Pod Insights The Clark Howard Podcast 07.15.25 Ask An Advisor With Wes Moss About this episode Best Time To Take Social Security and Why Target Date Funds Are Good, but Not Perfect What’s the best time to take Social Security? Fiduciary financial advisor Wes Moss breaks down several scenarios to help you optimize your Social Security check. Also, target date funds have long been a popular option as a “set it and forget it” easy button for investing. Wes shares why this “TV dinner” of investing is a good – but not perfect – option. Plus, Christa shares your #AskWes questions and Wes gives his take. All this and more on the July 15, 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: BOOKS BY WES MOSS / 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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1:05 Speaker 02 Welcome back to Ask an Advisor. I'm Krista DeBias and I am here with the Wes Moss.
1:11 Speaker 03 The Krista.
1:12 Speaker 02 As you like to say. And we're going to talk about investing, saving for the future. And if you end, we're going to get to your questions as well, which you can submit to us at clark.com/ask. Today, two topics that come up quite a bit on this show. And Clark has had his own takes on his show and you're going to share with us your takes today. Social Security and Target Retirement Date Funds.
1:38 Speaker 03 I love both these. They're opinion based and there's no right answer. So I'll start with that.
1:44 Speaker 02 But you don't necessarily love the Target Retirement Funds.
1:48 Speaker 03 Right. My opinion is less favorable than Clark's. Target Date Funds, I think are the TV dinners of investment.
1:55 Speaker 02 Oh, oh, I love it. Another analogy, we're going to get to that. And of course, your questions, as I said.
2:01 Speaker 03 All right, can we start with social security?
2:03 Speaker 02 Let's do it.
2:04 Speaker 03 Now, there are whole books written on this and there's no perfect answer because social security is something that you can, you have to decide when to start taking it and think about you, your longevity, your spouse, spouse's longevity, and then what it means for your retirement assets and the withdrawal rate on those assets. And there's a big window, you can take social starting at age 62 and you can wait all the way to age 70. Now, if the question is, how do I maximize my social security? The answer is that that one is not an opinion. That's easy. You just work as long as you can work and then you wait as long as you can wait all the way to age 70 to start taking social security.
2:45 Speaker 03 That will maximize how much you get from social security, at least in a given year. Again, you've got to live at least 12 years to get all that money back you didn't get. You could have started at age 62. So this is a longevity question and none of us know exactly what our longevity is going to be. We may have an idea. My grandma lived till she was 105. Your parents lived into their 90s, maybe you've got to really plan for some real longevity. That all works into the calculation, but we'll start with the simple answer, which is how do I get the most amount per year from social? The answer is wait till age 70. That's simple. The next would be my overarching thesis around when to take social security and how
3:30 Speaker 03 do I approach it is to optimize your social, not maximize your social. And there's a couple of main rules that go into this. So number one, the way I look at this is that we're going to optimize normally, and I love rules of thumb. This one is, has a few different tentacles, so it's hard to have just a sentence here. But I would say normally is if you're trying to optimize, you're going to, you're going to work and wait to take social at your FRA, your full retirement age. Now, that's a little different for everybody. For a lot of folks listening, it's probably age 67. Delay it even maybe longer if it's something that could help your spouse. So the spouse will benefit, could benefit if something happens to you. It's almost an income insurance for your spouse.
4:15 Speaker 03 And then number three, kind of the third part of the sentence or rule of thumb is that if you have to take too many or too high of a percentage of withdrawals from your investments, if you're not taking social, consider taking it earlier. In general, this is the way I think about it for most people, but certainly not everyone. I like to see people wait till their FRA, start collect social. Maybe wait till seven if you really don't need the money and you'd like to get the highest benefits of something happens to you. It's a higher benefit for your spouse. And three, take it early if you're really starting to cut into your retirement accounts or of course, if you don't have retirement accounts. Remember, a lot of Americans don't have any retirement accounts.
5:00 Speaker 03 So if you don't have anything and you have to rely on social, well, probably makes sense to take it on the earlier side. When I say early, I mean, starting closer to 62 versus waiting to seven. It's a big window. It's an eight year window. So number one, work until, remember, even though you can take social security at 62, there's an income limit before your social security starts to get reduced because of your earnings. That number is around $23,400 per year in 2025 and it'll go up per year. So technically you could start taking social at 62. You get a monthly benefit and if you only earn 20 grand that year, then you should be able to keep your full 20. Again, these are all, this is going to be taxed and you shouldn't have any penalty
5:45 Speaker 03 on your social security. So that's a nice way to think about it. If you've got a side hustle or a little bit of income and you start social a little early before your FRA, for a lot of folks, 67, that's one way to think about it. But if you're fully working and you're making a hundred thousand dollars a year at 62, you, you don't want to start taking social because it'll wipe out your entire social security payment because every $2 above 23,400 takes a dollar of social security away. So it doesn't take long before your whole payment goes away. Now, the caveat is that that reduction does eventually get paid back to you in your, in a social security payment over time, but it's a really takes decades before you get that lost money back, that penalty money.
6:26 Speaker 03 So that's, that's one is if you're in a full-time job, wait till your FRA, your, your full retirement age. Here's another reason you would take it early. Let's say you've got your investment accounts and it's $500,000 saved and you need $50,000 a year. And that means you have to take 50 grand out of 500. You've taken 10% a year from your investment accounts. Well, that's just too high. It's so far above the 4% rule. You get a couple, even one year of that high withdrawal really puts your, your safety, your liquidity, your nest egg at jeopardy, particularly if you have to do it for a couple of years. So I've seen people say, well, I'm going to wait and wait and wait and wait and take social,
7:11 Speaker 03 but I'm taking 7% a year out of my, my retirement account. That puts the whole nest egg and the whole cushion in jeopardy. And I'd rather see people start social earlier so they don't have to take withdrawals much higher than that 4%. Number three, we touched on this earlier. If your spouse doesn't have a high social security level per month, let's say they're taking 50% of yours, they're taking a spouse's benefit and you've got, it might make sense that if you think your spouse will live even longer than you, it sometimes will pay to wait so that you get the highest payment you can get. If you pass away, your
7:53 Speaker 03 spouse will take over that payment that is now higher because you waited. So there's a consideration here about longevity, just not, not just for you, but you and your spouse. The next one would be working past your full retirement age. Remember, once you hit FRA, 67, let's say, in a lot of cases, you could earn whatever you want. You can earn as much as you want and not have your social security penalized. So you could also say, well, I'm now at 67. If I'm still earning, then why not wait until 70 anyway? That's just a decision that you have to make. The way the math works out on, almost, almost works no matter how long you wait. Whether you wait a month and you, you forego one
8:36 Speaker 03 month of social, yeah, your payment goes up, but how long does it take to get that back? The answer is about 12 years, 12 and a half years. That's the break even. If you wait until you're 70 to take social, you're going to get a much higher payment than at 62, but you don't even get that money back that you forewent until you are at least 82 and a half. Now, I remember, and this is why I love getting questions from our audience. Somebody asked me about a YouTuber that is really adamant about taking social security early. So I looked that up. There are tons of videos on YouTube that make really strong cases. There's countless YouTube videos on why you should take social security as early as you possibly can.
9:19 Speaker 02 And I'm sure there are equally as many that you should take it as late as you can.
9:22 Speaker 03 You should take it as late as you can. So I'm not, I don't fault people for taking it at 62 because the reality here is that someone, two brothers, one takes it 62, one waits to 67. By the time they're 80, they've both collected about the same amount of money. And the argument for the brother to take it, let's call it early, is that what are you doing at 62 versus age 67? Maybe you're more active, maybe you're more mobile, maybe you're
9:53 Speaker 02 Traveling.
9:54 Speaker 03 Traveling, you're hiking, you're biking, you're running, and you have more time to enjoy your retirement. Here's one thing that I've recently, I don't know if this is shocking or not, I think it is somewhat shocking. The amount of Americans that consider themselves in a happy place, they're, let's call it happy, almost retirees. It's a pretty good number. It's two thirds of people, 66%. But when we get to retirement in America, that number jumps to 80%. Retirees in America are happier
10:25 Speaker 02 Wow.
10:25 Speaker 03 because they're retired in that state of life, more so than when they were working. So if you can buy yourself, and this is why I've written books about retiring sooner. There is a lifestyle improvement for the majority of people. When you are no longer working and you've hit a place of financial security, social security can do that. Imagine, we're only on this earth so long, it buys you an extra year, or two, or three, or four of a wonderful life. Really hard to argue with that. So that's my take. Social Security, there is no perfect answer. We know how to maximize. It's not about that. It's about optimizing for your situation.
11:05 Speaker 02 All right. Anonymous in Illinois wrote in with this one.
11:08 Speaker 03 We just call Anonymous Annie. Annie in Illinois.
11:11 Speaker 02 Okay. This question's probably as much about psychology as it is about money. We're facing retirement and at a time, we should be celebrating long careers and looking forward to the rest of our lives. I'm paralyzed with fear. We've saved a substantial amount for retirement. I have a decent pension with, and with taking social security at age 70, our expenses are more than covered. I still fear running out of money. Is this normal? Or do I need both financial and behavioral counseling?
11:39 Speaker 03 How much do they have in assets?
11:40 Speaker 02 Five million dollars. More than five million dollars.
11:43 Speaker 03 Five million. Look, again, let's go back to some research. The biggest fears in retirement. Number one, and this actually creeps above health. And this is in some of the new research that I've conducted over this past year. I was actually surprised at this. There's a bigger fear of uncontrollable economic conditions, stock market conditions, even than health. Now, they're tied kind of neck and neck, but.
12:10 Speaker 02 Wow, I can't believe that.
12:11 Speaker 03 There's even a higher level of worry around the uncontrollables in the stock market and the economy. Maybe it's because we at least have some control over our health, not completely.
12:22 Speaker 02 I just, I want to say one quick thing, if it's okay with you, Wes, because I know that there are people out there that are going to write in and say, this is insane. I can't believe you even read something from someone with that much money.
12:33 Speaker 03 Oh, yeah.
12:34 Speaker 02 The reason I didn't say the amount when I read the question was because I do, we get questions like this from people with all levels of money. And to me, it's not as important that they have like, an extraordinary amount of money compared to 99% of Americans. But I think it's more about the, you know, the idea that like, when do you ever feel like you have enough and to fill that security, which affects people of all income levels?
12:59 Speaker 03 A lot of people, the answer is never. And I, again, looking at some brand new research that I've done, I wanted to ask that, again, looking, what are your biggest fears? And how many indifferent, if you have investable assets of X, how many people are afraid of still running out of money? People with a million dollars or more, 40% of those people are still worried about running out of money.
13:22 Speaker 02 And that's infuriating to so many people listening, I know.
13:25 Speaker 03 Those with $3 million or more, where this anonymous question comes from, nearly more, still a court, one in four of those people are worried about running out of money. It doesn't go away.
13:37 Speaker 02 So it is.
13:38 Speaker 03 Now, for some people does, 75% of people with over $3 million, sure, they're not worried about running out of money. But there's still one in four that are worried about running out of money. Now, that's just human, that's human.
13:49 Speaker 02 It is, it's psychological, I think, like, the question was, is it, I think it is a psychological thing.
13:54 Speaker 03 It's part art and it's part science, or it's part behavior.
13:57 Speaker 02 You can do the math and know you'll never run out of money if you only spend, it's all about what you spend, right? Not what?
14:03 Speaker 03 It is about what you spend, it's also about feeling confident about what you're invested in. And sometimes, when it comes to behavioral counseling, the first step is always just some sort of concrete plan. And you put that on paper and you say, look, if you only need X and you have this much and it only grows at 4% a year, then see, not only do you not run out of money, you end up with 10 or 20 million dollars, wait a minute. That's a helpful step, but then you could still say, well, what if my variables are wrong? What if we go into a great depression? What if, what if, what if? Then you start by saying, well, wait a minute, what's not gonna go away? What is the, was known as the safest, most risk-free asset there is in the United States? And that would be short-term treasuries.
14:47 Speaker 03 It's not, see, it's not necessarily CDs, even though CDs are quote guaranteed by the FDIC, they're still backed by the United States government.
14:53 Speaker 02 Right.
14:54 Speaker 03 So if treasuries go, FDIC doesn't matter anyway. So if you think about this, well, what's a short-term treasury pay? One, your treasury is over 4%. So the 10-year treasury is almost 4.5%. Now, that'll move around, but imagine if all you did was just keep everything in the safest asset possible, you're still gonna end up with around 4% in interest per year. Well, that's 200 grand on $5 million. And if a pension and social security covers most of your living expenses, then your problem is not running out. Your problem is figuring out who to leave all that money to. So you're right. I think, and you know, your audience even better than I do, Krista here on the Clark
15:35 Speaker 03 Howard Show, but right, this may make people angry. How could you, how could you even think that you're going to run out of money? The only way to do that is buying a bunch of fancy cars.
15:44 Speaker 02 But it happens. I mean, it's, it's very interesting. It can happen. I mean, I'll give an example. I remember Clark gave a talk to an NFL team one time and he used the statistic, it was over 50% of NFL players within a couple of years of leaving the league are bankrupt, even if you make millions of dollars per year, because you know, things happen, lifestyle choices, lots of family members and friends asking you for tons of money. So in this case, it's a different case, but this anonymous author, I really appreciate that it's, you know, it's anxiety inducing when you're facing a huge life change. And me, I'm a huge advocate for therapy. So I think everyone should go to therapy if you can, if you can afford it
16:25 Speaker 02 and do it. It can be really helpful to have, you know, a non judgmental third party, listen to, you know, your fears about things. So I always think that's a good idea.
16:35 Speaker 03 Yeah. And I don't know if probably, this is probably not actual therapy with a psychologist, but I think that any good fee only fiduciary financial advisor should be able to really walk you through the art and the science of why you really should not even remotely worry about running out of money. And that might just take a little bit of, so first of all, it's a recognition that, hey, wait a minute, I can't believe I'm still worried about this. That's like, that's probably 90% of solving this problem. The next 10 or 20% will be going over a plan and figuring out that there's, as long as you don't spend hundreds and hundreds of thousands of dollars
17:15 Speaker 03 per year or a million dollars a year, the chance of running out of money should be less than 0.01%.
17:23 Speaker 02 And that's good, but I'm gonna just say again, if it's causing you to lose sleep, if you have underlying anxiety, why not? You know what I mean?
17:30 Speaker 03 And why not? I agree.
17:31 Speaker 02 Okay, Eric in North Carolina says, could you please cover the advantages of trusts? I read so many conflicting comments about, for instance, putting your primary residence in a trust. Is the cost worth it? Can you still take out a HELOC or do a reverse mortgage if your home is in a trust? And what are the downsides, if any?
17:49 Speaker 03 Eric, you're right. There are dozens of different kinds of trusts. The most common one is a revocable living trust. And a lot of people like to put their homes in the name of the trust. Caveat, I'm not an estate planning attorney. So it's an estate planning attorney that can determine what the exact right trust is for you. Do the paperwork, write the trust, administer it, et cetera. So just note that I'm not an estate planning attorney, but this is my opinion in general on trusts. Then they get more complicated. You have irrevocable trusts that can be used more for protecting your assets from lawsuits or creditors, if you will. Those get a little bit more complicated.
18:29 Speaker 03 And the reality here is that a simple revocable living trust, what does it really do? What's the downside? The downside, the short answer is just cost. But it's a pretty low bar on cost. People aren't spending $20,000 on a living trust. You can do a living trust with an estate planning attorney for a thousand bucks. Again, it varies per firm, but a thousand to 3,000 bucks. So I think the barrier, what would be bad about doing this would just be really the cost. Because you should still be able to do a HELOC on a property, even though it's in a trust. The advantage of this on something as simple as a living trust
19:10 Speaker 03 really has to do with and for your heirs and skipping probate. If you just have a will that says that this asset goes somewhere, then someone, a probate court, a judge, or someone in a courtroom or in a courthouse has to determine who gets what. When it's in the name of a trust, home is in the name of the trust, you can be a trustee and you can name another trustee. And the trustee then decides who gets those assets. So you essentially don't have to worry your heirs, something happens to you. You don't have to worry about going to through the court process to have the asset
19:52 Speaker 03 change hands. In this case, your home. You can do, you can do brokerage accounts into trusts, et cetera. But it helps with skipping probate. The cost is pretty low. I don't think there's a huge downside to doing so because you can still usually do.
20:05 Speaker 02 So if you just do a will, that still has to go through, the will has to be probated, but you have an executor and if things are simple, you could do it that way, right?
20:13 Speaker 03 Well, but you still, the executor, it's, he still has to go through the probate process.
20:18 Speaker 02 Right, right, right.
20:19 Speaker 03 The trust itself allows the trustee just to say, this is where this money goes.
20:23 Speaker 02 You skip it. Okay. Eric in Georgia says, I'm currently employed and have about 550K in my employer 401k, as well as a separate IRA, which were rollovers from various previous employers of about 675K. Given my employer, the current financial environment and other circumstances, we are under a persistent threat of being laid off. I turned 55 this year and given that I am in the tech space, I would anticipate difficulty finding another job in the same field since ageism is a real issue in tech. My spouse and I currently have about 90K in a high-yield savings account as an emergency fund and our only debts at this point are, is the 165K mortgage that has 10 years left on its term and approximately
21:05 Speaker 02 30K annually for a youngest still in college for three more years. My question revolves around my current employer's 401k and the rule of 55. My understanding is I can begin to take withdrawals from my current employer's 401k the year I turn 55. Given an anticipated reduction in income due to either unemployment or having to settle for a job that pays less than I'm making now, and the fact that my expenses really only amount to about 65K per year, which could be covered by my spouse's income, would it be a good idea to start making withdrawals from the 401k under the rule of 55 in order to start Roth conversions while we were at a reduced income and thus a reduced tax rate? Currently, we sit in the 22% tax bracket, but we would anticipate dropping to 12%.
21:50 Speaker 03 You gotta take care of the big problems, the scariest problems first. So solve for that. What's the scariest problem Eric is facing? Losing his job, or you're worried about, hey, ageism, reduction in workforce. We've just been talking about AI in society and what that could do to jobs. So how do you solve for that problem first? Well, rule of 55, meaning if you're at that company and you get laid off, it doesn't matter what you leave for, as long as you're 55 and you have a 401k plan at that work, and they allow for this, and they should, the rule of 55, then that in itself is your cushion. Now, let's take that one better, because you can't start the rule of 55
22:34 Speaker 03 after you leave work and then roll your IRA, because Eric has a big IRA too. So if I'm Eric, then what I would be thinking to really have some real safety in case something happens to my job, you may want to consider taking your IRA and rolling it into your 401k. It's kind of a reverse rollover. That way, you have the whole thing to access at age 55 without penalty. They still owe taxes on it. I'd be taking care of the bigger problem first here, and that's worried about not having an income as early as age 55. I'd have as much in that 401k as I could. Now, you don't have to roll the entire IRA into the 401k. If your plan allows for it, so you've got to check here, you've got to check, does your plan allow you to roll money into the 401k?
23:19 Speaker 03 I would be considering rolling some of that money in. There's a lot of things to think about, the investment options, the cost. Yes, you've got to make that determination. But if you're really looking to utilize the rule of 55, it may make sense for Eric here. As far as Roth conversions, to me, that's a little lower down on the priority list. It'd be great if everything was in a Roth IRA, but it takes a long time to get there without impacting your taxes. You don't want to just take money out of your 401k to create income because you already have income. You would just be doing conversions from your regular IRA into a Roth IRA. You could still do that, but to me, the bigger problem to solve here is cash flow
24:03 Speaker 03 and being able to have enough money, sending money without a 10% penalty. Between 55 and 59 and a half, I would be more inclined to consider having more money in that 401k in case something happens to your job.
24:17 Speaker 02 Okay. Well, we're going to take a quick break and we'll be back and we're going to talk about target state funds. TV dinners of the investment. All right. Looking forward to that.
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26:44 Speaker 03 Welcome back to Ask an Advisor. Wes Moss here, along with Krista DeBias. You're on the Clark Howard Show and it's time to dive into.
26:53 Speaker 02 Target date funds, one of Clark's favorite things.
26:56 Speaker 03 Clark loves these things and I like them. And I think they're a great financial innovation. Target date funds, I think we all know what they do. They're a set it and forget it way to invest. You start and the target date is the date that you think you're going to retire. So if you're going to retire in the year 2040, buy a 2040 target date fund. If you're in your 30s, very simply and your date's 20, 30 years out, it's going to be mostly in stocks and then it will slowly migrate, adding to conservative investments or bonds. By the time you get to age, to your target year, maybe you, you look at that at age 60, maybe it's 65, but it's the calendar year that it's, it's migrating to. And then when it gets to that calendar year, supposedly in retirement, it continues to migrate
27:41 Speaker 03 and, and often gets even more and more and more conservative, meaning we've got more and more fixed income, less and less in stocks. First of all, the reason Clark loves them is that they're easy, they make investing accessible and they make investing something you can do over and repeatedly add to it over and over again. And that is such a big part of the equation of being successful in investing. So I love them too. I think they're really good. They're not necessarily perfect and great, but I don't think that's why Clark loves them. I think he likes them because they're easy and they.
28:14 Speaker 02 Simple.
28:14 Speaker 03 Help people just get going and that's 90% of the battle. So I think they're really good in the accumulation phase, particularly in your 30s. You get to 60 because they've been pretty heavily weighted towards equity markets. And I guess I call them TV dinners because they're just prepackaged and you, you pretty much know what you're getting. But unless you really look under the hood or look on the package and see what it is, the TV dinners you're buying at the store from year to year, they can tend to change a little bit over time. And if you're not looking, then you may end up with the TV dinner selection. Once you pull off the cellophane that you don't necessarily love. And that's the point about why you've got to be careful to understand what's inside underneath the cellophane, what's inside the TV
28:59 Speaker 03 dinner, what's inside or underneath the hood of the target date fund in any given year because it changes. Now, think about getting into retirement. I look, there's all the big companies, all the big mutual fund companies have target date funds or lifestyle funds that migrate to become more conservative over time. My only real knock on these, and why I'd say they're good, not great, is that they almost get too conservative for my liking. Number one, I've seen a couple of issues with them. Sometimes they'll have a really high percentage in international investments, maybe more than I would want to have personally. I've seen some of these with 30%, 35% in international stocks. That's been a tough place to be for the last decade. It hasn't been kind
29:43 Speaker 03 of my part of my investment thesis to be that exposed. That's number one. Number two, most target date funds are around 45 or 50% give or take in conservative investments when you start retirement. So again, it's per the year. Now you choose when, how old you are by the time you retire. And I think that starts to err on the side of overly cautious because there's there are less and less stock market or equity percentage investments inside those target date funds. And if you look out over time, a lot of them 25, 30 years in, they're 70, 80% in bonds. Again, maybe that's nice and you want to be really conservative in your later years of retirement.
30:26 Speaker 03 However, remember the 4% rule. One of the ways we are trying to max out what we can pull out from these, our retirement accounts without running out and keep up with inflation has this 4% plus rule I talk about. It's predicated on having at least 50% in equities, 50 to 75% in equities at any given time. So if you're just letting the target date fund do its thing, pretty quickly you're under 50% in stocks. And I think that to me, we're trying to keep up with inflation, that can be an issue. And that's my main issue. Now, what would you do besides that,
31:03 Speaker 03 Do a balance fund. And a balance fund that you know what their target allocation is, maybe it is 50% and never goes, maybe it's 50% in stocks and 50% in bonds, but it never goes below 50. And it rebalances every quarter or every year. That's one way to avoid the overly conservative trap when it comes to target date funds. So you're, you're kind of picking a more specific TV dinner than one you don't know is actually underneath the cellophane. So they're good, not great. Agree with Clark up to the point of retirement. Then our paths diverge a little bit. I think if you really want to set it and forget it, easy way to invest. I'd be looking at a balance fund that I like the allocation for rather than a target date fund.
31:47 Speaker 02 All right. You have said your piece on that. I think that Clark would probably agree with you.
31:53 Speaker 03 We really disagree on.
31:54 Speaker 02 Well, I don't know that you totally disagree. Yeah, no. Okay. Scott in Washington says, my wife and I hope to retire at 62. We're 56 now and currently have about 1.2 million combined in our 401k and 403B accounts. Would it be wise to draw from our retirement accounts and let our social security amount grow until age 70, or take the social security at 62, leaving more to continue to grow our retirement accounts? Do we just need to beat around 7% return with our retirement accounts to counterbalance taking social security early? Or are there other things to consider as well? The caveat is that we don't know when we're going to die. And if that occurs before 70, we would never get any of that money if we wait.
32:33 Speaker 03 Scott, that's a pretty, nobody's going to disagree with that caveat. No, you don't know when you're going to die. We don't know when we're going to die.
32:40 Speaker 02 None of us do.
32:41 Speaker 03 And that's what makes taking social security, turning on social security at any given year, complicated. You're completely right. If you're waiting until 70 to turn on the social security spigot, you pass away at 69, you've gotten, you've got nothing.
32:58 Speaker 03 So that is a consideration. I don't think we, it's kind of not a fun thing to talk about that. So it kind of gets swept under the rug, but yeah, you can, you can just get no social if you die before you start, you turn it on. So that is, it doesn't necessarily discount your spouse from doing so, but I think it's really important to understand that piece of the equation. We all know when we're going to go. Secondly, do you take it at 62 versus 67 and let it grow? Because yes, it grows at 7% a year. It's not a complete apples to apples comparison because the rate of return on your overall investments with a dollar amount is significantly different, depending on how much you have invested. So on a million two, 7% would be around $80,000
33:41 Speaker 03 of growth per year. If you have a hundred thousand dollars invested, 7% is only an extra 7,000. So I don't know if it's a completely, it gets a little bit messy when you're trying to compare your investment growth relative to your social security growth because it's just the payment that grows every month. So I'd be, I'd be careful on that. And I think it goes back to the withdrawal rate. If you're not going to work past 62 and you don't have to withdraw more than four or five percent in those early years from your assets, then maybe let social security grow a little bit. But if you're raiding your retirement accounts to the two to six, seven, eight percent a year, then I think that you should consider turning on social security to avoid that really high portfolio withdrawal rate.
34:24 Speaker 02 All right. And this is from a couple in a totally different stage. Drew in Alabama says, currently my wife, 34, and I, 33, have about 130K combined in our 401ks. I'm able to max out my 401k contributions and get 6% from my company. My wife puts enough in hers to gain the company match. She puts in 4% and gets a 4% match. We also have some whole life insurance policies. Yes, I know what you're thinking. The total death benefit being around 800K, meant to be used as dry powder. My financial advisor thinks we are well on our way to saving for retirement. We are also trying to figure out the best way to save for college for a newborn and two-year-old. Would it make any sense to open 529 accounts in our names and move the
35:06 Speaker 02 money to a Roth IRA if we don't need it for our kid's college fund, or change the beneficiary if we did? For context, we bring in a little over $300,000 a year.
35:17 Speaker 03 High earners. Drew in Alabama, I think that's part of the reason you're talking about this 529 that could eventually, part of that can be converted into a Roth because you're over the limit. The joint income limit to be able to contribute to Roth is around 250K in 2025. So you guys are making over, you're making 300. So you're not eligible to contribute to a Roth. So I understand that part of it. Love that you're both getting your full matches. You're six. Your wife's at 4%. The whole life insurance, the death benefit, that is not dry powder. Dry powder is something you can use while you're alive. A death benefit from a life insurance policy, technically you can talk about the cash value, but in the end, if you die,
36:02 Speaker 03 then your spouse gets the cash, or if she dies, you get the cash. That's not dry powder. That's just liquidity coming in to help solve for a horrible life event to try to cushion it at least somewhat financially.
36:15 Speaker 02 And if you do surrender it, there's a surrender charge usually right on those and
36:18 Speaker 03 On a whole life policy.
36:19 Speaker 02 Much less, yeah.
36:21 Speaker 03 Potentially could be significant. The main point here is that is not dry powder. Dry powder is money you can access while you're alive. It helps you be a better equity investor over time. As far as you starting a 529 in your name, sure, you can always transfer it to your son. That makes sense. Or your, your child. And if you have more kids, you can do the same. But then the conversion to your own Roth one day, it would have to be in your name, not your kid's name. And they're a pretty serious limit. So they, I think they, they thought about this when they wrote that rule, because otherwise you can put a ton of money in a 529, just convert
37:01 Speaker 03 into a Roth, a backdoor mega 529 Roth conversion. They make it so you can only convert up to 35 grand total.
37:10 Speaker 02 Total, and you have to do it yearly.
37:12 Speaker 03 And you can only do it.
37:13 Speaker 02 Up to the max, yeah.
37:13 Speaker 03 Up to the contribution limit, which is seven or eight grand a year depending on your age per year. So they kind of close, it's really good thought, Drew, that you could just convert into a Roth, but they pretty much close, they mostly close that door, but not completely. So I would think that.
37:35 Speaker 03 If you have 529 plan for your kids, the way that is intended, you can always change the beneficiary if they don't necessarily use it. And continue to do your 401ks. And if you have the opportunity at work, I would think you probably have a Roth 401k option too. So maybe that's where I'd be looking at contributing to some sort of Roth oriented account, if you have that available at work. But just be careful about thinking you can manipulate the logistics and the rules on the 529 relative to a Roth.
38:10 Speaker 02 Okay.
38:11 Speaker 03 Cool question though.
38:12 Speaker 02 Yeah, this one's from R. in one of your favorite places, Michigan. Wes, what do you think between the S and P 500 fund or an S and P 500 ETF?
38:22 Speaker 03 S and P 500 fund versus S and P 500. I need to come up with a food analogy for this one.
38:30 Speaker 02 Okay.
38:31 Speaker 03 Are we just talking about?
38:31 Speaker 02 Food or cooking? Yeah, you talk, you use the crock pot.
38:35 Speaker 03 Crock pot, burrito, remember the?
38:37 Speaker 02 Yeah, the French burrito. I love it. I love it.
38:41 Speaker 03 This one, this is not a great analogy, but it's kind of, it works. First of all, it doesn't matter. Let me just start by saying R. My father-in-law is Ron.
38:51 Speaker 02 Maybe it's from Ron.
38:52 Speaker 03 He's from Michigan.
38:53 Speaker 02 Uh oh.
38:54 Speaker 03 It could be Ron from Michigan, but R. from Michigan. Doesn't matter. I think that they're, they're too, like drinking water out of a glass or drinking water out of a tumbler. In the end, it doesn't really matter. Not the best food analogy.
39:12 Speaker 02 No, I like that.
39:13 Speaker 03 But it's, that's the reality. It doesn't matter.
39:15 Speaker 02 Your preference. Yeah.
39:16 Speaker 03 But the glass is not a tumbler. Or think about a Yeti. They are a little bit different. Yeti's a little more, it's a little clunkier.
39:24 Speaker 02 And expensive.
39:25 Speaker 03 Yeah, assuming the same cost. Yeti versus the glass. Glass, a little more accessible, you mean? And which one's which? The S and P 500 index mutual fund is the Yeti. The water analogy in a glass, that's an ETF. There's something about you could get to more of it quickly. There's no lid on it. Meaning that an index fund, which is a mutual fund, S and P 500, same water in both. You're still getting access to the same 500 companies at, should be the same cost at a point zero two or point zero one percent cost, very low cost, assuming both of them are the same. The index mutual fund only updates its price once a day. It's a little
40:08 Speaker 03 clunkier. You're not, you're not able to sell it midday, get the cash, buy something else to do rebalancing. It's a little more cumbersome, which can be a good thing. The price isn't changed throughout the day. It just updates at the end of the day. The net asset value of that fund will update whatever the market did that day. The S and P 500 ETF, on the other hand, you're fully exposed to the price change throughout the day. So in some ways, that's better because it's more accessible. You can buy it at 10:00 in the morning, rebalance it at 10:30 in the morning, et cetera. But it can also lead to a little more investor anxiety, a little more trading. And that's why John Vogel, John Jack Vogel,
40:47 Speaker 03 the founder of Vanguard, which now has an enormous amount of ETFs, he didn't love ETFs because he thought it propagated trading when you should just be, if you're a buy and hold investor in the S and P 500, just buy it and hold it and add to it, reinvest dividends. And you can do that in the fund version, ETF version. So if you find yourself, if it's helpful, if you're a pure buy and hold investor, I actually would err towards the index mutual fund, same cost, if cost is equivalent. And if I'm a little bit more active and I like to do rebalancing a little more often, and I'm okay with seeing what
41:28 Speaker 03 the market is doing at any given day, then I'd go with the S and P 500 ETF. Again, underlying, you're still getting the same water, same faucet, slightly different wrappers.
41:39 Speaker 02 All right. That is going to do it for us on Ask an Advisor today, this week.
41:44 Speaker 03 Send in more questions.
41:46 Speaker 02 Yes. And you can send those questions in at Clark.com/ask. At Clark.com, remember, we also have a community. I hope you'll join it. And there's some great people on there helping each other. And we really appreciate everybody who listens, who writes in to us, who watches on YouTube, and who subscribes to our newsletters, which I hope you're subscribed. You can go to Clark.com/newsletters to see our offerings. Have a great day.
42:15 Speaker 04 Your sausage McMuffin with egg didn't change. Your receipt did. The sausage McMuffin with egg extra value meal includes a hash brown and a small coffee for just $5. Only at McDonald's for a limited time.
42:28 Speaker 05 Price and participation may vary. Promotion pricing may be lower than meal pricing.
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