#242 – 10 Habits of the Happiest Retirees: Smart Money Moves & Fulfilling Lifestyles

Wes Moss [00:00:46]:
Let’s get started. Hi, Christa.

Christa DiBiase [00:00:52]:
Hello. How are you? Wes, you’ve been studying the habits of happy retirees for a very, very, very long time. And unhappy retirees, which I love because it’s not. When you talk about financial planning, it’s not, it’s not just about the numbers at all. In fact, most of it’s helping somebody plan out what kind of life they want to have. Right.

Wes Moss [00:01:12]:
It really is. And when I first started doing this called 15 years ago, when I started really thinking about these topics, kind of the. It was, it came from when I was a newer parent, there was a popular book called the Happiest Baby on the Block.

Christa DiBiase [00:01:26]:
I read that book.

Wes Moss [00:01:27]:
Did you really remember that?

Christa DiBiase [00:01:28]:
Oh, yes, I certainly did.

Wes Moss [00:01:30]:
It was, it was kind of a popular book. I actually never read it. I just remember 10 people telling me, oh, you got to read Happiest Baby on the Block. And in my mind, I thought, well, who’s the happiest retiree on the block? What do they do? And then I went and started and I’d been working with retirees for a decade at that point, but I wanted to get more empirical data around it and not just what I thought. So I started researching it and getting large groups and these large populations of retirement age folks and asking them about their lifestyles. And that’s what I want to talk about. So I’ve got, I’ve really got some of my favorite habits I’ll share today.

Christa DiBiase [00:02:09]:
And I love this because this is important, whether you’re 25 listening or you’re 65 listening to this podcast because you want to put things in place, if you can, when you’re young to think about, like I’ve been thinking about this for years because I’ve known you and I read your book that you wrote about this topic and thinking about what kind of retirement do I want to have and planning for it, even though I’m not anywhere near retirement. So you’re going to. You’ve got 10 things that you’re going to lay out for us in this podcast. Right? Five and five.

Wes Moss [00:02:39]:
Right. So we’ll start with how we want this lifestyle and we’re going to talk about lifestyle. There’s five of those. Okay, well, first we got to pay for it. So we’ll start with the five financial habits of the happiest retirees.

Christa DiBiase [00:02:52]:
Okay.

Wes Moss [00:02:52]:
And then we’ll do. And then we’ll do the five lifestyle habits of the happiest retirees. And you make such a good point. And this first one’s about how much money should we have? And I studied this and I got a median number and an average number and looked at the population of happy versus unhappy. And where did I get these numbers? I got them from the happy group. So you’ve got this population of retirees. We want to land in the happy group and we don’t want to land in the happy group. So how much money they have? First of all, I’m rounding these numbers because I want people to be able to remember them.

Wes Moss [00:03:25]:
I’m a big believer in round financial numbers. $897,000. That’s not a number anybody remembers. The median number here. And I’ve adjusted these for inflation over the years. And we’ve had massive inflation in the last, call it five years, ever since the pandemic. And not only do these numbers, they’re updated for inflation, but I’ve also seen people with my original numbers 10 plus years ago that start. But it used to be 500,000 was the median and that’s, it was a relatively low number.

Wes Moss [00:03:59]:
There was some kind of controversy. Right? I mean, I think Susie Orman says you need five, you know, $5 million to think about retirement. I came out, I said, you, the median number for the happy retiree is 500k. How can you do. I’ve seen it work. I’ve seen it work because there’s other financial steps here. So today I think 500, if you’re 25 or 35, that’s, that’s, it’s too low. So we updated for inflation the median amount for the happy retiree.

Wes Moss [00:04:26]:
If you were to be 60 plus today and you’re gonna stop working. 750k. So it’s still not even a million dollars. 750k. Now the average is one and a quarter million. But again, it’s not 5 million. It’s not these massive numbers that I think make people not even want to start trying. It’s like, how are you gonna get to 5 million? It’s hard enough to get to a million in a quarter.

Wes Moss [00:04:50]:
But I’m telling you, and I think about when I was 25 and I knew you and Clark talk about this, but if you just have this as a goal and you give yourself, you’re 35, 40, 20 years from now, you’re still not, you still should be able to be working. You’re still, you can get to these numbers. You can get to these numbers. So. So the first step is that the happiest charities have a minimum of 750k average of one one and a quarter million. That’s first out of the gate. Got to be able to pay for the life in the big city. It’s expensive to live in America.

Wes Moss [00:05:24]:
Two multiple streams of income. Think about this starting today because you want to be able to have these multiple income streams once you are no longer working. The happiest retirees have three plus unhappy less than three. Hopefully you’ll have a good Social Security payment and maybe your spouse has a good Social Security payment. Maybe you do have a pension. Millions of Americans still have a pension. Maybe you bought a. You think about, oh, what’s another way to do it? Rental property.

Wes Moss [00:05:50]:
Maybe there’s a rental property that by the time you’re retired is really cash flowing from you. Maybe there are other benefits you’re getting from maybe their military or veterans benefits. You don’t necessarily have to be a real estate mogul. You could even I see retirees that are Airbnb fixed. That’s a different model than owning a bunch of property. This is maybe your Airbnb, your guest house or your house part time work. You may want to stop from the soul crushing job you’ve had for 30 years at 62 and you do a lighter job for five more years and you’ve got some part time work. So think about there are a lot of different ways of income streams and more is better.

Wes Moss [00:06:34]:
And all those income streams come into one giant river of income in retirement. And the more diversification we have around the different income streams we have, the more peace of mind we have. Hence more likelihood we end up in the happy retiree camp. Mortgage payoff within sight. I found that those who were within five years of paying off their mortgage or paid it off or within five years so close to paying off the biggest debt most Americans have, happiness levels went up big time. Not only is it, it allows you to spend more discretionarily as opposed to I have to make the mortgage. I have to make the mortgage. Now once it’s gone, you can choose what you’re spending money on.

Wes Moss [00:07:18]:
So that’s a huge part of it. And we can all figure out ways to accelerate our mortgage payments and accelerate getting rid of our mortgage. If we add depending on your balance and depending on your rate, you add 200, 300, $500 a month to your mortgage payment, can shave a decade off a 30 year mortgage. So then we end up with, so now we’re sort of piece out the financial piece here. We’ve got 752, one and a quarter million dollars. You’ve got multiple income streams. We have no mortgage so our expenses are lower. What’s next to be able to get to that, those bigger that that million dollar mark, the million and a quarter.

Wes Moss [00:07:54]:
Really tough to just save your way there. Happy retirees have a real propensity to be investors. They’ve got this thought that I look at it as rational optimism. It’s so easy to be pessimistic out of the world, look at the economy, pessimism, pessimistic about the stock market and not be an investor. Happy retirees have a bias towards things are going to work themselves out. Rational optimism which it makes it easier for you to be an investor, which makes it easier to hit those liquid financial checkpoints. By the way, number one is a reminder is that’s a liquid financial asset. That’s not overall net worth, it’s not just a overall net worth.

Wes Moss [00:08:34]:
We want to be able to get to that money, we want that money itself to be able to create another income stream. And then number five, smart spending. One of the very top fears we all have is running out of money. It’s like public speaking I think is like number one and running out of money is number two. And it’s a very real fear that’s embedded in us. And I see it, it almost can’t go away. Whether you have a million or 3 million or 5 million, the person with 5 million, they’re still worried about running out of money. 10 million still worried about running out of money.

Wes Moss [00:09:13]:
Because typically their spending is commensurate with what they have. So how do we solve for that? Well, we go back over the course of history and we apply the 4% plus rule. Again, there’s no magic here. This is just math and economic history. The 4% plus rule just says that if you were to start in your first year of retirement taking 4% of your assets, then you can up that for inflation every Year and over the course of economic history, the worst case scenario, people didn’t run out of money for 30 years. And in most cases, 98% of cases, it lasted much, much longer than that. And utilizing the 4% plus rule, because it’s really between 4 and 4.5%, the majority of folks end up with more in their liquid retirement Savings account in 10 and 20 and 30 years than they started with. But they’ve also been pulling out money the whole time.

Wes Moss [00:10:12]:
Now, if you’re taking 6% or 7% a year, yeah, you would be worried about running out of money. So happy retirees know, and they know the economic history and they know the math of this, what I consider a financial rule of thumb. It’s an amazing guide that can guide us from year to year to year on how much we’re safely able to withdraw from the portfolio and take your worry about running out almost down to zero. And if we do those five things, liquid retirement savings, multiple streams of income, we get rid of our mortgage, we’re rational optimists. So we’re investing the money and we stick to the 4% plus rule. That gives us a really good shot of landing in what I would consider, and I’ve seen through research, the happy retiree camp.

Christa DiBiase [00:11:01]:
That’s great. And I do want to just add a note here on, especially for rule number one, habit number one, the having the amount of savings. It does. You can create a variable by maybe you have to move far away from a city, maybe you have to move, really downsize, but you can create a lifestyle. If you don’t have that kind of money and there’s no way you’re going to get there, that you can also have a life. You know, it’s about your lifestyle, right? It’s not what you save, but what you, it’s. It is what you save, but also it’s what you spend, which was your, your final rule. So, you know, not to discourage anyone, if you are close to retirement and maybe you’re just not going to get there.

Wes Moss [00:11:41]:
I, I’ve got hate mail on both sides of that. The, it’s like, that’s not enough money. You’re crazy. That’s way too much money. How can I ever get there? So there’s this. None of this is easy.

Christa DiBiase [00:11:49]:
I know.

Wes Moss [00:11:49]:
None of it’s easy. That’s why 90, 95% of Americans are not in necessarily a great position to retire. And our job, I think, is to try to make it not just 5% of people that can get there, but 10 and 20 and 30% of folks that can, that can have real financial freedom and peace of mind and a happy retirement. And we’re going to. We’ll do the five lifestyle secrets coming up.

Christa DiBiase [00:12:15]:
All right, we’ll go to some questions. Henry in Delaware sent this one in. I retired from the Air Force Reserve in December of 2021. I still have retirement money in a TSP even though I can no longer contribute. Should I roll these funds into my current employer’s 401k? I’m hesitant to do this since the TSP fees are so low and my return has been over 45% since I retired. I’m currently 48 and don’t plan to access the funds until I’m 65. Thank you for your service, Henry.

Wes Moss [00:12:45]:
And Delaware, thank you for your service. And I don’t see any reason. So when the answer is no, I don’t think it needs to move it. I think you could leave it, Henry. I think you leave it in the tsp. There’s a lot to think about when you’re rolling money to a retirement plan. Where is it today? Do you have plenty of investment options? Are they low cost? Is it easy to access the money? Can you talk to somebody? Do you have any advice? Is there anybody helping you? The answer is yes to most of that. And in TSP may not be the most flexible plan.

Wes Moss [00:13:16]:
You may not get the same person every time you’re calling, but they’ve got really low cost investment options and they’re broadly diversified. So the TSP plan really can serve a lot of people for a really long period of time and there’s no reason you have to roll it anywhere. So those are all the things to consider. Now if you really want to have more investment options in an IRA and you want to go to Vanguard or Fidelity or Schwab or one of the big investment houses, big investment firms and have even, even a higher level of nuance and control than then maybe. But if you’re going to be a highly diversified index oriented investor, which TSP offers, then I think there’s no reason that he needs to move money from TSP into his company 401k plan. One thing that people think is that if I have more money in a particular account, I’m getting more compounding or more of a match. It doesn’t work that way. Your match is only on the amount of money you’re putting in every year.

Wes Moss [00:14:24]:
And the compounding doesn’t matter whether you have one account or five accounts. It’s really the aggregate amount should Be compounding whatever the investments are doing.

Christa DiBiase [00:14:32]:
Right. Lisa in Florida says we have about $2 million in a brokerage account, Fidelity. We’ve been setting funds aside for a cash purchase of a home. This account creates a lot of interest and dividends. Our advisor has suggested an SMA structured managed account, a K, A tax washing. The fee is four basis points. We’re considering using $1 million for this to see how it goes. Can you provide your opinion.

Wes Moss [00:14:59]:
Lisa? Couple of terms there. I think that’s. I love this. Is. I love this there. I don’t know of anything called tax washing. That sounds like something that’s not. Yeah.

Christa DiBiase [00:15:10]:
Nefarious a little bit. Yeah.

Wes Moss [00:15:11]:
There’s no tax washing, but there is a term that, that she’s. I think that she’s. Lisa, you’re talking about called tax loss harvesting. And that’s, that’s what she’s getting at here, I think. And an SMA is a separately managed account. And what she’s referring to here is something really new in the investment world and it’s called direct indexing. So think about this. You could own an index etf, you put a million dollars in it, it grows to $2 million.

Wes Moss [00:15:43]:
Well, if you want to get some of that money out, then the whole million dollars of gain over time, that’s going to be taxable. Not the worst problem, but that’s the way investing has worked for a very long time. Technology has allowed for looking at a broad index S&P 500, Russell 3000, one of the big indexes, and instead of owning one ETF, you own most or many of the components within the index individually. So as the index grows over time, because there’s so many different positions in these indices, they’re always going to be some losers, some stocks that are flat, some stocks that are down. So what this technology allows investors now to do through direct indexing is tax loss, harvest the losers along the way. So that hypothetically, if it’s mostly tracking the index, it isn’t perfect. But these typically are doing a pretty good job of tracking what the index does. By the time you get your 1 million turns into 2 million, instead of having no room to sell and get without capital gains, you’ve likely harvested losses throughout and you can sell big chunks of that and have them offset by the losses and have no capital gains.

Christa DiBiase [00:17:08]:
So in a way, it’s a wash of the taxes. I guess that makes sense.

Wes Moss [00:17:11]:
In a way, it’s a wash of the taxes. Right. That’s a good way to look at it. So it’s washing away the gains by harvesting the losses.

Christa DiBiase [00:17:19]:
Okay.

Wes Moss [00:17:19]:
Now I don’t think it’s four basis points either.

Christa DiBiase [00:17:22]:
Okay.

Wes Moss [00:17:22]:
Four is. I don’t know of it being that inexpensive. That’s 4 basis points. 0.04 of an expense. That’s typically in an ETF. I see it can be that low or even slightly lower. This involves an sma, involves a lot of work. There’s trading every single day in these things every single week.

Wes Moss [00:17:45]:
I think she’s. It’s more like 40. It’s a little less than a half a percent maybe. I’ve never heard of one that cheap. Probably more like 40 basis points.

Christa DiBiase [00:17:54]:
This is a question, but I like it. Okay. You like it as an idea?

Wes Moss [00:17:58]:
Yeah, I do. I do. I do like direct indexing.

Christa DiBiase [00:18:00]:
Okay. So Christian says my wife has a large amount of company stock RSU’s and options. We’re trying to figure out the most effective way to sell them and reduce our potential tax hit. Who would be the best person to pay a one time fee for advice on how and when to sell? Would searching Napa be the best option for locating a fee only financial advisor?

Wes Moss [00:18:22]:
This is real. Again, I would say this is more about tax. So when you’re thinking about RSUs and options, your advisor, a financial advisor nor a CPA is going to be able to say, hey, in six months this stock’s going to be higher or lower. Mm. So nobody’s gonna be able to say your particular company stock is going to be X amounts. So the strategy is less about what the stock does. It’s more about timing for exercising these and when, let’s say the RSUs become taxable in managing your overall tax bracket. So rather than a.

Wes Moss [00:19:02]:
A fee only planner which you can use, I think it’s cfp hourly planner. Could, could do this. This is more of a cpa. This, this I would, if I had to make a choice, I would be looking at, at a certified public accountant, a CPA that they work by the hour. That’s how CPAs work most of the time. You can find financial planners that are hourly or project based. There’s just not a whole lot of them. So if you go to the Garrett Financial Planning Network and look in let’s say the state of Georgia, there’s only a handful.

Wes Moss [00:19:37]:
I can count on one hand how many people do hourly and project based only. The vast majority of folks that are fee only want to have some sort of retainer and they want you to be a client for over time. So I think in a lot of ways here, this. You’re looking for a CPA here to help you with this as opposed to a financial planner. Both will work. I think CPA even better.

Christa DiBiase [00:20:02]:
Sounds great. Okay, so we’re going to take a quick break and when we come back, you’re going to talk about the lifestyle.

Wes Moss [00:20:08]:
Habits of the lifestyle happiest retirees. 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. 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@yourwealth.com that’s y o u r your wealth dot com. We’re going to lifestyle, right?

Christa DiBiase [00:20:46]:
Yes.

Wes Moss [00:20:47]:
You think you’re going to be a happy retiree?

Christa DiBiase [00:20:49]:
I hope so because I’ve been listening to you for a while and I know. Well, I don’t want to get into what you’re about to talk about, but I think I’ve heard a lot of age.

Wes Moss [00:20:57]:
Do you think you will stop working?

Christa DiBiase [00:20:59]:
I don’t want to ever totally stop working. That’s one of the things that I know about myself and my father was like this too. Like I know that I won’t. I want to always have something. So maybe it’ll be something that I’m not really getting paid for, but I need to be on a loose schedule.

Wes Moss [00:21:14]:
The media business lends itself to that. It really does so. And which goes into the first of the five lifestyle and so happy retirees have 3.6 core pursuits. What are those? You know Joe Salsisai from Stacking Benjamin’s?

Christa DiBiase [00:21:31]:
Yes.

Wes Moss [00:21:31]:
He read this a long time ago in one of my books and he came up to me at this financial conference the other day and goes, you know, I love those things that you call them like you’re supposed to have like 3.6 of them. They’re like super activities. And I said you were talking about core pursuits, which I wish I had. I wish I’d called them super activities because it’s like a cooler way to. To do it. I’m not going to change because I like the word pursuit. So a core pursuit is a hobby on steroids. It’s something.

Wes Moss [00:22:03]:
It’s a super activity like Joe Salsisai says. And it doesn’t matter what they are. It matters that you have a bunch of them. The more of these you have, the more likely you end up in the happy retiree camp. These are things that you will replace your working hours with. You have a lot of hours, 2,000, 2,500 hours a year that you’ve got to replace once you no longer working part time. Work can be one of them if it’s fun and you’re in 1 in 5 or 1 in 4 in America that actually likes to do what you’re doing work wise. Sure.

Christa DiBiase [00:22:37]:
Or volunteering.

Wes Moss [00:22:38]:
Or volunteering is another great example of that. That the more of these core pursuits we have, the more likely we have structure during our day and the more we have different activities to keep us mentally engaged and socially engaged. So there’s the ings, walking, biking, hiking, running, jogging, celebrating all the things that we can the activities. A lot of those are social. And then there’s hundreds of other hobbies that people love to do. It doesn’t matter what they are, it matters that you’re doing them. And the reason I continue to call them core pursuits is that pursuit is in some way related. Not perfectly etymologically, but it is in some way related to purpose.

Wes Moss [00:23:23]:
And these core pursuits, they’re not just hobbies, they become your life purpose. And they may sound trivial like oh, you just golf. Well, that could be a real pursuit in your life. Social, athletic, getting outside, staying active, continuing to try to get better at something. I love core pursuits that you can improve in. You get better in the happiest. Retirees are curious. Curiosity killed the cat.

Wes Moss [00:23:53]:
Lack of curiosity kills the retiree. So I want people to give some real street cred to whatever poor pursuits or hobbies on steroids that you have. They matter. And they can be the framework and the fabric of your future self. So don’t discount them. Oh, I just like it’s just jogging, it’s just walking with friends. No, no, that’s could be a big part of your life. So the more of these are better.

Wes Moss [00:24:19]:
Unhappy retirees, by the way, have 1.9 less than 2 of these. You got to have a bunch of these core pursuits. So that’s number one. We figured out to pay for it earlier. We’ve got our financial metrics. This is the lifestyle of those who end up in the happy retiree camp. Kids, you don’t have to have kids to be happy retiree. But those who do have kids that are independent.

Wes Moss [00:24:41]:
We want independent children.

Christa DiBiase [00:24:45]:
Yes, we do.

Wes Moss [00:24:46]:
And this is something that surprised me through our research, or not surprising, but to putting a number on this. If you live near within driving distance, 50% of your children, of your adult children, you’re two to five times more likely to end up in the happy retiree camp. We want to live near our independent, our independent children. We don’t want our kids to be living with us, we want them near us. So if we’re living in the same town, in the same metro area, in the same state where it’s close enough that it’s drivable, there’s a huge boost in the propensity to end up in a happy retiree camp if we live near our kids. Independent kids. This is an interesting one I researched about marriage and divorce. And happy retirees get one marriage mulligan.

Wes Moss [00:25:39]:
Meaning that there’s no, there’s no decline in retirement happiness if somebody’s been divorced. Now you get into three and four divorces and then you’ve got. Maybe I do see happiness levels come down, but there is no problem with a divorce. I call that one marriage mulligan. And it’s not a requirement being married in retirement, certainly not a requirement to end up in the happy retiree camp. But those who are married are four and a half more times likely to end up in the happy retiree camp. Marriage, partnership, socialization. Which brings me to number four, connections.

Wes Moss [00:26:14]:
Close connections. I didn’t ask, when I did research in this, I didn’t ask about friends. I called these, I said, I described these people as close connections. Someone that you could call, you would call on a really bad day or a really good day. Sometimes it’s hard if you’re really good news, it’s not. It’s maybe sometimes that’s even harder to share. Right. So happy retiree we, We’ve.

Wes Moss [00:26:40]:
Over the course of the last 30 years in America, our social networks have actually shrunk. They’ve gotten smaller, you know, bigger social media, smaller real life. And so this is one where there is no plateau effect. Again, one of the things that I talk about in my books is that I believe there’s a certain point that we need to get to. Money does buy happiness, certain amount, but then it levels off. So we get diminishing marginal returns with new monies past a certain point doesn’t work that way for close social connections. So the more is better, more is better, more is better. And that.

Wes Moss [00:27:17]:
And happy retirees average almost three, well, almost four close connections in their life. Unhappy retirees, two or less. Something we can all work on and be cognizant of. Because I think a lot about socialization, about the recognition that you gotta stay, you’ve gotta Stay engaged and put a little work in to stay connected with folks. And by the way, this is somewhat a social. This is maybe called a bonus one. Well, I’m gonna skip to this. I’ll give them one quick bonus.

Wes Moss [00:27:49]:
Believe and do good. Happy retirees volunteer. They’re charitably inclined. One of my favorite interviews I did for the Retire Sooner podcast was with Mitch Albom who wrote Tuesdays with Maury. One of the way he says light, give, giving is living. And happy retires do that. They do that. They belong to one organized social group.

Wes Moss [00:28:12]:
Sometimes that’s church, sometimes it’s synagogue or it’s maybe just a Wednesday night brew house group that you’re part of. But it’s an organized social group. Believe and do good. My favorite one, and I don’t know if anybody’s going to argue with me on this one, is that there’s a happiest multiplier effect and it comes down to travel. But it comes down to travel with friends or close connections. Love that those retirees who travel at least once a year with a group or with friends, it’s not just alone, not just with your spouse, but with a group. Other other folks are two and a half more times likely to be in the happy retiree camp. So book a trip with a friend with or with a bunch of them.

Wes Moss [00:29:01]:
It’s good for happiness levels.

Christa DiBiase [00:29:03]:
All right, well, we’ll go to some questions now for you, Wes. Edward in Pennsylvania says what are your thoughts on TSP allocation during accumulation and drawdown phases? Also, what do you think about its target date funds? I worry a little about long term success with the target funds during drawdown with an only a 3070 equity bond allocation in retirement. Thanks for your help, Edward.

Wes Moss [00:29:26]:
You’re right. The TSP life cycle funds, which are just like target date funds, I think they’re called life cycle with tsp. They are. They’re still just a combination of the underlying funds. Remember, the underlying funds are pretty straightforward. There’s five of them, csi which is common stock, which is something like the s and P500s small cap I international FI for FG fixed income, which is a broad based fixed income account you can access and G is the government one. So it’s just treasuries. It’s really, that’s it, five funds.

Wes Moss [00:30:01]:
But they’re super low cost and they, they really blanket kind of, they give you the investment landscape. The problem with the lifecycle funds is exactly what Edward is worried about here is I think they get overly weighted towards bonds and fixed income overly quickly. Retirement needs to be this goes back to the we talked one of our I know I brought up the 4% plus rule in the 4% plus role. There’s a lot to it. But one of the components is that again, this is about, hey, I’m not going to run out of money 4% plus inflation each year for the rest of retirement, it’s predicated on having at least 50 to 70% in equities in your balanced portfolio. So if you’re using one of these life cycle funds or target date funds that swings really significantly to 70% in bonds for a huge chunk of your retirement, it’s actually breaking one of the core tenets of the 4% rule. So what do you do instead? Edward I would say make your own allocation, use the csi fga, use those five funds, make up your own allocation. And if you’re super conservative and you don’t like a lot of movement, then sure, use the fixed income funds.

Wes Moss [00:31:16]:
But for most people I think it just doesn’t necessarily keep up with inflation like we need.

Christa DiBiase [00:31:23]:
This question came in from Ron in North Carolina. I’m recently retired and manage my own large portfolio of mostly growth stocks, growth ETFs, a few value ETFs and a few bond ETFs. After years of aggressively investing in quality large cap growth stocks, I am still about 80% invested in these stocks. I’m trying to downshift to a third or second to third or second gear and diversify more into bond and value ETFs, but I’m finding it very difficult and taxing from an IRS perspective, the.

Wes Moss [00:31:52]:
Irs, no pun intended for taxing.

Christa DiBiase [00:31:55]:
The IRS and Social Security Administration consider my capital gains as income. So my annual tax bill is quite large and have also raised my Medicare premium four times. I am also making required minimum distributions on an ira. I feel like I need a specific plan to downshift and diversify to minimize my taxes and keep my Medicare premiums reasonable. What do you recommend people in my situation do?

Wes Moss [00:32:20]:
Ron Good. This is a good problem to have and he’s saying taxing as it’s taxing in some ways to mentally because he wants to have a more conservative portfolio, but it’s also because he’s stuck with taxes. This goes back to the unrealized gain loss tab. So whether you’re in the Fidelity Schwab Vanguard, you’re able to look at your investments on a per gain basis so you can sort by what is the biggest gain and the smallest gain. Sounds like most of everything he has or 80% is in equities or growth stocks, value stocks, they’ve done well over time. And so he feels a little trapped because to rebalance he’s got to sell some of his stocks that are almost all gains to buy something else that’s a little more conservative. He said downshift. So there is no easy way to do this except for look in that realized gain loss tab and pick some of the equity positions that maybe relatively flat or maybe they have a much smaller gain and use those, those are your targets to sell to buy some of the other areas you’d like to invest in.

Wes Moss [00:33:27]:
That’s number one. Number two, if everything is at a gain, you’ve held these for years and years and years, then the only other way around this is, and there’s no way around it, but to do it really gradually. So Maybe you take 1 or 2% of the portfolio so you go from 80% down to 78 and next year you go to 76 and 74, etc. So over the course of the next couple of years you can downshift from 80% stocks down to 70 or even 65%. So it’s really going to be gradual. But Ron’s right, you’ve got to be careful every time you have these capital gains, I think what he’s saying is that they’re going to hit your irmaa, your, your Medicare premium. So couple thousand dollars might, may not be an issue, but if you go, you got to look up the IRMA limits and the categories and know what your income is any given year and then know how much room that gives you for creating some long term capital gain that’ll also be taxable, but it also can kick you up higher in Medicare premiums. So know how much room is left in the tax lock, how much you can fill it up with income without spilling over to the next tax category.

Wes Moss [00:34:37]:
So really, it sounds like the only way to really do this for Rod is to do it gradually, but that can still work over the next couple years. Christa, thank you for joining us today.

Christa DiBiase [00:34:47]:
Thank you so much, Wes.

Wes Moss [00:34:49]:
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.