other questions you really wanted to cover. Let’s push those to next week. Maybe you can even pull a bonus question.

Wes Moss [00:51:38]:
They’re all bonus questions. That’s true.

Mallory Boggs [00:51:40]:
There are so many good ones.

Wes Moss [00:51:41]:
I think we have ten here.

Mallory Boggs [00:51:42]:
Oh, we might. Okay, well, this might be a little bit more of a series then, so. And I’m sorry, it won’t be next week. It’s going to be in two weeks, so. But let’s. Let’s come back to this. And we’re going to keep going because I think these are so incredibly.

Wes Moss [00:51:52]:
Because what interview do we have running next week? I want to say next week we have Ed and Cynthia Staten on, though, and they’re talking about expat living as an expatriate. And they live in a cool city in Ecuador. And they’ve done. They’ve been kind of pioneers in doing this. They lived in Las Vegas, and now they’ve lived outside of the US for almost 15 years. And then they’ve toured and looked at all the other great cities that Americans seem to really love in Europe and South America, Central America, Asia, et cetera. I was fascinated by what we learned from them. So that’s.

Wes Moss [00:52:24]:
That’s coming up right here on the retire sooner podcast. But we. I do like answering these questions. These are really heavy, important questions for would be. Would be retire sooner, folks. And we’ll come back to this. And thank you, Mallory, for being here today.

Mallory Boggs [00:52:40]:
Thanks for having me. Hey, y’all. This is Mallory with the retire sooner team. Please be sure to rate and subscribe to this podcast and share it with a friend. If you have any questions, you can find us@wesmoss.com. Dot. That’s wesmoss.com dot. You can also follow us on instagram and YouTube.

Mallory Boggs [00:52:57]:
You’ll find us under the handle Retire Sooner podcast. And now for our show’s disclosure.

Mallory Boggs [00:53:02]:
This information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations. Investing involves risk, including the possible loss of principal. There is no guaranteed offer that investment return, yield or performance will be achieved. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions for stocks paying dividends. Dividends are not guaranteed and can increase, decrease, or be eliminated without notice. Fixed income securities involve interest rate, credit inflation and reinvestment risks and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Past performance is not indicative of future results.

Mallory Boggs [00:53:42]:
When considering any investment vehicle, this information is being presented without consideration of the investment objectives or risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Investment decisions should not be based solely on information contained here. This information is not intended to and should not form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment tax, estate or financial planning considerations or decisions. The information contained here is strictly an opinion and it is not known whether.

Mallory Boggs [00:54:14]:
The strategies will be successful.

Mallory Boggs [00:54:15]:
The views and opinions expressed or are for educational purposes only as of the date of production and may change without notice at any time based on numerous factors such as market and other conditions.