Pod Insights Money Guy Show How She Built $380k by 38 (Without a Six-Figure Job) | Making a Millionaire About this episode Rachel, a single mom and tech writer from Colorado, joins us to ask the question so many of us wrestle with, "Am I doing enough? " Together, we unpack her incredible financial progress, explore smart saving vs. over-saving, and discuss the balance between future security and present joy. This episode will help you find clarity (and permission) to live a little while still building wealth.
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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1:00 Speaker 02 I want you to be able to focus on doing the stuff with your son and creating the memories and doing the stuff now because, yes, it's great and wonderful to one day have a huge pot of money sitting there waiting for you, but you don't want to look back and say, "Man, I wish I would have." Because your nine-year-old has only been nine once. I don't want to sacrifice getting to create memories and doing things today just to have some slightly bigger pot of money later if I know that I'm already doing the stuff that I'm supposed to be doing. And I think you are in that same exact place.
1:34 Speaker 03 So I'm from Littleton, Colorado. It's like 20 minutes outside of Denver. I am a single mom to an almost nine-year-old.
1:42 Speaker 02 Oh, nice.
1:43 Speaker 03 And I do tech writing for an engineering firm.
1:46 Speaker 02 Tech writing for an engineering firm? What's that mean?
1:49 Speaker 03 Basically, like, I tell them where to put their commas.
1:51 Speaker 02 Oh, OK.
1:53 Speaker 03 Yeah.
1:54 Speaker 02 Sometimes I do tech writing for a financial planning firm every now and
2:00 Brian Preston? It used to be in the past for a specific advisor.
2:02 Speaker 02 For one specific person. That's awesome.
2:05 Speaker 03 Yeah.
2:06 Speaker 02 How long you been doing that?
2:07 Speaker 03 It'll be three years in March.
2:08 Speaker 02 You're 38 years old, you let us know that you make about $83,000 a year. And I think your total net worth is like $380,000. So like, why are we here today? What's the thing that we're gonna be talking about today? What made you decide you wanted to come on Making a Millionaire?
2:22 Speaker 03 I really like your guys' ideology on money. And I wanted to see if you guys felt like I was on the right track to retire comfortably. I am hoping if you feel that I am on track, that maybe it'll make me feel more comfortable to spend money on bigger things. Cause I have a problem with that.
2:40 Speaker 02 Tell us more about that. What's the problem? And what kind of stuff are you not spending money on?
2:44 Speaker 03 Like vacations with my son, or to do like home improvement projects, maybe not by myself, to hire somebody to get them done. I'm just afraid like, I'm gonna spend a bunch of money and then something is gonna happen and I'm not gonna have that anymore.
2:57 Speaker 02 So you kinda like hold on to it for fear of like the unknown unknowns that are gonna come your way?
3:02 Speaker 03 Yeah.
3:02 Brian Preston? Do you feel like currently you're ahead of the curve, behind the curve, right where you're supposed to be? What's your gut?
3:07 Speaker 03 If the curve is this normal person my age in America, I feel like I'm ahead of it.
3:12 Brian Preston? You say that with a question, the way your voice just, you didn't sound like a lot of security with that.
3:18 Speaker 03 Well, that's kind of, I kind of wanted like more of a personalized touch because the calculators can only go so deep. I feel like I'm doing a good job, but I wanna know if I should be doing more, or if I can like take my foot off the gas a little bit.
3:32 Speaker 02 Let's look at what you've done so far, cause again, 38 years old, that's not old. When we look at your investment portfolio, we can see that right now, you have a total amount invested of like $140,000. Uh, in your traditional 401K, you have about $19,000, you have about $10,000 in a Roth 401K, almost $80,000 in a Roth IRA, which is awesome. You have a ton of tax-free assets. And then about $33,000, $34,000 in a traditional IRA. So from like a pre-tax, tax-free standpoint, you're in a fantastic spot. So obviously- I would imagine to be able to get to this level of assets by thirty eight, you must be a pretty good saver.
4:11 Speaker 03 I was really fortunate to get a job right after my son was born for somebody that I nannied for in college. That's why I put myself through college. He gave me a ten percent bonus at the end of every year and ten grand in cash that he let me do whatever I wanted with. So I put them into the retirement account after the first year.
4:28 Speaker 02 Sock it away.
4:29 Speaker 03 The first year I spent it on a car and I regret that. But after that, I paid off my student loans with that money and then I put the rest into those IRAs that I started. That's why they're so large. It's been like ten years.
4:40 Speaker 02 And you said that was like ten years ago, like right when your son was born. And it seems like that savings behavior has stayed pretty consistent. Cause when we look at your savings right now, you're absolutely crushing it. Right now you have twelve percent going into the Roth portion of your 401k. You get a six percent employer match.
4:57 Speaker 03 It's actually, um, it's actually a hundred and fifty percent up to six percent. So it's actually nine percent.
5:03 Speaker 02 Oh, you're getting even, so it's even better than what we're modeling here. So we're at twelve percent plus nine percent. And then you're doing your Roth IRA, maxing that out at five hundred eighty-three dollars a month. So that's another eight percent. So I'm gonna do this math, Brian. Check me on this. That should be like twenty-nine percent savings rate. Thirty-eight-year-old, a hundred and forty thousand dollars in investments, saving almost thirty percent.
5:29 Brian Preston? All the models are telling you you're ahead of the curve. But yet your voice, you know, there has to be something that's working in the background that's just saying it's not enough or concerns. What is it?
5:39 Speaker 03 I think it's just like some experiences that I've had, like throughout my life with my parents taking some financial risks growing up and then they crumble.
5:48 Speaker 02 It didn't pan out?
5:48 Speaker 03 And I just wanna be prepared and I feel like my son's my only one and so I'll, I wanna leave him a good legacy.
5:55 Brian Preston? Sure.
5:55 Speaker 03 He doesn't have to share it with anybody, but I'd like to be able to help him and the more I have, the more I can give when he's ready. Cause it's getting harder, I think. Like it's not the way that it was when I was younger.
6:06 Speaker 02 Your past with money, you've seen how maybe not making sound financial decisions didn't play out well and you wanna kind of flip the script on that. You wanna do it differently than perhaps maybe it was modeled for you completely.
6:17 Speaker 03 Yeah, I might be over correcting, but that's another reason too is like because I save so much money, I'm wondering if I'm doing my present self a disservice because I'm too thrifty.
6:29 Brian Preston? We always say, put on your 3D glasses. Let's go ahead and give you a little more confidence by actually throwing it through the 3D glasses to kind of see how that's played out.
6:40 Speaker 02 One of the reasons that we're able to help people, clients, come up with clarity, whenever they face any large life decision, whether it be, am I saving enough for retirement? Or should I change jobs? Or should I move? Or whatever this, we like to put on the 3D glasses. And in retirement planning, we do the exact same thing. So I said, okay, let's take Rachel's current investments and let's take her current savings rate and let's say, okay, what's the dream plan look like? What if she does this and she does it from 37 all the way out until age 65? And let's say that in the dream scenario, she can annualize 10% rate of return. Let's let, let's let the return be the variable we affect here. If you can just make 10% on your investments and you can do that consistently for the
7:20 Speaker 02 next nearly 30 years, your $140,000 plus that savings rate, and by the way, ours is even a little muted because we modeled 26% savings. It's actually 29 when you consider the employer match. You get to like $5.6 million. Oh, you smiled. That just immediately when I said that, how's that make you feel? Give me some, give me some reverberation feedback on that.
7:42 Speaker 03 It feels good. I definitely think I could work with that.
7:46 Brian Preston? Well, it's even better because you get to bring it back to present value to say, hey, what does this mean from a cash flow in, in retirement if I had to model it? I mean, and it's close to 100 grand a year in pre-tax income. If you bring it back for today's dollars, how does that feel?
8:02 Speaker 03 More than I make now.
8:03 Speaker 02 Exactly.
8:04 Brian Preston? You get a pay raise.
8:05 Speaker 02 Ding ding ding ding.
8:05 Brian Preston? Yeah, that's exactly right. So this, this has to feel pretty strong that you're ahead of the curve for sure. Now, do we think we're going to make 10% every year though?
8:14 Speaker 03 No, and that's another thing too. You put in the variables, like we could have another crash. I've already lived through a couple, so.
8:21 Speaker 02 Well, let's, let's, let's go through that because I mean, so you mentioned a crash and obviously at 38 years old, you were there for the great recession likely as an investor early on in your career. You were there for the COVID pandemic. You were there for fourth quarter of 2018. You were there for 2022. So you've seen some volatility. Markets, but let's say that over the next 30 years, maybe it doesn't manifest and make 10%. What if we did have, we're going to call it sort of the do do scenario. What if you only made 6% annualized again, exact same starting value, exact same behavior, something outside of your control. That's what makes it the do do part. And you only make 6% even at that, the $140,000 plus that savings rate, get you to a portfolio at retirement of almost 2.4 million dollars.
9:05 Speaker 03 Okay.
9:06 Speaker 02 So that's significantly and substantially less than 5.6, but how does that sound 2.4 million?
9:12 Speaker 03 I like the first number better. I'm not gonna lie. I mean, I wouldn't have a mortgage anymore. I wouldn't have a kid to take care of anymore. I mean, of course, I'll always take care of him.
9:23 Speaker 02 But hopefully he has flown out of the nest at that.
9:25 Speaker 03 Yeah, I could probably make that work too. Things get so expensive. Colorado is expensive.
9:30 Speaker 02 I want to remind you, this is $41,000 and this, this just assumes a sustainable 4% withdrawal rate. What that's showing is it's kind of like living off the interest. I never actually bide into the principal, so I'm able to kind of live off the interest for all of retirement. Well, this doesn't factor in any other sources of income like social security, which could very likely be there for you. So there's a good chance even a portfolio of this size, plus other outside resources you may have like social security or other things that happen between now and then. That's pretty solid. Even in the do do scenario, it looks pretty good.
10:05 Brian Preston? But it's still, it gives you a little pause though, because it's less than you currently make. And you start thinking, I know I would do that myself is I would internalize it and be like, oh, I'd at least like to cover a lot of my current expenses. Now you did say some mitigating factors there. Not going to pay for the, you know, your son anymore. You're not going to pay for the mortgage, but it's still, we think there's room for improvement on that because that's one that I would not feel comfortable letting my foot off the accelerator at $41,000.
10:35 Speaker 03 Yeah.
10:35 Brian Preston? But the good news is we have the down to earth plan next.
10:38 Speaker 02 That's right. You know, one of the things we talk about on the show all the time is Wealth Multiplier. And one of the beautiful things about you being 38 years old is that you still have a lot of time for your money to work for you, and your money can still be pretty powerful. So we said, if we just use our Wealth Multiplier assumptions, what do we think is probably a down-to-earth, reasonable rate of return for someone your age to expect in their portfolio over the long term? And we would say 8.3%, right? That's just kind of what we use for Wealth Multiplier. So we've said for a 38-year-old, let's apply that here. Again, same starting value of $140,000, saving the same amount, but if you can annualize right around 8% per year, you get to a terminal portfolio at age 65 of almost $4 million, 3.85 million.
11:20 Speaker 02 And we feel confident that a $3.85 million portfolio can very easily generate about $67,000 in annual income for you.
11:30 Speaker 03 Great.
11:30 Speaker 02 So now, if you think about math, your current income is $83,000, and a lot of the rules of thumb say that you should shoot for like an 80% income replacement. The portfolio by itself is replacing about 80% of your pre-tax income, not even factoring in social security and other things that might change. So in our Down-to-Earth Plan, we think it looks pretty, pretty great.
11:56 Brian Preston? You know, if you follow any type of our content, by age 30, we want you to have one time your income. By the time you get to age 40, we want you to have three times your income. With the Down-to-Earth Plan, you're actually on track to actually hit that metric as well. So that's a, that's kind of a mile marker on the path towards financial independence. It says, green light, we've hit this marker, things are going well. Proceed and keep going. We see a lot of positives here with exactly what you're doing. Give us some feedback on how that makes you feel.
12:27 Speaker 03 Oh, yeah. I mean, it makes me feel better. It's more personalized, which there's no face behind those calculators online, so I like that. And I like that the different variables, because you're not going to get 10% probably every year. Hopefully, it won't be 6% every year either. So I like, I like that. It does make me feel a lot better. Makes me feel hopeful for like what I can give my son, for sure.
12:48 Speaker 02 Well, and the only variable we changed here was rate of return, which is somewhat outside of your control. And one of the things you you had mentioned to our producers is, hey, OK, if I am behind the curve, if I'm like behind and I need to kind of catch up, I do have some stuff that's coming down the pipe that's going to change. It might, if I'm not saving enough now, it might allow me to save a little bit more. Do you remember having that conversation?
13:12 Speaker 03 Yeah, of course, I want to have like a sinking fund where I can do some of the things that I feel uncomfortable doing right now. And then, you know, as I make more money, I want to save more money.
13:24 Speaker 02 Sure.
13:24 Speaker 03 And keep that 12%. It'll go up, assuming I continue to make more money.
13:29 Speaker 02 Yeah, so we didn't assume any increases in savings, any increase in pay. So even what we've laid down here with the dream plan, the down to earth and the do do, they're all relatively conservative.
13:41 Speaker 03 Yeah.
13:41 Speaker 02 But you've mentioned to us, there are some things coming down the pipe that could change in terms of what cash flow looks like. You mentioned that your mortgage will be paid off by 2045. And we know that right now, that's about $1,200 of principal and interest that would be freed up for you, that you would then be able to apply and use elsewhere. And then there was this thing, a return of premium, about a $15,000 lump sum in 2038. What, tell us what that is.
14:07 Speaker 03 So I have a life insurance policy where if I don't have to use it, my son's father and I both have one.
14:14 Speaker 02 OK.
14:14 Speaker 03 When we we get back like 90 some percent of what we put in. So I'll get back around 15,000.
14:20 Speaker 02 So it's a term policy you pay for for a certain amount of time.
14:23 Speaker 03 Mm hmm.
14:24 Speaker 02 But rather than those premiums completely going away, you get to receive those back at the end of the term.
14:29 Speaker 03 Yeah, just a portion of them. So that'll be when my son's 20.
14:33 Speaker 02 What was the thought process reasoning around doing a or a return of premium policy?
14:37 Speaker 03 Basically, if my husband and I both got hit by a bus at the same time, we didn't want our families to not be able to take care of our son. And so we each got a policy for like 250,000, which would cover the house. And then the the other amount would be able to, you know, spend some money on my son to help raise him.
14:56 Speaker 02 What was the, and we agree with that completely. We love the idea of having those protections in place. Well, we're huge advocates for life insurance. But specifically, you did a return of premium policy. You know, again, the way those work is you pay in premiums. At the end of the term, you get some of those premiums back. But do you know the reason why they're able to give you some of those premiums back?
15:13 Speaker 03 I assume because we don't use it, but I'm not sure.
15:17 Speaker 02 Well, you don't use it. You actually pay a higher premium amount throughout the course of the whole term.
15:21 Speaker 03 Okay.
15:22 Speaker 02 It's a more expensive type of insurance than if you were to just go get purely term.
15:27 Speaker 03 Oh, okay.
15:27 Speaker 02 And so I didn't know if there was some reason why you didn't just buy a pure term policy, not worry about the return of premium, and have a lower insurance cost. Was that something that you guys talked about or thought through?
15:37 Speaker 03 I think honestly, this is gonna make me sound like such a novice here, but I think we just had somebody that my husband worked with and he came by and gave us his spiel and we just knew we needed to have something in place and we went with it. It was probably just an accident, to be honest.
15:54 Brian Preston? Well, I imagine it's a mindset thing, too.
15:56 Speaker 03 Yeah.
15:56 Brian Preston? Because think about it, if you're sitting across the table and you're talking about this concept of insurance, if it's traditional term, it's a just straight up expense.
16:04 Speaker 03 Yeah.
16:04 Brian Preston? Now, yes, it's giving you protection. The thing I always remind people, and this is the thing that I'll let Bo kind of go in deeper in, insurance is serving a very important purpose. It's to fulfill the promises of replacing income or paying obligations because you can't make it at that moment in time because you're just not there. You haven't had enough time going, your assets haven't grown to the point where I think that people get lost. It's the same thing as that when you have homeowner's insurance, car insurance, there is a very valuable thing that it's also providing with that set. I don't think it has to be just because you're paying money and it's a financial instrument, it has to be an investment.
16:42 Speaker 03 Yeah.
16:42 Brian Preston? And that's where I think people get the, the brain kind of has a hard time understanding. And the insurance industry has done a great job of marketing off of this, of saying, hey, while you're in here doing this, this great service to protect or fill in the gaps of what you, you need this coverage for, let's actually get you some money back because we like investments. And I think we've been pounded into us that investing is a good behavior. But you can see how this kind of gets skewed from an efficiency, is this the best use of money? We've coined the term messy middle.
17:16 Speaker 03 Yeah.
17:16 Brian Preston? When you're young, your age, and you have children and you have things, your most valuable resource is your time. But you're also, your most limiting factor is you just don't have a lot of money laying around. So every dollar that you can put to work or put with purpose while you're young and have so much time, has an exclamation point on it. So that's why I get frustrated when people sell products that, yes, can serve some good, but also it's the wasted opportunity and misalignment of the efficiency of what those dollars could be. And that's why I know Bo, and I was so proud when I heard them talking about it, because this is all goes to Bo and the producers who were designing this behind the scenes. They were like, let's make sure that we're sharing with Rachel what could have been.
18:01 Speaker 02 We saw this thing about how return of premium was changing in the future and coming back. And so it's okay, well, it's interesting, she has an insurance policy, let's look at her broader net worth. And when we look at it, we've already acknowledged, you have like $380,000 net worth, which is amazing. We love seeing the cash on hand at 30,000, we love seeing the investments. But then we got to the asset side and we said, okay, there's her home, that makes sense. But then there is a whole life policy and a term life policy. Term life makes sense, I'm assuming that's the ROP, return of premium policy. But then there's this whole life policy sitting on there.
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18:51 Speaker 00 And harness the power of the Ocarina with the built-in microphone.
18:59 Speaker 00 The Legend of Zelda: Ocarina of Time, a Nintendo Switch 2 exclusive. Game and system sold separately. Game rated everyone 10 and up.
19:07 Speaker 01 LinkedIn is pretty amazing at helping you grow your small business. We cannot make your email response time faster. We can help you sell, market and hire in one place. We cannot help you find space for your three desk drinks. Why do you have three? And while we can't help you find the perfect volume for your presentation video, LinkedIn can help you find the perfect audience for your business. Grow your small business on LinkedIn. Learn more at LinkedIn.com/smallbusiness. What's that guy?
19:37 Speaker 03 It's another policy that I have for my son that it has a special feature where you can choose to up the amount that you are insured for at different points in his life and you don't need a medical examination for it. Then he is the beneficiary. So when he becomes older, he can leave it to his spouse or his child if he has children. And so it's similar to one that my dad got out on me that I have Lincoln a beneficiary of when I die. He can't roll it anymore.
20:13 Brian Preston? So this is something you had is even for yourself as you were growing up too?
20:17 Speaker 03 Yeah, my dad, I took over once I had my son. Yeah.
20:22 Speaker 02 Is there some reason why insurability was something you were concerned about for your son? Like being able to make sure that he was able to be in, because he's nine right now. So pretty low mortality insurable risk. Is there some reason you were trying to protect against the ability to get insurance in the future?
20:36 Speaker 03 I think it was because I had these dreams of putting money aside every month for my son when he was born and life just got away from us and we didn't. And so I thought, well, this way he'll have that at least.
20:50 Speaker 02 I want to look at the details. Let's look at your son's policy. Because you kind of have to share it with us. We have some details around how it's currently structured. You can see that right now it has a monthly premium of about $70 a month. That's how much you're paying into it every single month. The death benefit, the face value of the policy is about $100,000 and currently it has about $1,100 of cash value. Right? Then I think you had mentioned something to the producers about, hey, I understand that with life insurance policies, there's the ability for him to borrow. Borrow against it in the future. Was that part of the thought process?
21:27 Speaker 03 Yeah, that was another side of it that was sort of like a selling point when I was talking to my person about it.
21:33 Speaker 02 Got it. So, and a lot of people, when they, when they take on like some sort of permanent life insurance or some sort of insurance that has a cash accrual benefit to it, that's one of the things they think there's, hey, I can borrow against this and use it. And so when we look at how the insurance policy plays out from a guaranteed cash accumulation standpoint, we know that at age 18, based on what you're paying it, the guaranteed cash value would be about $3,400.
21:56 Speaker 03 Okay.
21:56 Speaker 02 By age 30, guaranteed cash value about $9,300. And then guaranteed cash value for your son in this policy, about $46,000 by the time that he gets to 65.
22:08 Speaker 03 I have a feeling you're gonna tell me, I, this is what would happen if you invested it for him.
22:15 Brian Preston? Let's take out that, because we'll get there. Nine years old, 18 years of age. If you just did nine years, I did nine years times 12 months.
22:24 Speaker 03 Yeah.
22:24 Brian Preston? $68 a month is what we're paying. I mean, we're over $7,300 just from premiums paid. So, and the cash value currently is what, 11? What was the number?
22:34 Speaker 03 1183.
22:35 Brian Preston? It's almost $1,200. So, the delta only went up, you know, a little over two grand. And we paid another 7,300. There's just a very inefficient use. And you have to ask yourself, okay, well, where did that money go? Because cost of insurance on a child who's healthy is practically peanuts. I mean, I'm always amazed when I, you know, every year when I renew the insurance, the term insurance on my wife, or even when I was in my twenties, when I got my first term policy, they practically give you this stuff because they know statistically, there's just not a lot of young people, fortunately, that succumb to death. It doesn't take much to insure that risk because it's a large pool with very limited.
23:21 Brian Preston? People who are actually making, you know, who need this money paid out.
23:25 Speaker 02 I don't want to be disingenuous to the insurance companies because what they're going to.
23:28 Brian Preston? No, we love insurance companies.
23:29 Speaker 02 Because here's what's going to happen immediately in the comments. We're going to have a lot of insurance agents write us and say, guys, guys, guys, you did her wrong. Guaranteed cash value is not likely the way it's actually going to pay out in the real world. Yes, that's what the policy says, but that's not actually what's going to happen. So again, you were kind enough to share the policy. So we kind of went into like the nitty gritty details or kind of kind of lay out what the brochure explains. The brochure says, hey, in addition to this, you can also like to have what are called paid up additions inside the policy. So as you're paying for the insurance and as this company pays out dividends, you can then use those dividends to increase the death benefit of the policy and also increase the cash values. This is a common add on that people have inside of permanent life insurance policies
24:14 Speaker 02 to increase the cash value and increase the death benefit through time. And that is indeed what the illustrations you gave us showed is hey, if we have paid up additions happening inside this policy, it can actually look a little bit better. So let's show you what it looks like when we factor in the paid up additions. The picture does get a little bit better. By age 18, now your son would have about $7,200. It's almost 100% of the premiums that Brian had calculated were paid in.
24:37 Brian Preston? But I only did it from nine. If we actually did 18 years times 68 times 12. I mean, it's close to $15,000. So it's still half is gone.
24:49 Speaker 03 I think I set this up when my son was, I think, maybe like four or five.
24:56 Speaker 02 Okay.
24:57 Speaker 03 To be fair.
24:58 Brian Preston? So 14 times 12 times 68.
25:02 Speaker 03 To be fair to your commenters.
25:04 Brian Preston? That's 11,000.
25:04 Speaker 02 11,000. And you can see that if we, again, let it continue to grow out to age 30, it'd be worth about 22,000. Let it grow all the way out to retirement, it can turn into about 127,000. So yes, you are creating an opportunity where there is an asset technically that could grow through time. But we think potentially there's a better way. We would argue that right now, at age nine, your son likely does not have an insurable need on his life.
25:30 Brian Preston? Does he have a lot of income coming in?
25:32 Speaker 03 I wish, man.
25:33 Brian Preston? Kids cost money, don't they?
25:35 Speaker 03 They really do.
25:37 Brian Preston? I'm gonna jump into the morbid insurance salesman. The biggest risk you have with children is if they died prematurely, you'd have to cover their burial expenses.
25:45 Speaker 03 Right.
25:45 Brian Preston? So that's a true risk, but you probably ought to build that into the emergency reserves. I mean, I know that's easier said than done, but I'm just telling you that when we talk about the better way, I want to give, I want to go into the dark stuff that they're going to use to sell these products as well. But remember, most life insurance is to cover obligations and income that's currently needed that needs that you, if you died prematurely, you would need to replace that in some type of lump sum.
26:12 Speaker 02 So if we're trying to model out, okay, what would likely make sense for your son over the course of his life from age nine to age 65? What you can see is that we think it would probably make sense from eight to 24, let's not necessarily have life insurance for him. What if we just took that amount that we were spending on life insurance, $7 a month, and we just put it in an account to grow and we just invested that for him? And we did that. But then we, again, we want to be intellectually honest in our illustration. At age 25, let's assume that he needs to get life insurance. And let's assume that he can go get term life insurance and he needs $750,000 of coverage. So $750,000 policy, we went and quoted a 30-year term policy and we didn't even give him the best health rating.
26:55 Speaker 02 We gave him the second, we just gave him a preferred rating for $750,000. So from age 25 to 55, we're gonna take this $70, we're gonna pay for term insurance, whatever that costs, and then we're just gonna invest the difference over that time period. And then from 55 to 65, once that term policy ends, we're gonna go back to investing $70 a month. So when you actually look at what happens to cash value, the accumulation value there, at age 18, just doing this, investing that $70 instead of using it to buy an insurance policy, that account could be worth about $15,000. So then by age 30, that number could turn into $58,000. But this is where compound interest gets really, really exciting.
27:37 Speaker 02 From age 30 at $58,000, all the way out till age 65, it can turn into $1.4 million.
27:47 Speaker 02 And look, we assumed a 9% rate of return because if you just go out and buy the S and P 500 index or some low cost, for someone who's nine years old, that does not seem outside the realm of possibility. So when I tell you, okay, you have a product that could yield $127,000 according to illustrations, or you could implement a behavior that could potentially have a million and a half dollars. Which one gets you more excited?
28:12 Speaker 03 Definitely the 1.4.
28:13 Speaker 02 Definitely 1.4, right?
28:15 Brian Preston? Let's bring it back to the reality of this though, because you know, when he reaches 65, you won't be here, or even if you are.
28:21 Speaker 03 Right.
28:22 Brian Preston? That's just so far in the future, it's hard to even conceive that. When he's age 18, now we said it could have been 15 to 20, depending on when you started. If you needed it for education, if you needed it for whatever, a car, whatever life need, 15 to 20 is going to go a lot further than that best case $7,000. Fast forward to age 30, you think about the first house down payment. Because that's the other legacy thing, I think, because you said something earlier. You said, I think for younger people, it's getting a little bit harder. So you're probably thinking about like house down payments, because that's the biggest, the headwinds I see for young people is education and housing.
28:56 Speaker 03 Yeah.
28:57 Brian Preston? So both of these things could be a part of that solution. But at age 30, if he wanted to have a house down payment, $58,000 is going to be a one heck of a, that's a pretty good head start. This is the power of going back to the moment. How do you maximize the fruit, the dividend that you get from that discipline? And this is the part that I feel like so much of the public, you're doing the hard work. The hard part is the saving. Let's actually just do the easy part, but the easy part unfortunately is one of the most important parts, which is actually putting the money to work. And a lot of people just skip that step, or they don't know about that step.
29:33 Speaker 02 One of the things that people might say is, yeah, yeah, yeah, but your, your son would have had life insurance coverage this whole time. Well, even in what we've done here with buying term and investing the difference, your son would have had life insurance coverage from age 25 all the way out until age 55. And it would have been not $100,000, it would have been $750,000. So it's just a very different thing. You are solving a problem that exists for a Real moment in time as opposed to solving a problem that doesn't really exist on either one of those tails of that bell curve. The other thing that I think is important to mention is some people are going to say, yeah, yeah, but you can borrow against the cash value of life insurance tax free. If you do this whole term and invest a difference thing, if you want to access that money, you have to pay taxes on that. It's going to have capital gains.
30:17 Speaker 02 And while that's true, I would rather pay capital gains on 1.4 million dollars or something along that line than only be able to borrow against 127,000. So even though there are likely going to be taxes, the outcome of the illustration is so much more compelling. I don't know that it's a cogent argument that would cause me to lean one way or the other.
30:39 Speaker 03 With the amount that he could get at different ages, can he access that? Or does he have the same rules that we all have with our investment accounts where he can't get into it until 55?
30:51 Speaker 02 No, so this, our recommendation, it depends on the type of account you open, whether you open like an UTMAR or UGMRA account that's kind of you're the custodian until 18, or whether it's in an account that's in his name post 18, or if you did a custodial Roth, it would depend on the account structure. But most likely, when people buy term and invest a difference, they just set up a regular, normal after-tax brokerage account. For your son, it would look like an UTMAR till 18 or age of majority, a custodial account. And then it would likely just be an individual account in his name. He could access at any point in time for any reason.
31:22 Brian Preston? You just have to pay income taxes on any current income.
31:25 Speaker 02 Capital gains tax.
31:26 Brian Preston? Capital gains and, you know, income, any dividends or whatever generated, but very accessible. There is one risk though with these custodial accounts is that whatever the age of majority in your state is, because states have different, different ages of majority, the kids get it. And here's, I'll go ahead and tell you the horror story with this stuff is, is like if you use a custodian like Fidelity or some others, they group it off your social security number. So when you get excited about your child turning 15 and getting their first paid gig like Chick-fil-A, and you prime the pump by giving them dollar for dollar matching on whatever they want to put in their custodial Roth IRA, and then you say, you know what would be a great idea is if my daughter could every month go in here and look at this. So you could see the value of investing and, you know, prime the pump here. And then when you log in that first time with her to celebrate this moment, and then
32:11 Brian Preston? you see that custodial account and you're like. Oh my gosh, they show, you know, so you can't keep secrets unfortunately with custodial accounts. Eventually, when your children get older, they're going to find out, but that's okay. This is another learning opportunity where you as, hopefully when your kid's 14, 15, 16, you start talking about and you model what good money management looks like so that they're not undisciplined and want to go buy a car or do something crazy when they, when they get age of majority and have access to this pot of money.
32:38 Speaker 03 Okay. Yeah, no, my son saved up half for a new PS5, so.
32:43 Speaker 02 I love it.
32:43 Brian Preston? I love it. Discipline muscles strong.
32:45 Speaker 02 You're showing him, hey, if, if you save and you have a goal, you can save and work towards that. That's awesome.
32:50 Speaker 03 Yeah.
32:51 Speaker 02 If you can instill that in a nine-year-old, and my kids are around that same age, that's awesome.
32:54 Speaker 03 Yeah. So your guys' recommendation is to maybe cancel that policy and use those dollars.
33:00 Brian Preston? Do some research on it.
33:00 Speaker 02 That's what, I would do some research on that. And I would do an analysis to determine is the best use, if I'm going to be using $70 a month to do something for my son, is paying into this policy the most optimal use of that, or might it make sense to surrender that policy and divert that $70 a month elsewhere?
33:17 Speaker 03 Okay. I did just take, I was rolling CDs for him and I just rolled it into like an investment for like two or three months ago. So I could just lump it in there.
33:29 Brian Preston? Simple index funds would do wonders too.
33:30 Speaker 02 So as you're sitting here, you've got $140,000 invested, you're saving 29%, you're building for your son, you're helping him learn how to make financial decisions. Are you feeling better about where you're at?
33:42 Speaker 03 Yeah. And I'm super glad that you guys told me about the life insurance thing and showed me the other side of the coin because I really didn't know any of that. And you don't know what you don't know.
33:54 Brian Preston? Right.
33:54 Speaker 03 And so I'm, I appreciate that.
33:57 Speaker 02 Are there other questions you have or anything else that you would like our take on that might be helpful and valuable since you got us right here in front of us?
34:04 Speaker 03 I guess the other question that I had was if there's another way I should be investing. Like you guys saw, I've got a couple of accounts and with different companies. Do I need to be diversifying anymore? Or am I doing it the way that I should be doing it?
34:21 Speaker 02 Well, I think overall, I think that the asset mix inside your portfolio is fine. I don't know that you need to change that. And I love the way that you're saving your income. I love that you're prioritizing tax free. You're getting the employer match. You're doing the Roth IRA. The one piece that you don't quite yet have is that after tax bucket. Right? You have your cash, you have your emergency fund, but you don't have that third bucket. But I think that's okay at your age. Now, as you begin to move closer and closer towards financial independence and as you begin thinking about, okay, well, when am I actually going to retire? When do I think I might actually use these dollars? And you might say, man, I really want to retire at 50 or 55 or something along those lines. Then you may be one of those people that gets to step seven of the Financial Order of Operations
35:05 Speaker 02 and figures on, okay, rather than just put doing my 401k and just doing the Roth, perhaps I want to start doing an after tax. But right now, you're following the foo, you're doing the Financial Order of Operations. I don't think I would change a whole lot. And if anything, and this is something we don't normally say, we just showed you that the down to earth plan works really, really well. And we were like 3% under what you're actually saving because of your employer match. I want you to be able to focus on doing the stuff with your son and creating the memories and doing the stuff now. Cause yes, it's great and wonderful to one day have a huge pot of money sitting there waiting for you. But you don't want to look back and say, man, I wish I would have. Cause your nine year old is only going to be nine once and only going to be 10 once.
35:50 Speaker 02 And my wife and I are going like we, I'm going to start crying if I think about it. My oldest daughter's 10 years old. We got like eight more summers, we got eight more Christmases, we got eight. And I'm just like, the reality that is hitting us. And I imagine you're thinking the exact same thing. I don't want to sacrifice getting to create memories and doing things today just to have some slightly bigger pot of money later. If I know that I'm already doing the stuff that I'm supposed to. Be doing, and I think you are in that same exact place.
36:17 Speaker 03 That's great. I appreciate that. Thank you so much.
36:20 Speaker 02 All right. You ready for your homework? Yours is pretty, pretty simple. First thing, I think it'd be worthwhile to revisit the life insurance. Do a little bit of analysis, maybe call the agent, ask some questions, uh, send a link of, of this video to the agent and say, hey, give me some thoughts on this.
36:35 Brian Preston? I'm sure he's gonna love that.
36:35 Speaker 02 Yeah, he's not gonna like that, or he or she is not gonna like that a lot. Uh, so that's number one. Number two, based on what you decided with life insurance, determine if a custodial account makes sense for your son. It sounds like you already have one set up. Just determine, should that $70 be redirected there? And then number three, I just wrote, keep doing what you're doing.
36:51 Speaker 03 Okay.
36:51 Speaker 02 But also, if there are things that you're not doing, if there are things you're not focusing on, if there are things you feel like you're missing out on, you are on track.
37:01 Speaker 03 Great.
37:01 Speaker 02 You are on pace. Don't feel like you have to miss those things and give those things up.
37:06 Brian Preston? Thank you, Rachel, for coming on today. Bo, if anybody else is interested in coming on Making a Millionaire, where do they need to go?
37:12 Speaker 02 Yeah, if you'd like to be a guest on Making a Millionaire, you can go to moneyguide.com/apply. Or if you want to check out any of our free tools and calculators, you can go to moneyguide.com/resources.
37:22 Brian Preston? Rachel, thanks again for coming on today. I'm your host, Brian Preston, Mr. Bo Hanson, Money Guy team, out.
37:30 Speaker 02 Making a Millionaire is hosted by Brian Preston and Bo Hanson. Brian and Bo are partners at Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission in accordance and compliance with the securities laws and regulations. Abound Wealth Management does not render or offer to render personalized investment or tax advice through Making a Millionaire. The information provided is for informational purposes only, may not be suitable for all investors, and does not constitute financial, tax, investment, or legal advice. All investments involve a degree of risk, including the risk of loss. The guests featured on Making a Millionaire are not clients of Abound Wealth Management at the time of recording. Their participation should not be considered a testimonial or endorsement of Abound Wealth Management.
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