12.30.25 Ask An Advisor With Wes Moss

Little-Known '3.6 Rule' for a Happy Retirement & Is the Job Market Good or Bad? Wes Moss dives into the critical connection between social capital and financial security, revealing a surprising "magic number" from his 2025 Money and Happiness in America Study. While most people focus strictly on their 401(k), the data shows that intentionality in your social life is just as vital as intentionality in your investments. Also, Wes breaks down the latest labor data to determine if the "Goldilocks" era of employment is here to stay. With the unemployment rate ticking up to 4.6%, Wes looks past the headlines to analyze the Employment-Population Ratio, which remains strong. Plus, Christa shares your #AskWes questions and Wes gives his take. All this and more on the December 30, 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. 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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• 1:04Speaker 02

  Welcome to Ask an Advisor. Wes Moss.

• 1:07Speaker 03

  Kristin E.

• 1:08Speaker 02

  This is our last show of the year.

• 1:11Speaker 03

  It is.

• 1:11Speaker 02

  Wrapping up a great year, the first year.

• 1:13Speaker 03

  Just like that.

• 1:14Speaker 02

  Of Ask an Advisor. One year in the books.

• 1:17Speaker 03

  Sure hope we helped some people.

• 1:19Speaker 02

  I know we did. I know you did, because I've seen the comments.

• 1:22Speaker 03

  Judging by the complexity of the questions, yet you can tell people are saying, well, if they can answer that, we'll just throw another hugely complicated question for us to do here in two to three minutes.

• 1:35Speaker 02

  So, we started Ask an Advisor with the intention of giving the Clarkies a different kind of episode once a week, where we actually could have their more, more specific investing questions answered and retirement questions, because that's your specialty, Wes. And Clark went down from five to three episodes a week. A lot of people were sad about that. So, you know, we thought we could add this in on Tuesdays, and it's been very well received. So, thank you so much, so thankful and grateful to everyone who tunes in, who downloads this podcast, who watches on. On YouTube and keep sharing it with your friends if you would.

• 2:13Speaker 03

  And so, thank you for allowing me to be part of this and I get a good sense of, I think, the listener base when you were asking these questions. It's a, it's a really fun, responsible, cool group of folks that, that listen and, and watch this. So I appreciate it.

• 2:29Speaker 02

  For sure. And you and Mallory, who works with you, came to our holiday party, the Team Clark Holiday Party.

• 2:35Speaker 03

  Yeah, we did.

• 2:36Speaker 02

  We go to Costco, we do a little shopping spree, and then we have a dinner and we do a white elephant swap party. And you actually got-

• 2:43Speaker 03

  That was so good. And that was so much, it's been a while. I almost forgot what a white elephant was. And then I was, it's really fun.

• 2:48Speaker 02

  Yeah. You were actually really funny. And you ended up getting a gift that Clark brought that he bought for like $2 at Costco on clearance.

• 2:56Speaker 03

  Yes. So much so that I donated that gift immediately.

• 2:59Speaker 02

  Yeah.

• 3:00Speaker 03

  At the end. It was a bottle of, I thought it was a big bottle of soap.

• 3:06Speaker 02

  It was basically a margarita bottle.

• 3:08Speaker 03

  Yeah. It looked like a, it was a green, round, squishy bottle that looked like a big bottle of soap that you would have on your counter. Turns out it was some sort of margarita mix, tequila.

• 3:20Speaker 02

  Yeah. And it had been like $25 and then it was on clearance.

• 3:24Speaker 03

  For two. And there's a reason it was on sale for two.

• 3:26Speaker 02

  Yeah.

• 3:27Speaker 03

  I believe, I believe. I was trying to get my own gift that I had brought in and, which was one of those fluffy blankets.

• 3:34Speaker 02

  I did the same.

• 3:35Speaker 03

  That's super comfortable.

• 3:37Speaker 02

  Yep.

• 3:38Speaker 03

  And it turned out it was Grace's son that got it, Sebastian. And I didn't want to, because you can steal. I didn't want to steal from a little kid.

• 3:46Speaker 02

  Right. Understandably.

• 3:48Speaker 03

  Which was now, upon further review, was probably Grace that wanted the blanket. So she had Sebastian steal it, knowing that no one would steal from her son. You can't take from like a nine-year-old. So it was very smart.

• 4:00Speaker 02

  Very, she's, she's very, very crafty. So on today's Ask an Advisor, we're going to talk about two topics. One is why the happiest retirees, your social life is so important if you're retired. And then also the new jobs report that came out recently.

• 4:17Speaker 03

  Yep. We, we have a lot of economic catch-ups. To do because we had the government shutdown and we missed of big chunks of data and they just finally rolled in jobs numbers, inflation numbers. So we get to do a catch up of how the economy is doing. Number one, we'll do that. Second, first, we'll do, maybe it was, I think, our Christmas party that inspired me to talk a little bit about socialization. I like it. So we know that this is an important component and I studied this because in my formula of being a happy retiree and the retire sooner method, it's not all financial, a big chunk of it is financial, as you can imagine, getting to a place where we don't have financial anxiety anymore and we can feel as though we'll never run out of money. And that's a really important place to be.

• 4:58Speaker 03

  And it's a hard place for a lot of Americans can get to. But the other side of that are lifestyle choices. And one of those primary lifestyle choices, and I say it's a choice because it is also work. It also is effort. It's not something that just happens, just like you don't just accidentally end up with a million dollars. You don't accidentally end up with a social group that carries you through the rest of your life in your retirement. It takes some real effort. It takes some, some intentionality. And I've studied the, the impact of what it means, whether or not we have relationships and how many of those relationships that we really should be

• 5:38Speaker 03

  looking for and cultivating in order to be in the happy group of retirees in America. So this is really based, this is based off data from my 2025 money and happiness in America study. This is just what the research says. This isn't so much my opinion. I have an opinion about the research, but this is what I've found in asking retirees about their lifestyle and in this case, particularly socialization. And first of all, I think the overarching climate that we are in, if you go back and there's lots of data and different studies on this, you'll see that having close friendships and having just AKA friends.

• 6:20Speaker 03

  That has been declining in America for really for an entire generation. If you go back to 1990, very few people reported that they had only two or one or zero close friends. By the time we got to 2024, almost 40% of America noted that or reported that they had two friends or fewer in the world.

• 6:45Speaker 02

  Wow.

• 6:46Speaker 03

  Two close connections or fewer. My buddy Dan Bueter, who's the author of The Blue Zones, a couple of years ago, and this has been going on for a while, said that we, you know, in the 90s, we used to have on average, three friends. Today, we're down to 1.7.

• 6:59Speaker 02

  That's crazy.

• 7:01Speaker 03

  Despite social media, which has connected us at least digitally and more broadly and vastly than ever before, but actual close connections, people that on any given day that's really good or really bad, you can call. That's a close connection. You can give someone really good news or really bad news. And we're similar, about 20% in 1990 had three to four close friends, about 19% today. It's a 21. So that's a, it's a tiny bit better, but let's call that flat. But in larger friend groups, five close friends or more, back in 1990, almost two thirds of America had five or more friends.

• 7:44Speaker 03

  So a larger social group, 64%, that's dropped all the way down to 42%. So that's a third, about a third, that's about a 33% drop. So that has been just culturally what has happened in the United States. And I don't know exactly why that is the case. I don't have, I don't have a reason for it.

• 8:05Speaker 02

  I think social media is probably a big part of it. The internet, social media, we're spending time online instead of connecting with people in person.

• 8:12Speaker 03

  Perhaps. Now, where are the levels we want to get to? And for me, I look at this as what level of, let's call it, the size of your social network gives you a better chance of being in the happy retiree group or the non-happy retiree group? So I think of this as happiness relative to the number of close friends and connections. And a lot of the way we look at the data from our 2025 study is what is the average person doing? What's the baseline happy person in America doing? And if I'm doing something different than that baseline group, does it give me a better or worse chance of being in the happy retiree group?

• 8:52Speaker 03

  And when it comes to the size of your social network, if you have one to two, if you're in that category of one to two close friends, you're 22% less likely to be a happy retiree, 22% less likely. If you have five or more friends, you're 21% more likely. So there's definitive data that says if we have, if we report, yeah, I've got, these are, I can call Krista, I can call Mallory, I can call Jim, Bob, Mark. And if that is the social network that you can rely on, by the way, there's tons of longevity tied to social relationships. We live longer if we have closer friends when we're in retirement,

• 9:36Speaker 03

  but we're also happier. So getting to that five number is really important. Kind of the middle group, which is I would call neutral. The baseline happy retiree has 3.6 close friends. So if you have three to four friends, I think you're totally fine from a happiness perspective. You're in that neutral group. It's not necessarily bad or good. It's just kind of baseline. But I'm not here to propagate being on the baseline. I want people to have the best possible retirement they can and be happy retirees. And one of those pieces of the formula is to really work at and make sure you're intentional of having a social network, close friends that are five people or more. The other thing I think a lot about when we talk about socialization is that

• 10:21Speaker 03

  socialization in your social circle does not stay static. It changes a lot. When you're in your twenties and thirties, you don't really feel the phenomenon because everyone's always around you all the time. The first big move is when people graduate college and there's some spreading out. And then all of a sudden, a good friend may have moved to Arizona and you kind of never see him again. So that's the first big one. And then you're back to, hey, I live in this neighborhood. You maybe live in the same town and there seems to be a lot of stability of people that if you know them, they're going to be around for a while. Then as you get a little bit older, you realize people do move for work, people get divorced, people get sick, people die. So our social networks are not a given.

• 11:02Speaker 02

  You have children, you start to hang out with more parents. Yeah, it's definitely.

• 11:06Speaker 03

  Well, that's one of the ways that we can build our social network.

• 11:08Speaker 02

  Right. But maybe you drift from other friends. It's, yeah.

• 11:11Speaker 03

  So I don't want folks to think, oh, I'm in good shape. I've got my three to four, maybe five close friends. Those networks, they change. You can't really take that for granted. And that's where I think the intentionality comes is that we have to constantly be having an eye on trying to be involved. And as a parent, I think you run into you feeling guilty about doing anything beyond your kids and they can take up all of your time. But my message is to really think about how our networks change, evolve. Sometimes they shrink without us wanting them to. So we have to constantly be thinking about being intentional, being part of organized

• 11:52Speaker 03

  groups because socialization begets more socialization and the numbers prove it out. And it's a super important piece of the formula for the retire sooner method.

• 12:06Speaker 02

  Okay, we'll go to questions now. David in Texas says, Wes, between my wife and I, we currently have around $3.5 million in life insurance, term of course. Our oldest is about to turn 18. He's a good kid and is going to start college. As of now, in our trust and will, we have someone different to manage money and our kids would be left to a family friend. Her parents are too old and mine wouldn't want them and my family can't be trusted with that amount of money. My question is, should we consider making our oldest the one responsible for his siblings? Can we put it into the will that only a certain amount of money is given each year to raise kids and pay for college, et cetera? I'd hate to leave that responsibility to an 18 year old, but hey, it'd be better than if he were us.

• 12:47Speaker 03

  I don't know what that means. I don't know. He were the best. Well, in this case, David, you're not there. So you have to make a call on this. I would look at this as two ways. You want a in the will and your estate planning documents, which would include a trust, which by the way, the trust is what's going to determine when people get money and how much. It's the trust that will do that. The will will put, will say, send this amount of money to the trust. And then the trust has the directions on who gets it when. You need a guardian that will watch over the kids and a trustee that will watch over the money. And I think an 18 year old is too young to be a guardian and too young to be a trustee. I think the 18 year old could probably be a successor guardian down the line,

• 13:32Speaker 03

  maybe when he's in his early twenties, but even that's really, really young. Lynn and I, my wife and I were just talking about how so many folks that are out of college are still living with their parents because financially they can't, even they're college educated. And you would think they could go get jobs like when we were in our twenties. It's a much harder today because the world is more expensive. So I wouldn't put the responsibility just yet on your son at age 18. I would have another family person that is the guardian. And maybe that could be the family that you said, you don't, you just don't trust them on the money side, which is not rare. That's not a rare phenomenon. Then on, on the trustee side, you do need someone in, if you say it can't be a relative, maybe it is a close friend

• 14:17Speaker 03

  that you've known for your, your whole life, your most, think of your most responsible friend who's always been responsible. The guy that was driving everybody home from the party in college, the guy that never got in trouble, the guy that's a, maybe he's a CPA or financial advisor to this day. That may be the person that is the trustee of the money. It's not their money. They're just there to manage it. Then a guardian that is someone that you can trust at least until your son is in their at least early twenties and then maybe they can become the guardian if your kids are still under the age of 18. Very simply, yes, the will can direct money to the trust and the trust can say, here's how much they get at certain times for certain things, something

• 15:00Speaker 03

  called HEMS, health, education, maintenance, support. Those are the typical things that are there to be allowed to be paid for. And the trust, you get to spell that out today while the sky is blue.

• 15:13Speaker 02

  Okay, Terry in Ohio says, what's the best metric to use when assessing a bond fund?

• 15:18Speaker 03

  Do we have a one line question?

• 15:19Speaker 02

  Yeah.

• 15:20Speaker 03

  Love Terry. Thank you, Terry. All right. So I would say there's three things. One, the kind of bond, because that's number one. Number two, when you're assessing whether it's a bond fund or bond ETF, Terry, the kind of bond, the yield, of course, of the bond. Three, I would say the duration of the bond, and then the expense of the bond fund or the bond ETF. And then what does it look like relative to the bond index? So kind, of course, corporates, treasuries, high yield, that will determine a lot. That is, is this a safe, super safe bond with a little bit of interest? Or is this a riskier credit bond with higher interest? That's the first decision. And the fund will say in its name

• 16:05Speaker 03

  typically, government bond fund or corporate this or high yield that. Just remember, high yield is a fancy word for junk bonds. That will determine mostly the yield of what it is paying, the income amount. So you want to say, is this paying 3%? Or is it paying 7%? If it's 3%, it's probably like a treasury. If it's 7%, it's probably a junk bond or high yield fund. The duration is a really big part of this. And that is a number that you, on any bond fund, it should show you the duration. It's essentially the length of the average bond, also calculating the amount of interest you're getting throughout the years. Essentially, how quickly do you get your money back? The higher the duration, the more the price of the bond fund will move. A short duration, if the duration is

• 16:47Speaker 03

  a two, if interest rates move 1%, your bond fund will only move about 2%. If the duration is 15, a 1% movement in bond or bond yields, interest rates, could move the fund 15%.

• 17:02Speaker 03

  The duration is a huge piece of the equation when you're looking at these funds. And then, of course, look at expenses. Last thing I would do is check the fund relative to the aggregate bond index. Look at the two of them, and that'll give you an idea if the bond fund is more or less volatile than the aggregate.

• 17:23Speaker 02

  Okay. Dick in Arizona says, "When might be wise to use Roth IRA money for short-term cash needs? My wife and I both are in our 70s and have no debt. Is it wise to consider withdrawing about $100,000 from our Roth accounts to purchase a home and then sell an existing home? Except for real estate, our assets are in regular IRAs. Roth IRAs and joint brokerage accounts are at Schwab. Our residence is in the Northwest, and we have a winter home in Arizona where we spend about five months a year. Both homes are worth about $550,000. We plan to sell the Arizona home and replace it with a more maintenance-free home with a smaller, similar value. We're going to buy first and have a leisurely move, then sell the home we're replacing. We can access $500,000 from our

• 18:08Speaker 02

  brokerage account for the purchase without tax consequences. We will probably need a little more temporarily. If we use regular IRA money, the taxes would be 22%, then jump to 24%. If we take more from the brokerage account, we would be paying capital gains tax. If we use marginal money, the interest would be about 10%. A HELOC on our primary residence would be about 6%. When we sell the Arizona home, we would pay off any loans and put the $500,000 back to work in the brokerage account. Our pension, social security, and RMDs more than cover our needs, including travel, vehicles, remodeling, et cetera. As Clark would say, this is a good problem to have. Your thoughts? And P.S., it won't surprise me if your answer to using the Roth funds was no."

• 18:51Speaker 03

  Dick, it is a good problem to have. It's a high-class problem, as probably Clark would say. I was just drawing out a map here of the United States. You're going from Northwest to Arizona, two $500,000 homes, but you're going to swap out the Arizona home and buy another $500,000 home. So... You've got IRA brokerage, margin HELOC, all different choices here. Definitely not the IRA, probably not the Roth, and the margin, definitely not the margin, which leaves us with more brokerage money that you're going to be pulling from or HELOC. You say you already would be able to, you'd use up the 500K in the brokerage that's kind of tax neutral,

• 19:33Speaker 03

  that you're not going to pay taxes, which leads me to believe to get the next 100K, you're going to pay capital gains on that. I think it depends on how much capital gains. If you have to sell 100 and you've got a $30,000 capital gain at only 15%, you're only talking about 4,500 bucks in tax. That might be the easiest, quickest way to do it. But if the whole 100 is a gain, then you're talking about 15,000 in taxes. So it really depends on how big or how much that next 100 grand is you need. I would be willing to bet it's probably, the entire thing is in gain. And if you only have a $20,000 or $30,000 gain in order to access that 100K,

• 20:16Speaker 03

  you're probably best just to pay the 15%. It's not that much. Remember, it's only on the gain. The other way to do this, Dick, would be to use a HELOC, even though it's, it's going to be more than 6%, I think. It's probably more like 7%. But remember, if you use the HELOC, because there shouldn't be closing costs if you already have this ready to go, you pay for the house in Arizona and you can still leisurely move. And then in two, three, four, five months even, when you sell the other Arizona house, you pay off the HELOC. So you're only paying interest for three, four, five months, which again is probably only a few grand to do that. So those are my two options, but yeah, no reason to use the Roth.

• 21:01Speaker 03

  Remember, you can use the Roth and still do the 60-day rollover. You can put it right back in within 60 days. But this sounds like it's going to be longer than 60 days. So you, we're not going to be able to put it back in the Roth. So don't use the Roth, don't use the IRA, don't use margin. Either use the brokerage or the HELOC and you're home free to Arizona.

• 21:21Speaker 02

  Nice. Okay. And coming up straight ahead, we're going to talk about the jobs report and just catch up on the economy.

• 21:27Speaker 03

  Let's do it.

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• 23:29Speaker 03

  Welcome back to Ask an Advisor. I'm Wes Moss along with Krista DBS.

• 23:34Speaker 02

  Hello Wes.

• 23:35Speaker 03

  We're talking jobs here and the reason we wanted to do this is that this is the great catch-up. We had economic data piling up at the edge of the dam for a long time. We had all this economic data and it was just stuck going nowhere. And then finally, we got the government shutdown ended, the dam opened, and then a big release of data that flooded the city. And the city is flooded with economic data because we got not just one job report recently, but two. It was the October job numbers and the November job numbers. One of those was partial, but it was kind of, it's a very unique situation. I can't remember ever really having two job numbers all at once.

• 24:19Speaker 03

  So we had this, this donut hole of, of not understanding really where the economy was without official numbers. And now we know. And the government data release is, it's, it's kind of like you're looking in the oven and you look at the turkey and it looks like it's cooked and you pull it out. And you're like, well, maybe this part's overdone, this one's underdone. You can't really tell. That's kind of how we were, we were operating for a little while. It seems okay. And upon further review, I would say it is okay. I would say it's not amazing, not great, but it's also not bad. It's Goldilocks, which I love when economic numbers are in the Goldilocks zone.

• 24:59Speaker 03

  There's two job numbers. So there's three job ideas I'm going to talk about, labor market. The, what we call the establishment survey or the payrolls survey that gets the press in the headline. There's the household survey where the BLS calls people and talks to people and they say, hey, are you working? Are you planning on working? And then there's the EPOP, which is the prime age employment to population ratio, which gets no press. But it may be the just as important as the unemployment rate that everyone that gets talked about a lot. What is that? Well, it went up to 4.6. So we were at 4.3, then 4.4, 4.5. Now we're at 4.6. So wait a minute, isn't that bad news?

• 25:41Speaker 03

  We're going higher in the unemployment rate. Well, it's not good news. It is part of the reason we're seeing the unemployment rate go up is that we have more and more people come back into the labor force and they want jobs. They don't have them yet. Number two, as far as the numbers were concerned, in November, the most recent jobs number, we added supposedly 64,000 jobs in November and we saw 105,000 job losses in October. Now that doesn't sound good. However, a lot of that was from, remember DOGE? And the Department of Government Efficiency. And I remember being in Atlanta,

• 26:21Speaker 03

  we have a lot of government workers here in the city and seeing the email from, I guess it was from DOGE that said, "We'd like you to take a buyout. If you don't, we don't know if you're going to really have a job. So you roll the dice." So tons of people said, "Okay, I'm going to get paid for nine months and then be gone." Their last paycheck was in September and that huge group of folks that said, "I think I'm done." And they took the buyout, government jobs. They showed up at the unemployed camp in October. So that's why the unemployment numbers looked like it was bad in October. And then again, here we are at 4.6%. What's interesting is the other side of the labor market, the household survey,

• 27:03Speaker 03

  showed that we have an increase of about 400,000 people working over the last couple of months. So two different reports telling a slightly different picture, but we're getting the unemployment rate from the, from the household survey. I would say this is a Goldilocks number. It's not bad, but it's not good. It's not that the world is falling apart. But back to my, or circling this up with my final ratio, that's actually, I would say it's, if there's a red light, green light, yellow light, this one is green. That's the prime age deployment to population ratio. Essentially, it looks at age 25 to 54. That is a prime working age. Though, under that, you may still be in college or haven't figured out a job yet.

• 27:48Speaker 03

  After 54, you may be starting to think about retirement. How many of those people are working relative to the population of those people? And the answer is 80.6%. Eighty, almost 81%. That number is, has stayed really steady and I'd say continues to be strong. And it's been that way really for the last couple of years. And we saw periods of time where it dropped down to 75 during the financial crisis back in the, call it 2010, 2011, 2012. It was all the way down to 75. Today, it's, it crested at kind of 80, 81. It's still really close to 81 and has been staying very, very steady.

• 28:30Speaker 03

  That's a number that you may want to be looking at more and more important than the unemployment rate. And I'd say it's still in the green zone, not the red zone, not even in the yellow zone. So, good news for the job market for all those who are worried that AI would go ahead and take all the jobs. Hasn't happened yet.

• 28:48Speaker 02

  Okay, we'll go to questions. If you want to ask a question of Wes or of Clark, you can go to Clark.com/ask. Sarah in Florida filled out that form and she said, "This is a question for Wes. About a year ago, I received $30,000 in a settlement for a car accident that left me with a broken arm and unable to work. I opened a Roth IRA at the age of 22 and used nearly half of this money to fully fund my account for 2024 and 2025. The rest of these funds are being kept in a high-yield savings account along with my other savings. The total of this account is about $30,000 and I also have $15,000 in a CD. I've been saving up to buy a home in the next three to five years.

• 29:28Speaker 02

  Should I fully fund my Roth IRA again for 2026 or just start contributing monthly? I'm able to save about $500 per month and I was considering maybe a 70/30 split with the majority going into my home savings each month."

• 29:42Speaker 03

  Sarah, the simple answer here is yes. I would go ahead and be funding the 2026 Roth because remember, it sounds like you've done 2024, you've done 25. So, let's call it, you probably have around 15 plus in the Roth. You can do another 7,500. I would go ahead and do it now. You don't need a dollar cost average or do it monthly. I would- You could go ahead and just do the entire amount because remember the cool thing about the Roth, Sarah, is that all of your earnings can come out tax and penalty free. Even if the Roth isn't five years old and doesn't have the vintage. So you're not locking, it's not a lockbox for your contributions. You can go ahead and take them at your will. You can always do that.

• 30:27Speaker 03

  It gets a little trickier when you're taking out your earnings. And if you don't, if you haven't had your earnings in for five years, you can still use the $10,000 first time home purchase exemption to pull money out of the Roth without a 10% penalty. But you will, if it's not five years old, you still are going to have to pay some tax on those earnings. But I don't think that would discourage me from still using the Roth because you have plenty of money in contributions.

• 30:57Speaker 02

  Hopefully she won't have to pull any out of her Roth and can just use that extra 500. She can save a month to save for the down payment.

• 31:04Speaker 03

  Exactly. So hopefully you won't even have to do that because you'll have saved other money over the course of the next several years. But it sounds like you're young, you're thinking like an adult adult and you're putting this money to good work.

• 31:18Speaker 02

  For sure. Andrea in Connecticut says, my employer is offering a Roth in plan conversion option. I understand I would be taxed on money moved from the traditional to the Roth. Can you explain why it would be a good strategy to do the in plan conversion now rather than withdraw from the traditional IRA after retirement?

• 31:35Speaker 03

  Andrea.

• 31:36Speaker 02

  And retirement's next year for her.

• 31:37Speaker 03

  Oh, it's next year. It depends on your tax rate. The Roth calculation, it's pretty simple if you think about it. The numbers to get to the perfect numbers are hard to get to. But if you're in the 30% tax bracket today and you're working, you have a high income, to convert money into, from the 401k to the Roth will cost you 30% in taxes or maybe more because it might, it'll push up your income. But if you get to retirement and your retirement tax rate is 15%. Then it is not a good idea to do a Roth conversion. It's about taxes today versus taxes in the future. Why pay 30% today? When if you wait a year, you'll be pulling money out of 15%.

• 32:21Speaker 03

  And a lot of Americans end up in a situation because you can start to manage and control your income in retirement. They end up in lower tax brackets when they are no longer working. However, there are still millions of Americans that find themselves in higher tax brackets because they might have a pension. And when they get into their 70s, they have big IRAs. And those IRAs produce RMDs, those required minimum distributions or taxable income. And you've got social security. So you may find yourself today in the 15% tax bracket. But in retirement, you're going to be in the 20% bracket. So if taxes in the future are higher, then it's very likely that a Roth conversion today

• 33:05Speaker 03

  would make some sense for you to pay at a lower rate. Just be careful not to do too big of a conversion all at once because the conversion itself increases your income, which increases your tax bracket. So typically, the right way to do Roth conversions is in chunks, spread out over time.

• 33:22Speaker 02

  Okay. And then we've got a question for you from Eric in Georgia.

• 33:26Speaker 03

  Eric.

• 33:26Speaker 02

  2025 has been quite a year for me. I got laid off in June from a high paying job after 12 years with the company. I finally managed to find a new job that may or may not be equitable in pay. It's a contractor position with an hourly rate. The twist here is that while it's a W-2 contract and the company I contract through offers a 401k, they do not offer any kind of match. My wife and I are 54 and 55 respectively, and currently have 1.6 million in tax-deferred accounts, 850 in a managed IRA, 650 in my former employer's 401k, which I'm keeping there for the option of accessing that money through the rule of 55, and 100K in an old 401k from my wife, which is all invested in a super low-cost index fund, and I didn't

• 34:11Speaker 02

  see the point of moving it this time. I also have a very small Roth IRA that I opened last year to start the five-year clock. My savings plan Priority is currently to rebuild our emergency fund, which we tried to keep at 120K. But because of the job loss, we tapped about 50 of it. After that, what is the right move? The new employer's 401K, these are the options, the new employer's 401K with no match. But again, I would be available to me via rule of 55, should I lose that job? Two, I can also start contributing after tax money to the Roth, which I'd be able to access in 2030, but I would hit contribution limits of 8,600 as the plan is to put more than that into savings. Or three, create a taxable brokerage account where I would make after tax contributions

• 34:55Speaker 02

  and pay long-term capital gains when I withdraw the money. Are there any good options I'm not considering? Thanks for the great advice you give.

• 35:02Speaker 03

  Hey Eric, I would say that one thing I caught in that, that I would just want to make sure you're paying attention to is that you're 54 and you said you had an old 401K. That means it's the prior employer and you've got 850 grand in there. Remember, the rule of 55 will not apply to that because you left at 54. You have to be 55 plus to access that particular 401K. Now, the good news is you can solve for that by putting that money in your new 401K. So that's probably what you were planning on doing, but just be really careful about that. It's a year difference. It's a big accessibility difference.

• 35:44Speaker 03

  Your issue is accessibility, not value, because you already have a ton of money saved. You already have 1.6 million. So you're already in the, I call that, you're in the green zone already for retirement. The bigger priority is accessibility. All of this is, almost all of your money is IRA money, so it's taxable when it comes out. So you want to build up as much other areas as you can at this point. So do you do the Roth, an emergency fund, 401K or brokerage? Here's the order and sequence I would use. One, Roth, max that out because again, to your point, it's only going to be 8,600 for you. So do that for the first dollars, probably for you and your wife.

• 36:29Speaker 03

  So that's that times two Roth first, then you've spent some emergency money. But I look at your brokerage account as somewhat emergency money like because you can get to it, just like you can get to that Roth money. It's the contributions you can get to, it's accessible. I would probably then really lean on adding money to the brokerage account. And I would be thinking of that particularly, let's say you're putting some of that in safer investments as dry powder, which is similar to your emergency money. So you're both keeping it accessible. If a portion of it is in safe assets, you're also adding back to your emergency bucket, which dry powder really is emergency money.

• 37:14Speaker 03

  And that's how I would do it. And probably not unless you are making tons of money, which you said you're not now. Doesn't seem like you can do all the above. So I would probably be leaving out the 401k.

• 37:27Speaker 03

  I know you're missing the pre-tax contribution. So you could make an argument to do some of that, but definitely Roth one. In a perfect world, max out the 401k and then do brokerage. But if you don't have the money, focus in on the brokerage because it's after tax money. You need that going into retirement.

• 37:44Speaker 02

  Okay. Well, that does it for us for this week and this year.

• 37:47Speaker 03

  Okay, that was it.

• 37:48Speaker 02

  Thanks again, everyone for listening, for watching, for all your comments on YouTube, Spotify, your reviews on Apple Podcasts or wherever you listen. We're very grateful and hope you have a healthy and safe new year.

• 38:02Speaker 03

  We'll see you in the new year.

• 38:03Speaker 02

  We will.

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