How do you buy a house as a young person, without wrecking your long-term retirement plan? That’s today on Your Money, Your Wealth® podcast 599, as Joe and Big Al spitball for 35 year old Gord in New York City. He’s got $300,000 saved and a home purchase is coming soon thanks to a new relationship. Should he liquidate his brokerage account and pull the trigger? Carrie Bradshaw in California is 33, and wants to buy a roughly $1.5M home. When should she move the down payment money out of the market, and can she avoid derailing early retirement? Finally, Archie and Veronica in Missouri are 41 and 34, pulling in $600,000 a year and saving close to $200,000 of it. Are they saving too much? Should they pay off their mortgage or keep investing?
When should you move money from investments into cash for a home down payment?
If you plan to buy a home within about three years, that’s the signal to start shifting your down payment money out of stocks and into cash or short-term bonds. Money you’ll need soon shouldn’t ride the market, since a downturn right before you buy can shrink your down payment when you can least afford it.
Frequently Asked Questions:
How much should you put down on a home?
A 20% down payment is the common target because it lets you avoid private mortgage insurance. On a 1.3 to 1.7 million dollar home, that’s roughly 260,000 to 340,000 dollars. A larger down payment means a smaller mortgage, though tying up more cash reduces your flexibility.
Should you reduce 401(k) contributions to save for a down payment?
Some people temporarily redirect savings above their employer match into a taxable account to build a down payment, then return to fully funding the 401(k) once the goal is met. Always keep contributing enough to capture the full employer match, since that’s money you don’t get back.
Can you save too much for retirement?
Saving is driven by the relationship between your spending goal and your assets. If your projected nest egg produces far more income than you plan to spend, you may be able to ease off, retire earlier, or spend more now. Whether that fits depends on your full picture.
What does it mean to refinance a mortgage?
Refinancing means taking out a new loan to pay off your existing mortgage, usually to get a lower interest rate and a lower monthly payment. People often buy when rates are high, then refinance later if rates drop.
Show Notes
- 00:00 – Intro: This Week on the YMYW Podcast
- 01:02 – I’m 35 in NYC. Do I Cash Out My ETFs to Buy a House? (Gord, NYC)
- 15:21 – How Much of My $900K Goes to the Down Payment? (“Carrie Bradshaw”, CA)
- 24:12 – We Make $600K With a $1.1M Mortgage. Pay It Off or Keep Investing? (“Archie & Veronica”, MO)
- 35:55 – Outro: Next Week on the YMYW Podcast
Free Financial Resources:
Financial Blueprint – free and self-guided
10 Big Retirement Regrets to Avoid (Before It’s Too Late) – YMYW TV
Guides | Blogs | Educational Videos | YMYW Newsletter | Subscribe on YouTube
Watch today’s podcast episode on YouTube
Transcription
(NOTE: Transcriptions are an approximation and may not be entirely correct)
Intro: This Week on the YMYW Podcast
Andi: How do you buy a house as a young person, without wrecking your long-term retirement plan? That’s today on Your Money, Your Wealth® podcast 599, as Joe and Big Al spitball for 35 year old Gord in New York City. He’s got $300,000 saved and a home purchase is coming soon thanks to a new relationship. Should he liquidate his brokerage account and pull the trigger? Carrie Bradshaw in California is 33, and wants to buy a roughly $1.5M home. When should she move the down payment money out of the market, and can she avoid derailing early retirement? Finally, Archie and Veronica in Missouri are 41 and 34, pulling in $600,000 a year and saving close to $200,000 of it. Are they saving too much? Should they pay off their mortgage or keep investing? Whether you’re watching us on YouTube, or Spotify, or Apple Podcasts, or listening on any of the podcast apps, make sure you’re following YMYW so you never miss us making fun of finance. I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP®, and Big Al Clopine, CPA.
I’m 35 in NYC. Do I Cash Out My ETFs to Buy a House? (Gord, NYC)
Joe: “Hey, Joe, Big Al, Andi. Love the show. I’m 35, living in New York City. Current assets include $160,000 in my 401, $1,000 in my Roth. Salary’s about $120,000 per year including bonuses. I’m currently contributing 9% to my traditional and another 4% is the employer match, and 66% to my Roth. I’ve managed to save $30,000 in cash and savings, as well as $125,000 in a brokerage account.
I have an exciting career in a cultural industry with a decent upside in salary, and I expect that I’ll probably want to max this trajectory into my late 60s or beyond. I love my work and would absolutely die of boredom if I pursued anything close to a buyer strategy.”
Andi: Now, there’s somebody that thinks like Joe does.
Al: Yeah, I was just thinking that’s, that’s kinda your way of thinking.
Joe: But, Well, he’s got a very exciting career.
Al: Yeah, why- I mean, who knows? Why would you… Well, I don’t know. Cultural industry.
Andi: In a cultural industry.
Joe: I don’t know what that is.
Al: I can’t hardly even imagine. What do, you got, Andi? What is a cultural industry?
Andi: Cultural industry is, according to Google AI, says, “Core arts or visual arts, live theater, dance, music shows, movies, television, radio, books, newspapers, digital content, museums, libraries, historical sites.” Actor? … UNESCO considers these to be vital economic drivers. Well, he would, he would- Mass-produced pop culture.
Joe: Oh. All right. “The brokerage was always intended as a way to grow my portfolio of assets through rigorous investing, with a future expectation that at some undefined point in time it would be used, a way to get a down payment on a home.” Okay. “With recent life relationship changes, that could be happening sooner than later.
my spitball question, for someone in my scenario, what are some sound financial planning strategies I should be thinking about, or should I start, converting the investments, all ETFs, into a pot of cash for pulling the trigger on the home?” okay. “I’ll gladly tuck into a non-sour…” Oh, hold on. “I gladly tuck into any non-sour pint of beer while listening to your thoughts.”
All right. Oh, I’ll gladly tuck.
Al: Yeah.
Joe: What the hell is, “I’ll gladly tuck into”?
Andi: I’ll very happily have that beer while I listen to you.
Al: he’s, creative, he’s cultural.
Joe: Think he’s an influencer?
Andi: Maybe so.
Al: No, I, think he’s involved with plays or arts or something. Actor? Something cool like that.
Joe: Actor?
Al: Well, not necessarily- ’cause then the income would be up and down, I would think.
Joe: Got it. He wouldn’t have a-
Al: Wouldn’t have a steady
Andi: job. Or maybe he promotes, like, Puerto Rican tourism or something. Who knows?
Al: Maybe.
Joe: Got it. Okay. all right. So he’s gonna gladly tuck into a non-sour pint of beer while listening to our thoughts.
Follow-up. Oh, he did a follow-up.
Al: Okay.
Joe: “Hey, Andi. Thought I’d like to clarify my question a bit more after sending that initial email to pull it back closer to the retirement analysis that you’re known for. I’m trying to balance contributing, continuing to c- contribute to my retirement accounts while also building up a 20% down payment on a home purchase.
It can be very overwhelming, and I know a lot of my friends in their early, mid, late 30s feel the same. We’re all at the stage of meeting our romantic partners, getting married, starting families, and trying to set down roots with home purchases. What do you guys think of this stage of life, including how do you draw down an investment account to support this one-time hopefully big purchase which I described in the initial email?
Love the show.” All right. very good. Cool.
Al: Yeah.
Joe: So he’s got some money in a tax-deferred account, $160,000. He’s gonna work until his 60s.
Al: Yep.
Joe: He’s plugging away into the Roth. He’s plugging away into traditional. He gets a 4% match, so what, there’s a total of 12% or something like that- Yeah … going into the retirement account?
Al: Yeah, I would go with that. Yeah.
Joe: Okay. He’s got $150,000 in a taxable account, and then he’s also started a little bit into a tax-free. He found, the love of his life it sounds like recently, and so that is fast-tracking his-
Al: It’s fast-tracking the home purchase
Joe: … the home purchase.
Al: All right.
Joe: He lives in New York City, so I’m guessing, he’s looking at a home purchase of what, a million dollars?
Al: I’d say more even. I, I-
Joe: Is it a home? Is it a condo? Is it a flat?
Al: Well-
Joe: Is It, it would n-
Al: definitely not be a home if it’s in New York City.
Joe: Sure.
Al: It would be-
Andi: A closet?
Al: It would help to know what the price of the home he’s looking at, but let’s just assume a million plus. I-
Joe: So he needs $200,000.
Al: For a 20% down payment. Yeah.
Joe: Yep, okay.
Al: And he’s got 155.
Joe: So he’s close.
Al: And but maybe if it’s a million and a half, he needs 300. So, somewhere in that range.
Joe: Is he gonna split the down payment with his significant other?
Al: That’d be a good question, too.
Joe: 155,000. I like owning my home.
Al: Yep. I think-
Joe: Bet
at 35 years of age, you make a good income, if it’s stable though, right? If it’s all over the board- this is what gets me a little bit nervous because, I don’t know, cultural industry, I don’t know what that is. But let’s say he’s an actor, and he’s, he’s got work. He’s on a play, so it’s steady work, but then it’s not steady work, and he’s gotta find another gig.
Al: Ag- agreed, but it, says salary is about 120,000 a year, including bonuses, so I’m guessing it’s stable. Okay. It’s not an actor.
Joe: So key grip.
Al: Huh?
Joe: Like a key grip?
Al: Okay. I like Andi’s better. Okay. Board of Tourism for Puerto Rico.
Andi: There you go.
Joe: All right. So if he’s got 120,000 plus salary, he’s making a, I would go into cash, as soon as y- you start looking, right?
I would get a realtor tomorrow-
and then see what you’re pre-qualified for- and start taking a look at, if you want, if this is sooner than later, I, there’s no time than the present then to purchase a home that you’re gonna live in for the next, 10, 15, 30 years, whatever.
Al: Yeah.
And especially in a high-cost area like this, it’s, hard to get in. So if you have an opportunity to get in, go for it.
Joe: Yep. so I, think you start the process.
But d- I, get it, is that, your, first home, you find your spouse, and then it’s like kids are on the way, and then you’re gonna have a lot more expenses.
If you can continue to save what you’re saving in the 401plans- I think don’t worry about it. the taxable investment, I would sell, get that into cash. once you start the, your process on what you can be pre-approved for given your income, and, then you can look at, all right, maybe $155,000 is good enough for a 20% down payment- and then go from there.
Al: Yeah.
Joe: then w- how I would be mapping this out is more on the, annual or the, your, monthly expenses. So you’re gonna have property insurance. You’re gonna have things that-
Al: Costs do go up. and- you got maintenance. You probably got homeowners fees.
Joe: Air conditioning goes out.
plumbing. Yeah, So, so you have a lot more expenses potentially-
Al: Sure …
Joe: that you don’t have when you’re renting. so, but if you continue to wait, prices, it always seems like kinda gets away from you.
Al: It, it kinda does. And especially now we’re in San Diego, prices just keep going up. New York City’s another example.
They just keep going up. That’s not to say they will forever, but, and there are moments, Joe, where there’s a pause. And, and-
Joe: But do you wanna wait until a, a housing crash?
Al: No, because people have been s- calling that for 10 years. Exactly. So I don’t know. I think you go for it. But you just realize it could go down, and, but if it’s long term, you’re okay.
Joe: Yeah. I, think you would feel more comfortable if you go through the process. Get your realtor. Get pre-approved. Find a, a mortgage broker th- that you like. Find out what your monthly payment is. Are you gonna go through escrow to have your in- insurance- taxes in your mortgage payment rolled in one?
Does that feel like it’s a stretch? So that can kind of tell you what pricing that you want to go into.
And then that’s gonna tell you what type of down payment that you wanna have. So, I think you have to start the process to start the planning. And, when it comes to a, a home, you have to do a couple of things first just to kind of then get back in the finances.
Al: I couldn’t agree with more. So, my, my thoughts right off the bat is what’s your down payment goal? We d- we don’t know. Maybe he doesn’t know either. But that’s… You gotta start with that. You gotta find out what the goal is.
Joe: He wants 20% down payment.
Al: No, I get that, but I don’t know what-
Joe: But, what…
Yeah, okay
Al: … the spend is, right? Is, it- A million? … 150? Is it 200? Is it 300,000? I, I, don’t know. So, so you gotta know what the goal is. Now, let’s just say Joe, and I think a lot of people, his age are in this situation, you got 155, so that’s great, but maybe you need 250 or 300, but you wanna kind of do this quicker.
Now, the first thing you said-
Joe: You buy a cheaper home, you can’t afford it.
Al: Well, you buy a cheaper home, or hopefully your partner can help out, right?
Joe: Yeah.
Al: Sometimes you can get a little creative with a second loan. I certainly did that when I bought. I got a family loan to… so that I had enough for a 20% down payment, so that’s possible.
I… You might disagree with me on this, but- Okay … I think if there’s no other options, I would… I might back off on the 401temporarily. I would still contribute to the match always, but if, there’s more, cash needed than you can come up with, I would, I might funnel that sum- some of that into a non-qualified account for the down payment.
And then as soon as that goal is met, I’d go right back to fully funding the, the 401. I think that, I think that may be sensible for a lot of people his age that are trying to buy in a high-cost area.
Joe: Yeah. I don’t know. I don’t, know if I love that.
Al: No, I, didn’t think you would, but that’s what I would do.
But it… but the big caveat, it’s temporary.
Joe: Yeah, but I, think- I, how I look at this is that you, have certain goals. You wanna retire at a certain age. You want- I, don’t know what his living expenses are. I don’t know if he’s on track, not on track, just even for his retirement. he’s already have a really good start, right?
He’s got $300,000 of liquid assets at 35.
Al: It’s great,
Joe: yep. That’s significantly more than most 35-year-olds.
Al: That’s absolutely right.
Joe: So I think he’s probably disciplined enough to- to do the right things.
But I wouldn’t wanna overbuy.
Al: Yeah.
Joe: That’s where you get in trouble. It’s like, okay, well, here, I’m gonna stretch this.
And my mortgage payment and everything else is gonna be a little bit rich, but I’m gonna reduce my, retirement savings to make the mortgage payment.
Al: No, I’m not saying that. I, agree with you there. I’m saying if you need it, if you need more down payment money- Okay … and have no other sources.
Joe: So you, you reduce your, retirement savings to add more into your taxable account.
Al: Temporary.
Joe: So you’re saving the same amount of dollars, but- Yeah … you’re shifting where those dollars go?
Al: That’s what I’m thinking. I, gotcha. Yeah. May-
Joe: No, I don’t- I, yeah. That, that, that’s fine.
Al: Maybe it’s two years. I, yeah, no, I certainly wouldn’t use the, the 401savings to pa- pay the mortgage.
That, that wouldn’t be a good idea.
Yeah. Yeah. let’s see. I like-
Joe: But he’s gotta look at disability insurance too, I think. Yeah. His, biggest asset is the, hi- his income.
Al: I agree with that, and-
Joe: So now you have a home, you have a mortgage. You gotta make sure that you pay the mortgage. Yeah. So if you get hurt, I don’t know, maybe he’s a, a gymnast, blows out his,
Al: Okay. Cir- the circuit- Yeah … delayer.
Joe: Cir- du- layer or something
Al: Whatever it is called. I for- yeah.
Joe: Yeah, I think life insurance too. And I would get it now. If he’s gonna start a family, it’s gonna be a lot cheaper now.
Al: Yeah, I would look at that. I, I think it, we, like to say have three to six months of emergency cash, which I think applies to anybody.
In this case, I would wanna have a little bit more cash on hand because you’re gonna wanna get some new furniture, right? You’re gonna wanna get some, do some home improvements probably, right? Paint here, do this. Yeah, so ju- it’s just nice to have a little extra cash while you do this as well.
Joe: Yeah. But your starter home, you don’t have to go big.
You can- No, I- You know, just- I agree … you, plan and then, you get a couple years. Well, I got a little bit of equity and I’m making a little bit more money. Now where you have a dual income- Yeah … and then look at, and then so-
Al: then you go from there
Joe: … you, kind of go from there.
Al: Well- 100% agree. I mean, the saying that I’ve always heard is buy the most expensive home you can afford and buy the cheapest car you can stand. But the, the operative word is afford. Don’t buy something you can’t afford.
How Much of My $900K Goes to the Down Payment? (Carrie Bradshaw, CA)
Joe: All right. very good. Let’s go. “Hi Joe, Big Al, Andi. This is Carrie Bradshaw in California.” Hi, Carrie Bradshaw.
I discovered your pod-” Well, is that a real name? No, Carrie Bradshaw- I, that, that is a- … is it that from Sex and the City-
Andi: Yeah
Joe: … the film?
Andi: It is.
Al: Okay. Got it. Got
Joe: it. “I discovered your podcast recently and listened, when I take in my daily w- walks. I’m 33 and unmarried. Enjoy in Oregon Pinot Noir.”
Al: Noir.
Andi: Noir.
Al: But close.
Joe: I say Pinot.
Al: We’ll just say Pinot. We, everyone knows what that is.
Joe: That, that works. Let’s go with the Pinot Noir. “In driving old Honda that I keep, that I’ll keep it till it dies. I’m looking for advice on what to do in preparation to buy a home.” I love these little shows you put together, Andi.
Andi: You like the themes, Joe?
Joe: Yeah, I do.
Andi: Young people wanting to buy a home.
Al: I-
Joe: Like, it’s the same question over and over again, and we-
Al: I love it
Joe: … I get bored.
Al: I love it. With the- It’s just different flavors though. Well- We get different flavors.
Joe: We get chocolate or rocky road.
Al: Yep.
Joe: Okay. “I’m looking for advice on buying a home.
Rough timeline is three to five, depending on where my life takes me in my current relationship.” So maybe Carrie Bradshaw is hanging out with this other dude that we just talked to in New York City.
Al: Maybe.
Joe: She lives in California. He lives in New York. Maybe they fell in love.
Al: Maybe so. What if they wrote in on the same day?
Joe: Yeah, they probably did.
Al: Within six days of each other.
Joe: okay. “So the timeline’s three to five years, depending on where life takes me. So my ho- home price will likely be $1.3 to $1.7 million. I make $240000 a year. I have $900000 in a brokerage account I have bucketed into $700,000 for medium or long-term and $200,000 for short-term.
The 700 is allocated 85 stocks, 15% bonds, and the 200 is alloc- allocated to 60% stocks, 40% bonds. I aspire to retire in my mid-50s due to family medical history. I have been maxing out my 401, backdoor Roth, HSA for a few years now, so I think this is easily achievable. Questions on my mind are, how much should I allocate for the down payment?
I’m comfortable with the concept that money invested can grow at a higher rate than the mortgage, but I don’t want to endanger my goals to retire early. My partner would contribute to the down payment as well, but significantly less than I.” So another down payment, Al. Yeah. 20%. I would not go anything lower than
Al: 20%.
I agree.
Joe: So if you want $1.3 to $1.7 million-
Al: It’s 260 to 340, $340,000.
Joe: They got $700,000 in a brokerage account.
Al: Yeah. Well, they got 900, actually.
Joe: So-
Al: In two, two different buckets.
Joe: Oh, yeah, yeah,
Al: yeah.
Joe: What- what’s in the retirement accounts?
Al: They don’t say, or she doesn’t say.
Joe: Or is that the total liquid assets they have?
Al: I don’t think so.
Joe: Or is the brokerage account part of the retirement account?
Al: I’m gonna say no, but I don’t know.
Joe: Okay. All right. “When should I move the down payment money into the high-yield savings account, within three to five-year timeframe? It seems like I should do this now.” “But I have a lot of cushion from my longterm bucket, so maybe I can risk leaving it for another couple of years.
Thanks for your thoughts. I’ve been really enjoying the show, Carrie.” Thanks, Carrie.
Al: Okay.
Joe: All right. Very interesting.
Al: So yeah, 100% agree. 20% down payment- Yep … which based upon our numbers would be 260,000 to 340,000. That’s what… But she’s got 900 already, so it’s already, there. So then the real question is when do you start putting that into-
Joe: I think she doesn’t wanna touch her 700,000.
She wants to touch the blue.
Al: Well, it could be, but that’s not enough, right? But so if you, just do the math, Joe, on the bonds that she has, it’s about 185. If you take, the dollar amount times the percentages.
Joe: Okay.
Al: So there’s already 185 in safer money.
but I mean, I think the general point, I would say is anything three years out, or less, you should start thinking about con- converting that to high-yield savings or short-term safe bonds because you’re gonna be able, you’re gonna n- need to use it pretty soon.
Joe: Yep. Well- Short term shouldn’t be allocated 60% stocks. Short term should be 10% stocks.
Al: yeah. W- agreed. Okay. But, I don’t even know why there’s two buckets. I don’t know either. You can have bonds in both of them, but that doesn’t matter. The, the point is, out, of the 900, it’s about 20% bonds and it’s, it’s about 80% stocks.
Joe: Yep. Yeah, so if you need $250,000 to do a down payment, I would put $250,000 in short-term bonds and cash.
Al: Yeah, me too. Yep.
Joe: and then you keep the other 100% stocks.
Cause that’s your long term.
Al: That’s-
Joe: Your long term should be 100% stocks. Your short term should be cash and bonds. Yeah. Yeah. So I think you get into the high-yield savings account in the next day to six months.
Al: Yeah, and especially at 33, you can go all in with stocks, and if that’s too much, 90% or even 80% stocks, but mostly stocks at, age 33, for sure.
Joe: Yeah. The difference of your risk of 90% stocks to 100% is very little.
Al: It is. I agree with that.
Joe: yeah. But, and then if the, if your partner’s gonna contribute too, so, $1.7 million home, 1.3, I don’t know, maybe your dream home is the $1.3 million home.
So- Maybe … I think you start the process again.
Al: Yeah, see,
Joe: see- It, might take you two years or a year and a half to find the right home.
Al: It might. Yeah, particularly-
Joe: Or it might take you a couple of months. I, I- It might. It, took me a while to find, the right house that I wanted to live in, ’cause I was very comfortable where I was staying.
Yeah. I remember. I had a nice condo downtown. Yeah. San Diego, right by the ballpark. I wasn’t in any hurry to leave, but- I remember … I found the right place.
Al: Yeah, you did.
Joe: It was like, “Okay, well, here, now I’ll pull the trigger.” So that was, that was my game plan.
Al: Now, here’s a, here’s another question.
So let’s just say, we’ll use round numbers. Let’s just, she needs 300,000 for a down payment.
Joe: Okay.
Al: She’s got 900.
Joe: Yep.
Al: do you do that 20% down payment? Or d- you got 900, you put more in and get less mortgage.
Joe: $240,000 a year.
Al: Yep.
Andi: And how does this fit with her desire to retire early?
Al: That’s a good question too.
Joe: Yeah. She needs to re- to, make sure she’s got the liqui- but it’s funny to me, if she makes $240,000 a year, she’s got $900,000 in a brokerage account, but- She says she’s been maxing out her retirement account for years
Al: Well, for a few years
Joe: For a few years?
Al: Yeah.
Joe: So I don’t know. We- we- just need a little bit more information, but if the 900,000 is non-qualified, yeah, I would, do the 20%.
Yeah. You have the cash. Yeah. If it continues to grow, that’s great, right? If you wanna pay more of the mortgage off at any point, you- You can.
Al: Yeah, that’s exactly right. I, would guard the cash, I think. I’d put, the 20% down payment, and then, interest rate’ll probably be higher than you like, so just watch the rates and if and when they go down, you refinance and get a better rate, lock it in, and depending upon if you wanna stay in the, home long-term.
If it’s a short-term home, it’s not as important. But yeah, I think the, to me, the point is save your cash. Use financing when you can. And I get the rates are a little too high right now, but then, my rate, my first rate was 12 and a half percent, and I refinanced to 10, and I thought that was a steal.
Joe: I know, right?
Al: And now whatever they are, 6, 6 and a half, whatever they are. but, higher than they have been, but then you’re always looking when rates drop. You can always refinance. And if you don’t know what this is, refinance means that you take your current loan, you get another loan, and you refinance. You get a new loan, you pay off the old loan, and now you got a new loan with a lower interest rate, hence the lower payment. So that’s what that means, in case you don’t know.
Andi: This week on YMYW TV, Joe and Big Al cover 10 Big Retirement Regrets to Avoid Before It’s Too Late. They’re breaking down the mistakes real retirees say they wish they’d caught sooner, and the smart moves that help you dodge them. Find out what forces more than half of people to retire earlier than they planned. Learn why spending your 401(k) and IRA money in retirement can mean a bigger tax bill than you expect, and how a little diversification into Roth and taxable accounts gives you flexibility later. You’ll also learn how to build real income in retirement without chasing dividend stocks or bond ladders. Right after this podcast episode, watch YMYW TV at the link in the episode description.
We Make $600K With a $1.1M Mortgage. Pay It Off or Keep Investing? (Archie & Veronica, MO)
Joe: All right, let’s move on. We got, “Hi, Andi, Joe, and Al. This is Archie, and my wife is Veronica.” Ah.
Al: A little Scooby-Doo.
Joe: No. Archie is not Scooby-Doo.
Al: I think it is.
Joe: There’s no Archie in Scooby-Doo. It’s Fred, Veronica, Velma.
Al: Well, what am I thinking?
Joe: You’re thinking of, like, Archie, the comic. Yeah.
Andi: Yes.
Joe: Scooby-Doo is not in Archie.
Al: You bet. That’s-
Andi: No … the Archie comics, they actually started in 1942. Yes. That’s Archie and Veronica.
Joe: Yeah.
Al: Okay.
Andi: And Betty Cooper, who’s the other girl that, she competes with for Archie’s affection.
Al: Got it.
Joe: “We are 41 and 34, and we live in Missouri. We have two young children. Love your show, and I’ve been listening for, three years. I listen while our mini golden doodle, early in the morning or driving to work. Drink of choice is nice black coffee, but I’ve been drinking ginger tea.” Turm-
Al: Turmeric.
Joe: Turmeric tea.
Al: You ever had that?
Joe: No.
Al: You don’t even know what it is, do you?
Joe: Nope. Nope. “With honey a lot recently. we drive a 2013 Toyota Camry and a 2015 Honda Accord. everything else, when we will buy a new car?” 2013 Toyota Camry. That thing will go for another 20 years
Al: It could, yeah
Joe: Honda Accord
Al: Another one.
Could go forever
Joe: Could go for 40 years “Our combined income is $600,000 annual- annually.” Wow. “Our income only went up dramatically in the last few years, but should remain high. Not sure when we will retire, but I’d like the option at least at age 55. I suppose a good estimate of our annual spending is $250,000.
Here’s the numbers. We got pre-tax of 650, Roth IRAs of-
Al: Call it 370
Joe: … 370. Taxable accounts,
Al: Call it 250 …
Joe: 250. We got 529 plans of 120. Home value is 1.5, outstanding mortgage is 1.1 Estimated Social Security is $100,000 annually at 70 years old. We both max out our 403accounts, with the company match currently about $30,000 annually.
We max out our HSAs, both of our backdoor Roth IRAs in my non-government 457. We have saved $50,000 into our taxable brokerage account last year, and will continue to do so. This has approximately $170,000 saved for retirement. We also put $24,000 total in 529. Here’s my questions. God, that’s a lot of savings.
Al: That’s tons. In fact, when I add everything together, I get 191.
Joe: So they’re saving $200,000.
Al: Yeah, or close to it, yeah.
Joe: All right. Okay. I think we’re on track. Do you think we are saving too much?
Al: We’ll find out.
Joe: I don’t know. I realize it’s a nice problem to have, but I don’t think, But I have…
Al: I think it’s a nice problem to have.
Joe: Nice problem to have. But I do think- we might
Al: … we might be saving too much.
Joe: Got it. All right. we are in the 35% tax bracket. We decided to make the switch to Roth for all of our 403s. Do you think that was a smart move? It still allows for $30,000 pre-tax from my employer in my 457. If we’re putting too much into our taxable account, does that make sense to divert some and to pay for Roth now?
Should we cut back on our 529 savings? I worry we are saving too much. No, I never caught that, with all these questions.
Al: Just to be clear.
Joe: Just to be clear. All right. But also, I do not want my kids to have any student loans. I’m hoping they will go to a graduate or professional school, but, that’s not guaranteed.
Would you pay off the house faster? We have an ARM at a rate of 5.375. The effective rate is 4.5 when considering the mortgage interest deduction according to ChatGPT. Thanks for the spitball. Love the show. Keep up the excellent work. I hope Andi is recovering well. Archie and Veronica.
Al: Okay. A lot of questions there.
Well, let me do some math
Joe: All right
Al: and let me just say right off the bat, Joe, when you’re spending 250, that’s a, you need a lot of money with, in future dollars- to cover that. Okay, so they’ve got about 1,000,250-ish to start. I did 6%, which I know I’m conservative. You could use a higher rate of return, but I used 6%.
14 years from now, I just said retire 55, just to give a, number. 191,000, that’s what I got in savings. That’s, three, that’s a $6.8 million nest egg, which is amazing at a- at age 55. at least-
Joe: Call it 7 million?
Al: At least for Archie. Yep, call it 7 million. Now, here’s the problem. If you’re s- if you wanna spend 250 in today’s dollars, I’m gonna use a 3% inflation rate for 14 years.
I get 378,000 spend.
Joe: And they’re $100,000 short.
Al: All right. Yeah, so I get a 5.6% distribution rate, which at 55 is too high. And it’s, just, a simple relationship between spending and saving. So you would think, Joe, at 6.8 million, you could do whatever you want, but there are limits on what you can spend.
We, we look at age 55, maybe a 3% distribution rate, maybe three and a half if we’re generous.
Joe: ‘Cause you got a fif- well, they got a 15%, I mean 15-year bridge.
Al: They do.
Joe: So you look at is- It’s all about what happens to the market over those 15 years.
Al: Yeah, I agree. Yeah.
Joe: So you have $7 million at age 55 with the amount of savings that you’re currently doing now.
Did you add the… You, took out the 529 plans, right?
Al: I didn’t include that.
Joe: Yeah, okay. Correct. So that’s just in retirement accounts.
Al: That, yeah.
Joe: In, in brokerage account.
Al: Yeah. that’s the other. H- Actually, on our sheet, it’s not HSA. It’s 529.
Joe: Okay.
Al: yeah. So now I ran it to age 60 just to see, given the same numbers, and-
Joe: Well, hold on.
Let’s just say they, they wanna retire at 55. Okay. $7 million. They can spend $210,000, but you have to revert that back. That’s the future value. What, you used a 3%? I,
Al: I used 3.
Joe: Okay. And then how many years is that?
Al: 14.
Joe: 14 years?
Al: Yeah.
Joe: So that is $140,000 in today’s dollars.
Al: Yeah. And I was more generous. I gave them a 3.5% distribution rate.
I get 238 in current, in future dollars, 157 in current. So we’re… Yeah, 150-ish in current dollars is what they spend.
Joe: So you wanna spend 250.
Al: you’re 100,000 too.
Joe: You’re 100,000 short- either way you slice this.
Al: Yeah. And now if they work till 60, then it’s about a, it’s a little over 4% distribution rate.
Now you’re a lot closer. Because it, it’s still just a gap period-
Joe: Right …
Al: between then and 60. Because
Joe: you’re gonna receive $100,000 in- Social Security.
Now- That would cover, if they work till 60, spending that $250 today, I think- Yeah … they can do it. 55 is gonna be a little bit rich, but if they both get part-time jobs at $50,000 a piece- Yeah
that would cover the $100,000 gap.
Al: It would, and then you’d stop working at 60, and I think that works.
Joe: Yeah. There’s a lot of ways, a lot of leverage that you can pull here. But- If, they g- l- let’s just say they got 8%-
Al: Yep …
Joe: I think they’d be fine.
Al: They’d be cl- be a lot closer.
Joe: I would not stop the savings. I don’t think- Oh
they’re saving too much.
Al: I don’t either. And, it’s based upon their goals. Now, if she said, “We’re only spending 90-” $50,000 a year … $98,000 a year, I’d say, “Okay, good. you can ratchet that down a little bit.”
Joe: Yeah. B- because it’s the time value of money. You’re 34 and 41. You’re still very young, and you make- a huge income.
You don’t know how long that income is gonna be there.
Al: That’s Right?
Joe: Someone- maybe you were like, “All right. Well, here. I can’t stand my job anymore.” In five years you’d get out of it at-
Al: Yeah, at 45, and then you, go somewhere else that’s gonna make significantly less.
Joe: Take advantage of the $600,000 annually that is coming into the door. over the next 10 years, that’s gonna be $6 million of cashflow, assuming no other raises. $6 million coming in. Of course, you gotta pay tax on that, and you gotta live and you gotta spend, but there’s a lot of resources there- that you could d- then make work optional- probably a lot sooner than age 55, depending, of course, on what the market does and how you invest it and how your strategies work out. But, as a spitball back in the envelope, I don’t think you’re saving too much. I think you’re saving just enough given the fact that you wanna spend $250,000 a year.
Al: That’s right. Now, if they wanna work till 65 and spend less, then yeah, you don’t have to save near that much. It, so it’s just that, just basic formula. so yeah, they’re not… I, agree. That they’re not saving too much. should they switch to all Roth for the 403? I’m gonna say no, and you’re gonna say yes.
Joe: I would, yeah, all day I would do Roth.
Al: Not me at a 35% bracket. That’s too rich for me. but, ’cause I mean, their spend is 250. They’re gonna be in a 24% bracket as we know brackets today, right? Yeah. E- even with inflation, they’ll be in the 24% bracket, so that’s why I would say no. But yeah, either way, you and I are split on that one.
Should we cut back our 529 savings? What do you think?
Joe: They’re at one- 20
Al: … too many. the kids are young. It’s probably gonna at least double by the time they get to college.
Joe: How old are the kids?
Al: They just said, “We have two young children.”
Joe: All right.
Al: So,
Joe: But they wanna go to grad school, professional school.
I don’t know. I, would continue to save into the 529 plans for maybe a couple of more years and then pivot, just to kinda see-
Al: Yeah. Y- and plus y- every year you know a little bit more about your kid and whether the likelihood of them being a doctor or going to trade school.
Joe: Yep.
Al: Yep. let’s see.
Would you pay off the house faster?
Joe: I would not.
Al: You wouldn’t?
Joe: Yeah. I’m, If I got a larger bonus or something like that- Yeah … maybe.
Al: I’m okay with throwing a few extra dollars, e- especially if you wanna retire sooner. But yeah, I wouldn’t go bonkers on that.
Joe: Would, you take the money that you’re putting in the taxable account and put it towards the mortgage?
Al: Not necessarily. I, I, when I, w- at least this is what I’ve done in my past, when I’ve paid off extra on the mortgage, I made sure I was saving everywhere else, too. That’s why you called me. That’s why you say I had a big wallet, ’cause I was doing all of the above. But no, it was really just a balance between, just making sure I was saving enough in the right categories, and then if there’s extra, then-
Joe: Throw it against the mortgage?
Al: Yeah. And I kinda like that because especially as g- as you get closer to retirement, you kinda would like to be debt-free, or at least close to it, if you can
Joe: Yeah. They’re in a great spot
Al: No, they’re in a fantastic spot. Yeah.
Joe: I could- I mean, these are interesting problems to have. I don’t know if I’d call them problems.
Al: they’re not problems at all. It’s just a matter of the relationship between spend and assets.
That’s really what it comes down to.
Joe: All right. Okay. Cool.
Andi: So was that too repetitive for you, Joe? I thought those were three very different questions.
Joe: Little bit the same.
Andi: Okay.
Al: I loved it, Andi. I like the themes.
Outro: Next Week on the YMYW Podcast
Andi: Next week on Your Money, Your Wealth®, Jeffrey, Kevin, Tim and Jill, and Rocky and Adrian are all trying to figure out how to make their money last, from building a monthly paycheck out of an IRA to whether Roth conversions still make sense in your late 60s. Join us for episode 600 next week and find out. And hey, do us a solid: leave us an honest rating and review on Apple Podcasts. It helps us reach more people like you, and it helps them to find a finance show that doesn’t sound like a boring tax seminar. Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this podcast and does not represent that the securities or services discussed are suitable for any investor. As rules and regulations change, podcast content may become outdated. Investors are advised not to rely on any information contained in the podcast in the process of making a full and informed investment decision.
_______
Listen to the YMYW podcast:
Amazon Music
AntennaPod
Anytime Player
Apple Podcasts
Audible
Castbox
Castro
Curiocaster
Fountain
Goodpods
iHeartRadio
iVoox
Luminary
Overcast
Player FM
Pocket Casts
Podbean
Podcast Addict
Podcast Index
Podcast Guru
Podcast Republic
Podchaser
Podfriend
PodHero
podStation
Podverse
Podvine
Radio Public
Rephonic
Sonnet
Spotify
Subscribe on Android
Subscribe by Email
RSS feed
YouTube Music
IMPORTANT DISCLOSURES:
Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this podcast and does not represent that the securities or services discussed are suitable for any investor. As rules and regulations change, podcast content may become outdated. Investors are advised not to rely on any information contained in the podcast in the process of making a full and informed investment decision.
• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor.
• Pure Financial Advisors LLC does not offer tax or legal advice. Consult with your tax advisor or attorney regarding specific situations.
• Opinions expressed are not intended as investment advice or to predict future performance.
• Past performance does not guarantee future results.
• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. As rules and regulations change, content may become outdated.
• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.
CFP® – The CERTIFIED FINANCIAL PLANNER® certification is by the CFP Board of Standards, Inc. To attain the right to use the CFP® mark, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. 30 hours of continuing education is required every 2 years to maintain the certification.
AIF® – Accredited Investment Fiduciary designation is administered by the Center for Fiduciary Studies fi360. To receive the AIF Designation, an individual must meet prerequisite criteria, complete a training program, and pass a comprehensive examination. Six hours of continuing education is required annually to maintain the designation.
CPA – Certified Public Accountant is a license set by the American Institute of Certified Public Accountants and administered by the National Association of State Boards of Accountancy. Eligibility to sit for the Uniform CPA Exam is determined by individual State Boards of Accountancy. Typically, the requirement is a U.S. bachelor’s degree which includes a minimum number of qualifying credit hours in accounting and business administration with an additional one-year study. All CPA candidates must pass the Uniform CPA Examination to qualify for a CPA certificate and license (i.e., permit to practice) to practice public accounting. CPAs are required to take continuing education courses to renew their license, and most states require CPAs to complete an ethics course during every renewal period.
