#98 – Backdoor Roths, Target Date Funds, and Real-Life Decisions: Money Matters Breaks It Down

Wes Moss [00:01:00]:
And that’s where we mix stories that are making financial news with answers to financial questions sent in from our listeners. And to do that, I partner with my very good friend Christa dbs, who is also the coo, producer and kind of wizard behind the Clark Howard, let’s call it the Clark Howard Company, the Clark Howard Show. Christa, hello.

Christa DiBiase [00:01:23]:
I am so happy to be here. Wes, thank you for inviting me.

Wes Moss [00:01:26]:
Very cool to have you in studio.

Christa DiBiase [00:01:27]:
First, you’re going to talk about inheritance for your kids, but in a different way than monetary inheritance, right?

Wes Moss [00:01:34]:
Yes, yes. And this comes back from a real life story and I guess I will, I’m changing names here, but I’ll make this the Chuck and Susan’s story.

Christa DiBiase [00:01:43]:
Okay, well, let me just, before we get to that, let me just also say topic too. You’re going to talk about AI and how it actually may create more jobs.

Wes Moss [00:01:52]:
Well, yes, I think that even if, let’s say you’re, if you’re retired and you’re financially in a good, good shape, you’re not as worried about what jobs are going to be taken by AI. But if you’re a parent or grandparent, you’re wondering, hey, what are, what are my kids going to do? Are all the jobs going to be taken? And I’ve been challenged lately to figure out just what we could see as far as the creation part of new jobs. Really easy to figure out. What jobs are going to go away, what jobs are going to be manual, what jobs will evolve? And that’s our second topic.

Christa DiBiase [00:02:24]:
I am looking forward to hearing that and I’m sure a lot of people are curious what you’re going to say about that.

Wes Moss [00:02:30]:
Well, let’s start though, with Chuck and Susan, which I feel like very often when I change names, I default back to Chuck and Susan. So I have A lot of Chuck and Susan stories, for some reason, those are the two names that always pop in.

Christa DiBiase [00:02:42]:
It’s a real Chuck and Susan out there going, come on, Wes.

Wes Moss [00:02:44]:
Again, I just know a lot of Chuck and Susans and they’re in their mid-70s. And it’s. I think it’s a story that we could all relate to because there’s a. It’s a very large percentage of parents that do financially help their kids. It’s a 45% of America reports having, giving some financial support or pretty significant financial support to their adult children. And it is something that we would like to do if we have the propensity. I’ve also found research wise, that if you’re doing too much of it, it actually tips going back to happy retirement, tips the scales towards an unhappy retirement. And there’s a thread of that in this, I would call, this is a real life story.

Wes Moss [00:03:28]:
And they have a son, let’s call him Nick, and he has a wife. And together, the two of them, they have good jobs and they’re doing well, but they have a lot of student debt. They’ve got a, let’s call it 100 grand between. They each have about $50,000 of student debt. And even though they’re making a good living, they’re kind of just right on the line and they’re trying to make ends meet. And Chuck and Susan are in a good spot. They’re in retirement. They’ve been in retirement now for a while and they, they’ve got a little vacation house, very modest, let’s call it vacation, we’ll call it a mountain house.

Wes Moss [00:04:02]:
And that’s where they go and they unwind. And the question I got from Susan recently was that, hey, I’m feeling a little guilty. I’m feeling a little guilty because Nick and his wife seem like they are just on the line of making ends meet. And me and Chuck, we’re kind of having a really good time in retirement. We’re going to our mountain house. We’re going to our second home. Again, this is a kind of a. This is not some ostentatious.

Wes Moss [00:04:32]:
This is not a Susie Orman retirement we’re talking about here. These are, let’s call it normal Americans. Okay? So she found herself in this tug of war and said, he’s got this debt. And of course the question is, should I pay it off? Should I pay my son’s debt off? Should I help them out? She said, because part of this is my fault. He could have gone to a state school and would have Zero financial debt at this point, have no loans. But I said, look, this other school at the time is a better fit for you. And even though it’s private, it’s going to be more money, but you can still take out a loan. And she says that she encouraged him to do it.

Wes Moss [00:05:14]:
And so she also carries this guilt of him having some debt and is, again, it’s not her fault that he married someone also with student debt. Millions of Americans have student debt. But she called and essentially said, within our financial planning, can I pay this off for him? Well, the reality is that they’re already kind of, I would say, maxing out their withdrawal rate to a level that they. I don’t want to see them go beyond this. So I said, I. I’m gonna have to run these numbers here. But right now, you’re already kind of at this five, five and a half percent withdrawal rate. That’s a little above where we’d like to be, but it’s still very sustainable.

Wes Moss [00:05:51]:
If you pay off this $50,000 worth of debt, it’s going to reduce your assets. And now your withdrawal rate is going to be 6 and a half or 7%. So that’s a ding to you. That impacts you and Chuck. And there’s a difference between having peace of mind, knowing that your plan is working, and there’s not a lot of cushion in this plan. And then there’s the worry of running out of money. Now. She said, well, one of the things that we could do, of course, is selling mountain home, Get a couple hundred thousand from the mountain home, pay this off, pay the small amount of mortgage off over here, and even add a little money to the overall.

Wes Moss [00:06:28]:
But I said, well, tell me about how often are you using this place? Like, how often do you go, oh, we go for half of the year. We’re there.

Christa DiBiase [00:06:36]:
Oh, wow, we love it.

Wes Moss [00:06:38]:
Yeah, we loved it during COVID It was outside. It was a place they were really able to escape the city, and they have a bunch of friends up there, and they’re really active in this community. It’s not just a isolated vacation home. It’s a community that they’re in. It’s a big part of their retirement, and they love it. And I said, whoa, whoa, whoa, whoa, whoa. First of all, the answer is no. You can’t just take money out right now to pay off their debt.

Wes Moss [00:07:06]:
And number two, I cannot in good conscience say, go ahead and sell the mountain house so. So that you can help your adult children. At this point, you’re in your mid-70s you’ve got a lot of retirement left to enjoy. And she said, but I still do kind of feel guilty. And I said, this is one thing you’re missing, is that you are giving them a gift by not being a financial burden to your kids. If you look up the statistics around this, about a third of adults are helping out their parents. So you always hear the statistic around parents helping kids, parents helping kids. A third of Americans reported recently, These are people 18 to 34 are helping out their parents.

Wes Moss [00:07:50]:
So he said, the inheritance that you are giving them, and at some point they’ll inherit your money and they’ll inherit the house. And maybe way down the line, you want to sell this, but you are giving them a gift by not being financially dependent on your kids at all. And that in itself is a gift. And that in itself hopefully helps you feel a little less guilty. And Susan said, you know what? I hadn’t thought about, about that way. I do feel a lot less guilty. So I think I at least bought her another year of using the vacation house.

Christa DiBiase [00:08:19]:
Oh, my gosh.

Wes Moss [00:08:20]:
And just looking at it in a slightly different way. So the lesson, I think, for all retirees is plan for you first. If you’re going to hurt your own retirement, that is the last thing you need to be doing. You’re the parent, but you also need to take care of your own plan first.

Christa DiBiase [00:08:38]:
And.

Wes Moss [00:08:38]:
And it’s okay to say no. Number two, to your adult kids, at least no, right now, that’s totally fine. And three, remember that financial independence is generational generosity.

Christa DiBiase [00:08:52]:
That’s great.

Wes Moss [00:08:54]:
So you being in a good spot is a blessing, I think, to your children. And lastly, if your plan is tight, you’ve got to really stay focused on it and don’t knock it off course just because you’ve got a little guilt.

Christa DiBiase [00:09:08]:
So true. And Clark always talks about when parents are trying to decide between funding their retirement accounts and maybe saving money for college. There are no scholarships for retirement. There are no student loans for retirement. So you have to fund your retirement.

Wes Moss [00:09:21]:
Maybe nil deals, though, for retirement. Maybe no scholarships. Maybe nil. Remember our story of the college football player? Yes, you got an nil deal for some arthritis cream.

Christa DiBiase [00:09:33]:
Oh, my gosh, that was awesome. Okay, we’ll go to some questions that came in for you, Wes. This one’s from Phyllis in Alabama. My question is, if the majority of your 401k retirement money is in a 2020 target date retirement fund, should I move a portion into bonds when I get ready to make withdrawals? I have read that withdrawals should be made from bonds. I didn’t know Fidelity has a way to only pull from the bond portion of a tdf. Or if I need to move a portion to a bond fund for withdrawals.

Wes Moss [00:10:01]:
This one, the answer is just no, you really can’t do it. Because the whole thought around a target date fund is that it is a set allocation. They’re moving it. Whatever company is managing it, they’re tweaking that allocation year by year by year. So when you’re taking money from a target date Fund, you do not have the ability to say, I’d like it to come from this piece of the pie versus this piece of the pie. So you can’t choose bonds. So the answer is you can’t ask them to do that. Just.

Wes Moss [00:10:27]:
They just don’t. A Target Date Fund does not work that way. That’s why sometimes it is nice to have different vehicles for those different pieces of the pie. And that’s one of the advantages of having, let’s call it a slightly more spread out allocation. So that you can choose, but in your case, you can’t choose. It’s going to come out proportionally. And if you need $10,000 from the target Date Fund, it’s going to come from the whole pie. And they’ll keep it balanced the way it was.

Wes Moss [00:10:56]:
Now note that if you’re in a 2020 fund, Phyllis, it’s already a lot in fixed income. It’s a lot in bonds. I don’t know your exact fund, but it’s probably 50 to 60, even 65% already in bonds because it’s assuming you’ve been in retirement now for five years. And one of my slight rubs with these target date funds is they get really bond heavy, in my opinion, really pretty early. But it’s not a bad thing because you get to keep your allocation. And that is not necessarily a bad thing. And that’s why target date funds, I think are very good in a lot of ways because they keep things simple. But that’s just the reality of this situation.

Christa DiBiase [00:11:40]:
All right, Richard Nevada sent this one in. Are backdoor Roth IRA contributions going away due to the big beautiful tax bill passed this summer by Congress? As seen a lot of mixed answers on the Internet regarding this question. I’ve been listening to Clark since I was a kid growing up in Atlanta during the 90s. And the advice has made me a millionaire by the time I was 29.

Wes Moss [00:12:00]:
What did Richard do? I love. I know.

Christa DiBiase [00:12:02]:
That’s incredible.

Wes Moss [00:12:03]:
29. Wonder if he worked for one of those Tech companies, I don’t know.

Christa DiBiase [00:12:08]:
Or he just saved and saved and saved or just.

Wes Moss [00:12:10]:
That’s early.

Christa DiBiase [00:12:11]:
A lot to save.

Wes Moss [00:12:12]:
Yeah, he said a lot to save.

Christa DiBiase [00:12:13]:
Can’t even imagine.

Wes Moss [00:12:14]:
Business owner, maybe that’s early. The short answer here, Richard, is no. At least I don’t think so. The backdoor conversion is not going away because of the one big beautiful bill. Now, I’m not a legislator, but that was passed back in July of 2025 and from my understanding of the OBBB, it did not eliminate the backdoor Roth. I think there is a little confusion because back in 2021, in the build back better got one big beautiful plan. One build back better there were proposals to get rid of the whole backdoor Roth and the mega backdoor Roth 401k and those were big headlines. But I don’t think none of that actually passed.

Wes Moss [00:13:00]:
So the OBBB focused, really remember just. Well, it’s a giant bill. But a lot of that was about keeping the tax rates from 2017 where they are. And that’s what we’ll be experiencing in 2026. So the backdoor Roth lives on and that’s where you would make your non deductible contribution to an IRA and immediately convert it into a Roth.

Christa DiBiase [00:13:24]:
All right, and this one’s from Brian in California. My wife and I are retired and around 60 years old. We worked with a financial advisor two years ago and had a great experience. It was a one time engagement and he provided us with a detailed financial plan that included projected spending and withdrawals. Since that time our retirement accounts have increased by more than 30%. My question is how often should we have our plan updated with the advisor to ensure we can spend more if needed.

Wes Moss [00:13:51]:
So Brian in California, I think that the simple answer here is just I think once a year. I think it sounds like it’s been a couple of years and it’s been a really good stock market. And I think people get lulled to sleep when it comes to their planning. When things are going really well, when your portfolio is growing at 10, 15% a year and you still are spending a similar amount, you know, you’re in pretty good shape and there’s a little bit less worry, there’s a little more sleep well at night in the ether, but when you start talking about spending more, then that changes the plan. Now most plans, and I’m sure the plan you did a couple years ago probably accounts for inflation. Almost any financial planning software is going to say what is the assumed inflation rate? You want to, you want to pick two and a half, 3% a year. So it’s probably already baked in that you have gotten a raise of 7 or 8% over the last couple of years. That’s probably already in your plan.

Wes Moss [00:14:50]:
But if you don’t know that, that means a, you should be revisiting it. Number two, if you’re saying to yourself, hey, I, I, we want to materially spend more, maybe there’s a project you want to go spend money on and the market’s done really well and you’re saying, well we’re way ahead of schedule here. This is a time to utilize some of that money. And if you found a planner where you can do that on just an ad hoc basis once a year, once every couple of years and they’re good, then I would absolutely revisit and just as though you’re retiring again tomorrow and redo the plan.

Christa DiBiase [00:15:27]:
Okay, sounds great. Okay, we’re going to take a quick break and then you’re going to talk about the jobs that I can actually create and we’ll get don’t have a.

Wes Moss [00:15:35]:
Perfect crystal ball here stuff but I am going to make an attempt to figure out how we could we have creative destruction. What about, what’s the creative part?

Christa DiBiase [00:15:44]:
Okay.

Wes Moss [00:15:47]:
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Wes Moss [00:16:22]:
This is really about the future of probably if you’re, if you’re thinking about or if you’re listening, the future of what your kids are going to do when they grow up or your grandkids. And the reason I wanted to talk about this economically is that we’re in one of those news cycles where we’ve had a bunch of layoff announcements. Ups 48,000, 14,000 at Amazon or 30,000 and Amazon and Microsoft’s laid off 50 plus thousand over the last couple of years or almost 100,000. So those numbers are hitting the headlines and companies are saying we’re doing more with less people because we have AI. Salesforce has said this something like 40% of their customer service folks. So there’s been enough momentum. The snowball of AI taking jobs has Gotten. And I think the temperature here will continue to rise on this.

Wes Moss [00:17:16]:
But I’ve gotten a lot of questions from not just families I work with, but all sorts of folks are saying, well, it’s easy to figure out what jobs are going away. It just sounds bad. I was in a cab the other day and it was the same question. He said, well, what is everybody going to be doing if AI just does all the jobs, then what are we going to be doing? And how, how are you going to have money to spend? And I think that’s a very real fear. And on the surface it is a little scary. And this is a hard topic and I don’t have a perfect crystal ball and I could be totally wrong about this, but I’ve thought about this a lot over the last couple of months and I found a really detailed, very comprehensive report from the World Economic Forum was a 300 page document that looked at different skill sets and what could go away and then different jobs that could go away, but also job categories that could be created, which is a little harder to imagine. What are the new jobs going to be? And here’s the bottom line from the report that I took away is that they say 85 to 92 million. This is globally, by the way.

Wes Moss [00:18:29]:
They say 85 to 92 million existing jobs will be displaced. That’s a scary number. 85 to 92 million jobs are going away. That’s. That is scary. Roughly, however, 170 million new jobs will be created worldwide by 2030.

Christa DiBiase [00:18:54]:
Okay.

Wes Moss [00:18:54]:
Whoa. Okay, that’s better. Should have started with that.

Christa DiBiase [00:18:58]:
Yeah.

Wes Moss [00:18:58]:
170 million new jobs created because of AI worldwide by the year 2030. So that’s a net job gain of 85 million jobs. And if now, looking over the course, that’s a, that’s half of our workforce. But this is globally. You would see globally about a 7% increase in employment. The even more interesting statistic is that they say about 22% of all jobs will change in some way by 2030. So think of it as less about the pie shrinking. The pie is going to get bigger according to the World Economic Forum.

Wes Moss [00:19:35]:
But the composition of that pie is going to change to some extent. One in five jobs, 22%. They’re going to look a lot different over the next several years. Now think of it this way. Think about what we all spend money on. 33% of what we spend in America is on housing. We can’t get rid of that. Transportation, 17% can’t get rid of that.

Wes Moss [00:19:57]:
Food. 12% can’t get rid of that insurance, personal insurance, 12% healthcare 8% entertainment 4.5%. Is any of that going to go away? And the answer is no. We’re going to still do all the things that we’re doing today in three years and five years, in 10 years, we’re going to still want to travel, we’re going to still want to be entertained, we’re going to still need a house, we’re going to still need insurance, we’re still eating food, we’re still eating transportation. So think of this. Fundamentally, we’re not going to stop any of those goods or any of those services. So they have to come from somewhere. And this, to me, I think gives some comfort, is that the demand isn’t going away.

Wes Moss [00:20:38]:
We’re going to still want to do all these things and we’re not going to be sitting around on our couches doing nothing, collecting universal basic income. That’s just not going to happen. So think about every job will have. Well, at least one in five jobs are going to change. So you’re going to be partnering with AI for almost every career, number one. Number two, I think there are all sorts of demographic drivers like the aging population. That’s again, those demographic trends are not going away. So what does that mean? Well, we still need even more healthcare.

Wes Moss [00:21:10]:
We still need. You’re thinking about. I’m going to give you a real world example of AI, how it can create a job. Well, let me give you first some categories that are going away and these are easy to figure out. Cashiers, ticket clerks, administrative assistants, data entry, bank tellers, loan clerks. I feel like we’ve been talking about those jobs going away for the last 20 years anyway. So now maybe they’re really going to go away because they didn’t go away before. But what about.

Wes Moss [00:21:38]:
The world still needs to be fed. And as we grow economically, there’s even more people as the population grows that need to be fed. And here are a couple of categories that the World Economic Forum sees new jobs being created at Hydroponic and vertical farm technicians. I also read about agricultural drone operators. What’s that? Well, we need to fertilize crops, water the crops, feed the crops. And how are we going to do that more technologically? So just like we’ve been using drones in the military for 20, 30 years, we are going to start using that in other industries. Farming is a really easy example to think about. Delivery and logistics.

Wes Moss [00:22:19]:
Well, if things get more automated, we’re going to need even more folks to get products that last mile that Last five miles packages to your doorstep. Still need humans. Think more DoorDash, more FedEx, more EV fleet mechanics, smart home. If everything’s getting smarter and more AI integrated, then think about the technicians for your home. They’re not going away, still need ac, still want entertainment, but that’s going to be retooled over the next decade. So you’re going to need smart home installers and H vac technicians. And maybe now plumbing’s tied to into an AI interface. So everything’s going to still be there but it’s going to be a little more complicated.

Wes Moss [00:22:57]:
So there’s retraining and more education. Food, Restaurants aren’t going away. I mean half the meals we eat in America are either at a restaurant or get delivered to our house. I think it’s even more than that. Those restaurants are going to get smarter. Think food safety, AI inspectors, telehealth and healthcare is not going away. Mental health need isn’t going to go away. And then think about reskilling and retraining those jobs and education, they’re not going to go away.

Wes Moss [00:23:23]:
And I think they could potentially grow. We still need energy, still need utilities. You were going to say something I interrupted.

Christa DiBiase [00:23:29]:
No, I just, I think you’re right that any of these new jobs, they’re going to be very different from what they look like now like you said. And there may be, I don’t know, I don’t know how they’re getting to that number where we’re going to double the jobs we’re losing from AI because with each of those, like I’ll give an example, a restaurant, like you said, cashiers are going away. You walk into a fast food place, you’re probably gonna order on a screen in a lot of places today. And so there’s one person working there who might hand you your food or whatever instead of multiple people in lines to get, you know, to get your food. And then a restaurant I go to, you know, you scan a QR code, you order right on your phone, they just have people bringing the food to you. You’ve got self driving cars that maybe could deliver food. So you know, but I do agree like you’ve got.

Wes Moss [00:24:17]:
Yeah, it’s easy for us to think about the jobs that are going to go away because we’ve already seen a little bit of that. But I think of these businesses more broadly and I think of not just the restaurant as a place you go get food, I think of the restaurant as a business and I think about how if you have more scalability on the order, you still need the same amount of food, so you still need more or chefs. And perhaps now you can have more because you have more efficiency. Maybe there’s more marketing people for the restaurant, maybe there’s more. There are other jobs that support the company or the restaurant as a business that get created. Now here’s a very real life example. I to me it brings this home. I’m going to go to wills and trusts.

Wes Moss [00:25:03]:
Don’t tune out because it’s a boring topic. Only a third of America has a will and trust. 92% of clients of financial firms, financial advisors, who by the way don’t do wills and trusts, say they want estate planning. It’s been a disconnect for ever since I’ve ever been in the industry. If you’re sitting down with your financial advisor, you want them to be able to really help you with estate planning. That means crafting the overall estate plan, doing a will, doing a trust. But guess what? Financial advisors aren’t attorneys. So they’re not allowed to draw it up.

Wes Moss [00:25:33]:
They’re really not even allowed to get into the weeds of this. So there’s a new company, it’s a new software based company that calls themselves an estate platform that now partners with financial advisors so that now this software using artificial intelligence is very AI based will help now instead here’s what happens in the has happened for the last probably hundred years and Certainly the last 25 family comes in, says I want to do an estate plan. They sit down with an advisor and the advisor says, I know Joe, he’s a great estate planner. They go and they do the plan and there’s this great divide and the advisor never really is in the process and there’s not a lot of communication. Maybe it gets done, maybe it doesn’t get done, maybe the wills get done, maybe they don’t. But there’s this huge gap in this. And again, only about a third of America even has an Estate Plan. 92% of people have financial advisors want an estate plan.

Wes Moss [00:26:32]:
But a lot of them never get done. Now there’s a new company that if you hire an estate planning liaison, somebody that is an attorney, they can now help facilitate this new AI based platform to help visually draw out your estate plan and all the documents you need for your estate plan through a series of simple questions. Think going through a checklist and using a nice interface. Do you need. We’re talking will or trust. Do you have kids? No kids. What are your goals then? On the back end, this AI software company not only Maps this out. But they have a whole fleet, hundreds of attorneys that now will write those documents for you.

Wes Moss [00:27:18]:
So now you’ve created, this is emerging. This has only been around for a couple years now. Almost any financial advisor, hundreds of thousands of advisors in the United States can now partner with companies like this and also have an estate planning liaison at their firm. And not just say, hey, go get an estate plan. Go get a will and trust. Actually get it done. It’s an entirely new industry. I see it happening to this day, and it’s an example of, I think, thousands and thousands of jobs being created.

Wes Moss [00:27:51]:
Imagine if we go from a third of America having a will and trust to 50%, millions of people. It’s probably tens of thousands or hundreds of, I would say tens of thousands of jobs.

Christa DiBiase [00:28:01]:
Okay, I like your optimism. Okay, we’re gonna go to questions. This one came in from Emma in Illinois. I’ve been listening to lots of different financial podcasts over the last few years, but I just started getting interested in fire. I am finding some of the information to be contradictory.

Wes Moss [00:28:19]:
Imagine that Emma Clark and others promoting.

Christa DiBiase [00:28:22]:
The Roth, but the FIRE says to do all traditional now for a lower tax rate later. What are your thoughts, Wes, and is there a good resource for tax planning for early retirement that you could recommend?

Wes Moss [00:28:33]:
Okay, so, Emma, in a vacuum, I hears why. I think FIRE says that. I think FIRE says they’re estimating that you’re going to work, be at a high tax bracket, earn a lot of money in your 20s and 30s and stop at age 40. So if you’re in a really high tax bracket and then you graduate to this long, drawn out retirement, you, you’re controlling your tax rate when you stop working, so your rate’s lower. So they’re saying, why do a Roth when you have to pay after tax money, you pay 35% in taxes to put money in the Roth when in the future you’re going to be in the 15 bracket. So that’s kind of in a vacuum. If FIRE works out the way it’s drawn up, with a blueprint, that’s kind of why they’re saying that. And they say just fund a brokerage account because you’re going to have a lot of years, you can’t even tap your retirement money because you’ve got to wait all the way till 59 and a half.

Wes Moss [00:29:25]:
So you really need brokerage money to do that. I think it’s, it could maybe make it a little simpler than that. And I know what Clark says about this, and I, and I agree if you’re in the top two tax brackets, it to me, you, you don’t want to do a Roth anything lower than that. You want to do traditional IRA and. Or I’m sorry, you went to a.

Christa DiBiase [00:29:49]:
Roth lower than that. Yeah.

Wes Moss [00:29:50]:
And here are the numbers. So this is starting next year. It’s at about 250k. If you’re single, lands you in the 35 bracket. There’s one higher 37. And if you’re in that bracket, you’re likely. So if your income is and most people are under right. If you’re still 250 or under 500k, joint married filing, filing jointly, you’re likely better off with the Roth.

Wes Moss [00:30:15]:
And that’s most people. The Roth 401K. If you’re going full force with fire, trying to earn a ton of money, save 50% of your earnings so you can have financial independence at age 40 and your income is above 250 or as a couple over 500, that lands you in the 35 bracket. That’s where the traditional 401k might make more sense.

Christa DiBiase [00:30:38]:
Okay, this one came in from Charlie in Texas. I have a family member whose family started and continues to operate a Christian kids camp in Texas. And for the past 30 years, since its beginnings, no one has been paid a salary or hourly wage. The camp paid for insurance, room and board. So all their needs have been handled, but no personal savings. That is until the floods. And Kerrville, I believe, is how you say it, Texas, that was horrific. New laws and insurance since the flood will result in the closure of many kids camps because operational costs are skyrocketing.

Christa DiBiase [00:31:11]:
Even though they do not get paid a salary, if the camp closes, they may receive 10 years of back pay as a lump sum. This is being discussed. The concern is the amount of taxes that they will have to pay will be enormous. And is there any way to take a large sum and spread it out over 5 or 10 years? Any suggestions would be greatly appreciated.

Wes Moss [00:31:32]:
Yeah, Charlie, the. I remember the pictures of those floods are terrible. It was a horrific situation. And so those images are still fresh. And it does sound like kind of a wonderful institution where these are people are really volunteers. It sounds like for all these years and they never got paid. The reality here is that if you’re getting some sort of settlement or back pay from an insurance company, it’s going to be ordinary income or most likely ordinary income. I don’t know exactly for sure, but it’s going to probably be ordinary income.

Wes Moss [00:32:09]:
And there is very little you can do about that in the year it is received. And again, is this a bad thing for someone? The answer is no, because it’s still net more money. If you get $100,000 settlement, have to pay 30%, you still 70,000 that you didn’t have. So it’s, it’s not going to put anybody in a worse financial position. So I think that’s first out. But it’s a good point to think about how would you be able to spread it out? That could happen in the discussion potentially between the insurance company and the business. And there is a possibility that there could be a structured settlement and the money could be paid out over a number of years. So if the numbers are really big, and again, this is.

Wes Moss [00:32:52]:
If everyone’s going to get $50,000 or $100,000, I don’t think that they would have to go to some sort of structured settlement. But if it’s millions of dollars, then it might really make sense for the business owner to be thinking about stretching that out over time. And that would be up to the business owner and potentially the insurance company in order to do that.

Christa DiBiase [00:33:14]:
Okay, we’re going to go to a light one next light. This is very light.

Wes Moss [00:33:19]:
That was heavy. We’ll go live.

Christa DiBiase [00:33:21]:
This was from MJ in West Virginia. This is for Wes. I was in Aldi yesterday and they had his favorite apple, the Snapdragon apple.

Wes Moss [00:33:29]:
Wait, is this apple question?

Christa DiBiase [00:33:30]:
Yeah, this is the first time I’ve even seen Snapdragon apples at my Aldi. And it was a red label special. I have to try this apple that Wes likes. I put the bag of apples in my cart, but my beloved gala apples were even cheaper. So in true clarky fashion, out of the cart went the SD apples back to the shelf.

Wes Moss [00:33:49]:
And I grabbed my Galaxy is in Snapchat. Yeah, she’s abbreviating these apples.

Christa DiBiase [00:33:53]:
Maybe next time, Wes.

Wes Moss [00:33:56]:
Oh, my goodness. The. Who was that? What was this question from again?

Christa DiBiase [00:34:01]:
This came in from MJ in West Virginia. Mj.

Wes Moss [00:34:04]:
All right, mj. I. I guess the Snapdragon is a little bit of a premium apple. And I think that your galas, they’re like the low cost index Fund, the gala apple. They’re really. And they’re really pretty inexpensive. And I just, I guess I can’t really. And if you like the Gala, then stick with the gala.

Wes Moss [00:34:28]:
But the Snapdragon is a really interesting apple. It is the juiciest, crispiest apple. And if you get a good one, that’s the other thing. You don’t know exactly what it’s going to be. But the Snapdragon is ultra crisp. Remember, it’s a very trademark name. I would not skip out on the crisp pink, though. You don’t want to do that.

Wes Moss [00:34:52]:
Mj, Remember, the pink crisp, which is two different apples, was kind of accidental. Well, it was one of these apples that was bred in the 1970s in Australia. It was the Lady Williams apple and the Golden Delicious apple.

Christa DiBiase [00:35:11]:
Oh, I loved Golden Delicious apples as a kid.

Wes Moss [00:35:13]:
And the Lady Williams apple I think was a. That was an accident. They didn’t breed that. That was just like they ended up cross pollinating and they ended up with this amazing apple and then they crossed it with the Golden Delicious and now you end up with the crisp pink. But you’re right.

Christa DiBiase [00:35:31]:
Crips. Is it Crips or crisps?

Wes Moss [00:35:34]:
It’s hard to say. It’s Crisps Pink and Pink lady and mj, they’re the same apple. They’re just branded differently. And evidently it’s got to be of the. It’s got to be a really good crop to get labeled. It’s all marketing. The Pink lady, which is supposedly the highest quality of the crisps pink. They are more expensive.

Wes Moss [00:35:56]:
Just buy one and try it.

Christa DiBiase [00:35:59]:
Okay.

Wes Moss [00:35:59]:
And I think you’ll never go back from Gala.

Christa DiBiase [00:36:01]:
All right, now we’re off. We’re back off the apple train and we’re going to Dan in California’s question, Wes, this is in regard to how much money one needs to retire. And I know everyone’s a little different for different reasons. If I have a fixed income of $79,000 that I will receive for the rest of my life and have a life expectancy of 10 years, would that 790,000 be added to what I currently have in my savings and IRA? For example, say I need $1.2 million to live comfortably in retirement. I have 500k in my IRA and savings. Would that 500k be added to the 790k to give me a total of 1.29 million? Thanks for taking the time to answer this question, Dan.

Wes Moss [00:36:42]:
Yes and no. You’ve got an income source and you’ve got savings. And in the end, what really matters, and the only reason we have savings to begin with is because we want it to turn into an income source. So you’ve kind of skipped that step with the $79,000. So it doesn’t matter, does it? You don’t need to re equate it to what that would be worth because it’s already in the form you need it. It’s in the final step, it’s there $79,000 for the. Sounds like for the rest of your life. And then you’ve got the other 500, which is.

Wes Moss [00:37:12]:
That’s investment bucket. That should now also create income. Call that another 20 or $25,000 a year. So you put them together, you’ve got eight, you’ve got 100, over $100,000 a year in income. And that’s where we’re all trying to get. It doesn’t matter if we have lots of assets that get us there or we have a bunch of income streams to get us there. If you’re there, then you’re going to be able to sleep well at night. Now, if you were to equate what that would be worth, $79,000, I’ll do the math, divided by, let’s call it 5%, it’s worth about 1.6 million.

Wes Moss [00:37:46]:
If you didn’t have any of those income streams, you would need about $1.6 million in order to have that 75 mil, 79,000 a year. So, yeah, you could look at this as you’ve got 500k and the equivalent of 1.6. Really, your retirement is being funded to the tune. It would take about $2 million to do that. You don’t need to count it as an asset, but because it’s in the final form.

Christa DiBiase [00:38:14]:
Okay, all right, Well, I think that’s.

Wes Moss [00:38:16]:
Going to do it for this week and I hope you enjoyed this special episode of Money Matters. If you did, then you’ll love the Retire Sooner podcast, which you can follow on any podcast platform. And if you’d like to reach us, me and the team, the Money Matters team, during the week, it’s easy to do, so you can find us@yourwealth.com that’s y o u r wealth.com have a wonderful rest of your day.

Disclaimer [00:38:46]:
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. 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 strict 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.

Disclaimer [00:39:34]:
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.