11.03.26 Ask An Advisor With Wes Moss

The Real Cost of Owning a Car & Can You Actually Retire on $500,000? Wes breaks down the cold, hard numbers on two major financial questions that could completely change your path to financial independence. First, Wes dives into "car math," looking past the monthly payment to reveal the true total cost of ownership — including depreciation, fuel, maintenance, and insurance — across popular vehicles. He breaks down the 20-year math behind buying new versus used, keeping cars for 10 years versus cycling every three to five, and even whether ridesharing is the better move for low-mileage drivers, illustrating how holding onto your ride for a decade can pocket you an extra $100,000 in compound growth. Next, Wes examines the Federal Reserve's latest net worth data and tackles a crucial retirement question: can the average American really retire on $500,000? While it is challenging, Wes maps out how the math genuinely works if you leverage three critical variables. Mentioned on the show: What Is Umbrella Insurance and Do You Need It? - Clark Howard The 6 Money Habits of People Who Become Wealthy - Clark Howard All this and more on the November 3, 2026, Ask an Advisor episode of the Clark Howard podcast. Submit your questions: WesMoss.com/ask Discover the research-backed path to a happier retirement – order The Retire Sooner Method by Wes Moss today at retiresoonermethod.com We hope you enjoy our weekly Ask An Advisor episodes. Let us know what you think in the comments! Learn more about Wes: BOOKS BY WES MOSS Wes Moss, CFP® Wes Moss - Clark.com Learn more about your ad choices. Visit megaphone.fm/adchoices

• 0:00Speaker 00

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• 0:50Speaker 03

  Welcome to this week's Ask an Advisor. Krista Devias here with Wes Moss. Hi Wes.

• 0:55Speaker 04

  Krista.

• 0:56Speaker 03

  I'm very excited about today's show.

• 0:58Speaker 04

  This was your idea.

• 0:59Speaker 03

  You're talking about some really cool stuff today. First, most of us drive cars.

• 1:05Speaker 04

  Sure.

• 1:05Speaker 03

  And so.

• 1:06Speaker 04

  That's a fair statement.

• 1:08Speaker 03

  I think it's usually the second highest expense we have, you know, behind housing every month. And so you've done some incredible thorough research and comparisons to talk to us about the choices we make when it comes to transportation and driving throughout our life.

• 1:23Speaker 04

  Car math.

• 1:24Speaker 03

  I love it. Car math. And then later we get complaints sometimes, hey, all these people writing in have millions of dollars saved for retirement. So you're going to talk about how you can retire on, say, you think you can make it to $500,000 a year.

• 1:39Speaker 04

  I mean, the media.

• 1:39Speaker 03

  I mean, total.

• 1:40Speaker 04

  The Fed just came out with their new wealth report in America and 65 to 70 year olds median net worth in America is $431,000. So yeah, maybe easy, quote easier to be able to figure out retirement on two, three, five, 10 million.

• 1:57Speaker 03

  Sure.

• 1:58Speaker 04

  But what about the vast, vast, vast majority of people in America that are barely getting to 500K? And we'll answer that question. What can you retire on 500K?

• 2:07Speaker 03

  And we'll also get to your questions, which you've sent in at wesmoss.com/ask.

• 2:14Speaker 04

  Car math. It's been a long time since I did anything about cars. The last time it was really, this came from Clark and maybe this was 15 years ago. And it was the, I remember the Nissan Leaf where they were essentially with the rebate people were getting, it was a free car. It was a free car. And it was actually free because I remember my producer Mallory went and she said, this is crazy. She went out and got a Leaf, drove it around essentially for free. Those days seem to be over. So I wanted to do some new car math.

• 2:44Speaker 03

  My daughter actually drove Clark's old Leaf when she was in high school and college.

• 2:48Speaker 04

  If there was only a deal like that today.

• 2:51Speaker 03

  Yep.

• 2:51Speaker 04

  But okay, so I want to approach this two different ways. I'm going to call this car math. This is not about the car payment, even though obviously the payment is part of this. This is about the total cost. So we're going to do two things. One, I want to look at the Toyota Camry, the hybrid version, which is a very modestly priced vehicle, great gas mileage, 51 miles per gallon. This is the hybrid version with a sticker price just under 30 grand. Now, what I'm going to use for comparisons is more like 31.5 with destination fees, some basic extras. And we're going to look at a couple of ways to own this same car, whether we own it, we buy it new and we do that every 10 years.

• 3:36Speaker 04

  We're going to do buy used and do it every 10 years. We're going to buy used and do it every five years. We're going to do buy new every three years. And what if you just don't want to own a car at all and just do ride share?

• 3:50Speaker 03

  Which is possible nowadays.

• 3:51Speaker 04

  I know a couple of people that do that.

• 3:52Speaker 03

  I do too.

• 3:54Speaker 04

  So here is the, I'm going to call this the total cost of ownership in a given year and over the course of 20 years. The assumptions I'm using here are 12,000 miles a year. And we're assuming $3.50 per gallon for gas. Now again, who knows what gas prices are going to be? 12,000 may be more than you need. It may be not enough. So we had, we had to make some assumptions, but those are the assumptions to look at the total cost of ownership, which includes depreciation, which is the purchase price minus the sale price. If we're turning a car in or selling a car after this 10 year period, fuel, insurance, maintenance, repairs, tires, taxes, et cetera, fees.

• 4:37Speaker 04

  It does not include financing costs. So we're not talking about interest here to keep all this even. And I didn't do an opportunity cost here of what if I saved this and we invested it? But we could probably do some rough math on that. Here's the data, again, just on one car, different ways of owning it. Toyota Camry, we're going to do buy new, keep for 10 years. That will cost over the course of life, this 20 year period. So you'd have two of them would be the total cost of about $123,000 or about $6,100 a year, which is about $510 per month. That's all in. That's all in. If you did the same thing, but bought it used and did it every 10 years.

• 5:21Speaker 04

  So you're buying a three year old Camry and then in 10 years, you're buying another three year old Camry. It's actually a tiny bit cheaper, not a ton though, which was surprising, about 115K over that 20 year period, 5,700 bucks a year or $475 per month. What if, because you're getting a used car, you did this every five years? Buy used, replace every five years. It comes out to almost the same as buy new, keep 10. And you get to 6,200 bucks a year, 520 bucks a month. So really all those options are in the $500 per month range, which I think is an important way to look at this. Now, you can also say, what if I just bought a new car every three years?

• 6:04Speaker 04

  So I was always in warranty, never had to worry about any sort of repair costs hypothetically. Well, of course that's going to be more expensive. It costs another about $50,000 over the course of that 20 year period. So it's about 8,800 bucks a year or $735 per month on average.

• 6:24Speaker 03

  And I bet if you had a car that wasn't as reliable as a Toyota, which they depreciate slower than other cars, that would even be a bigger difference.

• 6:33Speaker 04

  Well, and that's going to come up in our next section on looking at different, different kind of cars.

• 6:37Speaker 03

  Okay.

• 6:38Speaker 04

  And what the total cost would be, which I picked a smattering of what I think are a good broad section of different cars to choose from. Well, we'll see which kind of car you choose. And then what if you just did ride share? More and more people I talk to are doing just ride share. I think part of it is that we, I live in, in the city. And particularly for folks who maybe only have to go to the office two days a week if you're working from home. It's a legitimate option to say, I'm just not going to own a car. I'm going to do ride share only Uber X or Lyft or whatever it might be. The average cost for that, and I've looked at a couple of different metrics for this. If you're only doing really short rides, it's super expensive. It's like $6 a mile. But if you go to longer rides and it's less than, it's like more like a dollar.

• 7:22Speaker 04

  So on average, the fair per mile cost is about $2.30, give or take. So all these examples I did with the Camry were 12,000 miles per year. For ride share, I did only 6,000 miles. And it's still about double the cost, Krista.

• 7:44Speaker 03

  Wow.

• 7:45Speaker 04

  So even if you only need half the miles, 6,000, looking at about $2 and change per mile, you're going to spend about 1,150 bucks a month or almost 14K per year. Over 20 years, if you did that versus 123 grand to buy brand new Camry and do it twice over that lifecycle, that's 123 grand. Ride share 275 grand.

• 8:11Speaker 03

  Wow.

• 8:12Speaker 04

  Whoa. Same car, different ways to own that car. Now here are your car choices, Krista.

• 8:21Speaker 03

  Okay.

• 8:21Speaker 04

  How much car to own? So we already know that essentially buy new every 10 years is pretty much the same as buying used every 10 years. It's a little bit more expensive. So I'd say that'd be my default. That'd be my default. We're going to choose from this total cost of ownership. Kia K4 LX, one of the most inexpensive cars you can find. It's about 22, 23 grand, starting MSRP, 33 miles combined MPG. Then we'll go Toyota Camry LE Hybrid, which we've already looked at. Tesla Model Y, we know which one Clark would choose.

• 9:00Speaker 03

  Well, that's what I drive.

• 9:01Speaker 04

  What if you've got a bunch of kids and you wanted a big American SUV like so many Americans, Chevy Tahoe LS, two wheel drive.

• 9:09Speaker 03

  How many miles per hour?

• 9:11Speaker 04

  You get 17 miles MPG.

• 9:14Speaker 03

  Okay.

• 9:14Speaker 04

  Having owned some big American SUVs, that's super generous. It's more like 12 or 13, particularly if you live in the city. And then what if you wanted to go hog wild? What would this be? A BMW 530i, about 62K MSRP and gets 31 miles per gallon, depending on how you drive. With the way you drive, it'd probably be like 20 miles per gallon.

• 9:39Speaker 03

  It's true.

• 9:40Speaker 04

  Total cost of these three cars. Here's one thing that's surprising, even though the Kia K4.

• 9:48Speaker 04

  Is only 23.5 versus the Camry at 31.5. The total cost annually because of the depreciation after 10 years, because the Camry holds its value more significantly than the Kia does. Hypothetically, they they're almost the same annual amount. Camry is 6100 bucks a year on average. The Kia is 6,000. Tesla Model Y, again, we're looking at depreciation, gas or electricity, which is, by the way, the Tesla, you can imagine wins there. Insurance, a little higher for the Tesla. Now, somebody, Clark, may say these are my assumptions.

• 10:24Speaker 03

  No, it's true.

• 10:26Speaker 04

  The maintenance and repairs, similar. 8,300 bucks a year ownership for a Tesla. So it's about six grand for the Kia, 6100 for the Camry, 8,300 for the Model Y. If you want to go big SUV, the Chevy Tahoe is going to cost you about 11 grand on average per year. And then, of course, if you want to get super fancy in the BMW, that's going to be closer to 12 grand per year. Again, we're looking at all these different components, which include depreciation, insurance, gas, electricity, maintenance repairs, taxes and fees. Buy new every 10. That wins in my book.

• 11:08Speaker 04

  And with four kids, I'm going to probably have to go for the big American SUV.

• 11:15Speaker 03

  Quick question. If you did your new every 10 years versus new every three, and you took that money over the course of a working lifetime and invested it.

• 11:28Speaker 04

  Can we do 20 years?

• 11:29Speaker 03

  Sure. The savings, if you invested the savings, how much would you have on average?

• 11:34Speaker 04

  All right, so we're going to do the difference between the buy new every three years and the buy new every 10 years, Krista. It's 2,700 bucks a year. Let's call it three grand, just to make it easy. $3,000 times 20 years is going to be 60, but with a rate of return of 7%. I'm going to say it's probably you could have an extra 100K in the bank. If you forwent the buy new every three and did buy new every 10.

• 12:12Speaker 03

  Okay. Very interesting. Thank you for that, Wes.

• 12:15Speaker 04

  Car math.

• 12:16Speaker 03

  We'll go to some questions. Caleb in Florida says, I'm 19, turning 20 in April, and I'm a finance and financial planning student who is also licensed and lives at home. I really enjoy your content because it helps me learn both investing and how to communicate with clients. I have a car.

• 12:32Speaker 04

  Caleb's already got clients. He's 19.

• 12:33Speaker 03

  I know.

• 12:34Speaker 04

  That's awesome.

• 12:34Speaker 03

  I have a car my parents leased for me with the lease ending in June of 27 and about a $23,000 buyout. I currently have $10,000 saved toward it. My parents might help, but for planning, I'm not going to account for that. My net worth is around $34,000, 15,000 in cash, 5K in an emergency fund and 10K car fund, $10,000 in a brokerage and 9,000 in a Roth. I currently invest 1,250 a month between my Roth and taxable account. I also have a Florida 529 with about $40,000 that should become eligible for the 15-year Roth rollover in June of 2027. My plan is to eventually roll around $35,000 into my Roth

• 13:18Speaker 03

  using max contribution limits and use the remaining 5K toward the car. Would you lower my $1,250 a month investment contributions temporarily to build a larger car down payment? My credit score is around 790, but this would be my first auto loan, so I'm concerned about the interest rate.

• 13:36Speaker 04

  You know, because your credit score, Caleb, is so high, I think you'd be like a super prime borrower at 790. Maybe this wouldn't be the case because you're still, and you haven't had a lot of. But well, either way, his credit score is at 790, so you should get a really, you really would get the best rate you could get. And I don't know exactly what that'd be, but it could be pretty low. I'm thinking like 4, maybe 5%. Without knowing exactly, you're going to get a really good rate. One quick caveat, because this happened to me, Krista. On a lease buyout, it's an interesting situation where as you get this purchase price, but you don't know what the car is going to actually be worth.

• 14:20Speaker 04

  And I remember getting, like in your case, I think I had a purchase price of 23K, but the car was still worth like 28K. So it makes it so that it's a really good buy. And then the inverse, obviously, would be true. If it was, if your buyout is 23 and the car's only worth 18, you obviously wouldn't want to buy it. So just obviously look at that. I don't think, Caleb, what's the most important piece of all of these different variables that you just talked about? Is time. And when you're 19, you can never make up for the power of continuing to put money away and invest it at your young age. So you're doing 1,250 bucks a month.

• 15:03Speaker 04

  Never in a million years, what I recommend, cutting that back because you're going to be going and buying a depreciating asset. I mean, 1,200 bucks every single month over the course of a year. I mean, we're talking about almost $15,000 in savings and then the compounding on top of that. So no, I wouldn't, I wouldn't scale back on that. And if it means you have to have a little, you already have $15,000 in cash. So you have more than enough already to put some money down and get a low-interest car loan with your really good credit. So my gut tells me do not slow that savings down.

• 15:42Speaker 03

  19 years old, I thought that was, I was misreading that. I read it again. That's pretty impressive.

• 15:48Speaker 04

  That's awesome.

• 15:49Speaker 03

  Anonymous in Georgia says, I have an 18-year-old about to graduate from high school and planning to pursue pre-med. I have, over the years, been saving in a 529 plan for her educational needs. All the 529s have invested in 100% stocks. I'm hoping my child will qualify for a scholarship to cover her tuition, but I would need to use some funds for her room and board. In the current climate, how would you suggest allocating the 529 investments so that I can protect it for upcoming short-term needs while also planning for near-long-term medical school needs? In my faith, we are also not allowed to invest in interest-based investments. Another reason why the funds are invested 100% in stocks.

• 16:30Speaker 04

  So from a faith perspective, you cannot, you are prohibited from doing anything that's interest-based? Okay, so any sort of 529 plan, you're going to have options for equity or stock funds? And then anything that is bond-oriented or even money market-oriented, those are also interest-paying? Those are going to be off the table for you. So there is really no good answer here. Normally, I would say you would want some money market and some fixed income for that shorter-term area, but for you, that's not, that doesn't seem like it's going to be an option. Well, what could you do then? You're going to continue to be equity-based, broadly diversified,

• 17:13Speaker 04

  which, by the way, may not end up being the worst strategy over time. It's not the most dire strategy. But here's how you could look at this. Perhaps, and let's say that you needed the money this year. It's been a great year in the market. Equity markets are up 12, 14%, depending. One way to lock in maybe more of that would be able to say, hey, my room and board, as opposed to paying it every month, maybe you ask the landlord and you could, and you pay the whole year upfront. So that you, if you were coming off a good year when you need the money, one way to help you essentially lock in some gains and stability after a good market period of time,

• 17:56Speaker 04

  see if you can pay the entire year out of the gate. So that's one way to work the system a little bit. On the contrary, your daughter goes to school and the market's down 25%, well, then you still want to be paying monthly. But if we're in a good environment where your account value is strong and we've had a really good run-up like now, then you, the one way to get some stability is to pay for a big chunk upfront.

• 18:21Speaker 03

  Okay. Harris in Florida says, I have a comment about umbrella insurance. I agree it's important. If you have other drivers in the house, I have a 25 and 29-year-old and my wife and own multiple cars, we have five. A $3 million policy is $4,385. It's about the same price with any of the insurance companies. I do remember when it was under 1,000, but that was many years ago.

• 18:45Speaker 04

  How much coverage does he have?

• 18:47Speaker 03

  A $3 million policy is 4,385.

• 18:51Speaker 04

  Okay, that sounds, okay. Okay, 4,300 bucks?

• 18:53Speaker 03

  Yes. And the next question, should you include your IRA in your net worth for insurance?

• 19:00Speaker 04

  You know, it depends on the state. So Harris, a couple of things. You hear about policy, insurance policies or umbrella that are super cheap. And it's like $400 for a million dollars worth of coverage. That's with no kids and like one car. But when you have a half a dozen cars, like you, Harris, and you've got you and your wife and your 25 and 29, you're still paying, you're still paying insurance for your 25 and 29-year-old. So that's a lot of liability there for any insurance company. So, so now you're paying like more like 1,200 bucks per million dollars in coverage. And that sounds about right.

• 19:40Speaker 03

  Okay.

• 19:41Speaker 04

  It sounds about right, just because you've got a lot of different liability and many, many, many cars in order to insure with lots of people. So that seems right to me. Technically, you don't really need to count your 401K money because that's ERISA-backed and that's super, super protected. And IRA protection in these, in liability cases and bankruptcy is more dependent on your state. I believe Florida is very protective of your IRA money. Some states are not. However, if I'm doing this rough calculation, and again, even in your higher cost of insurance, there's still,

• 20:23Speaker 04

  it's a low cost to cover a tail event. Something crazy happens and you get sued. If it were me, I would be still including the value of my retirement accounts. You may make an argument that you don't need to because you're in Florida. I'd say for most people, you do want to include your retirement money, unless it's all 401K money and that 401K money really should be fully protected.

• 20:47Speaker 03

  Okay. Well, we're going to take a quick break and we come back. How do you retire comfortably on less than $500,000?

• 20:54Speaker 04

  Can you retire? Can you retire on 500K?

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• 24:22Speaker 04

  Welcome back to the Clark Howard Podcast. Ask an advisor, Wes Moss here, along with Krista DiBiase. Krista, can you retire on 500K?

• 24:32Speaker 03

  I hope so, because that's what most—

• 24:35Speaker 04

  The majority of Americans. That's the median number. It's actually more than the median number. Fed's new survey is out very recently, their 2026 release, which has 2025 numbers. Median ages 65 to 74 in America, the median family, family, net worth is $431,000. Now, the average in that age range, 65 to 74, is 1.9 million. Well, how do you get to 1.9 million? Doesn't mean the average family has 1.9 million. It means that you've got, literally, we have trillionaires in America, and those trillionaires and multi-billionaires and 100 millionaires, they skew the numbers. So the reality is that that is not a representative number for most families.

• 25:20Speaker 04

  What's representative is the median. So you line up everybody in America and you pick the middle point. It's 431,000. That means actually 50% of people have less than that. So I think it is an important question to say, can you retire on 500K? And the answer is, the short answer is, it is possible, but it is difficult. And just because it's difficult, though, doesn't mean it's not possible. And there are a couple of ways to make this work. Number one, and we're going to assume you have $500,000 in liquid savings, whether it's an IRA or a brokerage account. We're not talking, we're not going to get specific about taxes here. Just that's the gross amount.

• 26:02Speaker 04

  If you do not have a mortgage payment, and your mortgage is paid off by your retirement date, then all of this does become, in my opinion, very possible. Can you do it at 62 when social security kicks in? You have 500K and social security kicks in at 62? My answer is, again, likely not, because 62, you have your most reduced social security payment. And guess what has not kicked in yet?

• 26:33Speaker 03

  Medicare.

• 26:34Speaker 04

  So you have this three-year gap, and you have that extra, extra expense for healthcare.

• 26:39Speaker 03

  Right.

• 26:40Speaker 04

  So even though you can go and get healthcare through the exchange, and if you keep your income really low, maybe you do get some sort of supplement, but I think that's even too early. So if you're, if we're trying to make this work, here are two variables that get us there. There's really three. One, wait at least till 65. 67 is better. That's your full retirement age for most people, number one. Number two, if you don't have a mortgage, it means that giant cost of housing is mostly out of the picture. Yes, you've got property tax, et cetera, but that makes it very possible. And here's the third one. And again, we can't control this necessarily. It's really hard to do this when you're single, because you have just one social security payment.

• 27:25Speaker 04

  It makes it easier if you're married and you have two social security payments. So here's the way I look at this financially. If you've got $500,000, and you're, let's say you're really pushing it, and we're going to go above the 4% rule, and we're going to go all the way to 5. It's only, again, a little high on a withdrawal rate, but at round numbers here, 5% of 500K is $25,000 a year, about $2,000 a month. Then I take the average social security payment, which is about $2,000 a month for folks at 67. It's obviously less than that. It's more like 1,400 if you take it early. That's why it's better to wait a little longer if this is the situation that you're in.

• 28:09Speaker 04

  But imagine if you have two of you making $2,000 in social security. So you've got 2K plus 2K, and then again, you can make the argument, not everybody's going to have that amount, maybe less, but let's say 2,000, 2,000. And social security one, social security two, and $2,000 a month from the assets. Now, we're at 6K a month, or a little over 70 grand a year. And if we can get there and have no mortgage, oh, it's very possible and very likely. So I think the good news is that it's possible. The big variables that we went over today are things to think about

• 28:49Speaker 04

  if you, if you may end up in this situation as you're eyeing your early to mid 60s.

• 28:55Speaker 03

  Okay, we'll go to some questions. Steven in New York says, "I've always been interested in personal finance, and I love helping out friends and family with the basics of investing and budgeting. I've always had the idea of becoming a financial advisor one day, either as a side job or post, ideally, early retirement. I have a full-time job, but is there something you think I should do or can do now? Should I start studying and working towards the CPA exam? Or is that something that I should consider when I'm fully in it?" And I think maybe, you think CPA or CFP? I was kind of wondering if you meant that.

• 29:30Speaker 04

  Well, you could do either. I'd say CFP would be, would be better.

• 29:35Speaker 03

  You're right. Okay, so this is Steven again, and he says, "For background, I'm in my mid 40s."

• 29:40Speaker 04

  Steve, there are a couple of different ways to look at this. It depends on how much of a gradual transition from your current career. Maybe you're a teacher, or an engineer, or any sort of other career. It is pretty tough to be able to go study for the CFP, pass the CFP, and then the big catch on that is that you can't really quote "be a CFP" until you put in a lot of hours. You have to have something like 6,000 hours, I want to say. And I've talked about this shortage. I was looking at the McKinsey study about financial advisors. The real shortage, it's a projected shortage over the next several years.

• 30:22Speaker 04

  It's that because so many advisors are in their, they're baby boomers and of retirement age, there is a projected 100,000 less financial advisors over the next five to 10 years than are needed.

• 30:37Speaker 03

  Wow.

• 30:38Speaker 04

  So Stephen, the industry needs you. So you have a less supply of advisors and then you have more demand of more and more people in America are seeking financial advice. A, we're a wealthier country than we've ever been. And there's more and more people getting to the point where they're saying, I'd like some help. So I think a reasonable path and 40 is still super young. I've known many people that are in their 40s and later that, that started went from engineers or teachers, marine biologists that have transitioned to becoming advisors.

• 31:08Speaker 03

  Wow.

• 31:09Speaker 04

  And the radio producers who have gone from radio production to becoming financial advisors. And it just takes some time, but it's a nice gradual, you can do this gradually. So you have to enroll in a program. That's the other thing that makes it, you gotta enroll in a CFP program that allows you to then take the test. Of course, that's going to take a while to study. And then, once you have that though, I bet you, if you applied for 10 jobs, even part-time, I bet you get nine out of 10 of those jobs if you are somebody who's already passed the CFA. You won't be able to use it right away, but you're a zero risk for an employer because all

• 31:51Speaker 04

  you have to do is put your hours in and then you can, then you will be able to use it. And that's a huge leg up. So that's how I would, I would do it.

• 31:59Speaker 03

  Okay. I would also recommend, as I always do for any career change for anybody, is do some informational interviews. Sit down with some CFPs and talk to them about what their day-to-day work is like and things like that, just to get more of a sense before you commit financially to studying it, I would say.

• 32:16Speaker 04

  Agreed. Talk to many, many firms.

• 32:17Speaker 03

  Okay. This is from James, in parentheses, Bond in Oregon. Should I ditch the bond funds?

• 32:24Speaker 04

  That's why.

• 32:25Speaker 03

  Very punny, very punny.

• 32:27Speaker 04

  James Bond in Oregon.

• 32:29Speaker 03

  Should I ditch the bond funds? I was hearing on another podcast why bond funds are inferior to owning specific individual bonds and why losses can occur. I've been a longtime holder of three Vanguard bond funds. They've all been in the doldrum since 2022, so I've got unrealized losses of six to 12%. Would I be better off exchanging out of those into something else at this point? They make up less than 10% of my portfolio and I've got other dry powder like money market CDs and I-bonds.

• 33:02Speaker 04

  James Bond in Oregon. If you're going to continue to maintain dry powder and you want flexibility, then, just like any investment, it's really about where are we starting today moving forward? And what you see on a statement, if you have mutual funds, first of all, you're not seeing the interest that you've collected. So you may have an unrealized loss, but you've probably made some money if you were to count all the interest you've gotten over those years. So I think sometimes mutual funds paint a more dour picture than what's really happened because you don't really, very often you don't see the income that you've gotten. So they probably

• 33:45Speaker 04

  haven't been as bad as they might look, number one. Number two, it's all about where rates are today, moving forward. So depending on when you listen to this particular podcast, where rates change every single day, just like the stock market does. If you're a bond investor today and the 10-year treasury is at five or five and a quarter percent, then there's a very high likelihood that you make around four to 5% per year over the next several years in many of the different total bond market funds. So just because they haven't been great because rates were lower and went and normalized, doesn't mean they won't be pretty good moving forward. So I would just, I wouldn't be ditching bond funds, especially today.

• 34:29Speaker 04

  The next piece of the equation is that, sure, individual bonds can be very good and I own some individual bonds. I really like that. What is in the middle between a total market bond fund and a, and an individual bond, a target bond fund or a ETF. So there are ETFs that give you a specific year of maturity. You get lots of diversification within the ETF. You get to pick your year and build a bond ladder that way. Super low cost, flexible way to do it.

• 34:59Speaker 03

  Okay. Curious Cathy in Washington says, Wes mentioned this order for withdrawing assets in retirement. One brokerage account, two traditional retirement account, and three Roth retirement account. Wouldn't it make more sense to withdraw from the traditional retirement account first, keeping withdrawals low enough to stay at the 12% tax bracket or lower, and then withdraw from brokerage accounts or even stay within the 22% bracket with withdrawals? By minimizing brokerage account withdrawals, there would be more of a chance of passing on stocks to heirs with a step up in basis.

• 35:35Speaker 04

  Kathy, you're thinking about this the right way. And I guess the conventional wisdom is this order, brokerage, IRA, then Roth. So if you have to do a simple rule of thumb, and thumbs are meant to be non-precise, then that is the general order. But the way you're thinking about it is the right way to think about it. In practice or real life, there's usually a combination happening of all three. Now, most likely in the early years, it is brokerage and IRA. And yes, you manage your IRA withdrawals to what level may be comfortable for you. So

• 36:16Speaker 04

  if you want to stay in the 12 bracket, and that means you can only pull out, that you could pull out 2K a month from the IRA and you're still in the 12 bracket, and then another 1,000, 2,000 from the brokerage account, and that gets you to your spending while keeping your overall marginal tax rate at a comfortable level. That's how it works in practice. So I know we love rules of thumb and I talk about them, but they are the starting point. The nuance in real world application is usually a combination of these accounts and you're thinking about it the right way.

• 36:50Speaker 03

  All right. And also, you're thinking about the nicknames which Wes always loves, Curious Cathy. I love it.

• 36:56Speaker 04

  Curious Cathy.

• 36:57Speaker 03

  Thank you to everybody who listens, who watches, who sends in questions. We appreciate it very much. We'll be back in a week with another episode of Ask an Advisor. In the meantime, please go to wesmoss.com/ask to submit your questions. Have a great rest of your day.

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