On today’s episode, Wes looks at 2024’s obstacles to see what might serve as clues for success in 2025. The resilient U.S. economy closed 2024 with a 25% S&P 500 gain, defying inflation fears, international turmoil, and political upheaval. While consumer spending remains a vital economic driver, boosted by low unemployment and rising wages, renewed productivity fueled by AI and innovation could spark another boom.
With the current bull market still young and some earnings forecasts showing a robust 13% growth, optimism abounds. However, investors should prepare for the possible return of market volatility after two unusually stable years. Bonds are regaining appeal as yields climb, and income strategies like dividends offer a steadying force amid market swings.
Overall, Wes celebrates 2025’s potential for growth but reminds listeners that it will only benefit those disciplined folks who stay invested.
And he takes some listener questions!
Read The Full Transcript From This Episode
(click below to expand and read the full interview)
- Wes Moss [00:00:02]:
I’m Wes Moss. The prevailing thought in America is that you’ll never have enough money and it’s almost impossible to retire early. Actually, I think the opposite is true. For more than 20 years, I’ve been researching, studying and advising American families, including those who started late, on how to retire sooner and happier. Now I’m bringing in my good friend Krista Dibias, who has worked closely with Clark Howard for many years now to answer your questions and explore what makes a happy and fulfilling retirement. My mission on the Retire Sooner podcast is to help a million people retire earlier while enjoying the adventure along the way. I’d love for you to be one of them. Let’s get started.Wes Moss [00:00:48]:
What I wanted to talk about today, though, as we here we are, it’s January, of course, where are we headed into the new year? And so I have Really, I have 10 things that investors need to be to really watch out for in 2025. So that’s where I wanted to start here. The first is that this theme of resiliency is, and again, I think it’s important to kind of lay the groundwork of where we’re headed. As an investor, I am always thinking about the economy, thinking about how that relates back to investments. And I look at 2024 and there was. There we were, it was such a resilient sense of resiliency, I think, in the economy, the stock market, because we were faced with so many uncertainties. We had the election, which again, was an unprecedented election. We had someone drop out a few months prior when going against someone who used to be president.Wes Moss [00:01:42]:
Just very uncertain times. We were talking the whole year talking about recession, the whole year talking about inflation. And was the Fed going to control inflation? And the Fed, how much were they going to lower rate? So there was a whole lot to worry about all of last year, yet we ended up with almost 3% GDP growth. Again, lots of resiliency for the economy and the stock market, the s and P500, up about 25%. So that was a. It was a really resilient year. And I see a lot of that carrying into this year, 2025. So that’s kind of my first way to think about where we’re headed here is that resiliency carrying through 2025.Wes Moss [00:02:21]:
I think the second thing here is that part of that resiliency is that number two on my list is the consumer is king in the United States. If we think about the labor force and we think about the behavior of the US consumer, it’s fascinating because first of all, we have 160 million people working in the United States. Americans want jobs and they have jobs. And what’s so. And there’s two things about that. Our savings rate is relatively low right now. It’s even lower than historical norms. Usually we’re saving about 6%.Wes Moss [00:02:55]:
Right now we’re only saving about 4%. That means 96% of what we earn, that 160 million people, it’s getting spent. And that’s what we saw last year. And I see that continuing into this year. The other thing that’s important is we’ve started to see wages outpace inflation. So we had a period of time there where wages were going up much slower. So people were feeling like we were in a recession even though we weren’t. So the consumer is spending, wages are going up faster than inflation now.Wes Moss [00:03:24]:
That’s good. So I think the consumer continues to play a really important role. We all know 70% of the US economy is the US consumer and consumer spending. And I think that continues. That’s my thought. And I think it’s important to note for this year moving forward. The third part here, and this goes back to the economy, is that productivity is on the rise and it accelerated a couple of years ago. You think about this economy, what propels it? It is how much we can get done in the same amount of hours of work.Wes Moss [00:03:55]:
And if we can continue to do more work in the same amount of time, then this economy accelerates. Now, we had a massive acceleration in productivity back when the Internet became mainstream. So think about the 1990s. And then we flourished for about 10 years. We had double digit productivity growth to two and a half, 3%. Then for the, for over a decade, we barely had any productivity growth in the United states. It was 1% a year, 1%, 1.1%. So we weren’t getting better, faster in this U.S.Wes Moss [00:04:29]:
economy for a very long time. And then about two years ago, that started to change. You could, you could say we’re more efficient today because we’re work from home. That’s more prominent. You can call it the advent of artificial intelligence, making everything a little faster and more efficient. And for the last two years, we’ve seen two, two and a half percent productivity growth. Now that may not sound like a whole lot, but that’s more than double what we were running for over a decade. More productivity, better shot for the US Economy to continue to accelerate.Wes Moss [00:05:01]:
And if we can do that, that’s a really big deal for the market, the economy, and for, for investors, the next One that where I’m looking out in 2025, I think about Washington as kind of an unlikely ally with the market. And think about last year. We had an election. There was lots of uncertainty around it. People are always worried about, well, what comes next if the incumbent wins, what happens. If the incumbent loses, what happens. So there’s all this uncertainty. But if you look back at the presidential cycle, so we’ve got four years, you’ve got the election year, the inauguration year, we’re where we are today.Wes Moss [00:05:36]:
Then you’ve got the post midterms, and then you’ve got the fourth year of the cycle. If you go back over the course of history and look at and see how the markets have done during those four years, on average, we’re in the second best year. So the inaugural year. So election’s over, new president, over the course of economic history, it’s the second best year for stocks. And part of that might be just that. Over in each election cycle, the uncertainty goes away. Hey, we know who’s going to be in the White House. We know what Congress looks like.Wes Moss [00:06:09]:
And on average, that second year of the presidential cycle, we’ve seen about 11% growth on average for the S&P 500. So again, that’s a strong indicator. We’ve got some historical tailwinds. I think it’s a good thing for 2025 now with politics. The first question that I’ve been getting, and I think that’s important just to visit here for a minute in 2025, is the worry about tariffs. If we have tariffs, doesn’t that mean we have inflation? And if, and if you think about how that formula works, if, if it’s, if something now is because of a brand new tariff, is 20% more expensive and it’s coming in from another country, then who pays for that? Doesn’t that mean we’re going to get inflation? And that’s scary because we were, we had a really rough time with inflation over the last couple of years. But the system doesn’t necessarily work that way. The what countries can do and companies and other countries can do is they can bear either some of that cost or most of that cost.Wes Moss [00:07:10]:
So they choose to take less profit, lower the prices, knowing the good will come into the United States and then the tariff goes up, makes it more expensive, but because they reduce their cost, not all that much gets passed on to the US consumer. So that remains to be seen. But how I look at it is that there’s a lot of bark about tariffs and the whole world’s going to be tariff to every good company in the United States. That’s probably not going to be the case. So it’s probably not going to be this giant blanket of tariffs, probably more specific. So sure, they’re going to be new tariffs on Chinese goods, probably very likely. But we may not see tariffs for everything coming out of the European Union. We may not see tariffs from China, Mexico or Canada and Mexico.Wes Moss [00:07:57]:
So I look at the tariff situation as not great for inflation, but maybe not nearly as bad as we thought when it comes to inflation.Christa DiBiase [00:08:08]:
So people rushing out to buy cars and other things because they’re so worried about tariffs, probably not the best move.Wes Moss [00:08:15]:
Stockpiling, I don’t think stockpiling at all because remember, we already have tariffs, right? We already have tariffs from countries like China. And I, I don’t think we need to run out and stockpile prior to getting prior to tariffs because I think they’re going to be a little more benign, little more bark than really bite in 2025. And I think it’s important to understand.Christa DiBiase [00:08:35]:
The next five things that investors should watch out for in 2025.Wes Moss [00:08:39]:
Number six on our list, the bull is not that old. Meaning that we’ve had a bull. We had a bull market in 2023, we had another bull market in 2024. If you, if you watch financial television like I do, kind of just always on in the background or I’m always watching it, I’ll see 50 people a day. And I’ve seen this now for the last month talking about how it was such a good two years. That means that 2025 can’t be a good year in the stock market. And I think that’s the wrong way to look at it. We’ve had tons of stretches that are 3, 4, 5, 6, 7 years in a row where stocks really do well.Wes Moss [00:09:18]:
Now it’s not that we don’t have some drawbacks during those periods of time. It’s just that just because the market has done well doesn’t mean it can’t continue to do well. And I think that’s as you hear people talk about how it’s already been good, it can’t be good this year. That’s not necessarily the case. So momentum is the market’s friend. Very often. I think of the statistics around all time highs. Last year, 2024, before we saw 57 new highs in the S&P 500 and I remember after the fifth one, people said wait a minute, we got all time high, we can’t have any more of these.Wes Moss [00:09:54]:
And then after the 20th, well, we can’t have any more of these. Well, there’s a reason you have a good year in the stock market because things are going well, the economy’s doing well, company earnings are growing. Well, there’s a reason you get to an all time high in a given year. It’s because things have to be going pretty well and we get this flywheel effect and that momentum can continue. So yes, it stands to reason that the market could slow down and not have as good of a year, but it doesn’t mean we have to have a bad year. The average bull market lasts for five years. We’re only two years in, only about 26 months in. So by historical measures, this particular market run we’re in, this bull market just isn’t that old.Wes Moss [00:10:37]:
So I think it’s important to remember the next part of this is to look at dividend contribution. Investing is pretty simple. We’re all kind of after the same thing, which is total return. If you’re conservative, you want a total return. If you’re aggressive, you want total return. You just want your money to grow. And that formula is really simple. It’s just growth plus income.Wes Moss [00:10:58]:
You either get some appreciation, the value goes up, or you get some cash flow, you get some rent, you get some dividends, you get interest. And you put those two together, growth and income, and that’s your total return. When you look at the, The S&P 500, the stock market in general over the course of economic history, called 100 plus years for the market, that 10% number we hear, and it’s really more like 11, that’s only 60% of that is from the price of the stock market going up. The other 40% of that, not insignificant at all, is the cash flow that gets reinvested from dividends that come from stocks in the S&P 500. Now, over the past decade, we’ve seen the lowest dividend contribution to returns we’ve seen in a very long time. It’s only been about 12, call it 12 to 13% of the total return. So it’s almost as though I worry sometimes investors kind of stop thinking about them. Ah, dividends don’t matter.Wes Moss [00:11:55]:
It’s only been 10, 15% of total return. That does. It’s, it’s really all about growth. The equation is still growth plus income. And I think investors should just not forget. And not every investor needs to think about dividends. But it’s a big part of historically how stocks have done well to reinvest Those dividends, and particularly for retirees who are looking for cash flow, they need to spend their retirement money. Retirees often get a lot of comfort of spending the dividends.Wes Moss [00:12:23]:
Hey, I’m not taking my principal because I’m spending the dividends. So I think we could see a reversion to the mean. Markets tend to pendulum so they, they, they have a long term trend and they get away from it. They typically go back to that. So I would just not forget dividends here in 2025. Now speaking of getting income, the part of a balanced portfolio, we’ve, we talk about stocks, real estate, commodities, there’s all these other, there’s all these great categories that we should be looking at, but one of them is fixed income. Bond safety. And bonds are not there to appreciate a whole lot.Wes Moss [00:13:01]:
They’re really there for the income. We had a really rough stretch five years ago and back when interest rates were essentially at zero. The 10 year U.S. treasury bond only paid 1%. And there was a period of time it was way less than 1%. Bonds are off the bench. That’s number nine on my list. Bonds are off the bench.Wes Moss [00:13:22]:
And the reason bonds are off the bench is that yields are back to a much more normal level. So the ten year treasury started this year at around four and a half. It’s up to almost four and three quarters. Meaning that interest rates on the ten year government bond are paying between four and a half and five percent. There’s a saying in the bond world and the saying in the bond world that I always remember is yield is destiny, meaning that over the course of five and 10 years, you’re much more likely to get a total return about where you start with whatever your yield is. So if you’re investing in bonds and they’re at 1%, good chance over time you’re going to get 1%. Here we are at 4 and a half to 5. So I think bonds are back to much more normal levels.Wes Moss [00:14:11]:
People can wrap their heads around, well, 4% something, it’s not one anymore, 5% something. So particularly when we’re owning them for steady income and stability when the stock market goes haywire. So bonds are off the bench and I think that’s important to Note here in 2025. Now I have two more, but I think I’m just gonna do one of the two because this is, I would put this as number one because it’s the most important, but I’ll put it number 10 because it, it’s the capstone which is that we think about all the emotions that drive the markets. We think about politics and government and elections and then earnings reports and then we have economics reports and the jobs numbers. And it’s endless variables. What are housing prices, mortgage rates, what really drives markets, stock markets, what so many of us have in our 401 exposure to the S&P 500 or other funds that have exposure to it. It’s not the stock market.Wes Moss [00:15:08]:
It’s the companies that make up the stock market. And those companies, we own them most only because they are there to make a profit and grow those profits. And that’s what’s called earnings. You hear a lot about the PE multiple. The actual common denominator of PE is earnings price over earnings. What are we paying for those earnings? And it’s a rough stock market run when earnings are down from year to year or flat from year to year. We’re fortunately and again, this is just where we stand today. And this could change and all of this could change.Wes Moss [00:15:43]:
But if you look at consensus, and this is from dozens and dozens and dozens of Wall street firms and research firms and strategy firms that are looking at all the different components of the market and they’re trying to measure, hey, where do we think companies are going to be, earnings wise? Are they going to be up 1%? Down 5%? Up 5%? Right now, earnings estimates for this year are up 13% are the estimates from over last year. It doesn’t mean the market’s going to be up 13%, but it’s just a very nice undercurrent to have companies churning out 10 to 15% more in earnings and profits that they did last year. That is the bedrock of the equity markets. And I didn’t realize it’s a good outlook.Christa DiBiase [00:16:29]:
Wow.Wes Moss [00:16:31]:
If you’ve ever done a Jane Fonda workout or if you remember as a kid, Rocky running the steps, and if Michael keaton is still Mr. Mom to you, then guess what? It’s officially time to do some retirement planning. It’s Wes Moss from Money Matters. Weren’t those the good old days? Well, with a little bit of retirement planning, there are plenty of good days ahead. Schedule an appointment with our team today@your wealth.com. that’s y o u r your wealth.com.Christa DiBiase [00:17:04]:
Okay, so I have some questions for you. Here’s the first one. This came in from Chuck in Georgia. I’m considering going from a portfolio of 100% stocks to a 6040 portfolio. Should I do it today? I’m 68 and started retirement this month. I know nothing about bonds. My tia cref tiaa. CREF has many bond funds from which to choose.Christa DiBiase [00:17:25]:
I hear many speak of the timing of such a move. Or is it better to say is it time for the move? Any guidance on transitioning to a mixed portfolio would be much appreciated.Wes Moss [00:17:36]:
So this is Chuck. Chuck from my home state. So hi Chuck. I appreciate the question and my thought here is there’s a couple things. One for those who are not part of TIAA CRAFT or TIAA Craft, that’s that there’s two parts of the. What is essentially a retirement plan with a bunch of different options for Chuck and people that have been teachers or different organizations and companies will use TIAA and cref, they’re combined. The TIAA side is tiaa, I think originally stood for Teachers Insurance Annuity Association. So that’s technically the annuity side.Wes Moss [00:18:17]:
That’s the insurance side. The CREF side I think of that. And that stands for something like college fund. It’s a college fund, something I’ve called it cref for 20 years.Christa DiBiase [00:18:30]:
Yeah, I’ve never heard what it stands for.Wes Moss [00:18:32]:
Obviously I think of that a lot more like a 401k. And the cref side has all these options like you would in a 401k, all these different sub accounts, much like mutual funds that you can look at, stock funds, bond funds, international funds, small cap funds. So there’s lots to choose from. So if you’re a super conservative investor, I see people that’ll stick with the TIAA side, which is the kind of the fixed account, a quote guarantee. Now it’s come the guarantees from taiaa. It’s not US government, but it’s the fixed, more conservative part. And you can typically annuitize those and choose to annuitize if you would like. But there’s some more restrictions on that too.Wes Moss [00:19:14]:
So time wise, so it’s not as liquid. It sounds like Chuck’s using the CREF side. So a lot like a 401k. He’s 68, you said, and he’s been in 100% stock. So I think, let me answer this simply right out of the gate. It’s never too late or never too soon. Both probably apply to have your allocation be, be appropriately at match. Be appropriately matched to you right to.Christa DiBiase [00:19:44]:
Your age and your situation.Wes Moss [00:19:46]:
So if you’re 68, you’re heading to retirement and, and you’re thinking, wait a minute, I, I would like to have some balance. I would rather have only 60% in equities. As I head into retirement, I want a slightly more conservative or maybe a Fair amount more conservative portfolio. The time is now to do it. I, I think that you do it, you don’t have to do it over time. You don’t have to scale it back. Particularly we’ve had such good stock market returns that the market’s been great and you’ve been in a hundred percent stocks. It kind of even adds a tailwind to just doing this.Wes Moss [00:20:20]:
I’m not saying, Chucky, you’ve got to do it today, but I’d say over the course of the next week or so or this month, I would go ahead and do it all at once. The other cool thing about Kraft is they have life cycle funds. They’re a lot like target funds and that can almost do that work for you. So sure, he can go in and Chuck, he can go in and use and choose a bunch of different funds or you can just use the life cycle options. And I want to say for the life cycle options, if you’re the, the year of your retirement, remember these are like target date funds. So in, if you say I’m going to retire in 2035, the portfolio slowly gets more conservative until 2035. And then it gets, by the time you reach your retirement year, the you’ve chosen chosen. It’s like it gets to be about 50% stock and about 50, about 45% bonds, and then there’s 5% real estate.Wes Moss [00:21:11]:
So if he’s looking at, I want to say the 2030 option, which would be retirement five years from now, that’s already in about a 60% stock, 55 stock, 5% real estate, and 40% in bonds. The by the time he does retire in five years, then it’s a fully balanced, it’s an almost 50% stock bond portfolio. But the cool thing about the life cycle funds is they do that for you. They slowly migrate to be a little more conservative over time. But if I’m Chuck and I’m feeling like I should have a better balance and I would be doing this much sooner than later.Christa DiBiase [00:21:52]:
Yeah, sounds like a great way to go. Jonathan in Texas wrote in and said, I have a, a 529 college savings account for my son who decided not to go to college and is now working. I’d like to roll it over into a retirement account. Any advice on how to do this would be appreciated.Wes Moss [00:22:07]:
All right, so Jonathan, here’s the good news is I think there’s a lot of good news in this question. One, his kid is now working and either doesn’t need all the money or maybe didn’t need any of the savings, that’s okay. And maybe 10 years ago this is a little more of a problem. But there was a new law last year that helps out with this. So there’s a new law that says if you don’t use your 529 money, you’ve got some options. So as long as you’ve had the 529 for 15 years and the contributions have been in there for five years, he can now open up or his son can open up a Roth account and he can do a tax free rollover into that. Now there’s a catch on it is the maximum you can do is 35,000. So he can take, let’s say there’s 50,000.Wes Moss [00:23:00]:
Let’s hypothetically is $50,000 in the 529 of unused money. Jonathan can take that. Not all at once. You can only do the amount you’re allowed to do for a Roth in any given year. This year, 2025. Now it’s, it’s 7,000 if you’re under 50. So your son, you could essentially have 7,000 a year, go into his Roth. Roth for his son.Wes Moss [00:23:23]:
So over the course of five years, that’s all 35,000. And now it’s his Roth, it’s tax free. It’s an awesome solution. Beyond that, Krista, let’s say you have 50,000 in 529, the 15,000, you can always transfer it to another beneficiary to be used. It could be used for apprenticeship or a trade school. But if you just want to take it out, you’re going to pay a 10% penalty in taxes, but only on the gain. So there’s 15,000 in there and 10 of it is gain. And the tax and the penalty is only on the gain part.Wes Moss [00:23:59]:
So even that’s not the end of the world.Christa DiBiase [00:24:00]:
And you could save it for a grandkid maybe as well. Right?Wes Moss [00:24:04]:
Change the beneficiary to a grandchild.Christa DiBiase [00:24:07]:
Diana in Oklahoma wrote in with this question. I’m wondering about Modern Woodman’s Fraternal Financial Company company. My employer provided this account and paid in the premiums for me for about 25 years. It’s a SEP IRA. The plan says it has is a 90 FPA flexible premium deferred annuity and has a guaranteed interest rate of 4%. The account has about $150,000. I understand it’s not FDIC insured. However, the company’s been around since 1883.Christa DiBiase [00:24:39]:
Question is, do you believe this is a safe place to have retirement funds?Wes Moss [00:24:44]:
So I would have maybe not even believed this question.Christa DiBiase [00:24:47]:
Because of the name.Wes Moss [00:24:48]:
Because of the name. The Modern Woodman’s Fraternal Order of America. The only reason I knew this one is that I worked with a family that inherited some funds, and I remember looking through the paperwork and it was from Modern Woodman Fraternal Order. I was thinking, I’ve never heard of this. So it’s very real. And they have been around forever. And they’re actually based in another great. So it’s a great name for a financial institution.Wes Moss [00:25:16]:
Very. Sounds very strong. And it’s based in, I think like Spring Rock or Rock Hill, Illinois. So it’s just like strong, strong and strong. The. The other thought here is that it is. The way these are managed, in my understanding is that it’s. Back to our question about tiaa.Wes Moss [00:25:34]:
It’s insurance annuity. This is really an insurance and annuity product. Now, remember, you can invest money in an insurance product or in a securities product or stock, but really your investment in an insurance company or an annuity is it’s insurance. It’s technically not a security. So there’s a reason. So you’re relying on the company to make good on their promise. So the FPA 90 annuity or the fixed account paying 4% sounds pretty good. It’s pretty good.Wes Moss [00:26:11]:
It also. I like that because it’s not a seemingly unsustainable number. Now, if she said, I’m getting 8% fixed guaranteed from XYZ Insurance Company, that’d be a problem. But interest rates are 4.5% today. So what insurance companies essentially do is, is they’re investing the money in bonds, getting 4.5%, and they’re paying you 4. The other thing I think is important is the reason they have separate rating companies for these insurance companies is that it’s. They’re. They’re the ones making the promise.Wes Moss [00:26:45]:
So there has to be an outside rating agency. And Modern Woodman Fraternal Order of America from Spring Rock, Illinois is a really highly rated company. It’s an A rated company by Ambassador. So it is, and it has been around for a very long time. Good financial strength. Doesn’t seem like they’re doing anything tricky with that annuity. And if you’re looking just to be a conservative investor, then I think it’s a. It’s.Wes Moss [00:27:14]:
I think it’s a good option.Mallory Boggs [00:27:15]:
Joan in Pennsylvania wrote in with this one, the majority of our retirement is in my husband’s name. Should we take some of the money from his Vanguard account to continue fully funding My Roth IRA until I retire were concerned that the money in his name would need to be used if he. He were to require long term care at some point, leaving me less financially stable. To give you a better picture of the situation, he’s 61 and I’m 53. He received a lump sum of approximately 500,000 from his employer when he retired. He rolled that money into a Vanguard Life Strategy moderate growth fund. He also has a monthly pension that I will get 75% of when he passes. I.Christa DiBiase [00:27:53]:
I will be working for about five to seven more years. I have a rollover IRA of approximately 52,000 and a Roth IRA Target retirement fund of around 80,000. I’ll get a small pension as a Pennsylvania public school employee and I’m a paraprofessional about 15 years at the time I retire.Wes Moss [00:28:11]:
I wish I knew where Joan in Pennsylvania was from. You’re from Pennsylvania Because I graduated from Pennsylvania public schools.Christa DiBiase [00:28:19]:
I know you did.Wes Moss [00:28:20]:
Maybe Joan was probably. No, I’m too.Christa DiBiase [00:28:22]:
Didn’t you grow up on a farm?Wes Moss [00:28:23]:
I did, yeah. Kind of like. I would call it a working farm, not. Or I don’t know. My dad has lots of chickens, pigs, horses and a couple acres that he has to Mow on his 1952 John Deere. Wow. Tractor. One of those green old school looking tractors.Wes Moss [00:28:43]:
He still mows the field. He loves it. The. The. So let’s say for Joe. So big age gap. Joe, there was about an 8, 9. I think it’s a 9 year age gap between the two.Wes Moss [00:28:56]:
And I’m assuming her husband, when she said rolled over, she. What? I. What I believe she probably. And it’s a pinch or a lump sum that 99% of the time that means it went into an IRA, not a after tax brokerage account. So he’s got money. This 500,000 is. Is, is in an individual retirement account. Now he’s of the age.Wes Moss [00:29:18]:
He could take it out and there’s no penalty to do so. She’s young enough. How old is she again? 53.Christa DiBiase [00:29:24]:
53.Wes Moss [00:29:24]:
Yeah. She would be even too young to use IRA money without a penalty. So there’s a big age gap here. But the first thing I would say, Joan, is that that money’s in an IRA and anything that comes out is taxable. So anything that comes out of that is. You really need. That should be. If you need spending money, then it sure can come out of the ira.Wes Moss [00:29:45]:
But you would, you really wouldn’t want to pull money out of the IRA to fund your Roth account. So What I would do instead is think of it this way. Because he’s already got his retirement savings and you’ve got a nice pension. Even if he passes 75%, then what I would be doing here is really trying to defer as much income as I could possibly defer so that she can play some catch up. And I’m in. Think about the numbers are pretty big. So the new roth amounts are 7,000 for 20, 25 and 8,000 if you’re, if you’re 50 plus the maximum 401k contribution. And I would assume Joan has a 403b because she’s a teacher, 23,500.Wes Moss [00:30:27]:
It’s 31,000 with the catch up because she’s 50 plus. So think about this. You’ve got 30, almost $40,000 a year. That a big chunk of that she could defer, have low income because it goes into the 403B and then another 7,000 into the Roth. That’s four, that’s, that’s called. Now she may not be able to do that much in savings, but imagine she does that over the next decade until she’s 63. It’s 10 years of 30 or 40 grand a year in savings. She could have that’s 300 to 400 in savings plus growth, half a million dollars.Wes Moss [00:31:06]:
So she gets to play catch up. And that’s how I would do it. I wouldn’t be pulling it from his accounts to put into her savings. I would just really try to maximize what she could defer when it comes to her income. And I think that’s how she plays catch up. The other thing for Joan is that they could look into long term care insurance. She’s worried about that. Typically though, by the time you get into your 70s, long term care insurance is so expensive that a lot of times it’s not worth it.Wes Moss [00:31:37]:
Particularly when you’ve got some retirement assets and you have a pension that to me creating that annual income stream which is the combination. And this is a trait of happy retirees. I do a bunch of research on. Happy retirees have three plus different sources of income here. They’re going to have her social, his social, his pension, her accounts paying some sort of cash flow. His accounts make cash flow. So there’s a lot of different income streams. And I think that a lot of times can be how you’re insuring your health care over time as opposed to buying an ultra expensive policy that a lot of times is just cost prohibitive.Christa DiBiase [00:32:20]:
Great. Okay. John in Connecticut says, my daughter and son inherited Money from a kind old lady. When she passed away many years ago, the money was placed in trusts for each of them. They’re now past the age of 25 and per the terms of the will, the trust can be ended and the money turned over to my children. Is there a way to do this without triggering a taxable event? Perhaps we can roll over the money from a trust to an individual brokerage account. I’m not sure. All the money’s been in Fidelity funds for many years.Christa DiBiase [00:32:47]:
Neither of my children make a lot of money. They are not in high tax brackets. Perhaps it would be fine to have all the gains taxed now when we’re close to the trust. When we close the trust accounts and then open up new brokerage accounts for them with a brand new cost basis and this. And my daughter is 34, my son is 32. And do you want the amounts of the accounts?Wes Moss [00:33:07]:
Yeah.Christa DiBiase [00:33:08]:
My daughter and son inherited about 50k each in 1995. Some was used for college and some was used by my daughter after she reached age 25. His son. Son’s account is worth about $150,000 and the daughter’s is worth about 60.Wes Moss [00:33:22]:
Okay, so he’s really saying that. So I love this email. A kind old lady. It’s like something you see out of. That’s like out of a. I don’t know, a lifetime. Yeah, a kind old lady left us funds. The.Wes Moss [00:33:38]:
The. There’s a couple of things. So back in 1995, it’s been a long time. The stock market, the s and P500 by the way, is up something like 2000% since then. So these have obviously grown and they’ve used some of it. The other thought here is he’s saying, hey, do I just take the money out, pay the taxes and then they’ve got fresh cost basis. The answer there, this is very likely a grantor type trust. With a grantor trust, they have the basis of when they inherited the money back in 95.Wes Moss [00:34:14]:
So it’s still a pretty low basis. Even though they’ve used some of this and they don’t just for it to get into their brokerage account doesn’t mean they need to sell anything, which doesn’t mean they need to pay any taxes. So there’s no reason to just go ahead and do that and everybody gets long term capital gain and there’s a bunch of tax implications. What I would do because it’s again, probably grantor and the basis is from the 90s is that the money can move into their brokerage accounts. And then particularly because they have lower income right now, they can choose to sell a little bit at a time. And if you’re in a lower tax bracket, if you’re in the 15% and lower tax bracket, then your long term capital gain rate is zero. It’s zero. Now you selling a whole bunch of stock in itself can put you up into the 15% tax bracket.Wes Moss [00:35:11]:
But if $150,000 and $60,000, this sounds like money that could kind of supplement their lifestyle. And they can just slowly say, well, I really need $10,000 this year, I really need $20,000 this year. And you go through this exercise of looking at your accounts and there’s a tab in everybody’s brokerage, whether it’s Fidelity, Schwab, Vanguard, that’s called unrealized gain loss. It’s my favorite tab. Is it?Christa DiBiase [00:35:40]:
My favorite tab never clicked on that.Wes Moss [00:35:42]:
Tab because it shows, first of all, it shows you how much money you’ve made in any position or it shows if you’re not making position, but it has everything to do with managing your, your taxes, your long term capital gain. It’s the best tab that nobody ever looks at. So you. They’ll get this new money that they don’t need to sell it. They’ll have the cost basis from what they originally bought. Let’s say there’s a basis of $10 for this stock and now it’s worth 50. They have a $40 gain. But maybe there’s a few stocks in there that aren’t up 2000%.Wes Moss [00:36:17]:
And guess what? If the basis is relatively flat, if the basis is 10 bucks for a stock and it’s trading at 11, then selling that doesn’t have a whole lot of tax implication. So that unrealized gain loss tab is a way for you to say, well, I really want to sell something. Let’s sell. Also looking at the different investments, but you can have a lens to, well, if I sell these two things, then I’m not going to have a whole lot of capital gains. If I sell the biggest winners, then that’s when I have the biggest capital gain. So it’s essentially the trust to a brokerage account. Then they get to manage what they sell over time. From what I can tell here, a lot of that might not even be taxed if they’re staying in that lower tax bracket income wise, which gives them the potential for the 0% long term capital gain bracket.Wes Moss [00:37:07]:
So that’s how I’d be looking at this overall situation for.Christa DiBiase [00:37:11]:
Awesome. I’m Going to click on that tab. Okay. Tom in Georgia wrote this. I’m 75 and in good health. My wife is 73 and healthy. Our pension income is $105,000. We have no debt.Christa DiBiase [00:37:23]:
I’m retired from the Air Force, so healthcare is negligible. Our investment portfolio is $1 million. Plus. The question is about life insurance. I currently have two life insurance policies. Term life insurance policies. The total value is 350,000. One matures in 2028, the other in 2030.Christa DiBiase [00:37:41]:
The annual premiums total $2,475. I suggested to my wife that we should cancel and invest the money. It seems like there are lots of insurers offering from 9 to 15amonth for $10,000. Almost enough to get you buried in the VA cemetery. She wants me.Wes Moss [00:38:00]:
Oh, hold on. He’s talking about the burial insurance. So it’s nine bucks a month.Christa DiBiase [00:38:05]:
Nine to. Yes, right. Nine to $15 a month.Wes Moss [00:38:08]:
For $10 a month.Christa DiBiase [00:38:10]:
Right, right.Wes Moss [00:38:11]:
For 10. 10 grand in insurance.Christa DiBiase [00:38:12]:
For 10 grand in insurance, almost enough to get you buried in the VA cemetery. She wants me opinion. How about canceling and investing that money?Wes Moss [00:38:22]:
There’s a lot of questions there. This is why I love this. This is just. This is.Christa DiBiase [00:38:27]:
I like a good husband and wife debate.Wes Moss [00:38:29]:
Yeah, it is like, she says this. I want to do that. I don’t know. Let’s wait. Let’s see what Christa says. Let’s see what Clark says. Let’s see what I say. I’ll try.Wes Moss [00:38:37]:
I’ll be like the tiebreaker here. There’s. There’s two funny questions in there. The. Well, I don’t know if they’re funny. The. I just think that all this is cool. The.Wes Moss [00:38:47]:
The first one is really about his term life insurance. And then his second thing he’s contemplating with his wife is the burial insurance. So they’re two totally separate things where they’re both Life insurance. Burial insurance. Really? Life insurance. You die, you get money, supposedly for the cemetery. Okay, first of all, when you’re in your 70s and you’ve already been paying into term, and he’s paying approximately 2,500 bucks a year, and the insurance. What’s his name again? Is it Tom?Christa DiBiase [00:39:23]:
His name’s Tom.Wes Moss [00:39:24]:
And do we have a wife name?Christa DiBiase [00:39:26]:
No.Wes Moss [00:39:27]:
All right, so Tom. Tom, you’ve been paying into this term policy for a lot of years. I don’t know, 10, 20 years. And it’s valued. You get $350,000 if you pass away to stop today makes. That’s like the insurance Company totally wins and you that you pay them forever. And this is what you want from insurance, right? You want to pay these people lots of money.Christa DiBiase [00:39:51]:
Never, never use it.Wes Moss [00:39:52]:
Yeah, but the, but now that you’re old, that you’re in your 70s, then you don’t want to give it up now because if something happens to you in three years, five years, it’s not a whole lot of money to pay for a really big chunk, $350,000. So I wouldn’t, I would definitely not stop that anytime soon. Now you can see these term policies go up in price at some point. Once you hit the end of the term, they’ll maybe make you an offer to say, hey, you can extend this, but they usually jack up the rate. That’s a different story. But for now, if it’s still that level term, I wouldn’t be giving up $350,000 for 2,500 bucks a year. That to me is a no brainer to keep, at least for now. What’s more interesting of a debate is the question about nine bucks a month for a $10,000 policy.Wes Moss [00:40:43]:
That sounds pretty good. Think about nine bucks, or let’s do think of it even 15 bucks a month. Fifteen bucks a month times 12 is 180 bucks a year. You do it for 10 years, you paid in 1800 bucks and you get die, you get 10 grand. That’s a pretty good rate of return. The reality here though is if you do this over 20 years and you’re paying in even 15 bucks a month, if you run the math on these, it’s actually not a very good rate of return. So it’s funny the way they do a monthly amount, which really then is times 12, so it’s an annual amount. And it almost seems like it’s like a magic trick of oh, that seems like a lot of insurance for a little bit of pay.Wes Moss [00:41:28]:
But if you really start to do the math, the rates of return are really not that good. They’re like 4 to 6%, which again, go ahead and just invest the money on your own. Don’t buy the insurance. That’s just the math part of it. Here’s the reality of it. These ads are again, maybe they’re legal, they’re probably legal, but they’re super misleading. If you look up burial, and if you look up burial, the $10,000 burial policy for somebody who’s in their, in their 70s, it’s like $50 to $75 a month, not per year. And that math actually makes much more sense because you end up paying in over the course of a, call it 10, 15 year period.Wes Moss [00:42:11]:
Well, let’s just. Can I do some math? Live here on the Clark Howard show, let’s say it’s 70 bucks a month. Times 12 is $840. So over the course of 10 years, you’re paying 8,400 bucks and the insurance company, you pass away. So those numbers start to make a little bit more sense when you really look them up. So I think what those ads are doing a little bit, there’s a little bit of a bait and switch. You don’t read the fine print. Maybe that’s for a 50 year old.Wes Moss [00:42:38]:
Maybe that’s how it’s 10 bucks a month for $10,000. But then you answer the ad and you say, oh great, I want burial insurance. Well, wait a minute. Well, you’re 75. No, it’s going to be 80 bucks a month. The $9 is for like when you’re was super young. The other thing is that I think that I would imagine these, these policies have really high cancellation rates. People will do them, they forget about them.Wes Moss [00:43:00]:
It’s nine bucks a month. Do you really keep track of that for 20 years? And you pay in and then you, you only the policy lapses because you stop paying. I think that’s the other way that these policies, these insurance companies win. The insurance company always wins. True. They’re the house.Christa DiBiase [00:43:16]:
Yep, they are the house.Wes Moss [00:43:17]:
So any kind of deal where it’s like, oh wait, this a little bit of money for a lot of return, if it’s usually just, it’s too good, it sounds too good to be true. It really is. So definitely here. I would say, Tom, you want to just particularly for that 10,000, just invest your own money and you’ll be better off. Krista, thank you for joining us today. I love this new show format and I’m looking forward to more of our listener questions. So if you have any questions you’d like us to answer in future episodes, I’d love to hear from you. You can send them in to us through YourWealth.com contact.Mallory Boggs [00:43:57]:
Hey y’all, this is Mallory with the Retire Sooner team. Please be sure to rate and subscribe to this podcast and share it with a friend. If you have any questions you can find us@wesmoss.com that’s W E S M O S S.com youm can also follow us on Instagram and YouTube. You’ll find us under the handle Retire Sooner podcast. And now for our show’s disclosure this is provided as a resource for informational purposes and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. The mention of any company is provided to you for informational purposes and as an example only and is not to be considered investment advice or recommendation or an endorsement of any particular company. Past performance is not indicative of future results.Mallory Boggs [00:44:47]:
Investing involves risk, including possible loss of principal. There is no guarantee offered that investment, return, yield or performance will be achieved. The information provided is strictly an opinion and for informational purposes only, and it is not known whether the strategies will be successful. There are many aspects and criteria that must be examined and considered before investing. This information is not intended to and should not form a primary basis for any investment decision that you may make. Always consult your own legal tax or investment advisor before making any investment tax, estate or financial planning considerations or decisions. Investment decisions should not be made solely based on information contained herein.
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This information is provided to you as a resource for educational purposes and as an example only and is not to be considered investment advice or recommendation or an endorsement of any particular security. Investing involves risk, including the possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved. There will be periods of performance fluctuations, including periods of negative returns and periods where dividends will not be paid. Past performance is not indicative of future results when considering any investment vehicle. The mention of any specific security should not be inferred as having been successful or responsible for any investor achieving their investment goals. Additionally, the mention of any specific security is not to infer investment success of the security or of any portfolio. A reader may request a list of all recommendations made by Capital Investment Advisors within the immediately preceding period of one year upon written request to Capital Investment Advisors. It is not known whether any investor holding the mentioned securities have achieved their investment goals or experienced appreciation of their portfolio. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.