Pod Insights Money Guy Show What You Need to Know About Open Enrollment About this episode "Open Enrollment Question: When might an HSA/high deductible plan NOT be a good idea? What should I consider? I currently have a low deductible plan but pay a higher monthly premium."
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:06 Speaker 00 Jocelyn wrote in and asked, "What are the rules for living off of stocks before retirement? I'll have a few years of no income because of grad school, but I have about 350K in brokerage account. Do I sell slowly or all at once? And what do you think about this idea?"
0:26 Speaker 01 What are the rules about living off of stocks before retirement? A few years of no income because of grad school, but I have 350 brokerage account. Do I sell slowly or all at once? What are the rules about it? Well, we know this. If we've been saving into retirement accounts, if we've been saving into 401Ks, or Roth IRAs, or accounts like that, we can't use them until a certain time. We can't actually get to those assets until 59 and 1/2. Or if it's a 401K, if we retire in the year we turn 55, we can do that. But these are like retirement assets. And so I think the question Jocelyn's asking is, okay, before I get there, before I get to 59 and 1/2, how should I think about creating an income stream?
1:09 Speaker 01 And if I have a portfolio, he said, "Right now, I've got $350,000. How do I think about that?" And we have a lot of folks who do enter into early retirement, and they're part of the FIRE movement or FINE movement. And there are some things that you can think about when it comes to early retirement. Like, one of the ones I think about that I know we do for a lot of clients is, you know, if you're able to manipulate your income to the extent that you can keep it super low, you might qualify for 0% capital gain. So even as you have these stocks and you begin to liquidate them as needed, you can pay 0% capital gains if you stay below certain income thresholds. What I think is interesting, though, for Jocelyn is if, you know, he didn't, did he say his age?
1:50 Brian Preston? No, but he said brokerage accounts. I'm assuming these are not retirement, these are after-tax assets.
1:56 Speaker 01 One of the things that I would think through is, if you're entering into retirement, or if you're entering into pseudo-retirement, what I would argue is that before you even think about, like, okay, well, how am I selling my stocks and how am I selling my brokerage assets? Is my cash, is my level of liquidity at the place that it ought to be at? Because, you know, we say that... When you're accumulating and you're in step four of the financial order of operations, you want to have three to six months of living expenses in liquid cash. However, when you get to retirement, when you get to financial independence, you start living off of these assets. We want to see your cash levels increase. We want you to have somewhere between 12 to 18 months of distributable living expenses available for you. Well, if you do that, what you're not going to do is get in a situation where you have
2:39 Speaker 01 to start immediately selling stocks or selling stocks at the worst possible time. So my immediate question for Joe should be like, okay, what's the strategy? What are the rules for pulling out in early retirement? My question would be, what's the rest of your financial situation look like? Because that's going to dictate what the rebalancing strategy inside of the portfolio looks like.
3:01 Brian Preston? Well, I think it's interesting because I'm going to take the stance that he's younger and he's on a sabbatical.
3:07 Speaker 01 He just said I'm 28.
3:08 Brian Preston? So younger, on a sabbatical.
3:10 Speaker 01 So this isn't retirement.
3:11 Brian Preston? Well, but this is what makes it weird is like if you were a retiree, it's not hard for us to say, let's make sure you have 12 to 18 months of cash in your account and we'll replenish this every 12 to 18 months so that we can go to market and take advantage of, are we in a good time or a bad time? And take advantage of what's been performing the best or look at the tax rates and all the other things. And it's a nice, clean system. I worry about for somebody who's in their twenties is because if I had to guess, your asset allocation is going to be probably equity and then cash. That's it. Whereas your retiree is going to have equities, they're going to have bonds. So even if I liquidate, if we're done with cash for retirees,
3:54 Brian Preston? if the market's getting its teeth kicked in and I still need to get access to assets, I have a whole huge basket of fixed income and other very conservative assets. I can still go replenish the cash flow in retirement. Whereas you in your twenties, if you don't think about this sabbatical or a period of time well, you might, if you only did, if you were pulling a just-in-time accounting system on your cash flow and selling every month, what are you going to do in those months or those entry year volatility periods where the market's down 15%? In a month, you're gonna be like, holy cow, where am I go, how am I gonna pay the bills on this? And you're going to get caught making a desperate decision. Fast forward, maybe you even said, I'll just go ahead and I'll liquidate for the next 12 months
4:37 Brian Preston? or even 18 months, because I heard the guys talk about 12 to 18 months. That's what they do with retirees. And then what happens? You get into 24 months and the market is down 30%, 40%. Because your asset allocation is all equity, it's not going to be as well. So grad school, here's the thing, begin with the end in mind. You know, the time period, you know, the goal, which is grad school. Make sure that you, you know, I don't mind if you want to have a multiple tiered system here with it. But you probably need to go heavily more on the cash side of the thing of what the total value of the goal is.
5:19 Brian Preston? Because you don't have a backup plan and you're definitely within that three to five year of what I consider short term. This isn't money you want to have at risk. So don't just assume you're like the same as a retiree because your asset allocation and all the other things don't align the same way.
5:36 Speaker 01 Yeah, I think I probably misunderstood the question. I was thinking pre-retirement, but this is how to fund something like an intermediate term goal. So if that's the question, here's a rule I think that I would think through. I want you to go to moneyguy.com/resources and I want you to check out our Wealth Multiplier. Because here's what I really want you to understand. If you're gonna take a sabbatical or if this is going to cover your grad school, you really need to understand the cost of every dollar that you take off the table. Right? So if you have $350,000 in an after-tax brokerage account, that's wonderful. At 28 years old, you are well on your way for that money to turn into millions of dollars by the time that you get to retirement. But if you live off of that 350 and you pull it all out over the next four or five years,
6:22 Speaker 01 you need to recognize that what you did in that season was you pulled millions of dollars out of your future financial self. So you have to figure out, does that make the most sense? This is where I think, especially for people who are gonna cash flow grad school or gonna try to live off of their resources while they're still in the accumulation phase. Being as lean as possible and having as small of a footprint as possible is probably the best solution. What you don't want to do is live high on the hog, get to the end of the sabbatical, get to 33, 34 years old, about to restart in your career and say, "Holy cow, I burnt through all the stuff I saved in my twenties."
7:04 Brian Preston? And now I'm behind.
7:05 Speaker 01 Now I'm behind. Right now, you are in the ahead position. I would try to do everything in my power to see how do I stay in the head position.
7:12 Brian Preston? By the way, in case this becomes a highlight, what was great about doing a live show is that we were getting additional details fed to us. So if that came off as like, "Why is this so segmented?" It's because, I give the content team, y'all were giving us, I guess, information's coming through the chat, y'all were putting on the teleprompter.
7:32 Speaker 01 I was just wandering around in the woods.
7:34 Brian Preston? It's not even a teleprompter, but it's in front of the monitor, the comfort monitor.
7:37 Speaker 01 The comfort monitor, that's what we call that.
7:39 Brian Preston? That's a teleprompter, too. No, it's just a screen so we see slides.
7:42 Speaker 00 That is a thing, like if you're like live speaking, comfort monitor.
7:46 Brian Preston? By the way, yeah, when I was doing the book tour, I was like, "Can we just have a comfort monitor so I can see the slides and notes?" And we didn't, so it was raw.
7:55 Speaker 01 Now, remember the location?
7:57 Speaker 00 He was like, "We didn't."
7:58 Speaker 01 Was it the Texas? Was it the Texas location?
8:01 Brian Preston? Yeah, it was in the movie theater.
8:02 Speaker 01 Could you imagine having a comfort monitor in there? No way, it wouldn't have worked.
8:06 Brian Preston? By the way, I can tell you, if you ask me my favorite venue, it's been far enough along that I can say this now, it was that Dallas show, which was in a movie theater. I kid you not, they'd basically just go into a movie theater and flip on the lights and then just bring two nerds to stand in front of everybody. And I loved it because there were so many unique things that happened. Like, we had a cockroach go across the floor that Carter kicked out of the way. We had one of you lovely people who was in the audience, you decided, with the full lights on, decided crocheting right in the second row.
8:41 Speaker 01 Going to town?
8:41 Brian Preston? You know, just going to town while I was talking, which was just kind of a unique thing to look up and see somebody just crocheting all the way through.
8:48 Speaker 00 I think it was the only place where you could see the money, you could see people, like make eye contact with them. And I think it made for... A funnier show, but I think you loved it.
8:59 Brian Preston? And how about, how about the fact there's no green room? There was no green room or wait place for, so Bo and I were just hanging out in the entrance of another, of another movie theater that we thought like there was no movie in there. There was no show going on and then all of a sudden this older woman, I guess she was gonna be the only person that watched this movie I'd never heard of and she's like, what are y'all doing here?
9:21 Speaker 01 Cause we were both dressed up. She's like, I think we're going to the wrong movie.
9:25 Brian Preston? So many funny things.
9:27 Speaker 00 Honestly, that was a really fun show.
9:29 Brian Preston? It was a blast. I mean, we pretty much sold, we sold out this thing and it had everybody and you guys, Dallas, I, I, I left that not only thinking the barbecue was really good, but I was like, maybe I could live in Dallas. Cause I mean, you guys made us feel so welcome there. It was awesome.
9:45 Speaker 00 They like us in Dallas.
9:46 Speaker 01 We gotta figure out another reason to take this show on the road. That was fun.
9:49 Brian Preston? And we got to meet Jake there too, you know, so it's fun meeting.
9:52 Speaker 01 Jake said Dallas was the best because I was there. He literally said that in the chat right now.
9:56 Speaker 00 It's kinda true.
9:57 Brian Preston? Maybe it was because Jake's wife was there.
9:59 Speaker 01 There we go.
10:00 Speaker 00 We got to meet her.
10:01 Brian Preston? She, she gave all the beans by the way. She just spilled it all.
10:04 Speaker 00 All right. Good sidebar there. But all that to say, Jocelyn, thank you for that question. If you would like a Money Guy Tumblr, just email [email protected] and we would love to send you one since we answered your question on the show today. All right. Speaking of people we met on the tour, Carlos has a question. Hey Carlos, I just wanted to know, how big should my emergency fund be if we are dual income and plan to rent our house? Should we have separate emergency funds for each? And I like this question because he's respecting your real estate and cash rules, Brian and Bo. So maybe you can speak to it and give him a little bit of guidance.
10:47 Speaker 01 Yeah. So let's talk about what should your baseline emergency fund be? If you're a dual income household and let's say that you have about the same income. There's a lot of folks who say, hey, we want to be a little bit more aggressive. We feel comfortable with three months of living expenses for our emergency fund. And that's appropriate because we're both income earners and we're both at about the same spot. That would be permissible and allowable. But say you're dual income earners, but one of you has a much higher income than the other. Well, I would argue that there's more risk inherent in your situation. So your emergency fund should likely be greater than three months. It should probably be somewhere closer to four, five, maybe even six months of living expenses. Well, that's just in the normal circumstance.
11:32 Speaker 01 That's just in the normal environment. Whenever you start introducing real estate and you start thinking about having a rental property or having other assets and obligations, I think that also affects the emergency funding, the appropriate emergency fund levels. Agreed?
11:48 Brian Preston? Yes, and that's why I think when you get into this level of complexity, it's not... Look, the input of what you're trying to create is only going to be as good as all the scenarios you planned for. And that's why I know we throw about there all the time, but it really is when you get into doing rental property and renting out a house that you used to live in, you're kind of starting a new business. I mean, and there's a lot of things, even when you're thinking about taking on a brand-new job, that's a new endeavor and it's going to change your cash flow, it's going to change your house dynamics. Don't sleep on doing the 3D glasses plan. I mean, there's a reason we talk about this is that I want you to do some preparation and do some homework and figure out, hey, what's going to happen if this goes really well, that's the dream plan.
12:34 Brian Preston? If it goes how I think it will, that's the down-to-earth plan. And then what happens when literally this thing goes belly up and it's the do-do plan? Don't sleep on that. And that's why you might come to the... Because they'll let you do a gut check on your personality and how you handle the emotional stuff as well. Because if you... If y'all are two separate people from an emotional way you look at money and you see the do-do plan and you like full-on panic, we can't... We gotta make sure that we boost up our cash to get us through this point here. But then you're married... To a cowboy that's like, or you know, you're in this relationship with somebody who's like, "Oh, it'll be alright," you know, "y'all are in completely
13:16 Speaker 01 Different places.
13:17 Brian Preston? Different places. You've gotta go ahead and have that communication plan. And what if you're in two different places and y'all's income, exactly what Bo was talking about, are in two different places on who can provide what. You've got to reconcile those things. And why not do it now before things go south, either with the property, or with the dynamics of, you know, if y'all are having a tough time in the relationship, it's better to go ahead and plan this stuff now while things are good, versus letting this be the thing that creates a lot of stress and strife in your relationship.
13:52 Speaker 01 I do think, let me ask this, what are your thoughts on keeping those funds separate? Like, can you have all one emergency fund? Or if you have a rental property, should you think of that as a separate bucket of emergency funds?
14:05 Brian Preston? Well, you have to be careful. Look, I don't wanna, because there's this state, you know, there's, who owns what? Relationships are tough, and I didn't hear Carlos talk about marriage or whatever, so that's its own other dynamic in there as well. But I'm trying to be respectful of the fact that if this is a couple, you know, living together but not married, is that these things are strange dynamics.
14:30 Speaker 01 No, I'm talking about the household emergency fund versus if you have a rental property. Like, should that all be combined into one emergency fund, or should you have a separate
14:39 Brian Preston? No, I think you could treat it as a separate, because y'all essentially have an entity together. But I do think, what I thought you were alluding to, and I've had this conversation with somebody else recently, when you have two people making completely different incomes, and they're living together and sharing a house, is that the money can become a power dynamic. And I always think that that's a weird thing, because relationships are already hard. So you just wanna make sure that y'all have really good communication about the dynamics of money and emergency reserves and access and all the other stuff. Because that's the hard parts that make a relationship, you know, where it can get difficult. And if your communication's not good, it can fall apart. I don't know if that was clear, but that's what I've experienced.
15:22 Speaker 00 Lots of angles. But I mean, they were all good things to think about. Carlos, thank you for the question. If you don't already have one, and you want a Money Guy Tumblr, just email [email protected] .
15:34 Speaker 00 All right, Eric has a question up next. It says, "My company offers you to buy into ownership. Shareholder bonuses usually are about 10% to 20% of the initial investment, and the value of the shares increase over time. What step of the foo is this?"
15:55 Speaker 01 Okay, so the company offers you to buy into ownership. Shareholder bonuses are usually about 10%, 20% of the initial investment. Yeah, so this is just, I'm gonna call this making partner. I have the making partner opportunity at my employer. Because here's what you didn't say. You did not say this was some sort of like employee stock purchase plan where you're getting a discount on the shares. If you're getting a discount on the shares, I'd argue that's like free money. That would be more of a step two thing. If this is something where you're just able to buy into the entity for whom you work, and you're able to do it at a reasonable market valuation, in my opinion, this is gonna be a step seven, hyper accumulation. Step eight, tight goal. Because you want to make sure you've done all the other things. Brian, can you hold up the thing real quick?
16:40 Speaker 01 You want to make sure that you've got the emergency fund in place, and that you're building your financial foundation. You've maxed your Roth IRA. You've done your HSA. You're funding your retirement accounts. And this is no different than quote-unquote "starting a business", right? Like, you would put this in the same place as starting a business. Because basically, what you're doing is you are, in fact, investing in a business. It just happens to be a business that you also work for. So not only are you saying, "Hey, my human capital is tied up in this thing, and this is where my paycheck comes from, but now I also want to tie some of my financial capital to it." And while that could be a wonderful thing, and could have an amazing ROI, you want to make sure you're doing it at the right stage of your financial journey,
17:23 Speaker 01 or not too early, you become way over-concentrated.
17:26 Brian Preston? I've got a word for Eric: illiquid. You think about this. Beau laid out all the details, but... Even when we get to steps five and six of the Financial Order of Operations, I mean, I don't want you, it would make me cry, I mean, physical wet tears coming down my cheek if you actually tried to get to your Roth IRA for an emergency. But you could do it. I mean, you really could do it. You could get it. Even your 401K would probably allow you to either take a loan or hardship. You could get it. I would not advise it. It's not a good idea. But if you, you know, get in a pickle of a situation and you call your owner of the company and say, "Hey, you know that, that, that stock purchase plan I'm in? I've got a little hardship going on right now. I'd like to get, I'd like to get some of that money back."
18:10 Brian Preston? They'd be like, "No, it doesn't work like that." You know, "This is, this is an illiquid investment." You have a, a period certain, or there's windows where you can take action, but only in those windows. So that's why Bo is spot on. Since this has limited access, it is illiquid. This is a step eight of the Financial Order of Operations. This is something after you've built the financial foundation underneath you and you want to maximize the opportunities of what this could create for you, both from cash flow as well as from an investment in your employer. But I also, I think Bo said something that I think is very valuable and should be emphasized.
18:48 Brian Preston? Be careful having both your human capital and your financial capital all loaded up in only one entity. Look, some of you can't help avoid it. Like, um, you know, look, I've started several small businesses and it's just the nature that sometimes that becomes one of your biggest financial assets. But I've tried in the background to be building up as much liquidity and access to assets elsewhere outside of my small businesses as fast as possible. Don't just assume, just because things have been good this year and for the last five years, 10 years, that trees don't grow to heaven.
19:25 Speaker 00 Great.
19:27 Speaker 00 Well, um, Eric, I know, I was reading all the names I had already done, but Eric, if you would like a Tumblr, just email [email protected] . We would love to send you one. Thank you for submitting your question.
19:39 Speaker 00 All right, Amber's question's up next for you. It's an open enrollment question, she says.
19:44 Speaker 01 Yeah.
19:45 Speaker 00 When might, I know, it's that time of year. When might an HSA or a high deductible plan not be a good idea? What should I consider? I currently have a low deductible plan, but pay a higher monthly premium. So how do you think about this as we go into this open enrollment season? Especially as a financial mutant with that HSA access potentially?
20:08 Speaker 01 Yeah, so you know, we love HSAs. We love what they can do for you. They're triple tax advantage. You can put money in on the front end, get a tax deduction. You can invest the dollars. They can grow tax deferred and then you can use them tax-free for qualified medical expenses. They are wonderful. But they're not the end-all be-all. There are a lot of circumstances in which, and by the way, in order to be able to contribute to a HSA, you have to be covered under a high deductible plan. While the high deductible plan is not always the best decision, I'll speak to one scenario where it's not, and I'll leave some more for you. One scenario where it doesn't make sense is let's say you work for an employer that has highly subsidized Cadillac insurance. You could go get the high
20:49 Speaker 01 deductible plan and maybe it's going to be a lower premium, or maybe your employer covers 100% the cost. If they have another type of insurance that is fully subsidized or highly subsidized, and it's just copays, and it's not going to cost you a lot either for the premium or for the services that you might receive throughout the year, and you're a healthcare user that goes to the doctor and needs those services, you may be much better off taking the very, very affordable, really, really good Cadillac health insurance instead of opting for the high deductible plan just because you want to be able to contribute to an HSA. There's one example.
21:27 Brian Preston? Yeah, look, you gotta do the homework. Don't skip leg day, meaning that open enrollment should not just be do what you do. Last year, it needs to be, you need to think ahead, begin with the end in mind and say, hey, in the coming year, what am I going to be using healthcare for? Is it just catastrophic protection like a high deductible health plan will be providing? Cause I feel healthy, things are good, no big life changes are coming my way. That's one option, but I always, you know, I'm the one like a knucklehead that still does a lot of the HR and payroll stuff around here. And I love, one of my favorite things, cause it's kind of like a gossip thing. It's this was, this is what it feels like to work at TMZ, I think, is that when we do open enrollment, I get to see what people are choosing on their health insurance.
22:10 Brian Preston? I'm like, oh, oh, somebody's doing some family planning. Cause they went to, cause they went to that high premium, they went to that Cadillac plan. I'm like, I wonder why they're doing the Cadillac plan this year. And I know because we have a bunch of financial mutants that work here. They're doing it because they're growing the family more than likely. In the next 12 months, I'm going to have them come to my office and say, guess what? You know, we're growing the family and I'm like, yeah, I kind of knew it, you know? Cause I saw your, I saw your health insurance election. So there's nothing wrong and look, that's the fun part of it. I'll tell you, I turned a certain age and so did other people in my household, that I knew that there was like some testing that was required at these ages.
22:51 Brian Preston? It's expensive, it's pretty invasive and they put you to sleep and you know, they go to the facility to do all this stuff. Tell us more. Well, I'm just telling you, you know that this ain't cheap, you know, all these. And they even, they even got this racket set up to where you have to go talk to the doctor first. You're like, hey, you guys have told me we have to do this. Why do we have to have a consult beforehand to do this? It's cause you know, everything is to extract as much out of this process as possible. You might want the Cadillac insurance where you have a lot of procedures or surgeries or things coming up. I mean, so there's nothing wrong with you being a proactive participant, doing the homework, thinking about how you're actually going to use this plan in the coming year and do it, you know?
23:33 Brian Preston? And then by the same token, though, if you did grow your family last year and now you got open enrollment coming your way and you know, hey, everybody's healthy. It looks like this is good. Don't just stay on the Cadillac because that's what you did last year. Go to that high deductible plan, get back on the HSA savings and don't skip out on just doing the homework. But you always share. I'm gonna screw this up, so that's all right, because I got you to protect me.
23:56 Speaker 01 Yep, I'm here.
23:56 Brian Preston? You're supposed to look at what the premiums are on the high deductible versus the Cadillac.
24:00 Speaker 01 Yep.
24:01 Brian Preston? And then go look at how you're using the money, because you've got the savings. You've got to go then compare where your deductible is on the two different plans. See where the difference is, figure out where the break even, and then make your decision.
24:13 Speaker 01 Yep, that's the two of them. And the next two are any employer incentives. If your employer puts money in your HSA, or if they offer any sort of health reimbursement account, or something like that. And then fourth is tax savings. So you have premium costs, you have actual healthcare costs, employer incentives, then you have tax savings. You stack up those four columns, or those four rows, for all of your health plans. And every year at open enrollment, you make your decision which one makes the most sense for next year. And then next year, you rinse, repeat, rinse, repeat, rinse, repeat, and you make sure you're always optimizing. Hey, well done.
24:47 Brian Preston? Well, I got half of them.
24:48 Speaker 01 You know, 500 would get you in the Hall of Fame.
24:52 Speaker 00 Amber, great question. Thanks for being here, and we would love to send you a Money Guy Tumblr, just as a thank you, since we answered your question on the show. Email [email protected] to cash in on that. Remember, just because the live stream ends doesn't mean that the personal finance conversation ends. Go to moneyguy.com, where we have our entire archive of episodes on all kinds of topics, along with moneyguy.com/resources, where you can get all of our free stuff. We've got some calculators, some free downloads that go even more in-depth on some of the topics that we talked about today and more. So be sure to check that out, because we made it for you.
25:27 Brian Preston? Rebi, what I loved is that last question. Let me highlight, it really did highlight the fact that money's only a tool. It's not really a goal. So that's what I think we try to put out there to our Money Guy family, is take an active role in your financial life. Actually realize those small, little decisions you're making really can lead to your great, big, beautiful tomorrow. I'm your host, Brian Preston. Mr. Bo Hanson, Money Guy team, out.
25:55 Speaker 03 The Money Guy Show is hosted by Brian Preston. 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 the Money Guy Show. The information provided is for informational purposes only, and does not constitute financial, tax, investment, or legal advice.
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