04.07.26 Ask An Advisor With Wes Moss

Young Investors Are Taking Big Risks & Costly Pension Mistake Are you feeling financially behind? You aren’t alone. Wes Moss reveals that a staggering 73% of Americans feel like they are losing the financial race — and why the "solution" many are turning to is actually a dangerous trap. Wes explains how to leverage your greatest asset to build real, lasting wealth through patient accumulation. Also, Wes tackles the "Pot of Gold" syndrome that haunts retirees. A study from MetLife shows that one in five Americans who receive a pension lump sum run out of that money in an average of just four years. Learn how to protect your future by turning a one-time lump sum into a permanent stream of financial freedom. Mentioned on the show: How To Turn Part of Your Nest Egg Into a Pension Plus, Christa shares your #AskWes questions and Wes gives his take. All this and more on the April 7, 2026, 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. Let us know what you think in the comments! Learn more about Wes: BOOKS BY WES MOSS Wes Moss, CFP® Wes Moss - Clark.com Learn more about your ad choices. Visit megaphone.fm/adchoices

• 0:00Speaker 00

  LinkedIn is pretty amazing at helping you grow your small business. We cannot stop your new clients from emailing you at 3 a.m. We can help you sell, market, and hire in one place. We cannot help you be in three places at once. And while we can't help you organize your calendar, LinkedIn can help you land more clients so you have a calendar to organize. Grow your small business on LinkedIn. Learn more at LinkedIn.com/smallbusiness.

• 0:31Speaker 01

  Score the best gifts at Dick's Sporting Goods. Find picks that you'll love from FP Movement, Kaliya, Ugg, and Hydro Jug. Check off his list with must-haves from Nike, TaylorMade, On, and Turtle Box. And finish the kids' wish list with trending picks like trading cards and squishies, plus favorites from Adidas and Baseball Lifestyle 101. Shop on Dick's.com and in the Dick's app.

• 1:00Speaker 02

  Welcome to Ask an Advisor. I'm Krista DeBias with Wes Moss, our advisor here at the Clark Howard Show. And we're going to take your questions today about investing, saving for retirement, all sorts of things.

• 1:13Speaker 03

  All sorts of things. Hello, Krista.

• 1:16Speaker 02

  It's great to be with you today again, Wes. And I hope that if you like the show, you'll subscribe and share it with a friend. It really helps us out if you give us a review on Apple Podcasts, too. And today, Wes, you're going to talk about a couple of really important things. First, some alarming numbers in terms of people feel like they're behind in their investments. There's just that constant feeling like you don't have enough. And maybe they're making some choices in speculative or things that are risky.

• 1:42Speaker 03

  You know, I think about March Madness and April Madness and basketball season. And I think that a lot of America feels like they're way behind. And they feel like they're in the fourth quarter and they're just throwing up threes. They're just hail marrying, hey, maybe we'll hit these. We're taking big bets. So they're getting speculative. And I think it's obviously, we have the numbers behind that and it's an alarming trend.

• 2:04Speaker 02

  And then you're going to talk about pensions. There's always the debate, should I take a lump sum? Should I take the payments in annuity payments? And I'll just say this, you mentioned to us in the room, what you're going to talk about here, and we all gasped.

• 2:19Speaker 03

  A new study shows one out of five folks who take the lump sum from the pension conversation versus the payments, runs out of the money completely in about four and a half years.

• 2:30Speaker 02

  I remember once Clark was talking to an NFL football team. They asked him to come, talk to them about their finances. And, you know, we were all joking around in the room when he was starting. And he said, did you know that within two years of being out of the NFL, 80% of players are bankrupt?

• 2:47Speaker 03

  That's a staggering statistic.

• 2:49Speaker 02

  It quieted the room and I felt like that from this pension. So eager to hear what's behind that.

• 2:55Speaker 03

  I didn't mean to quiet the room.

• 2:56Speaker 02

  It's okay.

• 2:57Speaker 03

  It's, but it is a serious topic.

• 2:59Speaker 02

  It means it's important if you have a pension, if you're lucky enough to have a pension.

• 3:02Speaker 03

  Well, let's start with this top, this idea that, and the way I look at this, it's not just younger investors, but this skews more. The younger you are in America, the more you feel as though you have to go for broke. And I think about any game, whether it's basketball or football, and you feel behind and you are behind and the score and the clock is running down, you do get a little desperate. And that's when you see Hail Mary passes. That's when you see basketball teams shooting threes and threes and threes, which are low probability, but they can work. A Hail Mary is a super low probability, but it, it can work.

• 3:40Speaker 02

  Doug Flutie, Boston College.

• 3:41Speaker 03

  And that is your alma mater.

• 3:44Speaker 02

  It is.

• 3:44Speaker 03

  You're the most famous Hail Mary of all time. Doesn't mean you're speculative though.

• 3:48Speaker 02

  No.

• 3:48Speaker 03

  So that's the, the scenario that we're seeing right now. And this was a study by Northwestern Mutual, that these are the percentage of the US population that feels as though they're financially behind. And they think that high risk speculative investments are going to help them reach their financial goals. What do I mean by speculative investments? And this, by the way, it's 73% of adults feel this way. It's 51% of boomers.

• 4:15Speaker 03

  It's 66% of Gen Z, 75% of millennials and 80% of Gen Z. So the younger we get, the more people feel like they're behind and they feel as though they need to invest in things like cryptocurrencies, options, meme stocks, sports betting, prediction markets, which are all very accessible today. 10 years ago, I would say that none of these areas were really all that accessible. You could do options, but it's much easier today to do options. There really were no, to some extent, there were a few meme stocks. That's much more prevalent today. And then sports betting and prediction markets are still very new and they're very, very accessible.

• 4:56Speaker 02

  Oh, too accessible.

• 4:57Speaker 03

  And younger folks, if you ask a eighth grader to name five stocks or five sports betting apps, they're going to name, probably give you six sports betting apps and they may only have three stocks that they know about. So that is the world that we live in. So it skews younger, but it's really across population demographics. The biggest category is cryptocurrency, but meme stocks, options, sports betting, it's still a really high percentage. For Gen Z, 32%, a third of all Gen Z feels as though that could help them catch up financially. 24% of all millennials feel it can help them catch up, et cetera. So that's the issue that we face today.

• 5:40Speaker 03

  If you go to the whole population, about half of America seems as though they have, they're on financial footing, but, but the younger we get, the more nervous people get and the more they feel that they are behind. Now of that group, among Americans with a financial advisor, which really means they're doing planning. So if they're doing planning and they're putting these down on paper, whether it's using an application or using an app or doing something online or really pen to paper. 71% feel like they're financially secure. So there is a lift for people who are intentional. I would suspect a lot of our folks listening today are more in that camp.

• 6:23Speaker 03

  If you're listening to financial podcasts, then you probably have planning and investment thought on, on your mind, and that really, really helps and it helps people make better decisions. And of the folks that are drawn to these speculative assets, the reason they're drawn to that, some of it's for fun. And if you ask younger folks why they're doing sports betting, they'll say, well, it makes the games more interesting. I've got three different bets going and I really am pulling for these two teams and I normally wouldn't pull for those two teams. And that's, that's the draw for a lot of folks when it comes to sports betting.

• 7:01Speaker 03

  But 73% of all the folks that do it, say they're doing it because they feel financially behind. So here's my solution for this. When you're in your twenties and your thirties, you may feel like you're behind because you look around and you see on social media that someone is taking a vacation and they're young and you say, well, I can't take a vacation, so I must be behind. So the world messages to us that we're behind. It's not true. We're not behind. If you're in your thirties, you have three decades of investing. If you're in your twenties, you have four decades of investing. And people make money over time and build real wealth through long-term patient accumulation,

• 7:46Speaker 03

  not speculative home run investments that just happen to work out. So it's really lottery approach versus the much more secure marathon approach. Lottery can work, but again, it's one in millions. Speculative assets can work, but it's one in hundreds or one in thousands that really, really pay off and make a difference for your retirement. So why go for a one in a 10,000 chance when you really have a, in my opinion, you have almost a 100% chance to get to financial freedom. If you recognize that there's not a minute left in the game and you recognize that really

• 8:29Speaker 03

  it's just the beginning of the first quarter and you've got four more quarters to go. That way you're not throwing up threes from the very beginning. You can take layup after layup after layup, high probability investing. That really is patience over time. And that's my message today here. If you feel like you're behind, just do a reality check. There's not 10 seconds left in the game. There's a lot of quarters left in the game.

• 8:56Speaker 02

  All right, we'll go to some questions that came in for you, Wes. This one was from Mary in Texas. She says, I have a fixed three-year $200,000 annuity that will mature soon. I don't plan to renew it. I do not need the cash at this time and do not wish to invest it in my rollover IRA or in the stock market. Can you recommend another investment option?

• 9:17Speaker 03

  Mary, this is really an investment question, it sounds like, but it's also a little bit of a tax question. My sense from your question is that that 200K in an annuity is already in an IRA. Or else she wouldn't, Mary wouldn't be asking, could she roll it to an IRA? If it was outside of an IRA, you couldn't just roll 200 grand into an IRA. So I would suspect it's already there. So really you shouldn't have to be worrying about tax consequences because again, IRAs are like crock pots. Everything's staying in. You can change the investments, the ingredients can mix and it's still fine. It's only when Mary pulls money out that she has to worry about taxes and the age, because annuities have an age scenario that you have to look at too.

• 10:01Speaker 03

  So really to me, Mary, you're, you're asking more of just an investment question. And it sounds like you don't want to put this money at risk. You don't want to invest it in the market and it's question is really about safety. That seems like you would stick with dry powder, which would mean the simple answer would be a high quality. And I like to use treasury money markets. Money markets are already super high quality, short-term bonds. But I like the treasury money markets that are just 100% short-term US Treasury. So that's your answer. And that's the three and a half to 4% yield right now. That always moves with where the Federal Reserve puts rates, but you can still get a pretty decent rate of interest, Mary,

• 10:46Speaker 03

  and take on, I would say, virtually no risk. Same with short-term bond ETFs. You can do that, too. But really more of an investment question than Mary's asking.

• 10:55Speaker 02

  Bob in Georgia says, can Wes explain how a dividend works? I know he's a huge proponent of dividend investing, but I've always heard that it is unlike getting interest on a savings account, for instance. Basically, when a dividend is issued, then your share price goes down in a corresponding fashion. So you aren't getting something for nothing or some sort of added bonus from the fund. You're paying for your dividend in reduced share price. So what's the difference in getting a dividend or just taking that same amount of money out of your fund instead? If I have this all wrong, please correct me. Thanks.

• 11:29Speaker 03

  Bob in Georgia, I've gotten this more and more, and I think it's a good question and it's a good conversation to continue to have. What Bob is saying is that if you've got a company that has $1 billion sitting in cash and they pay out 100 million in a dividend payment to thousands and thousands of investors, technically, the company has now reduced their value by that same amount. Right? So it stands to reason, well, is the dividend just giving you back your own money? Good question. If you're looking at it from just a purely textbook standpoint or in a vacuum, then there is some validity to that. Now, I will ask you this. You're going to help me answer this question.

• 12:12Speaker 03

  About what is the total rate of return of the stock market? Just in general, give me the number.

• 12:19Speaker 02

  Over how long?

• 12:20Speaker 03

  Just a little 50 years, 100 years, 150 years. What's the US stock market done? Just give me the ballpark.

• 12:26Speaker 02

  8%.

• 12:27Speaker 03

  No, it's more than that.

• 12:28Speaker 02

  10.

• 12:29Speaker 03

  Let's call it 10.

• 12:30Speaker 02

  Okay.

• 12:30Speaker 03

  And if we look at different periods of time, it's more like 11. But but let's just say it's 10%, which is on the low side. Okay? What is the rate of return with the US stock market without dividends?

• 12:44Speaker 02

  Trick question.

• 12:45Speaker 03

  No, not trick question.

• 12:46Speaker 02

  10%.

• 12:47Speaker 03

  No, it's 6%.

• 12:48Speaker 02

  Oh.

• 12:50Speaker 03

  So the United States stock market, the core reason that we all invest is because we're going for 10% over time.

• 12:57Speaker 02

  Okay.

• 12:58Speaker 03

  Right? We're going for that double-digit rate of return. A third of the total return of the US stock market over the last 50, 100, 150 years is because of the dividends getting reinvested.

• 13:12Speaker 02

  Okay.

• 13:13Speaker 03

  So it's impossible to say that dividends don't count when a third, and in some decades, dividends have made up more like 40% of the total return.

• 13:24Speaker 02

  Wow.

• 13:24Speaker 03

  You bring up a chart, and financial websites are not great about this, and usually it's a paid site to do this, but you can look at the price return of almost any stock on any financial website you go to. Not all of them have an extra button that says "total return," and total return is what matters. Remember, T R equals G plus I.

• 13:46Speaker 02

  Yes.

• 13:46Speaker 03

  Total return equals growth plus income. Now, so that to me is just, that is a economic fact. Now, doesn't mean that everybody reinvested their dividends, but if they did, that gets us to the long-term rate of return that we're going after. The other thing it does that's very powerful is it gives companies this great discipline in their returning capital in a steady way to shareholders. It's an easy way for you to systematically get income. It shows financial discipline. Another reason that the way I look at the dividends really do matter, and it's not just your own money, is that most companies that are paying out dividends are doing it in a rising way, meaning that they're always trying to increase the dividend, which means

• 14:30Speaker 03

  they always need to increase profits in order to do that, or they're trying to. So that dividend growth is another sign that companies that lock into or commit to dividends have great financial discipline so that you don't have to sell. And when you go to a, let's call it a situation where you're constantly saying, "Well, I'm going to sell now, and I'm going to sell now, and maybe I'm not going to sell," it actually brings up a lot more guesswork into the long-term equation. So dividends also can help eliminate the guesswork and know that you're going to get delivery of your dividends on a very, very regular basis. So to me, it's a very powerful piece of the equation, not at all that, "Oh, I'm just getting my own money back."

• 15:11Speaker 02

  All right. Christina in Colorado says, my husband and I are in our late 30s and planning to sell our house. We'll likely get about $300,000 from the sale post taxes. We recently bought a house with 20% down and have a sizable mortgage, over twice the amount we're getting from the sale.

• 15:28Speaker 03

  So it's a 600K mortgage?

• 15:29Speaker 02

  Right. Would it be better to buy down our mortgage principal, put the funds in the stock market, or something else? This is the most money we will ever have had at once, and we want to make sure we're smart with it.

• 15:41Speaker 03

  Christina in Colorado. There is no right or wrong. There's no perfect answer here. I can't give you a, this is 100% what you need to do. All I can do is give you a 100% what I would do in this situation. And if I were in my 30s, and I'm very tempted to pay down the mortgage, right? This, I get it. And you'd go, maybe your payment is 30, I'm going to guess 3,800 bucks a month, and it would drop down to 1,900 bucks a month. Only if you recast it, by the way. Just remember, if you just put, if you chunked down half your mortgage, your payment won't go down.

• 16:18Speaker 02

  Right.

• 16:19Speaker 03

  It would be paid off sooner, in this case, probably about a decade sooner. So that's awesome. In your mid 40s, no mortgage, great. If you recast the mortgage, then your payment would drop by about half, which would also be great. So good option one is good. Option two is good. Option three is probably what I would do, and I want the liquidity that I can get to over time. And if I'm thinking about being in my mid 30s, and I've got 300K, this goes back to, there's a lot of time left in the game, Christina. You're not, there's not 30 seconds left. There's like four quarters left. So Rule of 72, that's

• 17:01Speaker 03

  just math that says that money doubles every 10 years at 7.2%. So you go, in seven years, you're at 600. And at 15 plus years, you're at 1.2 million. So 15 to 20 years from now, what I could see, what you'd really feel good about, because you're in your mid 50s, your house, by the way, is getting close to being paid off already anyway. And you've got a million two in after-tax, super valuable, even more so than an IRA or 401k, money for your retirement. Now the world starts to open up the options and optionality if you start to really open up. So you can't really go wrong by paying down the mortgage. I get it.

• 17:45Speaker 03

  But if it were me, IMO, as my kids would say, in my opinion, I would be thinking about, let's double this and then double it again over time. And you end up with, even at a 7% rate of return, 7.2, money doubles in 10 years. So you go from age 30 to 40, and it's now 300 to 600, 40 to 50, 600 is 1.2. Even at a 7.2% rate of return, money doubles over every approximately a decade. That's what I'd be looking to do.

• 18:17Speaker 02

  That sounds great. I like option three. Okay. Good luck, Christina. And when we come back, we are going to talk about lump sum versus annuity when you're lucky enough to have a pension.

• 18:28Speaker 03

  A pot of gold trap.

• 18:31Speaker 00

  LinkedIn is pretty amazing at helping you grow your small business. We cannot make your email response time faster. We can help you sell, market, and hire in one place. We cannot help you find space for your three desk drinks. Why do you have three? And while we can't help you find the perfect volume for your presentation video, LinkedIn can help you find the perfect audience for your business. Grow your small business on LinkedIn. Learn more at LinkedIn.com/smallbusiness.

• 19:01Speaker 01

  Score the best gifts at Dick's Sporting Goods. Find picks she'll love from FP Movement, Kaliya, Ugg, and Hydro Jug. Check off his list with must haves from Nike, TaylorMade, On, and Turtle Box. And finish the kids' wish list with trending picks like trading cards and squishies, plus favorites from Adidas and Baseball Lifestyle 101. Shop on Dick's.com and in the Dick's app.

• 19:26Speaker 04

  Now streaming on Paramount Plus.

• 19:29Speaker 05

  I'm Dexter Morgan. I've been killing killers for half my life. It gets to you. You're having a midlife crisis. I'm not ready for this.

• 19:37Speaker 04

  He's back.

• 19:38Speaker 05

  I'm older, I'm wiser.

• 19:41Speaker 04

  And sharper than ever.

• 19:43Speaker 05

  Things are gonna get messy, but if I can't believe in myself, I can't believe in anything.

• 19:50Speaker 04

  Dexter Resurrection, new season now streaming on the Paramount Plus Premium Plan.

• 19:56Speaker 06

  Host Thanksgiving with industry-leading quality standards from Whole Foods Market. There are no antibiotics in their meat department, ever, so carve up turkey and spiral cut ham with peace of mind. Shop organic sides like stuffing mix and cranberry sauce from 365 brand. And guess what? All their delectable pies are made with no high fructose corn syrup. Gourmet Thanksgiving flavors with the quality you want, only at Whole Foods Market.

• 20:25Speaker 07

  I'm Hannah. I've lost 75 pounds in 20 months with GLP-1s, plus diet and exercise. On Row, I've gone from struggling to run a mile to running farther every day. You can access FDA-approved GLP-1s online. Get the support you need to reach your weight loss goals. Go to row.co/weight to see if you qualify. I'm a paid Row partner. 20% average weight loss in one year in non-diabetics with obesity or overweight with a weight-related medical condition versus 3.1% in placebo arm. RX only. To stay informed about serious side effects, go to row.co/safety.

• 20:56Speaker 03

  Welcome back to Ask an Advisor. I'm Wes Moss here on the Clark Howard Show. Krista DiBiase with me here, ready to ask questions, et cetera. You were shocked by the price versus dividend reinvest?

• 21:11Speaker 02

  I mean, I always, you've talked about dividends the way you have, but yeah, I felt a little stupid that I thought.

• 21:16Speaker 03

  No. If you think about it, just, I think that it does depend on the timeframe and different years and different decades have different contributions of dividends to total return, but it is a very big part of total return and you just can't ignore it. And it's a much lower average rate of return. In fact, I think of it this way. The stock market probably wouldn't be so famous if it hasn't, over time, achieved a double-digit rate of return.

• 21:45Speaker 02

  Oh, yeah.

• 21:46Speaker 03

  That's why we take the pain. If the stock market has averaged averaged 5% over the past 150 years, there wouldn't even be a CNBC. Maybe there wouldn't, but it has the gravity of being such a big part of our economic lives because it is delivered.

• 22:02Speaker 02

  Yes, I feel like I'm probably one of those people you have to deal with because as I get older, I'm just so hesitant to assume anything over 4% or 5% when I'm thinking about my planning for my future that like there could be a long period when I happen to be needing my money where it doesn't get to that 10% average, but hopefully I'm wrong.

• 22:23Speaker 03

  Most of my, my first decade in this investment business was like that.

• 22:28Speaker 02

  Yeah.

• 22:29Speaker 03

  I got into the investment business in the 90s, in the later 90s, and we had a couple boom boom years. And then there was about 11 year stretch where it took the Dow from 10 all the way down, then back to 10, 11,000. That did take almost a decade. So there are lots of stretches that are rough. Dividends matter even more during those stretches. And then they kind of get outshined in the big growth years because they don't compete with a 10, 20% rate of return for a stock. But over time, that steady drip of the faucet is a big part of the equation. Now let's talk about something else.

• 23:07Speaker 02

  I do want to say one thing. You know how Clark has his favorite children, Fidelity, Schwab and Vanguard? I feel like your favorite child is dividend.

• 23:14Speaker 03

  It would be. If I could do it all over again, would I name one of my children dividends, basis points? I don't know. There is a guy that makes fun of private equity I've found online. I don't know if it's YouTube or Instagram, but he has named, he's a fictitious character, or fictional character, and he has named one of his children EBITDA.

• 23:35Speaker 03

  Earnings before interest and taxes, depreciation, et cetera. Anyway, all right, let's talk about the pot of gold trap. This is a study from MetLife. I'm calling this the lump sum trap because from their studies. One out of five Americans run out of the lump sum they took. The very lump sum that's supposed to last forever and pay for the retirement. And they run out of it on average in about four and a half years, which is a remarkable number. Now, in fairness, one, it didn't tell me the average amount of the lump sum, but some of these I know were really big. Some of them, maybe they're not enough to sustain a retirement, but they did have a floor and the minimum amount was 25,000.

• 24:20Speaker 03

  So to me, that may be 25, maybe 500,000, maybe, maybe a million. From the way I read this, it's probably all over the map, but the real meat of this is the alarming fact that one in five folks just run out and they took, they took the pension for flexibility. The second thing I would say, and I would couch the story is that let's remember MetLife is an insurance and annuity company. So remember, if you're talking to the barber and do you need a haircut? These annuity companies want people to take the annuity payout as opposed to the pension. So it's always, when you're reading any of these studies, know where they're coming from. And I wanted to say in full disclosure, it is an annuity company that's kind of advocating to take the annuity payment.

• 25:02Speaker 03

  So with that, it still bears mentioning that the problem, and I have seen this happen in real life too. So it's, this is a real problem. You get a lump sum and you could have said, oh, okay, I'm going to take this payment monthly, a thousand or 2,000 or $3,000 a month. And instead of that, you take the big chunk and you roll it into an IRA. Typically you would roll it in an IRA from a tax perspective, but you run into this pot of gold syndrome. And we've actually had some cool questions about this. I remember a couple of months ago, someone said, I looked up, I didn't really pay attention to my 401k and I didn't really think it was a whole lot of money. And when I retired, I looked at it and was, whoa, it was over a million dollars. So it made me feel like, oh, wow, I have a lot of money now. I can do a lot of things.

• 25:45Speaker 03

  And in an unsuspecting way, I've seen this happen where folks, just because it's a big pot of money, 300 grand all at once, 500, 1 million.

• 25:58Speaker 03

  Situations around the dinner table are, oh honey, we can't afford that too. Oh, we can afford that. We can afford it. And maybe you do some well-intentioned things and pay off a mortgage. And, and again, they're all, there's tax ramifications. So that's usually not a good idea to have an IRA anyway. But hey, the car's 15 years old. We gotta replace it. That we've wanted to renovate the kitchen or the bathroom for 15 years and now we'll do it. We deserved, we have some money. We should go on these trips. And then they end up with a higher overall rate. This is the other thing I say, we're going to follow a conservative withdrawal rate, 4% a year. But they don't want to count like, well, I also took out 50 grand to do this.

• 26:40Speaker 03

  And I also took out 80 grand to do this. Well, that means your withdrawal rate isn't where you want it to be. So it can happen. I've seen it happen. And I know according to the study, the running out of money, because now it's all, it's at your disposal, happens one out of five times. So it's a very real chance that that can happen. Now, I am still an advocate for people taking the lump sum. But if you do that, you really have to think of it not as this pot of gold that you can do what you want, anything you want to do, and think of it as a, an amount that will now create you your own, your own, not the annuity companies, your own lifetime income engine

• 27:23Speaker 03

  that can provide steady paychecks every single month for the rest of your life, as long as you don't overrun and over RPM or rev the engine. Got it. That is the key here. So I'm not anti lump sum at all. I think that it gives you control. It gives you flexibility. It gives you legacy. So you can leave the money to other folks, gives you planning options. And I see many, many happy retirees be able to do this. They take the lump sum. They're smart about how they roll it over. They turn it into a paycheck engine. They have some spending guardrails, Krista. Gives them flexibility and they can use some annuitization as a sliver or a slice if they want to add a predictable income stream. So it's not totally out of the question to do

• 28:08Speaker 03

  that. I think most folks listening here lump sum is usually their better option and I bet you don't run out.

• 28:14Speaker 02

  All right. David in California wrote into you instead of my missing something. I handle financial planning for my family, which includes managing my mother and my mother-in-law's finances. Both women are in their late 80s, live in retirement homes and have caregivers, lots of money going out. I received calls from two financial advisors who currently handle some of our money, one from Schwab and the other from Oppenheimer. They both noted that my relatives have significant cash reserves for living expenses and recommended increasing their stock investments with one suggesting a 60 40 split. I disagreed and expressed that this advice seemed unreasonable and potentially irresponsible. I thought the common guideline

• 28:54Speaker 02

  for a suitable stock to cash allocation was to subtract their age from 100. Am I mistaken or are the brokers not considering their circumstances appropriately?

• 29:05Speaker 03

  David in California, there are a lot of variables here to make the right allocation, to arrive at the right allocation. It sounds like for your mom and your mother-in-law's situation, it sounds like those advisors, maybe they don't know the full picture. Now, what you're saying is that, hey, this should be pretty obvious. My mom is 88 and she's taking money out every month. But at the same time, the old adage, I don't even know if it's an adage, but I have heard it, 100 minus your age in stocks. Let's say you're age 85, that means you'd only have 15% of stocks. That adage, which I had, now it's probably been 15 years since I've heard that.

• 29:51Speaker 03

  I've also remembered John Vogel from Vanguard used to say, own your age in bonds. So if you're 60, own 60%, 70, own 70%. Even he backed away from that, I think at some point. And it's, it's a very antiquated, overly crude rule of thumb that I do not subscribe to at all. So it's not that it's not, it could be right and it's a super conservative way to look at it. But think of it this way, if you're 60, 100 minus 60 equals 40. Does that mean you should go into retirement and only have 40% of bonds? That breaks the 4% rule allocation right there. Mm hmm. Remember, 4% withdrawal rule is predicated on at least 50% in stocks, up to 75%.

• 30:34Speaker 03

  So that immediately is broken if you're following that rule. Now, there's a lot of variables here. And if you're, if mom and mother-in-law are very, don't want to just see any movement and have no tolerance for their accounts going down and you as their manager have no tolerance for it, then that's fine. But it can be appropriate for folks that are in their 80s to have 50, 60% in stocks or even more. Because think of it, this is the one thing a lot of folks are not thinking about. But again, you've got to do the math here. Very often, the investment portfolio for your family or for your parents might have the, the time horizon of the whole family.

• 31:18Speaker 03

  So that mom is not going to run out in her lifetime if she's taking five or 6%. Maybe that's totally doable. And that really, she's not going to use 70 or 80% of this money is not going to get used anyway. So very often, family members will say, really, I'm investing this for me, but also for my kids, for their, and they have a much longer time horizon. So that can increase and make it more appropriate to have 50, 60, 70% in stocks, because you're looking at two timelines. Not just one. So I would just caution you on using that adage. It's super conservative and doesn't mean it's wrong. It's just that it's not necessarily, it's not what I would follow.

• 32:03Speaker 03

  It's directionally correct, but it is mathematically, I'd say overly crude. I think what you need to do, Dave, is just have a much more forthright conversation with those advisors and make sure they understand what's happening with mom and mother-in-law from a time and spending need perspective.

• 32:23Speaker 02

  I would also look at, you know, he said that they're getting care and I understand there are different levels of care. So find out, I would also project what would a much higher level of care cost? So you have an idea of what might it cost if they should need more and more care, full-time, round-the-clock care, because then you have more of an idea of what they're going to need, you know?

• 32:44Speaker 03

  Very much about meeting up the, finding the goal, which is spending with the investments.

• 32:49Speaker 02

  Michelle in Washington says, hello, Clark, Krista and Wes. My husband and I have been listening and following your advice for over 20 years and we've recently retired early, ages 55 and 60, due to the great advice we have followed from all of you. I've heard and read on Clark's website that Clark only recommends two types of annuities. Sorry for saying the A word, but recently I have learned of a different type of annuity and I would love some feedback. It's called MYGA, multi-year guaranteed annuity, and is heralded as the CD of annuities. I've been researching it and other than locking money up for a term like in a CD, I can find no downside. There seem to be no fees associated with the product and it has a guaranteed fixed rate that is much higher than CD rates currently available,

• 33:33Speaker 02

  even with A-rated companies. Can one of you please weigh in? Am I and AI missing some fundamental downside?

• 33:41Speaker 03

  Hey, Michelle in Washington. Yeah, there is something you're missing here is that there's no new magical annuity. There's nothing new. They've been doing the same thing for 10 years, 20 years, 50 years. Maybe this is a new way of thinking about now it's called a, this is just a fixed annuity. That's all it is. But maybe it sounds different because it's called a multi-year guaranteed annuity. There is no comparison between FDIC guarantee and what a company says is guaranteed. So yeah, it's a huge difference. Money in a CD, first of all, it is still liquid. And when you need, if you really need to get money out of a CD before the term,

• 34:24Speaker 03

  you lose three, six months of interest, but the money's still yours. You don't lose money. I think that's actually a misconception. Folks think, oh, I lose money if I take it out. No, no, you lose some of the interest you were promised. But it is FDIC backed and there is no stronger guarantee on planet earth than that. Because the FDIC is backed up by the US Treasury and the US government. And there is nothing like that. On the other hand, when a company says it's guaranteed, the company's just saying, hey, as long as things go real well for us, then we'll, we'll make good on these promises. But what happens if they don't? What happens if something goes wrong? And that does happen. So there is not a guarantee from an annuity company.

• 35:09Speaker 03

  And people also tend to put a bunch of money in one annuity. It's the same thing as putting a whole bunch of money into one corporate bond. Like hopefully the company is able to pay you back. How much more is it per year? I don't know the specifics for you. Is it one, 2% more per year than you get in a CD? Maybe? Is it worth taking that risk of being actually locked up? These multi-year guaranteed annuities, very often, again, not every time, they usually have actual penalties on your money if you do break the lock cycle, which are usually longer than CDs.

• 35:48Speaker 03

  The third thing, Michelle, is that try dealing with an insurance company or an annuity company. These are products and products get sold. And what happens when a product gets sold? The salesperson goes away. There's no more help. So try dealing with a giant annuity company when you have a question or something went wrong, or you want to do something different. That is the nightmare part of this typically. CD, it's usually a bank or a local bank. You should be able to talk to somebody pretty quickly. So you're trading a little bit of a higher percentage yield for dealing with

• 36:33Speaker 03

  an annuity company and taking away what is an actual guarantee for an implied guarantee. And there's a difference there, not to say you shouldn't do it, or it's not appropriate for a part of your money, but to answer your question, they are very different.

• 36:48Speaker 02

  All right. This one's from Billy in Georgia. Hey Wes, I'm 45 years old and hoping to retire at 55. My company provides me with RSUs as part of my annual compensation. They have a current worth of around $300,000, which is about 30% of my total investments, with the other 70% being in other retirement accounts. I max out my Roth 401k and HSA annually. I know my company holds back shares every year to pay taxes when they vest, but I don't understand this in detail. I was thinking of just holding these RSUs until 55 and then using them, similar to a brokerage account, to fund early retirement. What do you think about this strategy? Should I sell them and diversify in a brokerage account somehow?

• 37:32Speaker 02

  I don't want to create a tax bomb now or in the future.

• 37:35Speaker 03

  You don't want to tax tsunami, Billy. Yeah. Billy, we've more and more questions from young folks, 45, wants to retire at 55. He's thinking retire sooner. He's thinking retire sooner, which is what I love to think of. We'll be talking more in the coming months about the retire sooner method, which is a book that I have coming out very soon. Billy, from a compensation and tax perspective, the way these RSUs usually work is that when they vest, the value at your vesting is compensation. So you are paying the taxes as ordinary income. Then you're holding these shares and it moves toward, the next decision is long-term capital gain. You're paying your ordinary income and then let's say you

• 38:20Speaker 03

  hold them for five years, six years, eight years, 10 years, and now they've gone from 150K, which was your base value, or 100K to 300K.

• 38:31Speaker 03

  And now you're really only, your real problem here is a diversification problem. And you've got one company, it's 30% of your total savings, which is arguably way too much. The problem, and lots of people run into this, not just with RSUs, but stocks that do well, can end up being a big percentage. And you don't want to go into retirement and say, okay, I'm going to have this account fund me. And then all, next thing you know, the stock's down 30, 40, 50%. So what I would be doing here is how do you get that to a more manageable level? Now, I don't know the company, but there are no companies that are totally impermeable to their stock price going down.

• 39:15Speaker 03

  So I would say that what you should look to do over the next year is try to get to the 30 or the 300 down to 150. So it's not 30, it's, but it's 15% of the portfolio. Or maybe you take it next year down to 20 and then the next year down to 10. But try to make sure that you stay in the 15% long-term capital gain bracket. That's a little over $600,000 in income and you're still in that bracket. That's married filing jointly. Keep an eye on the net investment income tax, that NIT, which is a 3.8%. That's 250, that's a $250,000 level.

• 39:55Speaker 03

  So think about managing your tax rate by staying under the 250, which would, would hopefully avoid the 3.8. And your taxes should be closer to 15% in order to get that diversification that I think you do, you want that. You'd may, you may not have to do it all at once. That creates, I would say a mini tax tsunami. Do it over the next couple of years and get the diversification down from 30% down to maybe 15 or 10.

• 40:24Speaker 02

  All right. That is going to do it for this episode of Ask an Advisor. If you have a question, yes, please go to Clark.com/ask and indicate if your question is for Wes. And if it's an investment question, it's likely going to go to Wes's long list of questions anyway that we get in. And we really appreciate you listening and watching the show every week. And we're very grateful for all of you who have subscribed and shared an episode with a friend. So thank you so much. Have a great day.

• 40:57Speaker 00

  LinkedIn is pretty amazing at helping you grow your small business. We cannot stop your new clients from emailing you at 3 a.m.

• 41:06Speaker 00

  We can help you sell, market, and hire in one place. We cannot help you be in three places at once. And while we can't help you organize your calendar, LinkedIn can help you land more clients so you have a calendar to organize. Grow your small business on LinkedIn. Learn more at LinkedIn.com/smallbusiness.

• 41:27Speaker 01

  Score the best gifts at Dick's Sporting Goods. Find picks your love from FP Movement, Kaliya, Ugg, and Hydro Jug. Check off his list with must-haves from Nike, Tailor Made, On, and Turtle Box. And finish the kids' wish list with trending picks like trading cards and squishies, plus favorites from Adidas and Baseball Lifestyle 101. Shop on Dick's.com and in the Dick's app.