Kimmy is worried that her mom’s retirement portfolio is invested too conservatively. Is she right to advise her to take on more risk?
Peyton has heard the financial advice about staying away from Whole Life Insurance as an investment, but what about as a savings account for children? Is there good a use case for this?
Jeff and his wife are in a great financial position, but they fear that their retirement savings are too heavily apportioned in traditional IRAs. Will they run into tax problems in the future?
Former financial planner Joe Saul-Sehy and I tackle these questions in today’s episode.
Enjoy!
P.S. Got a question? Leave it here.
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Kimmy asks (at 02:12 minutes): How much risk should my mom take in retirement? My mom completely turned her financial life around. She grew up dirt poor but now has $1 million in liquid assets saved for retirement.
She owns her home, worth $300,000, with $40,000 left on the mortgage. I recently ran an analysis of her spending and retirement benefits. If she starts drawing next year at age 62, she’ll have:
- A pension of $29,000 per year
- Social Security of $27,000 per year
- A minimal withdrawal need—just $8,000 per year from her 403(b), with slightly higher withdrawals in the first three years to cover health insurance before Medicare kicks in.
Since she’ll be withdrawing so little, she may run into required minimum distribution (RMD) issues later. I’m planning to help her with Roth conversions before she turns 73 to reduce that burden.
Right now, her portfolio is very conservative:
- 15% in high-yield savings
- 50% in bonds
- 35% in equities
Given that she doesn’t need to rely heavily on her investments for income, I think she could afford to take on more risk. I ran Monte Carlo simulations, and in every scenario, shifting more of her portfolio into equities improves her long-term outlook.
Am I missing anything? My top priority is ensuring she has a secure and comfortable retirement. She insists on living simply, but I want her to have every opportunity to enjoy life.
There’s a secondary factor, too. I’m 41 and have been severely disabled since contracting COVID two years ago. I live in a high-cost-of-living area and have $350,000 saved for retirement which is now accessible to me without penalty due to my disability. My investments are almost entirely in equities, and I’m comfortable with the volatility.
I receive $2,000 per month in disability benefits but am spending my savings at a rate of $3,000 per month. That spending should drop significantly if I’m approved for Social Security Disability Insurance (SSDI) in the next two years.
Would love your perspective—am I overlooking anything in my mom’s asset allocation or my own financial situation?
Peyton asks (at 23:15 minutes): I’m a previous caller whose parents took out a life insurance policy for me when I was seven. They paid the premiums until I got my first full-time job, at which point they transferred the policy to me.
The last time I called in, I asked what to do with the policy since I don’t have dependents. You suggested donating it, and I ended up making the beneficiary an organization that both my parents and I support. It was funded by both their money and mine, so I wanted to honor them.
Recently, I was talking to a friend whose husband suggested doing the same thing for their future kids. That made me pause. My parents used the policy as a savings vehicle for me, but is that a good strategy?
For new parents—assuming they’re already saving for education—does buying a whole life insurance policy make sense as a way to gift money to their children? I know there’s a lot of debate about whole life insurance, so I’d love to hear your thoughts.
Where does it rank among the different ways parents can pass on wealth?
Jeff asks (at 43:09 minutes): We’re trying to optimize our finances before my wife quits her job—what should we do? We’re a family of five in Colorado, with kids ages 3 to 10. I’m 46, my wife is 39.
We spend $12,000 a month, and our household income is $290,000—though that will drop by $90,000 once she leaves her job. We believe we can afford it, but we want to make sure we’re making the right moves both before and after she quits.
One concern is that too much of our money is in pre-tax accounts, which could create a big tax burden in retirement. I have $2.3 million in a 403(b)/401(a), all pre-tax, plus $66,000 in a Roth IRA. My employer offers a 10 percent match, and since they don’t have a traditional IRA, I’ve been doing a backdoor Roth conversion each year.
My wife’s employer contributes 12 percent of her income to retirement, and she’s been maxing out her pre-tax 403(b). She has $60,000 in a Roth and $78,000 in a traditional IRA, recently converted from a SEP when we moved everything to Fidelity.
We wanted to do a backdoor Roth for her but got confused about the pro-rata rule and whether we’d face a big tax hit—or even trigger the Net Investment Income Tax (NIIT). We also recently moved our taxable brokerage to Fidelity and have been unwinding some legacy stocks.
Last year, we pulled $75,000 while offsetting gains with losses. But we still have $380,000 in traditional stocks, with $270,000 in unrealized gains. Including what we pulled, we now have $115,000 in Fidelity’s cash management account.
Other assets:
- $300,000 in 529s (we stopped contributing and now invest $350/week in a Boglehead-style taxable account with VTI, VXUS, and bonds).
- $50,000 in crypto.
- $80,000 in an HSA.
- Our home, worth $715,000, is on a 10-year mortgage and set to be paid off in 2030
Given all of this, what should we do before she quits to optimize our finances? Should we shift more toward Roth accounts? Adjust our investment strategy? And is real estate worth considering? By the time this airs, there’s a good chance she’ll already have left her job.
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