01.14.25 Ask An Advisor With Wes Moss - 10 Things Investors Should Watch Out For in 2025

What does 2025 hold for investors? On this episode of Ask an Advisor, fee-only fiduciary financial advisor Wes Moss breaks down 10 things investors should watch out for in 2025. Should we worry about tariffs? Will the market be more volatile? Can we expect a bull or bear market? You don’t want to miss these valuable insights and more to help you prepare for the year ahead! 10 Things Investors Should Watch Out For in 2025 Plus, Christa shares your #AskWes questions and Wes gives his take. All this and more on the January 14, 2025, Ask an Advisor episode of the Clark Howard podcast. Submit your questions at clark.com/ask. We hope you enjoy our weekly Ask An Advisor episodes, in which Christa and Wes discuss investing and retirement savings in depth. Let us know what you think in the comments! Learn more about Wes: Wes Moss, CFP® Learn more about your ad choices: megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

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• 1:20Speaker 02

  Welcome to Ask an Advisor, a weekly show where we here at Team Clark go deeper on all things investing. I'm Krista DeBias and I'm here with Wes Moss.

• 1:30Speaker 03

  Hi Krista.

• 1:31Speaker 02

  Hello Wes.

• 1:32Speaker 03

  I'm trying to remember, as I'm looking at the camera, I'm just thinking about Tom Brady the other day, who's been announcing these NFL football games. And he's standing there trying to be a good commentator when he's not talking and he's just like, he's smiling at the camera. Not that I'm Tom Brady.

• 1:47Speaker 02

  I mean, some might say, might compare you to Tom Brady, or the Tom Brady of finance. That's what I would say, for sure. I definitely think so, and so does Clark. Thank you for all the positive feedback we got on last week's show. It's really exciting to see that a lot of people are interested in these great segments that you're doing Wes. So I'm learning something from you every single week. Thank you for answering all these questions too. So what have you got in store for us? This week.

• 2:10Speaker 03

  Well, first of all, I will just say that the questions, they are so good because they're from all over the country. They're so different, all of them. And it's just, I used to do a lot of Q and A. Couple of years ago, and I kind of got away from it to do more up to date what's happening today in the market, the economy. And just doing this has reminded me of just how important it is to get questions from all over the place, from all different situations. Because almost anybody can take a little bit of that and apply it to their own situation. So I actually probably love these questions more than our listeners even love them. So I think it's cool. What I wanted to talk about today, though, as we, here we are, it's January, of course, where are we headed into the new year?

• 2:54Speaker 03

  So I have really, I have 10 things that investors need to really watch out for in 2025. So that's where I wanted to start here. The first is that this theme of resiliency, and again, I think it's important to kind of lay the groundwork of where we're headed. As an investor, I am always thinking about the economy, thinking about how that relates back to investments. And I look at 2024, and it was such a resilient sense of resiliency, I think, in the economy, the stock market. Because we were faced with so many uncertainties. We had the election, which again was an unprecedented election. We had someone drop out a few months prior, going against someone who used to be president, just very uncertain time.

• 3:37Speaker 03

  The whole year, talking about recession, the whole year talking about inflation and was the Fed going to control inflation? And the Fed, how much were they going to lower rates? So there was a whole lot to worry about all of last year. Yet, we ended up with almost 3% GDP growth. Again, lots of resiliency for the economy and the stock market, the S and P 500 up about 25%. So it was a really resilient year. And I see a lot of that carrying into this year, 2025. So that's kind of my first way to think about where we're headed here is that resiliency carrying through 2025. I think the second thing here is that part of that resiliency is that number two on my list is the consumer is king.

• 4:20Speaker 03

  In the United States, if we think about the labor force and we think about the behavior of the US consumer, it's fascinating. Because first of all, we have 160 odd million, 160 million people working in the United States. Americans want jobs and they have jobs. And there's two things about that. Our savings rate is relatively low right now. It's even lower than historical norms. Usually we're saving about 6%. Right now, we're only saving about 4%. That means 96% of what we earn, that 160 million people, it's getting spent. And that's what we saw last year, and I see that continuing into this year. The other thing that's important is we've started to see wages outpace inflation.

• 5:03Speaker 03

  So we had a period of time there where wages were going up much slower. So people were feeling like we were in a recession, even though we weren't. So the consumer is spending. Wages are going up faster than inflation now. That's good. So I think the consumer continues to play a really important role. We all know 70% of the US economy is the US consumer and consumer spending. And I think that continues. That's my thought, and I think it's important to note for this year moving forward. The third part here, and this goes back to the economy, is that productivity is on the rise. It accelerated a couple of years ago. You think about this economy, what propels it? It is how much we can get done in the same amount of hours of work.

• 5:45Speaker 03

  And if we can continue to do more work in the same amount of time, then this economy accelerates. Now, we had a massive acceleration in productivity back when the internet became mainstream. So think about the 1990s, and then we flourished for about 10 years. We had double-digit productivity growth, 2%, 2.5%, 3%. Then for over a decade, we barely had any productivity growth in the United States. It was 1% a year, 1%, 1.1%. So we weren't getting better, faster in this US economy for a very long time. And then about two years ago, that started to change. You could say we're more efficient today because we're work from home. That's more prominent.

• 6:27Speaker 03

  You can call it the advent of artificial intelligence, making everything a little faster and more efficient. And for the last two years, we've seen two, two and a half percent productivity growth. Now, that may not sound like a whole lot, but that's more than double what we were running for over a decade. More productivity, better shot for the US economy to continue to accelerate. If we can do that, that's a really big deal for the market, the economy, and for investors. The next one where I'm looking at in 2025, I think about Washington as kind of an unlikely ally with the market. And think about last year, we had an election, there was lots of uncertainty around it. People are always worried about, well, what comes next? If the incumbent wins, what happens?

• 7:11Speaker 03

  If the incumbent loses, what happens? So there's all this uncertainty. But if you look back at the presidential cycle, so we've got four years, you've got the election year, the inauguration year, where we are today, then you've got the post midterms, and then you've got the fourth year of the cycle. If you go back over the course of history and look at and see how the markets have done during those four years on average, we're in the second best year. So the inaugural year, so election's over, new president, over the course of economic history, it's the second best year for stocks. And part of that might be just that over in each election cycle, the uncertainty goes away. Hey, we know who's going to be in the White House, we know what Congress looks like.

• 7:53Speaker 03

  And on average, that second year of the presidential cycle, we've seen about 11% growth on average for the S and P 500. So again, that's a strong indicator. We've got some historical tailwinds. I think it's a good thing for 2025. Now, with politics, the first question that I've been getting, and I think this is important just to visit here for a minute, in 2025, is the worry about tariffs. Well, if we have tariffs, doesn't that mean we have inflation? And if you think about how that formula works, if it's something now is because of a brand new tariff is 20% more expensive, and it's coming in from another country, then who pays for that? Doesn't that mean we're going to get inflation?

• 8:36Speaker 03

  And that's scary because we were, we had a really rough time with inflation over the last couple of years. But the system doesn't necessarily work that way. What countries can do and companies and other countries can do is they can bear either some of that cost or most of that cost. So they choose to take less profit, lower their prices, knowing the good will come into the United States and then the tariff goes up, makes it more expensive. But because they reduce their cost, not all that much gets passed on to the US consumer. So that remains to be seen, but how I look at it is that there's a lot of bark about tariffs and the whole world's going to be tariffed, every good coming to the United States. That's probably not going to be the case.

• 9:18Speaker 03

  So it's probably not going to be this giant blanket of tariffs, probably more, more specific. So sure, there are going to be new tariffs on Chinese goods, probably, very likely. But we may not see tariffs for everything coming out of the European Union. We may not see tariffs from China, Canada, and Mexico. So I look at the tariff situation as not great for inflation, but maybe not nearly as bad as we thought when it comes to inflation.

• 9:48Speaker 02

  So people rushing out to buy cars and other things because they're so worried about tariffs, probably not the best move, like stockpiling.

• 9:54Speaker 03

  I don't think stockpiling at all because remember, we already have tariffs.

• 9:57Speaker 02

  Right.

• 9:58Speaker 03

  We already have tariffs from countries like China. And I don't think we need to run out and stockpile prior to tariffs because I think they're going to be a little more benign, a little more bark than really bite in 2025. And I think it's important to understand.

• 10:12Speaker 02

  Well, that was awesome. That was a lot of great info. And so I know you have five more and we'll get to those later.

• 10:17Speaker 03

  We'll do five more later.

• 10:17Speaker 02

  Awesome. Okay, so I have some questions for you. Here's the first one. This came in from Chuck in Georgia. I'm considering going from a portfolio of 100% stocks to a 6040 portfolio. Should I do it today? I'm 68 and started retirement this month. I know nothing about bonds. My TIAA Cruff has many bond funds from which to choose. I hear many speak of the timing of such a move, or is it better to say, is it time for the move? Any guidance on transitioning to a mixed portfolio would be much appreciated.

• 10:49Speaker 03

  So this is Chuck from my home state. So hi Chuck, I appreciate the question. My thought here is, there's a couple of things. One, For those who are not part of TIAA Craft or TIAA Craft, there's two parts of what is essentially a retirement plan with a bunch of different options for Chuck and people that have been teachers or different organizations and companies will use TIAA and Craft, they're combined. The TIAA side is, TIAA I think originally stood for Teachers Insurance Annuity Association. So that's technically the annuity side. That's the insurance side. The Craft side, I think of that, and that stands for something like college fund, college

• 11:34Speaker 03

  fund, something. I've called it Craft for 20 years.

• 11:37Speaker 02

  Yeah, I've never heard what it stands for, honestly.

• 11:39Speaker 03

  And I think of that a lot more like a 401K. And the Craft side has all these options like you would in a 401K, all these different sub-accounts, much like mutual funds, that you can look at, stock funds, bond funds, international funds, small cap funds. So there's lots to choose from. So if you're a super conservative investor, I see people that'll stick with the TIAA side, which is the kind of the fixed account, a quote guarantee, you know, it's guarantees from TIAA, it's not US government, but it's the fixed, more conservative part, and you can typically annuitize those and choose to annuitize if you would like. But there's some more restrictions on that, too, time-wise. So it's not as liquid.

• 12:21Speaker 03

  It sounds like Chuck's using the Craft side, so a lot like a 401K. He's 68, you said, and he's been in 100% stock. So I think, let me answer this simply right out of the gate. It's never too late, or never too soon, both probably apply, to have your allocation be appropriately matched to you.

• 12:44Speaker 02

  Right, to your age and your situation.

• 12:46Speaker 03

  So if you're 68, you're headed into retirement, and you're thinking, wait a minute, I would like to have some balance. I would rather have only 60% in equities as I head into retirement. I want a slightly more conservative, or maybe a fair amount more conservative portfolio. The time is now to do it. You don't have to do it over time. You don't have to scale it back. Particularly, we've had such good stock market returns that the market's been great. And you've been in 100% stocks. It kind of even adds a tailwind to just doing this. I'm not saying Chuck, you've got to do it today, but I'd say over the course of the next week or so, or this month, I would go ahead and do it all at once. The other cool thing about craft is they have life cycle funds. They're a lot like target funds.

• 13:31Speaker 03

  And that can almost do that work for you. So sure, he can go in and Chuck, you can go in and use and choose a bunch of different funds, or you can just use the life cycle options. And I want to say for the life cycle options, if the year of your retirement, remember, these are like target date funds. So, and if you say, I'm going to retire in 2035, the portfolio slowly gets more conservative until 2035. And then it gets, by the time you reach your retirement year that you've chosen, it gets to be about 50% stock and about 45% bonds. And then there's 5% real estate. So if he's looking at, I want to say the 2030 option, which would be retirement five years from now,

• 14:15Speaker 03

  that's already in about a 60% stock. It's 55 stock, 5% real estate and 40% in bonds. By the time he does retire in five years, then it's a fully balanced, it's an almost 50% stock bond portfolio. But the cool thing about the life cycle funds is they do that for you. They slowly migrate to be a little more conservative over time. But if I'm Chuck and I'm feeling like I should have a better balance and I would, I would be doing this much sooner than later.

• 14:44Speaker 02

  Yeah, sounds like a great way to go. Jonathan in Texas wrote in and said, I have a 529 college savings account for my son, who decided not to go to college and is now working. I'd like to roll it over into a retirement account. Any advice on how to do this would be appreciated.

• 14:59Speaker 03

  All right. So Jonathan, I think there's a lot of good news in this question. One, his kid is now working and either doesn't need all the money or maybe didn't need any of the savings. That's okay. And maybe 10 years ago, this is a little more of a problem, but there was a new law last year that helps out with this. So there's a new law that says if you don't use your 529 money, you've got some options. So as long as you've had the 529 for 15 years and the contributions have been in there for five years. He can now open up, or son can open up a Roth account and he can do a tax-free rollover

• 15:39Speaker 03

  into that. Now, there's a catch on it is the maximum you can do is 35,000. So, he can take, let's say there's 50,000, let's hypothetically, he's $50,000 in the 529 of unused money. Jonathan can take that, not all at once. You can only do the amount you're allowed to do for a Roth in any given year. This year, 2025, now it's 7,000 if you're under 50. So, your son, you could essentially have 7,000 a year go into his Roth, Roth for his son. So, over the course of five years, that's all 35,000 and now it's his Roth, it's tax-free, it's, it's an awesome solution. Beyond that, Krista, let's say you have 50,000

• 16:21Speaker 03

  in a 529. The 15,000, you can always transfer it to another beneficiary to be used. It can be used for apprenticeship or a trade school. But if you just want to take it out, you're going to pay a 10% penalty and taxes, but only on the gain. So, there's 15,000 in there and 10 of it is gain and the tax dependent is only on the gain part. So, even that's not the end of the world.

• 16:46Speaker 02

  You could save it for a grandkid maybe as well.

• 16:49Speaker 03

  Right, change the beneficiary to a grandchild.

• 16:51Speaker 02

  Yeah. Diana in Oklahoma wrote in with this question. "I'm wondering about Modern Woodman's Fraternal Financial Company. My employer provided this account and paid in the premiums for me for about 25 years. It's a SEP IRA. The plan says it has, is a 90 FPA flexible premium deferred annuity and has a guaranteed interest rate of 4%. The account has about $150,000. I understand it's not FDIC insured. However, the company's been around since 1883. Question is, do you believe this is a safe place to have retirement funds?"

• 17:29Speaker 03

  So I would have maybe not even believed this question.

• 17:32Speaker 02

  Because of the name.

• 17:33Speaker 03

  Because of the name. Modern Woodman's Fraternal Order of America. The only reason I knew this one is that I worked with a family that inherited some funds. And I remember looking through the paperwork and it was from Modern Woodman.

• 17:48Speaker 02

  Wow.

• 17:49Speaker 03

  Fraternal Order. I'm thinking, what? I've never heard of this. So it's very real and they have been around forever. So it's a great name for a financial institution. Sounds very strong. And it's based in, I think, like Spring Rock or Rock Hill, Illinois. So it's just like strong, strong and strong. The other thought here is that the way these are managed, in my understanding, is that it's back to our question about TIAA. It's insurance annuity. This is really an insurance and annuity product. Now, remember, you can invest money in an insurance product or in a securities product or a stock. But really, your investment in an insurance company or an annuity is, it's insurance.

• 18:30Speaker 03

  It's technically not a security. So you're relying on the company to make good on their promise. So the FPA 90 annuity or the fixed account, paying 4% sounds pretty good. It's pretty good. It also, I like that because it's not a seemingly unsustainable number. Now, if she said, I'm getting 8% fixed guaranteed from XYZ Insurance Company, that'd be a problem.

• 18:57Speaker 02

  Right.

• 18:58Speaker 03

  But interest rates are 4.5% today. So what insurance companies essentially do is they're investing the money in bonds, getting 4.5% and they're paying you 4. The other thing that I think is important, the reason they have separate rating companies for these insurance companies is that they're the ones making the promise. So there has to be an outside rating agency. And Modern Woodman Fraternal Order of America from Spring Rock, Illinois is a really highly rated company. It's an A rated company by AMBASS. So it is, and it has been around for a very long time. Good financial strength. Doesn't seem like they're doing anything tricky with that annuity.

• 19:38Speaker 03

  And if you're looking just to be a conservative investor, then I think it's a good option.

• 19:45Speaker 02

  All right. When we come back, you're going to do your, what is it? Your next five things to watch out for?

• 19:49Speaker 03

  2025.

• 19:50Speaker 02

  This year. Okay.

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  Don't miss huge deals dropping every week. We are back and we're going to hear the next five things that investors should watch out for in 2025.

• 22:15Speaker 03

  So I wanted to go and look through, it's important to understand and get set and ready for 2025, particularly about where's the state of the world and where we headed. So I always like to take a kind of an assessment of what we think is in the offing for the year ahead. So really do it. We're doing 10 things today of what we need to watch out for as investors in 2025. Number six on our list. So we, we talked a little bit about the resiliency of the economy and the market. The consumer is king. We, we just finished up talking about, we talked about productivity and we talked a little bit about how the particular cycle we are in today for, as far as the political cycle or Washington,

• 22:58Speaker 03

  again, another historical tailwind when it comes to stocks. Let's keep going. What else do we need to watch out for in 2025? So the first one is that volatility has been sleeping. And I just want to just remind investors that the stock market is never supposed to be an escalator higher. It's not meant to just slowly go up and we get our nice average 10%. That's 1% a month. It doesn't work that way. To get that great of a rate of return, it comes with a little bit of consternation. It comes with some pain. It's much more like a roller coaster that ultimately over time goes up and that's what makes it hard. So last year, we, we had very little volatility. In the average

• 23:41Speaker 03

  year for the stock market over the course of economic history, has a 16% drawdown, 16 and a half percent, more than 10% correction, not quite a full bear market, but that's the average drawdown over the course of time. Last year, the biggest drawdown we have was only eight and a half percent. And again, we have low volatility years, then we have really volatile years, but last year was a low volatility year and the year before was pretty low volatility too. So I think that it's a good reminder that volatility has kind of been sleeping and that I'm not Necessarily say, and we're going to get to this on what we've had two years of a really strong stock market, but I would not be surprised. And I think investors should be

• 24:23Speaker 03

  prepared to have some hiccups in 2025. And just as a reminder, that's, that's part of the game. The next piece of this has to do with the market. The bull is not that old, meaning that we've had a bull, we had a bull market in 2023. We had another bull market in 2024. If you watch financial television like I do, kind of just always on in the background, or I'm always watching it, I'll see 50 people a day. And I've seen this now for the last month, talking about how it was such a good two years. That means that 2025 can't be a good year in the stock market. And I think that's the wrong way to look at it. We've had tons of stretches that are three, four, five,

• 25:06Speaker 03

  six, seven years in a row where stocks really do well. Now, it's not that we don't have some drawbacks during those periods of time. It's just that just because the market has done well, doesn't mean it can't continue to do well. As you hear people talk about how it's already been good, it can't be good this year. That's not necessarily the case. Momentum is the market's friend very often. I think of the statistics around all time highs. Last year, 2024, we saw 57 new highs in the S and P 500. And I remember after the fifth one, people say, wait a minute, we all time high, we can't have any more of these. And then after the 20th, well, we can't have any more of these. Well, there's a reason you have a good year in the stock market because

• 25:50Speaker 03

  things are going well. The economy's doing well. Company earnings are growing. Well, there's a reason you get to an all time high in a given year. It's because things have to be going pretty well. And we get this flywheel effect and that momentum can continue. So yes, it stands to reason that the market could slow down and not have as good of a year, but it doesn't mean we have to have a bad year. The average bull market lasts for five years. We're only two years in, only about 26 months in. So by historical measures, this particular market run, this bull market just isn't that old. So I think it's important to remember, the next part of this is to look at dividend contribution and investing is pretty simple. We're all kind of after the same thing, which

• 26:35Speaker 03

  is total return. Whether you're, if you're conservative, you want a total return. If you're aggressive, you want total return. You just want your money to grow. And that formula is really simple. It's just growth plus income. You either get some appreciation, the value goes up, or you get some cash flow. You get some rent, you get some dividends, you get interest, and you put those two together, growth and income, and that's your total return. When you look at the S and P 500, the stock market in general, over the course of economic history, call it 100 plus years for the market, that 10% number we hear, and it's really more like 11, that's only 60% of that is from the price of the stock market going up. The other 40% of that, not insignificant at all, is the cash flow that

• 27:19Speaker 03

  gets reinvested from dividends that come from stocks in the S and P 500. Now, over the past decade, we've seen the lowest dividend contribution to returns we've seen in a very long time. It's only been about 12, call it 12 to 13% of the total return. So it's almost as though, I worry sometimes investors kind of stop thinking about them. Ah, dividends don't matter. It's only been 10, 15% of our total return. That doesn't, it's really all about growth. The equation is still growth plus income. I think investors should just not forget, and not every investor needs to think about dividends, but it's a big part of historically how, how stocks have done well, to reinvest those dividends, particularly for retirees who are looking for cash flow. They need to spend their retirement

• 28:04Speaker 03

  money. Retirees often get a lot of comfort of spending the dividends. Hey, I'm not taking my principal because I'm spending the dividends. So I think we could see a reversion to the mean. Markets tend to pendulum, so they have a long-term trend and they get away from it. They typically go back to that. So I would just not forget dividends here in 2025. Now, speaking of getting income, part of a balanced portfolio, we've, we talk about stocks, real estate, commodities, there's all these great categories that we should be looking at. But one of them is fixed income, bonds, safety. And bonds are not there to appreciate a whole lot. They're really there for the income.

• 28:45Speaker 03

  We had a really rough stretch five years ago and back when interest rates were essentially at zero. And the 10-year U.S. Treasury bond only paid 1%. And there was a period of time it was way less than 1%. Bonds are off the bench. That's number nine on my list. Bonds are off the bench. And the reason bonds are off the bench is that yields are back to a much more normal level. So the 10-year Treasury started this year at around four and a half. It was, it's up to almost four and three quarters, meaning that interest rates on the 10-year government bond are paying between four and a half and 5%. There's a saying in the bond world. Yield is destiny, meaning that over the course of five and 10 years,

• 29:29Speaker 03

  you're much more likely to get a total return about where you start with whatever your yield is. So if you're investing in bonds and they're at 1%, good chance over time, you're going to get 1%. Here we are at four and a half to five. So I think bonds are back to much more normal levels. People could wrap their heads around, well, 4% something. It's not one anymore, 5% something. So particularly when we're owning them for steady income and stability when the stock market goes haywire. So bonds are off the bench, and I think that's important to note here in 2025. Now, I have two more, but I think I'm just going to do one. I would put this as number one because it's the most important, but I'll put it number 10 because it's the capstone,

• 30:13Speaker 03

  which is we think about all the emotions that drive the markets. We think about politics and government and elections and then earnings reports. And then we have economics reports and the jobs numbers and it's endless variables. What the housing price, the mortgage rates. What really drives markets, stock markets? What so many of us have in our 401k exposure to the S and P 500 or other funds that have exposure to it? It's not the stock market. It's the companies that make up the stock market. And those companies, we own them only because they are there to make a profit and grow those profits. And that's what's called earnings. We hear a lot about the PE multiple.

• 30:54Speaker 03

  The actual denominator, common denominator of PE is earnings, price over earnings. What are we paying for those earnings? And it's a rough stock market run when earnings are down from year to year or flat from year to year. We're fortunately, and again, this is just where we stand today, and this could change, and all of this could change. But if you look at consensus, and this is from dozens and dozens and dozens of Wall Street firms and research firms and strategy firms that are looking at all the different components of the market, and they're trying to measure, hey, where do we think companies are going to be earnings wise? Are they going to be up 1%, down 5%, up 5%?

• 31:36Speaker 03

  Right now, earnings estimates for this year are up 13% are the estimates from over last year. It doesn't mean the market's going to be up 13%, but it's just a very nice undercurrent to have companies churning out 10% to 15% more in earnings and profits than they did last year. That is the bedrock of the equity markets.

• 31:59Speaker 02

  That's a high. I didn't realize it was that high.

• 32:01Speaker 03

  It's a good outlook.

• 32:02Speaker 02

  Wow.

• 32:03Speaker 03

  Okay, we doing questions? Cue now?

• 32:05Speaker 02

  Yes, yes. Got some more questions for you. Joan in Pennsylvania wrote in with this one. The majority of our retirement is in my husband's name. Should we take some of the money from his Vanguard account to continue fully funding my Roth IRA until I retire? We're concerned that the money in his name would need to be used if he were to require long-term care at some point, leaving me less financially stable. To give you a better picture of the situation, he's 61, I'm 53. He received a lump sum of approximately $500,000 from his employer when he retired. He rolled that money into a Vanguard Life Strategy Moderate Growth Fund. He also has a monthly pension that I will get 75% of when he passes. I will be working for about five to seven more years. I have a rollover IRA.

• 32:49Speaker 02

  Approximately 52,000 and a Roth IRA target retirement fund of around 80,000. I'll get a small pension as a Pennsylvania public school employee and I'm a paraprofessional about 15 years at the time I retire.

• 33:03Speaker 03

  I wish I knew where Joan in Pennsylvania was from.

• 33:06Speaker 02

  You're from Pennsylvania.

• 33:07Speaker 03

  Because I graduated from Pennsylvania public schools.

• 33:10Speaker 02

  I know you did.

• 33:11Speaker 03

  Maybe Joan was probably now I'm too.

• 33:13Speaker 02

  Didn't you grow up on a farm?

• 33:15Speaker 03

  I did. Yeah. Kind of like I would call it a working farm or my dad has lots of chickens, pigs, horses and a couple acres that he has to mow on his 1952 John Deere.

• 33:29Speaker 02

  Wow.

• 33:29Speaker 03

  Tractor, one of those green, old school looking tractors. He still mows the field. He loves it. So let's say for Joan, it's a big age gap. Joe, there's about an eight, nine, I think it's a nine year age gap between the two. And I'm assuming her husband, when she said rolled over, but I believe she probably ended up or lump sum that 99% of the time, that means it went into an IRA, not a after tax brokerage account. So he's got money. This 500,000 is in an individual retirement account. Now he's, he's of the age, he can take it out and there's no penalty to do so. She's young enough. How old is she? Can 53?

• 34:08Speaker 02

  53.

• 34:08Speaker 03

  Yeah. So she would be even too young to use IRA money without a penalty. So there's a big age gap here. But the first thing I would say, Joan, is that that money's in an IRA and anything that comes out is taxable. So anything that comes out of that is you really need, that should be if you need spending money, then it sure can come out of the IRA, but you would, you really wouldn't want to pull money out of the IRA to fund your Roth account. So what I would do instead is think of it this way, because he's already got his retirement savings and you've got a nice pension, even if he passes 75%, then what I would be doing here is really

• 34:48Speaker 03

  trying to defer as much income as I could possibly defer so that she can play some catch up. Think of it, the numbers are pretty big. So the new Roth amounts are 7,000 for 2025 and 8,000 if you're, if you're 50 plus. The maximum 401k contribution, and I would assume Joan has a 403B because she's a teacher, 23,500, it's 31,000 with the catch up because she's 50 plus. So think about this, you've got almost $40,000 a year that a big chunk of that she could defer, have low income because it goes into the 403B, and then another 7,000 into the Roth.

• 35:28Speaker 03

  Now, she may not be able to do that much in savings, but imagine she does that over the next decade until she's 63, it's 10 years of 30 or 40 grand a year in savings. She could have, that's 300 to 400 in savings plus growth, half a million dollars. So she gets to play catch up, and that's how I would do it. I wouldn't be pulling it from his accounts to put into her savings. I would just really try to maximize what she could defer when it comes to her income. And I think that's how she plays catch up. The other thing for Joan is that they could look into long-term care insurance. She's worried about that. Typically, though, by the time you get into your 70s, long-term care insurance is so expensive. Yeah.

• 36:13Speaker 03

  That a lot of times it's not worth it, particularly when you've got some retirement assets and you have a pension. That to me, creating that annual income stream, which is the combination, and this is a trade of happy retirees, I do a bunch of research on. Happy retirees have three plus different sources of income. Here, they're going to have her social, his social, his pension, her accounts paying some sort of cash flow, his accounts make cash flow. So there's a lot of different income streams, and I think that a lot of times can be how you're insuring your healthcare over time as opposed to buying an ultra-expensive policy that a lot of times is just cost prohibitive.

• 36:57Speaker 02

  Great. Okay. John in Connecticut says, "My daughter and son inherited money from a kind old lady when she passed away many years ago. The money was placed in trusts for each of them. They're now past the age of 25 and per the terms of the will, the trusts can be ended and the money turned over to my children. Is there a way to do this without triggering a taxable event? Perhaps we can roll over the money from a trust to an individual brokerage account, I'm not sure. All the money's been in fidelity funds for many years. Neither of my children make a lot of money. They are not in high tax brackets. Perhaps it would be fine to have all the gains taxed now when we close the trust accounts and then open up new brokerage accounts for them with a brand new cost basis." And my daughter is 34, my son is 32. "My daughter and son inherited

• 37:40Speaker 02

  about 50K each in 1995. Some was used for college and some was used by my daughter after she reached age 25. His son's account is worth about $150,000 and the daughter's is worth about 60."

• 37:54Speaker 03

  Okay, so he's really saying that, so I love this email, "A kind old lady." It's like something you see out of, I don't know, a Lifetime movie.

• 38:04Speaker 02

  Yeah.

• 38:04Speaker 03

  "A kind old lady left us funds." There's a couple of things. So back in 1995, it's been a long time. The S and P 500, by the way, is up something like 2,000% since then. So these have obviously grown and they've used some of it. The other thought here is he's saying, "Hey, do I just take the money out, pay the taxes, and then they've got fresh cost bases?" This is very likely a grantor type trust. With a grantor trust, they have the basis of when they inherited the money back in 95. So it's still a pretty low basis, even though they've used some of this. And just for it to get into their brokerage account doesn't mean they need to sell anything, which doesn't mean they need to pay any taxes.

• 38:48Speaker 03

  So there's no reason to just go ahead and do that and everybody gets long-term capital gain and there's a bunch of tax implications. What I would do, because it's again, probably grantor and the basis is from the 90s, is that the money can move into their brokerage accounts. And then particularly because they have lower income right now, they can choose to sell a little bit at a time. And if you're in a lower tax bracket, if you're in the 15% and lower tax bracket, then your long-term capital gain rate is zero. It's zero. Now, you selling a whole bunch of stock in itself can put you up into the 15% tax bracket, but

• 39:31Speaker 03

  150,000 and 60,000, this sounds like money that can kind of supplement their lifestyle. They can just slowly say, well, I really need $10,000 this year. I really need $20,000 this year. And you go through this exercise of looking at your accounts. And this is, there's a tab in everybody's brokerage, whether it's Fidelity, Schwab, Vanguard, that's called unrealized gain-loss. It's my favorite tab.

• 39:57Speaker 02

  Is it?

• 39:57Speaker 03

  It's my favorite tab.

• 39:58Speaker 02

  I've never clicked on that tab.

• 40:00Speaker 03

  Because it shows, first of all, it shows you how much money you've made in any position, or it shows if you're not making money in a position. But it has everything to do with managing your taxes, your long-term capital gain. It's the best tab that nobody ever looks at. So they'll get this new money that they don't need to sell it. They'll have the cost basis from what they originally bought. Let's say there's a basis of $10 for this stock, and now it's worth 50. They have a $40 gain. But maybe there's a few stocks in there that aren't up 2,000%. And guess what? If the basis is relatively flat, if the basis is 10 bucks for a stock and it's trading at 11, then selling that doesn't

• 40:42Speaker 03

  have a whole lot of tax implication. So that unrealized gain-loss tab is a way for you to say, well, I really want to sell something. Let's sell, also looking at the different investments, but you can have a lens to, well, if I sell these two things, then I'm not going to have a whole lot of capital gains. If I sell the biggest winners, then that's when I have the biggest capital gains. So it's essentially the trust to a brokerage account, then they get to manage what they sell over time. From what I can tell here, a lot of that might not even be taxed if they're staying in that lower tax bracket, income wise, which gives them the potential for the 0% long-term capital gain bracket. So that's how I'd be looking at this overall situation.

• 41:26Speaker 02

  Awesome. I'm gonna click on that tab. Okay, Tom in Georgia wrote this. I'm 75 and in good health. My wife is 73 and healthy. Our pension income is $105,000. We have no debt. I'm retired from the air force, so healthcare is negligible. Our investment portfolio is $1 million plus. The question is about life insurance. I currently have two life insurance policies, term life insurance policies. The total value is $350,000. One matures in 2028, the other in 2030. The annual premiums total $2,475. I suggested to my wife that we should cancel and invest the money. It seems like there are lots of insurers offering from

• 42:08Speaker 02

  nine to 15 a month for $10,000, almost enough to get you buried in the VA cemetery.

• 42:14Speaker 03

  The burial insurance. So it's nine bucks a month.

• 42:18Speaker 02

  Nine to $15 a month.

• 42:20Speaker 03

  Nine to $15 a month, right.

• 42:22Speaker 02

  Right.

• 42:23Speaker 03

  For 10 grand in insurance.

• 42:24Speaker 02

  For 10 grand in insurance, almost enough to get you buried in the VA cemetery. She wants me to get a second opinion. How about canceling and investing that money?

• 42:33Speaker 03

  There's a lot of questions there. This is why I love this.

• 42:36Speaker 02

  I like a good husband and wife debate.

• 42:38Speaker 03

  Yeah, it is. She says this, I want to do that. I don't know. Let's wait. Let's see what Krista says. Let's see what Clark says. Let's see what I say. I'll be like the tiebreaker here. There's two questions in there. The first one is really about his term life insurance. And then his second thing he's contemplating with his wife is the burial insurance.

• 43:02Speaker 03

  So they're two totally separate things where they're both life insurance. Burial insurance, really life insurance. You die, you get money. First of all, when you're in your seventies and you've already been paying into term, and he's paying approximately 2,500 bucks a year. Tom, you've been paying into this term policy for a lot of years. I don't know, 10, 20 years. Value, you get $350,000 if you pass away. To stop today makes, it's like the insurance company totally wins. You pay them forever, and this is what you want from insurance, right? You want to pay these people lots of money and never have to use it. But, but now that you're old, that you're in your seventies, then you don't want to give it up now because if something happens to you in three years, five years,

• 43:44Speaker 03

  it's not a whole lot of money to pay for a really big chunk, $350,000. So I wouldn't, I would definitely not stop that anytime soon. Now, you can see these term policies go up in price at some point. Once you hit your, the end of the term, they'll maybe make you an offer to say, hey, you can extend this, but they usually jack up the rate. That's a different story. But for now, if it's still that level term, I wouldn't be giving up $350,000 for 2,500 bucks a year. That to me is a no brainer to keep, at least for now. What's a more interesting of a debate is the question about nine bucks a month for a $10,000 policy. That sounds pretty good.

• 44:27Speaker 03

  Think of it even 15 bucks a month. 15 bucks a month times 12 is 180 bucks a year. You do it for 10 years, you paid in 1,800 bucks and you get, you die, you get 10 grand. That's a pretty good rate of return. The reality here though, is if you do this over 20 years and you're paying in even 15 bucks a month, if you run the math on these, it's actually not a very good rate of return. So it's funny the way they do a monthly amount, which really then just times 12, so it's an annual amount. And it almost seems like, it's like a magic trick of, oh, that seems like a lot of insurance for a little bit of pay. But if you really start to do the math, the rates of return are really not that good. They're like four to 6%, which again, go ahead and just invest the money on your own.

• 45:12Speaker 03

  Don't buy the insurance. That's just the math part of it. Here's the reality of it. These ads are, again, maybe they're legal, they're probably legal, but they're super misleading. If you look up burial, the $10,000 burial policy for somebody who's in their seventies.

• 45:30Speaker 03

  It's like $50 to $75 a month, not per year. And that math actually makes much more sense because you end up paying in over the course of a, call it 10, 15 year period. Well, let's just, let's say it's 70 bucks a month, times 12 is $840. So over the course of 10 years, you're paying 8,400 bucks and the insurance company you pass away. So, so, so that, those numbers start to make a little bit more sense when you really look them up. So I think what those ads are doing a little bit, there's a little bit of a bait and switch. You don't read the fine print. Maybe that's for a 50 year old. Maybe that's how it's 10 bucks a month for $10,000. But then you answer the ad and you say, oh, great. I want to be in insurance. Well, wait a minute.

• 46:15Speaker 03

  Well, you're 75. No, it's going to be 80 bucks a month. It's not, the $9 is for like when you're super young. The other thing is that I would imagine these policies have really high cancellation rates. People will do them. They forget about it. It's nine bucks a month. Do you really keep track of that for 20 years and you pay in and then you, the policy lapses because you stop paying? I think that's the other way that these policies, these insurance companies win. The insurance company always wins.

• 46:43Speaker 02

  True.

• 46:43Speaker 03

  They're the house.

• 46:44Speaker 02

  Yep. They are the house.

• 46:45Speaker 03

  So anytime a deal where it's like, oh, wait, this a little bit of money for a lot of return. It's usually just sounds to you going to be true. It really is. So definitely here, I would say, Tom, particularly for that 10,000, just invest your own money and you'll be better off.

• 47:01Speaker 02

  Okay. Thank you so much, Wes. That does it for us today. Lots of great information. Really appreciate it and appreciate you all listening and watching. Clark will be back tomorrow. Hope the rest of your day is great.

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• 47:29Speaker 05

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