04.08.25 Ask An Advisor With Wes Moss

Should You Shift Investments to Cash? and How To Beat Inflation As investors, we naturally want to protect everything and make everything safe. It’s our human emotion. But fiduciary financial advisor Wes Moss warns us to beware the siren’s song of safety luring you to move to cash. He has three tips to help you ignore the urge. Also, inflation has been wild over the last several years. While inflation is always part of the equation, intense periods of inflation can wreak havoc. Wes shares the secrets to help you beat it. Plus, Christa shares your #AskWes questions and Wes gives his take. All this and more on the April 8, 2025, Ask an Advisor episode of the Clark Howard podcast. Submit your questions: 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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• 1:21Speaker 02

  Welcome back to Ask an Advisor. I'm Krista DeBias here with Wes Moss.

• 1:26Speaker 03

  Hey Krista DeBias.

• 1:27Speaker 02

  Ask an Advisor is where we go deeper on all things investing. We here at Team Clark, I hope to serve you in every way we can with Clark, Monday, Wednesday, Friday, and Wes with us on Tuesdays. And if you have a question for Clark or Wes, you can go to Clark.com/ask.

• 1:44Speaker 03

  And people have questions and they're getting more and more complex. They're getting tougher.

• 1:47Speaker 02

  Feels like we're kind of on a roller coaster right now with the stock market and everything. And today you're going to talk about a couple of things that are affecting us a lot. That and then inflation, right?

• 1:59Speaker 03

  Inflation. We need to talk about inflation. We, I don't think we've done a segment around that. It's always around us and it's scary, but it's necessary. So we'll talk about that too.

• 2:09Speaker 02

  Okay.

• 2:10Speaker 03

  But maybe we just start with the market. I was watching, I didn't watch this whole movie, but for some reason it was on, I don't know if it was Netflix or one of the many subscription video on demand apps on our television. And the movie was Brother, Where Art Thou? Have you ever seen it?

• 2:27Speaker 02

  I have not seen that one.

• 2:28Speaker 03

  I'm not gonna say it's George Clooney's finest role, but he's kind of the main guy in it. And there's this kind of hapless group of, he's part of this kind of hapless group of guys going around. And I don't remember exactly what they're trying to do, but they're walking on this riverbank. And I think I remember this because of the song. It's so powerful in this. And I, I think I had the Brother, Where Art Thou? soundtrack. And this goes back to the song of safety that comes from sirens, as in this alluring song that might lead you astray, just like in the movie Brother, Where Art Thou? All these guys are walking down the riverbank and they, there's these three women kind of, kind of rise out of the water and they sing this magical,

• 3:13Speaker 03

  magically seductive, alluring song. It's like, wait a minute. Wow. And the actual singers, they're not in the movie, but it's Alison Krauss and is a phenomenal singer. And I think Gillian Welch and Emmylou Harris. So they're like the most beautiful country voices of all time. And it's this song and they are sirens. And what happens is these three, call them hapless guys that are on this adventure, ending up down by the riverbank. They end up getting passed out. They wake up confused, dazed and confused. One of their buddies is missing. I think it's Pete, he's gone. And they listen to the song of the sirens, which is kind of, it seems like a good

• 3:53Speaker 03

  idea, but you end up in a bad spot. And I think that's what happens when we go through market turmoil. And there's been a lot of market turmoil in 2025. I mean, you cannot go more than five minutes if you're, if you're watching the news, which I don't always recommend always watching the news. You're going to have heard about tariffs and tariffs and tariffs and the stock market's been reacting like a roller coaster. And there's been some real fear. Created in 2025. We've had a couple of really placid years in the stock markets and really strong gains, not a lot of big pullbacks. But 2025, we've seen that. So what happens is that when we go into these tougher times and they get a little scared and worried about the

• 4:35Speaker 03

  economy, we're worried about the stock market, that siren song of come to safety really starts to be louder and louder. And that song of safety is, hey, just sit this thing out and go into just wait this whole thing out in cash. As investors, we don't always think of it as, well, maybe I'll have some cash. It's really, we naturally go to, I just want to protect everything. I want to just make everything safe because this whole safety thing sounds really good right now. And it's just the human emotion that drives us. And that's why we've seen, and there's been multiple reports throughout the year, and I'm sure this is only going to be exacerbated as the tariff worries kind

• 5:18Speaker 03

  of accelerate, more and more people are taking money out of just regular balance. Yes, they're taking money out of stocks and putting in them to money markets or cash. They're also taking out balanced accounts. So target date funds have been, we've seen money pulled out of even a balanced account and just go to cash. And that feels okay for the really short run. But what happens is when we listen to that song and it says, well, A, the world is scary, go to cash. B, hey, this time is different, is another real theme in that song. And that is what makes every correction characteristically scary, is that the sirens are saying, go to safety. And they're also saying, because this time it's different. And this time it's worse than ever. And this thing is going to

• 6:01Speaker 03

  be harder to come back from. And we just naturally extrapolate to, wait a minute, maybe they're right. Maybe, maybe they're right. So maybe it would feel good to go to cash. And it does feel good to go to cash. The problem is that markets inevitably recover, or they at least have in the past. There's no guarantee of that. But the American economy figures a way out to kind of move forward. And then markets recover. In fact, a lot of the best days in the market, we see biggest gains usually come right around the biggest losses. So it's fear, wait a minute, it's not that bad. And sitting anything out ends up really having our money stagnant and then we don't build wealth. And here's

• 6:43Speaker 03

  how I think we avoid those sirens and avoid that allure to just go to cash and keep everything in safety. One, And I hopefully, I think a lot of our listeners probably have the following. One, if you have some sort of plan, remember your financial plan is not predicated on the market steadily and perfectly going up every year. It's just not. It's part of financial planning is the understanding that markets do go up and down and there is volatility. So if you have a plan, I think it helps you avoid the riverbank here and avoid the song of the sirens. Number two, you're already diversified. If you're listening to this show, you're probably not like a hedge fund that went all in on one specific sector, didn't get all in on a few stocks that were doing really

• 7:27Speaker 03

  well, only to have that unravel so quickly that you see really big losses. So that just simple diversification really goes a long way to helping you avoid that alluring song that ends up putting you into cash, missing out on markets. And then three, I think it's always a good reminder, corrections are really normal. They are a fundamental part of the market. Really without them, you wouldn't have the average 10, 9, 10, 11% rate of return we've seen. There's really no asset that's just a nice, easy guarantee walk in the park to have that big a rate of return. So along with these great returns we see over time, naturally comes some volatility and a little bit of pain.

• 8:11Speaker 03

  Otherwise, everyone would participate. So this time, even though the situation every time is different and the market goes down for a new reason, it's not different fundamentally because markets do eventually recover. So the sirens' job is to shake you out of the market, scare you. And we just have to remember the long term of the market. If you go back to the early part of the 20, the year 2000, right after dot com, the S and P 100 was at 1,400, 1,400. Here we are today around 5,500. That's an incredible, more than double, more than tripling of the market over that period of time with lots of ups and downs.

• 8:55Speaker 03

  So we just remember that and we have to stay, we have to stay patient and participate. And that's how we build wealth. We've got to be able to cover our ears to not listen to that song of safety that's sung by the sirens because they're there to make sure you don't grow your wealth over time.

• 9:15Speaker 02

  All right. Well, we have some questions and of course you're going to have some related ones with everything going on. This came in from Catherine in North Carolina. Hi Wes, I'm really enjoying Ask Wes Moss. I'm 55 and my husband is 56. I would like to retire this year, but with the recent market downturn, my husband is reluctant to stop working. We're 100% in equities and stock. We should have shifted to a less aggressive portfolio sooner. We had about $2 million in retirement assets earlier this year. We were advised to start shifting about 20% to cash money market. Right now, we only have 41K in cash. My husband can't bring himself to sell stocks at a loss to convert to cash. Therefore, he

• 9:59Speaker 02

  thinks he needs to keep working and wait for the market to recover. Next, I have a pension that I'm eligible to draw on this year with different options. $1,600 per month for life or $3,000 until age 62, then it decreases to $800, or $3,000 until age 65, then it decreases to $250. My pension is not adjusted for inflation. An advisor said we're okay to retire and we could withdraw more than 4% using guardrails. Our living expenses are around $60,000 to $70,000 a year. We would like to spend more time traveling, home improvements, etc. I plan on working part-time, which will bring in about $25,000 to $30,000 a year. I would love to hear your opinion.

• 10:44Speaker 03

  Whoa, Catherine in North Carolina, there's a lot there. A couple of things. So right out of the gate, it makes me think, as I'm kind of taking some notes here as you're reading this through, Krista, Catherine's 55. So you guys are young. You're really young. And it sounds like you're getting to that 2 million number when you're doing some planning. That number works for you guys. And remember, if that works for you, just like we were saying earlier, financial plans are not predicated on a perfect straight line as these assets going up. So a financial plan knows that you're going to have these big gaps. The only catch to that, and this is, I think, what you were trying to accomplish by having some balance, is that you do not, you don't want to go into retirement 100% in equities.

• 11:28Speaker 03

  For this exact reason, because then you get, you almost get beholden, you become kind of a prisoner of how well the market does. I mean, you're trying to plan your life in the next 30 years, 40 years. The market could care less about your plans. So the market says, oh, wow, we're down 20%, or your assets are down from what, 2 million down to 1.8? They could go to 1.7, 1.6, depending on how big of a correction we have. And then now, all of a sudden, you're totally beholden to that, and the market just says, oh, sorry, you were supposed to retire, and now those numbers just don't work anymore. That's why you really do need that balance going in, and that's why having 30% or 40% or even

• 12:12Speaker 03

  50%. Now, you're, I think you're pretty young to have 50% in safety assets. But even having a couple of years' worth of dry powder, and thinking about your spending need of 70,000, you're going to be making 25, so you really only have a need of 50,000. Three years of dry powder is $150,000. So on 2 million, that's only a 7% or 8% weighting towards that. So it's almost as you started to get some balance, this market didn't cooperate. I would lean towards the following. Your husband, I think his instinct is similar to what my instinct would be, which is, hey, we planned on having about 2 million. It's

• 12:53Speaker 03

  not just the number, but also a diversified 2 million, where at least some significant portion of it is in safety. So if I were Catherine, I would probably say, hey, let's just postpone this. Let's keep working, keep saving, and allow the market to recover. You don't want to go right into retirement in the middle of economic turmoil if you haven't already had balance. Balance would have solved for this, but you got caught a little quickly here, or just a little bit too late. So I like the idea of just working a little while. It gives time for the market to recover, save a little bit more, and then I think you're in good shape. If I think about the bigger picture spending numbers... And I did some math here. You've got this low pension amount that goes forever,

• 13:37Speaker 03

  something like $1,650 for the rest of your life. And then you have these tricky options of 3,000 or $3,500 until 62, and then the number goes down, or till 65, and the number goes way down. Really depends on how long you live. If you think about it, if you're only planning for the next 10 years, just take the highest number that lasts for seven to 10 years. But if you're going to live till 90, and you're trying to have some longer term protection, that lower number times, call it 30 or 35 years to get to 90, that of the options that you cited has the largest amount of cash that's given to you, even if you adjust it for inflation. So it's got the highest net present value as well.

• 14:22Speaker 03

  I think that's the choice you have to make. If you've got a bunch, if you think you're going to be living into your mid 80s or 90s, I wouldn't discount that option one, which was the lower amount, but it lasts forever. The last piece of the equation here, from what I can tell, even if I inflate your spending to 80, and you're going to have social security and in call it 10 years or so, call it 50 between you and your husband, that that covers most of the spending, and the gap is only 30,000. Let's call it 40,000. Well, even if your portfolio only gets back to 2 million, $40,000 on 2 million per year, it's a super low withdrawal rate. It's like a 2% withdrawal rate.

• 15:05Speaker 03

  So I think, and that's probably why you guys are thinking about retiring so early already, is that your withdrawal need, if you really start doing the math, it's pretty low on a percentage basis. And that's an awesome place to be when you head into retirement. So I think you're really close anyway. If it were me, I would, you hadn't quite finished your retirement and investment planning, because you really want a diversified portfolio by the time you start having to pull a little bit from it. So maybe work a little longer. I think your withdrawal rate's in a super safe place.

• 15:38Speaker 03

  I can't answer all the questions perfectly here, but I think that gives you, at least I think I'm giving you my opinion on most of these. Don't discount that lower option that lasts for life.

• 15:46Speaker 02

  And I would just add in a little something. If you do keep working, your husband keeps working, don't put off the home improvements and travel. I mean, while you have the higher income, maybe now is the time to do some of those things because people put off travel and things like that until they're older. And sometimes it becomes harder when we get older too. So.

• 16:04Speaker 03

  The last thing you want to do, and I've actually done research on this Krista, where the home improvements are, here's one retirement, more than a pothole. This is like one of those jungle traps that you're running along and you fall through and there's a bunch of bamboo spikes here. It's called a renovation.

• 16:25Speaker 02

  Oh, yeah.

• 16:26Speaker 03

  In retirement. That is the worst possible thing you can do after you've stopped working. If you're going to do housework and it's going to be kitchen and bath, which you think you have a budget, it never works out exactly that way. It can bleed higher and more expensive. So happy retirees, one of the things that they know to do is take care of the bigger costs while you're still working.

• 16:51Speaker 02

  All right. We'll go to another question from Roger in Connecticut. Hi Wes, I often hear advisors, in my opinion, overly pushing Roth and Roth conversions. Don't get me wrong, I'm all for Roths. We've personally done Roth conversions, but I cringe when I hear advisors talking about converting over time, everything to Roth. I think it's better to have a balance of Roth and tax deferred accounts. If you converted everything, you would be at least throwing away the standard deduction and low first brackets. Also, to qualify for ACA insurance, you need some income or you would need to go on Medicaid. With a balance of Roth and tax deferred money, you can choose your tax bracket and have a lot of flexibility. Beyond my own finances, should we be lucky enough to have excess money? I

• 17:34Speaker 02

  can QCD some qualified money into charity of my choice, avoiding tax completely. In my opinion, Roth and Roth conversions are awesome, but you should never convert it all. Am I wrong? And if so, how am I wrong?

• 17:45Speaker 03

  Roger, you're becoming like a Jedi knight when it comes to managing your tax bracket. And I love hearing that. I think part of it is just to get heard sometimes in financial media, Roger, you gotta take a really strong position. You know, there's people that I've interviewed on my show that write books about Roth conversions, and they write an entire book about why it's the only option you should ever consider. And the real world is, it's really rarely ever like that. Sure, having money in a Roth, of course, we know is great because it's tax-free money, grows tax-free, comes out tax-free. But there's a really high cost to put money into a Roth. And you are throwing away some things. You brought up a couple of good points.

• 18:29Speaker 03

  If you have zero income, then you're right. First of all, you don't need income to pay for a supplemental plan or a healthcare plan. You can be on ACA, healthcare, as long as you can pay for it, you can be on it. But if you have zero income, and that's hard to do too, because you're gonna at some point have social security. If you have zero income, then you do run the risk of ending up looking at Medicaid. So I think that being able to control your income, having a regular IRA can help with that. Now, I don't think you need to manufacture your income because there's gonna be enough in retirement with social that you're not gonna have zero income. The second part is that the two things that really stand out is when you're managing your tax bracket, the standard deduction does work.

• 19:14Speaker 03

  Now, this is gonna be different for everybody. Consult your CPA for your particular situation. I'm not a CPA, but I'm always looking at my tax brackets. And I have definitely known families that I've worked with that, let's say, somebody was in a student year or have very little income. They were way away from social security. The standard deduction helped them do a Roth conversion. So you're right, in a big sense, that that standard deduction kinda gets wasted if you have zero income. And you can utilize that, if you keep your tax brackets really low, to even do future Roth conversions because you can utilize that. The other piece here is if you're charitably minded, the QCD, the Qualified Charitable

• 20:00Speaker 03

  Deduction, that you can start at 70 and 1/2 from your regular IRA.

• 20:06Speaker 03

  That goes away if there's no IRA money. So you don't want to imagine the amount of money you're saving by doing a charitable gift from your IRA. You don't pay taxes on that. Everything's at a Roth. You've kind of guaranteed that you're going to pay taxes on the money to get it into the Roth, and then you're giving the money away. So just for that reason alone, you may want to keep some regular IRA money if you're charitably inclined and you're going to give away dollars after age 70 and a half. So short answer, you're not wrong at all. Roth is great, but the balance here absolutely can work for you long term.

• 20:43Speaker 02

  All right. And when we get back, you're going to help us understand inflation, which has been frustrating so many people.

• 20:50Speaker 03

  So frustrating.

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• 22:50Speaker 03

  Welcome back to Ask an Advisor. Wes Moss, along with the Krista DeBias. So much fun to be here with you. You're such a pro when it comes to all this stuff.

• 23:01Speaker 02

  Oh, my gosh. No, I'm not.

• 23:03Speaker 03

  I feel like you should just answer the questions.

• 23:05Speaker 02

  Absolutely.

• 23:06Speaker 03

  You really could. You could probably answer a lot of these.

• 23:08Speaker 02

  I don't think so, but I do learn something for sure every week. And I've gotten some great feedback from other people who are absolutely enjoying the more in depth way that you get into investing as an advisor yourself. So.

• 23:19Speaker 03

  Well, we're going to get into a controversial topic, and it's called inflation. And we all know about it. We all think about it. I just remember the last couple of years, I do a radio show in Atlanta called Money Matters. And at some point, I think we started calling inflation matters because that's it was the only topic inflation, inflation, inflation. So I want to talk here for a minute about how how to beat inflation, how to think about inflation and how to protect yourself from inflation when it comes to retirement. So first of all, we had this long stretch where we didn't really worry about inflation. We had about a 10 11 year stretch after the Great Financial Crisis where we had really

• 24:01Speaker 03

  low inflation because we had a rough, not a great economy, but it lasted for a really long time. You can call it globalization or whatever. The there's a lot of reasons for it. And we almost forgot that inflation was a problem. It was so mild. I think even in oh nine, we actually had one year of deflation. Prices went down about a half a percent for just that one year. And then we had a bunch of years where they it was one, one and a third, one and a quarter. I think this also manifested when it came to social security. You know, we had big inflation back in 2022 and 23, and people got big raises from for social security. And it was because we had big inflation and people had.

• 24:43Speaker 03

  Forgotten that their social security was even tied to inflation because we you didn't even notice a 1.1% bump in your social security check, right? It was just, we just got lulled to sleep for almost a decade. There was almost no inflation. It was actually below what the Federal Reserve even wants, which brings me to the point that inflation is absolutely necessary. It's like salt, right? If you're the right, a little bit of salt in a biscuit makes for a great biscuit. A little bit of salt in a stew makes for an amazing stew. Without it, like, remember, we used to have wars over salt. It's a big deal. But the minute you dump salt into a stew or into a biscuit, it ruins everything. So it's very much something, it's an ingredient we want to manage. And that's exactly what the Federal Reserve does. They don't have a target

• 25:28Speaker 03

  of zero inflation. They have a target of 2% inflation. Because if you have steadily rising prices in a manageable way, they price stability, but it's price stability at 2% every year. And it kind of has this gentle nudge for all of us to go out and spend because we know that things are going up in price. We're not rushing to the store to get avocados because we think they're going to go up by 2% over the course of the year. But we have this general sense of things get a little bit more expensive. So it's very healthy for the economy to have this pinch of inflation. Now, as another example, and I'm not going to say this is a good thing,

• 26:09Speaker 03

  but we see if you go back to the beginning of 2025, the tariff worries of, hey, wait a minute, I think prices are going to jump a lot for XYZ car. We saw sales for cars go through the roof because people are trying to get ahead of the inflation. And just as an example, it motivates us to go spend today. So it's a really good thing to have. We just don't want a salt block in our stew. It kind of ruins everything. So, so we need it. It's also back in the vernacular in America, we investors who didn't talk about it for a really long time and forgot about it. The reality here is that even at a 2, 2 and 1/4, 2 and 1/2% inflation rate, it wilts the

• 26:51Speaker 03

  purchasing power by 20, 30, 40%, depending on how long your retirement is. And I think of it through, go back to a car example, if you only had dollars for specific items, imagine if you only had a wallet for food, and you say you had food dollars, and you had gasoline dollars, and you had car dollars, and you had And if you, let's you go back to 2020. And I think about where inflation was for cars. We had a decade of car prices not going up, actually went down a little bit. If I had $30,000 in my car wallet and I was eyeing, let's say, a entry level Lexus. That's a happy retiree car, so I use that.

• 27:33Speaker 03

  If I waited for two years, imagine it's that we're talking about dollars in your wallet. They're not invested in anything. They're actual, it's in your car wallet. Now, two years later, because of all the supply chain disruptions in the pandemic, now that same car went from 30 to 40. But your wallet still only has 30 grand in it. So your car dollars, they didn't change, but they became way less effective. They, they essentially wilted by 25%. But now that was a rapid example. We had big inflation in just a two-year period. But it happens to almost every category and it happens pervasively over time.

• 28:17Speaker 03

  So I want us to remember that it's a part of the equation. It's not as though we didn't have inflation. Now we had inflation, we're going to go back to no inflation. That's not the case. It's always there. Part of the Fed's mandate. So what do we do? The very simple answer here is you have to, you have to invest your assets in areas that inflate along with inflation. Your main quarterback for this, probably the best historical example of something has given us a rate of return above the rate of inflation. So remember, if stocks are up 10% and inflation's up 3%, your real rate of return is only 7%. So the main quarterback in being able to fight and get a rate of return above inflation has been historically broadly diversified equities.

• 29:03Speaker 03

  I think of it in terms of categories to see how that works. And why do stocks protect us from inflation? Think about these sectors like healthcare. Think about sectors of utilities. As their cost goes up, they pass it on to you. And we just have to keep paying more as consumers. That goes back into earnings. Companies now have more money because they've passed on the price to us. Well, we can now be the beneficial owner of that company. They continue to have more earnings because they're inflating their prices along with inflation. Potato chip company, if you're making potato chips, potatoes become 10% more expensive. And now your end chip costs 10% more. What do you do?

• 29:45Speaker 03

  That little yellow bag of potato chips is just 10% higher. And if you don't own the potato chip company, then you've now been hit from inflation with no sort of recourse. So we've got to own the potato chip company, if that makes sense. And we've got to own a broadly diversified basket of companies that are able to inflate their prices along with inflation. And we've got to be the owner of those companies to benefit from that. And that's how we protect. So stocks are your main quarterback. I would put real estate into that same category. That's been very effective to hedge against inflation. And I think about, there's a recent billionaire list. I don't know if you've seen this.

• 30:22Speaker 02

  No.

• 30:23Speaker 03

  Bruce Springsteen is on the list.

• 30:24Speaker 02

  Okay, the boss.

• 30:25Speaker 03

  The boss is on the list. He's a billionaire.

• 30:28Speaker 02

  Wow.

• 30:29Speaker 03

  Arnold Schwarzenegger.

• 30:31Speaker 02

  Okay.

• 30:31Speaker 03

  Is on the list. How did he get to be a billionaire? You think his royalties from those hit movies like?

• 30:38Speaker 02

  The Terminators.

• 30:39Speaker 03

  You think that? You think that really got him there?

• 30:42Speaker 02

  No.

• 30:43Speaker 03

  Supposedly. Back when he was Mr. Universe, he got a little bit of Mr. Universe money. What did he do with it? He bought California real estate. Way back in the seventies. So the path to being a billionaire is on saving. It's about investing and I don't know the exact properties he bought, but I think he bought a lot of it and it's worth a ton of money today. And that inflated along with inflation for that 40 year period. So, so real estate does that. And then I would say more of your defensive line. This is not a high powered offense, but owning bonds at least can keep you pace with inflation and maybe a little bit of a real rate of return. So if inflation is three and bonds are paying you four and a half, you're not only keeping

• 31:27Speaker 03

  up with inflation, but you have a little bit of a real rate of return above that. So collectively you've got your quarterback that stocks and real estate. You've got your defensive line, call that fixed income or bonds. And collectively that grouping should keep us ahead of inflation because we own assets that inflate along with inflation and it's not going away.

• 31:49Speaker 02

  Okay, let's go to questions. Cal in Georgia wrote in with this one. I'm 28, married with two kids and my wife and I max out our Roth IRAs and contribute 15% of our income to 401ks. My parents recently retired early, but my siblings and I are concerned that they didn't account enough for inflation and may run out of money in their 70s or 80s. We want to set up a long-term family savings or brokerage account that we can all contribute to over the next 15 to 20 years. This would create a safety net in case they need financial help later, which could also be when my kids are starting college. What's the best way to structure something like this? Should we use a joint investment account, trust or something else?

• 32:32Speaker 02

  Any advice on the managing contributions, investments and tax implications would be greatly appreciated. I just have to say, wow, most people would not think of doing this for their parents and have the foresight to, you know, realize this could be a huge problem.

• 32:48Speaker 03

  It's pretty cool. It's interesting, though. Cal's 28. Cal, you're now making some good money. You're raxing out some of your retirement plans and you're thinking about your folks who it sounds like they retired early, but without a lot of money. So I don't, I don't understand that one, but I'm all for retiring sooner, but if we don't have the money to do it, then it really is going to be the, the burden would be on the kids to help, which is cool that he's able to do that. And he's got siblings through this. So you've got multiple people that are able to contribute to this. So naturally he's thinking, okay, well, let's open up an account. Let's all put money in and it'll grow over time and it's a safety net. And I'm just going to assume, I don't think Cal said how many siblings he had, but I'm, I'm

• 33:31Speaker 03

  going to assume, I'm from a family of four. I'll assume he has two siblings. So you have three people to try to help with this safety net. And Cal has two kids. And the way I think about this is that in 10 years, Cal's kids are going to be in the high school, middle school, and then Cal's sister is going to have kids at her middle school and high school. And then his brother's going to have kids in middle school and high school. And one of them is going to say, I want my kids to go to private school. So I don't have enough money right now to contribute to the joint account for mom and dad. And then one of the siblings is going to say, well, I'm not sending my kids to private school. My kids go to public school, so I have more money. So that's your choice. So you still have to contribute. And wait a minute, we get this joint tax return and it's now three people

• 34:16Speaker 03

  have to sign it and somebody just got a bunch of interest. And wait a minute, I didn't realize it was so tax expensive because we all are on this joint account and so and so stopped contributing. So those gains are my gains and not, and I've done more. Let's see where I'm going here, Cal.

• 34:32Speaker 02

  Yikes.

• 34:33Speaker 03

  Absolute nightmare. Absolute nightmare. If you collectively with your siblings start a joint account, which sounds awesome and noble, but it's also a recipe for absolute sibling disaster.

• 34:52Speaker 03

  So how do you do it right? As though I've been speaking from experience from this. I've seen this happen a lot.

• 34:57Speaker 02

  I bet you have.

• 34:58Speaker 03

  Because what is a guarantee is that everyone's life will change financially and everyone's financial priorities change and everyone's different kids. But the priority to take care of the parents still remains. Question is, who's most responsible? How do you keep it fair? How do you keep it equitable? Couple of ways to do it. One, in my opinion, you never would want to do a joint account. It gets complicated and then imbalanced and people owe taxes and people stop contributing. So the way to do this would be to open up a family trust where you write the rules to begin with. So you set up some sort of guideline that is, hey, we're just going to start this year. We're all going to, we all agree that we're going to each put in $10,000 or whatever it is,

• 35:42Speaker 03

  $50,000 each. And then we're just going to let that grow. And here are the rules of the trust. The money goes to our parents. And a estate planning attorney can do that for you. And it's about laying out the guidelines today so that you don't have these sibling rivalries down the line and these family issues that will inevitably come up because we're talking about money and priorities. And everyone's always are going to eventually be different, even if they're almost exactly the same today. So that is one way to do this is to kind of prescript the rules. And that way, I think it'll really help long-term not have any sort of family divide. The second way, more practically, the way I could see doing this, and this isn't necessarily

• 36:27Speaker 03

  perfectly fair either, because let's say you're making a ton of money and you're paying 40% in taxes and your sibling is making good money, but paying 20% in taxes.

• 36:42Speaker 03

  It takes you more earnings to end up with a thousand dollars at the end of the day to give to mom and dad, but we're also trying to help mom and dad here. So I think that it may be a more practical way to think about this, and I've seen this work, is that everybody at some point when they need the money, which also will should give you a long time here, 10, 20 years before they start running out, it allows you to save money and increase your earnings over time. Then you start supplementing the parents. Once a month, everyone says, we'll all chip in a thousand dollars a month, and that helps fill the gap between what mom and dad are getting and what they really need. And that's kind of an easier, more palatable way, I think.

• 37:24Speaker 03

  May not be perfectly fair, because everyone's tax rates are a little different, but this is a charitable endeavor here. It's a charitable act. So I would look at it as if you're going to do it now, you're going to want to look at some sort of trust formation, and you're going to have to talk to a state planning attorney to do that. Otherwise, think of it more practically down the road. Everybody contributes a little bit over the course of time.

• 37:49Speaker 02

  I would also, just one other thing, I would have them, I would pay for them, if you can find a fiduciary who's willing to do an hourly sit down with the parents. They may need a reality dose of what they're going to need to save and spend in order to maintain their money over time, and look at their social security and the whole picture. And then maybe they can get on the kind of budget that would enable them to sustain themselves. Like, I don't know if they've done something like that, but I would definitely recommend that as well.

• 38:16Speaker 03

  That's a really good point. There's got to be some transparency. When you've got a bunch of siblings and you, and mom and dad retired early, why did they retire early? Maybe they have plenty of money coming in. Maybe they have 10 grand a month coming in, but mom and dad are, you know, twirling the world and they need 20 grand a month. Now, are all the siblings going to be willing to kick in for that? So it's, it always goes back to kind of these priorities. If it's really like, hey, mom and dad just don't have enough money and then they've got to be able to just live and then it's a different conversation. So to your point, Chris, that the transparency with the family is so important. And I think you're right.

• 38:56Speaker 03

  If you sat down with a CFP or a fiduciary, they can really get you some clarity around their financial situation, which all give you clarity around how you really can help.

• 39:07Speaker 02

  Okay, Ryan in Wisconsin wrote in with this one. Are there any advantages to dollar cost averaging more frequently? I currently buy index funds once per month. The market can change drastically over a month. So I'm wondering if weekly or even daily buys would be a better way to smooth the ride while still being an average meet the market investor.

• 39:27Speaker 03

  Okay, Ryan, there's no way to know this because we don't know how the market is going to ever react into the future, right? So if you were to say, I want to really dollar cost average and you were starting in 2007, then slower dollar cost averaging would have been better because the market went down for two straight years. If you were deciding to dollar cost average in early 2020, when the pandemic bottom came, then dollar cost averaging would have cost you money. So forget more frequently, you want to do this on one lump sum. We should really talk about this as a, as a larger segment, but there is no perfect answer because we don't know how markets are going to react. So there are plenty of studies around this.

• 40:12Speaker 03

  Around 70% of the time, seven out of 10, but there's three out of 10 where this doesn't work, putting money to work faster is better because markets do have the propensity that they're up over time, right? So the quicker you get money invested, the higher the probability, and no guarantee here, that your money has a better rate of return. So to answer your question, I would say invest it when you have it, particularly when you're younger and sooner is better. That would be my short answer to that really more complicated than it sounds question.

• 40:46Speaker 02

  And we'll definitely do that in the future. Mark that down. Lisa in Texas says, Wes recently mentioned phasing into retirement. Aren't social security benefits driven by the beneficiaries' annual earnings? Will reducing earnings or cutting those in half for the final years of a working history adversely impact annual benefits?

• 41:04Speaker 03

  Not necessarily, Lisa. Remember, social security takes your top 35 years and then they average them. It really, this depends, but for a lot of folks, when you worked really early on, you've got some really low years in there. And even if you're scaling back to half time and you're phasing into retirement, I call it the retirement gray zone, your 2025 earnings that are kind of working half are still probably replacing some of the really low years. Right, if we work from age 20 to age 65, I mean, that's 45 years. So we get a lot of years you can cancel out that don't even matter. We're only taking the top 35. And that's what your social security payments are predicated upon. And of course, your age.

• 41:48Speaker 03

  So usually it does not hurt. It sounds like, wait a minute, I'm making less at the end and now it's going to reduce my social security. Usually the formula doesn't, it really doesn't have that big of a negative impact. Because again, we got, you can look at the best 35 years. And even part-time work may be replacing some of the smaller years way back when you were young working, super young working.

• 42:11Speaker 02

  Well, thank you so much, Wes. Thanks, everyone, for tuning in today. We really appreciate it. We will be back tomorrow with a new Clark episode. Hope the rest of your day is fantastic.