Pod Insights The Clark Howard Podcast 09-23-25 Ask An Advisor With Wes Moss About this episode What a Fed Rate Cut Means for Your Money and #1 Financial Fear (and How To Beat It)The Fed just cut rates. What does this mean for your money? Wes breaks down what the latest Fed rate cut means for your personal finances. He discusses how a drop in rates impacts everything from mortgage rates and the housing market to your investment portfolio. Plus, Wes shares his insights on the biggest financial fear for many Americans and offers a simple solution to gain clarity and peace of mind. Mentioned on the show: Rule 72(t): Secret Rule To Access Your IRA Early Plus, Christa shares your #AskWes questions and Wes gives his take. All this and more on the September 23, 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® / Wes Moss - Clark.com Learn more about your ad choices: megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices
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1:02 Speaker 02 Welcome to Ask an Advisor, where we here at Team Clark go deeper on all things money and investing. I'm Krista DiBiase here with Wes Moss.
1:11 Speaker 03 Hi Krista.
1:12 Speaker 02 How are you today?
1:13 Speaker 03 You're good. Very good.
1:14 Speaker 02 And so the Fed, big news, headliner.
1:17 Speaker 03 Finally.
1:18 Speaker 02 Cut rates last week and you're going to talk about how that's going to affect us and especially things like mortgage rates.
1:24 Speaker 03 What they're thinking.
1:25 Speaker 02 Uh huh, for sure. And then what is everyone's biggest fear around retirement?
1:31 Speaker 03 Yeah, I got a question. We had a presentation the other day about what keeps you up at night. So I'm going to discuss where that conversation went.
1:39 Speaker 02 Okay. And then of course we'll get to your questions. If you have a question for Wes or for Clark, you can go to Clark.com/ask.
1:46 Speaker 03 So we'll start with the Fed because this is, the interest in the Fed ebbs and flows. There are periods of time where I maybe, let's go back a couple of years when rates were kind of at zero and they're staying put. The Fed tends to go in cycles. They'll get to a level they like and they'll stay put and the meetings don't get a whole lot of fanfare because everybody already knows that they're just going to keep them where they were. Or are and there'll be these long periods of time where rates will just stay exactly the same. The interest goes up for all of us when they're starting to make a change. There was the big change was a couple of years ago when we had inflation and rates were close to zero. Then the Fed went on this, this campaign where they were hiking interest rates almost every time they met.
2:30 Speaker 03 The question was, how much are they going to hike and what is that going to do with mortgage rates? And I pulled a mortgage chart because this really relates back to a lot of this has implications for home buyers. It has implications for anybody with loans. There was a loan I was reviewing with a family the day after the Fed cut. And they said, well, my loan just went down by a quarter of a percent. Because their loan was tied to the short term rate, usually the short term rate plus 2% or 3%. But it's based on that short term rate. So a lot of people have credit or interest rates that are tied to the Fed funds rate or the so far rate, which will move almost in line with the, with the Fed rate. So low rates just means cheaper money for people, less interest.
3:15 Speaker 03 So it's a good thing for the most part, and there's always two sides of the coin. But if I look at this chart around mortgage rates and I go back to, let's go back to what I would call somewhat normal times. If you go back to November of 2018, we were in the 4.9 range for the 30 year fixed mortgage rate. And then we went on this long cycle, particularly after COVID hit in 2020, where the Fed dropped rates to literally to zero. And then that pulled every, all other rates lower. And at one point in January of 2021, the average 30 year mortgage was 2.65%. And we had a really long period of time where it was right around that three range, a little lower than three, a little higher than three.
4:01 Speaker 03 And that was when the great lock in happened. The other thought here is I was in the same recent event that I did. There were a couple of different mortgage folks there and we started talking about the mortgage business. Well, let me fast forward in October of 2023. So about two years ago, mortgage rates really peaked at almost, it's 7.79%. So we went from three to almost eight in the course of just a couple of years. And I said, well, how's the mortgage business? And the answer was, honey, ain't nobody moving. And it's slow as molasses. Oh, wow. Heard slow as molasses for a long time.
4:44 Speaker 03 Now, it has just recently started to pick up. And if I go to the last 30 year fixed mortgage rate is 6.13. So that's still pretty high relative to locking in a rate at 3%. But compared to when we almost got to 8% two years ago, now we're down to 6.1%. And the Fed just cut interest rates. So the question is, does that continue to go lower? Or was the mortgage rate just in anticipation, knowing that rates were probably going to start coming down? And that's the question mark. The reality here is that higher rates have really almost, if you're in the mortgage business, it's been tough in the last couple of years.
5:25 Speaker 03 If you have a 3% mortgage, you're not moving, you're locked in and you have very little motivation to start looking for houses and trade in your 3% mortgage for a 6% mortgage. I think we'll see real activity if it can creep just below six. That's a psychological level. But the tug and the pull and the difficulty around what the Fed's trying to figure out. And I think of it as almost just this barometer of where the risk lies. And it's only two things. The Federal Reserve cares about maximum employment and they care about price stability, which is inflation. And they always want to balance those two. They want high employment and moderate to low inflation at 2%. The problem with, with where the Fed is right now, and that's why there's such intrigue around these meetings. What are they going to do? What are they going to do?
6:11 Speaker 03 Is that they don't have a clear picture of which is a bigger risk. Inflation going back up, that's a risk. Jobs slowing down too much, that's a risk. So if you were to look at the balance on if the needle of the speedometer is all the way to inflation, we know we've got to increase rates. If the needle is all the way over to the risk of a slow job market or a worsening job market, then we know we need to cut rates. The needle is right in the middle because there's still this risk inflation's still right around 3% which is considerably higher than the 2% level the Fed wants and job creation has slowed dramatically. We've only seen about on average over the last quarter 29,000 new
6:55 Speaker 03 jobs added. That's super slow relative to the 150,000 per month that we were getting used to. So they really had to thread the needle here and essentially what Chairman Powell said is that, look, we've got risk to the downside in the job market and that seems to be slightly bigger of a risk than more inflation and that's why they cut rates. So that's the reality of where we are right now. They're trying to take a cautious approach to making sure that the job market doesn't get too weak that we've seen weaken. It's still not weak. 4.3% unemployment is still relative, very low. But here's what the stock
7:35 Speaker 03 market does. So number one, it means for, for all of us, if we have credit tied to the Fed funds rate, which a lot of people do, whether it's mortgage related, business loan related, credit card related, in some cases, not in all cases, you're going to see a little bit of relief, not a whole lot. A quarter of a point is not that much, but it's not nothing. The second implication is for investors. What happens at the stock market? And we went back and pulled data around how does the market act when the Fed cuts, when the market is already at a really, at close to an all time high. So we looked at instances from Fed rate cuts since 1980. There weren't, looking at periods when the
8:19 Speaker 03 stock market was, was within 2% of an all time high and the Fed cut rates. And that has happened Krista 20 times since 1980. 19 of those 20 times, a year later, the stock market was higher.
8:34 Speaker 02 Wow.
8:34 Speaker 03 Interesting, isn't it?
8:35 Speaker 02 That is interesting.
8:35 Speaker 03 So 95% of the time over since 1980, so we're going back 40 plus years, you've seen a 95% historical data that shows markets are up on average 12 months later to the tune of an average of 12.9%. So the second implication here is what does that mean for stock market investors? Companies like lower rates, particularly smaller companies that have to pay on loans that are tied to the federal funds rate. Federal fund rate comes down better for a lot of different sectors and particularly smaller companies, which stands to reason. It makes sense that you've seen stocks actually do well. So at least that's where we are today.
9:18 Speaker 03 The Fed is still trying to thread the needle. They don't know if they have need to cut rates dramatically. That's why they just went one quarter of 1%. They're cautious about the job market, but slightly lower interest rates usually on balance is a good thing for A investors, B, anyone that has any loans and C, if this trickles through to the mortgage market and we see the average 30 year fix below 6%, I think we'll start to see some real housing activity.
9:46 Speaker 02 All right. Okay, we are going to go to questions. Karen in Wisconsin sent this one. Dear Wes, my daughter Allison is a small business owner. She started her own photography company in 2019. Her husband does well financially and is able to support the family from his wages. Since 2019, aside from a few purchases for new equipment and regular business expenses, Allison has banked all of her profits in a business checking account that is accruing virtually no interest. What would be the best option for her in terms of a long-term account that would provide for growth? Their dream is to one day use the proceeds from her business to purchase their own wedding venue. Are there business CDs, investment accounts, or other options that would not have a huge implication on their taxes and yet allowed the capital to grow?
10:31 Speaker 02 Thank you. I love the new Ask an Advisor addition to the Clark Howard Show.
10:35 Speaker 03 Dear Karen.
10:36 Speaker 02 Thank you, Karen.
10:37 Speaker 03 I love when people say dear.
10:38 Speaker 02 I know.
10:38 Speaker 03 Dear, we live in a world where so many things are automated and you don't know if you're talking to a chat bot.
10:44 Speaker 02 You know, Clark does that a lot. He'll send me an email, Dear Krista.
10:46 Speaker 03 Really?
10:47 Speaker 02 He does that with people, yeah.
10:48 Speaker 03 Does he do that as a funny thing?
10:49 Speaker 02 No, he really does it with people. No, he just likes to say that, like when he's writing you a letter, yeah.
10:54 Speaker 03 Dear Krista, I would think I'm getting in trouble.
10:56 Speaker 02 No, no. Not with Clark, you know Clark.
10:59 Speaker 03 I still, maybe I'm gonna start doing dear. I usually do hi. I would say hi Wes or hi Karen, but I love when people say dear. Karen, dear Karen. First of all, I always get so excited about when I hear your daughter Allison who started a business. I love hearing those stories because there's so, there's so many positives, I think. Now, it's tougher to do and it's scary to have your own business, but there's a lot that can come out of it. Number one, Allison, I'm sure she probably already has done this, or if she hasn't, she should. Treat this as a real business. Make sure she opens up an LLC. I don't know if it's Ally's Digital Photography or whatever the name is, but she needs this in an LLC. And then that LLC, the bank accounts
11:42 Speaker 03 that she opens can be in the name of the LLC. It's not surprising that the business account you have is a really low interest rate. You would think you get some perks because it's a business account. It's almost the opposite. It's almost as though you get penalized because it's a business account. So what you typically will do as a small business owner is have your business operational checking account and you keep just enough in that account because it's usually paying very little to no interest. Just enough to cover your expenses, enough cushion to be able to pay the bills. Secondly, above that, and maybe that number's $5,000 or maybe it's $10,000, but above that for Allison, she can now have a side-by-side high-yield checking
12:27 Speaker 03 account that should have an interest rate that's commensurate with a normal retail checking rate. You shouldn't be penalized in a high-yield savings account just because it's business, but it requires more work. Remember, banks count on us being lazy or not paying attention every second of the day, and they love when people have a whole bunch of money just sitting around in their accounts that don't pay anything. They love that.
12:53 Speaker 03 So you have to be vigilant about this and make sure that money is going into the high-yield savings account for at least some interest. Now, beyond that, if we're starting to think about bigger plans like a wedding venue, love, love this idea. Depending on how much revenue Allison is going to be able to generate, if it's plenty, and the other thought here is that the business account will allow, make it easier for you to have expenses relative to your income and you really create your own P and L and your own balance sheet so that you're not paying taxes on the things you were able to expense. So there's more, there's some tax efficiency here as well. But if she finds herself with some big chunks of money that she doesn't need to take out at any time,
13:36 Speaker 03 right away, then maybe that can be invested in some sort of balanced account that is for the potential for a big purchase like a wedding venue, five years down the road, seven years down the road. And that could be something as simple as a balanced mutual fund that has stocks and bonds. I wouldn't do an aggressive account, but a really, a nice balanced account for money that you don't need to use right away. It's you maybe have a long horizon of five to seven years or even longer. You can really get some capital appreciation there as well. So I think there's a lot of things to think about. Just know that banks want you to have a bunch of money in the checking side of the ledger so they
14:17 Speaker 03 don't pay you any interest, but as much as you can in high-yield savings. And then if there's some real money there, invest at least some of it for a big purchase in the future.
14:28 Speaker 02 Okay. John in Rhode Island says, when my stocks offer dividends, I take the cash accumulated and usually buy another kind of stock or invest in stocks that I like. Am I better off doing that or taking the dividends from each particular stock and putting it back into that stock? What should I do?
14:46 Speaker 03 John, one word answer, automatic, automatic.
14:52 Speaker 02 Reinvest.
14:54 Speaker 03 Automatic dividend reinvest. Now, I'm going to couch that by saying, what, what John is doing is also a great method.
15:03 Speaker 02 Okay.
15:03 Speaker 03 Because let's say you have a handful of stocks and you're getting dividends regularly or every quarter from all of your different individual holdings or ETFs that are also paying dividends.
15:15 Speaker 03 Being able to see the money come in as cash, which is what happens when a dividend gets paid. You have cash shows up in your account. Then being able to make the choice of buying the same stock, or maybe you want to be buying some other sector that helps rebalance the account by putting cash to work in other areas without having to sell, because you're now putting new money to work. That's not a bad strategy at all. And in fact, when someone is in retirement, it's pretty typical to not be on dividend reinvest, because A, you're either using that cash, or B, you want to use that as a rebalancing tool. So it's a totally fine methodology that you're doing. However, if I had to choose one, John,
15:59 Speaker 03 the easier and frictionless we can make investing, which is already kind of a full-time job or a full-time sport, usually the better. So that if I had to choose one of the ways to do it for you, I would say automatic reinvest, because the day you get cash is the day you get more shares or purchase more shares. And over time, it eliminates those periods where maybe you didn't think about it for a month, or you're away for two weeks and you're playing catch-up and you forget to do the dividend reinvest. This takes that worry off the table, and you can always rebalance in another way. So the easy answer here is automatic.
16:42 Speaker 03 What you're doing, John, is still totally fine. Automatic makes it potentially a little easier.
16:48 Speaker 02 All right, and Michelle in Oregon says, can we talk about the details of the backdoor Roth? My husband and I are usually right on the edge of the line of our Roth IRA income limits. We've continued monthly contributions, hoping to stay under the threshold. But for the past two years, we've had to re-characterize to a traditional IRA and then convert via the backdoor Roth. That process leaves us with gains over the contribution limit, which we then have to roll over to our 401Ks and are taxable in retirement. If we contribute monthly to a traditional IRA instead, we still face the same issue. Any gains before The backdoor conversion would either stay in the traditional IRA or roll into the 401k. I've considered monthly backdoor conversions to keep the gains tax-free in the Roth,
17:34 Speaker 02 but that sounds like a logistical hassle. Contributing once a year and converting right away is another option, but then we lose out on dollar-cost averaging. I'd love your insight on the best strategy. Thanks so much.
17:45 Speaker 03 Michelle, this is, let me just try to frame the question here for people that didn't get all of that. Because what Michelle is doing, and Michelle, first of all, you're very on it, which is 95% of the battle.
17:58 Speaker 02 Yes.
17:59 Speaker 03 Michelle is right at the limit, her and her husband, on being able to make a Roth contribution or not. So she's making the Roth contribution. It's, let's say, she didn't say what age she is, but let's say $7,000 per year. And then by the end of the year, her income is making her so she can't do the Roth. So she's having to take that seven and put it into, re-characterize it into a regular IRA. The problem she's running into is that there's some growth, and maybe it isn't just seven. It's now 7,500. And she can still only backdoor Roth seven of the 7,500. So she's saying, what should I be doing here? Well, there's this $500 left over.
18:41 Speaker 03 Seven in the Roth, re-characterized to the IRA, then backdoored back into a Roth. But she can only do seven. What do you do with the other 500? You're rolling that back into a 401k. That also helps get rid of the prorata rule. If every, most of your other money or all of your other retirement money is 401k, you can not worry about the prorata rule here. But I would also say this is one of those good problems to have. And you're using the rule to its fullest. All you can do is the 7,000. So you're getting the full benefit and it's not as though the rule is not working. It's just that you're using the rule with the $7,000 to its maximum.
19:25 Speaker 03 So it's not the worst problem to have and think about what you're left with. You end up with a seven in a Roth and the gain that you had throughout the year. Well, that's now growing in the 401k. My answer to really, to try to make this easier is your suggestion, which is just do it all at one time. So make your contribution of seven, re-characterize it the next day, and then it gets to grow inside of the Roth forever, essentially. That may be the only simpler way or the way to simplify it, but you're kind of running into a good problem because you're already maxing out this rule. And John Vogel from Vanguard, John Vogel says, "The enemy of a good plan," which you have, "is the dream of a perfect plan."
20:09 Speaker 03 And you're trying to make this totally perfect. I think you're taking the good all the way as good as you can make it. And it's not the end of the world, but at least that's a discussion around what I think you're doing.
20:20 Speaker 02 Great. All right. And coming up straight ahead, we'll have more questions for you, Wes, and you're going to talk about our biggest fear in retirement.
20:29 Speaker 04 Five stocks to sell before the end of the week.
20:34 Speaker 04 My guy says now's the time to go all in.
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22:53 Speaker 03 Welcome back to Ask an Advisor on the Clark Howard Show. Wes Moss here to answer your questions along with Krista DeBias. And we're already on to our next topic. The story here is that I was at an event recently talking about the economy, talking about markets, talking about some of my research for the retire sooner method. And one of the questions from the audience, it was someone that I've known for a long time who was there, his name was Mike. And Mike said, well, what keeps you guys up at night? What's your biggest fear? Is it something out of the blue like a war or another sudden announcement that changes
23:37 Speaker 03 the economy like what we saw the turmoil around tariffs, which we, the stock market has now certainly settled in and kind of accepted that, but what's around the corner? Are we worried about government debt that keeps going up? At what point does that start to create a real issue? So, and it was actually not just the first question. There was a couple of questions around what is next and what keeps you up at night? And the reality here is that the real question and how I responded to this is that what people are really worried about in America is not the next headline and not the next event that we have to go through. It is what the next headline or the event that we go through
24:20 Speaker 03 does to the stock market and does to their portfolio, your portfolio. So really the root of any time you're, you're asking that question, the root is worry. And what is that worry? It's running out of money. It's having my portfolio be damaged to the point where I can't pay for the lifestyle I would like in retirement. So that is the real question. That is the root of any financial worry question is could the next event or headline then do something to my portfolio, your portfolio that makes you not be able to pay the bills? And when I do research on challenges, fears, what makes people happy in retirement, what scares people in retirement, the numbers are really striking. Almost half of all America
25:05 Speaker 03 across all different savings levels, it's almost 50% of people, one of their top three worries is the phrase running out of money in retirement. That's the real worry and the fear. It's not the headline. It's that what the headlines can do over time. So I want to just first of all acknowledge that's the real fear. Any worry question kind of is rooted in that. And even when We have higher asset levels and as you can imagine, the fear of running out of money goes down as your asset levels go up. It still stays, in my opinion, super high. People between 100,000 and a million or almost a million, 51%. If you're 100 to 500 K, 51%.
25:49 Speaker 03 500 to a million, 45%. People with a million to 2.9 million, 39% of those folks are still worried about running out of money. And even the 3 million plus category, 1 in 4 people are still worried about running out. So it doesn't necessarily get solved. It helps as your asset levels go up, of course, but it doesn't cure it completely. And when you still have almost a quarter of what I would call ultra savers, ultra wealthy individuals, there's still some other problem. Well, here's the first problem. It's inflation. If you take a chart and you look at the consumer purchasing power, or the, it's called the US dollar purchasing power, you can track this.
26:33 Speaker 03 And you go back to the year 2000, so we're going back about 25 years. Since the year 2000, this is a one directional chart. The purchasing, and it's lower. The purchasing power of our US consumer dollar is down 47% from January of 2000 to August of 2025. So that's one of the fears. My dollar is not, if I don't invest my money, then I automatically in 25 years have half the money I used to have because my dollar has half the power it had 25 years ago. And that is a one directional chart.
27:16 Speaker 03 That is virtually constant. So that's one of the fears that we just, there's nothing we can do about it. The Federal Reserve likes inflation, they just don't want high inflation. It's baked into the DNA and the formula of the US economy. It's happening. I think that beyond the level of savings, and we know that the fear doesn't go away, and really almost at any level of savings, unless maybe you're a billionaire, you're not worried about ever running out of money. Sure. You can almost do whatever and still not run out of money. But for 99.9% of Americans, even when they are wealthy, there's still this fear is creeping in. So to me, it's not necessarily just a number solution of taking away that fear.
27:56 Speaker 03 It is a planning solution and it is a clarity versus fuzziness solution. And if you have some clarity, you start to sleep better at night. So if you start to, if you do any sort of planning, whether I, I think we've talked about it here, but you can draw a timeline on a piece of paper of where you are today, the assets you have, how much you're saving, give it a 5% low rate of return over the next 10, 15, 20 years. And you will know with a high degree of confidence what you should have at a minimum. And you take 4% of that, and that's your income plus social security and a pension. And in 15 to 20 years, you should have a pretty good idea of what your income should be.
28:39 Speaker 03 And if your rich ratio is one or above, you're in great shape. And the rich ratio is just your half divided by your need. I have this much money coming in every month and I need this much to live on. 10 coming in, eight going out, my rich ratio is 1.2, I'm rich. If it's the other way around, eight coming in, 10 going out, rich ratio is under one, and then you're worried. And there's no way not to worry about that. So you can do a simple timeline plan. You can calculate your rich ratio as quickly and easily as I just talked about, or you can do a comprehensive plan, whether you do it on your own or you sit down with a financial advisor to do that. That brings this giant moment of clarity.
29:22 Speaker 03 And that clarity stops you from worrying about running out of money. And the interesting thing about it is that you get clear and I, and I know these meetings where you, once you go through financials and projections, people get this sense of relief. Oh, okay. I understand. I got it. I got it. And then over the course of the next year, the headlines come in and they nudge you and they kick you and they scare you. And then your clarity gets a little fuzzier and a little fuzzier. And over the course of six months or a year, you start to say, wait a minute. What was my plan again? You need to revisit it to keep the clarity and that clarity is the antidote to not worry about running out of money, sleeping well at night.
30:03 Speaker 03 As simple as it sound, sounds is it's an ongoing process and it's so important.
30:09 Speaker 02 And I would think, you know, it's going back to the beginning when you said this question was asked of you and I guess some price, some other advisors, right? What keeps you up at night?
30:17 Speaker 03 Our team, yeah.
30:18 Speaker 02 I mean, the idea of the headlines would keep me up only because it would mean I'm going to get all these calls. I'm sure you guys deal with like really worried clients who are like, oh my gosh, I'm panicking.
30:29 Speaker 03 There's so much to worry about.
30:30 Speaker 02 Yeah.
30:30 Speaker 03 You could never deny that.
30:31 Speaker 02 Have you ever been like on a vacation and something big happens and it's just?
30:35 Speaker 03 I've never not, I've never been on a vacation, vacation where that doesn't happen.
30:40 Speaker 02 Really?
30:41 Speaker 03 Never, ever, ever. Because something's always happening.
30:44 Speaker 02 Right. Okay. Jeffrey in Virginia says, I am a Clarky going way back, having opened my Roth IRA in the late 1990s at Clark's insistence. I'm retiring this year and want to keep my contributing to my Roth IRA. I max out the amount every year. My spouse and I file taxes, married filing jointly. My spouse will have W-2 income for the foreseeable future. Due to this income and the IRS joint filing, can I just contribute the yearly max to my Roth IRA going forward, assuming my spouse has sufficient W-2 income and call it a day? Or will I need to have a part-time W-2 job to cover my contribution limit?
31:19 Speaker 03 The simple answer here is spousal IRA allows you to do this. The spousal income, spousal contribution allows you, Jeff, to be able to do this. So I think of it in two phases. Usually you've got your last year of work and you may have worked three months or six months of that year. So you do have income that year and you can make your contribution because your own income has exceeded the $7,000 or $8,000 and you can make your contribution. But let's say you have stopped and you now have no more wage income, which I think is really the heartier question. As long as your wife is working and she's making enough to cover both of you, you can both do the full contribution.
31:59 Speaker 03 So if she's making 25 grand, that's more than enough for you both to put in the $8,000. So the spouse, and that can continue for as many years. But the key, if you're married, filing jointly, as long as one of the two spouses is earning enough, you absolutely can keep doing it.
32:16 Speaker 02 And I've only heard that question in the past where somebody, one parent's staying home with a child maybe. And so it's interesting to think about it in retirement. I've never heard it in this context.
32:25 Speaker 03 You know, right, husband and wife don't always retire at the same time.
32:28 Speaker 02 Jason in Florida says, I read your article on 72T withdrawals from an IRA. I'm 55, currently unemployed and looking for the next job. I'm wondering if I could set up an IRA withdrawal using 72T, then if and when I get a new job, I'm allowed to still contribute to a 401K. If yes, I would hopefully no longer need the payments and would just maximize my 401K contributions by the same amount. I've always contributed at least to the match. In case it's relevant, I have plenty of money in the IRA, over a million. Thank you for what you and your team have done over the years.
33:01 Speaker 03 Jason, I think you're going to end up with your match, contributing up to the match, up to the max. Because the answer is that yes, you can do this. So let's assume that you're going to be unemployed for a little while and you really need, you need to do 72T. Let's just assume that. And the 72T says you can set up these substantially equal periodic payments from the IRA. The rule is you've got to do it for at least five years or hit age 59 and a half, whichever is longer. So once you turn it on, you've got to keep doing it for that period of time. But let's say in six months or a year from now, you've got another great job and you're making plenty of money. You really don't need the 72T payment. So you're creating income through the payments.
33:45 Speaker 03 But in the past, you may have only done up to the match. Now you do up to the max and you fully max out your 401k. And I would contend, I don't know exactly what those, your periodic payments would be, but you end up with your payments coming in and then a whole bunch of money going into the 401k, all pre-tax. So you keep your, you're in one case raising your income and another way you're lowering your income because of the 401k contribution. I think the other thing I would think of here is I don't know if you would want to do your entire IRA and set that up under the 72T.
34:29 Speaker 03 You may want to do a portion of it because you may not want the full, full weight of the substantially equal periodic payments from the entire amount. You can set up an IRA that does that in a, so that your payments are at least manageable, maybe just enough to cover until you start getting a new job and then you start maxing out.
34:48 Speaker 02 Great. Jonah in Florida says, my question is regarding income producing ETFs. Now that there are several large options, example, QQQY, it seems like this is a hack for retirement income. What am I missing? I understand some of the larger paying options will lose value over time after the payout, but you still get paid double or triple in the next couple of years prior to them losing value, which if reinvested would still produce the income. Why does this have a too good to be true vibe? I invested a small portion of my portfolio, less than 5% in this kind of ETF, and it has been steady above eight to 10% a year paid monthly and much larger than where I
35:30 Speaker 02 keep my emergency fund, which only pays around 4% a year paid monthly. Is it time to put all my eggs in the high paying basket?
35:37 Speaker 03 Whoa, whoa, whoa, no, no, no. This was from?
35:41 Speaker 02 This is from Jonah.
35:43 Speaker 03 Dear Jonah, I would say, no. The one thing we can rarely use never or always when it comes to financial planning, but you never want to hone in on just one thing, almost. That it's, it's pretty safe to say that, particularly something when you're. Getting the whiff of too good to be true. Just because these investments have worked over the last few years doesn't mean they'll always work. These are not income producing investments, even though they're producing income, meaning that they're not paying you interest, they're not paying you dividends, they're paying you option premium that you're getting.
36:21 Speaker 03 These are zero DTE option ETFs, zero day to expiration, meaning that this is a trading strategy for stocks. And I think you mentioned, what was the first one? Was it QQQY or something? Again, full disclosure, I do not invest in these. So, but I've looked at these because they do seem really good. A lot of paying out lots of income. At the same time, you also see their net asset value go down and down and down. But to your point, the option premium is paying you more than the NAV is going down. But this is a trading strategy and it doesn't mean it'll always work. And I think part of it is that the underlying assets, we've had some pretty good years in stocks.
37:05 Speaker 03 I don't know how well these would do when we are faced with a really tough market cycle. We just, I just don't know how they'll do. So, anything that seems like it's the easy button for 10% a year, there are no guarantees around anything like that whatsoever. So, just because they've worked and they look like income, doesn't mean they're, they'll always work. And they're, this is technically, in my opinion, not an income oriented product. So, limit your exposure, limit your risk, just be really careful here.
37:37 Speaker 02 Okay. Well, that does it for us today on Ask an Advisor. Thank you so much for staying with us. Hope that you'll share this episode with a friend or someone you think could benefit from us. And we'll be back next week with a brand new episode and Clark is back in the saddle tomorrow.
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